2020-24661
[Federal Register Volume 85, Number 227 (Tuesday, November 24, 2020)]
[Rules and Regulations]
[Pages 74867-74869]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24661]
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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) is
granting an exemption to UBS AG (UBS), a firm designated by the Swiss
Financial Market Supervisory Authority (FINMA), 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 Sec. 30.10(a),
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 V. 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 Commission Regulation 30.10 Exempting UBS AG, a Firm
Designated by the Swiss Financial Market Authority, 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 UBS, 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. 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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\1\ Commission regulations referred to herein are found at 17
CFR Ch. I.
\2\ ``Foreign Futures and Foreign Options Transactions,'' 52 FR
28290 (Aug. 5, 1987).
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Pursuant to Sec. 30.10(a), persons located outside the U.S. and
subject to a comparable regulatory structure in the jurisdiction in
which they are located may seek an exemption from certain of the
requirements under Part 30 of the Commission's regulations based upon
compliance with the regulatory requirements of the person's home
jurisdiction.\3\ Although a petition for exemption pursuant to Sec.
30.10(a) typically is filed on behalf of persons located and doing
business outside the U.S. that seek access to U.S. customers by a
governmental agency responsible for implementing and enforcing the
foreign regulatory program, or a self-regulatory organization (SRO) of
which such persons are members, there is nothing to prevent an
individual or firm from submitting a petition on its own behalf. A
petitioner who seeks an exemption pursuant to Sec. 30.10(a) must set
forth with particularity the comparable regulations applicable in the
jurisdiction in which that person is located. 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 relief pursuant to Sec. 30.10.\4\ 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\ 17 CFR 30.10(a).
\4\ 52 FR 28990, 29001.
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The Commission specifically stated in adopting Sec. 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
[[Page 74868]]
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.\5\ Appendix A 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.\6\
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\5\ 52 FR 28980, 28981 and 29002.
\6\ 17 CFR part 30, Appendix A.
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On May 24, 2019, UBS, a financial investment business organized and
located in Switzerland, petitioned the Commission for an exemption from
the application of the Commission's Part 30 Regulations. In support of
its petition, UBS stated that granting such an exemption to conduct
foreign futures and option transactions on behalf of customers located
in the U.S. without having to register as a futures commission merchant
would not be contrary to the public interest or to the purposes of the
provisions from which the exemption is sought because UBS is subject to
a regulatory framework comparable to that imposed by the Act and the
regulations thereunder. Based upon a review of the UBS petition, the
Commission has concluded that UBS 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 Swiss law 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 UBS, subject to
specified conditions, from the following regulatory requirements:
Registration with the Commission for firm and for firm
representatives;
The requirement in Commission Sec. 30.6(a) and (d), 17
CFR 30.6(a) and (d), that the firm 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
Sec. 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 Switzerland.
This determination to permit substituted compliance is based on,
among other things, the Commission's finding that the regulatory
framework governing UBS 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,
UBS, and the Swiss regulatory authority on an ``as needed'' basis
including, without limitation, confirmation data, data necessary to
trace funds related to trading futures products subject to regulation
in Switzerland, position data, and data on firms' standing to do
business and financial condition.
In particular, Commission staff has concluded, upon review of the
petition of UBS and accompanying exhibits, that FINMA's regulation of
financial 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 Sec. 30.9. Moreover, the relief granted is
limited to brokerage activities undertaken on behalf of customers
located in the U.S. with respect to otherwise permitted transactions on
or subject to the rules of any other non-U.S. market where UBS is
authorized by Swiss law to conduct brokerage activities. 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, UBS
trading for its own account in U.S. markets would be subject to the
Commission's large trader reporting requirements.\7\ Similarly, if UBS
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 UBS
solicits or accepts orders from customers located in the U.S. for
transactions on U.S. markets. In that case, UBS must comply with all
applicable U.S. laws and regulations, including the requirement to
register in the appropriate capacity.
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\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 UBS to seek relief under this exemptive Order is
subject to certain conditions. Specifically, UBS must represent in
writing to the Commission that it:
(1) Is licensed as a financial investment business and is otherwise
in good standing under the standards in place in Switzerland; and it
will notify the Commission and NFA promptly of any change in its status
as a financial investment business that would affect its continued
eligibility for the exemption granted hereunder, including the
termination of its activities in the U.S., and of any information that
affects its financial or operational viability
[[Page 74869]]
under the exemption granted by this Order;
(2) 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 Commission
Sec. 30.5;
(3) 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.;
(4) 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.;
(5) Undertakes to comply with the applicable provisions of Swiss
laws and FINMA rules that form the basis upon which this exemption from
certain provisions of the Act and regulations thereunder is granted,
and will notify the Commission promptly of all material changes to the
relevant laws in Switzerland, any rules promulgated thereunder and
FINMA rules;
(6) Will provide customers located in the U.S. no less stringent
regulatory protection than Switzerland customers under all relevant
provisions of Swiss law;
(7) Will cooperate with the Commission with respect to any
inquiries concerning any activity subject to regulation under the Part
30 Regulations, and 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 Switzerland 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; and
(8) 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 FINMA prior to bringing an NFA arbitration
proceeding.
As set forth in the Commission's September 11, 1997 Order
delegating to NFA certain responsibilities, the written representations
set forth in paragraphs (1)-(8) above shall be filed with NFA.\9\
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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 UBS the later of the date of
publication of the Order in the Federal Register or the filing of the
consents set forth above. Should the Commission receive written notice
from FINMA or UBS that any change in status of UBS affects its
continued eligibility for the exemption granted hereunder, including
the termination of its activities in the U.S., the relief granted by
this Order may be suspended immediately as to UBS. That suspension will
remain in effect pending further notice by the Commission, or the
Commission's designee, to UBS and FINMA.
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 UBS
granted relief hereunder based upon the filing and representations of
UBS 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
would be contrary to public policy or 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 UBS, 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
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. 2020-24661 Filed 11-23-20; 8:45 am]
BILLING CODE 6351-01-P