For Release: August 20, 1999
CFTC Proposes Amendments to Its Rules Governing The Offer and Sale of Foreign Futures and Options Contracts to United States Customers
Washington -- The Commodity Futures Trading Commission (Commission) today proposed amendments to Part 30 of its rules governing the offer and sale of foreign futures and options contracts to U.S. customers. The proposed amendments will clarify the circumstances under which a foreign futures and options broker (FFOB) must register with the Commission, or otherwise obtain an exemption from registration. The proposed amendments also will expand significantly the ability of U.S. persons to place orders directly with FFOBs without having to sacrifice the global clearing services provided by a single U.S. FCM.
In the first of two proposed rulemakings, the Commission proposed a new Rule 30.12 which would permit certain FFOBs to accept and execute foreign futures and options contracts placed directly by certain U.S. customers via telephone, facsimile and electronic message without having to register with the Commission as either a futures commission merchant (FCM) or an introducing broker. Although Rule 30.4 generally prohibits any unregistered person from accepting foreign futures and options orders directly from any U.S. customer, the Commission's Division of Trading and Markets issued advisories in 1993 and 1995 permitting unregistered affiliates of U.S. FCMs carrying the FCM's foreign futures and foreign options customer omnibus account (hereinafter, "customer omnibus account") to accept orders directly from certain sophisticated U.S. customers for execution through the FCM's customer omnibus account, provided that the U.S. FCM and the affiliate comply with certain procedural safeguards.
In response to industry concerns that otherwise-qualified U.S. investors would be excluded from the direct foreign order transmittal process due to the absence or limited number of FFOBs affiliated with their FCM, the Commission has proposed that the relief from registration under Rule 30.4 be extended to a greater number of FFOBs. The relief from registration under the proposed rule would apply to all FFOBs that are: (1) subject to regulation in the jurisdiction in which they are located, and (2) either a clearing member of a foreign board of trade, a majority-owned affiliate thereof, or an affiliate of a U.S. FCM. Under Proposed Rule 30.12, qualifying FFOBs would be able to accept orders directly from certain sophisticated U.S. customers, known as "authorized customers," provided that the U.S. FCM carrying the authorized customer's account satisfies certain procedural safeguards and remains well-capitalized.
The relief under Proposed Rule 30.12 would apply regardless of whether the FFOB carries the U.S. FCM's customer omnibus account. As a result, an authorized customer would be able to place an order directly with an FFOB who either carries the FCM's customer omnibus account, or transfers the trade pursuant to a give-up arrangement to the FFOB that carries the FCM's customer omnibus account, without requiring either FFOB to obtain an exemption from registration under Rule 30.10.
In addition, the Commission proposed changes to Rules 30.1, 30.4, and 30.10, which specifically address other circumstances when registration by a FFOB is not required. These amendments would codify prior staff interpretations of the registration requirement set forth in Rule 30.4. Amended Rule 30.4 would not require registration by certain FFOBs that carry the U.S. customer omnibus account of a U.S. FCM or a U.S. FCM's proprietary account. Amended Rule 30.4 also would not require an FFOB to register if it trades its own proprietary account, including the account of a U.S. affiliate whose accounts are "proprietary" to the firm. The relief in Amended Rule 30.4 would be available to FFOBs with U.S. bank branches, provided that the FFOB files with the National Futures Association certain representations regarding the activities of its U.S. bank branches. Along with these proposed changes, the Commission proposed to amend Rule 30.1 to include definitions for certain terms cited within the proposed rule amendments, and to amend the petition process in Rule 30.10 to reflect the representations to be made regarding U.S. bank branches.
The proposed rules will be published shortly in the Federal Register. Public comment on the proposed and amended rules must be received within 60 days of the date of publication in the Federal Register. Copies of the proposed and amended rules 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, or by accessing the Commission's webiste, www.cftc.gov.