[Federal Register Volume 64, Number 6 (Monday, January 11, 1999)]
[Proposed Rules]
[Pages 1566-1571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-375]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30


Representations and Disclosures Required by Certain IBs, CPOs and 
CTAs

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
proposing to adopt certain amendments to Commission Rules 30.5 and 
30.6.\1\ The proposed amendments will revise the procedure by which 
persons may obtain an exemption from registration under Rule 30.5 and 
will require CPOs and CTAs to provide U.S. customers with certain 
disclosures, regardless of whether they are trading on United States 
markets or foreign markets.

    \1\ Commission rules referred to herein are found at 17 CFR Ch. 
I 1998).
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DATES: Comments must be received by March 12, 1999.

ADDRESSES: Interested person should submit their views and comments to 
Jean A. Webb, Secretary of the Commission, Commodity Futures Trading 
Commission, 1155 21st Street, NW., Washington, DC 20481. In addition, 
comments may be sent by facsimile transmission to facsimile number 
(202) 418-552, or by electronic mail to [email protected]. Reference 
should be made to ``Commission Rules 30.5 and 30.6.

FOR FURTHER INFORMATION CONTACT: Laurie Plessala Duperier, Special 
Counsel, or Leanna L. Morris, Staff Attorney, Division of Trading and 
Markets, Commodity Futures Trading Commission, 1155 21st Street, NW, 
Washington, DC 20581. Telephone: (202) 418-5430.

SUPPLEMENTARY INFORMATION: 

I. Background--Current State of the Rules

    In 1987, the Commission adopted a new part 30 to its regulations to 
govern the offer and sale to U.S. persons of futures and option 
contracts entered

[[Page 1567]]

into or on subject to the rules of a foreign board of trade.\2\ These 
rules were promulgated pursuant to sections 2(a)(1)(A), 4(b) and 4c of 
the Commodity Exchange Act (``Act''), which vest the Commission with 
exclusive jurisdiction over the offer and sale, in the United States, 
of options and futures contracts traded on or subject to the rules of a 
board of trade, exchange or market located outside of the United 
States.
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    \2\ 52 FR 28980 (August 5, 1987).
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    Part 30 sets forth regulations governing foreign futures \3\ and 
foreign option \4\ transactions executed on behalf of foreign futures 
or foreign options customers.\5\ For example, Rule 30.4 requires any 
person engaged in the activities of a futures commission merchant 
(``FCM''), introducting broker (``IB''), commodity pool operator 
(``CPO'') and commodity trading advisor (``CTA''), as those activities 
are defined within the rule, to register with the Commission unless 
such persons claims relief from registration under part 30. The 
transactions which are subject to regulation and require registration 
under part 30 include the solicitation or acceptance of orders for 
trading any foreign futures or foreign option contract; acceptance of 
money, securities or property to margin, guarantee or secure any 
foreign futures of foreign option trades or contracts; and any 
agreement to direct or to guide U.S. customer accounts.\6\
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    \3\ ``Foreign futures'' as defined in part 30 means ``any 
contract for the purchase or sale of any commodity for future 
delivery made, or to be made, on or subject to the rules of any 
foreign board of trade.'' Commission Rule 30.1(a).
    \4\ ``Foreign option'' as defined in part 30 means ``any 
transaction or agreement which is or is held out to be of the 
character of, or it commonly known to the trade as, an `option', 
`privilege', `indemnity', `bid,' `offer', `put', `call', `advance 
guaranty', or `decline guaranty', made or to be made on or subject 
to the rules of any foreign board of trade.'' Commission Rule 
30.1(b).
    \5\ Pursuant to Commission Rules 30.1(c), ``Foreign futures or 
foreign options customer'' means ``any person located in the United 
States, its territories or possessions who trades in foreign futures 
or foreign options: Provided, That an owner or holder of a 
proprietary account as defined in paragraph (y) of Sec. 1.3 of this 
chapter shall not be deemed to be a foreign futures of foreign 
options customer within the meaning of Secs. 30.6 and 30.7 of this 
part.''
    \6\ See Commission Rule 30.4.
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    The part 30 rules allow certain persons located outside the United 
States to obtain as exemption from registration and certain other 
requirements. Commission Rule 30.5 provide that any person located 
outside of the United States, its territories or possessions who is 
required to be registered with the Commission, other than a person 
required to be registered as an FCM--i.e., an IB, CPO or CTA--will be 
exempt from such registration requirement, provided he or she appoints 
an agent for service for process in accordance with paragraph (a) of 
the rule. Rule 30.5(a) provides that any person claiming an exemption 
under the rule must enter into a written agency agreement with the FCM 
through which business is done in accordance with the provisions of 
Rule 3.3(b), with any registered futures association or any other 
person located in the United States in the business of providing agency 
services. The agency agreement authorizes such FCM or other person to 
serve as the agent for the Rule 30.5 exempt firm for purposes of 
accepting delivery and service of communications issued by or on behalf 
of the Commission, U.S. Department of Justice, any self-regulatory 
organization or any foreign futures or foreign options customer.\7\
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    \7\ ``Communications'' includes ``any summons, complaint, order, 
subpoena, request for information, or notice, as well as any other 
written document for correspondence relating to any activities of 
such person subject to regulation under this part.'' Commission Rule 
30.5(a).
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    All persons who are required to be registered under Rule 30.4, 
including persons who are exempt under Rule 30.5, must comply with the 
disclosure requirements of Rule 30.6.\8\ Rule 30.6(a) states that an IB 
claiming exemption under Rule 30.5 must provide foreign futures or 
options customers with the Risk Disclosure Statement required by 
Commission Rule 1.55. CPOs and CTAs claiming exemption under Rule 30.5 
must, pursuant to Rule 30.6(b), provide the Risk Disclosure Statement 
set forth in Rule 4.24(b) in the case of CPOs, or Rule 4.34(b) in the 
case of CTAs.
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    \8\ Person claiming exemption pursuant to Rule 30.5 must also 
comply with Commission Rules 1.37 and 1.57. Rule 30.5(c).
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II. Proposed Amendments

