2011-31637

Federal Register, Volume 76 Issue 247 (Friday, December 23, 2011)[Federal Register Volume 76, Number 247 (Friday, December 23, 2011)]

[Rules and Regulations]

[Pages 80674-80723]

From the Federal Register Online via the Government Printing Office [www.gpo.gov]

[FR Doc No: 2011-31637]

[[Page 80673]]

Vol. 76

Friday,

No. 247

December 23, 2011

Part VI

Commodity Futures Trading Commission

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17 CFR Part 48

Registration of Foreign Boards of Trade; Final Rule

Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 /

Rules and Regulations

[[Page 80674]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 48

RIN 3038-AD19

Registration of Foreign Boards of Trade

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

is issuing final rules to implement new statutory provisions enacted by

Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection

Act (Dodd-Frank Act). On November 19, 2010, the Commission requested

comment on proposed rules that would establish a registration

requirement that applies to foreign boards of trade (FBOT) that wish to

provide their identified members or other participants located in the

United States with direct access to their electronic trading and order

matching systems. After reviewing the comments submitted in response to

the proposed rules, the Commission has determined to issue these final

FBOT registration rules substantially as originally proposed, with

certain modifications.

DATES: Effective Date--February 21, 2012.

FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Senior Special

Counsel, (202) 418-5492, [email protected], or David Steinberg,

Special Counsel, (202) 418-5102, [email protected], Division of

Market Oversight, Commodity Futures Trading Commission, Three Lafayette

Centre, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

A. Introduction

B. Foreign Boards of Trade and Direct Access

1. History of the No-action Process

2. Commission Determination To Adopt Formal Registration Rules

3. Overview of NPRM

II. Summary of Comments

A. General Comments

B. Specific Comments

1. Application for Registration

a. Treatment of FBOTs With Existing No-action Relief

(i). Grandfathering and the Scope of the Limited Application

(ii). 120 Days To File Limited Application

(iii). Treatment of FBOTs That Have Not Obtained No-action

Relief

b. Timeliness of Commission Review of an Application

2. Standard of Review

a. Need for Registration

b. Foreign Supervision and the Comparable, Comprehensive

Determination

(i). Consideration of the Totality of Regulation

(ii). Comparability Reviews

(iii). Limitations of Comparability Reviews

(iv). Reconfirmation and Withdrawal of Registration

c. International Standards

d. Clearing Standards

(i). DCOs

(ii). RCCPs Standards for Non-DCOs

e. Foreign Regulation of FBOT Participants

3. Contracts

a. Linked Contracts

(i) Definition

(ii). Conditions

b. Swaps and Other Contracts

(i). Swaps

(ii). Clearing of Swaps

(iii). Swaps Data Reporting

(iv). Contracts Other Than Futures, Options and Swaps

(v). Review of Contracts

4. Direct Access Definition

5. Scope of Registration (i.e., CEA Sections 5 and 5a)

6. Registration Requirements and Conditions

a. Trading Rules

b. Information Sharing

c. Submission of U.S.-Domiciled Entities to Service of Process

7. Modification of Registration Requirements

8. Other Concerns

a. Prescriptive Nature of the Regulations

b. Alternative Trading Platforms

c. Impact of FBOT Registration Rules

9. On-going Review of Registered FBOTs

10. The Appendix

III. Conclusion and Effective Date

A. Conclusion

B. Effective Date

IV. Related Matters

A. Paperwork Reduction Act

B. Cost Benefit Considerations

C. Regulatory Flexibility Act

I. Background

A. Introduction

On July 21, 2010, President Obama signed the Dodd-Frank Act.\1\

Title VII of the Dodd-Frank Act \2\ amended the Commodity Exchange Act

(CEA or the Act) \3\ to establish a comprehensive new regulatory

framework for swaps and security-based swaps. The legislation was

enacted to reduce risk, increase transparency, and promote market

integrity within the financial system by, among other things: (1)

Providing for the registration and comprehensive regulation of swap

dealers and major swap participants; (2) imposing clearing and trade

execution requirements on standardized derivative products; (3)

creating robust recordkeeping and real-time reporting regimes; and (4)

enhancing the Commission's rulemaking and enforcement authorities with

respect to, among others, all registered entities and intermediaries

subject to the Commission's oversight.

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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection

Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the

Dodd-Frank Act may be accessed at http://www.cftc.gov./

LawRegulation/OTCDERIVATIVES/index.htm.

\2\ Pursuant to section 701 of the Dodd-Frank Act, Title VII may

be cited as the ``Wall Street Transparency and Accountability Act of

2010.''

\3\ 7 U.S.C. 1 et seq.

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Section 738 of the Dodd-Frank Act amended CEA section 4(b) to

provide that the Commission may adopt rules and regulations requiring

FBOTs that wish to provide their members or other participants located

in the United States with direct access to the FBOT's electronic

trading and order matching system to register with the Commission.

Direct access is defined in the statute as an explicit grant of

authority by an FBOT to an identified member or other participant

located in the U.S. to enter trades directly into the FBOT's trade

matching system.\4\ CEA section 4(b) also authorizes the Commission to

promulgate rules and regulations prescribing procedures and

requirements applicable to the registration of such FBOTs.

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\4\ Direct access is defined in CEA section 4(b)(1)(A).

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Accordingly, on November 19, 2010, the Commission published a

notice of proposed rulemaking that set forth proposed regulations that

would establish a registration requirement and related registration

procedures and conditions applicable to FBOTs that wish to provide

their members or other participants located in the United States with

direct access to their electronic trading and order matching system

(NPRM).\5\ The Commission requested comment on all aspects of the

proposed regulations. After thoroughly reviewing the comments submitted

in response to the NPRM, the Commission has determined to issue these

final rules which are substantially the same as those proposed, with

some modifications made in response to certain of the comments received

and with a partially revised format, as discussed below.

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\5\ See Registration of Foreign Boards of Trade, 75 FR 70974

(November 19, 2010).

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B. Foreign Boards of Trade and Direct Access

1. History of the No-action Process

Since 1996, FBOT requests to provide members and other participants

that are located in the U.S. with direct access to their electronic

trading and order matching systems have been addressed

[[Page 80675]]

by Commission staff in accordance with the no-action process set forth

in Commission regulation 140.99.\6\ Specifically, such FBOTs seeking to

provide direct access to members and participants located in the U.S.

have requested, and, where appropriate, received from the relevant

division of the Commission, a no-action letter in which division staff

represents that, provided the FBOT satisfies the conditions set forth

therein, the division will not recommend that the Commission institute

enforcement action against the FBOT for failure to register as a

designated contract market (DCM) or derivatives transaction facility

(DTEF). Since 1996, Commission staff has issued 24 direct access no-

action relief letters (formerly referred to as foreign terminal no-

action relief letters) to FBOTs, 20 of which remain active.\7\ A

detailed discussion of the history and evolution of the FBOT no-action

process and the scope of the relief provided can be found in the

NPRM.\8\

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\6\ See, e.g., CFTC Letter No. 96-28 (February 29, 1996).

Commission regulation 140.99 defines the term ``no-action letter''

as a written statement issued by the staff of a Division of the

Commission or of the Office of the General Counsel that it will not

recommend enforcement action to the Commission for failure to comply

with a specific provision of the Act or of a Commission rule,

regulation or order if a proposed transaction is completed or a

proposed activity is conducted by the beneficiary.

\7\ One no-action relief letter was superseded and three were

revoked when the FBOTs ceased operations as regulated or recognized

markets. Currently, 14 of the FBOTs with active no-action relief

report volume originating from the U.S. via direct access.

\8\ 75 FR 70974-76.

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While the no-action process has served a useful purpose, the

Commission, given the new authority provided by Congress in the Dodd-

Frank Act to promulgate registration requirements applicable to FBOTs

that provide direct access, has determined to replace the staff no-

action process with generally applicable Commission regulations.

2. Commission Determination To Adopt Formal Registration Rules

In determining to adopt formal registration rules for FBOTs, the

Commission has also considered that the no-action process is generally

better suited for discrete, unique factual circumstances and for

situations where neither the CEA nor the Commission's regulations

address the issue presented. The Commission has determined that, where

the same type of relief is being granted on a regular and recurring

basis, as it has been with respect to permitting FBOTs to provide

direct access to their trading systems to specified members and other

participants that are located in the U.S., it is no longer appropriate

to handle requests for the relief through the no-action process.

Rather, such matters should be addressed in generally applicable

registration regulations.

By implementing uniform application procedures and registration

requirements and conditions, the process by which FBOTs are permitted

to provide members and other participants located in the United States

with direct access to their trading systems will become more

standardized and more transparent to both registration applicants and

the general public and will promote fair and consistent treatment of

all applicants. Further, generally applicable regulations will provide

greater legal certainty for FBOTs providing direct access than the no-

action relief process because no-action letters are issued by the staff

and are not binding on the Commission. The Commission also notes that

an FBOT registration regime will be more consistent with the statutory

authority pursuant to which other countries, including the United

Kingdom, Australia, Singapore, Japan and Germany, among others, permit

U.S.-based DCMs to provide direct access internationally.

Accordingly, for the reasons noted above and pursuant to the new

authority provided by amended CEA section 4(b), the Commission has

determined to adopt FBOT registration regulations. The final rules will

replace the existing policy of accepting and reviewing requests for no-

action relief to permit an FBOT to provide for direct access to its

trading system with a requirement that an FBOT seeking to provide such

access must apply for and be granted registration with the

Commission.\9\

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\9\ In 2006, the Commission issued a Policy Statement in which

it endorsed the no-action process for FBOTs that want to provide

direct access to their trading systems to U.S.-based participants.

Boards of Trade Located Outside of the United States and No-Action

Relief From the Requirement To Become A Designated Contract Market

or Derivatives Transaction Execution Facility, 71 FR 64843 (Nov. 2,

2006) (Policy Statement). With the exception of the Commission's

endorsement of the use of no-action relief to permit direct access,

which is superseded by this final rule, the Policy Statement remains

effective.

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3. Overview of NPRM

As noted above, on November 19, 2010, the Commission published a

NPRM in which it proposed regulations that would require FBOTs that

wish to provide their members or other participants located in the U.S.

with direct access to the FBOT's electronic trading and order matching

system to become registered with the Commission. The proposed rules

described the types of FBOTs that would be eligible for registration

under the proposed regulations and prescribed the application

procedures, requirements, and conditions that would be applicable to

such registration. The rules were proposed to be codified in new Part

48 of the Commission's regulations. The proposed regulations provided

that it would be unlawful for an FBOT to permit direct access to

members and other participants in the U.S. unless the FBOT was

registered with the Commission. The proposed requirements for

registration were divided into the same seven general categories

evaluated during the course of a review of a request for FBOT no-action

relief: membership criteria, trading system, contracts, settlement and

clearing, regulatory authorities, rules and rule enforcement, and

information sharing. Pursuant to the proposed regulations, whether the

registration requirements are successfully met would be determined by

review of the information and documentation submitted by the applicant

and, if appropriate, a staff on-site visit to the FBOT and clearing

organization and their regulatory authorities to observe and discuss

procedures and policies described in the information submitted by the

applicant. The proposal also contained the conditions that a registered

FBOT would be required to meet to retain its registration, including

continued satisfaction of the registration requirements; conditions

related to the FBOT's regulation in its home country; satisfaction of

comparable international standards; restrictions upon the FBOT's

provision of direct access; acknowledgement and agreement to Commission

jurisdiction; information-sharing requirements; monitoring for and

enforcing compliance with the conditions of registration; conditions

specifically applicable to swap trading; reporting obligations; and

special conditions that would apply to linked contracts.\10\ As

proposed, the rules provided for a ``limited'' application process for

FBOTs currently operating pursuant to existing no-action relief.\11\

[[Page 80676]]

The proposal also set forth the procedures to be followed should an

FBOT wish to list additional contracts for trading by direct access

after being registered. Finally, the proposal identified certain events

that may trigger the revocation of an FBOT's registration.

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\10\ CEA section 4(b)(1)(B) defines a linked contract as an

agreement, contract, or transaction that settles against any price

(including the daily or final settlement price) of one or more

contracts listed for trading on a registered entity.

\11\ The proposed rules would have required that FBOTs operating

under existing no-action relief submit a limited application for

registration within 120 days of the effective date of the

registration rules. An FBOT would be permitted to continue to

operate pursuant to the no-action relief during the 120-day period

and until the Commission notified the FBOT that the application was

approved or denied.

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II. Summary of Comments

A. General Comments

The Commission received 147 comments in response to the NPRM.\12\

The comments included 24 comment letters that addressed a variety of

substantive issues raised by the proposal. Those 24 comment letters

came from entities representing a broad range of interests, including

eleven letters representing fourteen FBOTs currently providing direct

access to members or other participants in the U.S. pursuant to staff

direct access no-action relief letters \13\ and three letters from

FBOTs that were not currently providing direct access to U.S.

participants.\14\ The Commission also received comments from a U.S.

derivatives marketplace,\15\ three industry or trade associations,\16\

a non-profit organization,\17\ a natural gas company,\18\ a foreign

regulator,\19\ a United States Senator,\20\ and the Commodity Market

Oversight Coalition.\21\

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\12\ The comment file is available on the Commission's Web site

at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=902.

\13\ Dubai Mercantile Exchange (DME), London Metal Exchange

(LME), Australian Securities Exchange (ASX), Montreal Exchange Inc.

(MX), Intercontinental Exchange (ICE) (owner of ICE Futures Europe

and ICE Futures Canada), European Energy Exchange AG (EEX), Hong

Kong Futures Exchange Limited (HKFE), BM&F Bovespa (BM&F), Nasdaq

OMX Oslo ASA (OMX), NYSE Euronext (NYX) (operator of three FBOTs,

Liffe Administration and Management, Euronext Paris SA, and Euronext

Amsterdam N.V.), and Eurex Deutschland (Eurex).

\14\ Osaka Securities Exchange (OSE), Natural Gas Exchange, Inc.

(NGX), and Bursa Malaysia Derivatives Exchange (Bursa Derivatives).

A direct access no-action letter was issued to OSE on June 1, 2011.

NGX is currently operating as an exempt commercial market (ECM), and

will continue to do so under the ECM grandfather relief provided for

in the Dodd-Frank Act.

\15\ CME Group, which includes four CFTC-registered DCMs: The

Chicago Mercantile Exchange Inc. (CME), the Board of Trade of the

City of Chicago, Inc. (CBOT), the New York Mercantile Exchange, Inc.

(NYMEX), and the Commodity Exchange, Inc. (COMEX).

\16\ Futures and Options Association (FOA), Air Transport

Association of America (ATA) (two comment letters), and Petroleum

Marketers Association of America and the New England Fuel Institute

(Petroleum Marketers).

\17\ Better Markets, Inc. (Better Markets). Better Markets

describes themselves as a non-profit organization that promotes the

public interest in capital and commodity markets.

\18\ BG Americas & Global LNG (BG Americas).

\19\ European Securities and Markets Authority (ESMA).

\20\ Senator Carl Levin, Chairman of the United States Senate

Permanent Subcommittee on Investigations.

\21\ The Commodity Market Oversight Coalition (CMOC) states that

it represents an array of interests, including the interests of

commodity producers, processors, distributors, retailers, commercial

and industrial end-users, and average American consumers and that it

was established to promote government policy and regulation in the

commodity trading markets that preserve the interests of bona fide

hedgers and consumers and the health of the broader economy.

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The Commission also received 94 virtually identical comment letters

from self-identified small business owners in the oil and gas industry

and/or grocery industry. Each of these letters presented a range of

comments spanning several provisions of the Dodd-Frank Act and, with

respect to the proposed FBOT regulations, included nearly identical

text in which the commenters generally expressed support for the

requirement that FBOTs register with the Commission and for the

requirements that FBOTs adopt position limits, implement prohibitions

on manipulation and excessive speculation, and be subject to ownership

caps.\22\

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\22\ Each of these letters contained a similar short paragraph

specifically addressing the proposed FBOT rules. A representative

letter stated: ``I support the requirement that FBOTs register with

the CFTC and make their trading data available as well as requiring

that they adopt position limits and implement prohibitions on

manipulation and excessive speculation. They should also be subject

to ownership caps.'' The Commission also received a brief comment

from a private citizen. In addition, the comment file includes 26

comments submitted in response to the Commission's reopening of the

comment period for several Dodd-Frank related rulemakings. See

Reopening and Extension of Comment Periods for Rulemakings

Implementing the Dodd-Frank Wall Street Reform and Consumer

Protection Act, 76 FR 25274 (May 4, 2011) (extending the comment

deadline for multiple Dodd-Frank Act rulemakings to June 3, 2011).

None of the comments submitted in response to the reopening of the

comment period specifically addressed the proposed FBOT registration

regulations and, therefore, they are not addressed in this document.

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Of the 24 comment letters addressing various substantive FBOT

registration issues in the proposed regulations, 17 letters voiced

general support for the proposed rules and for the adoption of an FBOT

registration process.\23\ For example, OMX stated:

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\23\ See letters from ASX, BM&F, Bursa Derivatives, Eurex, EEX,

LME, MX, OMX, NGX, OSE, FOA, ATA, BG Americas, Petroleum Marketers,

CMOC and Senator Levin. ICE commented that the CFTC ``generally

strikes the right balance with the proposed rulemaking.''

Our overall impression of the proposed rules is that they will

create a more transparent and standardized process that will provide

a greater legal certainty for FBOTs. We are thus under the

impression that the new rules will represent an improvement of the

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legal process related to FBOTs.

Similarly, Eurex commented:

Eurex supports the proposed regulations as set forth in the

[NPRM] and it values the legal certainty that registration by the

Commission will provide. Eurex looks forward to being registered by

the Commission as an FBOT and to the fuller participation in the

development of the U.S. derivatives industry that it expects will

accompany registration.

Each of the generally supportive comments, however, also offered

varying critiques that focused on specific issues. These are discussed

in greater detail below.

Four of these comment letters generally did not support the

proposed rules \24\ and one comment letter raised concerns with respect

to the impact of FBOT registration on the effectiveness of the Dodd-

Frank Act.\25\ For example, NYX and ESMA questioned whether a

registration regime was superior to the existing no-action process.

Specifically, NYX noted, ``[W]e are not convinced that a move from the

existing regime to a more formal, rules-based solution is either

necessary or desirable.'' ESMA noted that, ``It seems to us that there

is no legal provision that would require the CFTC to depart from the

present practice of issuing no-action relief letters. [* * *] [T]he new

registration procedure and the mandatory application of very

comprehensive, ongoing requirements to all FBOTs would be burdensome

and costly without any apparent improvements for the safeguard of

public interests such as the maintenance of fair and orderly markets,

investor protection and the resilience of the market.'' Similarly, LME,

while supporting the Commission's desire to establish a standardized

regulatory framework for FBOTs that wish to provide direct access to

U.S.-domiciled market participants, commented that the approach of

requiring FBOTs to register with the Commission would constitute an

unnecessary burden on the CFTC and FBOT applicant resources and stated

its preference for a comparability-based exemptive approach, which

would accomplish the same objectives, rather than a registration

regime. HKFE commented that creating unnecessary obstacles to cross-

border trading will affect all markets and market participants and

limit the use of risk mitigating instruments traded in global markets.

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\24\ NYX, HKFE, ESMA, and CME Group.

\25\ Better Markets.

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The CME Group expressed concern that the prescriptive nature of the

rules

[[Page 80677]]

may result in retaliatory, anti-competitive action by foreign

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regulators. CME Group commented that:

[W]e have significant concern that the proposed rules are overly

prescriptive and will have the effect of engendering retaliatory

action by foreign regulators that will inhibit our ability to

continue to grow our business and compete effectively in the current

global environment.

CME Group also argued that since the Dodd-Frank Act did not intend to

grant the Commission general regulatory authority over FBOTs, the

imposition of an information gathering process with limited utility

would do little more than stretch already limited Commission resources.

Better Markets argued that enabling FBOTs to provide direct access

to members and other participants in the U.S. would ``undercut[] the

effectiveness of the Dodd-Frank Act'' unless FBOTs were subject to

regulatory requirements that are ``the same as or equivalent to the

Dodd-Frank Act structure.'' Better Markets expressed concern that, even

if there are parallel systems that are adequately structured in foreign

jurisdictions, there is a risk that the regulatory regime will not be

administered similarly to the markets subject to Commission oversight.

B. Specific Comments

The specific issues raised by commenters can be grouped generally

into nine categories and include the following: Application for

registration; standard of review; contracts; direct access definition;

scope of registration; registration requirements and conditions;

modification of registration requirements; other concerns; and ongoing

review of registered FBOTs. These concerns and the Commission's

conclusions with respect to them are discussed below.

1. Application for Registration

a. Treatment of FBOTs With Existing No-Action Relief

Proposed regulation 48.6 provides that FBOTs currently providing

direct access pursuant to a Commission staff no-action letter would be

required to apply for registration within 120 days of the effective

date of the FBOT registration regulations, but would permit them to

file a limited application, as described in the proposed regulation.

Eurex expressly supported the proposed limited application process; ASX

welcomed the formalization of the registration requirements. Twelve of

the comment letters, however, were in favor of either further narrowing

the scope of the limited application process or completely

grandfathering FBOTs currently operating pursuant to no-action relief.

Several commenters also requested that the time period for submitting a

limited application be expanded.

(i) Grandfathering and the Scope of the Limited Application

Eight of the twelve commenters, including commenters representing

11 FBOTs providing direct access to their trading systems pursuant to

existing no-action relief \26\ and the CME Group and FOA, specifically

requested that the CFTC significantly narrow proposed Sec. 48.6 to

either provide grandfathered registration to FBOTs operating under

existing no-action relief or to require FBOTs applying for registration

to supply only that information which (1) has materially changed since

the time the FBOT's no-action relief was granted, (2) was not

previously filed with the Commission or (3) relates to newly imposed

registration requirements. The commenters generally argued that the

limited application process set forth in proposed Sec. 48.6 is too

burdensome and is unnecessary given that FBOTs and their regulatory

regimes were reviewed by Commission staff during the process of issuing

a no-action letter.

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\26\ BM&F, DME, EEX, HKFE, ICE, MX, OMX, and NYX.

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FOA commented that FBOTs currently operating under no-action relief

should not have to reapply for approval to allow direct access to their

markets and recommended that the CFTC should principally rely on

information previously provided by the FBOT and its regulator to

satisfy the proposed registration requirements and should identify for

each FBOT operating under a no-action letter what specific additional

information is required. NYX generally agreed with this recommendation

and further suggested that, if a limited application for registration

is necessary, the FBOTs should be required to consult with the

Commission in order to identify which specific information not

previously submitted would be necessary to demonstrate compliance with

the registration requirements. BM&F commented that where an FBOT had

been granted no-action relief following adoption by the Commission of

the 2006 Policy Statement, that FBOT should only be required to certify

that there have been no material changes to the information or

representations in its request for no-action relief or, if there have

been changes, to identify those changes and demonstrate how they would

be in compliance with the registration rule. ICE commented that the

FBOT should only be required to submit additional relevant information

necessary to update the Commission's understanding of the foreign

regulatory regime.

The Commission does not believe that it would be prudent to

grandfather FBOTs that are operating under existing no-action relief

without any further review to determine that the registration

requirements set forth in Sec. 48.7 are being met. FBOT requests for

no-action relief were assessed based upon the information and

documentation presented at the particular time of the request (some as

early as 1999), were based upon a comparison of the regulatory regimes

in the U.S. and the applicable foreign jurisdiction that existed at the

time, were subject to varying standards of review that applied at the

time (which have changed as statutes and policies have evolved), and

were reviewed on a case-by-case basis. Just as the Dodd-Frank Act

represents a significant change in the regulatory approach in the U.S.,

many foreign jurisdictions have changed their approaches since the time

the existing no-action letters were granted as well.

The Commission also does not believe that it would be either

feasible or appropriate for the Commission staff to ascertain for each

FBOT operating under existing no-action relief the precise information

or documentation in its individual no-action request submission that

would need to be updated or revised in order to satisfy registration

requirements. The FBOTs are in a better position to recognize their own

particular circumstances and to identify any information and

documentation that may require updating in light of those changes. This

is especially true of information regarding the relevant foreign

regulations to which the FBOT is presently subject, as these may have

differing applicability depending upon the FBOT's particular business

model. The FBOT should be afforded the opportunity to provide materials

demonstrating that the foreign regime currently is comparable and

comprehensive to the regulatory regime in the United States.

In response to the comments received, the Commission has determined

to modify the limited application documentation requirements in one

aspect. The proposed limited application process required that, to the

extent an FBOT operating under existing no-action relief intends to

rely upon previously submitted information or documentation to

demonstrate that it satisfies the registration requirements,

[[Page 80678]]

the FBOT must resubmit the information or documentation, identify the

specific requirements for registration set forth in proposed Sec. 48.7

that are satisfied by the resubmitted information, and certify that the

information remains current and true. The Commission has determined to

streamline the Sec. 48.6 application requirements for any FBOT whose

original no-action relief request was submitted electronically and

remains on file with the Commission staff.\27\ In lieu of re-

transmitting to the Commission previously submitted information and

documentation, such FBOTs would be permitted to simply refer to each

portion of their original submission that satisfies a particular

registration requirement, identify the specific registration

requirement that is fulfilled by that section, and certify that the

information or documentation originally provided remains current and

true. The FBOT would continue to be required to submit new information

or documentation, to the extent that its original application would not

adequately demonstrate that the FBOT would be in compliance with one or

more of the registration requirements. This typically would be

necessary where one of the registration requirements, such as a

requirement applicable to clearing and settlement, imposes a standard

that was not applied at the time of the original application for no-

action relief.

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\27\ Documents submitted electronically can be more easily

identified and located and can be retransmitted quickly and at less

cost than documents in hard copy. It is also easier to identify and

highlight those segments of an electronically submitted document

that would satisfy a current requirement of registration.

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(ii) 120 Days To File Limited Application

Seven commenters, including six FBOTs and one industry association,

requested that the proposed 120-day time period within which an FBOT

operating under existing no-action relief would be required to file a

limited application be extended. Four specifically asked that the

period be lengthened to 180 days,\28\ while another asked for a

year.\29\ Two entities commented that the registration rules should

provide that FBOTs with existing no-action relief may continue to

operate as such as long as they submit an application within the 120-

day period, which is determined in good faith by the applicant to be

complete.\30\ Such commenters expressed concern that there may be an

extended period of legal uncertainty after the 120-day period, but

before the Commission acted upon the application.

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\28\ BM&F, EEX, LME, and MX.

\29\ ICE.

\30\ NYX and FOA.

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In response to these comments the Commission has determined to

adopt the proposal with certain modifications. The final regulations

provide that the required timeframe within which an FBOT operating

pursuant to existing no-action relief is required to submit a limited

application for registration, determined in good faith by the applicant

to be complete, is 180 days from the effective date of the FBOT

registration rules.\31\ The final rule also provides legal certainty in

that Sec. 48.6 provides that an FBOT ``may continue to operate

pursuant to the existing no-action relief, subject to the terms and

conditions contained therein, during the 180-day period, while the

Commission is reviewing its application, and until the Commission

approves or disapproves the application or otherwise withdraws the

existing no-action relief.'' Thus, FBOTs could continue to provide for

direct access pursuant to the no-action relief during the 180-day

period and, if they submitted timely and complete applications for

registration, until such time as the Commission acts upon the

registration applications.

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\31\ If, at any time after the 180-day deadline but before a

limited application is approved or disapproved, the Commission

determines that the application is materially incomplete, the

Commission may, after providing the FBOT with notice and an

opportunity to respond to the determination of incompleteness,

withdraw the existing no-action relief if the Commission determines

that the application cannot be made complete in a timely manner.

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(iii) Treatment of FBOTs That Have Not Obtained No-action Relief

NGX asked whether FBOTs with pending applications could file a

limited application and stated that, if so, the review of such

applications should take precedence over the review of applications of

FBOTs currently operating under existing no-action relief. Bursa

Derivatives asked if the Commission would take into consideration any

Regulation 30.10 relief granted by the Commission to an FBOT or any

visit made to an FBOT in the Regulation 30.10 review when evaluating

such FBOT's application under the proposed registration process.\32\

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\32\ A Rule 30.10 order permits firms that are members of a

self-regulatory organization and subject to regulation by a foreign

regulator to conduct business from locations outside of the U.S. for

U.S. persons on non-U.S. boards of trade without registering under

the CEA, based upon the firm's substituted compliance with a foreign

regulatory structure found comparable to that administered by the

Commission under the CEA. Among the issues considered by the

Commission in determining whether to grant Rule 30.10 relief based

on a foreign regulatory or self-regulatory authority are the

authority's: (i) Requirements relating to the registration,

authorization, or other form of licensing, fitness review, or

qualification of persons through whom customer orders are solicited

and accepted; (ii) minimum financial requirements for those persons

that accept customer funds; (iii) minimum sales practice standards,

including risk disclosures, and the risk of transactions undertaken

outside of the United States; (iv) procedures for auditing

compliance with the requirements of the regulatory program,

including recordkeeping and reporting requirements; (v) standards

for the protection of customer funds from misapplication; and (vi)

arrangements for the sharing of information with the United States.

