2020-24660
[Federal Register Volume 85, Number 227 (Tuesday, November 24, 2020)]
[Rules and Regulations]
[Pages 74864-74867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24660]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 30
Foreign Futures and Options Transactions
AGENCY: Commodity Futures Trading Commission.
ACTION: Order.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is granting an exemption to certain member firms designated by NZX
Limited (NZX) from the application of certain of the Commission's
foreign futures and option regulations based upon substituted
compliance with certain comparable regulatory and self-regulatory
requirements of a foreign regulatory authority consistent with
conditions specified by the Commission, as set forth herein. This Order
is issued pursuant to Commission regulation 30.10, which permits
persons to file a petition with the Commission for exemption from the
application of certain of the regulations set forth in part 30 and
authorizes the Commission to grant such an exemption if such action
would not be otherwise contrary to the public interest or to the
purposes of the provision from which exemption is sought. The
Commission notes that this Order does not pertain to any transaction in
swaps, as defined in Section 1a(47) of the Commodity Exchange Act
(Act).
DATES: This Order is effective November 24, 2020.
FOR FURTHER INFORMATION CONTACT: Andrew Chapin, Associate Chief
Counsel, (202) 418-5465, [email protected], Division of Swap Dealer and
Intermediary Oversight, Commodity Futures Trading Commission, 1155 21st
Street NW, Washington, DC 20581.
SUPPLEMENTARY INFORMATION: The Commission has issued the following
Order:
Order Under CFTC Regulation 30.10 Exempting Firms Designated by NZX
Limited (NZX) From the Application of Certain of the Foreign Futures
and Option Regulations the Later of the Date of Publication of the
Order Herein in the Federal Register or After Filing of Consents by
Such Firms and NZX, as Appropriate, to the Terms and Conditions of the
Order Herein
Commission Regulations governing the offer and sale of commodity
futures and option contracts traded on or subject to the regulations of
a foreign board of trade to customers located in the U.S. are contained
in Part 30 of the Commission's regulations.\1\ These regulations
include requirements for intermediaries with respect to registration,
disclosure, capital adequacy, protection of customer funds,
recordkeeping and reporting, and sales practice and compliance
procedures that are generally comparable to those applicable to
transactions on U.S. markets.
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\1\ Commission regulations referred to herein are found at 17
CFR Ch. I.
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In formulating a regulatory program to govern the offer and sale of
foreign futures and option products to customers located in the U.S.,
the Commission, among other things, considered the desirability of
ameliorating the potential impact of such a program. Based upon these
considerations, the Commission determined to permit persons located
outside the U.S. and subject to a comparable regulatory structure in
the jurisdiction in which they were located to seek an exemption from
certain of the requirements under Part 30 of the Commission's
regulations based upon substituted compliance with the regulatory
requirements of the foreign jurisdiction.\2\
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\2\ ``Foreign Futures and Foreign Options Transactions,'' 52 FR
28290 (Aug. 5, 1987).
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Appendix A to Part 30, ``Interpretative Statement With Respect to
the Commission's Exemptive Authority Under Sec. 30.10 of Its Rules''
(Appendix A), generally sets forth the elements the Commission will
evaluate in determining whether a particular regulatory program may be
found to be comparable for purposes of exemptive
[[Page 74865]]
relief pursuant to Regulation 30.10.\3\ These elements include: (1)
Registration, authorization or other form of licensing, fitness review
or qualification of persons that solicit and accept customer orders;
(2) minimum financial requirements for those persons who accept
customer funds; (3) protection of customer funds from misapplication;
(4) recordkeeping and reporting requirements; (5) sales practice
standards; and (6) procedures to audit for compliance with, and to take
action against those persons who violate, the requirements of the
program. In addition, Appendix A to Part 30 further provides that any
exemption of a general nature based on comparability requires
appropriate information sharing arrangements between the Commission and
the appropriate governmental agency and/or self-regulatory organization
to ensure Commission access on an ``as needed'' basis to information
essential to maintaining standards of customer and market protection
within the U.S.
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\3\ 52 FR 28990, 29001.