    The Commission has re-evaluated the provisions of part 30 in light 
of the changes in the futures and option industry since 1987 and its 
experience with implementing part 30. As the Commission noted in its 
adoption of part 30, ``the implementation of a regulatory scheme such 
as this is an evolving process, particularly as the issues are numerous 
and complex.'' \9\ With the advances in technology and accessibility to 
futures and option markets around the world, the Commission believes 
that it is appropriate to amend provisions of part 30 at this time to 
further the regulatory goals of customer protection and to continue the 
Commission's efforts to update and to modernize its regulations. 
Specifically, the Commission proposes amendment Rule 30.5 to clarify 
which customers Rule 30.5 exempt persons may solicit and from whom they 
may accept orders, to specify who may serve as an agent for service of 
process, to clarify who may carry the customer accounts of Rule 30.5 
firms, and to require that applicants for a Rule 30.5 exemption make 
certain representations in order to obtain the exemption. The 
Commission also proposes amendment Rule 30.6 to ensure that U.S. 
customers receive appropriate disclosures concerning their investments 
in foreign futures and foreign option contracts.
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    \9\ 52 FR at 28980.
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    The proposed amendments will not be retroactive, but will apply to 
all regulated activities with all new foreign futures and foreign 
options customers as of the effective date of the new rules. Thus, an 
IB, CPO or CTA currently exempt under Rule 30.5 will not be required to 
file a new Rule 30.5 petition for exemption. However, a CPO or CTA 
currently exempt under Rule 30.5 will be required to provide all new 
prospective pool participants or new prospective customers with a 
disclosure document or risk disclosure statement, whichever applies, in 
accordance with Rule 30.6. The Commission also invites comment on 
whether currently exempt Rule 30.5 CPOs and CTAs should be required to 
make the disclosure document available for currently existing 
participants and customers.
    Further, these proposed rule amendments do not alter any existing 
regulatory obligations to the Securities and Exchange Commission or 
state securities administrators.
    The Commission seeks comments on the following proposed amendments 
at this time and invites comment regarding any other amendments to 
these rules that may be necessary in light of industry developments 
during the past decade.

