[Federal Register: October 10, 2003 (Volume 68, Number 197)]
[Rules and Regulations]
[Page 58583-58587]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10oc03-5]
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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: By this Order, the Commodity Futures Trading Commission
(``Commission'') is consolidating and updating the relief set forth in
prior orders issued pursuant to Commission Rule 30.10 regarding the
offer and sale of foreign futures and options contracts to customers
located in the U.S. by firms located in the U.K. to reflect the
substitution of the Financial Services Authority for various U.K.
regulatory and self-regulatory organizations.
EFFECTIVE DATE: October 10, 2003.
FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Esq., Deputy
Director, or Andrew V. Chapin, Esq., Special Counsel, Compliance and
Registration Section, Division of Clearing and Intermediary Oversight,
Commodity Futures Trading Commission, 1155 21st Street, NW.,
Washington, DC, 20581. Telephone: (202) 418-5430. E-mail: lpatent@cftc.gov or achapin@cftc.gov, respectively.
SUPPLEMENTARY INFORMATION: The Commission has issued the following
Order:
Order Substituting the Financial Services Authority as the Sole
Regulatory Authority in the United Kingdom in Prior Commission Orders
and Amending Certain Terms and Conditions
Existing Rule 30.10 Relief
In 1989, the Commission issued a series of orders pursuant to Rule
30.10 authorizing certain firms located in the U.K. to conduct
brokerage activities for U.S. customers on certain non-U.S. exchanges
without having to register with the Commission as a futures commission
merchant or otherwise comply with certain other requirements set forth
in Parts 1 and 30 of the Commission's rules.\1\ The Orders were issued
to the Securities Investment Board (``SIB''), the Investment Management
Regulatory Organisation (``IMRO''), the Association of Futures Brokers
and Dealers (``AFBD''), and The Securities Association (``TSA'').\2\
The U.K. Rule 30.10 Orders applied to brokerage activities on or
subject to the rules of Recognized Investment Exchanges (``RIES'') in
the U.K. or any non-U.S. exchange designated by the SIB as an
investment exchange (referred to as Designated Investment Exchanges or
``DIEs'') undertaken by firms authorized to conduct investment business
in the U.K. from a location in the U.K.
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\1\ Commission rules referred to herein are found at 17 CFR Ch.
I (2003). Rule 30.10 permits a person affected by the requirements
contained in Part 30 of the Commission's rules to petition the
Commission for an exemption from such requirements. Appendix A to
the Part 30 rules provides an interpretative statement that
clarifies that a foreign regulator or self-regulatory organization
(``SRO'') can petition the Commission under Rule 30.10 for an order
to permit regulatees or members to conduct business from locations
outside the U.S. for U.S. persons on non-U.S. exchanges without
registering as a futures commission merchant under the Commodity
Exchange Act (``Act''), based upon the person's substituted
compliance with a foreign regulatory structure found comparable to
that administered by the Commission under the Act.
\2\ 54 FR 21599 (May 9, 1989) (SIB); 54 FR 21604 (May 19, 1989)
(AFBD); 54 FR 21609 (May 19, 1989) (TSA); 54 FR 21614 (May 19, 1989)
(IMRO) (along with the SFA Order, collectively, the ``U.K. Rule
30.10 Orders'').
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Since 1989, the Commission has amended and supplemented the U.K.
30.10 Orders to reflect changes in the U.K. regulatory structure,
clarify the terms and conditions set forth therein, and provide related
relief. First, effective April 1, 1991, the TSA and AFBD merged to form
the SFA. Accordingly, the Commission issued an order acknowledging the
substitution of SFA as a party to several ongoing information sharing
and financial intermediary recognition arrangements entered into with
the AFBD, TSA and SIB pursuant to Part 30 of the Commissions' rules.\3\
In particular, the Commission acknowledged that all confirmations of
Rule 30.10 relief previously extended to AFBD and TSA firms remained
effective with respect to such firms in their capacity as members of
SFA.\4\
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\3\ 56 FR 14017 (April 5, 1991).
