FR Doc E9-18854[Federal Register: August 6, 2009 (Volume 74, Number 150)]
[Notices]
[Page 39303-39305]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06au09-37]
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COMMODITY FUTURES TRADING COMMISSION
RIN 3038-AC
Determination of Appropriateness of the Supervision by the
Bundesanstalt f[uuml]r Finanzdienstleistungaufsicht (BaFin), in
Conjunction With Deutsche Bundesbank (Bundesbank), Both of the Federal
Republic of Germany, With Respect to the Clearing Activities of Eurex
Clearing AG (Eurex)
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice and Order.
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SUMMARY: The Commodity Futures Trading Commission (CFTC) is issuing an
order, pursuant to Section 409(b)(3) of FDICIA, stating that the
supervision provided by BaFin, in conjunction with the Bundesbank, with
respect to the clearing activities of Eurex satisfies appropriate
standards (the Order). The Order will permit Eurex to operate a
multilateral clearing organization (MCO) in the United States for any
over-the-counter (OTC) derivative instrument.
DATES: Effective Date: July 31, 2009.
FOR FURTHER INFORMATION CONTACT: Robert B. Wasserman, Associate
Director, (202) 418-5092, [email protected], or Nancy Schnabel,
Attorney-Advisor, (202) 418-5334, [email protected], Division of
Clearing and Intermediary Oversight, Commodity Futures Trading
Commission, Three Lafayette Centre, 1151 21st Street, NW., Washington,
DC 20581.
SUPPLEMENTARY INFORMATION: Section 409(a) of FDICIA provides that, in
order to operate an MCO \1\ in the United States
[[Page 39304]]
for an OTC derivative instrument,\2\ a clearing organization must meet
one of several alternative requirements.\3\ Section 409(b)(3) of FDICIA
sets forth one such alternative.\4\ It states that a clearing
organization will qualify to operate such an MCO, if such clearing
organization is supervised by a foreign financial regulator that the
Comptroller of the Currency, the Board of Governors of the Federal
Reserve System, the Federal Deposit Insurance Corporation, the
Securities and Exchange Commission, or the CFTC, as applicable, has
determined satisfies appropriate standards.\5\
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\1\ Section 408(1) of FDICIA (12 U.S.C. 4421(1)) defines MCO to
mean ``a system utilized by more than [two] participants in which
the bilateral credit exposures of participants arising from the
transactions cleared are effectively eliminated and replaced by a
system of guarantees, insurance, or mutualized risk of loss.''
\2\ Section 408(2) of FDICIA (12 U.S.C. 4421(2)) defines ``OTC
derivative instrument.''
\3\ 12 U.S.C. 4422(a).
\4\ 12 U.S.C. 4422(b)(3).
\5\ Section 409(b)(3) of FDICIA (12 U.S.C. 4422(b)(3)). The CFTC
has issued three previous orders, pursuant to Section 409(b)(3) of
FDICIA, determining that the supervision of a particular MCO by a
foreign financial regulator met appropriate standards. The foreign
financial regulators involved were (i) the Norwegian Banking,
Insurance and Securities Commission, (ii) the Alberta (Canada)
Securities Commission, and (iii) the United Kingdom Financial
Services Authority. See 67 FR 2419 (January 17, 2002), 71 FR 10958
(March 3, 2006), and 73 FR 44706 (July 31, 2008), respectively.
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Eurex, a central counterparty licensed by BaFin, has requested that
the CFTC determine that the supervision provided by BaFin, in
conjunction with the Bundesbank,\6\ with respect to Eurex's clearing
activities, satisfies appropriate standards in accordance with Section
409(b)(3) of FDICIA.\7\ Such a determination would permit Eurex to
operate an MCO in the United States for any OTC derivative
instrument.\8\
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\6\ The Bundesbank is the central bank of the Federal Republic
of Germany. See http://www.bundesbank.de/aufgaben/aufgaben.en.php.
\7\ See Letter, dated March 27, 2009, from Paul Architzel of
Alston & Bird LLP, submitted on behalf of Eurex, to David A.
Stawick, Secretary of the CFTC, with enclosure and appendices
thereto (collectively, the Application).
BaFin is authorized under the German Banking Act to (i)
supervise the operation of a ``credit institution'' conducting
``banking business'' (including a central counterparty) domiciled in
Germany, and to (ii) enforce compliance with applicable laws, rules
and regulations. Because clearing comprises ``banking business''
under the German Banking Act, BaFin has the authority to regulate
any entity engaged in the clearing of OTC derivative instruments.
BaFin undertakes such supervision with the assistance of Bundesbank.
See Sections 6 and 7 of the German Banking Act.
\8\ Currently, Eurex intends to clear as an MCO (i) OTC
derivative instruments that share common terms and conditions with
commodity contracts that are listed on the Eurex Deutschland
Exchange, and (ii) credit default swaps.
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In reviewing the request from Eurex, the CFTC primarily considered
three factors. First, the CFTC considered whether the German statutory
and regulatory regime applicable to Eurex clearing activities
substantially corresponds with the Commodity Exchange Act (the CEA)
including the core principles applicable to a derivatives clearing
organization (DCO), and the regulations promulgated thereunder (the
Regulations).\9\ In Germany, a central counterparty such as Eurex, is
regulated as a ``credit institution'' conducting ``banking business.''