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Moreover, the Commission specifically stated in adopting Regulation
30.10 that no exemption of a general nature would be granted unless the
persons to whom the exemption is to be applied: (1) Submit to
jurisdiction in the U.S. by designating an agent for service of process
in the U.S. with respect to transactions subject to Part 30 and filing
a copy of the agency agreement with the National Futures Association
(NFA); (2) agree to provide access to their books and records in the
U.S. to the Commission and Department of Justice representatives; and
(3) notify NFA of the commencement of business in the U.S.\4\ Appendix
A also specifically states that in considering an exemption request,
the Commission will take into account the extent to which United States
persons or contracts regulated by the Commission are permitted to
engage in futures-related activities or be offered in the country from
which an exemption is sought.\5\
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\4\ 52 FR 28980, 28981 and 29002.
\5\ 17 CFR part 30, Appendix A.
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On May 25, 2017, NZX petitioned the Commission on behalf of its
member firms, located and conducting a financial investment business in
New Zealand, for an exemption from the application of the Commission's
Part 30 Regulations to those firms. NZX supplemented its petition on
various occasions with additional information. In support of its
petition, NZX stated that granting such an exemption with respect to
such firms that it has authorized to conduct foreign futures and option
transactions on behalf of customers located in the U.S. would not be
contrary to the public interest or to the purposes of the provisions
from which the exemption is sought because such firms are subject to a
regulatory framework comparable to that imposed by the Act and the
regulations thereunder.
Based upon a review of the petition and supplementary materials
filed by NZX, the Commission has concluded that NZX has demonstrated to
the Commission's satisfaction that the exemption for relief pursuant to
Sec. 30.10(a) is not otherwise contrary to the public interest or to
the purposes of the provisions from which exemption is sought.
Accordingly, the Commission has determined that compliance with
applicable New Zealand law and NZX rules may be substituted for
compliance with those sections of the Act and regulations thereunder
more particularly set forth herein.
By this Order, the Commission hereby exempts, subject to specified
conditions, those firms identified to the Commission by NZX as eligible
for the relief granted herein from:
Registration with the Commission for firms and for firm
representatives;
The requirement in Commission Regulation 30.6(a) and (d),
17 CFR 30.6(a) and (d), that firms provide customers located in the
U.S. with the risk disclosure statements in Commission Regulation
1.55(b), 17 CFR 1.55(b), and Commission Regulation 33.7, 17 CFR 33.7,
or as otherwise approved under Commission Regulation 1.55(c), 17 CFR
1.55(c);
The separate account requirement contained in Commission
Regulation 30.7, 17 CFR 30.7;
Those sections of Part 1 of the Commission's regulations
that apply to foreign futures and options sold in the U.S. as set forth
in Part 30; and
Those sections of Part 1 of the Commission's regulations
relating to books and records which apply to transactions subject to
Part 30,
based upon substituted compliance by such persons with the applicable
statutes and regulations in effect in New Zealand.
This determination to permit substituted compliance is based on,
among other things, the Commission's finding that the regulatory
framework governing persons in New Zealand who would be exempted
hereunder provides:
(1) A system of qualification or authorization of firms who deal in
transactions subject to regulation under Part 30 that includes, for
example, criteria and procedures for granting, monitoring, suspending
and revoking licenses, and provisions for requiring and obtaining
access to information about authorized firms and persons who act on
behalf of such firms;
(2) Financial requirements for firms including, without limitation,
a requirement for a minimum level of working capital and daily mark-to-
market settlement and/or accounting procedures;
(3) A system for the protection of customer assets that is designed
to preclude the use of customer assets to satisfy house obligations and
requires separate accounting for such assets;
(4) Recordkeeping and reporting requirements pertaining to
financial and trade information;
(5) Sales practice standards for authorized firms and persons
acting on their behalf that include, for example, required disclosures
to prospective customers and prohibitions on improper trading advice;
(6) Procedures to audit for compliance with, and to redress
violations of, the customer protection and sales practice requirements
referred to above, including, without limitation, an affirmative
surveillance program designed to detect trading activities that take
advantage of customers, and the existence of broad powers of
investigation relating to sales practice abuses; and
(7) Mechanisms for sharing of information between the Commission,
NZX and the New Zealand regulatory authorities on an ``as needed''
basis including, without limitation, confirmation data, data necessary
to trace funds related to trading futures products subject to
regulation in New Zealand, position data, and data on firms' standing
to do business and financial condition.