\4\ Id. at 14018.
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Second, in 1992, the Commission issued an order commonly referred
to as the Limited Marketing Order.\5\ The Limited Marketing Order
permits firms that have received confirmation of Rule 30.10 relief,
without prior notice to the Commission, to engage in limited marketing
conduct with respect to foreign futures or option contracts within the
U.S. through their employees or other representatives, subject to the
terms and conditions set forth therein. As part of the Limited
Marketing Order, the Commission confirmed that the relief set forth
therein applied to those firms having received confirmation of relief
under the Rule 30.10 orders issued to the SIB, SFA and IMRO.
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\5\ 57 FR 49644 (November 3, 1992). In 1994, the Commission
expanded the category of persons to whom qualified firms may direct
limited marketing conduct. 59 FR 42156 (August 17, 1994).
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Third, in 1997, the Commission clarified the procedures set forth
in prior Rule 30.10 Orders applicable to the treatment of customer
funds for transactions occurring on or subject to the rules of a board
of trade located outside the jurisdiction of the recipient of the Rule
30.10 Order. In doing so, the Commission interpreted prior Rule 30.10
Orders to require firms having received confirmation of Rule 30.10
relief to comply with requirements consistent with the secured amount
requirement applicable to futures commission merchants as set forth in
Rule 30.7.\6\ Specifically, the Commission interpreted Rule 30.7 to
require each FCM and Rule 30.10 firm to: (a) obtain and retain in its
files an acknowledgment from the depository maintaining customer funds
or property that the depositor was informed that such money or property
was held on behalf of foreign futures and foreign options customer
funds in accordance with Rule 30.7; and (b) take appropriate action
(i.e., set aside funds in a ``mirror'' account) in the event that it
became aware that foreign futures and foreign options customer funds
were not being held in the appropriate manner. With respect to the
U.K., the Commission clarified the procedures with which SFA and IMRO
members should comply
[[Page 58584]]
when dealing on behalf of U.S. customers on a DIE.\7\
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\6\ Rule 30.7 requires FCMs who accept money, securities or
property from foreign futures and foreign options customers to
maintain in a separate account or accounts, such money, securities
or property in an amount at least sufficient to cover or satisfy all
of its current obligations to those customers. The separate account
or accounts must be maintained under an account name that clearly
identifies the funds as belonging to foreign futures and foreign
options customers at a depository that meets the requirements of
Rule 30.7(c).
\7\ 62 FR 10447 (March 7, 1997) (SFA); 62 FR 10449 (March 7,
1997) (IMRO).
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Fourth, in 2000, the Commission further clarified the procedures
applicable to the treatment of customer funds by FCMs and Rule 30.10
firms. In new Appendix B to Part 30 \8\ and an order amending prior
Rule 30.10 orders,\9\ the Commission revised its prior interpretation
of the Rule 30.7 secured amount requirement. In particular, the
Commission stated that, subject to an additional disclosure
requirement, the Rule 30.7 acknowledgment only applies to the
maintenance of the account or accounts containing foreign futures and
foreign options customer funds by the initial depository, and not to
the manner in which any subsequent depository holds or subsequently
transmits those funds. Only if an FCM or Rule 30.10 firm fails to
receive the required acknowledgment from the initial depository or
provide the necessary disclosure statement, must it then set aside
funds with an acceptable depository and receive from such depository
the required acknowledgment. With respect to the U.K., the Commission
clarified the procedures with which SFA and IMRO members should comply
when dealing on behalf of U.S. customers on a DIE.\10\
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\8\ 65 FR 60558 (October 11, 2000).
\9\ 65 FR 60560 (October 11, 2000) (referred to herein as the
``Supplemental Client Money Order'').
\10\ 65 FR at 60563-64.
