Date:April 19, 1996
Items Updated in this Edition Are Denoted with an Asterisk *
The Commodity Futures Trading Commission (CFTC) has revised the format of this Backgrounder to, among other things, conform to a recent rulemaking relative to the offer or sale of foreign exchange-traded options in the United States. See 61 Federal Register (FR) 10891, March 18, 1996, and note on page 6.
The CFTC receives numerous inquiries regarding what products traded on foreign futures and options exchanges may be offered or sold in the United States ("product requirements") and who may offer and sell such products ("intermediary requirements").
In general, the Commodity Exchange Act (CEA) and CFTC regulations do not restrict the offer or sale of foreign exchange-traded futures and commodity option products in the United States. Special procedures do apply, however, to the offer or sale of stock index and foreign government debt products, subject to regulation under the CEA. Part 30 of the CFTC's regulations (17 C.F.R. Part 30) governs the manner in which all foreign futures and options are offered or sold in the United States.
FOREIGN STOCK INDEX FUTURES -- The CFTC's Office of General Counsel must first issue a no action letter to allow the offer or sale of a foreign stock index futures contract in the United States. If a futures contract has been the subject of such a no-action letter, the option on that particular contract may also be offered or sold in the United States, without any further regulatory action. A list of foreign stock index futures contracts for which a no-action letter has been issued, as well as pending requests, follows below.
FOREIGN GOVERNMENT DEBT OBLIGATIONS -- Debt obligations of a foreign government must be designated as an exempted security by the U.S. Securities and Exchange Commission (SEC) under SEC rule 3a12-8 before a futures contract or option thereon can be offered or sold in the United States. Government debt instruments issued by the following countries have been designated by the SEC as exempted securities: United Kingdom, Canada, Japan, Australia, France, New Zealand, Austria, Denmark, Finland, The Netherlands, Switzerland, Germany, Italy, Ireland, Spain, Mexico, Brazil, Argentina, and Venezuela.
EXCEPTION FOR SALES TO CUSTOMERS LOCATED OUTSIDE THE UNITED STATES -- The "Product Requirements" mentioned above do not apply to registered futures commission merchants (FCMs), introducing brokers (Ibs), and commodity trading advisors (CTAs) in offering and selling (or providing advice with respect to) foreign exchange- traded products to customers located outside the United States. See Offer and Sale of Foreign Exchange-Traded Options, and Foreign Exchange-Traded Futures Contracts Based on Foreign Stock Indexes and Foreign Government Debt, to Persons Located Outside the United States (57 FR 36369, August 13, 1992).
OSE -- Osaka Stock Exchange:
Nikkei Stock Index 300 futures contract (Nikkei 300)
Nikkei Stock Average Index futures contract (Nikkei 225)
TSE -- Tokyo Stock Exchange:
Tokyo Stock Price Index futures contract (TOPIX)
HKFE -- Hong Kong Futures Exchange:
Hang Seng Index futures contract
SIMEX -- Singapore International Monetary Exchange:
Morgan Stanley Capital International (Hong Kong) Index futures contract
Nikkei Stock Average futures contract
Nikkei Stock Index 300 futures contract (Nikkei 300)
TFE -- Toronto Futures Exchange:
TSE 100 Index futures contract
Toronto Stock Exchange (TSE) 300 Composite Index futures contract
TSE 300 Spot Index
TSE 35 Index futures contract
TSE 35 Spot Index
INTEX -- International Futures Exchange (Bermuda) Ltd.:
Financial News Composite Index futures contract
LIFFE -- London International Financial Futures and Options Exchange:
Financial Times-Stock Exchange 100 Index futures contract
Financial Times Mid-250 Index futures contract (FTSE Mid-Cap)
MATIF -- Marche a Terme International de France:
CAC 40 Index futures contract
SFE -- Sydney Futures Exchange Ltd.:
All Ordinaries Share Price Index futures contract
MEFF RENTA VARIABLE -- Meff Sociedad Rectora de Productos Financieros Derivados de Renta Variable, S.A. (Spain):
IBEX-35 Stock Index futures contract
DTB -- Deutsche Terminbrse (DTB) (Frankfurt, Germany):
Deutscher Aktienindex (DAX) Stock Index futures contract
ISE -- Italian Stock Exchange
MIB 30 Index futures contract
ENDING APPROVAL: Foreign Stock Index Futures
Contracts Pending No-Action
* SAFEX -- South African Futures Exchange
JSE Actuaries Top Forty Companies
All Share Index (ALSI 40) futures contract
FTA -- Financiele Termijnmarkt Amsterdam (wholly owned by the
European Options Exchange [EOE])
Eurotop 100 Index futures contract
OMLX -- OMLX, London Securities and Derivatives Exchange, Ltd.
