[Federal Register Volume 64, Number 145 (Thursday, July 29, 1999)]
[Proposed Rules]
[Pages 41056-41059]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-19415]



[[Page 41056]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-41644, International Series Release No. 1200, File No. 
S7-18-99]
RIN 3235-AH76


Exemption of the Securities of the Republic of Portugal Under the 
Securities Exchange Act of 1934 for Purposes of Trading Futures 
Contracts on Those Securities

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Commission proposes for comment an amendment to Rule 3a12-
8 under the Securities Exchange Act of 1934 that would designate debt 
obligations issued by the Republic of Portugal as ``exempted 
securities'' for the purpose of the marketing and trading of futures 
contracts on those securities in the United States. The proposed 
amendment is intended to permit futures trading on the sovereign debt 
of Portugal.

DATES: Comments should be submitted on or before August 30, 1999.

ADDRESSES: All comments should be submitted in triplicate and addressed 
to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 
Fifth Street, N.W., Washington, D.C. 20549-0609. Comments also may be 
submitted electronically at the following E-mail address: rule-
[email protected]. All comments should refer to File No. S7-18-99; this 
file number should be included on the subject line if e-mail is used. 
Comment letters will be available for public inspection and copying at 
the Commission's Public Reference Room, 450 Fifth Street, N.W., 
Washington, D.C. 20549. Electronically submitted comment letters will 
also be posted on the Commission's Internet web site (http://
www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Kenneth M. Rosen, Attorney, Office of 
Market Supervision (OMS), Division of Market Regulation (Division), 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549-1001, at (202) 942-0096.

SUPPLEMENTARY INFORMATION:

I. Introduction

    Under the Commodity Exchange Act (CEA),\1\ it is unlawful to trade 
a futures contract on any individual security unless the security in 
question is an exempted security (other than a municipal security) 
under the Securities Act of 1933 (Securities Act) \2\ or the Securities 
Exchange Act of 1934 (Exchange Act).\3\ Debt obligations of foreign 
governments are not exempted securities under either of these statutes.
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    \1\ 7 U.S.C. 1 et seq.
    \2\ 15 U.S.C. 77a et seq.
    \3\ 15 U.S.C. 78a et seq.
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    The Securities and Exchange Commission (SEC or Commission), 
however, has adopted Rule 3a12-8 \4\ (Rule) under the Exchange Act to 
designate debt obligations issued by certain foreign governments as 
exempted securities under the Exchange Act solely for the purpose of 
the marketing and trading futures contracts on those securities in the 
United States. The foreign governments currently designated in the Rule 
are the United Kingdom of Great Britain and Northern Ireland, Canada, 
Japan, Australia, France, New Zealand, Austria, Denmark, Finland, the 
Netherlands, Switzerland, Germany, the Republic of Ireland, Italy, 
Spain, Mexico, Brazil, Argentina, Venezuela, Belgium, and, most 
recently, Sweden (the Designated Foreign Governments). As a result, 
futures contracts on the debt obligations of these countries may be 
sold in the United States, as long as the other terms of the Rule are 
satisfied.
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    \4\ 17 CFR 240.3a12-8.
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    The Commission is soliciting comments on a proposal to amend Rule 
3a12-8 to add the debt obligations of the Republic of Portugal 
(Portugal) to the list of Designated Foreign Governments whose debt 
obligations are exempted by Rule 3a12-8. To qualify for the exemption, 
futures contracts on the debt obligations of Portugal would have to 
meet the existing requirements of the Rule.