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In consideration of the comments concerning limited applications

for registration, the Commission has determined that an FBOT with a

pending request for direct access no-action relief should be permitted

to file a limited application for registration, recognizing that some

of the required information and documentation is likely to have been

recently submitted and, therefore, up-to-date. Thus, Sec. 48.6 has

been modified to provide that an FBOT that has submitted a complete

application for no-action relief that is pending as of the effective

date of the final rule could, as part of its application for

registration, identify information or documents provided in its request

for no-action relief that would satisfy particular registration

requirements. Those aspects of the registration requirements that were

not addressed in the materials submitted in connection with the no-

action request would have to be addressed directly in the FBOT's

registration application. With respect to the question of precedence of

review, the Commission is not assigning precedence to any group of

applicants. The Commission does, however, anticipate that the

applications of FBOTs with pending relief requests generally will be

submitted, and acted upon, before those of FBOTs which have no-action

relief, largely because the latter FBOTs can continue to operate

pursuant to the existing no-action relief during the 180-day timeframe

for submission of an application and so long as a complete and timely

application is submitted. In contrast, those FBOTs with pending relief

requests cannot provide for direct access until they submit an

application and receive an Order of Registration.

With respect to consideration of any regulation 30.10 relief

granted by the Commission to an FBOT or related visits in evaluating

the FBOT's application for registration, the Commission believes it

would be appropriate to consider such information only to the extent

that it is

[[Page 80679]]

relevant to particular registration requirements (e.g., requirements

that members be fit and proper and other foreign regulatory regime

standards applicable to market participants) and is identified as such

by the FBOT. The Commission notes that there is limited overlap between

the factors considered when granting regulation 30.10 relief and those

that will be examined in connection with FBOT registration. Regulation

30.10 review primarily is focused on the foreign regulatory standards

applicable to market participants. While regulation 30.10 relief could

inform the Commission's decision to register an FBOT, it would not be

an appropriate substitute for the comparability and comprehensiveness

analysis required under the FBOT registration regulations.

b. Timeliness of Commission Review of an Application

The proposed regulations did not include a proposed timeline for

completion of Commission staff review of an application. Bursa

Derivatives suggested that the Commission adopt a timeline of 180 days

for the Commission to notify FBOTs whether an application has been

approved or denied. The commenter noted that this would be consistent

with the 180 days allotted for reviewing a designated contract market

application.

The Commission has determined not to adopt a firm timeline for

completion of Commission staff review of an application. The Commission

is committed to completing its review of applications for FBOT

registration within a year or in as timely a manner as circumstances

and resources will allow. However, the Commission can neither predict

the total number of applications for registration that will be

submitted nor whether such applications will be received simultaneously

or over a period of time and, thus, cannot be assured that it would

have sufficient resources at all times to meet such a self-imposed

deadline. The Commission is likely to receive applications from most of

the 20 FBOTs currently operating under existing no-action relief in

addition to applications from other FBOTs that wish to register. The

Commission notes that the lack of a specific deadline for the review of

FBOT registration applications will not have a significant impact on

those FBOTs currently able to provide direct access pursuant to a staff

no-action letter that submit timely applications for registration. As

previously noted, the final regulations permit such FBOTs to continue

to provide direct access to FBOT members and other participants located

in the U.S. during the review period, subject to compliance with the

terms and conditions of their no-action relief letters.

2. Standard of Review

a. Need for Registration

One foreign regulator, ESMA, questioned whether replacing the

practice of issuing no-action letters with a process whereby FBOTs

would register with, and become subject to, the jurisdiction of the

Commission would provide sufficiently enhanced public safeguards to

outweigh the burdens imposed. Noting that section 738 of the Dodd-Frank

Act seems to provide the Commission full flexibility on whether and how

to implement the rules on registration, ESMA stated that: ``Since the

CFTC has also verified in the past that a FBOT and its clearing

organisation are subject to comprehensive regulation and comparable

oversight by the home regulatory authority, * * * the creation of new

US regulatory measures with extra-territorial application should be

avoided as far as possible and replaced by effective co-operation

between the home and host regulatory authorities. Jurisdiction should

indeed generally be exercised by the home country alone. The necessary

cooperation could be ensured by an MoU determining how the home and the

host authority should collaborate, exchange information and conduct

common reviews and inspections.'' \33\

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\33\ ESMA.

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HKFE and MX commented that the CFTC has already determined that

FBOTs currently allowed to operate in the U.S. are subject to

comprehensive and comparable regulation in their home jurisdictions

under the no-action relief regime. HKFE further stated that, therefore,

a substantive or a rule-by-rule review by the CFTC for the purposes of

FBOT registration may not be necessary or appropriate except where the

CFTC has fundamental concerns about a jurisdiction's regulations,

regulatory objectives or practices.

As previously noted, requests for no-action relief were submitted

to and reviewed by Commission staff and not by the Commission itself

and the letters granting no-action relief are not binding upon the

Commission. Moreover, in analyzing requests for no-action relief, staff

did not review the requests under the same standards that will be

universally applied under the final regulations. For example, staff did

not specifically consider whether an FBOT or its clearing organization

was subject to ``comprehensive regulation and comparable oversight by

the home regulatory authority.'' Rather, staff's standard of review has

ranged from determining that the FBOT is regulated by a legitimate

regulatory authority to determining that the FBOT and its regulatory

authority support and enforce standards for trading and customer and

market protection that are equivalent to those supported by the CFTC

and its regulated DCMs.

The Commission believes that the application procedures contained

in the final registration regulation would provide for appropriate

review. While the rule would create a new registration category, that

category would operate pursuant to open and transparent standards and

procedures that may not have been uniformly applied with respect to

FBOT no-action letters. The proposed regulatory measures are applicable

only to FBOTs that choose to provide for direct access to their trading

systems to persons located in the U.S. In addition, the Commission

believes that the rule, as proposed, would encourage effective co-

operation between the home and host regulatory authorities in that it,

among other things, provides for expanded information sharing between

the regulatory authorities. Finally, with respect to the comment that

the proposal is creating new U.S. regulatory measures with extra-

territorial application, the Commission notes that Congress has

authorized the registration of FBOTs in the Dodd-Frank Act. Moreover,

the FBOT registration process relies significantly upon the

Commission's determination that the FBOT's home country regulatory

authority provides for comparable, comprehensive supervision and

regulation. The Commission finds it particularly noteworthy that other

countries that permit direct access, including the UK, Japan,

Singapore, Hong Kong, Germany and Australia, among others, do so under

a registration or licensing scheme. Accordingly, the Commission

believes that the establishment of the FBOT registration regime in the

final rule is generally consistent with international practices.

b. Foreign Supervision and the Comparable, Comprehensive Determination

As required by CEA section 4(b)(1)(A)(i), proposed Sec. 48.5(d)(2)

provided that the Commission, when reviewing an application for FBOT

registration, will consider whether the FBOT and its clearing

organization are subject to comprehensive supervision

[[Page 80680]]

and regulation by the appropriate governmental authorities in their

home country that is comparable to the comprehensive supervision and

regulation to which DCMs and derivatives clearing organizations (DCO),

respectively, are subject in the United States. Seven commenters

specifically addressed this provision, offering critiques of the

Commission's approach to evaluating an FBOT's home regulatory

regime.\34\

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\34\ Eurex, FOA, LME, EEX, OMX, Better Markets, and CME Group.

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Two commenters recommended that the Commission make a determination

as to whether an FBOT is subject to a comparable comprehensive

regulatory regime on a jurisdiction-by-jurisdiction basis where

appropriate.\35\ For example, if more than one FBOT is subject to the

regulatory regime in the United Kingdom, the Commission could make a

single determination as to the comparability and comprehensiveness of

the regulatory regime in the United Kingdom.

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\35\ LME and EEX. EEX commented that all trading venues

recognized as a ``Regulated Market'' under the European Union's (EU)

Markets in Financial Instruments Directive (MiFID) should be deemed

fit to meet the regulatory standards of a registered FBOT. LME

commented that the Commission should take the same jurisdictional

approach with respect to the review of clearing organizations.

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In consideration of these comments, the final regulation, in the

application form for registration, Form FBOT,\36\ provides for a

jurisdiction-based review of the comparability of the foreign

regulatory regime when multiple FBOTs that are subject to the same

regulatory regime are applying for registration. Specifically, the

regulation, through the Form FBOT, provides that multiple FBOTs that

are subject to the same regulatory regime and that are applying for

registration at the same time may collectively provide information

regarding the regulatory regime under which they operate. The

information may be provided by the FBOTs themselves, or by the

applicable foreign regulatory authority.

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\36\ The proposed rules included an appendix that identified the

information required in, and provided guidelines for submitting, an

application for registration as an FBOT. That appendix included

detailed descriptions of the minimum required documentation and

information that should be included in an application. In these

final rules, the Commission has revised the proposed appendix to

include the submission requirements identified therein in

standardized application forms, Form FBOT and Supplement S-1 to Form

FBOT. Form FBOT is to be completed by an FBOT applying for

registration and Supplement S-1 is to be completed by the clearing

organization affiliated with the FBOT. The substance and content of

Form FBOT and Supplement S-1 are parallel to those requirements and

guidelines that were originally included in the appendix to the

proposed rules.

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The Commission does not agree, however, that a determination that

an FBOT operating in one jurisdiction should be registered eliminates

the need to conduct a subsequent inquiry into the laws and regulations

applicable to a different FBOT in the same jurisdiction that applies

for registration at a different time. Additionally, a single

jurisdictional analysis of comprehensiveness and comparability may not

be able to take into account the fact that different FBOTs operating in

the same jurisdiction may be subject to different regulations,

depending upon a host of factors including, among other things, their

business structure, the participants they accept, the products they

trade and the exceptions and exemptions provided in the relevant

regulatory regime. Accordingly, two FBOTs operating in the same country

may be subject to regulation that differs in substantive ways.

Moreover, financial markets worldwide are currently in an enhanced

state of regulatory flux, making it a particularly inopportune time to

state that once a jurisdiction is deemed comparable, it will be deemed

comparable for the purpose of all future applications.\37\

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\37\ Notwithstanding the above, in a situation where an FBOT

applying for registration is located in the same jurisdiction and

subject to the same regulatory regime as a registered FBOT, the

Commission believes that it would be acceptable for the FBOT

applying for registration to include by reference, as part of its

application, information about the regulatory regime that is posted

on the Commission's Web site. The FBOT applying for registration

must specifically identify the applicable information and certify

that the information thus included in the application is directly

applicable to it and remains current and valid.

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(i) Consideration of the Totality of Regulation

Eurex, noting that in many jurisdictions the concept of self-

regulation is not as established as in the U.S. and that foreign

exchanges are not empowered in the same way as DCMs, recommended that,

in considering the comparability of regulation, the CFTC explicitly

incorporate that it may rely on the totality of the regulation--self

and governmental--of the FBOT in evaluating the FBOT for comparable

comprehensive supervision and regulation. The Commission has determined

to adopt the rule as proposed, but notes that consistent with this

Eurex comment, the Commission will rely on the totality of the

regulation of the FBOT and its clearing organization in evaluating

whether they are subject to comparable comprehensive supervision and

regulation.

(ii) Comparability Reviews

FOA expressed concern that the proposed registration regulations

would change the approach to comparability used under the existing no-

action review process into what is effectively a rules-equivalence

approach and that this could lead to a ``line by line'' examination of

the European Union's approach to the regulation of derivatives

transactions, central counterparties and trade repositories. FOA

commented that a ``line by line'' examination of the foreign

regulator's approach would complicate cross-border business and

increase the risk of inadvertent breaches.

The Commission has determined to adopt the rule as proposed. As in

the case of the review performed under the no-action review process,

the Commission's determination of the comparability of the foreign

regulatory regime to which the FBOT applying for registration is

subject will not be a ``line by line'' examination of the foreign

regulator's approach to supervision of the FBOTs it regulates. Rather,

it will be a principles-based review conducted in a manner consistent

with the part 48 regulations pursuant to which the Commission will look

to determine if that regime supports and enforces regulatory objectives

in the oversight of the FBOT and the clearing organization that are

substantially equivalent to the regulatory objectives supported and

enforced by the Commission in its oversight of DCMs and DCOs.

(iii) Limitations of Comparability Reviews

CME Group suggested that the Commission's analysis should be more

narrowly tailored and that the Commission should limit its inquiry to

questions regarding the comparability of the regulatory regime in the

FBOT's home jurisdiction, focusing on (1) the regulatory regime in the

FBOT's home jurisdiction, (2) the FBOT's status in its home

jurisdiction and its rules and enforcement thereof, and (3) any

existing information-sharing agreements between the FBOT, the

Commission, and the home jurisdiction regulator. CME Group argued that

such an approach would focus the Commission's attention on the

legitimacy of the home regulator rather than on the broader inquiries

that have informed the no-action process.

The Commission has determined to adopt the rule as proposed. The

Commission does not believe that its review of an FBOT seeking to

provide direct access to its trading system to persons located in the

U.S. should be

[[Page 80681]]

restricted to the three areas suggested by the commenter. The

Commission believes that the broader review contemplated by the

proposed regulations, which is an outgrowth of the review conducted

during the no-action process, is necessary to ensure the protection of

persons located in the U.S. that will be trading by direct access on

the FBOT. Accordingly, the final regulations continue to require the

FBOT to provide sufficient information and to demonstrate that the

registration requirements set forth in Sec. 48.7 are satisfied (e.g.,

information and documentation on the relevant membership standards, the

contracts to be made available in the U.S. and the automated trading

and clearing and settlement systems). The Commission believes that its

review of the information and documentation provided in these areas is

necessary to provide greater assurance that, among other things, the

members of the FBOT and its clearing organization members are subject

to appropriate standards, the contracts to be made available are not

readily susceptible to manipulation, all linked contracts are

identified, the trading system complies with the Principles for Screen-

Based Trading developed by the Technical Committee of the International

Organization of Securities Commissions (IOSCO Principles) \38\ and

produces an adequate audit trail, and the clearing and settlement

systems satisfy appropriate standards.

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\38\ The IOSCO Principles were formulated by eight jurisdictions

which comprised Working Party 7 (Working Party) of the Technical

Committee of IOSCO under the chairmanship of the Commission. The

Working Party's mandate included, among other things, the

identification of issues related to screen-based trading systems for

derivative products. In considering the special concerns for screen-

based trading systems, the Working Party identified and addressed

the following issues: transparency, order execution algorithms,

operational issues, security and system vulnerability, access,

financial integrity, disclosure, and the role of system providers,

and articulated for each issue a broad principle to assist

regulatory authorities in overseeing screen-based trading systems.

The IOSCO Principles were adopted by IOSCO on November 15, 1990 and

set out in broad terms the international consensus as to the

regulatory considerations to be addressed in reviewing mechanisms

for cross-border screen-based trading. The Commission adopted the

IOSCO Principles as a statement of regulatory policy for the

oversight of screen-based trading systems for derivative products.

Policy Statement Concerning the Oversight of Screen-Based Trading

Systems. 55 FR 48670 (Nov. 21, 1990).

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(iv) Reconfirmation and Withdrawal of Registration

Better Markets commented that proposed Sec. 48.8(a)(2)(iii), which

would impose continuing requirements on the foreign regulatory

structure to maintain its laws governing the FBOT, was too narrow and

too focused on the letter of the law, rather than the realities of the

marketplace. Better Markets proposed an annual reconfirmation and

demonstration of the appropriateness of the FBOT's regulatory regime

and, further, that an FBOT's registration should be discontinued if the

foreign regulatory regime changes in ways such that the FBOT would not

be able to qualify for initial registration.

The Commission has determined to adopt the rule as proposed, with

slight modifications. The Commission notes that the regulations contain

multiple provisions designed to demonstrate that the FBOT continues to

be subject to an appropriate regulatory regime. For example, Sec.

48.8(a)(1) conditions continued FBOT registration upon the FBOT's and

its clearing organization's satisfaction of all of the registration

requirements set forth in Sec. 48.7; Sec. 48.8(a)(2)(i) conditions

registration upon the FBOT continuing to satisfy the criteria for a

regulated market or licensed exchange pursuant to the regulatory regime

described in its application and continuing to be subject to oversight

by the regulatory authorities described in the registration

application; Sec. 48.8(a)(2)(ii) imposes a similar condition with

respect to the FBOT's clearing organization; Sec. 48.8(a)(2)(iii)

conditions registration upon the laws, systems, rules, and compliance

mechanisms of the regulatory regime applicable to the FBOT continuing

to require the FBOT to maintain fair and orderly markets, prohibit

fraud, abuse, and market manipulation, and provide that such

requirements are subject to the oversight of appropriate regulatory

authorities; and Sec. 48.8(a)(3) conditions continued registration

upon the FBOT's and, if the FBOT's clearing organization is not a DCO,

the clearing organization's satisfaction of certain internationally

recognized standards.

In addition, Sec. 48.8(b)(1)(iii)(G) requires that the FBOT and

its clearing organization, or their respective regulatory authorities,

as applicable, provide to the Commission annually a written description

of any material changes to the regulatory regime to which the foreign

board of trade or the clearing organization is subject that have not

been previously disclosed or a certification that no material changes

have occurred. Further, proposed Sec. 48.9(b)(2) provides that the

Commission may revoke an FBOT's registration, after appropriate notice

and an opportunity for a hearing, if there is a material change in the

regulatory regime applicable to the FBOT or its clearing organization.

The Commission has modified Sec. 48.9(b)(2) to provide that the

Commission may revoke an FBOT's registration, after appropriate notice

and an opportunity to respond, if there is a material change in the

regulatory regime applicable to the FBOT or its clearing organization

such that the regulatory regime no longer satisfies any registration

requirement or condition for registration applicable to the regulatory

regime. The Commission believes that in this instance, as in other

instances in the final rule where the FBOT is provided appropriate

notice by the Commission of an issue about which it is expected to

communicate with the Commission, an opportunity to respond is adequate

for the purpose of addressing the issue.

c. International Standards

The requirements for and conditions of registration set forth in

proposed Sec. 48.7 and Sec. 48.8, respectively, would require an FBOT

and its clearing organization to observe specified international

standards. In order to become registered, an FBOT would be required to

successfully demonstrate that its trading system complied with the

current IOSCO Principles.\39\ Unless the FBOT's clearing organization

is registered with the Commission as a DCO, the FBOT also would be

required to demonstrate that the clearing organization observed: (1)

The current Recommendations for Central Counterparties jointly issued

by the Committee on Payment and Settlement Systems (CPSS) and the

Technical Committee of IOSCO, as updated, revised or otherwise amended,

or (2) successor standards, principles and guidance for central

counterparties or financial market infrastructures adopted jointly by

CPSS and IOSCO's Technical Committee (RCCPs). OMX commented that, in

order to provide more flexibility, the registration requirements should

refer to ``recognized international standards,'' rather than specific

international regulations.

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\39\ A review of the FBOT requests for no-action relief to

permit direct access reveals that most of the applicants stated that

their regulatory authority has endorsed the IOSCO Principles.

Several of the FBOTs indicated that that their regulatory authority,

in its review of the FBOT's trading system during development and/or

on an ongoing basis, specifically took into account the IOSCO

Principles.

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The Commission has determined to adopt Sec. Sec. 48.7(b)(1) and

(d)(1) and Sec. 48.8(a)(3) substantially as proposed. The use of a

singular set of internationally recognized standards provides clarity,

consistency and certainty to the application requirements and the

standards

[[Page 80682]]

identified in the proposal are directly relevant to the review to be

afforded FBOTs and their clearing organizations. In addition, due to

the breadth of participation by sponsoring organizations \40\ and the

approval of the standards by IOSCO and CPSS, these principles are

considered the premier standards in the industry and are likely to have

greater global recognition than similar regional standards.

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\40\ The current RCCPs were finalized in 2004 by a CPSS-IOSCO

Task Force that included representatives from the following

entities: National Bank of Belgium; Comiss[atilde]o de Valores

Mobili[aacute]rios, Brazil; People's Bank of China; Czech National

Bank; European Central Bank; Autorit[eacute] des March[eacute]s

Financiers, France; Bank of France; Deutsche Bundesbank; BaFin

(German Financial Services Authority); Securities and Futures

Commission, Hong Kong; Reserve Bank of India; Securities and

Exchange Board of India; Commissione Nazionale per le Societ[agrave]

e la Borsa, Italy; Bank of Japan, Financial Services Authority,

Japan; Malaysian Securities Commission; Bank of Mexico; Netherlands

Authority for Financial Markets; Saudi Arabian Monetary Agency;

Comisi[oacute]n Nacional del Mercado de Valores, Spain; Monetary

Authority of Singapore; Bank of England; Financial Services

Authority, United Kingdom; Securities and Exchange Commission; CFTC;

Board of Governors of the Federal Reserve System; Federal Reserve

Bank of New York; International Monetary Fund; and the World Bank.

The recommendations were initially released in a consultative

document that requested public comment. The final version

incorporates consideration of the comments received from central

banks, regulators and the operators of and participants in central

counterparties.

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The Commission did not receive comments specifically related to the

requirement that an FBOT's clearing organization observe any

``successor standards, principles and guidance'' to the current RCCPs

that may be jointly issued by CPSS and IOSCO in the future. The

Commission wishes to clarify, however, that such standards would

include, to the extent applicable, the ``Principles for Financial

Market Infrastructures'' (FMI Principles) \41\ that CPSS and the IOSCO

Technical Committee intend to finalize in early 2012 and that, when

effective, would replace the current RCCPs as the CPSS/IOSCO standards

applicable to central counterparties. In March 2011, CPSS and the IOSCO

Technical Committee publicly issued a ``Consultative Report'' that

included the then-current draft of the FMI Principles and that

requested comment upon the draft by July 29, 2011. CPSS and the IOSCO

Technical Committee are in the process of reviewing the comments

received and finalizing the FMI Principles. The Commission would not

expect an FBOT's clearing organization to observe the FMI Principles

until the effective date thereof established by CPSS and IOSCO.

However, because it is anticipated that several FBOTs may wish to apply

for registration between the time that the final FMI Principles are

published and the time that the FMI Principles become effective and

that clearing organizations for FBOTs may find that they already

observe the FMI Principles, an FBOT that applies for registration after

the FMI Principles are published in final form may demonstrate that its

clearing organization observes those principles in lieu of

demonstrating observance of the RCCPs.

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\41\ Not all of the FMI Principles are applicable to central

counterparties.

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d. Clearing Standards

The FBOT registration requirements set forth in proposed Sec. 48.7

include certain substantive standards that would have to be satisfied

by an FBOT's clearing organization or the FBOT itself, if it is

performing its own clearing functions. Among other things, an FBOT

would be required to demonstrate that the members of its clearing

organization are fit and proper and meet appropriate financial and

professional standards; that the clearing organization is registered

with the Commission as a DCO or observes the RCCPs or successor

standards; that the clearing organization is in good regulatory

standing in its home country jurisdiction; that the regulatory

authorities governing the activities of the clearing organization

provide comprehensive supervision and regulation comparable to that

provided by the Commission to DCOs and engage in ongoing supervision

and oversight of the clearing organization; that the clearing

organization has the capacity to detect, investigate and sanction

persons who violate its rules; and that the clearing organization has

sufficient compliance staff and resources.

(i) DCOs

LME and CME Group commented that if an FBOT's clearing organization

is registered with the Commission as a DCO, the FBOT should not be

required to establish that the clearing organization satisfies the

remaining criteria set forth in the proposed regulation. The Commission

has determined to adopt the approach suggested by the commenters. Much

of the criteria set forth in Sec. 48.7 are likely to have been

reviewed in connection with the clearing organization's application for

a registration as a DCO and any additional review would be redundant.

Accordingly, proposed Sec. 48.7 has been modified to reflect that the

registration requirements applicable to an FBOT's clearing

organizations may alternatively be demonstrated by a statement from the

clearing organization that it is registered and in good standing with

the Commission as a DCO.

(ii) RCCPs Standards for Non-DCOs

Certain commenters questioned the appropriateness of the proposal's

requirement that clearing organizations that are not CFTC-registered

DCOs would have to demonstrate compliance with the RCCPs. MX suggested

that the Commission should instead require the clearing organization to

demonstrate that the regulations, standards, and policies of the

applicable foreign regulator are comparable to those of the Commission;

ICE suggested that the CFTC should rely on the expertise of the foreign

regulator to regulate its own clearing organizations. As noted above,

OMX recommended that the registration requirements permit clearing

firms to demonstrate that they satisfy certain recognized international

standards for central counterparties, rather than referring

specifically to the RCCPs. By contrast, Eurex suggested that the

inquiry into a firm's clearing organization should be restricted to a

demonstration that the RCCPs are satisfied.

NYX suggested that if the proposed RCCP standard is adopted, the

CFTC should obtain confirmation of that fact from the firm's home

country regulator, in lieu of requiring the information from the

clearing organization itself. Bursa Derivatives suggested that the

Commission should clarify that a clearing organization's reasons for

non-compliance with certain RCCPs would be considered by the Commission

and asked whether a time period would be specified for the clearing

organization to comply with all of the RCCPs in such instance.

The Commission has determined to adopt Sec. Sec. 48.7(d)(1) and

48.8(a)(3)(ii) substantially as proposed. As noted above, the

Commission believes that requiring an FBOT's clearing organization to

demonstrate that it observes a singular set of internationally

recognized standards provides clarity, consistency and certainty to the

application requirements. Such representations also enable the

Commission to obtain assurance that the clearing organizations used by

the FBOTs observe, among other things, appropriate criteria for

participation; measurement and management of credit exposures;

management of custody, investment and operational risk; margin;

financial resources; default procedures; governance; and transparency

without specifically requiring the clearing organizations to

demonstrate compliance with requirements that are identical to those

that would be

[[Page 80683]]

imposed upon a DCO. The use of an international standard that is

substantially similar, though not identical, to the requirements

imposed upon U.S. registrants is consistent with the directive in CEA

section 4(b)(1)(A)(i) that the Commission consider whether the relevant

regulatory regime is ``comparable'' and ``comprehensive.'' It is also

consistent with section 752 of the Dodd-Frank Act, which seeks to

promote consistency in global regulation of swaps and futures contracts

and the requirement set forth in Sec. Sec. 48.7(b)(1) and

48.8(a)(3)(i) that the FBOT itself comply with the IOSCO Principles.

The RCCPs were developed with broad participation and comment from

entities from multiple nations and have been approved by both IOSCO's

Technical Committee and the CPSS. The same will be true of the FMI

Principles, when finalized. Accordingly, the Commission believes that

the RCCPs and their successor standards are the appropriate criteria to

use when reviewing an FBOT's clearing organization that is not

registered as a DCO.

The Commission notes that the RCCPs consist of recommendations that

are expressed as general principles, explanations thereof, and key

issues and questions to be considered when assessing observance of the

recommendations, rather than a checklist of obligations to be reviewed.

The Commission recognizes that the generality of the recommendations

and the explanations thereof afford some flexibility in assessing a

clearing organization's observance thereto. The Commission anticipates

that, for purposes of an FBOT registration application, clearing

organizations may demonstrate observance of individual RCCPs, as well

as observance of the RCCPs as a whole, in a variety of ways.\42\

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\42\ The Commission expects to take a similar approach with

respect to the FMI Principles, when finalized. As currently drafted,

the FMI Principles will include general principles, key

considerations that explain the general principle, and explanatory

notes that discuss the objective and rationale behind the principle

and that provide guidance on how the standards expressed therein can

be implemented. In some cases, annexes will provide additional

information and guidance. When published, the document also will be

accompanied by an assessment methodology.

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CPSS and IOSCO encourage relevant national authorities to assess

observance of the RCCPs by the central counterparties in their

jurisdictions as well as RCCP assessments by international financial

institutions (i.e., the International Monetary Fund and the World Bank)

as part of their Financial Sector Assessment Programs. The Commission

anticipates that a similar approach will be taken with regard to the

FMI Principles. The Commission encourages FBOT registration applicants

to submit with their registration applications any such assessments

that have been made of their clearing organizations and any other

information from their home country regulator(s) (provided that

submitting such assessments to the Commission is not inconsistent with

any applicable laws of the home country) that would be relevant to a

determination that the clearing organization observes the RCCPs. Such

assessments will inform the Commission's review of the clearing portion

of the application. Due to the generality of the RCCPs, however, the

Commission believes that a certification from a regulatory authority

that the clearing organization observes the RCCPs, without more, would

not provide it with sufficient information as to the relevant clearing

operations to adequately assess the FBOT application and, thus, would

not be sufficient to demonstrate that the RCCP requirement is met.