OMX Stock Index futures contract
Under the CFTC's Part 30 rules, any person who offers or sells a foreign futures or options contract to a U.S. customer must be registered under the Commodity Exchange Act in the appropriate capacity, unless otherwise specifically exempted from such registration requirement. For example, anyone who offers or sells foreign futures to a U.S. customer, and accepts customer funds, must be register with the CFTC as a futures commission merchant. See CFTC rule, 17 C.F.R. 30.4.
COMPARABILITY RELIEF (RULE 30.10)
CFTC rule 30.10 is an exemptive provision which allows the Commission to exempt a foreign firm from the application of certain CFTC rules and regulations (e.g., regarding registration and financial requirements) based upon substituted compliance by the firm with comparable regulatory requirements imposed by the firm's home-country regulator.
The CFTC has issued orders to permit certain foreign firms that have comparability relief under CFTC rule 30.10 to engage in limited marketing activities of foreign futures and option products from locations within the United States. Previously, rule 30.10 relief was available only to qualified firms subject to a comparable regulatory system who solicited U.S. customers from a foreign location. The CFTC orders interpret rule 30.10 relief more expansively to allow 30.10 exempted firms and their employees or other representatives to market foreign futures and option products to qualified customers from United States locations, under certain circumstances.
Relief under these orders is limited to firms with rule 30.10 relief whose: (1) Regulatory or self-regulatory organization agrees to supervise such firms' regulated market conduct in the United States; (2) Marketing activities in the United States, in the aggregate, do not exceed 30 business days in any calendar year; and (3) U.S. customers are institutions, governmental entities, and individuals who have a high degree of sophistication and substantial financial resources as specifically provided in the orders. See CFTC orders of October 28, 1992, and August 4, 1994, Limited Marketing Activities From a United States Location by Certain Firms and Their Employees or Other Representatives Exempted Under CFTC Rule 30.10 (57 FR 49644, November 3, 1992, and 59 FR 42156, August 17, 1994).
In considering a request from a foreign regulatory or self-regulatory authority for Rule 30.10 comparability relief, the CFTC, among other things, considers:
Registration, authorization or other form of licensing, fitness review, or qualification of persons through whom customer orders are solicited and accepted;
Minimum financial requirements for those persons that accept customer funds;
Minimum sales practice standards, including disclosure of risks, and the risk of transactions undertaken outside the United States;
Procedures for auditing compliance with the requirements of the regulatory program, including recordkeeping and reporting requirements;
Protection of customer funds from misapplication; and
The existence of appropriate information-sharing arrangements.
United Kingdom -- The Securities and Investments Board (SIB), the Securities and Futures Authority (SFA), the Investment Management Regulatory Organisation (IMRO), and the firms which they designate.
France -- Commission des Operations de Bourse (COB) and designated members of the Marche a Terme International de France (MATIF).
Canada -- The Toronto Futures Exchange and its designated members and the Montreal Exchange and its designated members.
Singapore -- Singapore International Monetary Exchange (SIMEX) and its designated members.
Australia -- Sydney Futures Exchange and its designated members.
Japan -- Tokyo Grain Exchange and its designated members.
Spain -- MEFF RENTA FIJA (Meff Sociedad Rectora de Productos Financieros Derivados de Renta Fija, S.A.) and its designated members.
Malaysia -- Kuala Lumpur Commodity Exchange.
New Zealand -- New Zealand Futures and Options Exchange, Ltd.
DTB -- Deutsche Terminbrse (DTB) (Frankfurt, Germany).
Spain -- MEFF RENTA VARIABLE (MEFF Sociedad Rectora de Productos Financieros Derivados de Renta Variable S.A.)
Winnipeg -- Winnipeg Commodity Exchange
Brazil -- Bolsa de Mercadorias & Futuros
On March 12, 1996, the CFTC amended rule 30.3(a) to eliminate the requirement that the CFTC issue an order authorzing the offer or sale of a particular foreign exchange-traded commodity option before it can be offered or sold in the United States. While an option order under rule 30.3(a) is no longer required under any circumstances, the rule change does not affect existing Commodity Exchange Act product restrictions related to stock indices and foreign government debt (see CEA section 2(a)(1)(B)(v) and Securities and Exchange Commission rule 3a12-8). The rule change is effective as of March 18, 1996. See 61 FR 10891, March 18, 1996.
Therefore, under the rule amendment, if the underlying foreign exchange-traded futures product (including futures on stock indices and on foreign government debt) may be offered or sold in the United States, the foreign option based on that futures contract may be offered or sold as well without further action.
Because of this rule change, this Backgrounder no longer contains a listing of foreign option products approved and pending under rule 30.3.
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