Commission staff has concluded, upon review of the petition of NZX
and accompanying exhibits, that NZX's regulation of futures and options
intermediaries is comparable to that of the U.S. in the areas specified
in Appendix A of Part 30, as described above.
This Order does not provide an exemption from any provision of the
Act or regulations thereunder not specified herein, such as the
antifraud provision in Regulation 30.9. Moreover, the relief granted is
limited to brokerage activities undertaken on behalf of customers
located in the U.S. with respect to transactions entered on or subject
to the rules of NZX for products that customers located in the U.S. may
[[Page 74866]]
trade.\6\ The relief does not extend to regulations relating to
trading, directly or indirectly, on U.S. exchanges, and does not
pertain to any transaction in swaps, as defined in Section 1a(47) of
the Act. For example, a NZX member trading in U.S. markets for its own
account would be subject to the Commission's large trader reporting
requirements.\7\ Similarly, if such a firm were carrying positions on a
U.S. exchange on behalf of foreign clients and submitted such
transactions for clearing on an omnibus basis through a firm registered
as a futures commission merchant under the Act, it would be subject to
the reporting requirements applicable to foreign brokers.\8\ The relief
herein is inapplicable where the firm solicits or accepts orders from
customers located in the U.S. for transactions on U.S. markets. In that
case, the firm must comply with all applicable U.S. laws and
regulations, including the requirement to register in the appropriate
capacity.
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\6\ See, e.g., Sections 2(a)(1)(C) and (D) of the Act.
\7\ See, e.g.,17 CFR part 18.
\8\ See, e.g.,17 CFR parts 17 and 21.
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The eligibility of any firm to seek relief under this exemptive
Order is subject to the following conditions:
(1) The NZX, as the self-regulatory organization responsible for
monitoring the compliance of such firms with the regulatory
requirements described in the Regulation 30.10 petition, must represent
in writing to the Commission that:
(a) Each firm for which relief is sought is registered, licensed or
authorized, as appropriate, and is otherwise in good standing under the
standards in place in New Zealand; such firm is engaged in business
with customers located in New Zealand as well as in the U.S.; and such
firm and its principals and employees who engage in activities subject
to Part 30 would not be statutorily disqualified from registration
under Section 8a(2) of the Act, 7 U.S.C. 12a(2);
(b) It will monitor firms to which relief is granted for compliance
with the regulatory requirements for which substituted compliance is
accepted and will promptly notify the Commission or NFA of any change
in status of a firm that would affect its continued eligibility for the
exemption granted hereunder, including the termination of its
activities in the U.S.;
(c) All transactions with respect to customers located in the U.S.
will be made subject to the regulations of NZX;
(d) Customers located in the U.S. will be provided no less
stringent regulatory protection than New Zealand customers under all
relevant provisions of New Zealand law; and
(e) It will cooperate with the Commission with respect to any
inquiries concerning any activity subject to regulation under the Part
30 Regulations, including sharing the information specified in Appendix
A on an ``as needed'' basis and will use its best efforts to notify the
Commission if it becomes aware of any information that in its judgment
affects the financial or operational viability of a member firm doing
business in the U.S. under the exemption granted by this Order.