With respect to Bursa Derivatives' request that the Commission

consider a clearing organization's reasons for non-compliance with

certain RCCPs, the Commission generally believes that a registered

FBOT's clearing organization should be able to represent that it

observes the RCCPs or successor standards. However, the Commission

recognizes that a clearing organization may have very unique factual

circumstances that may warrant an exception to the requirement with

respect to a limited scope of RCCPs. Accordingly, the Commission would,

where circumstances warrant, entertain applications from FBOT's whose

clearing organizations do not observe all of the RCCPs.

e. Foreign Regulation of FBOT Participants

In the proposed rules, the Commission specifically asked for

comment as to whether, to the extent an FBOT is permitted to list

swaps, the Commission should examine the regulatory oversight of

relevant market participants (e.g., the functional equivalents of swap

dealers (SD) and major swap participants (MSP)) in the applicable

foreign jurisdictions when making a determination as to the

comparability and comprehensiveness of the supervision and regulation

of the relevant regulatory regime. Three commenters addressed the

issues related to market participants. Better Markets commented that

``[s]uch examination is critical * * * [and must include an assessment

of] rules relating to collateral, business conduct and trading

behavior.'' It noted that ``SDs and MSPs are subject to rigorous

standards because safeguards for these important market participants

enhance the continued financial integrity of the marketplace.'' Better

Markets further argued that the requirements for the foreign

equivalents of SDs and MSPs should be the same as or equivalent to

those imposed by the Dodd-Frank Act. In contrast, ICE commented that

requiring equivalent or comparable regulation of foreign swap dealers

or major swap participants is premature, positing that the proper

course is for the CFTC to ``work with foreign regulators to ensure

high-level comparable regulation of market participants.'' As

previously noted, FOA expressed concern that this type of analysis

could easily lead to a ``line by line'' examination of the EU's

approach to the regulation of derivatives transactions, central

counterparties and trade repositories, which would complicate cross-

border business and increase the risk of inadvertent breaches of rules.

The Commission has determined that it would not be appropriate, in

the context of this rulemaking, when making a determination as to the

comparability and comprehensiveness of the supervision and regulation

of the relevant regulatory regime with respect to the registration of

an FBOT, to require examination of the regulatory oversight of SDs and

MSPs in the applicable home country jurisdictions. CEA section 4(b)

applies with respect to FBOTs that wish to provide for direct access

and the CEA section 4(b)(1)(A)(i) standard of review to be applied is

``whether any such foreign board of trade is subject to comparable,

comprehensive supervision and regulation by the appropriate

governmental authorities in the foreign board of trade's home

country.'' The Commission believes that the review standard is thereby

appropriately focused on an FBOT's operations, including its clearing

organization, and its regulatory authority. Thus, the appropriate

review here is to examine the FBOT's membership and trading participant

standards as they relate to trading on the FBOT. If such membership

and/or trading participant standards have been determined to be

adequate by the FBOT's regulatory authority, which has been determined

to provide comparable, comprehensive supervision and regulation of the

FBOT, any further participant review would be beyond the scope of CEA

section 4(b).

[[Page 80684]]

3. Contracts

a. Linked Contracts

(i) Definition

Proposed Sec. 48.2(d) defined a linked contract as ``a futures or

option or swap contract made available for direct access from the

United States by a registered foreign board of trade that settles

against any price (including the daily or final settlement price) of

one or more contracts listed for trading on a registered entity as

defined in section 1a(40) of the Act.'' \43\ Three commenters requested

clarification with respect to this definition.\44\ NGX requested that

the Commission clarify the definition of linked contract to take into

account the nuanced distinction between (1) contracts which are settled

against the settlement price of a contract listed for trading on a U.S.

contract market and (2) basis contracts, the prices of which are merely

quoted with reference to another market. Better Markets commented that

the definition of linked contract is far too narrow, and argued that it

should include contracts that are reasonably likely to influence prices

of the DCM/SEF-traded contracts as well as contracts that directly

reference the prices of DCM/SEF-traded contracts. LME requested

clarification on the scope of the definition of linked contract,

commenting that LME did not believe the definition captured any

contract of the type traded on LME.

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\43\ Registered entity is defined in CEA section 1a(40) to mean:

(A) A board of trade designated as a contract market under section 5

of the Act; (B) a derivatives clearing organization registered under

section 5b of the Act; (C) a board of trade designated as a contract

market under section 5f of the Act; (D) a swap execution facility

registered under section 5h of the Act; (E) a swap data repository

registered under section 21 of the Act; and (F) with respect to a

contract that the Commission determines is a significant price

discovery contract, any electronic trading facility on which the

contract is executed or traded.

\44\ NGX, Better Markets, and LME.

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The Commission has determined to adopt the definition in Sec.

48.2(d) substantially as proposed. The definition of linked contract

leading to the requirement to impose additional conditions on such

contracts is based upon the statutory description of linked contracts

found in CEA section 4(b)(1)(B).\45\ With respect to contracts that do

not meet the definition of linked contracts, the proposal provided that

applicants must identify contracts that share any other commonality

(changed to relationship in the final rule) with a contract listed for

trading on a registered entity-- for example, if both the FBOT's and

the registered entity's contracts settle to the price of the same third

party-constructed index. With respect to these types of contracts, as

with all conditions of registration, the final rule provides that the

Commission, in its discretion and after appropriate notice and

opportunity to respond, may impose additional conditions on the

registered FBOT. Such additional conditions would be imposed if deemed

necessary by the Commission to maintain its ability to carry out its

market surveillance responsibilities when faced with contract

relationships that essentially create a single market for the contracts

listed by the FBOT and the registered entity and could include, among

others, the conditions applicable to the listing of a linked contract.

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\45\ The Commission does not believe that any LME contract

currently made available for direct access under LME's no-action

relief, all of which settle against prices generated by the LME,

would fall into that definition.

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(ii) Conditions

Proposed Sec. 48.8(c) applied certain additional specified

conditions for FBOTs that make linked contracts available by direct

access. \46\ The conditions included in Sec. 48.8(c)(1), as set forth

in CEA section 4(b)(1)(B), included: (1) Making public daily trading

information regarding the linked contract that is comparable to the

daily trading information published for the contract to which it is

linked; (2) adopting position limits for the linked contract that are

comparable to the position limits adopted by the registered entity for

the contract to which it is linked; (3) having the authority to require

or direct any market participant to limit, reduce, or liquidate any

position; (4) agreeing to promptly notify the Commission of certain

changes with respect to the linked contract; (5) providing information

to the Commission regarding large trader positions in the linked

contract that is comparable to the large trader position information

collected by the Commission for the contract to which it is linked; and

(6) providing the Commission such information as is necessary to

publish reports on aggregate trader positions for the linked contract

that are comparable to such reports on aggregate trader positions for

the contract to which it is linked.

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\46\ Under the proposed regulations, the requirements to

register and to comply with the conditions for making available

linked contracts are applicable only to those FBOTs which make such

contracts available through direct access. The registration and

linked contract provisions of the final rule do not extend to FBOTs

that do not provide direct access to the FBOT's trade matching

system from the U.S.

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The other conditions on linked contracts, set forth in Sec.

48.8(c)(2), are based on the second set of additional conditions the

Commission imposed on the no-action relief issued to ICE Futures Europe

when that exchange made available for trading by direct access certain

contracts in energy commodities linked to the prices of contracts

traded on NYMEX.\47\ The conditions would require that the FBOT, among

other things, (1) inform the Commission in a quarterly report of any

member that had positions in a linked contract above the applicable

FBOT position limit, (2) provide trade execution and audit trail data

for input to the CFTC's Trade Surveillance System (TSS), (3) provide

for CFTC on-site visits for the purpose of overseeing the FBOT's and

the clearing organization's ongoing compliance with registration

requirements and conditions, (4) provide, at least one day prior to the

effective date, copies of, or hyperlinks to, all rules, rule

amendments, circulars and other notices published by the FBOT with

respect to all linked contracts, (5) provide copies of all disciplinary

notices involving the FBOT's linked contracts, and (6) promptly take

similar action with respect to its linked contract in the event that

the CFTC, pursuant to its emergency powers authority, directs that the

U.S. registered entity which lists the contract to which the FBOT's

contract is linked to take emergency action with respect to a linked

contract (e.g., to reduce positions in or cease trading in the

contract).

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\47\ See CFTC Letter No. 09-37 (August 20, 2009).

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Five commenters addressed these additional conditions.\48\ With

respect to linked contracts and position limits, LME, noting that

foreign markets may well implement restrictions that could be more

effective than position limits in addressing the regulatory objectives

to be addressed by position limits, suggested that FBOTs should be

permitted to adopt the position limits of a linked market as a safe

harbor, but that the CFTC should also permit applicants to submit for

approval any alternative approach that the Commission determines to be

comparable in result. OSE argued that the proposed additional

conditions for linked contracts are only necessary when an FBOT has

more than a de minimis amount of trading in a linked contract.

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\48\ LME, OSE, Senator Carl Levin, CMOC and ATA.

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OSE also noted that the burdens associated with proposed Sec.

48.8(c)(2) may be overly costly and could be narrowed. Specifically,

OSE commented on proposed Sec. 48.8(c)(2)(ii), which would require

that the FBOT provide trade execution and audit trail data on

[[Page 80685]]

a linked contract for input into the TSS on a routine basis by the day

following the trade date. OSE suggested that the Commission assess the

relative burdens of the requirement and whether it could achieve the

regulatory purpose through a more targeted requirement, such as

requiring the data on an ``as necessary'' rather than on a daily basis.

OSE also expressed concern about proposed Sec. 48.8(c)(2)(vi), which

would require the FBOT, in the event that the Commission directs that

the registered entity that lists the contract to which the FBOT's

contract is linked take emergency action with respect to a linked

contract, subject to information-sharing arrangements between the

Commission and its regulatory authority, to promptly take similar

action with respect to the its linked contract. OSE suggested that it

is preferable for the Commission to coordinate the actions that the

FBOT should take in response to a market disruption or event through

the FBOT's regulator, in recognition of international comity.

Two commenters, Senator Carl Levin and ATA, strongly supported the

proposed linked contract conditions, both specifically identifying the

requirement that the FBOT share its trade execution and audit trail

data, as well as the position limit provisions. Senator Levin commented

that sharing trading data is vital for the Commission to detect price

manipulation and excessive speculation involving U.S. futures traded on

foreign exchanges. Further, Senator Levin noted that he believed the

linked contract provisions would help to close the ``London loophole''

(a scheme, whereby, according to Senator Levin, traders move their

trading activity to foreign markets to avoid position limits set by

U.S. exchanges) by ensuring that the Commission is able to police FBOT

trading in U.S. commodities to stop excessive speculation, price

manipulation, and market disruptions. CMOC encouraged the CFTC to

require that the FBOT impose position limits that are at least equal to

or lower than the limits to be imposed in the U.S. on registered

entities under the Dodd-Frank Act.

The Commission has determined to adopt Sec. 48.8(c) substantially

as proposed. The first set of conditions for linked contracts, found in

Sec. 48.8(c)(1) are statutory-based conditions which are specifically

required by the CEA section 4(b)(1)(B). The second set of conditions

for linked contracts, found in Sec. 48.8(c)(2), as previously noted,

represent the second group of additional conditions the Commission

imposed on the no-action relief issued to ICE Futures Europe when that

exchange made available for trading by direct access contracts linked

to the prices of contracts traded on NYMEX. These conditions remain

necessary because such linkages create a single market for the subject

contracts and, in the absence of certain preventive measures at the

FBOT, could compromise the Commission's ability to carry out its market

surveillance responsibilities. Because of the linkage, the trading of

the linked contracts on an FBOT potentially affects the pricing of

contracts traded on registered entities.

With respect to the proposed Sec. 48.8(c)(2)(ii) trade execution

and audit trail data on a linked contract reporting requirement, the

Commission has considered comments urging the Commission to require the

data on an ``as necessary'' rather than on a daily basis and has

determined that the timely provision of such information is essential

if the Commission is to adequately carry out its trade practice and

market surveillance responsibilities with respect to the linked

contract listed on the registered entity. Commission staff conducts

surveillance and reviews the trading data on a daily basis, and the

trade data from the FBOT's linked contract are a critical component of

this surveillance. With respect to the proposed Sec. 48.8(c)(2)(vi)

coordinated emergency action requirement, the Commission believes that

the timeliness of any required emergency action, which would be taken

only if necessary to protect the market and the public, is critical and

outweighs the benefit that would be derived from coordinating actions

through the FBOT's regulator. The Commission notes that the requirement

to take emergency action is an extremely rare event and, in the normal

course of business, the Commission would, time permitting, coordinate

with the FBOT's regulator regarding critical actions to be taken

concerning a linked contract.

The Commission has determined to modify the second set of

conditions on linked contracts by moving the requirement in proposed

Sec. 48.8(c)(2)(iii), which provided for CFTC on-site visits for the

purpose of overseeing the FBOT's and the clearing organization's

ongoing compliance with registration requirements and conditions, to

Sec. 48.8(a)(8), thus making it a general condition for maintaining

registration.

b. Swaps and Other Contracts

(i) Swaps

Under proposed Sec. 48.7(c)(1)(i), a registered FBOT would be

permitted to provide direct access to futures, options, and swap

contracts that would be eligible to be listed for trading on a DCM.

Five commenters supported permitting the execution of swaps on an FBOT

by persons located in the U.S. by direct access.\49\ Eurex, for

instance, commented that the Commission should permit FBOTs to provide

trading access to qualified U.S. persons for trading swaps that are

listed on the FBOT, noting that the currently proposed conditions on

FBOTs would be sufficient for them to comply with the purposes of the

Dodd-Frank Act regarding swap trading.

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\49\ Eurex, ICE, NGX, MX, and BG.

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The Commission has determined to adopt the rule as proposed. The

Commission notes, however, that the regulations would only permit an

FBOT to make swaps available to persons located in the U.S. for trading

by direct access after the FBOT, its clearing organization, and the

swaps to be made available by direct access have been determined by the

Commission to be subject to comparable, comprehensive supervision and

regulation by the appropriate governmental authorities in the FBOT's

home country. Moreover, only swaps that would be permitted to be traded

on a DCM could be made available, all such traded swaps would be

required to be cleared, and the parties trading such swaps would be

required to satisfy FBOT membership/trading participant standards that

would have been reviewed and approved by the FBOT's regulatory

authority.\50\

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\50\ The Commission notes that its decision to permit registered

FBOTs to make swaps available via direct access to persons located

in the U.S. is guided in part by the fact that the Dodd-Frank Act

permits swaps to be listed for trading on a DCM and the FBOTs that

are eligible to be registered are defined by Sec. 48.2(b) as FBOTs

that possess the attributes of an established, organized exchange.

This definition was intended to restrict FBOT registration

eligibility to entities similar in nature to those that received

direct access no-action relief in the past (e.g., entities that are

comparable in operation and regulation to registered DCMs).

Moreover, there is nothing in the Dodd-Frank Act, including section

738 of the Dodd-Frank Act amending section 4(b) of the Act, which

expressly precludes a registered FBOT from offering swaps through

direct access. However, the Commission also believes that the terms

and conditions of any swap contract to be made available to persons

located in the United States through direct access must demonstrate

that such contract would meet review standards similar to those of a

swap to be listed on a DCM and must demonstrate that the contract is

not one that a U.S. person would be prohibited from trading.

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Registered FBOTs that permit swaps to be traded by direct access

would also be subject to additional conditions, including the

requirement to ensure that all swap transaction data, including price

and volume, are timely reported as soon as technologically practicable

after execution of the swap transaction to a

[[Page 80686]]

swap data repository (SDR) that is either registered with the

Commission or has an information-sharing arrangement with the

Commission. Additionally, the FBOT must agree to coordinate with the

Commission with respect to arrangements established to address cross

market oversight issues involving swaps trading, including

surveillance, emergency actions, and the monitoring of trading.

Finally, based on its experience in administering these FBOT

registration provisions and other rules related to swaps trading, the

Commission may, in its discretion and after notice and an opportunity

to respond, impose additional conditions upon the FBOT's registration

with respect to the listing of swaps contracts.

(ii) Clearing of Swaps

Under proposed Sec. 48.7(c)(1)(ii), all contracts that could be

made available to be traded by direct access, including swaps, would be

required to be cleared. ICE, BG Americas, and NGX opposed the mandatory

clearing requirement for swaps. ICE commented that the clearing mandate

contained in the proposed regulations differed from the clearing

requirements applicable to swaps transactions on U.S. markets.

Specifically, transactions executed on a swap execution facility (SEF)

would not be required to be cleared if such transactions were not

subject to the mandatory clearing requirements set forth in the Act.

NGX noted that end users executing swaps on SEFs would be exempt from

the mandatory clearing requirements pursuant to section 2(h)(7) of the

Act. Similarly, BG Americas commented that the mandatory clearing

standard applicable to transactions executed on an FBOT would be higher

than that applicable to U.S. exchanges, in light of the available

exemptions from the clearing requirement in the CEA, and recommended

that the Commission clarify in the final rule that the mandatory

clearing requirements on FBOTs will be no different from the clearing

requirements on U.S. exchanges.

The Commission has determined to adopt Sec. 48.7(c)(1)(ii) as

proposed. All three commenters supported their view by referencing the

clearing standards applicable to transactions executed on SEFs, not on

DCMs. As stated above, both the proposed and final Sec. 48.2(b)

restrict the universe of FBOTs that are eligible to be registered under

part 48 to those that possess ``the attributes of an established,

organized exchange or other trading facility.'' This provision is

intended to limit FBOT registration eligibility to the types of

entities to which direct access no-action relief has been granted in

the past (e.g., entities that are comparable in operation and

regulation to registered DCMs). Accordingly, the Commission believes

that the treatment of swaps that registered FBOTs will make available

for trading to members and other participants located in the U.S.

through direct access should parallel the treatment afforded to swaps

transactions that may be traded on DCMs.

The CEA requires swaps transactions that are traded on a DCM to be

cleared. Specifically, CEA section 5(d)(11) includes DCM Core Principle

11, ``Financial Integrity of Transactions,'' which requires a board of

trade to establish and enforce rules and procedures for ensuring the

financial integrity of transactions entered into on or through the

facilities of the contract market (including the clearing and

settlement of transactions with a DCO). Accordingly, the Commission

believes that it is appropriate to require that all transactions

(including swaps) that are eligible to be traded by direct access

pursuant to an FBOT registration be cleared.

(iii) Swaps Data Reporting

Under proposed Sec. 48.8(a)(9)(i), a registered FBOT permitting

swaps to be traded by direct access would be required to report to the

public, on a real-time basis, data relating to each swap transaction,

including price and volume, as soon as technologically practicable

after execution of the swap transaction. Under proposed Sec.

48.8(a)(9)(ii), a registered FBOT permitting swaps to be traded by

direct access would be required to ensure that all swap transaction

data is timely reported to an SDR that is either registered with the

Commission or has an information-sharing arrangement with the

Commission.

Two commenters addressed these reporting requirements. ATA

expressed concern about the effect of real-time reporting on their

members' ability to hedge and recommended that this requirement be

revised to allow delayed reporting to permit counterparties to close

their related transactions. ICE expressed the view that the CFTC should

not require all FBOTs to report swaps transactions to an SDR.\51\

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\51\ ICE noted that the SDR rules for domestic markets have not

been finalized and SDRs are not yet operational and that,

accordingly, the CFTC should delay implementation of this

requirement until SDR rules are finalized and SDRs are operational.

Further, the CFTC could rely on reporting to the CFTC from the FBOT,

its clearing organization, or the foreign regulatory authority under

an information-sharing arrangement.

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The Commission has determined to retain both reporting

requirements, but to modify the proposed rule with respect to the

responsibility for real-time reporting of swaps transaction information

to the public. The Commission recognizes that the real-time reporting

of swaps information to the public and the reporting of swaps

transactions to an SDR are key objectives of the Dodd-Frank Act. Real-

time reporting enhances price discovery. Reporting swaps transactions

is necessary to permit the Commission and other regulatory authorities

to view the market as a whole. As previously stated, Sec. 48.2 is

intended to restrict the universe of FBOTs that are eligible to be

registered under part 48 to those entities that are comparable in

operation and regulation to registered DCMs. The Commission anticipates

that DCMs will be required to ensure that all swap transaction data,

including price and volume, are timely reported to an SDR after

execution of the swap transaction. Real-time swap transaction and

pricing data will then, in turn, be publicly disseminated by the SDR.

Accordingly, the Commission has determined to limit the registered FBOT

reporting requirements contained in Sec. 48.8(a)(9)(i) to an

obligation to ensure that all transaction data relating to each swap

transaction, including price and volume, be reported to an SDR that is

registered with the Commission or has an information sharing

arrangement with the Commission.

The Commission is aware that no SDRs are either registered or

operational at this time. Accordingly, until such time as appropriate

SDR operations are in place, the conditions contained in Orders of

Registration issued to FBOTs that wish to permit members and other

participants to trade swaps via direct access will indicate that the

FBOT may list such swaps for direct access but will be required to

comply with Sec. 48.8(a)(9)(i) as soon as practicable following the

licensing or registration of a SDR that meets applicable requirements.

(iv) Contracts Other Than Futures, Options, and Swaps

Proposed Sec. 48.7(c)(1)(i) provided that contracts that may be

made available by direct access by a registered FBOT must be futures,

option, or swaps contracts. LME and NGX requested clarification with

respect to whether the proposed rules would permit an FBOT to offer

spot and forward contracts and other similar physically-settled

transactions. NGX also asked the Commission to clarify that, although

the proposed regulations would permit a registered FBOT to list for

trading through direct access any contract that is legally

[[Page 80687]]

offered in the U.S., only those contracts that are regulated under the

Act would be within the scope of the FBOT registration provision.

The Commission has determined to adopt the rule as proposed. As

stated in the proposal, those types of contracts subject to the CFTC's

jurisdiction are within the ambit of the FBOT registration rules. The

registration provisions do not preclude an FBOT from making available

to participants located in the U.S. other products (e.g., spot

contracts and forward contracts) to the extent applicable law otherwise

allows. The Commission also has determined to remove any reference to

products from the FBOT definition set forth in Sec. 48.2(a).

(v) Review of Contracts

Proposed Sec. 48.7(c) would require that an FBOT, as part of its

application for registration, provide, among other things, the terms

and conditions of the futures, option and swaps contracts intended to

be made available for direct access. Additionally, proposed Sec. 48.10

would require a registered FBOT that wishes to offer new contracts

subsequent to registration to submit such contracts to the CFTC for

review prior to making the additional contracts available for trading

by direct access. LME commented that the Commission should adopt an

exemptive, rather than a registration, regime and require contract

designation, similar to that applied by the Commission when a DCM

submits a new contract for listing, only with respect to linked

contracts.

The Commission has determined to adopt Sec. Sec. 48.7(c) and 48.10

as proposed, modified to reflect newly adopted procedures, discussed

below, applicable to the offer or sale, to persons in the U.S., of non-

narrow-based security index futures and option contracts. The

Commission believes that it is necessary to review the terms and

specifications of all contracts before they are made available for

trading by direct access to ensure that the contracts would be legally

permitted to be traded on a DCM and otherwise conform to the

requirements and conditions applicable to contracts listed on the FBOT

for trading by direct access by persons located in the U.S. The

Commission also believes that it is necessary and appropriate to review

new contracts in order to, among other things, determine that the

contracts are actually futures, option, or swap contracts; ensure that

they are not contracts determined by the Commission pursuant to CEA

section 5c(c)(5)(C)(i) to be contrary to the public interest; ensure

that they are not contracts on such products as security futures or

narrow-based stock indexes or other securities regulated by the U.S.

Securities and Exchange Commission; and determine whether the contract

is linked to or may otherwise have some impact on a contract traded on

a CFTC-regulated entity. The Commission notes that the treatment of new

products set forth in the proposed and final rules is consistent with

the existing practice under the no-action regime. The Commission

further notes that, in the past, Commission staff has attempted to

complete its review of additional contracts proposed to be made

available for direct access promptly. Thus, an FBOT's ability to bring

such contracts to market quickly generally has not been impaired.

With respect to the listing of additional non-narrow-based security

index futures and option contracts to be made available by direct

access, proposed Sec. 48.10 provided that a registered FBOT could list

for trading such an additional futures contract pursuant to the

procedures set forth in Appendix D to Part 30. Proposed Sec. 48.10

also provided that a registered FBOT could, without further action by

either the FBOT or the Commission, list for trading an additional

option contract on a non-narrow-based security index futures contract

which could be offered or sold in the United States pursuant to a no-

action letter issued by the Commission's Office of the General Counsel.

HKFE requested clarification with respect to any interrelationship

between the proposed rules and the approval process for the offer and

sale of index products to persons in the U.S.

The Commission has revised its procedures applicable to the offer

or sale, to persons in the U.S., of a non-narrow-based security index

futures contract traded on an FBOT to conform to recent amendments to

its regulations.\52\ Generally, the new procedures involve the issuance

of a Commission certification rather than a no-action letter.

Accordingly, Sec. 48.7(c)(2) has been added and provides that foreign

futures (and option contracts) on non-narrow-based security indexes

must have been certified by the Commission pursuant to the procedures

set forth in Sec. 30.13, and Sec. 48.10 has been updated and now

provides that a registered FBOT may list for trading by direct access

an additional futures (or option contract) on a non-narrow-based

security index pursuant to the Commission certification procedures set

forth in Sec. 30.13(d) and Appendix D to Part 30. Further, with

respect to option contracts, if the option is on a non-narrow-based

security index futures contract which may be offered or sold in the

United States pursuant to a Commission certification issued pursuant to

Sec. 30.13, the option contract may be listed for trading by direct

access without further action by either the registered FBOT or the

Commission.\53\ In response to HKFE's query, the Commission notes that

the Commission certification procedures for non-narrow-based security

indexes and the FBOT registration procedures are independent of each

other, with the exception that a registered FBOT applying for

Commission certification to offer or sell to persons located within the

U.S. a non-narrow-based security index contract may, in that same

request, pursuant to Sec. 30.13(k), request that such contract be made

available for trading by direct access.

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\52\ See Foreign Futures and Options Contracts on a Non-Narrow-

Based Security Index; Commission Certification Procedures, 76 FR

59241 (September 26, 2011).

\53\ Upon the implementation date, regulations 48.7(c) and 48.10

supersede and replace the provisions included in the ``Notice of

Revision of Commission Policy Regarding the Listing of New Futures

and Option Contracts by Foreign Boards of Trade That Have Received

Staff No-Action Relief to Provide Direct Access to Their Automated

Trading Systems from Locations in the United States'' (71 FR 19877;

April 18, 2006; corrected at 71 FR 21003, April 24, 2006) and the

``Notice of Additional Conditions on the No-Action Relief When

Foreign Boards of Trade That Have Received Staff No-Action Relief To

Permit Direct Access to Their Automated Trading Systems from

Locations in the United States List for Trading from the U.S. Linked

Futures and Option Contracts and a Revision of Commission Policy

Regarding the Listing of Certain New Option Contracts,'' 74 FR 3570

(January 21, 2009).

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4. Direct Access Definition

Proposed Sec. 48.2(c) defines direct access to mean ``an explicit

grant of authority by a foreign board of trade to an identified member

or other participant located in the United States to enter trades

directly into the trade matching system of the foreign board of

trade,'' which is identical to the definition provided in CEA section

4(b)(1)(A). LME and HKFE requested clarification of the definition.

LME requested clarification of the degree to which the definition

covers access to application programming interfaces (API) developed by

members to interface with exchange systems. LME indicated that it

understood the direct access definition to include access to the

graphical user interface of an FBOT, and not indirect access via an

API. HKFE asked the Commission to clarify the meaning of ``explicit

grant of authority'' and to provide examples of the kind of conduct or

actions on the part of an FBOT that would be regarded

[[Page 80688]]

as ``an explicit grant of authority.'' HKFE also requested that the

CFTC clarify the position taken previously in connection with the

granting of a direct access no-action letter that an automatic order

routing connection from the U.S. to an FBOT would not be considered as

``direct access.'' Similarly, in relation to proposed Sec. 48.8(a)(4),

which addresses restrictions on direct access, ASX requested that the

placement of terminals in non-exchange participant offices, and the

conditions thereof, be specified in the new rules.

The Commission has determined to adopt the rule as proposed. Direct

access is defined in the CEA and in the proposed and final regulations

to mean an explicit grant of authority by an FBOT to an identified

member or other participant located in the U.S. to enter trades

directly into the trade matching system of the foreign board of trade.