A. Rule 30.5

    As noted above, an exemption from registration pursuant to Rule 
30.5 currently is effective when a person enters into a written agency 
agreement with any of the enumerated persons or entities provided for 
by the rule and files the agreement with National Futures Association 
(``NFA''). In practice, few individuals or firms have chosen to obtain 
an exemption under Rule 30.5. CPOs and CTAs who have obtained a Rule 
30.5 exemption were requested by Commission staff to make certain 
representations, including the representation that they would solicit 
only qualified eligible participants (``QEPs'') and qualified eligible 
clients (``QECs''), as those terms are defined in Rule 4.7. Pursuant to 
the Commission's

[[Page 1568]]

September 11, 1997 delegation order to the NFA,\10\ NFA has continued 
to request these representations from Rule 30.5 firms. Thus, most Rule 
30.5 exempt firms have solicited QEPs and QECs, not U.S. ``retail 
customers,'' defined as U.S. customers that do not meet the definition 
of a QEP or QEC.
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    \10\ 62 FR 47792 (September 11, 1997).
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    As business continues to become more global and technology 
facilitates international communication, foreign CPOs and CTAs may wish 
to do business with not only QEPs and QECs, but U.S. retail customers 
as well. While the current disclosure requirements of Rule 30.6 do not 
afford enough protection to U.S. retail customers, the amendments to 
the disclosure requirements under Rule 30.6 proposed herein eliminate 
the need to restrict Rule 30.5 exemptions to QEPs and QECs. The 
Commission, therefore, wishes to make clear that exempt IBs, CPOs and 
CTAs may solicit U.S. customers who are not QEPs and QECs, so long as 
the exempt persons comply with the other provisions of part 30, as 
proposed to be amended herein.
    In order to determine whether persons qualify for an exemption 
pursuant to Rule 30.5, the Commission proposes revising the rule to 
require an applicant to make certain representations to establish that 
he or she is qualified for the exemption. Paragraph (a) of the rule 
currently states that in order to be eligible for a Rule 30.5 
exemption, the applicant must be a non-domestic person soliciting U.S. 
customers to trade in foreign futures and foreign option contracts and 
must designate an agent for service of process in the United States. 
Under proposed Rule 30.5(e), a Rule 30.5 exemption will no longer be 
self-effectuating--all petitions will be granted or denied based upon 
the information filed by the applicant with NFA, including the agent 
for service of process agreement required under Rule 30.5(a). An 
applicant would be required to show affirmatively that he or she 
qualifies for an exemption by representing that (i) the applicant is 
located outside of the United States, its territories or possessions; 
(ii) the applicant does not trade contracts on behalf of any U.S. 
customer on any market regulated by the Commission; and (iii) the 
applicant irrevocably consents to jurisdiction in the United States 
with respect to transactions subject to part 30 of the regulations 
promulgated under the Commodity Exchange Act.\11\ To ensure the fitness 
of applicants who conduct business with U.S. customers, the applicant 
also must represent that he or she would not be statutorily 
disqualified from registration under section 8a(2) or 8a(3) of the Act 
and has not been and would not be disqualified from registration or 
licensing by the home country regulator. If the applicant or its 
activities are regulated by any government entity or self-regulatory 
organization, the name and address of such government entity or self-
regulatory organization must be provided. In addition, the applicant 
must specify whether he or she is applying for an exemption based on 
activities as an IB, CPO or CTA and provide the name, address and 
telephone number of the main business. Finally, the petition must be in 
writing and signed as follows: if the IB, CPO or CTA is a sole 
proprietorship, by the sole proprietor; if a partnership, by a general 
partner; if a corporation, by the chief executive officer or other 
person with legal authority to bind the corporation. The Commission 
recognizes that, due to potential differences in business structures in 
certain foreign jurisdictions, the above qualified signatories may be 
too restrictive. Thus, the Commission seeks comment on how the rule 
might otherwise be written to recognize an appropriate signatory for a 
Rule 30.5 petition.
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    \11\ These representations are consistent with the 
representations required of foreign firms claiming exemption from 
registration pursuant to Commission Rule 30.10. (See Commission Rule 
30.10, Appendix A-Part 30, Interpretative Statement with Respect to 
the Commission's Exemptive Authority under Sec. 30.10 of its rules).
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    In the proposed amendments, the Commission also wishes to clarify 
who may carry foreign futures and foreign options customers' accounts 
in connection with solicitation by and acceptance of orders by persons 
who have obtained an exemption under Rule 30.5. The Division of Trading 
and Markets (``Division'') has interpreted Rule 30.5 to permit an 
exempt IB, CPO or CTA to carry customer accounts with a registered 
futures commission merchant or with a foreign broker who has received 
confirmation of Rule 30.10 relief on a fully-disclosed basis as 
required by Rule 30.3(b).\12\ Persons exempt under Rule 30.5 have been 
permitted to conduct business through Rule 30.10 exempt firms because 
such firms, in order to receive confirmation of Rule 30.10 relief, have 
represented to the Commission that they will provide access to the 
firm's books and records related to transactions under part 30 and 
adequate arrangements exist with these firms and their regulator(s) to 
share information, including firm-specific and transaction-specific 
information. The Commission wishes to codify the policy set forth in 
Interpretative Letter 89-3. Thus, the proposed rule states specifically 
that persons exempt under Rule 30.5 must use either U.S. registered 
futures commission merchants or foreign brokers who have received 
confirmation of Rule 30.10 relief to carry foreign futures or foreign 
options customer accounts. Rule 30.5 exempt persons are not permitted 
to use foreign brokers who have not received confirmation of Rule 30.10 
relief to carry foreign futures or foreign options customer accounts, 
nor have they been permitted to do so in the past.
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    \12\ CFTC Interpretative Letter No. 89-3 (1989 Transfer Binder) 
Comm. Fut. L. Rep. (CCH) para.24,416 (April 4, 1989).
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    The proposed rule also clarifies that, although Rule 30.5 exempt 
persons may use Rule 30.10 firms to carry U.S. customer accounts, they 
may not designate such firms as their agent for service of process 
under Rule 30.5(a), since such firms are not located in the United 
States. The purpose of requiring designations of an agent for service 
of process is to make communications with foreign persons or entities 
easier by designating a recipient in the United States. Rule 30.5, as 
currently written might have caused people to believe that Rule 30.10 
firms could act as an agent for service of process because the rule 
states that an agency agreement may be entered into with ``the futures 
commission merchant through which business is done in accordance with 
the provisions of Sec. 30.3(b) of this part * * *'' Rule 30.3(b) 
provides that, ``except as otherwise provided in Sec. 30.4 of this part 
or pursuant to an exemption granted under Sec. 30.10 of this part,'' 
the offer and sale of foreign futures and foreign option contract on 
behalf of U.S. customers must be by or through a registered FCM. Thus, 
Rule 30.5 could be read to mean that a Rule 30.10 exempt firm could act 
as an agent for service of process. The intent behind Rule 30.5, 
however, was to allow registered FCMs or other appropriate persons 
located in the United States to act as an agent for service of process. 
Thus, the proposed rule clarifies that a Rule 30.5 exempt person must 
designate either a U.S. futures commission merchant through which 
business is done, a registered futures association or any other person 
located in the United States in the business of providing services as 
an agent for service of process to act as the agent for service of 
process in accordance with Rule 30.5(a).