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Information Sharing
Prior to the issuance of the U.K. Rule 30.10 Orders, the Commission
entered into the Financial Information Sharing Memorandum of
Understanding (``FISMOU'') with, among others, SIB, AFBD, TSA and
IMRO.\11\ In order to facilitate the exchange of information related to
the U.K. Rule 30.10 Orders, the Commission subsequently entered into
the ``Addendum dated May 15, 1989 to Financial Information Sharing
Memorandum of Understanding'' (``Addendum'') with, among others, SIB,
AFBD, TSA and IMRO.\12\ The Commission and SIB also exchanged letters,
referred to as the Side Letter and the Note to the Side Letter,
regarding the continued application of a separate information sharing
arrangement between U.S. and U.K. regulators entered into originally in
1986.\13\
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\11\ Dated September 1, 1988.
\12\ See, e.g., 54 FR 21604, 21607-08.
\13\ See, e.g., 54 FR 21604, 21608. The Side Letter and Note to
the Side Letter referred to the 1986 Memorandum of Understanding
Between the United States Securities and Exchange Commission and the
United Kingdom Department of Trade and Industry in Matters Relating
to Securities and between the United States Commodity Futures
Trading Commission and the United Kingdom Department of Trade and
Industry in Matters Relating to Futures (dated September 23, 1986),
as supplemented by the Memorandum Relating to US/UK MOU (dated
November 22, 1988), and superseded by the Memorandum of
Understanding on Mutual Assistance and the Exchange of Information
Between United States Securities and Exchange Commission and
Commodity Futures Trading Commission and the United Kingdom
Department of Trade and Industry and the Securities and Investment
Board (dated September 25, 1991) (collectively, the ``US/UK MOU'').
After the 1991 update to the US/UK MOU, the SIB and CFTC exchanged
letters confirming the continued applicability of the Side Letter
and the Note to the Side Letter. See Letters exchanged by Wendy L.
Gramm, Chairman, Commission, and Sir David Walker, Chairman, SIB,
dated September 25, 1991.
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Recent Changes to the U.K. Regulatory Structure
On December 1, 2001, pursuant to the Financial Services and Markets
Act 2000(``2000 Act''), the Financial Services Authority (``FSA''), as
the successor organization to SIB,\14\ assumed its role as the single
U.K. regulator directly responsible for the regulation of investment
business, including the offer and sale of commodity futures and
options. Prior to the enactment of the 2000 Act, the responsibility for
supervising commodity futures markets and intermediaries rested with
FSA and certain SROs, including the SFA and IMRO. Pursuant to the 1986
Financial Services Act (``FSAct''), FSA regulated the U.K. financial
markets and established general standards for investor protection. The
SROs conferred the status of authorization for intermediaries and
promulgated general fitness standards, financial requirements, sales
practice rules and rules designed to ensure the integrity of the
market. With the enactment of the 2000 Act, the responsibility for each
of these tasks has been assumed by FSA as the single supervisory
authority, the U.K. SROs have been wound up, and the members of these
now-defunct organizations are deemed to have been authorized by FSA. In
addition, the FSA Handbook replaces all prior rules and regulations
regarding firm conduct and operations. In light of its new regulatory
role, FSA has requested that the Commission amend the U.K. 30.10 Orders
to reflect this change in regulatory oversight.
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\14\ In 1977, SIB's name was formally changed to FSA as a first
step to unite banking supervision and investment services regulation
under one body. In 1998, banking supervision was transferred to FSA
from the Bank of England.
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Recent Changes Under the Commodity Futures Modernization Act
The Commission notes that the Commodity Futures Modernization Act
\15\ amended the Act to provide the Commission greater regulatory
flexibility to streamline and eliminate unnecessary regulation for the
entities regulated under the Act. With this in mind, Commission staff
has reviewed the Commission Orders issued pursuant to Rule 30.10. As
part of this review, Commission staff has discussed with each Rule
30.10 Order recipient how best to update, if necessary, the information
contained in the Order, whether some or all of the terms and conditions
of the order continue to be necessary, and whether new conditions may
be required based upon developments in the relevant jurisdiction.