This means that the FBOT itself, and not its members or participants,

has identified and permitted a member or participant to enter trades

directly into the FBOT's order matching and trade entry system from the

U.S. The electronic means of entry to the trading system may be through

the internet, a dedicated closed electronic system, an API, or other

type of electronic interface--the dispositive factor is that the order

is transmitted by an identified member or other participant located in

the U.S. and the order is entered directly into the trade matching

system. Thus, it does not constitute direct access if the order is sent

by a person in the U.S. by means of an automated order routing system

(AORS) to an intermediary located outside of the U.S. for further

action or to pass through an order entry or risk management filter at

the intermediary prior to reaching the trade matching engine.

Proposed Sec. 48.8(a)(4), which addresses restrictions on direct

access, requires that the FBOT not provide, and take reasonable steps

to prevent, third parties from providing direct access to the FBOT.

This provision is intended to restrict direct access to FBOT-authorized

persons by such methods as restricted access to hardware, password

control, and other similar physical or electronic security measures. It

is not intended to prohibit a registered FBOT from authorizing its

member firms or other participants eligible to handle U.S. customer

orders to permit their customers in the U.S. to access the trading

system using the member firm's or participant's member ID (mnemonic) or

password. In other words, a registered FBOT's member or participant

located outside of the U.S. may, if so authorized by the FBOT, permit

customers in the U.S. to transmit orders directly to the trade matching

engine. The Commission is aware that two FBOTs currently operating with

direct access no-action relief--ASX \54\ and HKFE \55\--permit their

exchange participants to allow non-exchange participants in the U.S. to

have access to the exchanges' trading systems, subject to a guarantee

from an exchange participant firm.

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\54\ CFTC Letters No. 01-75 (July 30, 2001) and No. 04-32

(October 25, 2004).

\55\ CFTC Letter No. 01-74 (July 30, 2001).

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5. Scope of Registration (i.e., CEA Sections 5 and 5a)

HKFE commented that there is no express provision in the proposed

rules stating that registration under Part 48 would relieve an FBOT

from compliance with CEA section 5 or 5a (that is, registering as

either a DCM or DTEF). HKFE asked for clarification as to whether

registration would relieve an FBOT from compliance with CEA section 5

or 5a.

The Commission has determined to adopt the rule as proposed.

Registration with the Commission under the Part 48 regulations would

relieve an FBOT from compliance with CEA section 5 and its requirement

to register with the Commission as a DCM and comply with the core

principles and regulations associated with DCMs to the extent that its

activity within the U.S. is limited to permitting members and other

participants located in the U.S. to have direct access to its trade

matching system, subject to the terms and conditions of registration,

and so long as it remains an FBOT. Of course, the registered FBOT

could, alternatively, choose to comply with CEA section 5 and become a

registered DCM, subject to the regulatory requirements applicable

thereto. The Commission notes that CEA section 5a was repealed by the

Dodd-Frank Act.

6. Registration Requirements and Conditions

Proposed Sec. 48.7 identified certain requirements that must be

satisfied by an FBOT seeking to register with the Commission. Proposed

Sec. 48.8 imposed various continuing conditions on registered FBOTs.

Several commenters raised issues related to the proposed requirements

and conditions.

a. Trading Rules

Proposed Sec. 48.7(b) identified the attributes of the automated

trading system that would be required to be met by any FBOT seeking to

register with the Commission. In response to the proposal's request for

comment with respect to whether the Commission should require FBOTs to

adopt additional conditions to promote orderly markets and customer

protection, such as automated safety features to protect against errors

in the entry of orders, price-banding mechanisms, maximum order size

limitations, or trading pauses to prevent cascading stop-loss orders,

ICE commented that the Commission should not issue prescriptive trading

rules for FBOTs and that the foreign regulator, not the CFTC, has the

primary interest in adopting rules in this area. Further, ICE noted

that the CFTC should work through international regulatory groups like

IOSCO to implement consistent controls, instead of prescriptive rules.

The Commission has determined not to require, as a requirement for,

or a condition of, registration, that FBOTs adopt such automated safety

features. The Commission believes that the primary interest in adopting

rules in this area remains with the foreign regulatory authority. The

Commission believes that the trading system attributes described in and

required by Sec. 48.7(b), which include compliance with the IOSCO

Principles for Screen-Based Trading, are adequate to ensure the FBOT's

trading system, among other things, is fair, reliable, capable of

responding to emergencies, provides an adequate audit trail, and

provides for reporting of trade data. They are features common to all

automated trading systems that staff has reviewed in the context of the

no-action process.

b. Information Sharing

Proposed Sec. 48.8(a)(6) imposed certain information sharing

obligations on a registered FBOT and its clearing organization. NYX

asserted that the CFTC should not seek to obtain information directly

from a clearing organization. Rather, the CFTC should look to the

exchange--which should always be able to provide all the information

held by the clearing organization in relation to business conducted on

that exchange. NYX also commented that some European clearing

organizations have the status of banks (e.g., LCH Clearnet SA), and so

may find it difficult to share information directly with the Commission

rather than through their regulators.

The Commission continues to believe that it would be appropriate

and expedient to obtain information regarding the clearing function

directly from the clearing organization, in lieu of relying upon

intermediation by another entity. Nonetheless, with respect to the FBOT

being better able to provide

[[Page 80689]]

information requested of the clearing organization, the Commission

notes that Sec. 48.8(a)(6)(iii) provides that the FBOT and its

clearing organization, as applicable, will provide information for

certain purposes directly to the Commission. Accordingly, an FBOT could

provide the information directly to the Commission, if it were better

able to do so. Such information also could be provided by the

applicable regulatory authority, although the FBOT and its clearing

organization remain ultimately responsible to provide the information

directly to the Commission under the final rule.

c. Submission of U.S.-Domiciled Entities to Service of Process

As a condition of registration, proposed Sec. 48.8(a)(5) would

require that certain members or other participants granted direct

access by a registered FBOT (1) file a written representation with the

Commission submitting to the CFTC's jurisdiction, (2) file a valid and

binding appointment with the FBOT of an agent for service of process in

the U.S., and (3) maintain a written representation with the FBOT that

it will provide the Commission and other U.S. authorities with access

to books and records and to the premises where the FBOT's trading

system is made available in the U.S. LME questioned the need to require

U.S.-based persons with direct access to foreign markets (FBOTs) that

trade from the U.S. to comply with these three conditions. LME argued

that in terms of personal jurisdiction, a U.S.-based person with direct

access to an FBOT raises no more jurisdictional issues than a U.S.-

based person trading on a U.S. market, as long as both traders are

conducting their trading from the U.S.

Upon further review and consideration of the comments received, the

Commission has determined that Sec. 48.8(a)(5)(iii), which obligated a

registered FBOT to require that each current and prospective member or

other participant that is granted direct access pursuant to the FBOT's

registration and that is not registered with the Commission as a FCM, a

CTA or a CPO file with the FBOT a valid and binding appointment of a

U.S. agent for service of process in the U.S., is not necessary.

Accordingly, that section has been deleted from the final rule.

However, the Commission has determined that the remaining two

conditions applicable to members and participants should be adopted as

proposed. The Commission believes these conditions remain necessary to

ensure that the FBOT members and other participants that have been

granted direct access to an FBOT's trading system knowingly consent to

submit to the CFTC's jurisdiction and to provide the Commission and

other appropriate U.S. authorities with access to relevant books,

records and trading premises in the U.S.

7. Modification of Registration Requirements

Proposed Sec. 48.5(e) provided that the Commission may, after

appropriate notice and an opportunity for hearing, amend, suspend,

terminate or otherwise restrict the terms of an Order of Registration.

ASX noted that the proposed rules refer to the ability to modify

relief, and asked whether the Commission would provide any clarity with

respect to applying for modification and the criteria for modification.

The Commission believes it is not necessary to promulgate a

specific procedure for applying for modification of FBOT registration

requirements or to delineate the circumstances under which modification

might be granted. While the Commission would consider a request for

modification of specified registration requirements or conditions if

such request is supported by adequate justification and appropriate

documentation, the Commission does not anticipate that modifications

would be granted unless particularly unique factual circumstances are

presented. Given that such requests would involve a unique set of facts

and circumstances, the Commission believes that a case-by-case approach

is appropriate and thus, is adopting Sec. 48.5(e) substantially as

proposed, except that the rule now provides for appropriate notice and

an opportunity to respond.

8. Other Concerns

a. Prescriptive Nature of the Regulations

Three commenters voiced concern regarding the risk of protectionism

by foreign regulators that might arise in the event that the Commission

adopts overly prescriptive registration regulations for FBOTs.\56\ FOA

noted that the standards set in the U.S. for recognition of foreign

regulators would impact, for example, the European approach to the

recognition of U.S. market infrastructures. CME Group expressed concern

that the proposed rules were overly prescriptive and noted that the

Commission should be cognizant of the ``realistic possibility'' that

enacting the proposed rules might encourage foreign regulators to adopt

a reactive regulatory stance toward U.S.-based exchanges. HKFE asserted

that the adoption of the proposed rules would be a departure from the

CFTC's long-standing policy of mutual recognition and comity and that

this could lead to the diminution rather than the expansion of global

connectivity.

---------------------------------------------------------------------------

\56\ HKFE, FOA, and CME Group.

---------------------------------------------------------------------------

The Commission has determined to adopt the rule as proposed. The

Commission believes that its final regulations properly standardize the

process by which FBOTs are permitted to provide direct access to U.S.-

located persons, enhance the transparency of that process, ensure

consistency and fairness to all applicants for registration, provide

greater legal certainty to registered FBOTs, and are more consistent

with the manner in which other countries permit U.S. DCMs to provide

direct access to their trading systems from within their borders. As

previously noted, the Commission believes that the registration

requirements in the final rule represent a principles-based approach to

limited oversight and are not overly prescriptive. FBOTs will be

required to demonstrate, in a manner consistent with the part 48

regulations, that they operate under supervision and regulation that is

comparable to that provided by the Commission's regulatory regime for

DCMs, but will not be required to comply with the core principles

applicable to DCMs under the CEA and the Commission's regulations.

b. Alternative Trading Platforms

HKFE questioned whether the proposal's definition of FBOT would

cover alternative trading platforms such as non-U.S.-based dark pools.

Further, HKFE questioned whether, if the intention of the proposed

rules is to not cover non-U.S. based dark pools or is designed with

such threshold requirements as to effectively affect only traditional

exchanges in overseas jurisdictions (as not all FBOTs (as defined) are

eligible for registration under the proposed rules), an uneven playing

field may be created in favor of these dark pools if access to them is

available from the U.S.\57\

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\57\ The definition of ``board of trade'' as set forth in CEA

section 1a(2) refers to ``any organized exchange or other trading

facility.'' As such, the statutory definition of ``board of trade''

does not preclude the possibility of alternative trading platforms

being covered by the FBOT registration scheme.

---------------------------------------------------------------------------

The Commission has determined to adopt the rule as proposed. The

proposal generally limited the markets eligible for FBOT registration

to bona fide exchanges that satisfy the eligibility standards set forth

in Sec. 48.2(b). The Commission expects that such exchanges might

include, for example,

[[Page 80690]]

exchanges recognized in the EU as Regulated Markets, in the UK as

Recognized Investment Exchanges (RIE), or in Japan as Licensed

Financial Instruments Exchanges. Of course, even if deemed a ``foreign

board of trade eligible to be registered'' under Sec. 48.2(b), the

FBOT would still have to satisfy all of the requirements and conditions

for registration set forth in the regulations. Foreign SEFs and similar

entities likely would not be eligible for FBOT registration unless they

could demonstrate they are operated and regulated in a manner that is

comparable and comprehensive to the manner in which DCMs (not U.S.

SEFs), are regulated by the Commission. The FBOT registration rule

should not create an uneven playing field in favor of dark pools since

such pools are not likely to qualify for registration and, thus, could

not provide for direct access under the FBOT registration rules.

c. Impact of FBOT Registration Rules

ICE suggested that the CFTC should consider the impact of its

registration scheme against the broader impact of the Dodd-Frank Act

and similar financial reform measures taken by other countries. The

Commission has determined to adopt the rule as proposed. The proposed

FBOT rules were considered against the international implications of

the Dodd-Frank Act and similar financial reform measures being taken by

other countries. Relevant financial reform measures taken by other

countries will be reviewed as part of the examination of the FBOT's

application for registration and, to the extent that such relevant

reform measures support regulatory objectives that are consistent with

those supported by the CFTC, will be favorably considered. The

Commission notes that the historical process of examining whether the

FBOT is subject to comparable and comprehensive regulation in its home

country has been, and will continue to be, the proper approach to

maintaining this balance between reliance upon a foreign regulatory

regime and ensuring that an FBOT whose trading and order matching

system can be accessed by U.S. customers provides adequate protections.

9. On-Going Review of Registered FBOTs

Three commenters indicated that under their interpretation of the

NPRM, the Commission would conduct on-going surveillance and

examination of FBOTs and their clearing organizations.\58\ For example,

Better Markets expressed the view that it is important to continuously

monitor both the structure of the foreign regulatory regime to which an

FBOT is subject and the quality of the administration of that structure

and that FBOTs should be required to annually re-affirm and demonstrate

the appropriateness of their foreign regulatory regimes, based upon the

standards relevant to their initial application for registration.

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\58\ Better Markets, CME Group, and Senator Levin.

---------------------------------------------------------------------------

As previously discussed, CME Group suggested that the Commission's

analysis of the FBOT and its regulatory regime should be more narrowly

tailored and that the Commission should limit its inquiry to questions

regarding the comparability of the regulatory regime in the FBOT's home

jurisdiction. If this approach were adopted, CME Group indicated that

it would expect that the Commission would continue to vigorously

monitor compliance with the core regulatory principles and ensure that

the process is not being abused to avoid legitimate CFTC regulation.

Senator Levin similarly commented that, to ensure market integrity,

the Commission must effectively police U.S.-based trading in FBOTs and

incorporate that activity into its regular surveillance and enforcement

efforts. He also noted that the proposed rules would need a robust

program of FBOT supervision, as well as surveillance and examination

programs that include an integrated review of the FBOT's U.S. trading

activity, asserting that the Commission also would need to bring

enforcement cases against individuals who engage in manipulative or

abusive trading practices that affect U.S. futures and cash markets and

market users and attempt to avoid detection by trading in foreign

markets in order to deter such activity.

The Commission has determined to adopt the rule as proposed. As

previously discussed, FBOTs will be required, prior to being

registered, to submit information and documentation demonstrating that

they are subject to comprehensive supervision and regulation by the

appropriate governmental authorities in their home country that is

comparable to the comprehensive supervision and regulation to which

DCMs are subject in the U.S. While the regulations require the FBOT and

its regulatory authority to provide critical information on an ongoing

basis to the Commission, any on-going review of the FBOT and its

clearing organization by the Commission generally will be limited to

reviewing the required information and documentation that the FBOT must

submit periodically to the CFTC and will not include direct

surveillance of trading activity. Staff may conduct periodic on-site

visits to validate information submitted as part of the registration

application and/or required to be submitted as a condition of

registration. Staff will, however, conduct additional review with

respect to linked contracts, and will monitor these contracts pursuant

to the additional conditions levied upon the FBOT for listing such

contracts, e.g., large trader and TSS reporting and comparable position

limits. The Commission believes that these provisions are adequate to

monitor the activities of the FBOT conducted pursuant to an Order of

Registration.

10. The Appendix

For purposes of enhanced clarity and standardization, the

Commission has elected to revise the proposed Appendix to Part 48 to

include the submission requirements identified therein in the proposal

in a standardized application form, Form FBOT and Supplement S-1 (for

the clearing organization) to Form FBOT. The Commission believes that

the use of this form will make it easier to guide applicants in the

organization and presentation of information and documentation and to

ensure that all required information is included in the application.

Use of the form also will improve the staff's ability to organize and

review the information in a timely manner.

III. Conclusion and Effective Date

A. Conclusion

For the reasons stated above and in the NPRM and after considering

the complete record in this matter, including all comments, the

Commission is adopting part 48 substantially as proposed, subject to

the revisions to the proposed rules identified above in response to

comments submitted or otherwise initiated by the Commission. This new

part 48 provides the rules and procedures to be followed by FBOTs that

wish to register in order to provide identified members and other

participants that are located in the U.S. with direct access to the

FBOT's order entry and trade matching system. Part 48 replaces the

practice, used since 1996, of issuing staff direct access no-action

relief letters to permit FBOTs to provide their members and other

participants located in the U.S. with direct access to their trading

systems and provides a transitional period for

[[Page 80691]]

those FBOTs that have received staff no-action relief.

B. Effective Date

This rule shall become 60 days after publication in the Federal

Register.

IV. Related Matters

A. The Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA) \59\ imposes certain

requirements on federal agencies (including the Commission) in

connection with their conducting or sponsoring any collection of

information as defined by the PRA. An agency may not conduct or

sponsor, and a person is not required to respond to, a collection of

information unless it displays a currently valid control number. The

final Part 48 rules impose new collection of information requirements

within the meaning of the PRA. Accordingly, the Commission requested,

but the Office of Management and Budget (OMB) has not yet assigned a

control number for the new collection of information. However, OMB has

assigned the reference number 201011-3038-003 in the interim. The

Commission has submitted this final rule along with supporting

documentation for OMB's review in accordance with 44 U.S.C. 3507(d) and

5 CFR 1320.11. The information collection burdens in the final rules

are identical to the collection burdens estimated by the Commission in

the proposing release, subject to the modifications discussed

below.\60\

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\59\ 44 U.S.C. 3501 et seq.

\60\ See the Commission's Paperwork Reduction Act analysis at 75

FR 70984-86 (Nov. 19, 2010).

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The Commission protects proprietary information according to the

Freedom of Information Act and 17 CFR part 145, ``Commission Records

and Information.'' In addition, section 8(a)(1) of the Act strictly

prohibits the Commission, unless specifically authorized by the Act,

from making public ``data and information that would separately

disclose the business transactions or market positions of any person

and trade secrets or names of customers.'' The Commission is also

required to protect certain information contained in a government

system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.

The Commission invited the public and other Federal agencies to

comment on any aspect of the information collection requirements

discussed in the NPRM. Pursuant to 44 U.S.C. 3506(c)(2)(B), the

Commission solicited comments in order to: (i) Evaluate whether the

proposed collections of information were necessary for the proper

performance of the functions of the Commission, including whether the

information will have practical utility; (ii) evaluate the accuracy of

the Commission's estimates of the burden of the proposed collections of

information; (iii) determine whether there are ways to enhance the

quality, utility and clarity of the information to be collected; and

(iv) minimize the burden of the collections of information on those who

are to respond, including through the use of automated collection

techniques or other forms of information technology.

In response to the Commission's request in the NPRM for comments on

any potential paperwork burden associated with the final rules, two

commenters provided substantive comments addressing the merits of the

Commission's proposed PRA calculations with respect to Sec. 48.6 and

the ``limited'' application. DME argued that limited applications by

FBOTs operating under no-action relief could easily take 200 to 300

hours to complete rather than the Commission's proposed estimate of 50

hours. Similarly, HKFE contended that the work involved in submitting a

limited application under the proposed regime would be substantially

more than the 50 hours estimated by the Commission.

The Commission estimated in the NPRM that a total of 20 FBOTs would

file a registration application with the Commission pursuant to the

limited application procedures in Sec. 48.6. The Commission notes that

the final rules governing the limited application differentiate between

those FBOTs whose original no-action relief request was submitted

electronically and remains on file with Commission staff and those

FBOTs whose original no-action relief request was not submitted

electronically to the Commission. The Commission estimates that ten

FBOTs would be able to take advantage of the streamlined application

procedures in final Sec. 48.6. Indeed, the ten FBOTs would be

permitted to simply refer to each portion of their original submissions

that satisfies a particular registration requirement, identify the

specific registration requirement that is fulfilled by that section,

and certify that the information or documentation originally provided

remains current and true. After considering the comments from DME and

HKFE, in conjunction with the streamlined application requirements

adopted by the Commission in the final rules, the Commission has

determined that it is not amending its estimate of 50 burden hours for

the FBOTs whose original no-action relief request was submitted

electronically. However, with respect to the ten FBOTs that would need

to submit the complete limited application because Commission staff

does not have the original no-action relief request on file in an

electronic format, the Commission finds some merit in the comments from

DME and HKFE and the Commission is revising its estimates accordingly.

Specifically, the Commission estimates that the effect of the final

rules on these FBOTs will be to increase the information collection

burden by approximately 200 hours, and result in approximately 250

hours per FBOT. Consequently, it is anticipated that ten FBOTs will

incur an aggregate of 2,500 burden hours compared to the 500 burden

hours estimated in the NPRM for such FBOTs.

The Commission is also revising its information burden collection

estimate for FBOTs with pending requests for direct access no-action

relief. In the NPRM, the Commission estimated that seven FBOTs,

including one new FBOT and six FBOTs that currently have pending

requests for no-action relief, would submit a full FBOT registration

application. The Commission estimated that the seven FBOTs would expend

1,000 burden hours per FBOT to satisfy the registration requirement.

However, the Commission has determined to amend its proposal to

substantially reduce the information collection requirements for the

six FBOTs with pending requests for no-action relief. Specifically, the

final rules provide that an FBOT with a pending no-action request as of

the effective date of the rule could, as part of its application for

registration, identify information or documents provided in its

original no-action submission that would satisfy particular

registration requirements. In light of the amendments to the

Commission's final rules, the Commission is revising its previous

estimate by reducing the information collection burden for the six

FBOTs from 1,000 burden hours to 250 hours for each FBOT. Thus, it is

anticipated that the six FBOTs will incur an aggregate reduction of

4,500 burden hours than what was stated in the NPRM.

Finally, the Commission estimated in the NPRM that four registered

FBOTs would permit swaps to be traded by direct access. Proposed Sec.

48.8(a)(8)(i) required a registered FBOT to report to the public, on a

real-time basis, data relating to each swap transaction, including

price and volume, as soon as technologically practicable after

execution of the swap transaction. In the final rules, the Commission

is eliminating the real-time reporting

[[Page 80692]]

requirement for FBOTs because that requirement is being placed on swap

data repositories. The Commission previously estimated that each of the

four FBOTs would incur an annual reporting burden of 2,080 hours to

comply with the real-time reporting requirement. Therefore, the

Commission has determined that this rule modification will result in an

aggregate reduction of 8,320 burden hours.

Accordingly, the Commission has submitted to the OMB an amended

calculation of the annual burden hours for FBOTs.

B. Cost Benefit Considerations

Section 15(a) of the CEA requires the Commission to ``consider the

costs and benefits'' of its actions in light of five broad areas of

market and public concern: (1) Protection of market participants and

the public; (2) efficiency, competitiveness, and financial integrity of

futures markets; (3) price discovery; (4) sound risk management

practices; and (5) other public interest considerations.\61\ The

Commission may, in its discretion, give greater weight to any one of

the five enumerated areas and may determine that, notwithstanding

costs, a particular rule protects the public interest.

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\61\ 7 U.S.C. 19(a).

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1. Background

(a) Description of the Statutory Registration Authority per the Dodd-

Frank Act

Section 738 of the Dodd-Frank Act amended CEA section 4(b) to

provide that the Commission may adopt rules and regulations requiring

FBOTs that wish to provide their members or other participants located

in the United States with direct access to register with the

Commission.\62\ Section 738 also authorizes the Commission to

promulgate rules and regulations prescribing procedures and

requirements applicable to the registration of such FBOTs. Accordingly,

on November 19, 2010, the Commission published a notice of proposed

rulemaking that set forth proposed regulations that would establish a

registration requirement and related registration procedures and

conditions applicable to FBOTs that wish to provide their members or

other participants located in the United States with direct access to

the FBOT's electronic trading and order matching system (NPRM).\63\

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\62\ Direct access is defined in section 4(b) of the CEA, as

amended by section 738 of the Dodd-Frank Act, to refer to an

explicit grant of authority by an FBOT to an identified member or

other participant located in the U.S. to enter trades directly into

the FBOT's trade matching system.

\63\ See Registration of Foreign Boards of Trade, 75 FR 70974

(Nov. 19, 2010).

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(b) Prior No-Action Regime

Since 1996, FBOT requests to provide members and other participants

with direct access to their electronic trading and order matching

systems from within the U.S. have been addressed by Commission staff

pursuant to the no-action process set forth in Commission regulation

140.99.\64\ Specifically, such FBOTs have requested, and, where

appropriate, received from the relevant Commission division, a no-

action letter. As part of the no-action letter, division staff would

represent that the division will not recommend that the Commission

institute enforcement action against the FBOT for failure to register

as a DCM or DTEF if the FBOT provides direct access to members and

participants located in the U.S, provided the FBOT satisfies the

conditions set forth therein. A no-action request from an FBOT was

required to include representations and supporting documentation from

the FBOT regarding, among other things, its organization, presence in

the U.S., participants, the products it wishes to list for direct

access, its trading system and the regulatory regime and information-

sharing arrangements to which the FBOT is subject. As noted above,

since 1996, Commission staff has issued 24 direct access no-action

relief letters to FBOTs, 20 of which remain active.\65\ A detailed

discussion of the history and evolution of the FBOT no-action process

and the scope of the relief provided can be found in the NPRM.\66\

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\64\ See, e.g., CFTC Letter No. 96-28 (Feb. 29, 1996).

Commission regulation 140.99 defines the term ``no-action letter''

as a written statement issued by the staff of a Division of the

Commission or of the Office of the General Counsel that it will not

recommend enforcement action to the Commission for failure to comply

with a specific provision of the Act or of a Commission rule,

regulation or order if a proposed transaction is completed or a

proposed activity is conducted by the beneficiary.

\65\ One no-action relief letter was superseded and three were

revoked when the FBOTs ceased operations as regulated or recognized

markets. Currently, 14 of the FBOTs with active no-action relief

report volume originating from the U.S. via direct access.

\66\ 75 FR 70974-76.

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(c) Replacing No-Action Regime With Registration Requirement

(i) Overview. As described in detail in the preamble, the

registration regime established in new part 48 will replace the direct

access no-action relief process. That registration regime is being

established pursuant to the Commission's authority found in section

4(b) of the CEA, as amended by section 738 of the Dodd-Frank Act, as

described above. Based on the nature of the directives in CEA section

4(b), this final rulemaking contains certain statutorily mandated

components as well as other discretionary components.

(ii) Mandatory components of statute. The adoption of a

registration regime applicable to FBOTs that desire to provide their

members or other participants located in the U.S. with direct access to

their trading systems is discretionary. However, if the Commission

determines to adopt such a registration regime, certain non-

discretionary guidelines are mandated in the statute. Specifically, CEA

section 4(b)(1)(A) provides that:

In adopting such rules and regulations, the Commission shall

consider--

(i) Whether any such foreign board of trade is subject to

comparable, comprehensive supervision and regulation by the

appropriate governmental authorities in the foreign board of trade's

home country; and

(ii) Any previous commission findings that the foreign board of

trade is subject to comparable comprehensive supervision and

regulation by the appropriate government authorities in the foreign

board of trade's home country.

Because the Commission is promulgating an FBOT registration scheme,

the Commission is required to incorporate these two guidelines in

issuing the final rules. In accordance with these two guidelines, part

48 includes certain requirements, procedures, and conditions for FBOT

registration. While there are some costs inherent in a FBOT

registration scheme that follows the scope of review mandated by

Congress, the Commission considers the costs and benefits associated

with implementing the discretionary components of this FBOT

registration scheme below.

Several provisions applicable to a linked contract are mandatory

regardless of whether the Commission adopts FBOT registration

rules.\67\ Specifically, CEA section 4(b)(1)(B), as amended by the

Dodd-Frank Act, mandates that the Commission may not permit an FBOT to

make a linked contract available via direct access absent several

statutorily specified conditions. These conditions, set forth

[[Page 80693]]

in Sec. 48.8(c)(1), address (1) making public daily trading

information regarding the linked contract that is comparable to the

daily trading information published for the contract to which it is

linked; (2) adopting position limits for the linked contract that are

comparable to the position limits adopted by the registered entity for

the contract to which it is linked; (3) having the authority to require

or direct any market participant to limit, reduce, or liquidate any

position; (4) agreeing to promptly notify the Commission of certain

changes with respect to the linked contract; (5) providing information

to the Commission regarding large trader positions in the linked

contract that is comparable to the large trader position information

collected by the Commission for the contract to which it is linked; and

(6) providing the Commission such information as is necessary to

publish reports on aggregate trader positions for the linked contract

that are comparable to such reports on aggregate trader positions for

the contract to which it is linked.

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\67\ Based upon the statutory provision regarding linked

contracts in CEA section 4(b)(1)(B), Sec. 48.2(d) defines a linked

contract as a futures, option or swap contract that is made

available for trading by direct access by a registered FBOT that

settles against any price (including the daily or final settlement

price) of one or more contracts listed for trading on a registered

entity as defined in section 1a(40) of the Act.

