CFTC Adopts Amendments to Its Rules Governing Registration, Exemption and Disclosure by IBs, CPOs and CTAs Trading Foreign Futures and Option Contracts

Release: �� #4267-99
For Release: �� May 25, 1999

CFTC Adopts Amendments to Its Rules Governing Registration, Exemption and Disclosure by IBs, CPOs and CTAs Trading Foreign Futures and Option Contracts

WASHINGTON -- The Commodity Futures Trading Commission (Commission) today adopted amendments to its rules governing registration, exemption and disclosure by Introducing Brokers (IBs), Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs) trading foreign futures and option contracts on behalf of U.S. clients and pool participants. The amendments also modify the process by which a foreign person acting in the capacity of IB, CTA, or CPO may apply for an exemption from registration under rule 30.5. The revised disclosure requirements will "level the playing field" by requiring IBs, CPOs and CTAs to make disclosures to U.S. clients and pool participants regardless of whether the U.S. persons are trading on domestic or foreign exchanges, including decreasing the disclosure that must be provided to sophisticated investors. In addition, the Commission has issued an order delegating to the National Futures Association (NFA) the authority to review disclosure documents filed pursuant to amended rule 30.6(b)(2). The Commission proposed its rule amendments to rules 30.5 and 30.6 on January 11, 1999 (64 Fed. Reg. 1566 (Jan. 11, 1999)) and received three favorable comments on the proposals.

Rule 30.5 currently permits a foreign IB, CTA or CPO to obtain an exemption from registration by filing with NFA an agreement designating an agent for service of process in the United States. Amended rule 30.5 will require a petitioner seeking an exemption from registration to file a petition with NFA in which it: (1) represents that it would not be statutorily disqualified from registration under sections 8a(2) or 8a(3) of the Commodity Exchange Act, and has not and would not be disqualified from registration or licensing by its home country regulator; (2) affirmatively consents to the jurisdiction of the Commission and the United States federal and state courts with regards to actions arising out of activity governed by Part 30; (3) states that it is located outside the United States, its territories, or possessions, and does not trade any contracts on a designated contract market in the United States for, on behalf of, or for the benefit of any U.S. customer; and (4) specifies in what capacity (i.e., IB, CTA or CPO) it is applying for an exemption. Amended rule 30.5 will also require persons exempt from registration under the rule to engage in all transactions subject to regulation under Part 30 through a registered futures commission merchant or a foreign broker who has received confirmation of an exemption pursuant to rule 30.10 in accordance with the provisions of rule 30.3(b). After a foreign person files a rule 30.5 petition, NFA will promptly verify the representations made by the petitioner and either confirm to the petitioner that it has a rule 30.5 exemption or notify the petitioner that the petition is deficient.

As currently written, rule 30.6 does not distinguish between sophisticated and retail foreign futures and options customers. The amended rule distinguishes between sophisticated and retail pool participants and clients, and requires foreign and domestic CPOs and CTAs to provide appropriate disclosures to each. To ensure that U.S. retail pool participants and clients receive similar disclosures whether they trade on domestic or foreign markets, amended rule 30.6 will require CPOs and CTAs with U.S. foreign futures and options clients or participants to provide each prospective client or prospective participant with the Disclosure Document required by rules 4.21 and 4.31, respectively. Additionally, in light of the sophistication of certain U.S. foreign futures and options customers (defined as Qualified Eligible Participants (QEPs) and Qualified Eligible Clients (QECs) in rule 4.7), amended rule 30.6 will require foreign CPOs and CTAs to provide QEPs and QECs only with a risk disclosure statement regarding the risks of trading in foreign futures and options in rules 4.24(b)(2) and 4.34(b)(2), rather than the entire disclosure document contained in 4.24(b) and 4.34(b), along with the general statement required by rules 4.7(a)(2)(i)(A) and 4.7(b)(2)(i)(A), respectively.

Under Amended rule 30.6(b)(2), persons registered or required to be registered as a CPO or a CTA, or exempt from registration pursuant to Rule 30.5, must file a disclosure document in accordance with rules 4.26(d) and 4.36(d). By order dated October 6, 1997, the Commission authorized NFA to, among other things, review disclosure documents filed by CPOs and CTAs pursuant to rules 4.26(d) and 4.36(d), respectively (62 Fed. Reg. 52088 (Oct. 6, 1997)).� In light of NFA's experience in receiving and reviewing similar disclosure documents, the Commission is also delegating to NFA the authority to review the disclosure documents filed pursuant to rule 30.6(b)(2).

The Commission's rule amendments and the accompanying delegation order will be published in the Federal Register shortly and will become effective 30 days thereafter. Copies of the rule amendments and the delegation order may be obtained by contacting the Commission's Office of the Secretariat, Three Lafayette Centre, 1155 21^st Street, N.W., Washington, D.C. 20581, (202) 418-5100, or by accessing the Commission's website, www.cftc.gov.