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\15\ Pub. L. 106-554, 114 Stat. 2763 (December 21, 2000).
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In response to Commission staff's discussion with it, FSA has
requested further that the Commission amend certain terms and
conditions set forth within the U.K. Rule 30.10 Orders.\16\
Specifically, FSA requested the following changes:
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\16\ See Letter from Michael Folger, Director of Conduct of
Business Standards, FSA, to Jane Kang Thorpe, Director for the
Division of Clearing and Intermediary Oversight, dated July 24, 2003
(``July 24 Letter''). As part of its policy to promote more
transparency to the activities of the Commission and to permit
affected parties to voice their support or concerns, the July 24
Letter was posted on the Commission's Web site and interested
parties were provided a two-week period to submit any comments. No
comments were received.
1. Risk Disclosure. Subsequent to the Commission issuing the
U.K. Rule 30.10 Orders, it adopted Appendix A to Rule 1.55(c).\17\
In doing so, the Commission noted that the generic risk disclosure
statement set forth in Appendix A may be used in lieu of the
statements required by Commission Rules 1.55, Rule 33.7 and the
special bankruptcy disclosures of Commission Rule 190.1(c).\18\ The
Commission determined further that all firms operating pursuant to
confirmed Rule 30.10 relief may elect to use the generic risk
disclosure statement or the risk disclosure statements mandated by
Commission Rules 1.55 and 33.7 and applicable Commission orders, as
appropriate.\19\ FSA has provided DCIO with the written disclosures
required to be provided to prospective customers pursuant to FSA
conduct of business rules and DCIO has determined that such
disclosures track the language set forth in the generic risk
disclosure statement. Accordingly, FSA requested that the Commission
exempt firms designated by FSA from compliance with the Commission's
risk disclosure requirements as they apply to transactions under
Part 30.
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\17\ 59 FR 34376 (July 5, 1994).
\18\ Id. 34378.
\19\ Id. 34379.
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2. Segregation of Customer Funds. At the time that the
Commission issued the U.K. Rule 30.10 Orders, U.S. customers were
not permitted to opt out of segregation. Accordingly, each U.K. firm
receiving
[[Page 58585]]
confirmation of relief was required to consent to refuse U.S.
customers the option of not segregating funds notwithstanding
relevant provisions of the U.K. regulatory system.\20\ The Act
recently was amended, however, to permit intermediaries conducting
business on a derivatives transaction execution facility (``DTEF'')
to offer any customer that is an eligible contract participant
(``ECP'') the right to opt out of segregation for any transactions
entered into on the DTEF. Pursuant to this authority, the Commission
adopted Rule 1.68, which permits a DTEF to adopt rules allowing
futures commission merchants (``FCMs'') to offer certain
sophisticated customers the right to elect not to have funds, that
are being carried by the FCM for purposes of margining,
guaranteeing, or securing the customers' trades on or through a
DTEF, separately accounted for and segregated.\21\ Given that the
bulk of foreign futures and options activity undertaken by U.S.
persons is conducted by sophisticated customers, FSA requested that
the Commission authorize U.K. firms to permit U.S. customers that
are ECPs to opt out of segregation with respect to those foreign
futures and options transactions entered into pursuant to the
revised Order.
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\20\ The Part 30 Orders mandated compliance with Rule 30.7's
secured amount requirement or foreign equivalent. The secured amount
requirement set forth in Rule 30.7, and described more fully in
Appendix B to Part 30, is similar to the segregation requirement set
forth in Section 4d of the Act and rules promulgated thereunder.
\21\ 66 FR 20740 (April 25, 2001). At the time of the
rulemaking, the Commission determined to defer its decision whether
to extend the choice to opt out of segregation to ECPs trading on
designated contract markets, but noted that it may reconsider the
issue in the future. Id. at 20743.