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Congress mandated these linked-contract conditions on FBOTs. To the

extent that these new rules reflect the statutory provisions of the

Dodd-Frank Act, such rules will not create costs and benefits in

addition to the costs and benefits that already will result from the

action of Congress in passing the Dodd-Frank Act. However, such rules

may generate costs and benefits that are attributable to the

determinations made by the Commission regarding the manner in which

statutory provisions in the Dodd-Frank Act should be implemented. The

costs and benefits of these Commission determinations are considered in

light of the five factors set forth in CEA section 15(a).

(d) Purpose of the Final Rules

As described in the preamble, the purpose of these final rules is

to formalize and standardize the process by which an FBOT may provide

traders located in the U.S. with direct access to its trading system.

By implementing uniform application procedures and registration

requirements and conditions, the process will become more standardized

and more transparent to both registration applicants and the general

public and will promote fair and consistent treatment of all

applicants. Further, generally applicable regulations will provide

greater legal certainty for FBOTs providing direct access than the no-

action relief process because no-action letters are issued by the staff

and are not binding on the Commission.

In determining to adopt formal registration rules for FBOTs, the

Commission has considered that the no-action process is generally

better suited for discrete, unique factual circumstances and for

situations where neither the CEA nor the Commission's regulations

directly address the issue presented. The Commission has determined

that, where the same type of relief is being granted on a regular and

recurring basis, as it has been with respect to permitting FBOTs to

provide direct access to their trading systems to specified members and

other participants that are located in the U.S., it is no longer

appropriate to handle requests for the relief through the no-action

process. Rather, such matters should be addressed in generally

applicable regulations. The Commission also notes that a statutory-

based regulatory FBOT registration regime will be more consistent with

the statutory-based framework under which other countries, including

the UK, Australia, Singapore, Japan and Germany, among others, permit

DCMs to provide direct access internationally.

(e) Public Comment

As described in detail in the preamble, the Commission, in

preparing these final rules, sought and incorporated comment from the

public. In the NPRM, the Commission specifically requested comment on

the cost benefit section and invited commenters to provide data

quantifying the costs and benefits of the proposed regulations. The

Commission received 14 comments discussing the costs and benefits of

the proposed rules, but none that provided quantitative data. These

comments included 10 letters from entities representing thirteen FBOTs

operating under existing no-action relief,\68\ one letter from another

exchange,\69\ and one letter each from FOA, CME Group, and ESMA. Those

comments are specifically addressed in the context of the extended cost

benefit consideration discussion below.

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\68\ DME, LME, MX, ICE (owner of ICE Futures Europe and ICE

Futures Canada), HKFE, BM&F, OMX, NYX (operator of Liffe, Euronext

Paris SA, and Euronext Amsterdam N.V.), Eurex, and OSE.

\69\ NGX.

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2. Summary of the Final Rules

As described in detail in section III of the preamble, new part 48

provides the procedures, requirements, and conditions to be met by

FBOTs that seek to provide their members and other participants in the

U.S. with direct access to the FBOT's order entry and trade matching

system. The final rules set forth, among other things, procedures an

FBOT must follow in applying for registration, requirements that an

FBOT must meet in order to obtain registration, conditions that an FBOT

must satisfy on a continuing basis upon obtaining registration, and

provisions for the termination of registration.

Specifically, Sec. 48.1 sets forth the scope of the rules and

Sec. 48.2 provides definitions applicable to the registration

provisions. Section 48.3 makes it clear that registration is required

if an FBOT wishes to provide for direct access. Section 48.4

establishes registration eligibility and identifies the entities to

which an FBOT can permit direct access once it is registered. Pursuant

to Sec. 48.5, FBOTs wishing to provide direct access to their trading

systems to members and other participants located in the U.S. will be

required to file an application for registration with the Commission

that contains all of the information and documentation necessary to

successfully demonstrate that the FBOT satisfies the registration

requirements contained in Sec. 48.7. In addition, Sec. 48.5 describes

the procedures for applying for registration, notices the applicant

that the Commission will be considering the two statutorily-mandated

guidelines, among other things, in its review of the application, and

describes the Commission response following approval or disapproval of

the application. Section 48.6 provides a limited application procedure

for FBOTs currently operating under existing no-action relief and FBOTs

that have submitted a complete application for no-action relief that is

pending as of the effective date of this regulation. Section 48.7,

previously mentioned, includes the requirements that must be met before

an FBOT can be registered. Once registered, all FBOTs will have to

maintain continuing compliance with the conditions listed in Sec. 48.8

of the final rules, including the statutorily-mandated conditions on

linked contracts. Section 48.9 provides the rules for the revocation of

registration. Finally, Sec. 48.10 establishes the process for an FBOT

to make additional contracts available for direct access following an

initial registration.

3. Factors Affecting the Scope of the Final Rules

The costs that the rules impose on FBOTs seeking registration will

vary depending on various factors including the size of the FBOT and

whether the FBOT's clearing organization is a DCO. Larger FBOTs are

more likely to have the means to hire U.S. counsel or sufficient staff

expertise to submit a complete registration application in an

[[Page 80694]]

efficient manner than smaller FBOTs. It may be less costly to

demonstrate that a clearing organization is a DCO than that it complies

with the RCCPs. Another factor that could affect costs is demonstrating

the comparability of the supervision by the FBOT's home regulator,

since regulatory structures in different countries vary. Moreover, the

cost of filing a limited application for FBOTs operating under the no-

action regime will vary, depending on whether or not the FBOT's

original request was filed electronically and remains on file with the

Commission.

The Commission's consideration of costs and benefits contains

discussions of three general aspects of the rulemaking: the

requirements for filing a new registration application; the limited

application requirement for FBOTs operating under the current no-action

regime; and compliance costs. The Commission is only considering the

marginal costs and benefits of the proposed regulations that are in

addition to, or in lieu of, the costs and benefits associated with the

current no-action regime.

4. Filing a New Application for Registration

Costs: The Commission estimates that it will cost approximately

$46,310 for an FBOT to submit a new registration application. This is

based on an average wage for a compliance staffer and a compliance

attorney of $46.31 per hour \70\ and a total burden of 1,000 hours. The

Commission recognizes that some FBOTs hire outside counsel based in the

U.S. with expertise in the FBOT registration process. While the

Commission is uncertain about the billing rates that FBOTs pay for U.S.

counsel, the Commission believes that such counsel may bill at a rate

of several hundred dollars per hour. U.S. counsel may be able to

leverage its expertise to substantially reduce the number of hours

needed to fill out an application, but an FBOT that utilizes outside

counsel may incur higher costs than an FBOT that does not use outside

counsel. The Commission notes that any determination to use outside

counsel is at the discretion of the FBOT.

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\70\ As noted on page six of the Paperwork Reduction Act

Supporting Statement (PRA Supporting Statement) for the final FBOT

registration rules, this number is derived from SIFMA's ``Report on

Management & Professional Earnings in the Securities Industry--

2010'' and represents the estimated average wage of a compliance

attorney and a compliance staffer in the U.S. While wages in the

home countries of FBOTs may differ, the Commission does not have

access to data on the compensation of compliance staffers in other

countries and is using the information in the SIFMA report as a best

available estimate. The PRA Supporting Statement can be accessed at

http://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201011-3038-003.

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The Commission notes that the proposed registration process is an

outgrowth of the existing policy of allowing FBOTs to provide U.S.-

based traders with direct access to their trading systems through staff

no-action letters and that most of the costs associated with this rule

also are associated with applying for no-action relief. The costs that

will be incurred by an FBOT as a result of the registration

requirements and the conditions contained in the proposed regulations,

with certain exceptions (e.g., additional submission requirements

related to the FBOTs regulatory authority and clearing and settlement

policies and procedures), substantially replicate the costs that would

otherwise be incurred by an FBOT applying for no-action relief under

the existing process. For example, FBOTs requesting no-action relief

under existing procedures are required to provide the Commission staff

with similar information and documentation to that which would be

required for registration under the proposed regulations (e.g.,

information regarding the FBOT's trading system, terms and conditions

of contracts to be made available by direct access in the U.S., and the

regulatory regime governing the FBOT in its home country). The

Commission believes that these costs, for the most part, do not

represent a substantial increased burden, but rather reflect the

continuation of an existing process--which is now proposed to be

formalized. The Commission estimates that the increase in costs for new

FBOTs to register rather than obtain a no-action letter is within a

range between 100 hours or $4,631 per FBOT and 200 hours or $9,262 per

FBOT.\71\

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\71\ This increase in costs reflects the registration

requirements that were not required in the no-action process,

including additional submission requirements related to the FBOTs

regulatory authority and clearing and settlement policies and

procedures.

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There may be some costs for certain FBOTs if they need to upgrade

their systems or procedures to meet the registration requirements. For

example, an FBOT electing to offer linked contracts that did not

previously impose position limits may need to establish a procedure for

enforcing position limits. The Commission is unable to quantify these

costs since it does not know what particular changes future FBOTs may

need to make in their systems or procedures to comply with the

registration requirements. However, the Commission anticipates that

FBOTs applying for registration in the future, like FBOTs that applied

for no-action relief in the past, generally will be compliant with the

requirements before submitting their applications, so the cost of

upgrading their systems and procedures should be minimal for most

FBOTs. As discussed in the preamble, the FBOT requirements generally

reflect existing industry practice and FBOTs are required to be subject

to a comparable regulatory regime. Therefore, the Commission expects

that FBOTs that meet the requirements of their home regulator and

follow industry practice will meet the registration requirements and

that most FBOTs will not need to make any upgrades to their systems or

procedures.

As noted above, the Commission has determined to amend its proposal

to substantially reduce the information collection requirements for the

six FBOTs with pending requests for no-action relief. Specifically, the

final rules provide that an FBOT with a pending no-action request as of

the effective date of the rule could, as part of its application for

registration, identify information or documentation provided in its

original no-action submission that would satisfy particular

registration requirements. As noted in the PRA section, the Commission

estimates that each of these FBOTs will have to devote 250 hours to

converting the no-action request to a registration application at a

cost of about $11,578 per FBOT for a cumulative cost of $69,468.

Benefits: The Commission notes that the no-action process has been

effective in permitting FBOTs to provide for direct access while

protecting U.S. persons trading by direct access by seeking to ensure

that the FBOT's rules and procedures are adequate and that the

regulatory regime of its home regulatory authority supports regulatory

objectives that are substantially similar to those supported by the

CFTC. The Commission believes that formalizing the registration process

will provide the additional benefits of increased standardization for

filing requirements and greater levels of legal certainty for operating

FBOTs. In addition, formalized registration rules, including the

application form, will create an efficient application process with

enhanced visibility to ensure fair and consistent treatment of

applicants. In particular, the registration procedure and application

form will also assist applicants in determining what information needs

to be provided to obtain registration, which may reduce costs by making

it more likely that the application will be complete upon initial

submission. These benefits, which are not readily quantifiable, are

[[Page 80695]]

not, for the most part, currently available under the no-action

process.

Public Comments: The Commission received comments about the

registration system in general as well as about specific aspects,

including the regulatory comparability and clearing requirements.

Registration System: Five commenters \72\ stated that the proposed

registration system was overly burdensome, overly prescriptive, or that

it unnecessarily subjected FBOTs to duplicative regulation without

corresponding benefit. OMX stated: ``Our main concern related to the

proposed rules is that they will involve a quite extensive process in

order to obtain and maintain registration. [* * *] [E]xtensive and

detailed requirements * * * may be deemed to impose an unreasonable

burden on the applicants.'' ESMA said, ``[T]he new registration

procedure and the mandatory application of very comprehensive, ongoing

requirements to all FBOTs would be burdensome and costly without any

apparent improvements for the safeguard of public interests such as the

maintenance of fair and orderly markets, investor protection and the

resilience of the market.''

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\72\ OMX, NYX, FOA, ESMA, and CME.

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As discussed above, the Commission notes that the proposed

registration process is an outgrowth of the existing policy of issuing

no-action letters and that it entails costs that are similar to that of

the existing no-action process.

In connection with commenters criticizing the ``overly

prescriptive'' nature of the proposed rules, the Commission has

identified, based upon its experience with its regulation of DCMs and

the Commission staff experience in reviewing and evaluating FBOTs for

purposes of no-action relief, several areas which it considers critical

in determining if the FBOT has established its ability to provide on an

ongoing basis, adequate protection to U.S. participants who trade and

clear on the FBOT. These areas include, among others, compliance of the

trading system with the IOSCO Principles, adequate trade practice and

market surveillance programs, and a clearing and settlement

organization that meets universally recognized standards. Moreover,

amended CEA section 4(b) requires the Commission to consider whether

the relevant FBOT is subject to comparable, comprehensive supervision

and regulation by appropriate governmental authorities in the FBOT's

home country. The Commission believes that, in these instances, rules

are necessary in order to ensure that the Commission receives

sufficient information and documentation to make these assessments and

to ensure that registration applicants are subject to standardized and

transparent obligations. The Commission also notes that the proposed

regulations were drafted to provide flexibility where possible and

warranted. For example, the final rules require the FBOT's clearing

organization to successfully demonstrate that it satisfies the RCCPs,

but do not mandate the manner in which the clearing organization must

fulfill those principles.

Nonetheless, the Commission has identified specific areas in which

it is able to set forth the FBOT registration requirements in a less-

prescriptive manner. For example, the Commission is modifying the

proposed regulations to clarify that an FBOT whose clearing

organization is registered with the Commission as a DCO would not be

required to separately establish that it satisfies the requirements

contained in proposed Sec. 48.7 (e.g., a clearing organization that is

registered as a DCO would not be required to demonstrate that its

participants are fit and proper and meet appropriate financial and

professional standards).

Finally, in an effort to avoid unnecessary duplication in the text

of the rule, the Commission has removed the appendix from the rules and

is replacing it with a standardized application form.

Regulatory Comparability: Two comment letters stated that the

comparability analysis in conjunction with the broad set of

requirements and conditions described in the proposed rules was overly

burdensome. LME suggested that it would be better if the Commission

made a single comparability determination for FBOTs residing in the

same jurisdiction. CME suggested that the proposed comparability

evaluation by the Commission was too burdensome on both FBOTs and the

Commission. As an alternative, CME suggested that the Commission should

limit its assessment to whether an FBOT is subject to a comparable

regulatory regime by its home country regulator. This commenter said,

``[W]e have a significant concern that the proposed rules are too

prescriptive and would impose significant burdens without corresponding

benefit.''

The Commission reiterates that the statute requires that if the

Commission implements a formal registration system, it must review

whether any applicant ``is subject to comparable, comprehensive

supervision and regulation by the appropriate governmental authorities

in the foreign board of trade's home country.'' The Commission does

have discretion on how to implement this requirement and is using that

discretion to revise the final rule to provide an option for evaluation

of the regulatory authority when multiple FBOTs that are subject to the

same regulatory regime are applying for registration at the same time.

In other words, the rule, as adopted, would permit multiple FBOTs that

are subject to the same regulatory regime that are applying for

registration at the same time to collectively provide information

regarding their regulatory regime and would permit a foreign regulator

(rather than the FBOT) to provide the required information regarding

the regulatory regime to which those multiple FBOTs may be subject.

This should significantly reduce the cost burden to FBOTs when there

are multiple FBOTs under the same regulatory regime. However, the

Commission notes that any evaluation will not begin and end with a

review of the FBOT's regulatory authority. The nature of the FBOT's

trading and clearing systems, rule enforcement, surveillance practices,

and information-sharing ability, among other things, are critical to

any pre-registration review.

Clearing: As discussed in section II.B.2.d. above, Eurex stated

that extending the Commission's review to FBOT clearing would impose

increased burdens on the Commission's limited resources. This commenter

suggested that the Commission should rather require than an FBOT simply

demonstrate that, if its clearing organization is not a DCO, the

clearing organization complies with the RCCPs.

The Commission notes that consideration of a foreign board of

trade's clearing and settlement function, to a certain extent, is

already incorporated into the existing no-action process and,

accordingly, is not itself a totally new requirement. In this respect,

the final rules seek to provide transparency and standardization with

respect to the necessary clearing organization attributes by requiring

that the clearing firm either satisfy an internationally recognized

standard for central counterparties or be registered as a DCO. This

will benefit U.S. persons trading on the FBOT by providing an added

level of security in knowing that the FBOT's clearing organization has

represented that it meets internationally recognized standards or is a

DCO. The Commission, however, has streamlined the regulation in the

final rule to eliminate the requirements contained in Sec. 48.7 if the

clearing firm is registered

[[Page 80696]]

with the Commission as a DCO. The cost of demonstrating that a clearing

organization is a DCO is de minimus. Because the manner of satisfying

the RCCPs or their successor standards is at the discretion of the

FBOT's clearing organization, the Commission is unable to quantify the

costs of demonstrating that the clearing organization observes the

RCCPs or their successor standards.

ICE stated that ``the CFTC should not place a greater burden on

FBOTs than it does on U.S. regulated markets,'' in particular by

imposing mandatory clearing requirements on swaps executed on FBOTs.

ICE noted that SEFs are not subject to mandatory clearing requirements.

However, the Commission notes that under the Dodd-Frank Act, swaps

traded on DCMs will be subject to mandatory clearing requirements. The

Commission believes that the treatment of swaps registered FBOTs will

make available for trading to members and other participants located in

the U.S. through direct access should parallel the treatment afforded

to swaps transactions that may be traded on DCMs and, thus, they must

be cleared. It is not clear whether a foreign SEF-equivalent would meet

the FBOT eligibility requirements outlined in Rule 48.2(b) or be

eligible for FBOT registration, but it is unlikely that such an entity

would be eligible unless the entity could demonstrate that it is

operated and regulated in a manner that is comparable and comprehensive

to the manner in which DCMs (not U.S. SEFs), are regulated by the

Commission. An FBOT could still offer non-cleared swaps to its market

participants, but would be unable to offer such contracts via direct

access in the U.S. The Commission is unable to quantify the costs of

mandatory clearing of swaps on FBOT market participants, but such costs

would approximate the costs of clearing futures since any listed swap

contracts would have standardized terms and would resemble futures

contracts. The Commission also cannot predict, at this time, whether

FBOTs will elect to list swap contracts for direct access and, if so,

how many FBOTs will make available how many swaps contracts.

5. Filing a Limited Application

Costs: As noted, the Commission is requiring the 20 FBOTs currently

operating under no-action relief to register, but is permitting them to

file a limited application for registration. This is an additional cost

being imposed on these FBOTs as a consequence of this rule. The ten

FBOTs that filed their no-action requests electronically will be able

to simply refer to each portion of their original submissions that

satisfies each particular registration requirement and certify that the

information or documentation originally provided remains current and

true. The Commission estimates that the cost of filing a limited

application for each of these FBOTs will be approximately $2,316 (50

hours at $46.31 per hour) for a cumulative cost of $23,160. The

remaining 10 FBOTs that did not file electronically will have to

resubmit much of the material and therefore will each incur higher

costs of approximately $11,578 (250 hours at $46.31 per hour) for a

cumulative cost of $115,780. The cumulative cost across 20 FBOTs will

be $138,940.

Benefits: FBOTs using the limited application process will receive

the benefits noted above of receiving a formal Commission registration

order rather than a staff no-action letter (which provided for less

legal certainty). These FBOTs will be operating on firmer legal ground

and the Commission, market participants, and the public will benefit

from the knowledge that all FBOTs offering direct access in the U.S.

meet the registration requirements. There are also benefits that accrue

to registering all FBOTs under the same transparent requirements, thus

ensuring a ``level playing field'' going forward and ensuring that the

Commission has the same set of information on file regarding each

registered FBOT.

Public Comments: As discussed above, several commenters \73\

addressed the proposed ``limited application'' scheme, suggesting that

the limited application was overly burdensome, of limited value, or

even unnecessary--preferring a grandfather provision for FBOTs

operating under existing no-action relief. They commented in the

context of the cost benefit section that the limited application

process was too burdensome in its entirety for an FBOT that had

previously obtained no-action relief. And at least two of the

commenters, DME and CME, noted that, in the context of evaluating the

burdens imposed by the proposed registration process, providing

grandfather registration for FBOTs with existing no-action relief would

be the better course. Finally, as addressed above, multiple commenters

requested that the time-frame within which a limited application must

be filed should be extended to at least 180 days following the

effective date of final registration rules in order to ease the

administrative burden of preparing and filing the proper documentation.

Specifically, NYX stated:

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\73\ BM&F, OMX, NYX, DME, CME, and MX.

Under the [p]roposal, an FBOT with an existing no-action relief

letter is required to submit a completed limited application for

registration within 120 days of the effective date of the Proposal.

The Proposal, however, would create a burdensome process requiring

re-submission of voluminous materials, information and data that was

previously provided to the Commission--a time-consuming and

expensive exercise for FBOTs that previously have invested

considerable resources to receive and maintain no-action relief

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letters.

In the context of the burdens of preparing documentation for the

limited application, MX argues that, ``Placing greater reliance on [the

Commission's] past findings [of comparability] under the no-action

process will not only lessen the burden on FBOTs, but it will conserve

constrained Commission resources with no diminution of protections to

the public or any increase in systemic risk.'' NGX stated that an FBOT

with a pending no-action request should be considered to be eligible to

file a limited application rather than a complete application.

As discussed above, the Commission is extending the time for filing

a limited application to 180 days from 120 after the effective date of

this final rule. This change will address comments that the 120 day

timeline placed an excessive burden on applicants. The Commission also

is revising the rule to permit an FBOT with a pending no-action request

to file a limited application rather than a complete application.

The limited application procedure will, as noted, benefit market

participants, and the public by ensuring that all FBOTs offering direct

access in the U.S. meet the current registration requirements. This

benefit would be foregone if the Commission were to grandfather FBOTs

that are operating under existing no-action relief without any further

review. FBOT requests for no-action relief were assessed based upon the

information and documentation presented at the particular time of the

request (as early as 1999) and the assessments were based upon a

comparison of the regulatory regimes in the U.S. and the applicable

foreign jurisdiction that existed at the time. In addition, early no-

action letters included only a limited analysis of the FBOT's clearing

system because the current regulatory structure applicable to U.S.

clearing organizations did not exist at that time of issuance.

The Commission also does not believe that it would be either

feasible or appropriate for the Commission staff to ascertain for each

FBOT operating under

[[Page 80697]]

existing no-action relief the precise information in its individual no-

action request that would need to be updated or revised to satisfy

registration requirements. The FBOTs are in a better position to

recognize their own particular circumstances and to identify the

additional information and documentation that may require updating in

light of those changes. The FBOT should be afforded the opportunity to

provide materials demonstrating that the foreign regime is comparable

and comprehensive to the regulatory regime in the U.S.

6. Complying With Conditions Applicable to Registration

Once registered, an FBOT will be required to file a number of

reports with the Commission. Most of these reports are required under

the current no-action regime and therefore requiring these reports of

registrants will not impose additional costs on FBOTs that are

currently providing direct access pursuant to no-action letters.

Specific reporting requirements that are currently required under the

no-action regime include Sec. 48.8(b)(1)(i)(A) and (B) regarding

trading volume information, Sec. 48.8(b)(1)(ii)(A)-(F) regarding

material changes to registration information (except where requirements

specifically address the FBOT's clearing organization), and Sec. 48.10

regarding the listing of additional futures and options contracts. New

requirements include Sec. 48.8(b)(1)(iii)(B)-(G) regarding annual

submission of information and Sec. 48.9 regarding demonstration of

compliance with conditions for registration, as well as the requirement

regarding material changes to the clearing organization. In the PRA

section of the NPRM, it was estimated that the total annual burden of

all reporting requirements for all registered FBOTs combined was 972

hours.\74\ The Commission estimates that approximately 150 of these 972

hours represent the new reporting requirements that were not required

under the no-action regime and the cumulative annual cost of complying

with these new requirements will be $6,947 (150 hours at $46.31 per

hour).

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\74\ See 75 FR 70984-85 (Nov. 19, 2010) and PRA Supporting

Statement at 12 (Nov. 23, 2010).

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There are also a number of provisions that apply to contracts that

are linked to U.S. futures contracts. These provisions, set forth in

Sec. 48.8(c)(1) and described above, and their associated costs

generally are required under the CEA as amended by Dodd-Frank and the

Commission lacks discretion regarding their implementation. Other

provisions, set forth in Sec. 48.8(c)(2), are also currently imposed

on FBOTs with linked contracts operating under no-action relief.\75\

Therefore, the costs associated with the linked contract provisions

required by Sec. 48.8(c)(2) are not increased relative to those

incurred by FBOTs currently.

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\75\ See CFTC Letter No. 09-37 (August 20, 2009).

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Benefits: The new recordkeeping requirements in Regulation

48.8(b)(1)(iii)(B)-(G) regarding annual submission of information and

Regulation 48.9 regarding demonstration of compliance with conditions

for registration will provide the Commission, market participants and

the public with the benefit of knowing that registered FBOTs are

continuing to meet the requirements for registration, including

providing fair and equitable trading platforms, and that the contracts

available for direct access are not readily susceptible to

manipulation.

Public comments: The Commission received cost-benefit related

comments regarding the linked contract provisions.

Linked contract provisions: In connection with the burdens imposed

by the proposed linked contract provisions, OSE stated that extra

conditions were only necessary for FBOTs offering linked contracts in

which there is more than a de minimis amount of trading. OSE

specifically highlighted the imposition of speculative position limits

on linked contracts as an example of a condition which would create an

excessive burden. OSE also objected to the requirement that trade

execution and audit trail data for linked contracts be submitted to the

Commission on a daily basis. They suggested that the benefit of such a

condition, in comparison to the costs, may be more useful if FBOTs were

only required to submit trade execution and audit trail data for linked

contracts on an ``as necessary'' basis--rather than on a daily basis.

The Commission notes that some of the linked contract conditions/

requirements in the final rule are mandated by the Dodd-Frank Act,

including the position limit requirements. Other provisions, such as

the requirement that trade execution and audit trail data for linked

contracts be submitted to the Commission on a daily basis, have been

imposed by Commission staff on FBOTs that list linked contracts and

have been found to be useful in accomplishing the Commission's market

surveillance responsibilities. Commission staff conducts surveillance

and reviews the trading data on a daily basis, and the trade data

submitted daily from the FBOT's linked contract are a critical

component of this surveillance. The Commission is of the opinion that

the linked contract provisions serve to enhance the Commission's market

surveillance capabilities because such linkages create a single market

for the subject contracts and, in the absence of certain preventive

measures at the FBOT, could compromise the Commission's ability to

carry out its market surveillance responsibilities. Because of the

linkage, the trading of the linked contracts on an FBOT potentially

affects the pricing of contracts traded on U.S.-registered entities.

Section 15(a) Factors

1. Protection of Market Participants and the Public

The final rules will further the protection of market participants

and the public in numerous ways, including ensuring that FBOTs'

automated trading systems comply with the IOSCO principles, match

trades fairly and timely with a proper audit trail, and meet other

requirements as described in Rule 48.7(b) and that the clearing

organizations are DCOs or observe the RCCPs or their successor

standards. The rules requiring that contracts offered by FBOTs are not

readily susceptible to manipulation and the rules regarding linked

contracts, including the requirement that linked contracts have

appropriate position limits, will also further the protection of market

participants and the public. Further protection is provided by the

requirement that FBOTs offering direct access to U.S. participants and

their clearing organizations have proper rule enforcement procedures

and are subject to comprehensive supervision and regulation by the

appropriate government authorities in their home country that is

comparable to the Commission's comprehensive supervision and regulation

and that information sharing agreements are in place. Finally, the

examination of FBOT and clearing organization membership standards will

also further the protection of market participants and the public.

2. Efficiency, Competitiveness, and Financial Integrity of the Markets

The requirements that the FBOTs' automated trading systems contain

a trade matching algorithm that matches trades in a fair and timely

manner and that trading data be made available to users and the public

will further the efficiency and competitiveness of the markets. The

financial integrity of the markets will be furthered by the rules

[[Page 80698]]

requiring that clearing organizations be DCOs and meet DCO requirements

or specifically represent that they observe each of the RCCPs (or their

successor standards) and by the examination of FBOT and clearing

organization membership standards. The rules requiring that contracts

offered by FBOTs not be readily susceptible to manipulation will also

further these considerations. The linked contract rules, including the

position limit requirement, will also further the efficiency,

competitiveness, and financial integrity of markets.

3. Price Discovery

The rules regarding the automated trading systems, including the

trade matching rule, will further the price discovery process in FBOT

contracts. The linked contract provisions will protect the price

discovery process for linked contracts and the U.S. contracts that they

are linked to by ensuring that the linked contracts have position

limits and accountability provisions comparable to the corresponding

U.S.-based contracts and that the price and volume data for linked

contracts are disseminated in a comparable manner to their U.S.

counterparts. The rules requiring that contracts offered by FBOTs for

direct access not be readily susceptible to manipulation will also help

protect the price discovery process.

