[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Notices]
[Pages 30489-30490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14371]
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COMMODITY FUTURES TRADING COMMISSION
Performance of Certain Functions by National Futures Association
With Respect to Those Foreign Firms Acting in the Capacity of a Futures
Commission Merchant
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice and order.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
authorizing National Futures Association (``NFA'') to revoke, after
thirty days written notice, the confirmation of Rule 30.10 relief for
any firm that fails to comply with the terms and conditions on which
relief was confirmed. In addition, the Commission is authorizing NFA to
withdraw the confirmation of Rule 30.10 relief from any firm that
notifies NFA of its decision to forfeit such relief.
EFFECTIVE DATE: July 8, 1999.
FOR FURTHER INFORMATION CONTACT: Laurie Plessala Duperier, Special
Counsel, or Andrew Chapin, Staff Attorney, Division of Trading and
Markets, Commodity Futures Trading Commission, 1155 21st Street, N.W.,
Washington, D.C. 20581. Telephone: (202) 418-5430.
United States of America
Before the Commodity Futures Trading Commission
Order Authorizing the Performance of Certain Functions by National
Futures Association With Respect to Firms That Have Received
Confirmation of Rule 30.10 Relief
I. Authority and Background
Section 8a(10) of the Commodity Exchange Act \1\ (``Act'') provides
that the Commission may authorize any person to perform any portion of
the registration functions under the Act, notwithstanding any other
provision of law, in accordance with rules adopted by such person and
submitted to the Commission for approval or, if applicable, for review
pursuant to Section 17(j) of the Act \2\ and subject to the provisions
of the Act applicable to registrations granted by the Commission. NFA
has confirmed its willingness to perform certain functions now
performed by the Commission. \3\
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\1\ 7 U.S.C. 12a(10)(1998).
\2\ 7 U.S.C. 21(j)(1998).
\3\ Letter from Robert K. Wilmouth, President of NFA, to
Brooksley Born, Chairperson of the Commission, dated August 27,
1997.
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Upon consideration, the Commission has determined to authorize NFA,
effective July 8, 1999, to revoke or withdraw exemptive relief granted
to firms acting in the capacity of futures commission merchants
(``FCMs'') that are members of regulatory or self-regulatory bodies to
which an order under Commission Rule 30.10 \4\ has been issued and that
have received confirmation of relief.
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\4\ Commission rules referred to herein can be found at 17 CFR
Ch. I (1999).
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Rule 30.10 allows the Commission to exempt a foreign firm acting in
the capacity of an FCM from compliance with certain Commission rules
and regulations based upon the firm's compliance with comparable
regulatory requirements imposed by the firm's home-country regulator.
The Commission has established a process whereby a foreign regulator or
self regulatory organization (``SRO'') can petition on behalf of its
regulatees or members, respectively, for such an exemption based upon
the comparability of the regulatory structure in the foreign
jurisdiction to that under the Act. Once the Commission determines that
the foreign jurisdiction's regulatory structure offers comparable
regulatory oversight,\5\ the Commission may issue an Order granting
general relief subject to certain conditions.\6\ Firms seeking
confirmation of relief must make certain representations set forth in
the Rule 30.10 Order issued to the regulator or SRO from the firm's
home country.\7\
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\5\ The specific elements examined in evaluating whether the
particular foreign regulatory program provides a basis for
permitting substituted compliance for purposes of exemptive relief
pursuant to Commission Rule 30.10 are set forth in Appendix A to
Part 30. See 52 FR 28990, 29001 (August 5, 1987).
\6\ These conditions require the regulator or SRO responsible
for monitoring the compliance of the firm with the regulatory
requirements described in the Rule 30.10 petition to make certain
representations regarding the fitness of each firm seeking to
receive confirmation of Rule 30.10 relief, the protections to be
afforded to U.S. customers, and the exchange of information with the
Commission. See 62 FR 47792, 47793, n.7 (September 11, 1997).
\7\ A firm seeking confirmation of Rule 30.10 relief is
generally required to:
(1) consent to jurisdiction in the United States and designate
an agent for service of process in the United States in accordance
with the requirements set forth in Rule 30.5;
(2) agree to make its books and records available upon the
request of any representative of the Commission or the U.S.
Department of Justice;
(3) agree that all futures or regulated option transactions with
respect to U.S. customers will be made on or subject to the rules of
the applicable exchanges and will be undertaken consistent with
rules and codes under which such firm operates;
(4) represent that no principal of the firm would be
disqualified under Section 8a(2) of the Act from registering to do
business in the U.S. and notify the Commission promptly of any
change in that representation;
(5) disclose the identity of each U.S. affiliate or subsidiary;
(6) agree to be subject to NFA arbitration;
(7) consent to the release of certain financial information;
(8) segregate customer funds from the firm's proprietary funds,
even if that option is not generally available under local law;
(9) consent to report the value of funds required to be
segregated on behalf of U.S. customers; and
(10) undertake to comply with the provisions of law and rules
which form the basis for granting the exemption. 62 FR 47792, 47793,
n.8. The terms and conditions vary from order to order depending
upon the regulatory structure of the firm's home country. Id.