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3. Bank Undertakings. Currently, each U.K. firm using an
approved bank undertaking to meet any part of its financial
resources requirement is subject to a notification requirement
should the value of customer funds segregated on behalf of U.S.
customers exceed a specified multiple of the firm's minimum
financial requirement. If such an event were to occur, the firm
consents to notify FSA on its quarterly financial statement to FSA,
or at such other times as may be specified by FSA, the value of
funds required to be segregated on behalf of U.S. customers. This
notification requirement was designed to take into account the
impact of bank undertakings in the context of the Commission's
minimum financial resource requirement for futures commission
merchants (i.e., four percent of segregated funds). FSA has
represented that the European Union's Capital Adequacy Directive
forbids certain regulated financial institutions, including firms
authorized by FSA to conduct futures business and hold customer
funds, from using bank undertakings. Accordingly, FSA requested that
the Commission eliminate the notification requirement for firms
using an approved bank undertaking.
4. Regulated Markets. Currently, the scope of the U.K. Rule
30.10 Orders is limited to foreign futures and options traded on a
Recognized Investment Exchange (``RIE'') or a Designated Investment
Exchange (``DIE''). As part of the European Union's (``E.U.'s'')
attempt to create a single marketplace among all member states, the
Investment Services Directive applicable to all E.U. members created
a category of markets known as a Regulated Market. A Regulated
Market is an exchange organized and operating from within one of the
E.U. member states that has been recognized by the E.U. as meeting
certain standards for financial integrity and customer protection.
With the exception of the London Metal Exchange, the International
Petroleum Exchange and EDX London, all U.K. exchanges that are RIEs
are now also Regulated Markets within the meaning of the Investment
Services Directive. Non-U.K. Regulated Markets have been
progressively removed from the category of DIEs because they are
exempt from the requirement to be authorized in order to conduct
investment business in the U.K. The DIE classification presently
includes only non-U.K., non-E.U. markets recognized by FSA.
Accordingly, FSA has requested that the Commission expand the scope
of the revised Order to include transactions executed on or subject
to the rules of RIEs, DIEs, and Regulated Markets, subject to the
existing limitation that an exempt firm may not intermediate
transactions on behalf of U.S. customers on U.S. exchanges.
Upon consideration of the foregoing, the Commission has determined
to consolidate and amend the Orders into a single Order restating the
terms and conditions for relief as requested by FSA. Accordingly, the
Commission hereby:
(1) Acknowledges that:
(a) Pursuant to the Financial Services and Markets Act 2000, FSA
has succeeded the SIB, SFA and IMRO as the relevant U.K. regulatory
organization for the supervision of commodity futures and options
transactions conducted within the U.K.;
(b) Firms authorized under the Financial Services act 1986 are
now authorized to carry on designated investment business under the
Financial Services and Markets Act 2000;
(c) Provisions made under the Financial Services Act of 1986
have been replaced by generally equivalent provisions of the FSA
Handbook for rules and guidance under the Financial Services and
Markets Act 2000;
(d) All confirmations of Rule 30.10 relief previously extended
and then in effect by Commission staff or the National Futures
Association (``NFA'') \22\ to SIB, SFA and IMRO firms remain
effective with respect to such firms in their capacity as new
regulatees of FSA;
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\22\ See infra n.37.
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(e) The Financial Information Sharing Memorandum of
Understanding and related information-sharing arrangements remain
applicable, and that firms authorized to carry on designated
investment business by FSA shall be entitled to all of the benefits,
subject to the remaining parties' performance of their respective
responsibilities, including compliance with the Side Letter and Note
to the Side Letter; and
(f) The relief set forth previously in the Limited Marketing
Orders and the Supplemental Client Money Order remains effective
with respect to each firm that has received confirmation of Rule
30.10 relief pursuant to this Order; and
(2) Confirms that the relief granted pursuant to this Order
extends to brokerage activities conducted on or subject to the rules
of an RIE, DIE or Regulated Market, but does not extend to rules or
regulations relating to trading, directly or indirectly, on U.S.
contract markets or derivatives transaction execution facilities;
and
(3) Revokes the relief set forth in Orders dated May 19, 1989
and April 5, 1991, issued previously to the now-defunct SIB (54 FR
21599), IMRO (54 FR 21614), and SFA (56 FR 14017).