B. Rule 30.6

    The Commission believes that U.S. customers who trade foreign 
futures and foreign options should receive disclosures similar to those 
provided to

[[Page 1569]]

U.S. customers who trade on domestic markets. Currently, IBs and FCMs, 
whether registered or exempt from registration, are required to provide 
the same disclosures to U.S. customers, regardless of whether the 
customer is trading on domestic or foreign markets.\13\ There are, 
however, disparate disclosure requirements for domestic and foreign 
trading solicited by CPOs and CTAs, as explained below.
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    \13\ Pursuant to Rule 30.5(c), exempt IBs must comply with Rule 
30.6. Rule 30.6(a) requires FCMs and IBs to provide foreign futures 
and foreign options customers with the Risk Disclosure Statement 
prescribed by Rule 1.55(b)--the same disclosure required of 
registered FCMs and IBs trading in domestic markets.
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    Rules 4.21 and 4.31 require registered CPOs and CTAs trading on 
U.S. contract markets to provide prospective customers or participants 
with a Disclosure Document containing the information set forth in Rule 
4.24 for CPOs and Rule 4.34 for CTAs. The Disclosure Document includes, 
among other things, information concerning business background, fees 
past performance and material litigation. CPOs and CTAs who solicit 
sophisticated and institutional investors who meet the definition of a 
QEP or QEC pursuant to Rule 4.7, however, are exempt from the 
Disclosure Document requirements of Rules 4.21, 4.24, 4.25, 4.26, 4.31, 
4.34, 4.35 and 4.36.\14\ They need only provide QEPs and QECs with the 
statement prescribed in Rule 4.7(a)(2)(i)(A) for CPOs and Rule 
4.7(b)(2)(i)(A) for CTAs, which explains that an offering memorandum is 
not required to be filed with and has not been reviewed by the 
Commission pursuant to an exemption.
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    \14\ As provided in the final rulemaking of Rule 4.7, QEPs and 
QECs are deemed to be sophisticated investors that possess ``either 
the investment expertise and experience necessary to understand the 
risks involved, * * * or have an investment portfolio of a size 
sufficient to indicate that the participant has substantial 
investment experience and thus a high degree of sophistication with 
regard to investments as well as financial resources to withstand 
the risk of their investment'' and, therefore, require fewer 
disclosure protections than retail customers. 57 FR 34853, at 34854 
(August 7, 1992).
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    Part 30, specifically Rule 30.6(b), governs the disclosure 
requirements for CPOs and CTAs who invest in foreign futures or foreign 
option contracts on behalf of U.S. customers. It does not distinguish 
between retail customers and sophisticated customers because the QEP 
and QEC categorization was not established until the development of 
Rule 4.7 in 1992. Rule 30.6(b) currently requires all CPOs and CTAs 
registered or required to be registered under part 30, including those 
exempt from registration pursuant to Rule 30.5, to provide prospective 
participants or clients with only the Risk Disclosure Statement 
prescribed by Rule 4.24(b) for CPOs or Rule 4.34(b) for CTAs. In 
contrast, CPOs and CTAs who solicit or accept orders from U.S. 
customers for trading on U.S. markets are required to provide the 
extensive firm-specific information contained in a Disclosure Document 
required by part 4 of the regulations. Thus, U.S. retail customers who 
trade on U.S. markets receive more extensive disclosures than do U.S. 
retail customers who trade only foreign futures and foreign option 
contracts.
1. U.S. Retail Investors
    To ensure adequate risk disclosures are provided to all U.S. 
investors trading in foreign futures and option contracts, the 
Commission proposes amending Rule 30.6(b) to provide that CPOs or CTAs 
registered or required to be registered under part 30, including those 
exempt from registration pursuant to Rule 30.5, may solicit or accept 
order from U.S. retail customers for trading in foreign futures or 