\10\ Accordingly, the CFTC reviewed translated versions of the
following documents, among others: (i) The Gesetz [uuml]ber das
Kreditwesen (i.e., the German Banking Act); (ii) the guidance that
BaFin or Bundesbank provided on compliance therewith, including (A)
``Minimum Requirements for Risk Management'' (Circular 5/2007), (B)
Auditor's Report Regulation,\11\ (C) Principle I (Concerning the
Capital of Institutions), and (D) Principle II (Concerning Own Funds
and the Liquidity of Institutions); and (iii) the Bundesgesetzblatt
(i.e., the German Insolvency Statute); and (iv) Gesetz gegen
Wettbewerbsbeschr[auml]nkunge (i.e., the German Act Against Restraints
of Competition). The CFTC also reviewed an analysis provided by Eurex
regarding the correspondence between the German statutory and
regulatory regime and the core principles applicable to a DCO.
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\9\ See Section 5b(c)(2) of the CEA (7 U.S.C. 7a-1(c)(2)(A)-(N))
and Appendix A to Part 39 of the Regulations (17 CFR pt. 39, app.
A).
Section 409(b)(3) of FDICIA (12 U.S.C. 4422(b)(3)) does not
reference the supervision of the foreign financial regulator over
trading, and the CFTC has accordingly not reviewed BaFin or
Bundesbank supervision of trading in considering the Eurex request.
\10\ See Attachment to the Application entitled, ``Permit
according to Section 32 of the Banking Act, issued by BaFin to Eurex
as of December 18, 2006 (GZ: WA 22-K 5000-10119203/2006).''
\11\ The full title of the Auditor's Report Regulation is
``Regulation, as of December 17, 1998, governing the auditing of the
annual accounts and interim reports of credit institutions and
financial services institutions and auditing in accordance with
section 12(1) sentence 3 of the Act on Investment Companies as well
as the reports to be drawn up on these.''
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Second, the CFTC considered whether the supervision provided by
BaFin, in conjunction with Bundesbank, with respect to Eurex's clearing
activities, substantially corresponds with the supervision provided by
the CFTC with respect to the activities of a DCO. Accordingly, the CFTC
reviewed the manner in which BaFin, with the assistance of the
Bundesbank, conducts supervision of a credit institution (including a
central counterparty such as Eurex), both on an annual basis and
through special reviews.\12\ The CFTC also reviewed the manner in which
BaFin, as well as the Bundesbank, rely on external auditors of a credit
institution in conducting certain aspects of such supervision,
including the control which BaFin, as well as Bundesbank, exerts over
such external auditors.
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\12\ The division of responsibilities between BaFin and the
Bundesbank may be found in the Supervision Directive. See Attachment
to the Application entitled, ``Directive for Implementation and
Quality Assurance of the Current Supervision of the Credit and
Financial Service Institutions by the Deutsche Bundesbank.''
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Third, the CFTC considered whether the supervision provided by
BaFin, with the assistance of the Bundesbank, substantially comports
with the Principles and Objectives of Securities Regulation (the IOSCO
Principles), as developed by the International Organization of
Securities Commissions (IOSCO).
In reviewing the request from Eurex, the CFTC also considered
additional facts, such as (i) the risk management procedures
implemented by Eurex with respect to the clearing of credit default
swaps, and (ii) existing arrangements with BaFin to exchange
information regarding Eurex.\13\
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\13\ See Memorandum of Understanding, dated October 17, 1997,
between the Commission and the German Bundesaufsichtsamt f[uuml]r
den Wertpapierhandel (i.e., the predecessor of BaFin) Concerning
Consultation and Cooperation in the Administration and Enforcement
of Futures Laws (the Memorandum of Understanding), and the Side
Letter Relating to the Memorandum of Understanding, dated July 28,
2009 between the Commission and BaFin.
BaFin is also a signatory of the multilateral Declaration on
Cooperation and Supervision of International Futures Exchanges and
Clearing Organizations, and the IOSCO Multilateral Memorandum of
Understanding Concerning Consultation and Cooperation and the
Exchange of Information.
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As a matter of courtesy, the CFTC invited the other federal
financial regulators listed in Section 409(b)(3) of FDICIA to comment
on the Application. The CFTC also invited the public to comment on the
Application, by posting the Application on its Web site on May 13,
2009. The CFTC received no comments.
Based on its review, the CFTC has determined, pursuant to Section
409(b)(3) of FDICIA, that the supervision provided by BaFin, in
conjunction with the Bundesbank, with respect to the clearing
activities of Eurex satisfies appropriate standards. Accordingly, the
CFTC has issued this Order. Any material changes or omissions in the
facts and circumstances upon which this Order is based might require
the CFTC to reconsider this matter.
[[Page 39305]]
Issued in Washington, DC, on July 31, 2009.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E9-18854 Filed 8-5-09; 8:45 am]
Last Updated: August 6, 2009