In connection with the Rule 30.10 relief previously granted to the
U.K. regulatory and self-regulatory organizations, Commission staff has
issued certain no-action letters regarding the treatment of customer
funds attributable to trading on the LME.\23\ In light of the changes
to the U.K. regulatory program, the Commission believes that it is
appropriate to amend these letters by substituting all prior references
to AFBD and SFA with FSA.
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\23\ See Letter from Andrea Corcoran, Director, Division of
Trading and Markets, to the Hon. Christopher J. Sharples, Chairman,
AFBD, dated October 10, 1989; Letter from Andrea Corcoran, Director,
Division, to A.R.G. Frase, AFBD, dated June 19, 1990; Letter from
Andrea Corcoran, Director, Division of Trading and Markets, to
Phillip Thorpe, Chief Executive, AFBD, and Chief Designate, SFA,
dated April 1, 1991; Letter from John C. Lawton, Acting Director,
Division of Trading and Markets, to Alan Whiting, Executive Director
for Regulation and Compliance, LME, dated April 3, 2000.
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Based upon the Commission's prior determination to issue relief
under Rule 30.10, the information provided to the Commission by FSA
describing the recent changes to the U.K. regulatory framework, and the
recommendation of Commission staff, the Commission has concluded that
the standards for relief set forth in Rule 30.10 and, in particular,
Appendix A thereof, generally have been satisfied and that compliance
with applicable U.K. law and FSA rules may be substituted for
compliance with those sections of the Act and rules thereunder more
particularly set forth herein.
By this Order, the Commission hereby exempts, subject to specified
conditions, those firms identified to the Commission by FSA as eligible
for the relief granted herein from:
--Registration with the Commission for firms and for firm
representatives;
--The separate account requirements contained in Commission Rule 30.7,
17 CFR 30.7;
--The requirement in Commission Rule 30.6(a) and (d), 17 CFR 30.6(a)
and
[[Page 58586]]
(d), that firms provide customers located in the U.S. with the risk
disclosure statements in Commission Rule 1.55(b), 17 CFR 1.55(b) and
Commission Rule 33.7, 17 CFR 33.7, or as otherwise approved under
Commission Rule 1.55(c), 17 CFR 1.55(c);
--Those sections of Part 1 of the Commission's financial rules 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 rules 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 the U.K.
This determination to permit substituted compliance is based on,
among other things, the Commission's finding that the regulatory scheme
governing persons in U.K. who would be exempted hereunder provides:
(1) A system of qualification or authorization of firms who deal
in transactions subject top 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 that all firms immediately notify FSA if
the firms' adjusted net capital falls below a specified level and
daily mark-to-market settlement and/or accounting procedures;
(3) A system for the protection of assets of appropriate
customers that is designed to preclude the use of such customer
assets to satisfy house obligations and requires separate accounting
for such assets, augmented by a compensation scheme designed to
compensate customers whose assets are segregated and who have
suffered a loss as a result of fraud and/or insolvency of a firm;
(4) Recordkeeping and reporting requirements pertaining to
financial and trade information including, without limitation, order
tickets, trade confirmations, monthly customer account statements,
customers' segregation records, accounting records for customer and
proprietary trades and discretionary account documentation;
(5) Sales practice standards for firms and persons acting on
their behalf that include, for example, a requirement that
authorized persons know their customers, required disclosures to
prospective customers and prohibitions on misleading advertising and
improper trading activities;
(6) Procedures to audit for compliance with, and to redress
violations of, customer protection and sales practice requirements
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
and FSA and the availability of related mechanisms for sharing
monitoring information with the Commission on an ``as needed'' basis
including, without limitation, confirmation data, data necessary to
trace funds related to trading futures products subject to
regulation in U.K., position data, data on firms' standing to do
business and financial condition, and for cooperating with the
Commission and NFA in inquiries, compliance matters, investigations
and enforcement proceedings.