(2) Each firm seeking relief hereunder must represent in writing
that it:
(a) Is located outside the U.S., its territories and possessions
and, where applicable, has subsidiaries or affiliates domiciled in the
U.S. with a related business (e.g., banks and broker/dealer affiliates)
along with a brief description of each subsidiary's or affiliate's
identity and principal business in the U.S.;
(b) Consents to jurisdiction in the U.S. under the Act by filing a
valid and binding appointment of an agent in the U.S. for service of
process in accordance with the requirements set forth in Regulation
30.5;
(c) Agrees to provide access to its books and records related to
transactions under Part 30 required to be maintained under the
applicable statutes and regulations in effect in New Zealand upon the
request of any representative of the Commission or U.S. Department of
Justice at the place in the U.S. designated by such representative,
within 72 hours, or such lesser period of time as specified by that
representative as may be reasonable under the circumstances after
notice of the request;
(d) Has no principal or employee who solicits or accepts orders
from customers located in the U.S. who would be disqualified under
Section 8a(2) of the Act, 7 U.S.C. 12a(2), from doing business in the
U.S.;
(e) Consents to participate in any NFA arbitration program that
offers a procedure for resolving customer disputes on the papers where
such disputes involve representations or activities with respect to
transactions under Part 30, and consents to notify customers located in
the U.S. of the availability of such a program; provided, however, that
the firm may require its customers located in the U.S. to execute a
consent concerning the exhaustion of certain mediation or conciliation
procedures made available by NZX prior to bringing an NFA arbitration
proceeding; and
(f) Undertakes to comply with the applicable provisions of New
Zealand laws and NZX rules that form the basis upon which this
exemption from certain provisions of the Act and regulations thereunder
is granted.
As set forth in the Commission's September 11, 1997 Order
delegating to NFA certain responsibilities, the written representations
set forth in paragraph (2) shall be filed with NFA.\9\ Each firm
seeking relief hereunder has an ongoing obligation to notify NFA should
there be a material change to any of the representations required in
the firm's application for relief.
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\9\ 62 FR 47792, 47793 (Sept. 11, 1997). Among other duties, the
Commission authorized NFA to receive requests for confirmation of
Regulation 30.10 relief on behalf of particular firms, to verify
such firms' fitness and compliance with the conditions of the
appropriate Regulation 30.10 Order and to grant exemptive relief
from registration to qualifying firms.
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This Order will become effective as to any designated NZX firm the
later of the date of publication of the Order in the Federal Register
or the filing of the consents set forth in paragraphs (2)(a)-(f). Upon
filing of the notice required under paragraph (1)(b) as to any such
firm, the relief granted by this Order may be suspended immediately as
to that firm. That suspension will remain in effect pending further
notice by the Commission, or the Commission's designee, to the firm and
NZX.
This Order is issued pursuant to Regulation 30.10 based on the
representations made and supporting material provided to the Commission
and the recommendation of the staff, and is made effective as to any
firm granted relief hereunder based upon the filings and
representations of such firms required hereunder. Any material changes
or omissions in the facts and circumstances pursuant to which this
Order is granted might require the Commission to reconsider its finding
that the exemption is not otherwise contrary to the public interest or
to the purposes of the provision from which exemption is sought.
Further, if experience demonstrates that the continued effectiveness of
this Order in general, or with respect to a particular firm, would be
contrary to the public interest, or that the systems in place for the
exchange of information or other circumstances do not warrant
continuation of the exemptive relief granted herein, the Commission
may, after appropriate notice and opportunity to respond, condition,
modify, suspend, terminate, withhold as to a specific firm, or
otherwise restrict the exemptive relief granted in this Order, as
appropriate and as permitted by law, on its own motion. The process by
which the
[[Page 74867]]
Commission may terminate relief is set forth in Sec. 30.10(c).\10\
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\10\ 17 CFR 30.10(c). See 85 FR 15359 (Mar. 18, 2020).
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The Commission will continue to monitor the implementation of its
program to exempt firms located in jurisdictions generally deemed to
have a comparable regulatory program from the application of certain of
the foreign futures and option regulations and will make necessary
adjustments if appropriate.
Issued in Washington, DC, on November 2, 2020, by the
Commission.
Robert Sidman,
Deputy Secretary of the Commission.
Note: The following appendix will not appear in the Code of
Federal Regulations.
Appendix to Foreign Futures and Options Transactions--Commission Voting
Summary
On this matter, Chairman Tarbert and Commissioners Quintenz,
Behnam, Stump, and Berkovitz voted in the affirmative. No
Commissioner voted in the negative.
[FR Doc. 2020-24660 Filed 11-23-20; 8:45 am]
BILLING CODE 6351-01-P