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On September 11, 1997, 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 qualifying firms pursuant to Rule 30.10.\8\ The
Commission stated that, once it had examined the foreign jurisdiction's
regulatory structure and issued an Order under Rule 30.10 granting
general relief based upon the comparability of that structure to the
structure under the Act, the steps
[[Page 30490]]
needed to determine if relief is appropriate for particular firms are
similar to those undertaken in the course of fitness checks performed
by NFA with respect to applicants under the Act.\9\ For example, the
Commission previously delegated to NFA the authority to deny,
condition, suspend, restrict or revoke the registration of futures
commission merchants, introducing brokers, commodity pool operators,
commodity trading advisors and associated persons of these
registrants,\10\ and floor brokers and floor traders.\11\
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\8\ 62 FR 47792-47793. The Commission also authorized NFA to
serve as the official custodian for all filings, acknowledgments and
records produced pursuant to this undertaking. Id.
\9\ Id. at 47793.
\10\ 50 FR 34885 (August 28, 1985).
\11\ 59 FR 38957 (August 1, 1994).
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Upon consideration, the Commission believes that NFA can revoke or
withdraw a firm's confirmation of Rule 30.10 relief in an efficient and
cost-effective manner. As the custodian of all Rule 30.10 filings, NFA
has developed an extensive database from which it may identify those
firms that no longer maintain valid agency agreements.\12\ Accordingly,
the Commission directs NFA to identify on an ongoing basis those firms
that no longer maintain a valid agreement with a U.S. agent for service
of process and to notify those firms and their regulators in writing
that their failure to maintain a valid agency agreement will result in
the termination of the firms' confirmation of Rule 30.10 relief unless
such deficiency is cured within thirty days. Further, the Commission
authorizes NFA to revoke, after this thirty days written notice, the
confirmation of Rule 30.10 relief for any firm that does not maintain a
valid agreement with a U.S. agent for service of process in compliance
with Rule 30.5. In addition, any firm seeking to withdraw voluntarily
its confirmation of Rule 30.10 relief (or any foreign regulator
providing notice that a member or regulatee has ceased business
operations) currently sends that information to NFA. The Commission
authorizes NFA to withdraw the confirmation of Rule 30.10 relief for
any firm that notifies NFA, either directly or through its regulatory
authority, of its decision to forfeit such relief and/or to cease
business operations.
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\12\ All firms seeking confirmation of Rule 30.10 relief must
designate an agent for service of process in accordance with Rule
30.5.
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The Commission is also delegating to NFA the power to revoke
confirmation of a firm's Rule 30.10 relief if the firm fails to comply
with any of the representations and obligations on which the relief is
based. While the Commission is not imposing on NFA the duty to monitor
activities of Rule 30.10 firms, NFA should note any non-compliance of
which it becomes aware. For example, NFA will know if a Rule 30.10 firm
has failed to comply with a representation that it will submit to NFA
arbitration. If NFA becomes aware of a firm's failure to comply with a
representation or consent contained in its Rule 30.10 petition, other
than the failure to maintain a valid U.S. agent for the service of
process, NFA should consult with the Commission's Division of Trading
and Markets (``Division'') to determine if it is appropriate to modify
or terminate the firm's Rule 30.10 relief. After such consultation and
the consent of the Division, NFA is authorized to revoke, after thirty
days written notice, the confirmation of Rule 30.10 relief for any firm
that fails to comply with any of the terms and conditions of such
relief outlined in the appropriate Rule 30.10 Order.
II. Conclusion and Order
The Commission has determined, in accordance with Section 8a(10) of
the Act, to authorize NFA to perform the following functions:
(1) To revoke, after thirty days written notice, the
confirmation of Rule 30.10 relief for any firm that does not
maintain a valid agreement with a U.S. agent for service of process
in accordance with Rule 30.5;
(2) To revoke, after consultation with and consent from the
Commission's Division of Trading and Markets and after thirty days
written notice, the confirmation of Rule 30.10 relief for any firm
that fails to any of the other terms or conditions outlined in the
appropriate Rule 30.10 Order; and
(3) To withdraw the confirmation of Rule 30.10 relief for any
firm that notifies NFA either directly or through its regulatory
authority of its decision to forfeit such relief and/or to cease
business operations.
NFA shall perform these functions in accordance with the standards
established by the Act and the regulations and Commission orders issued
thereunder and shall provide the Commission with such summaries and
periodic reports as the Commission may determine are necessary for the
effective oversight of this program.
These determinations are based upon the Congressional intent
expressed in Section 8a(10) of the Act that the Commission have the
authority to delegate to NFA any portion of the Commission's
registration responsibilities under the Act for purposes of carrying
out these responsibilities in the most efficient and cost-effective
manner and upon NFA's representations concerning the standards and
procedures to be followed and the reports to be generated in
administering these functions.
This Order does not, however, authorize NFA to render ``no-action''
positions, exemptions or interpretations with respect to applicable
disclosure, reporting, recordkeeping and registration requirements.
Nothing in this Order shall affect the Commission's authority to
review NFA's performance of the Commission functions listed above.
NFA is authorized to perform all functions specified herein until
such time as the Commission orders otherwise. Nothing in this Order
shall prevent the Commission from exercising the authority delegated
herein. NFA may submit to the Commission for decision any specific
matters that have been delegated to it, and Commission staff will be
available to discuss with NFA staff issues relating to the
implementation of this Order. Nothing in this Order affects the
applicability of previous orders issued by the Commission under Parts 4
and 30.
Issued in Washington, DC, on June 1, 1999 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-14371 Filed 6-7-99; 8:45 am]
BILLING CODE 6351-01-M