This Order does not provide an exemption from any provision of the
Act or rules thereunder not specified herein, for example, without
limitation, the antifraud provision in Rule 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 on or
subject to the rules of an RIE, DIE, or a regulated Market for products
that customers located in the U.S. may trade.\24\ The relief does not
extend to rules relating to trading, directly or indirectly, on U.S.
exchanges. For example, a firm trading in U.S. markets for its own
account would be subject to the Commission's large trader reporting
requirements.\25\ Similarly, if such a firm were carrying a position on
a U.S. exchange on behalf of foreign clients, it would be subject to
the reporting requirements applicable to foreign brokers.\26\ 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.\27\ 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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\24\ See, e.g., Sections 2(a)(1)(C) and (D) of the Commodity
Exchange Act.
\25\ See, e.g., 17 CFR Part 18 (2000).
\26\ See, e.g., 17 CFR Parts 17 and 21 (2000).
\27\ See, also, CFTC Interpretative Letter 03-28 [Current
Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 29,559 (July 25, 2003)
(no-action letter permitting a specific foreiign entity that has
previously been granted exemption from registration by a Commission
order issued under Rule 30.10 in connection with foreign futures and
options to also act as an introducing broker with respect to trades
executed on U.S. markets for U.S. institutional customers without
registering as an introducing broker).
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The eligibility of any firm to seek relief under this exemptive
Order is subject to the following conditions:
(1) The FSA must present in writing to the Commission that:
(a) Each firm of which relief is sought is registered, licensed
or authorized, as appropriate, and is otherwise in good standing
under the standards in place in the U.K.; such firm is engaged in
business with customers in the U.K. 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 89a(2) of the Act, 7 U.S.C. Sec.
12(a)(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
the 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) It will provide the Commission with prompt notice of all
material changes to the relevant laws in the U.K., or any rules
promulgated thereunder;
(d) Customers located in the U.S. will be provided no less
stringent regulatory protection than U.K. customers under all
relevant provisions of U.K. law; and
(e) It will cooperate with the Commission in connection with
information sharing pursuant to the FISMOU.
(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 identify 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 Rule
30.5;
(c) Acknowledges that it can be required by FSA to provide to
FSA immediate 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 the U.K. and that
FSA will cooperate in providing access to such books and records in
accordance with the FISMOU;
(d) Consents that all futures and options transactions with
respect to customers located in the U.S. will be made on or subject
to the rules of an RIE, DIE located outside the U.S., or Regulated
Market, and will be undertaken consistent with the Financial
Services and Markets Act 2000 and the rules and guidance set forth
in the FSA Handbook;
(e) Has no principal, or employee who solicits or accepts orders
from customers located in the U.S., who would be disqualified from
directly applying to do business in the U.S. under Section 8a(2) of
the Act, 7 U.S.C. Sec. 12(a)(2);
(f) 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, even in circumstances where
the claim involves a matter arising primarily out of delivery,
clearing, settlement or floor practices, 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 resident
in the U.S. to execute the consent attached hereto as
[[Page 58587]]
Exhibit A concerning the exhaustion of certain mediation or
conciliation procedures made available by FSA prior to bringing an
NFA arbitration proceeding; and provided further, that the firm must
undertake to provide the customer with information concerning how to
commence such procedures and documentation of the commencement of
such procedures pursuant to the consent attached hereto as Exhibit
A;
(g) Consents to refuse those customers resident in the U.S. that
do not satisfy the criteria for being an Eligible Contract
Participant, as defined in section 1a(12) of the Commodity Exchange
Act, 7 U.S.C. 1a(12), the option of not segregating funds
notwithstanding relevant provisions of the U.K. regulatory system;
(h) Consents to provide all customers resident in the U.S. no
less stringent regulatory protection than U.K. customers under all
relevant provisions of U.K. law; and
(i) Undertakes to comply with the applicable provisions of U.K.
law and FSA rules and guidance that form the basis upon which this
exemption from certain provisions of the Act and rules 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.\28\ 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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\28\ 62 FR 47792, 47793 (September 11, 1999). Among other
duties, the Commission authorized NFA to receive requests for
confirmation of Rule 30.10 relief on behalf of particular firms, to
verify such firms' fitness and compliance with the conditions of the
appropriate Rule 30.10 Order and to grant exemptive relief from
registration to qualify firms.