foreign option contracts only if the CPO or CTA first provides each 
prospective participant or prospective client with the Disclosure 
Document required by Rule 4.21 for CPOs and Rule 4.31 for CTAs, 
containing the disclosures required by Rules 4.24 and 4.34, 
respectively. These Disclosure Documents should be filed in compliance 
with Rule 4.26 for CPOs and Rule 4.36 for CTAs.\15\ By this amendment, 
U.S. retail customers will receive similar disclosures whether they 
trade on domestic or foreign markets.
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    \15\ If this provision were to be adopted, it would be necessary 
for the Commission to issue an order delegating to NFA the function 
of reviewing Disclosure Documents filed pursuant to Rule 30.6.
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2. U.S. QEP and QEC Customers
    As discussed above, Rule 30.6 currently requires CPOs and CTAs to 
provide the entire Risk Disclosure Statement of Rule 4.24(b) for CPOs 
and Rule 4.34(b) for CTAs to all customers, including QEPs and QECs. In 
contrast, Rule 4.7 does not require CPOs and CTAs to provide QEPs and 
QECs who trade in U.S. markets with the Risk Disclosure Statement of 
Rules 4.24(b) and 4.34(b). It only requires CPOs and CTAs to give QEPs 
and QECs the limited notices in Rules 4.7(a)(2)(i)(A) and 
4.7(b)(2)(i)(A), respectively. To make the disclosures to QEPs and QECs 
more uniform, whether they invest in U.S. markets or foreign markets, 
the Commission proposes amending Rule 30.6 as follows.
    As proposed, Rule 30.6 would require CPOs and CTAs to provide QEPs 
and QECs with only the risk disclosures contained in Rules 4.24(b)(2) 
and 4.34(b)(2), respectively, which are the disclosures that 
specifically address the risks of trading in foreign futures and 
foreign options. CPOs and CTAs would no longer provide the entire Risk 
Disclosure Statement.\16\ In addition, CPOs and CTAs who solicit and 
accept orders from QEPs and QECs would be required to provide foreign 
futures and foreign options customers with the statements in Rules 
4.7(a)(2)(i)(A) and 4.7(b)(2)(i)(A), respectively.
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    \16\ CPOs and CTAs who solicit only QEPs and QECs for trading on 
domestic markets presently are not required by Part 4 to provide the 
Risk Disclosure Statements in Rules 4.24 and 4.34. The Commission 
believes that the specific risk disclosure statements in Rules 
4.24(b)(2) and 4.34(b)(2) should be provided to all U.S. customers 
solicited to trade foreign futures and foreign options, including 
QEPs and QECs, due to the difference in regulatory protections 
available when trading on foreign exchanges.
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    Thus, the net effect of these amendments is that CPOs and CTAs who 
solicit foreign futures and options customers who are QEPs and QECs 
will be required to provide slightly more disclosure than they do to 
QEPs and QECs who trade on domestic markets, but will be allowed to 
disclose less than Rule 30.6 currently requires.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611, 
requires that agencies, in proposing rules, consider the impact of 
those rules on small business. The Commission has previously 
established certain definitions of ``small entities'' to be used by the 
Commission in evaluating the impact of its rules on such entities in 
accordance with the RFA.\17\ The Commission previously has determined 
that CPOs are not small entities for the purpose of the RFA.\18\ With 
respect to CTAs and IBs, the Commission has stated that it would 
evaluate within the context of a particular rule proposal whether all 
or some affected CTAs and IBs would be considered to be small entities 
and, if so, the economic impact on them of any rule.\19\ In this 
regard, the Commission notes that the regulations being proposed herein 
with respect to CTAs' and IBs' activities relating to foreign futures 
and foreign option contracts are essentially the same as those 
governing CTAs and IBs in connection with their activities relating to 
futures contracts and options traded or executed on or subject to the 
rules of a contract market designated by the Commission. The Commission 
has

