For Release:May 7, 1997
On May 6, 1997, the Commodity Futures Trading Commission (Commission) issued an Order approving rules of the Chicago Board of Trade (CBT) and the Board of Trade Clearing Corporation (BOTCC) that implement a link with the London International Financial Futures Exchange (LIFFE) and the London Clearing House (LCH). Pursuant to a Link Agreement signed by the parties on March 13, 1997, CBT and LIFFE each will list the other's major financial futures and options for trading on its floor by open outcry during hours that the original exchange's trading floor is closed.
Through the link, market users will be able to establish a position in a LIFFE-designated contract at the CBT which will be transferred to LCH the same day and be recognized as a LIFFE position. Similarly, market users will be able to establish a position in CBT-designated contracts at LIFFE which will be transferred to BOTCC the same day and be recognized as a CBT position. At the commencement of the Link, CBT will list for trading futures and options on LIFFE's German Government Bond contract, and LIFFE will list for trading futures and options on the U.S. Treasury Bond contract. CBT and LIFFE propose eventually to have CBT's long-term and short-term U.S. Treasury Note futures and options contracts introduced for trading in London and futures and options on LIFFE's long-term U.K. British Gilts and Italian Government Bonds introduced for trading in Chicago.
The unique structure of the link arrangements raised novel and complex issues under the Commodity Exchange Act (Act). The Commission's Order accommodated the special circumstances of the link while preserving the core protections of the Act and the Commission's regulations. For example, in cooperation with CBT and BOTCC staff, the Commission developed segregation calculations and related accounting entries that facilitated the operation of the link without compromising the standards of section 4d of the Act. Similarly, the Commission issued an Appendix to Part 190 of its regulations relating to bankruptcy which was designed to protect non-link customers from any financial disruptions caused by link transactions.
In order to maintain the fungibility of contracts traded through the link, the Commission will permit LIFFE-designated options executed in Chicago to be margined futures-style, the first time that such treatment will be afforded to options traded on a U.S. exchange. Other topics addressed in the exchange rules and the Commission Order include: licensing or registration of individuals and firms participating in the link; procedures for the cross-border transmittal of orders; customer disclosure; cross- border surveillance and information sharing arrangements; and exchange liability.
A copy of the Order may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100.