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Any material changes or omissions in the facts and circumstances
pursuant to which this Order is granted might require the Commission to
reconsider its findings that the standards for relief set forth in
Commission Rule 30.10 and, in particular, Appendix A thereof, have
generally been satisfied. In addition, 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
other circumstances to not warrant continuation of the exemptive relief
granted therein, the Commission may condition, modify, suspend,
terminate, withhold as to a specific firm or otherwise restrict, the
exemptive relief granted, as appropriate on its own motion.
0
Accordingly, 17 CFR part 30 is amended as follows:
PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS
0
1. The authority citation for part 30 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 4, 6, 6c and 12a, unless otherwise
noted.
0
2. Appendix C to part 30 is amended by:
0
A. Removing the entries for:
Firms designated by the Securities and Investment Board;
Firms designated by the Association of Futures Brokers and Dealers;
Firms designated by the Securities Association; and
Firms designated by the Investment Management Regulatory
Organization
0
B. Adding the following entry at the end of the appendix:
Appendix C--Foreign Petitioners Granted Relief From the Application of
Certain of the Part 30 Rules Pursuant to Sec. 30.10
* * * * *
Firms designated by the Financial Services Authority (``FSA'').
FR date and citation: October 10, 2003, [insert FR citation].
Issued in Washington, DC, on September 30, 2003.
Jean A. Webb,
Secretary of the Commission.
Note: The following Exhibit A will not appear in the Code of
Federal Regulations.
Exhibit A--Form of Consent
In the event that a dispute arises between you, ------------,
and ------------ with respect to transactions subject to Part 30 of
the Commodity Futures Trading Commission's Rules, various forums may
be available for resolving the dispute, including courts of
competent jurisdiction in the United States and United Kingdom and
arbitration programs made available both in the United States and
United Kingdom.
In the event you wish to initiate an arbitration proceeding
against the firm to resolve such dispute under the applicable rules
of the National Futures Association (``NFA'') in the United States,
you hereby consent that you will first commence conciliation in
accordance with such procedures as may be made available by the
relevant United Kingdom regulator, details of which are provided to
you herewith. The outcome of such United Kingdom conciliation is non
binding. You may subsequently accept this resolution, or you may
proceed either to binding arbitration under the rules of the
relevant United Kingdom regulator or to binding arbitration in the
United States under the rules of NFA. If you accept the conciliated
resolution or elect to proceed to arbitration, or to any other form
of binding resolution, under the rules of the relevant United
Kingdom regulator or foreign exchange, you will be precluded from
subsequently initiating an arbitration proceeding at NFA.
You may initiate an NFA arbitration proceeding upon receipt of
documentation from the relevant United Kingdom regulator:
(i) Evidencing completion of the conciliation process and
reminding you of your right of access to NFA's arbitration
proceeding, or
(ii) Representing that more than nine months have elapsed since
you commenced the conciliation process and that such process is not
yet complete and reminding you of your right of access to NFA's
arbitration proceeding.
The documentation referred to above must be presented to NFA at
the time you initiate the NFA arbitration proceeding. NFA will
exercise its discretion not to accept your demand for arbitration in
the absence of such documentation.
By signing this consent, you are not waiving any other rights to
any other legal remedies available under law.
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Customer Signature
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Date
[FR Doc. 03-25298 Filed 10-9-03; 8:45 am]
BILLING CODE 6351-01-M