[[Page 1570]]

previously determined that the disclosure requirements governing these 
categories of registrant will not have a significant economic impact on 
a substantial number of small entities.\20\ In fact, Rule 4.31, which 
governs the disclosure requirements for CTAs, was revised in 1995 for 
the purpose of reducing the number of disclosures required and focusing 
on succinct disclosure of material information. The Commission 
determined that the revised rule reduced rather than increased the 
requirements of former Rule 4.31. Therefore, the Chairperson, on behalf 
of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that 
these proposed regulations will not have a significant economic impact 
on a substantial number of small entities. Nonetheless, the Commission 
specifically requests comment on the impact these proposed rules may 
have on small entities.
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    \17\ 47 FR 18618-18621 (April 30, 1982).
    \18\ 47 FR 18619-18620.
    \19\ 47 FR 18618-18620.
    \20\ See 60 FR 38146, 38181 (July 25, 1995) and 48 FR 35248 
(August 3, 1983).
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B. Paperwork Reduction Act

    When publishing proposed rule, the Paperwork Reduction Act of 1995 
\21\ imposes certain requirements on federal agencies (including the 
Commission) in connection with their conducting or sponsoring any 
collection of information as defined by the Paperwork Reduction Act. In 
compliance with the Act, the Commission, through this rule proposal, 
solicits comments to:
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    \21\ Pub. L. 104-13 (May 13, 1995).

    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including the validity of the methodology and assumptions used; (2) 
evaluate the accuracy of the agency's estimate of the burden of the 
proposed collection of information including the validity of the 
methodology and assumptions used; (3) enhance the quality, utility, 
and clarity of the information to be collected; and (4) minimize the 
burden of the collection of the information on those who are to 
respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques 
or other forms of information technology, e.g., permitting 
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electronic submission of responses.

    The Commission has submitted these proposed rules and their 
associated information collection requirements to the Office of 
Management and Budget. The burden associated with the entire new 
collection 3038-0023, of which these proposed rules are a part, is as 
follows:


Average burden hours per response........  16.13.
Number of respondents....................  73,435.
Frequency of response....................  On occasion.
 

    The burden associated with these specific proposed rules is as 
follows:


Rule 30.5--
  Average burden hours per response......  1.00.
  Number of Respondents..................  65.
  Frequency of response..................  On occasion.
 