4. Sound Risk Management Procedures

The requirement that FBOTs' clearing organizations be DCOs or

demonstrate observance of the RCCPs or their successor standards will

further sound risk management procedures by ensuring that clearing

organizations represent that they use risk management procedures that

are consistent either with Commission regulations or internationally

recognized standards.

5. Other Public Interest Considerations

The Commission believes that adopting formal registration

provisions will further other public interest considerations by

replacing the no-action procedure with a standardized and transparent

application process and providing enhanced legal certainty to

registered FBOTs and their clearing organizations.

C. The Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA'') requires Federal agencies

to consider the impact of its rules on ``small entities.'' \76\ A

regulatory flexibility analysis or certification typically is required

for ``any rule for which the agency publishes a general notice of

proposed rulemaking pursuant to'' the notice-and-comment provisions of

the Administrative Procedure Act, 5 U.S.C. 553(b).\77\ The Commission

noted in the proposing release that although it has established certain

definitions of ``small entity'' to be used in evaluating the impact of

its rules under the RFA, it had not previously addressed the question

of whether FBOTs are small entities for purposes of the RFA.\78\ The

Commission previously determined that DCMs are not small entities for

purposes of the RFA.\79\ In the proposing release, the Commission

determined that because FBOTs and DCMs are functionally equivalent

entities, FBOTs like DCMs are not ``small entities'' for purposes of

the RFA.

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\76\ 5 U.S.C. 601 et seq.

\77\ 5 U.S.C. 601(2), 603, 604 and 605.

\78\ See 75 FR 70987 (Nov. 19, 2010).

\79\ See 47 FR 18618, 18619, Apr. 30, 1982.

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In response to the Proposed Rules, the Not-For-Profit Electric End

User Coalition (Coalition) submitted a comment generally criticizing

the Commission's ``rule-makings [as] an accumulation of interrelated

regulatory burdens and costs on non-financial small entities like the

NFP Electric End Users, who seek to transact in Energy Commodity Swaps

and ``referenced contracts'' only to hedge the commercial risks of

their not-for-profit public service activities.'' \80\ In addition, the

Coalition requested ``that the Commission streamline the use of the

bona fide hedging exemption for non-financial entities, especially for

those that engage in CFTC-regulated transactions as `end user only/bona

fide hedger only' market participants.''

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\80\ See Coalition at 29.

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After further consideration in light of this comment, the

Commission has determined that this final rulemaking, which is

applicable only to FBOTs, will not have a substantial economic effect

on a substantial number of small businesses. Accordingly, for the

reasons stated in the proposal and the fact that the Coalition does not

represent bodies that will be registering with the Commission as FBOTs,

the Chairman, on behalf of the Commission, hereby certifies pursuant to

5 U.S.C. 605(b) that these rules will not have a significant economic

impact on a substantial number of small entities. The Chairman made the

same certification in the NPRM, and the Commission did not receive any

comments on the RFA in relation to the proposed rulemaking.

List of Subjects in 17 CFR Part 48

Foreign Boards of Trade, Commodity futures, Options, Swaps, Direct

Access, Linked Contract, Registration, Existing No-action Relief,

Conditions of Registration.

In consideration of the foregoing, and pursuant to the authority

contained in the Act, and, in particular, sections 3, 4 and 8a of the

Act, the Commission hereby amends Chapter I of Title 17 of the Code of

Federal Regulations by adding part 48 to read as follows:

PART 48--REGISTRATION OF FOREIGN BOARDS OF TRADE

Sec.

48.1 Scope.

48.2 Definitions.

48.3 Registration required.

48.4 Registration eligibility and scope.

48.5 Registration procedures.

48.6 Foreign boards of trade providing direct access pursuant to

existing no-action relief.

48.7 Requirements for registration.

48.8 Conditions of registration.

48.9 Revocation of registration.

48.10 Additional contracts.

Appendix--Part 48--Form FBOT

Authority: 7 U.S.C. 5, 6 and 12a, unless otherwise noted.

Sec. 48.1 Scope.

The provisions of this part apply to any foreign board of trade

that is registered, required to be registered, or applying to become

registered with the Commission in order to provide its identified

members or other participants located in the United States with direct

access to its electronic trading and order matching system.

Sec. 48.2 Definitions.

For purposes of this part:

(a) Foreign board of trade. Foreign board of trade means any board

of trade, exchange or market located outside the United States, its

territories or possessions, whether incorporated or unincorporated.

(b) Foreign board of trade eligible to be registered. A foreign

board of trade eligible to be registered means a foreign board of trade

that satisfies the requirements for registration specified in Sec.

48.7 and:

(1) Possesses the attributes of an established, organized exchange,

(2) Adheres to appropriate rules prohibiting abusive trading

practices,

(3) Enforces appropriate rules to maintain market and financial

integrity,

(4) Has been authorized by a regulatory process that examines

customer and market protections, and

(5) Is subject to continued oversight by a regulator that has power

to intervene in the market and the authority to share information with

the Commission.

[[Page 80699]]

(c) Direct access. Direct access means an explicit grant of

authority by a foreign board of trade to an identified member or other

participant located in the United States to enter trades directly into

the trade matching system of the foreign board of trade.

(d) Linked contract. Linked contract means a futures, option or

swap contract that is made available for trading by direct access by a

registered foreign board of trade that settles against any price

(including the daily or final settlement price) of one or more

contracts listed for trading on a registered entity as defined in

section 1a(40) of the Act.

(e) Communications. Communications means any written or electronic

documentation or correspondence issued by or on behalf of the

Commission, the United States Department of Justice, or the National

Futures Association.

(f) Material change. Material change means a material change in the

information provided to the Commission in support of an application for

registration under this part. Subsequent to registration, material

change also includes a material change in the operations of the foreign

board of trade or its clearing organization and, without limitation, a

change in any of the following: The membership or participant criteria

of the foreign board of trade or its clearing organization; the

location of the management, personnel or operations of the foreign

board of trade or its clearing organization; the structure, nature, or

operation of the trading or clearing systems; the regulatory or self-

regulatory regime applicable to the foreign board of trade, its

clearing organization, or their respective members and other

participants; the authorization, licensure, registration or recognition

of the foreign board of trade or clearing organization; and the ability

of the clearing organization to observe the Recommendations for Central

Counterparties.

(g) Clearing organization. Clearing organization means the foreign

board of trade, affiliate of the foreign board of trade or any third

party clearing house, clearing association, clearing corporation or

similar entity, facility or organization that, with respect to any

agreement, contract or transaction executed on or through the foreign

board of trade, would be:

(1) Defined as a derivatives clearing organization under section

1a(15) of the Act; or

(2) Defined as a central counterparty by the Recommendations for

Central Counterparties.

(h) Existing no-action relief. Existing no-action relief means a

no-action letter issued by a division of the Commission to the foreign

board of trade in which the division informs the foreign board of trade

that it will not recommend that the Commission institute enforcement

action against the foreign board of trade if the foreign board of trade

does not seek designation as either a designated contract market

pursuant to section 5 of the Act or a derivatives transaction execution

facility pursuant to section 5a of the Act in connection with the

granting of direct access.

(i) Swap. Swap means a swap as defined in section 1a(47) of the Act

and any Commission regulation further defining the term adopted

thereunder.

(j) Recommendations for Central Counterparties. Recommendations for

Central Counterparties means:

(1) The current Recommendations for Central Counterparties issued

jointly by the Committee on Payment and Settlement Systems and the

Technical Committee of the International Organization of Securities

Commissions as updated, revised or otherwise amended; or

(2) Successor standards, principles and guidance for central

counterparties or financial market infrastructures adopted jointly by

the Technical Committee of the International Organization of Securities

Commissions and the Committee on Payment and Settlement Systems.

(k) Affiliate. An affiliate of a registered foreign board of trade

member or other participant means any person, as that term is defined

in section 1a(38) of the Act, that:

(1) Owns 50% or more of the member or other participant;

(2) Is owned 50% or more by the member or other participant; or

(3) Is owned 50% or more by a third person that also owns 50% or

more of the member or other participant.

(l) Member or other participant. Member or other participant means

a member or other participant of a foreign board of trade that is

registered under this part and any affiliate thereof that has been

granted direct access by the foreign board of trade.

Sec. 48.3 Registration required.

(a) Except as specified in this part, it shall be unlawful for a

foreign board of trade to permit direct access to its electronic

trading and order matching system unless and until the Commission has

issued a valid and current Order of Registration to the foreign board

of trade pursuant to the provisions of this part.

(b) It shall be unlawful for a foreign board of trade or the

clearing organization to make false or misleading statements in or in

connection with any application for registration under this part.

Sec. 48.4 Registration eligibility and scope.

(a) Only foreign boards of trade eligible to be registered, as

defined in Sec. 48.2(b) of this part, are eligible for registration

with the Commission pursuant to this part.

(b) A foreign board of trade may apply for registration under this

part in order to permit the members and other participants of the

foreign board of trade that are located in the United States to enter

trades directly into the trading and order matching system of the

foreign board of trade, to the extent that such members or other

participants are:

(1) Entering orders for the member's or other participant's

proprietary accounts;

(2) Registered with the Commission as futures commission merchants

and are submitting customer orders to the trading system for execution;

or

(3) Registered with the Commission as a commodity pool operator or

commodity trading advisor, or are exempt from such registration

pursuant to Sec. 4.13 or Sec. 4.14 of this chapter, and are

submitting orders for execution on behalf of a United States pool that

the member or other participant operates or an account of a United

States customer for which the member or other participant has

discretionary authority, respectively, provided that a futures

commission merchant or a firm exempt from such registration pursuant to

Sec. 30.10 of this chapter acts as clearing firm and guarantees,

without limitation, all such trades of the commodity pool operator or

commodity trading advisor effected through submission of orders to the

trading system.

Sec. 48.5 Registration procedures.

(a) A foreign board of trade seeking registration with the

Commission pursuant to this part must electronically file an

application for registration with the Secretary of the Commission at

its Washington DC headquarters at [email protected]

(b) A complete application for registration must include:

(1) A completed Form FBOT and Form Supplement S-1, as set forth in

the Appendix to this part, or any successor forms, and all information

and documentation described in such forms; and

(2) Any additional information and documentation necessary, in the

discretion of the Commission, to supplement the application including,

but not limited to, documentation and

[[Page 80700]]

information provided during the course of an on-site visit, as

applicable, to the foreign board of trade, the clearing organization

and the regulatory authority or authorities, to effectively demonstrate

that the foreign board of trade and its clearing organization satisfy

the registration requirements set forth in Sec. 48.7.

(c) An applicant for registration must identify with particularity

any information in the application that will be subject to a request

for confidential treatment and must provide support for any request for

confidential treatment pursuant to the procedures set forth in Sec.

145.9 of this chapter.

(d) If, upon review, the Commission finds the application for

registration to be complete, the Commission may approve or deny the

application. In reviewing the application, the Commission will

consider, among other things:

(1) Whether the foreign board of trade is eligible to be registered

as defined in Sec. 48.2(b) and;

(2) Whether the foreign board of trade and its clearing

organization are subject to comprehensive supervision and regulation by

the appropriate governmental authorities in their home country or

countries that is comparable to the comprehensive supervision and

regulation to which designated contract markets and derivatives

clearing organizations are respectively subject under the Act,

Commission regulations, and other applicable United States laws and

regulations, if any, and;

(3) Any previous Commission findings that the foreign board of

trade and its clearing organization are subject to comprehensive

supervision and regulation by the appropriate government authorities in

their home country or countries that is comparable to the comprehensive

supervision and regulation to which designated contract markets and

derivatives clearing organizations are subject under the Act,

Commission regulations, and other applicable United States laws and

regulations, if any; and

(4) Whether the foreign board of trade and its clearing

organization have adequately demonstrated that they meet the

requirements for registration specified in Sec. 48.7.

(5) The Commission's determination that the foreign board of trade

and its clearing organization are subject to comprehensive supervision

and regulation by the appropriate government authorities in their home

country or countries that is comparable to the comprehensive

supervision and regulation to which designated contract markets and

derivatives clearing organizations are subject will be based upon a

principles-based review conducted in a manner consistent with this part

48 pursuant to which the Commission will look to determine if the

government authorities support and enforce regulatory objectives in the

oversight of the foreign board of trade and the clearing organization

that are substantially equivalent to the regulatory objectives

supported and enforced by the Commission in its oversight of designated

contract markets and derivatives clearing organizations.

(e) If the Commission approves the application, the Commission will

issue an Order of Registration. If the Commission does not approve the

application, the Commission will, after appropriate notice and an

opportunity to respond, issue a Notice of Action specifying that the

application was not approved and setting forth the reasons therefor.

The Commission, in its discretion, may impose conditions in the Order

of Registration and may, after appropriate notice and an opportunity to

respond, amend, suspend, or otherwise restrict the terms of an issued

Order of Registration or issue an Order revoking registration.

(f) A foreign board of trade whose application is not approved may

reapply for registration 360 days after the issuance of the Notice of

Action if the foreign board of trade has addressed any deficiencies in

its original application or facts and circumstances relevant to the

Commission's review of the application have changed.

Sec. 48.6 Foreign boards of trade providing direct access pursuant to

existing no-action relief.

(a) A foreign board of trade operating pursuant to existing no-

action relief as of the effective date of this Part 48 must register

with the Commission pursuant to this part in order to continue to

provide direct access to its electronic trading and order matching

system from the United States.

(b)(1) The application of a foreign board of trade operating

pursuant to existing no-action relief must include a complete Form FBOT

and Supplement S-1, as set forth in the Appendix to this part. If the

foreign board of trade, as part of its application for registration,

wishes to rely on information and documentation previously submitted

electronically in connection with its request for no-action relief in

order to demonstrate that it satisfies the registration requirements

set forth in Sec. 48.7, (limited application) the foreign board of

trade must:

(i) Specifically identify the information or documentation

previously submitted;

(ii) Identify the specific registration requirements set forth in

Sec. 48.7 that are satisfied by such information or documentation; and

(iii) Certify that the information remains accurate and current.

(2) If the foreign board of trade wishes to rely on information and

documentation previously submitted in hard copy in connection with its

application for no-action relief, the foreign board of trade must also

resubmit the identified information or documentation. A foreign board

of trade that has submitted a complete application for no-action relief

that is pending as of February 21, 2012 may also apply for registration

pursuant to these limited application procedures.

(c) A foreign board of trade operating pursuant to existing no-

action relief must submit a limited application for registration,

determined in good faith by the applicant to be complete, within 180

days of February 21, 2012. If, at any time after August 20, 2012 but

before a limited application is approved or disapproved, the Commission

determines that the application is materially incomplete, the

Commission may, after providing the foreign board of trade with notice

and an opportunity to respond to the determination of incompleteness,

withdraw the existing no-action relief if the Commission determines

that the application cannot be made complete in a timely manner. The

foreign board of trade may continue to operate pursuant to the existing

no-action relief, subject to the terms and conditions contained

therein, August 20, 2012, while the Commission is reviewing its

application, and until the Commission approves or disapproves the

application or otherwise withdraws the existing no-action relief. The

no-action relief is automatically withdrawn upon issuance of an Order

of Registration or upon disapproval.

Sec. 48.7 Requirements for registration.

An applicant for registration must demonstrate that it and, where

applicable, its clearing organization meet the following requirements.

The registration requirements applicable to clearing organizations may

alternatively be met by demonstrating that the clearing organization is

registered and in good standing with the Commission as a derivatives

clearing organization. The Commission, in its discretion, may request

additional information and documentation in connection with an

application for registration and an applicant for registration must

provide

[[Page 80701]]

promptly any such additional information or documentation. The

Commission, in its discretion, also may impose additional registration

requirements that the Commission deems necessary after appropriate

notice and opportunity to respond.

(a) Foreign Board of Trade and Clearing Membership:

(1) The members and other participants of the foreign board of

trade and its clearing organization are fit and proper and meet

appropriate financial and professional standards;

(2) The foreign board of trade and its clearing organization have

and enforce provisions to minimize and resolve conflicts of interest;

and

(3) The foreign board of trade and its clearing organization have

and enforce rules prohibiting the disclosure, both during and

subsequent to service on a board or committee, of material non-public

information obtained as a result of a member's or other participant's

performance of duties as a member of their respective governing boards

and significant committees.

(b) The Automated Trading System:

(1) The trading system complies with Principles for the Oversight

of Screen-Based Trading Systems for Derivative Products developed by

the Technical Committee of the International Organization of Securities

Commissions,

(2) The trade matching algorithm matches trades fairly and timely,

(3) The audit trail captures all relevant data, including changes

to orders, and audit trail data is securely maintained and available

for an adequate time period,

(4) Adequate and appropriate trade data is made available to users

and the public,

(5) The trading system has demonstrated reliability,

(6) Access to the trading system is secure and protected,

(7) There are adequate provisions for emergency operations and

disaster recovery,

(8) Trading data is backed up to prevent loss of data, and

(9) Only those futures, option or swap contracts that have been

identified to the Commission in the foreign board of trade's

application for registration or permitted to be made available for

trading by direct access pursuant to the procedures set forth in Sec.

48.10 of this part are made available for trading by direct access.

(c) Terms and Conditions of Contracts to Be Made Available in the

United States.

(1) Contracts must meet the following standards:

(i) Contracts must be futures, option or swap contracts that would

be eligible to be traded on a designated contract market;

(ii) Contracts must be cleared;

(iii) Contracts must not be prohibited from being traded by United

States persons; and

(iv) Contracts must not be readily susceptible to manipulation.

(2) Foreign futures and option contracts on non-narrow-based

security indexes must have been certified by the Commission pursuant to

the procedures set forth in Sec. 30.13 of this chapter.

(3) Contracts that have the following characteristics must be

specifically identified as having such characteristics:

(i) Contracts that are linked to a contract listed for trading on a

registered entity as defined in section 1a(40) of the Act, and

(ii) Contracts that have any other relationship with a contract

listed for trading on a registered entity (for example, if both the

foreign board of trade's and the registered entity's contract settle to

the price of the same third party-constructed index).

(d) Settlement and Clearing:

(1) The clearing organization observes the Recommendations for

Central Counterparties or is registered with the Commission as a

derivatives clearing organization, and

(2) The clearing organization is in good regulatory standing in its

home country jurisdiction.

(e) The Regulatory Regimes Governing the Foreign Board of Trade and

the Clearing Organization:

(1) The regulatory authorities provide comprehensive supervision

and regulation of the foreign board of trade, the clearing

organization, and the type of contracts to be made available through

direct access that is comparable to the comprehensive supervision and

regulation provided by the Commission to designated contract markets,

derivatives clearing organizations and such contracts. That is, the

regulatory authorities support and enforce regulatory objectives in the

oversight of the foreign board of trade, clearing organization and the

type of contracts that the foreign board of trade wishes to make

available through direct access that are substantially equivalent to

the regulatory objectives supported and enforced by the Commission in

its oversight of designated contract markets, derivatives clearing

organizations, and such products.

(2) The regulatory authorities engage in ongoing regulatory

supervision and oversight of the foreign board of trade and its trading

system, the clearing organization and its clearing system, and the

members, intermediaries and other participants of the foreign board of

trade and clearing organization, with respect to, among other things,

market integrity, customer protection, clearing and settlement and the

enforcement of the rules of the foreign board of trade and the clearing

organization.

(3) The regulatory authorities have the power to share information

directly with the Commission, upon request, including information

necessary to evaluate the continued eligibility of the foreign board of

trade for registration and to audit for compliance with the terms and

conditions of the registration.

(4) The regulatory authorities have the power to intervene in the

market.

(f) The Rules of the Foreign Board of Trade and the Clearing

Organization and Enforcement Thereof:

(1) The foreign board of trade and its clearing organization have

implemented and enforce rules to ensure compliance with the

requirements of registration contained in this part;

(2) The foreign board of trade and its clearing organization have

the capacity to detect, investigate, and sanction persons who violate

their respective rules;

(3) The foreign board of trade and the clearing organization (or

their respective regulatory authorities) have implemented and enforce

disciplinary procedures that empower them to recommend and prosecute

disciplinary actions for suspected rule violations, impose adequate

sanctions for such violations, and provide adequate protections to

charged parties pursuant to fair and clear standards;

(4) The foreign board of trade and its clearing organization are

authorized by rule or by contractual agreement to obtain, from members

and other participants, any information and cooperation necessary to

conduct investigations, to effectively enforce their respective rules,

and to ensure compliance with the conditions of registration;

(5) The foreign board of trade and its clearing organization have

sufficient compliance staff and resources, including by delegation and/

or outsourcing to a third party, to fulfill their respective regulatory

responsibilities, including appropriate trade practice surveillance,

real time market monitoring, market surveillance, financial

surveillance, protection of customer funds, enforcement of clearing and

settlement provisions and other compliance and regulatory

responsibilities;

(6) The foreign board of trade has implemented and enforces rules

with respect to access to the trading system

[[Page 80702]]

and the means by which the connection thereto is accomplished;

(7) The foreign board of trade's audit trail captures and retains

sufficient order and trade-related data to allow its compliance staff

to detect trading and market abuses and to reconstruct all transactions

within a reasonable period of time;

(8) The foreign board of trade has implemented and enforces rules

prohibiting fraud and abusive trading practices including, but not

limited to, wash sales and trading ahead;

(9) The foreign board of trade has the capacity to detect and

deter, and has implemented and enforces rules relating to, market

manipulation, attempted manipulation, price distortion, and other

disruptions of the market; and

(10) The foreign board of trade has and enforces rules and

procedures that ensure a competitive, open and efficient market and

mechanism for executing transactions.

(g) Information Sharing:

(1) The regulatory authorities governing the activities of the

foreign board of trade and the clearing organization are signatories to

the International Organization of Securities Commissions Multilateral

Memorandum of Understanding, or otherwise ensure that substitute

information sharing arrangements that are satisfactory to the

Commission are in place;

(2) The regulatory authorities governing the activities of the

foreign board of trade and the clearing organization are signatories to

the Declaration on Cooperation and Supervision of International Futures

Exchanges and Clearing Organizations or otherwise commit, in writing,

to share the types of information contemplated by the International

Information Sharing Memorandum of Understanding and Agreement with the

Commission;

(3) The foreign board of trade has executed the International

Information Sharing Memorandum of Understanding and Agreement; and

(4) Pursuant to the conditions described in Sec. 48.8(a)(6), the

foreign board of trade and clearing organization agree to provide

directly to the Commission, upon request, any information necessary, in

the discretion of the Commission, to evaluate the continued eligibility

and appropriateness of the foreign board of trade and the clearing

organization, or their respective members or other participants for

registration, to audit for and enforce compliance with the requirements

and conditions of the registration, or to enable the Commission to

carry out its duties under the Act and Commission regulations.

Sec. 48.8 Conditions of registration.

Upon registration under this part, and on an ongoing basis

thereafter, the foreign board of trade and the clearing organization

shall comply with the applicable conditions of registration set forth

in this section and any additional conditions that the Commission deems

necessary and may impose, in its discretion, and after appropriate

notice and opportunity to respond. Such conditions could include, but

are not limited to, additional conditions applicable to the listing of

swap contracts. Continued registration is expressly conditioned upon

satisfaction of these conditions.

(a) Specified Conditions for Maintaining Registration

(1) Registration Requirements: The foreign board of trade and its

clearing organization shall continue to satisfy all of the requirements

for registration set forth in Sec. 48.7.

(2) Regulatory Regime:

(i) The foreign board of trade will continue to satisfy the

criteria for a regulated market or licensed exchange pursuant to the

regulatory regime described in its application and will continue to be

subject to oversight by the regulatory authorities described in its

application.

(ii) The clearing organization will continue to satisfy the

criteria for a regulated clearing organization pursuant to the

regulatory regime described in the application for registration and

will continue to be in good standing with the relevant regulatory

authority.

(iii) The laws, systems, rules, and compliance mechanisms of the

regulatory regime applicable to the foreign board of trade will

continue to require the foreign board of trade to maintain fair and

orderly markets; prohibit fraud, abuse, and market manipulation and

other disruptions of the market; and provide that such requirements are

subject to the oversight of appropriate regulatory authorities.

(3) Satisfaction of International Standards:

(i) The foreign board of trade will continue to comply with the

Principles for the Oversight of Screen-Based Trading Systems for

Derivative Products developed by the Technical Committee of the

International Organization of Securities Commissions, as updated,

revised, or otherwise amended, to the extent such principles do not

contravene United States law.

(ii) The clearing organization will continue to:

(A) Be registered with the Commission as a derivatives clearing

organization and be in compliance with the laws and regulations related

thereto; or

(B) Observe the Recommendations for Central Counterparties.

(4) Restrictions on Direct Access:

(i) Only the foreign board of trade's identified members or other

participants will have direct access to the foreign board of trade's

trading system from the United States and the foreign board of trade

will not provide, and will take reasonable steps to prevent, third

parties from providing direct access to persons other than the

identified members or other participants.

(ii) All orders that are transmitted to the foreign board of

trade's trading system by a foreign board of trade's identified member

or other participant that is operating pursuant to the foreign board of

trade's registration will be solely for the member's or trading

participant's own account unless such member or other participant is

registered with the Commission as a futures commission merchant or such

member or other participant is registered with the Commission as a

commodity pool operator or commodity trading advisor, or is exempt from

such registration pursuant to Sec. 4.13 or Sec. 4.14 of this chapter,

provided that a futures commission merchant or a firm exempt from such

registration pursuant to Sec. 30.10 of this chapter acts as clearing

firm and guarantees, without limitation, all such trades of the

commodity pool operator or commodity trading advisor effected through

submission of orders on the trading system.

(5) Submission to Commission Jurisdiction:

(i) Prior to operating pursuant to registration under this part and

on a continuing basis thereafter, a registered foreign board of trade

will require that each current and prospective member or other

participant that is granted direct access to the foreign board of

trade's trading system and that is not registered with the Commission

as a futures commission merchant, a commodity trading advisor or a

commodity pool operator, file with the foreign board of trade a written

representation, executed by a person with the authority to bind the

member or other participant, stating that as long as the member or

other participant is authorized to enter orders directly into the trade

matching system of the foreign board of trade, the member or other

participant agrees to and submits to the jurisdiction of the Commission

with respect to activities conducted pursuant to the registration.

[[Page 80703]]

(ii) The foreign board of trade and its clearing organization will

file with the Commission a valid and binding appointment of an agent

for service of process in the United States pursuant to which the agent

is authorized to accept delivery and service of communications, as

defined in Sec. 48.2(e) issued by or on behalf of the Commission, the

United States Department of Justice, or the National Futures

Association.

(iii) The foreign board of trade, clearing organization, and each

current and prospective member or other participant that is granted

direct access to the foreign board of trade's trading system and that

is not registered with the Commission as a futures commission merchant,

a commodity trading advisor, or a commodity pool operator will maintain

with the foreign board of trade written representations, executed by

persons with the authority to bind the entity making them, stating that

as long as the foreign board of trade is registered under this

regulation, the foreign board of trade, the clearing organization or

member of either or other participant granted direct access pursuant to

this regulation will provide, upon the request of the Commission, the

United States Department of Justice and, if appropriate, the National

Futures Association, prompt access to the entity's, member's, or other

participant's original books and records or, at the election of the

requesting agency, a copy of specified information containing such

books and records, as well as access to the premises where the trading

system is available in the United States.

(iv) The foreign board of trade will maintain all representations

required pursuant to Sec. 48.8(a)(5) as part of its books and records

and make them available to the Commission upon request.

(6) Information Sharing:

(i) Information-sharing arrangements satisfactory to the

Commission, including but not limited to those set forth in Sec.

48.7(g), are in effect between the Commission and the regulatory

authorities that govern the activities of both the foreign board of

trade and the clearing organization.

(ii) The Commission is, in fact, able to obtain sufficient

information regarding the foreign board of trade, the clearing

organization, their respective members and participants and the

activities related to the foreign board of trade's registration.

(iii) The foreign board of trade and its clearing organization, as

applicable, will provide directly to the Commission any information

necessary to evaluate the continued eligibility and appropriateness of

the foreign board of trade for registration, the capability and

determination to enforce compliance with the requirements and

conditions of the registration, or to enable the Commission to carry

out its duties under the Act and Commission regulations and to provide

adequate protection to the public or United States registered entities.

(iv) In the event that the foreign board of trade and the clearing

organization are separate entities, the foreign board of trade will

require the clearing organization to enter into a written agreement in

which the clearing organization is contractually obligated to promptly

provide any and all information and documentation that may be required

of the clearing organization under this regulation and such agreement

shall be made available to the Commission, upon request.

