International
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Foreign Boards of Trade Receiving Staff No-action Letters Permitting Direct Access from the U.S.
Access to Foreign Markets from the U.S.
Introduction
Pursuant to the CFTC November 2, 2006 policy statement, “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 Fed. Reg. 64443), foreign boards of trade that wish to permit their U.S. members and other participants in the U.S. to have direct access to their electronic trade matching system (not through an intermediary) may request no-action relief to do so from the Division of Market Oversight. Such a request must be submitted pursuant to CFTC Regulation 140.99, 17 CFR 140.99, which contains certain regulatory requirements with respect to requests for no-action relief generally.
Procedure
Requests for such no-action relief generally request that the Division of Market Oversight confirm that it will not recommend enforcement action if the foreign board of trade does not seek designation as a contract market (DCM) or registration as a derivatives transaction execution facility (DTEF) pursuant to Sections 5 and 5a of the Commodity Exchange Act (CEA), 7 USC 7 and 7a, or comply with other sections of the CEA or Commission regulations that relate to DCMs or DTEFs in connection with direct access from the U.S.
Generally, foreign boards of trade request no-action relief to permit:
1. Members in the U.S. to trade for their own accounts through the trading system;
2. Members who are registered with the Commission as futures commission merchants (FCMs) or who are exempt from registration as FCMs pursuant to CFTC Regulation 30.10 (Regulation 30.10 Firms) to submit orders and trade for U.S. customers through the trading system; and
3. Members who are registered as FCMs or who are Regulation 30.10 Firms to accept orders from U.S. customers through automated order routing systems for submission to the trading system.
Some foreign boards of trade also request relief to permit members who are registered with the Commission as commodity pool operators (CPO) or commodity trading advisors (CTA), or are exempt from such registration pursuant to CFTC Regulation 4.13 or CFTC Regulation 4.14, to submit orders for execution on behalf of U.S. pools they operate or U.S. customer accounts for which they have discretionary authority, respectively, provided that a FCM or Regulation 30.10 Firm acts as clearing firm and guarantees without limitation all such trades of the CPO or CTA effected through submission of orders on the trading system.
Scope of Review
In reviewing a request for no-action relief, Commission staff reviews, among other things, general information about the foreign board of trade, as well as detailed information about:
1. membership criteria (including financial requirements);
2. various aspects of the automated trading system (including the order-matching system, the audit trail, response time, reliability, security, and, of particular importance, adherence to the IOSCO principles for screen-based trading);
3. the terms and conditions of contracts proposed to be listed;
4. settlement and clearing (including financial requirements and default procedures);
5. the regulatory regime governing the foreign board of trade in its home jurisdiction;
6. the foreign board of trade’s status in its home jurisdiction and its rules and enforcement thereof (including market surveillance and trade practice surveillance); and
7. existing information sharing agreements among the Commission, the foreign board of trade, and the foreign board of trade’s regulatory authority.
When issued, the no-action letters conclude with a standard set of terms and conditions for the granting of the relief which includes, among other things, a quarterly volume reporting requirement.
For further information, contact the Division of Market Oversight.