Rule 30.6(b)(1)--
  Average burden hours per response......  .5.
  Number of Respondents..................  40.
  Frequency of response..................  On occasion.
Rule 30.6(b)(2)--
  Average burden hours per response......  3.0.
  Number of Respondents..................  5.
  Frequency of response..................  On occasion.
 

    Persons wishing to comment on the information which would be 
required by these proposed rules should contact the Desk Officer, CFTC, 
Office of Management and Budget, Room 10202, NEOB, Washington, DC 
20503, (202) 395-7340. Copies of the information collection submission 
to OMB are available from the CFTC Clearance Officer, 1155 21st Street, 
NW., Washington, DC 20581 (202) 418-5160.

List of Subjects in 17 CFR Part 30

    Definitions, Foreign futures, Consumer protection, Foreign options, 
Registration requirements, Reporting and recordkeeping requirements, 
Risk disclosure statements, Treatment of foreign futures and options 
secured amount.
    In consideration of the foregoing, and pursuant to the authority 
contained in the Commodity Exchange Act and, in particular, sections 
2(a)(1), 4(b), 4c and 8 thereof, 7 U.S.C. 2, 6(b), 6c and 12a (1982), 
and pursuant to the authority contained in 5 U.S.C. 552 and 552b 
(1982), the Commission hereby proposes to amend Chapter I of Title 17 
of the Code of Federal Regulations as follows:

PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS

    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.

    2. Section 30.5 is proposed to be amended by adding introductory 
text, revising paragraph (a) and adding paragraph (e) to read as 
follows:


Sec. 30.5  Alternative procedures for non-domestic persons.

    Any person not located in the United States, its territories or 
possessions, who is required in accordance with the provisions of this 
part to be registered with the Commission, other than a person required 
to be registered as a futures commission merchant, may apply for an 
exemption from registration under this part by filing a petition for 
exemption with the National Futures Association and designating an 
agent for service of process, as specified below. A person who receives 
confirmation of an exemption pursuant to this section must carry any 
accounts for or on behalf of any foreign futures or foreign options 
customer with a registered futures commission merchant or with a 
foreign broker who has received confirmation of an exemption pursuant 
to Sec. 30.10 of this part in accordance with the provisions of 
Sec. 30.3(b) of this part.
    (a) Agent for service of process. Any person who seeks exemption 
from registration under this part shall enter into a written agency 
agreement with the futures commission merchant located in the United 
States through which business is done, with any registered futures 
association or any other person located in the United States in the 
business of providing services as an agent for service of process, 
pursuant to which agreement such futures commission merchant or other 
person is authorized to serve as the agent of such person for purposes 
of accepting delivery and service of communications issued by or on 
behalf of the Commission, U.S. Department of Justice, any self-
regulatory organization or any foreign futures or foreign options 
customer. If the written agency agreement is entered into with any 
person other than the futures commission merchant through which 
business is done, the futures commission merchant or foreign broker who 
has received confirmation of an exemption pursuant to Sec. 30.10 of 
this part with whom business is conducted must be expressly identified 
in such agency agreement. Service or delivery of any communication 
issued by or on behalf of the Commission, U.S. Department of Justice, 
any self-regulatory organization or any foreign futures or foreign 
options customer, pursuant to such agreement, shall constitute valid 
and effective service or delivery upon such person. Unless otherwise 
specified by the Commission, the agreement required by this section 
shall be filed with the Vice President-Registration, National Futures 
Association, 200 West Madison Street, Chicago, Illinois 60606, with a 
copy to the Vice President-Compliance, National Futures Association. 
For the purposes of this section, the term

[[Page 1571]]