(7) Monitoring for Compliance: The foreign board of trade and the

clearing organization will employ reasonable procedures for monitoring

and enforcing compliance with the specified conditions of its

registration.

(8) On-Site Visits: The foreign board of trade and the clearing

organization will permit and will cooperate with Commission staff with

respect to on-site visits for the purpose of overseeing ongoing

compliance of the foreign board of trade and the clearing organization

with registration requirements and conditions of registration.

(9) Conditions Applicable to Swap Trading:

(i) The foreign board of trade will ensure that all transaction

data relating to each swap transaction, including price and volume, are

reported as soon as technologically practicable after execution of the

swap transaction to a swap data repository that is either registered

with the Commission or has an information sharing arrangement with the

Commission.

(ii) The foreign board of trade will agree to coordinate with the

Commission with respect to arrangements established to address cross

market oversight issues involving swap trading, including surveillance,

emergency actions and the monitoring of trading.

(b) Other Continuing Obligations.

(1) Registered foreign boards of trade and their clearing

organizations will continue to comply with the following obligations on

an ongoing basis:

(i) The foreign board of trade will maintain the following updated

information and submit such information to the Commission on at least a

quarterly basis, not later than 30 days following the end of the

quarter, and at any time promptly upon the request of a Commission

representative, computed based upon separating buy sides and sell

sides, in a format as determined by the Commission:

(A) For each contract available to be traded through the foreign

board of trade's trading system;

(1) The total trade volume originating from electronic trading

devices providing direct access;

(2) The total trade volume for such contracts traded through the

trading system worldwide;

(3) The total trade volume for such contracts traded on the foreign

board of trade generally; and

(B) A listing of the names, National Futures Association

identification numbers (if applicable), and main business addresses in

the United States of all members and other participants that have

direct access.

(ii) The foreign board of trade will promptly provide to the

Commission written notice of the following:

(A) Any material change to the information provided in the foreign

board of trade's registration application.

(B) Any material change in the rules of the foreign board of trade

or clearing organization or the laws, rules, or regulations in the home

country jurisdictions of the foreign board of trade or clearing

organization relevant to futures, option or swap contracts made

available by direct access.

(C) Any matter known to the foreign board of trade, the clearing

organization or its representatives that, in the judgment of the

foreign board of trade or clearing organization, may affect the

financial or operational viability of the foreign board of trade or its

clearing organization with respect to contracts traded by direct

access, including, but not limited to, any significant system failure

or interruption.

(D) Any default, insolvency, or bankruptcy of any foreign board of

trade member or other participant that is or should be known to the

foreign board of trade or its representatives or the clearing

organization or its representatives that may have a material, adverse

impact upon the condition of the foreign board of trade as it relates

to trading by direct access, its clearing organization or upon any

United States customer or firm or any default, insolvency or bankruptcy

of any member of the foreign board of trade's clearing organization.

(E) Any violation of any specified conditions of the foreign board

of trade's registration or failure to satisfy the requirements for

registration under this part that is known or should be known by the

foreign board of trade, the

[[Page 80704]]

clearing organization or any of their respective members or

participants.

(F) Any disciplinary action by the foreign board of trade or its

clearing organization, or any regulatory authority that governs their

respective activities, taken against any of their respective members or

participants with respect to any contract available to be traded by

direct access that involves any market manipulation, abuse, fraud,

deceit, or conversion or that results in suspension or expulsion.

(iii) The foreign board of trade and the clearing organization, or

their respective regulatory authorities, as applicable, will provide

the following to the Commission annually as of June 30 and not later

than July 31.

(A) A certification from the foreign board of trade's regulatory

authority confirming that the foreign board of trade retains its

authorization, licensure or registration, as applicable, as a regulated

market and/or exchange under the authorization, licensing, recognition

or other registration methodology used by the foreign board of trade's

regulatory authority and that the foreign board of trade is in

continued good standing.

(B) If the clearing organization is not a derivatives clearing

organization registered with the Commission, a certification from the

clearing organization's regulatory authority confirming that the

clearing organization retains its authorization, licensure or

registration, as applicable, as a clearing organization under the

authorization, licensing or other registration methodology used by the

clearing organization's regulatory authority and is in continued good

standing.

(C) If the clearing organization is not a derivatives clearing

organization registered with the Commission, a recertification of the

clearing organization's observance of the Recommendations for Central

Counterparties.

(D) A certification that affiliates, as defined in Sec. 48.2(k),

continue to be required to comply with the rules of the foreign board

of trade and clearing organization and that the members or other

participants to which they are affiliated remain responsible to the

foreign board of trade for ensuring their affiliates' compliance.

(E) A description of any material changes regarding the foreign

board of trade or clearing organization that have not been previously

disclosed, in writing, to the Commission, or a certification that no

such material changes have occurred.

(F) A description of any significant disciplinary or enforcement

actions that have been instituted by or against the foreign board of

trade or the clearing organization or the senior officers of either

during the prior year.

(G) A written description of any material changes to the regulatory

regime to which the foreign board of trade or the clearing organization

are subject that have not been previously disclosed, in writing, to the

Commission, or a certification that no material changes have occurred.

(2) The above-referenced annual reports must be signed by an

officer of the foreign board of trade or the clearing organization who

maintains the authority to bind the foreign board of trade or clearing

organization, as applicable, and must be based on the officer's

personal knowledge.

(c) Additional Specified Conditions for Foreign Boards of Trade

with Linked Contacts. If a registered foreign board of trade grants

members or other participants direct access and makes available for

trading a linked contract, the following additional conditions apply:

(1) Statutory Conditions.

(i) The foreign board of trade will make public daily trading

information regarding the linked contract that is comparable to the

daily trading information published by the registered entity for the

contract to which the foreign board of trade's contract is linked, and

(ii) The foreign board of trade (or its regulatory authority) will:

(A) Adopt position limits (including related hedge exemption

provisions) applicable to all market participants for the linked

contract that are comparable to the position limits (including related

hedge exemption provisions) adopted by the registered entity for the

contract to which it is linked;

(B) Have the authority to require or direct any market participant

to limit, reduce, or liquidate any position the foreign board of trade

(or its regulatory authority) determines to be necessary to prevent or

reduce the threat of price manipulation, excessive speculation as

described in section 4a of the Act, price distortion, or disruption of

delivery on the cash settlement process;

(C) Agree to promptly notify the Commission, with regard to the

linked contract, of any change regarding--

(1) The information that the foreign board of trade will make

publicly available,

(2) The position limits that foreign board of trade or its

regulatory authority will adopt and enforce,

(3) The position reductions required to prevent manipulation,

excessive speculation as described in section 4a of the Act, price

distortion, or disruption of delivery or the cash settlement process,

and

(4) Any other area of interest expressed by the Commission to the

foreign board of trade or its regulatory authority;

(D) Provide information to the Commission regarding large trader

positions in the linked contract that is comparable to the large trader

position information collected by the Commission for the contract to

which it is linked; and

(E) Provide the Commission such information as is necessary to

publish reports on aggregate trader positions for the linked contract

that are comparable to such reports on aggregate trader positions for

the contract to which it is linked.

(2) Other Conditions on Linked Contracts.

(i) The foreign board of trade will inform the Commission in a

quarterly report of any member that had positions in a linked contract

above the applicable foreign board of trade position limit, whether a

hedge exemption was granted, and if not, whether a disciplinary action

was taken.

(ii) The foreign board of trade will provide the Commission, either

directly or through its agent, with trade execution and audit trail

data for the Commission's Trade Surveillance System on a trade-date

plus one basis and in a form, content and manner acceptable to the

Commission for all linked contracts.

(iii) The foreign board of trade will provide to the Commission, at

least one day prior to the effective date thereof, except in the event

of an emergency market situation, copies of, or hyperlinks to, all

rules, rule amendments, circulars and other notices published by the

foreign board of trade with respect to all linked contracts.

(iv) The foreign board of trade will provide to the Commission

copies of all reports of disciplinary action involving the foreign

board of trade's linked contracts upon closure of the action. Such

reports should include the reason the action was undertaken, the

results of the investigation that led to the disciplinary action, and

any sanctions imposed.

(v) In the event that the Commission, pursuant to its emergency

powers authority, directs that the registered entity which lists the

contract to which the foreign board of trade's contract is linked to

take emergency action with respect to a linked contract (for example,

to cease trading in the contract), the foreign board of trade, subject

to information-sharing

[[Page 80705]]

arrangements between the Commission and its regulatory authority, will

promptly take similar action with respect to the its linked contract.

Sec. 48.9 Revocation of registration.

(a) Failure to Satisfy Registration Requirements or Conditions:

(1) If the Commission determines that a registered foreign board of

trade or the clearing organization has failed to satisfy any

registration requirements or conditions for registration, the

Commission shall notify the foreign board of trade of such

determination, including the particular requirements or conditions that

are not being satisfied, and shall afford the foreign board of trade or

clearing organization an opportunity to make appropriate changes to

bring it into compliance.

(2) If, not later than 30 days after receiving a notification under

paragraph (a)(1) of this section, the foreign board of trade or

clearing organization fails to make changes that, in the opinion of the

Commission, are necessary to comply with the registration requirements

or conditions of registration, the Commission may revoke the foreign

board of trade's registration, after appropriate notice and an

opportunity to respond, by issuing an Order Revoking Registration which

sets forth the reasons therefor.

(3) A foreign board of trade whose registration has been revoked

for failure to satisfy a registration requirement or condition of

registration may apply for re-registration 360 days after the issuance

of the Order Revoking Registration if the deficiency causing the

revocation has been cured or relevant facts and circumstances have

changed.

(b) Other Events that Could Result in Revocation. Notwithstanding

Sec. 48.9(a), revocation under these circumstances will be handled by

the Commission as relevant facts or circumstances warrant.

(1) The Commission may revoke a foreign board of trade's

registration, after appropriate notice and an opportunity to respond,

if the Commission determines that a representation made in the foreign

board of trade's application for registration is found to be untrue or

materially misleading or if the foreign board of trade failed to

include information in the application that would have been material to

the Commission's determination as to whether to issue an Order of

Registration.

(2) The Commission may revoke a foreign board of trade's

registration, after appropriate notice and an opportunity to respond,

if there is a material change in the regulatory regime applicable to

the foreign board of trade or clearing organization such that the

regulatory regime no longer satisfies any registration requirement or

condition for registration applicable to the regulatory regime.

(3) The Commission may revoke a foreign board of trade's

registration in the event of an emergency or in a circumstance where

the Commission determines that revocation would be necessary or

appropriate in the public interest. Following revocation, the

Commission will provide notice and an opportunity to respond.

(4) The Commission may revoke a foreign board of trade's

registration in the event the foreign board of trade or the clearing

organization is no longer authorized, licensed or registered, as

applicable, as a regulated market and/or exchange or clearing

organization or ceases to operate as a foreign board of trade or

clearing organization, subject to notice and an opportunity to respond.

(c) Upon request by the Commission, a registered foreign board of

trade must file with the Commission a written demonstration, containing

such supporting data, information, and documents, in such form and

manner and within such timeframe as the Commission may specify, that

the foreign board of trade or clearing organization is in compliance

with the registration requirements and/or conditions for registration.

Sec. 48.10 Additional contracts.

(a) Generally. A registered foreign board of trade that wishes to

make an additional futures, option or swap contract available for

trading by identified members or other participants located in the

United States with direct access to its electronic trading and order

matching system must submit a written request prior to offering the

contracts from within the United States. Such a written request must

include the terms and conditions of the additional futures, option or

swap contracts and a certification that the additional contracts meet

the requirements of Sec. 48.8(c), if applicable, and that the foreign

board of trade and the clearing organization continue to satisfy the

requirements and conditions of registration. The foreign board of trade

can make available for trading by direct access the additional

contracts ten business days after the date of receipt by the Commission

of the written request, unless the Commission notifies the foreign

board of trade that additional time is needed to complete its review of

policy or other issues pertinent to the additional contracts. A

registered foreign board of trade may list for trading by direct access

an additional futures or option contract on a non-narrow-based security

index pursuant to the Commission certification procedures set forth in

Sec. 30.13(d) and Appendix D to Part 30 of this chapter.

(b) Option contracts on previously approved futures contracts. (1)

If the option is on a futures contract that is not a linked contract,

the option contract may be made available for trading by direct access

by filing with the Commission no later than the business day preceding

the initial listing of the contract:

(i) A copy of the terms and conditions of the additional contract

and

(ii) A certification that the foreign board of trade and the

clearing organization continue to satisfy the conditions of its

registration.

(2) If the option is on a futures contract that is a linked

contract, the option contract may be made available for trading by

direct access by filing with the Commission no later than the business

day preceding the initial listing of the contract:

(i) A copy of the terms and conditions of the additional contract;

and

(ii) A certification that the foreign board of trade and the

clearing organization continue to satisfy the conditions of its

registration, including the conditions specifically applicable to

linked contracts set forth in Sec. 48.8(c).

(3) If the option is on a non-narrow-based security index futures

contract which may be offered or sold in the United States pursuant to

a Commission certification issued pursuant to Sec. 30.13 of this

chapter, the option contract may be listed for trading by direct access

without further action by either the registered foreign board of trade

or the Commission.

Appendix to Part 48--Form FBOT

COMMODITY FUTURES TRADING COMMISSION

FORM FBOT

FOREIGN BOARD OF TRADE APPLICATION FOR REGISTRATION (IN ORDER TO PERMIT

DIRECT ACCESS TO MEMBERS AND OTHER PARTICIPANTS)

APPLICATION INSTRUCTIONS

DEFINITIONS

1. Unless the context requires otherwise, all terms used in this

application have the same meaning as in the Commodity Exchange Act, as

[[Page 80706]]

amended (CEA or Act),\1\ and in the regulations of the Commodity

Futures Trading Commission (Commission or CFTC).\2\

---------------------------------------------------------------------------

\1\ 7 U.S.C. 1 et seq.

\2\ 17 CFR chapter I.

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2. For the purposes of this Form FBOT, the term ``applicant''

refers to the foreign board of trade applying for registration pursuant

to CEA section 4(b) and part 48 of the Commission's regulations. The

term ``clearing organization'' refers to the clearing organization that

will be clearing trades executed on the trading system of such foreign

board of trade.

GENERAL INSTRUCTIONS

1. A Form FBOT (including exhibits) shall be completed by any

foreign board of trade applying for registration with the Commission

pursuant to CEA section 4(b) and part 48 of the Commission's

regulations.

2. Form FBOT (including exhibits and any supplement thereto)

(collectively, the ``application'' or ``application for registration'')

must be filed electronically with the Secretary of the Commission at

[email protected] Applicants may prepare their own Form FBOT,

but must follow the format prescribed herein.

3. The name of any individual listed in Form FBOT shall be provided

in full (Last Name, First Name and Middle Name or Initial).

4. Form FBOT must be signed by the Chief Executive Officer (or the

functional equivalent) of the foreign board of trade who must possess

the authority to bind the foreign board of trade.

5. If this Form FBOT is being filed as a new application for

registration, all applicable items on the Form FBOT must be answered in

full. Non-applicable items should be indicated by marking ``none'' or

``N/A.''

6. Submission of a complete Form FBOT (including all information,

documentation and exhibits requested therein, and any required

supplement) is mandatory and must be received by the Commission before

it will begin to process a foreign board of trade's application for

registration. The information provided with a Form FBOT (including

exhibits and any supplement thereto) will be used to determine whether

the Commission should approve or deny registration to an applicant.

Pursuant to its regulations, the Commission may determine that

information and/or documentation in addition to that requested in the

Form FBOT is required from the applicant in order to process the

application for registration or to determine whether registration is

appropriate.

7. Pursuant to Commission regulations, an applicant or its clearing

organization must identify with particularity any information in the

application (including, but not limited to, any information contained

in this Form FBOT) that will be the subject of a request for

confidential treatment and must provide support for any request for

confidential treatment pursuant to the procedures set forth in

Commission regulation 145.9.\3\ Except in cases where confidential

treatment is granted by the Commission pursuant to the Freedom of

Information Act and Commission regulations, information supplied in the

Form FBOT (including exhibits and any supplement thereto) will be

included routinely in the public files of the Commission and will be

available for inspection and comment by any interested person.

---------------------------------------------------------------------------

\3\ 17 CFR 145.9.

---------------------------------------------------------------------------

8. A Form FBOT that is not prepared and executed in compliance with

applicable requirements and instructions may be returned as not

acceptable for filing.\4\ Acceptance of a Form FBOT by the Commission,

however, shall not constitute a finding that the Form FBOT has been

filed as required or that the information submitted is verified to be

true, current, or complete. The Commission may revoke a foreign board

of trade's registration, after appropriate notice and an opportunity to

respond, if the Commission determines that a representation made in

this Form FBOT is found to be untrue or materially misleading or if the

foreign board of trade failed to include information in this Form FBOT

that would have been material to the Commission's determination as to

whether to issue an Order of Registration.

---------------------------------------------------------------------------

\4\ Applicants and their clearing organizations are encouraged

to correspond with the Commission's Division of Market Oversight

regarding any content, procedural, or formatting questions

encountered in connection with the preparation of a Form FBOT, or

any exhibits or supplements thereto, prior to formally submitting

those documents to the Commission. When appropriate, potential

applicants and clearing organizations, as applicable, may provide a

complete draft Form FBOT (including exhibits and any required

supplement) to the Division of Market Oversight for early review to

minimize the risk of having a submission returned or otherwise

denied as not acceptable for filing. Review of draft submissions by

any division of the Commission and any comments provided by a

division of the Commission are for consultation purposes only and do

not bind the Commission. To obtain instructions for submitting

drafts, please contact the Division of Market Oversight.

---------------------------------------------------------------------------

9. In addition to this Form FBOT, the clearing organization

associated with the foreign board of trade must complete and submit

Supplement S-1 to this Form FBOT in accordance with the instructions

thereto. To the extent a single document or description is responsive

to more than one request for the same information in either the Form

FBOT or the Supplement S-1, the document or description need only be

provided once and may be cross-referenced elsewhere.

10. All documents submitted as part of this Form FBOT (or exhibits

thereto) must be written in English or accompanied by a certified

English translation.

UPDATING INFORMATION ON THE FORM FBOT

Pursuant to the Commission's regulations, if any information or

documentation contained in this Form FBOT (including exhibits or any

supplement or amendment thereto) is or becomes inaccurate for any

reason prior to the issuance of an Order of Registration, an amendment

correcting such information must be filed promptly with the Commission.

A registered foreign board of trade also may submit an amendment to

this Form FBOT to correct information that has become inaccurate

subsequent to the receipt of an Order of Registration.

BILLING CODE 6351-01-P

[[Page 80707]]

[GRAPHIC] [TIFF OMITTED] TR23DE11.051

[[Page 80708]]

[GRAPHIC] [TIFF OMITTED] TR23DE11.052

[[Page 80709]]

[GRAPHIC] [TIFF OMITTED] TR23DE11.053

[[Page 80710]]

[GRAPHIC] [TIFF OMITTED] TR23DE11.054

BILLING CODE 6351-01-C

INSTRUCTIONS FOR EXHIBITS TO FORM FBOT

1. The following exhibits must be filed with the Commission by any

foreign board of trade (1) seeking registration for purposes of

granting direct access to its members and other participants or (2)

amending a

[[Page 80711]]

previously submitted application, pursuant to CEA section 4(b) and part

48 of the Commission's regulations. The information and documentation

requested relates to the activities of the foreign board of trade,

unless otherwise stated.

2. The exhibits should be filed in accordance with the General

Instructions to this Form FBOT and labeled as specified herein. If any

exhibit is not applicable, please specify the exhibit letter and number

and indicate by marking ``none'' or ``N/A.'' If any exhibit may be

satisfied by documentation or information submitted in a different

exhibit, the documentation or information need not be submitted more

than once--please use internal cross-references where appropriate.

GENERAL REQUIREMENTS

A foreign board of trade applying for registration must submit

sufficient information and documentation to successfully demonstrate to

Commission staff that the foreign board of trade and its clearing

organization satisfy all of the requirements of Commission regulation

48.7. With respect to its review of the foreign board of trade, the

Commission anticipates that such information and documentation would

necessarily include, but not be limited to, the following:

EXHIBIT A--GENERAL INFORMATION AND DOCUMENTATION

Attach, as Exhibit A-1, a description of the following for the

foreign board of trade: Location, history, size, ownership and

corporate structure, governance and committee structure, current or

anticipated presence of offices or staff in the United States, and

anticipated volume of business emanating from members and other

participants that will be provided direct access to the foreign board

of trade's trading system.

Attach, as Exhibit A-2, the following:

Articles of association, constitution, or other similar

organizational documents.

Attach, as Exhibit A-3, the following:

(1) Membership and trading participant agreements.

(2) Clearing agreements.

Attach, as Exhibit A-4, the following:

Terms and conditions of contracts to be available through direct

access (as specified in Exhibit E).

Attach, as Exhibit A-5, the following:

The national statutes, laws and regulations governing the

activities of the foreign board of trade and its respective

participants.

Attach, as Exhibit A-6, the following:

The current rules, regulations, guidelines and bylaws of the

foreign board of trade.

Attach, as Exhibit A-7, the following:

Evidence of the authorization, licensure or registration of the

foreign board of trade pursuant to the regulatory regime in its home

country jurisdiction and a representation by its regulator(s) that it

is in good regulatory standing in the capacity in which it is

authorized, licensed or registered.

Attach, as Exhibit A-8, the following document:

A summary of any disciplinary or enforcement actions or proceedings

that have been brought against the foreign board of trade, or any of

the senior officers thereof, in the past five years and the resolution

of those actions or proceedings.

Attach, as Exhibit A-9, the following document:

An undertaking by the chief executive officer(s) (or functional

equivalent[s]) of the foreign board of trade to notify Commission staff

promptly if any of the representations made in connection with or

related to the foreign board of trade's application for registration

cease to be true or correct, or become incomplete or misleading.

EXHIBIT B--MEMBERSHIP CRITERIA

Attach, as Exhibit B, the following, separately labeling each

description:

(1) A description of the categories of membership and participation

in the foreign board of trade and the access and trading privileges

provided by the foreign board of trade. The description should include

any restrictions applicable to members and other participants to which

the foreign board of trade intends to grant direct access to its

trading system.

(2) A description of all requirements for each category of

membership and participation on the trading system and the manner in

which members and other participants are required to demonstrate their

compliance with these requirements. The description should include, but

not be limited to, the following:

(i) Professional Qualification. A description of the specific

professional requirements, qualifications, and/or competencies required

of members or other participants and/or their staff and a description

of the process by which the foreign board of trade confirms compliance

with such requirements.

(ii) Authorization, Licensure and Registration. A description of

any regulatory and self-regulatory authorization, licensure or

registration requirements that the foreign board of trade imposes upon,

or enforces against, its members and other participants including, but

not limited to any authorization, licensure or registration

requirements imposed by the regulatory regime/authority in the home

country jurisdiction(s) of the foreign board of trade. Please also

include a description of the process by which the foreign board of

trade confirms compliance with such requirements.

(iii) Financial Integrity. A description of the following:

(A) The financial resource requirements, standards, guides or

thresholds required of members and other participants.

(B) The manner in which the foreign board of trade evaluates the

financial resources/holdings of its members or participants.

(C) The process by which applicants demonstrate compliance with

financial requirements for membership or participation including, as

applicable:

(i) Working capital and collateral requirements, and

(ii) Risk management mechanisms for members allowing customers to

place orders.

(iv) Fit and Proper Standards. A description of how the foreign

board of trade ensures that potential members/other participants meet

fit and proper standards.

EXHIBIT C--BOARD AND/OR COMMITTEE MEMBERSHIP

Attach, as Exhibit C, the following:

(1) A description of the requirements applicable to membership on

the governing board and significant committees of the foreign board of

trade.

(2) A description of the process by which the foreign board of

trade ensures that potential governing board and committee members/

other participants meet these standards.

(3) A description of the provisions to minimize and resolve

conflicts of interest with respect to membership on the governing board

and significant committees of the foreign board of trade.

(4) A description of the rules with respect to the disclosure of

material non-public information obtained as a result of a member's or

other participant's performance on the governing board or significant

committee.

EXHIBIT D--THE AUTOMATED TRADING SYSTEM

Attach, as Exhibit D-1, a description of (or where appropriate,

documentation addressing) the following, separately labeling each

description:

(1) The order matching/trade execution system, including a complete

[[Page 80712]]

description of all permitted ways in which members or other

participants (or their customers) may connect to the trade matching/

execution system and the related requirements (for example,

authorization agreements).

(2) The architecture of the systems, including hardware and

distribution network, as well as any pre- and post-trade risk-

management controls that are made available to system users.

(3) The security features of the systems.

(4) The length of time such systems have been operating.

(5) Any significant system failures or interruptions.

(6) The nature of any technical review of the order matching/trade

execution system performed by the foreign board of trade, the home

country regulator, or a third party.

(7) Trading hours.

(8) Types and duration of orders accepted.

(9) Information that must be included on orders.

(10) Trade confirmation and error trade procedures.

(11) Anonymity of participants.

(12) Trading system connectivity with clearing system.

(13) Response time.

(14) Ability to determine depth of market.

(15) Market continuity provisions.

(16) Reporting and recordkeeping requirements.

Attach, as Exhibit D-2, a description of the manner in which the

foreign board of trade assures the following with respect to the

trading system, separately labeling each description:

(1) Algorithm. The trade matching algorithm matches trades fairly

and timely.

(2) IOSCO Principles. The trading system complies with the

Principles for the Oversight of Screen-Based Trading Systems for

Derivative Products developed by the Technical Committee of the

International Organization of Securities Commissions (IOSCO

Principles). Provide a copy of any independent certification received

or self-certification performed and identify any system deficiencies

with respect to the IOSCO Principles.

(3) Audit Trail.

(i) The audit trail timely captures all relevant data, including

changes to orders.

(ii) Audit trail data is securely maintained and available for an

adequate time period.

(4) Public Data. Adequate and appropriate trade data is available

to users and the public.

(5) Reliability. The trading system has demonstrated reliability.

(6) Secure Access. Access to the trading system is secure and

protected.

(7) Emergency Provisions. There are adequate provisions for

emergency operations and disaster recovery.

(8) Data Loss Prevention. Trading data is backed up to prevent loss

of data.

(9) Contracts Available. Mechanisms are available to ensure that

only those futures, option or swap contracts that have been identified

to the Commission as part of the application or permitted to be made

available for trading by direct access pursuant to the procedures set

forth in Sec. 48.10 are made available for trading by direct access.

(10) Predominance of the Centralized Market. Mechanisms are

available that ensure a competitive, open, and efficient market and

mechanism for executing transactions.

EXHIBIT E--THE TERMS AND CONDITIONS OF CONTRACTS PROPOSED TO BE MADE

AVAILABLE IN THE UNITED STATES

Attach, as Exhibit E-1, a description of the terms and conditions

of futures, option or swap contracts intended to be made available for

direct access. With respect to each contract, indicate whether the

contract is regulated or otherwise treated as a futures, option or swap

contract in the regulatory regime(s) of the foreign board of trade's

home country.

As Exhibit E-2, demonstrate that the contracts are not prohibited

from being traded by United States persons, i.e., the contracts are not

prohibited security futures or single stock contracts or narrow-based

index contracts. For non-narrow based stock index futures contracts,

demonstrate that the contracts have received Commission certification

pursuant to the procedures set forth in Sec. 30.13 and Appendix D to

part 30 of this chapter.

As Exhibit E-3, demonstrate that the contracts are required to be

cleared.

As Exhibit E-4, identify any contracts that are linked to a

contract listed for trading on a United States-registered entity, as

defined in section 1a(40) of the Act. A linked contract is a contract

that settles against any price (including the daily or final settlement

price) of one or more contracts listed for trading on such registered

entity.

As Exhibit E-5, identify any contracts that have any other

relationship with a contract listed for trading on a registered entity,

i.e., both the foreign board of trade's and the registered entity's

contract settle to the price of the same third party-constructed index.

As Exhibit E-6, demonstrate that the contracts are not readily

susceptible to manipulation. In addition, for each contract to be

listed, describe each investigation, action, proceeding or case

involving manipulation and involving such contract in the three years

preceding the application date, whether initiated by the foreign board

of trade, a regulatory or self-regulatory authority or agency or other

government or prosecutorial agency. For each such action, proceeding or

case, describe the alleged manipulative activity and the current status

or resolution thereof.