``communication'' includes any summons, complaint, order, subpoena, 
request for information, or notice, as well as any other written 
document or correspondence relating to any activities of such person 
subject to regulation under this part.
* * * * *
    (e) Petition for exemption. Any person seeking an exemption from 
registration as an introducing broker, commodity pool operator or 
commodity trading advisor under this section file a petition for 
exemption, which will be granted or denied based on compliance with 
Sec. 30.5(a) and the provisions of this paragraph. The petition must:
    (1) Be in writing;
    (2) Provide the name, main business address and main business 
telephone number of the applicant;
    (3) Represent that: (i) The applicant is located outside of the 
United States, its territories or possessions;
    (ii) The applicant does not trade contracts on behalf of any U.S. 
person on any market regulated by the Commission; and
    (iii) The applicant irrevocably agrees to jurisdiction of the 
Commission and state and federal courts in the United States with 
respect to activities and transactions subject to this part;
    (4) Represent that the applicant would not be statutorily 
disqualified from registration under section 8a(2) or 8a(3) of the 
Commodity Exchange Act and that the applicant is not disqualified from 
registration pursuant to the laws or regulations of its home country;
    (5) If the applicant or its activities are regulated by any 
government entity or self-regulatory organization, state the name and 
address of such government entity or self-regulatory organization;
    (6) State whether the applicant is applying for a Sec. 30.5 
exemption from registration as an introducing broker, commodity pool 
operator or commodity trading advisor;
    (7) Be signed as follows: If the applicant is sole proprietorship, 
by the sole proprietor; if a partnership, by a general partner; if a 
corporation, by the chief executive officer or other person legally 
authorized to bind the corporation; and
    (8) Be filed with the Vice President-Registration, National Futures 
Association, 200 West Madison Street, Chicago, Illinois 60606, with a 
copy to the Vice President-Compliance, National Futures Association.
* * * * *
    3. Section 30.6 is proposed to be amended by revising paragraph (b) 
to read as follows:


Sec. 30.6  Disclosure.

* * * * *
    (b) Commodity pool operators and commodity trading advisors. (1) 
With respect to qualified eligible participants, as defined in 
Sec. 4.7(a)(1)(ii) of this chapter, a commodity pool operator 
registered or required to be registered under this part, or exempt from 
registration pursuant to Sec. 30.5 of this part, may not, directly or 
indirectly, solicit, accept or receive funds, securities or other 
property from a prospective qualified eligible participant in a foreign 
commodity pool that it operates or that it intends to operate, unless 
the commodity pool operator, at or before the time it engages in such 
activities, first provides each prospective qualified eligible 
participant with the Risk Disclosure Statement set forth in 
Sec. 4.24(b)(2) and the statement in Sec. 4.7(a)(2)(i)(A). With respect 
to qualified eligible clients, as defined in Sec. 4.7(b)(1)(ii) of this 
chapter, a commodity trading advisor registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5 of this part, may not solicit or enter into an agreement with 
a prospective qualified eligible client to direct or to guide the 
client's foreign commodity interest trading by means of a systematic 
program that recommends specific transactions, unless the commodity 
trading advisor, at or before the time it engages in such activities, 
first provides each qualified eligible client with the Risk Disclosure 
Statement set forth in Sec. 4.34(b)(2) and the statement in 
Sec. 4.7(b)(2)(i)(A).
    (2) With respect to participants who do not satisfy the 
requirements of qualified eligible participants, as defined in 
Sec. 4.7(a)(1)(ii) of this chapter, a commodity pool operator 
registered or required to be registered under this part, or exempt from 
registration pursuant to Sec. 30.5 of this part, may not, directly or 
indirectly, solicit, accept or receive funds, securities or other 
property from a prospective participant in a foreign pool that it 
operates or that it intends to operate, unless the commodity pool 
operator, at or before the time it engages in such activities, first 
provides each prospective participant with the Disclosure Document 
required to be furnished to customers or potential customers pursuant 
to Sec. 4.21 of this chapter and files the Disclosure Document in 
accordance with Sec. 4.26 of this chapter. With respect to clients who 
do not satisfy the requirements of qualified eligible clients, as 
defined in Sec. 4.7(b)(1)(ii) of this chapter, a commodity trading 
advisor registered or required to be registered under this part, or 
exempt from registration pursuant to Sec. 30.5, may not solicit or 
enter into an agreement with a prospective client to direct or to guide 
the client's foreign commodity interest trading by means of a 
systematic program that recommends specific transactions, unless the 
commodity trading advisor, at or before the time it engages in such 
activities, first provides each prospective client with the Disclosure 
Document required to be furnished customers or potential customers 
pursuant to Sec. 4.31 of this chapter and files the Disclosure Document 
in accordance with Sec. 4.36 of this chapter.
* * * * *
    Dated: January 4, 1999.

    By the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-375 Filed 1-8-99; 8:45 am]
BILLING CODE 6351-01-M