EXHIBIT F--THE REGULATORY REGIME GOVERNING THE FOREIGN BOARD OF TRADE

IN ITS HOME COUNTRY \5\ OR COUNTRIES

With respect to each relevant regulatory regime or authority

governing the foreign board of trade, attach, as Exhibit F, the

following (including, where appropriate, an indication as to whether

the applicable regulatory regime is dependent on the home country's

classification of the product being traded on the foreign board of

trade as a future, option, swap, or otherwise, and a description of any

difference between the applicable regulatory regime for each product

classification type):

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\5\ Where multiple foreign boards of trade subject to the same

regulatory regime/authority and are similarly regulated are applying

for registration at the same time, a single Exhibit E-1 may be

submitted as part of the application for all such foreign boards of

trade either by one of the applicant foreign boards of trade or by

the regulatory regime/authority with responsibility to oversee each

of the multiple foreign boards of trade applying for registration.

Where an FBOT applying for registration is located in the same

jurisdiction and subject to the same regulatory regime as a

registered FBOT, the FBOT applying for registration may include by

reference, as part of its application, information about the

regulatory regime that is posted on the Commission's Web site. The

FBOT applying for registration must certify that the information

thus included in the application is directly applicable to it and

remains current and valid.

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(1) A description of the regulatory regime/authority's structure,

resources, staff, and scope of authority; the regulatory regime/

authority's authorizing statutes, including the source of its authority

to supervise the foreign board of trade; the rules and policy

statements issued by the regulator with respect to the authorization

and continuing oversight of markets, electronic trading systems, and

clearing organizations; and the financial protections afforded customer

funds.

(2) A description of and, where applicable, copies of the laws,

rules, regulations and policies applicable to: \6\

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\6\ To the extent that any such laws, rules, regulations or

policies were provided as part of Exhibit A-5, they need not be

duplicated. They may be cross-referenced.

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[[Page 80713]]

(i) The authorization, licensure or registration of the foreign

board of trade.

(ii) The regulatory regime/authority's program for the ongoing

supervision and oversight of the foreign board of trade and the

enforcement of its trading rules.

(iii) The financial resource requirements applicable to the

authorization, licensure or registration of the foreign board of trade

and the continued operations thereof.

(iv) The extent to which the IOSCO Principles are used or applied

by the regulatory regime/authority in its supervision and oversight of

the foreign board of trade or are incorporated into its rules and

regulations and the extent to which the regulatory regime/authority

reviews the applicable trading systems for compliance therewith.

(v) The extent to which the regulatory regime/authority reviews

and/or approves the trading rules of the foreign board of trade prior

to their implementation.

(vi) The extent to which the regulatory regime/authority reviews

and/or approves futures, option or swap contracts prior to their being

listed for trading.

(vii) The regulatory regime/authority's approach to the detection

and deterrence of abusive trading practices, market manipulation, and

other unfair trading practices or disruptions of the market.

(3) A description of the laws, rules, regulations and policies that

govern the authorization and ongoing supervision and oversight of

market intermediaries who may deal with members and other participants

located in the United States participants, including:

(i) Recordkeeping requirements.

(ii) The protection of customer funds.

(iii) Procedures for dealing with the failure of a market

intermediary in order to minimize damage and loss to investors and to

contain systemic risk.

(4) A description of the regulatory regime/authority's inspection,

investigation and surveillance powers; and the program pursuant to

which the regulatory regime/authority uses those powers to inspect,

investigate, and enforce rules applicable to the foreign board of

trade.

(5) For both the foreign board of trade and the clearing

organization (unless addressed in Supplement S-1), a report confirming

that the foreign board of trade and clearing organization are in

regulatory good standing, which report should be prepared subsequent to

consulting with the regulatory regime/authority governing the

activities of the foreign board of trade and any associated clearing

organization. The report should include:

(i) Confirmation of regulatory status (including proper

authorization, licensure and registration) of the foreign board of

trade and clearing organization.

(ii) Any recent oversight reports generated by the regulatory

regime/authority that are, in the judgment of the regulatory regime/

authority, relevant to the foreign board of trade's status as a

registered foreign board of trade.

(iii) Disclosure of any significant regulatory concerns, inquiries

or investigations by the regulatory regime/authority, including any

concerns, inquiries or investigations with regard to the foreign board

of trade's arrangements to monitor trading by members or other

participants located in the United States or the adequacy of the risk

management controls of the trading or of the clearing system.

(iv) A description of any investigations (formal or informal) or

disciplinary actions initiated by the regulatory regime/authority or

any other self-regulatory, regulatory or governmental entity against

the foreign board of trade, the clearing organization or any of their

respective senior officers during the past year.

(6) For both the foreign board of trade and the clearing

organization (unless addressed in Supplement S-1), a confirmation that

the regulatory regime/authority governing the activities of the foreign

board of trade and the clearing organization agree to cooperate with a

Commission staff visit subsequent to submission of the application on

an ``as needed basis,'' the objectives of which will be to, among other

things, familiarize Commission staff with supervisory staff of the

regulatory regime/authority; discuss the laws, rules and regulations

that formed the basis of the application and any changes thereto;

discuss the cooperation and coordination between the authorities,

including, without limitation, information sharing arrangements; and

discuss issues of concern as they may develop from time to time (for

example, linked contracts or unusual trading that may be of concern to

Commission surveillance staff).

EXHIBIT G--THE RULES OF THE FOREIGN BOARD OF TRADE AND ENFORCEMENT

THEREOF

Attach, as Exhibit G-1, the following:

A description of the foreign board of trade's regulatory or

compliance department, including its size, experience level,

competencies, duties and responsibilities.

Attach, as Exhibit G-2, the following:

A description of the foreign board of trade's trade practice rules,

including but not limited to rules that address the following--

(1) Capacity of the foreign board of trade to detect, investigate,

and sanction persons who violate foreign board of trade rules.

(2) Prohibition of fraud and abuse, as well as abusive trading

practices including, but not limited to, wash sales and trading ahead,

and other market abuses.

(3) A trade surveillance system appropriate to the foreign board of

trade and capable of detecting and investigating potential trade

practice violations.

(4) An audit trail that captures and retains sufficient order and

trade-related data to allow the compliance staff to detect trading and

market abuses and to reconstruct all transactions within a reasonable

period of time.

(5) Appropriate resources to conduct real-time supervision of

trading.

(6) Sufficient compliance staff and resources, including those

outsourced or delegated to third parties, to fulfill regulatory

responsibilities.

(7) Rules that authorize compliance staff to obtain, from market

participants, information and cooperation necessary to conduct

effective rule enforcement and investigations.

(8) Staff investigations and investigation reports demonstrating

that the compliance staff investigates suspected rule violations and

prepares reports of their finding and recommendations.

(9) Rules determining access requirements with respect to the

persons that may trade on the foreign board of trade, and the means by

which they connect to it.

(10) The requirement that market participants submit to the foreign

board of trade's jurisdiction as a condition of access to the market.

Attach, as Exhibit G-3, the following:

A description of the foreign board of trade's disciplinary rules,

including but not limited to rules that address the following--

(1) Disciplinary authority and procedures that empower staff to

recommend and prosecute disciplinary actions for suspected rule

violations and that provide the authority to fine, suspend, or expel

any market participant pursuant to fair and clear standards.

(2) The issuance of warning letters and/or summary fines for

specified rule violations.

(3) The review of investigation reports by a disciplinary panel or

other authority for issuance of charges or

[[Page 80714]]

instructions to investigate further, or findings that an insufficient

basis exists to issue charges.

(4) Disciplinary committees of the foreign board of trade that take

disciplinary action via formal disciplinary processes.

(5) Whether and how the foreign board of trade articulates its

rationale for disciplinary decisions.

(6) The sanctions for particular violations and a discussion of the

adequacy of sanctions with respect to the violations committed and

their effectiveness as a deterrent to future violations.

Attach, as Exhibit G-4, the following:

A description of the market surveillance program (and any related

rules), addressing the following--

The dedicated market surveillance department or the delegation or

outsourcing of that function, including a general description of the

staff; the data collected on traders' market activity; data collected

to determine whether prices are responding to supply and demand; data

on the size and ownership of deliverable supplies; a description of the

manner in which the foreign board of trade detects and deters market

manipulation; for cash-settled contracts, methods of monitoring the

settlement price or value; and any foreign board of trade position

limit, position management, large trader or other position reporting

system.

EXHIBIT H--INFORMATION SHARING AGREEMENTS AMONG THE COMMISSION, THE

FOREIGN BOARD OF TRADE, THE CLEARING ORGANIZATION, AND RELEVANT

REGULATORY AUTHORITIES

Attach, as Exhibit H, the following:

(1) A description of the arrangements among the Commission, the

foreign board of trade, the clearing organization, and the relevant

foreign regulatory authorities that govern the sharing of information

regarding the transactions that will be executed pursuant to the

foreign board of trade's registration with the Commission and the

clearing and settlement of those transactions. This description should

address or identify whether and how the foreign board of trade,

clearing organization, and the regulatory authorities governing the

activities of the foreign board of trade and clearing organization

agree to provide directly to the Commission information and

documentation requested by Commission staff that Commission staff

determines is needed:

(i) To evaluate the continued eligibility of the foreign board of

trade for registration.

(ii) To enforce compliance with the specified conditions of the

registration.

(iii) To enable the CFTC to carry out its duties under the Act and

Commission regulations and to provide adequate protection to the public

or registered entities.

(iv) To respond to potential market abuse associated with trading

by direct access on the registered foreign board of trade.

(v) To enable Commission staff to effectively accomplish its

surveillance responsibilities with respect to a registered entity where

Commission staff, in its discretion, determines that a contract traded

on a registered foreign board of trade may affect such ability.

(2) A statement as to whether and how the foreign board of trade

has executed the International Information Sharing Memorandum of

Understanding and Agreement.

(3) A statement as to whether the regulatory authorities governing

the activities of the foreign board of trade and clearing organization

are signatories to the International Organization of Securities

Commissions Multilateral Memorandum of Understanding. If not, describe

any substitute information-sharing arrangements that are in place.

(4) A statement as to whether the regulatory authorities governing

the activities of the foreign board of trade and clearing organization

are signatories to the Declaration on Cooperation and Supervision of

International Futures Exchanges and Clearing Organizations. If not, a

statement as to whether and how they have committed to share the types

of information contemplated by the International Information Sharing

Memorandum of Understanding and Agreement with the Commission, whether

pursuant to an existing memorandum of understanding or some other

arrangement.

EXHIBIT I--ADDITIONAL INFORMATION AND DOCUMENTATION

Attach, as Exhibit I, any additional information or documentation

necessary to demonstrate that the requirements for registration

applicable to the foreign board of trade set forth in Commission

regulation 48.7 are satisfied.

Continuation of Appendix to Part 48--Supplement S-1 to Form FBOT

COMMODITY FUTURES TRADING COMMISSION

SUPPLEMENT S-1 to FORM FBOT

CLEARING ORGANIZATION SUPPLEMENT TO FOREIGN BOARD OF TRADE APPLICATION

FOR REGISTRATION

SUPPLEMENT INSTRUCTIONS

DEFINITIONS

1. Unless the context requires otherwise, all terms used in this

supplement have the same meaning as in the Commodity Exchange Act, as

amended (CEA or Act),\7\ and in the regulations of the Commodity

Futures Trading Commission (Commission or CFTC).\8\

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\7\ 7 U.S.C. 1 et seq.

\8\ 17 CFR chapter I.

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2. For the purposes of this Supplement S-1, the term ``applicant''

refers to the foreign board of trade applying for registration pursuant

to CEA section 4(b) and part 48 of the Commission's regulations. The

term ``clearing organization'' refers to the clearing organization that

will be clearing trades executed on the trading system of such foreign

board of trade.

GENERAL INSTRUCTIONS

1. A Supplement S-1 (including exhibits) shall be completed by each

clearing organization that will be clearing trades executed on the

trading system of a foreign board of trade applying for registration

with the Commission pursuant to CEA section 4(b) and part 48 of the

Commission's regulations. Each clearing organization shall submit a

separate Supplement S-1.

2. In the event that the clearing functions of the foreign board of

trade applying for registration will be performed by the foreign board

of trade itself, the foreign board of trade shall complete this

Supplement S-1, but need not duplicate information provided on its Form

FBOT. Specific reference to or incorporation of information or

documentation (including exhibits) on the associated Form FBOT, where

appropriate, is acceptable. To the extent a singular document or

description is responsive to more than one request for information in

this Supplement S-1, the document or description need only be provided

once and may be cross-referenced elsewhere.

3. Supplement S-1, including exhibits, should accompany the foreign

board of trade's Form FBOT and must

[[Page 80715]]

be filed electronically with the Secretary of the Commission at

[email protected] Clearing organizations may prepare their own

Supplement S-1, but must follow the format prescribed herein.

4. The name of any individual listed in Supplement S-1 shall be

provided in full (Last Name, First Name and Middle Name or Initial).

5. Supplement S-1 must be signed by the Chief Executive Officer (or

the functional equivalent) of the clearing organization who must

possess the authority to bind the clearing organization.

6. If this Supplement S-1 is being filed in connection with a new

application for registration, all applicable items must be answered in

full. If any item is not applicable, indicate by marking ``none'' or

``N/A.''

7. Submission of a complete Form FBOT and Supplement S-1 (including

all information, documentation and exhibits requested therein) is

mandatory and must be received by the Commission before it will begin

to process a foreign board of trade's application for registration. The

information provided with a Form FBOT and Supplement S-1 will be used

to determine whether the Commission should approve or deny registration

to an applicant. Pursuant to its regulations, the Commission may

determine that information and/or documentation in addition to that

requested in the Form FBOT and Supplement S-1 is required from the

applicant and/or its clearing organization(s) in order to process the

application for registration or to determine whether registration is

appropriate.

8. Pursuant to Commission regulations, an applicant or its clearing

organization must identify with particularity any information in the

application (including, but not limited to, any information contained

in this Supplement S-1), that will be the subject of a request for

confidential treatment and must provide support for any request for

confidential treatment pursuant to the procedures set forth in

Commission regulation 145.9.\9\ Except in cases where confidential

treatment is granted by the Commission, pursuant to the Freedom of

Information Act and Commission regulations, information supplied in the

Supplement S-1 will be included routinely in the public files of the

Commission and will be available for inspection by any interested

person.

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\9\ 17 CFR 145.9.

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9. A Supplement S-1 that is not prepared and executed in compliance

with applicable requirements and instructions may be returned as not

acceptable for filing.\10\ Acceptance of either a Form FBOT or

Supplement S-1 by the Commission, however, shall not constitute a

finding that the either have been filed as required or that the

information submitted is verified to be true, current, or complete. The

Commission may revoke a foreign board of trade's registration, after

appropriate notice and an opportunity to respond, if the Commission

determines that a representation made in this Supplement S-1 is found

to be untrue or materially misleading or if the foreign board of trade

and/or clearing organization failed to include information in this

Supplement S-1 that would have been material to the Commission's

determination as to whether to issue an Order of Registration.

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\10\ Applicants and their clearing organizations are encouraged

to correspond with the Commission's Division of Market Oversight

regarding any content, procedural, or formatting questions

encountered in connection with the preparation of a Form FBOT,

Supplement S-1, or exhibits thereto prior to formally submitting

those documents to the Commission. When appropriate, potential

applicants and clearing organizations, as applicable, may provide a

complete draft Form FBOT and Supplement S-1 to the Division of

Market Oversight for early review to minimize the risk of having a

submission returned or otherwise denied as not acceptable for

filing. Review of draft submissions by any division of the

Commission and any comments provided by a division of the Commission

are for consultation purposes only and do not bind the Commission.

To obtain instructions for submitting drafts, please contact the

Division of Market Oversight.

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10. All documents submitted as part of this Supplement S-1 (or

exhibits thereto) must be written in English or accompanied by a

certified English translation.

UPDATING INFORMATION

Pursuant to the Commission's regulations, if any information or

documentation contained in this Supplement S-1 (including exhibits) is

or becomes inaccurate for any reason prior to the issuance of an Order

of Registration, an amendment correcting such information must be filed

promptly with the Commission. A clearing organization also may submit

an amendment to this Supplement S-1 to correct information that has

become inaccurate subsequent to the issuance of an Order of

Registration.

BILLING CODE 6351-01-P

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[GRAPHIC] [TIFF OMITTED] TR23DE11.056

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[GRAPHIC] [TIFF OMITTED] TR23DE11.057

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[GRAPHIC] [TIFF OMITTED] TR23DE11.058

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[GRAPHIC] [TIFF OMITTED] TR23DE11.059

BILLING CODE 6351-01-C

INSTRUCTIONS FOR EXHIBITS TO SUPPLEMENT S-1

1. The following exhibits must be filed with the Commission by the

clearing organization(s) that will be clearing trades executed on the

trading system of a foreign board of trade applying for registration

with the Commission pursuant to CEA section 4(b) and part 48 of

Commission's regulations. The information and documentation requested

relates to the activities of the clearing organization.

2. The exhibits should be filed in accordance with the General

Instructions to this Supplement S-1 and labeled as specified herein. If

any exhibit is not applicable, please specify the exhibit letter and

number and indicate by marking ``none'' or ``N/A.'' If any exhibit may

be satisfied by documentation or information submitted in a different

exhibit, the documentation or information need not be submitted more

than once--please use internal cross-references where appropriate.

[[Page 80721]]

GENERAL REQUIREMENTS

A foreign board of trade applying for registration must submit

sufficient information and documentation to successfully demonstrate to

Commission staff that the foreign board of trade and its clearing

organization satisfy all of the requirements of Commission regulation

48.7. With respect to its review of the foreign board of trade's

clearing organization, the Commission anticipates that such information

and documentation would necessarily include, but not be limited to, the

following:

EXHIBIT A--GENERAL INFORMATION AND DOCUMENTATION

Attach, as Exhibit A-1, a description of the following for the

clearing organization:

Location, history, size, ownership and corporate structure,

governance and committee structure, and current or anticipated presence

of staff in the United States.

Attach, as Exhibit A-2, the following:

Articles of association, constitution, or other similar

organizational documents.

Attach, as Exhibit A-3, the following:

(1) Membership and participation agreements.

(2) Clearing agreements.

Attach, as Exhibit A-4, the following:

The national statutes, laws and regulations governing the

activities of the clearing organization and its members.

Attach, as Exhibit A-5, the following:

The current rules, regulations, guidelines and bylaws of the

clearing organization.

Attach, as Exhibit A-6, the following:

Evidence of the authorization, licensure or registration of the

clearing organization pursuant to the regulatory regime in its home

country jurisdiction(s) and a representation by its regulator(s) that

it is in good regulatory standing in the capacity in which it is

authorized, licensed or registered.

Attach, as Exhibit A-7, the following document:

A summary of any disciplinary or enforcement actions or proceedings

that have been brought against the clearing organization, or any of the

senior officers thereof, in the past five years and the resolution of

those actions or proceedings.

Attach, as Exhibit A-8, the following document:

An undertaking by the chief executive officer(s) (or functional

equivalent[s]) of the clearing organization to notify Commission staff

promptly if any of the representations made in connection with this

supplement cease to be true or correct, or become incomplete or

misleading.

EXHIBIT B--MEMBERSHIP CRITERIA

Attach, as Exhibit B, the following, separately labeling each

description:

(1) A description of the categories of membership and participation

in the clearing organization and the access and clearing privileges

provided to each by the clearing organization.

(2) A description of all requirements for each category of

membership and participation and the manner in which members and other

participants are required to demonstrate their compliance with these

requirements. The description should include, but not be limited to,

the following:

(i) Professional Qualification. A description of the specific

professional requirements, qualifications, and/or competencies required

of members or other participants and/or their staff and a description

of the process by which the clearing organization confirms compliance

with such requirements.

(ii) Authorization, Licensure and Registration. A description of

any regulatory or self-regulatory authorization, licensure or

registration requirements that the clearing organization imposes upon,

or enforces against, its members and other participants including, but

not limited to any authorization, licensure or registration

requirements imposed by the regulatory regime/authority in the home

country jurisdiction(s) of the clearing organization, and a description

of the process by which the clearing organization confirms compliance

with such requirements.

(iii) Financial Integrity. A description of the following:

(A) The financial resource requirements, standards, guides or

thresholds required of members and other participants.

(B) The manner in which the clearing organization evaluates the

financial resources/holdings of its members or other participants.

(C) The process by which applicants for clearing membership or

participation demonstrate compliance with financial requirements

including:

(1) Working capital and collateral requirements, and

(2) Risk management mechanisms.

(iv) Fit and Proper Standards. A description of any other ways in

which the clearing organization ensures that potential members/other

participants meet fit and proper standards.

EXHIBIT C--BOARD AND/OR COMMITTEE MEMBERSHIP

Attach, as Exhibit C, the following:

(1) A description of the requirements applicable to membership on

the governing board and significant committees of the clearing

organization.

(2) A description of how the clearing organization ensures that

potential governing board and committee members meet these standards.

(3) A description of the clearing organization's provisions to

minimize and resolve conflicts of interest with respect to membership

on the governing board and significant committees of the clearing

organization.

(4) A description of the clearing organization's rules with respect

to the disclosure of material non-public information obtained as a

result of a member's performance on the governing board or on a

significant committee.

EXHIBIT D--SETTLEMENT AND CLEARING

Attach, as Exhibit D-1, the following:

A description of the clearing and settlement systems, including,

but not limited to, the manner in which such systems interface with the

foreign board of trade's trading system and its members and other

participants.

Attach, as Exhibit D-2, the following:

A certification, signed by the chief executive offer (or functional

equivalent) of the clearing organization, that the clearing system

observes (1) the current Recommendations for Central Counterparties

that have been issued jointly by the Committee on Payment and

Settlement Systems and the Technical Committee of the International

Organization of Securities Commissions, as updated, revised or

otherwise amended, or (2) successor standards, principles and guidance

for central counterparties or financial market infrastructures adopted

jointly by the Committee on Payment and Settlement Systems or the

International Organization of Securities Commissions (RCCPs).

Attach, as Exhibit D-3, the following:

A detailed description of the manner in which the clearing

organization observes each of the RCCPs or successor standards and

documentation supporting the representations made, including any

relevant rules or written policies or procedures of the clearing

organization. Each RCCP should be addressed separately within the

exhibit.

[[Page 80722]]

EXHIBIT E--THE REGULATORY REGIME GOVERNING THE CLEARING ORGANIZATION IN

ITS HOME COUNTRY OR COUNTRIES

With respect to each relevant regulatory regime or authority

governing the clearing organization, attach, as Exhibit E, the

following:

(1) A description of the regulatory regime/authority's structure,

resources, staff and scope of authority.

(2) The regulatory regime/authority's authorizing statutes,

including the source of its authority to supervise the clearing

organization.

(3) A description of and, where applicable, copies of the laws,

rules, regulations and policies applicable to: \11\

---------------------------------------------------------------------------

\11\ To the extent that any such laws, rules, regulations or

policies were provided as part of Exhibit A-4, they need not be

duplicated. They may be cross-referenced.

---------------------------------------------------------------------------

(i) The authorization, licensure or registration of the clearing

organization.

(ii) The financial resource requirements applicable to the

authorization, licensure or registration of the clearing organization

and the continued operations thereof.

(iii) The regulatory regime/authority's program for the ongoing

supervision and oversight of the clearing organization and the

enforcement of its clearing rules.

(iv) The extent to which the current RCCPs are used or applied by

the regulatory regime/authority in its supervision and oversight of the

clearing organization or are incorporated into its rules and

regulations and the extent to which the regulatory regime/authority

reviews the clearing systems for compliance therewith.

(v) The extent to which the regulatory regime/authority reviews

and/or approves the rules of the clearing organization prior to their

implementation.

(vi) The regulatory regime/authority's inspection, investigation

and surveillance powers; and the program pursuant to which the

regulatory regime/authority uses those powers to inspect, investigate,

sanction, and enforce rules applicable to the clearing organization.

(vii) The financial protection afforded customer funds.

EXHIBIT F--THE RULES OF THE CLEARING ORGANIZATION AND ENFORCEMENT

THEREOF

Attach, as Exhibit F-1, the following:

A description of the clearing organization's regulatory or

compliance department, including its size, experience level,

competencies, duties and responsibilities of staff.

Attach, as Exhibit F-2, the following:

A description of the clearing organization's rules and how they are

enforced, with reference to any rules provided as part of Exhibit A-5

that require the clearing organization to comply with one or more of

the RCCPs.

Attach, as Exhibit F-3, the following, to the extent not included

in Exhibit F-2:

A description of the clearing organization's disciplinary rules,

including but not limited to rules that address the following--

(1) Disciplinary authority and procedures that empower staff to

recommend and prosecute disciplinary actions for suspected rule

violations and that provide the authority to fine, suspend, or expel

any clearing participant pursuant to fair and clear standards.

(2) The issuance of warning letters and/or summary fines for

specified rule violations.

(3) The review of investigation reports by a disciplinary panel or

other authority for issuance of charges or instructions to investigate

further, or findings that an insufficient basis exists to issue

charges.

(4) Disciplinary committees of the clearing organization that take

disciplinary action via formal disciplinary processes.

(5) Whether and how the clearing organization articulates its

rationale for disciplinary decisions.

(6) The sanctions for particular violations and a discussion of the

adequacy of sanctions with respect to the violations committed and

their effectiveness as deterrents to future violations.

Attach, as Exhibit F-4, the following, to the extent not provided

in Exhibit F-2:

A demonstration that the clearing organization is authorized by

rule or contractual agreement to obtain, from members and other

participants, any information and cooperation necessary to conduct

investigations, to effectively enforce its rules, and to ensure

compliance with the conditions of registration.

EXHIBIT G--INFORMATION SHARING AGREEMENTS AMONG THE COMMISSION, THE

FOREIGN BOARD OF TRADE, THE CLEARING ORGANIZATION, AND RELEVANT

REGULATORY AUTHORITIES

Attach, as Exhibit G, the following:

(1) A description of the arrangements among the Commission, the

foreign board of trade, the clearing organization, and the relevant

foreign regulatory authorities that govern the sharing of information

regarding the transactions that will be executed pursuant to the

foreign board of trade's registration with the Commission and the

clearing and settlement of those transactions. This description should

address or identify whether and how the foreign board of trade,

clearing organization, and the regulatory authorities governing the

activities of the foreign board of trade and clearing organization

agree to provide directly to the Commission information and

documentation requested by Commission staff that Commission staff

determines is needed:

(i) To evaluate the continued eligibility of the foreign board of

trade for registration.

(ii) To enforce compliance with the specified conditions of the

registration.

(iii) To enable the CFTC to carry out its duties under the Act and

Commission regulations and to provide adequate protection to the public

or registered entities.

(iv) To respond to potential market abuse associated with trading

by direct access on the registered foreign board of trade.

(v) To enable Commission staff to effectively accomplish its

surveillance responsibilities with respect to a registered entity where

Commission staff, in its discretion, determines that a contract traded

on a registered foreign board of trade may affect such ability.

(2) A statement as to whether the regulatory authorities governing

the activities of the foreign board of trade and clearing organization

are signatories to the International Organization of Securities

Commissions Multilateral Memorandum of Understanding. If not, describe

any substitute information-sharing arrangements that are in place.

(3) A statement as to whether the regulatory authorities governing

the activities of the foreign board of trade and clearing organization

are signatories to the Declaration on Cooperation and Supervision of

International Futures Exchanges and Clearing Organizations. If not, a

statement as to whether and how they have committed to share the types

of information contemplated by the International Information Sharing

Memorandum of Understanding and Agreement with the Commission, whether

pursuant to an existing memorandum of understanding or some other

arrangement.

EXHIBIT H--ADDITIONAL INFORMATION AND DOCUMENTATION

Attach, as EXHIBIT H, any additional information or documentation

necessary to demonstrate that the requirements for registration

applicable to the clearing

[[Page 80723]]

organization or clearing system set forth in Commission regulation 48.7

are satisfied.

Issued in Washington, DC, December 5, 2011, by the Commission.

David A. Stawick,

Secretary of the Commission.

Note: The following appendices will not appear in the Code of

Federal Regulations

Appendices to Final Rule--Registration of Foreign Boards of

Trade--Commission Voting Summary and Statements of Commissioners

Appendix 1--Commission Voting Summary

In this matter, Chairman Gensler and Commissioners Sommers,

Chilton, O'Malia and Wetjen voted in the affirmative; no

Commissioner noted in the negative.

Appendix 2--Statement of Chairman Gary Gensler

I support the final rule to implement a registration system for

Foreign Boards of Trade (FBOTs) seeking to make futures and swaps

contracts directly available to U.S. market participants. This

registration system replaces the Commodity Futures Trading

Commission's current practice of staff issuing no-action letters to

FBOTs to permit them to provide such direct access for futures

contracts. Importantly, the registration system will bring

consistency, standardization and transparency--both for applicants

and the public--to the process. In order to directly access U.S.

market participants, the FBOTs and their clearing organizations must

be subject to comparable and comprehensive supervision and

regulation in their home countries and meet certain standards in the

rule.

[FR Doc. 2011-31637 Filed 12-22-11; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: December 23, 2011