II. Background

    Adopted in 1984 pursuant to the exemptive authority contained in 
Section 3(a)(12) of the Exchange Act,\5\ Rule 3a12-8 provides a limited 
exception from the CEA's prohibition on futures overlying individual 
securities.\6\ As originally adopted, the Rule provided that the debt 
obligations of the United Kingdom of Great Britain and Northern Ireland 
and Canada would be deemed to be exempted securities, solely for the 
purpose of permitting the offer, sale, and confirmation of ``qualifying 
foreign futures contracts'' on such securities. The securities in 
question were not eligible for the exemption if they were registered 
under the Securities Act or were the subject of any American depositary 
receipt so registered. A futures contract on the covered debt 
obligation under the Rule is deemed to be a ``qualifying foreign 
futures contract'' if the contract is deliverable outside the United 
States and is traded on a board of trade.\7\
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    \5\ See Securities Exchange Act Release No. 20708 (Original 
Adopting Release) (March 2, 1984) 49 FR 8595 (March 8, 1984); 
Securities Exchange Act Release No. 19811 (Original Proposing 
Release) (May 25, 1983) 48 FR 24725 (June 2, 1983).
    \6\ In approving the Futures Trading Act of 1982, Congress 
expressed its understanding that neither the SEC nor the Commodity 
Futures Trading Commission (CFTC) had intended to bar the sale of 
futures on debt obligations of the United Kingdom of Great Britain 
and Northern Ireland to U.S. persons, and its expectation that 
administrative action would be taken to allow the sale of such 
futures contracts in the United States. See Original Proposing 
Release, supra note 5, 48 FR at 24725 (citing 128 Cong. Rec. H7492 
(daily ed. September 23, 1982) (statements of Representatives 
Daschle and Wirth)).
    \7\ As originally adopted, the Rule required that the board of 
trade be located in the country that issued the underlying 
securities. This requirement was eliminated in 1987. See Securities 
Exchange Act Release No. 24209 (March 12, 1987) 52 FR 8875 (March 
20, 1987).
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    The conditions imposed by the Rule were intended to facilitate the 
trading of futures contracts on foreign government securities in the 
United States while requiring offerings of foreign government 
securities to comply with the federal securities laws. Accordingly, the 
conditions set forth in the Rule were designed to ensure that, absent 
registration, a domestic market in unregistered foreign government 
securities would not develop, and that markets for futures on these 
instruments would not be used to avoid the securities law registration 
requirements. In particular, the Rule was intended to ensure that 
futures on exempted sovereign debt did not operate as a surrogate means 
of trading the unregistered debt.\8\
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    \8\ The CFTC regulates the marketing and trading of foreign 
futures contracts. CFTC rules provide that any person who offers or 
sells a foreign futures contract to a U.S. customer must be 
registered under the CEA, unless otherwise specifically exempted.
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    Subsequently, the Commission amended the Rule to include the debt 
securities issued by Japan, Australia, France, New Zealand, Austria, 
Denmark, Finland, the Netherlands, Switzerland, Germany, Ireland, 
Italy, Spain, Mexico, Brazil, Argentina, Venezuela, Belgium, and, most 
recently, Sweden.\9\
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    \9\ In 1986, the Rule was amended to include Japanese government 
securities. See Securities Exchange Act Release No. 23423 (July 11, 
1986) 51 FR 25996 (July 18, 1986). In 1987, the Rule was amended to 
include debt securities issued by Australia, France and New Zealand. 
See Securities Exchange Act Release No. 25072 (October 29, 1987) 52 
FR 42277 (November 4, 1987). In 1988, the Rule was amended to 
include debt securities issued by Austria, Denmark, Finland, the 
Netherlands, Switzerland, and West Germany. See Securities Exchange 
Act Release No. 26217 (October 26, 1988) 53 FR 43860 (October 31, 
1988). In 1992, the Rule was again amended to (1) include debt 
securities offered by the Republic of Ireland and Italy; (2) change 
the country designation of ``West Germany'' to the ``Federal 
Republic of Germany;'' and (3) replace all references to the 
informal names of the countries listed in the Rule with references 
to their official names. See Securities Exchange Act Release No. 
30166 (January 8, 1992) 57 FR 1375 (January 14, 1992). In 1994, the 
Rule was amended to include debt securities issued by the Kingdom of 
Spain. See Securities Exchange Act Release No. 34908 (October 27, 
1994) 59 FR 54812 (November 2, 1994). In 1995, the Rule was amended 
to include the debt securities of Mexico. See Securities Exchange 
Act Release No. 36530 (November 30, 1995) 60 FR 62323 (December 6, 
1995). In 1996, the Rule was amended to include debt securities 
issued by the Federative Republic of Brazil, the Republic of 
Argentina, and the Republic of Venezuela. See Securities Exchange 
Act Release No. 36940 (March 7, 1996) 61 FR 10271 (March 13, 1996). 
In 1999, the Rule was amended to include debt securities issued by 
the Kingdom of Belgium and the Kingdom of Sweden. See Securities 
Exchange Act Release No. 41116 (February 26, 1999) 64 FR 10564 
(March 5, 1999); Securities Exchange Act Release No. 41453 (May 26, 
1999) 64 FR 29550 (June 2, 1999).

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[[Page 41057]]

III. Discussion

    The Bolsa de Derivados do Porto (BDP) has proposed that the 
Commission amend Rule 3a12-8 to include the sovereign debt of Portugal. 
The BDP has stated that futures contracts on Portuguese ``OT 10'' Fixed 
Rate Bonds have traded on the BDP since 1996, and that its Petition for 
Rulemaking to amend Rule 3a12-8 is made principally to permit the 
lawful marketing of those contracts to U.S. investors.\10\ The BDP 
further represents that the Instituto de Gestao do Credito Publico 
(IGCP)--a body established by the Portuguese government that possesses 
the authority to issue and manage all of Portugal's direct public 
debt--supports the BDP's request for the amendment of Rule 3a12-8.\11\
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    \10\ See Letter from Mark D. Wiseman, counsel for BDP, to 
Jonathan G. Katz, Secretary, Commission, dated June 1, 1999 (BDP 
Petition).
    \11\ See BDP Petition, supra note 10.
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    Under the proposed amendment, the existing conditions set forth in 
the Rule (i.e., that the underlying securities not be registered in the 
United States, the futures contracts require delivery outside the 
United States, and the contracts be traded on a board of trade) would 
continue to apply. The BDP has represented that the securities 
underlying the futures contracts it intends to list are not registered 
in the United States,\12\ that delivery will occur through book entry 
registration in the Central de Valores Mobiliarios (the Portuguese 
Central Depositary System), and that the BDP is a ``board of trade'' as 
defined by the CEA.\13\
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    \12\ A number of Portuguese government debt securities have been 
registered under the Securities Act. See BDP Petition, supra note 
10. The Rule does not exempt futures contracts on those securities.
    \13\ See BDP Petition, supra note 10.
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    When amending the Rule to include Belgium, the Commission stated 
that it would consider two types of evidence about whether there was an 
active and liquid secondary trading market for the security--credit 
rating (as indirect evidence) and trading data.\14\ Earlier, when 
amending the Rule to include Mexico, Brazil, Argentina, and Venezuela, 
the Commission considered primarily whether market evidence indicated 
that an active and liquid secondary trading market exists for the 
sovereign debt of those countries.\15\ Prior to the addition of those 
countries to the Rule, the Commission considered principally whether 
the particular sovereign debt had been rated in one of the two highest 
rating categories \16\ by at least two nationally recognized 
statistical rating organizations (NRSROs).\17\
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    \14\ See Securities Exchange Act Release No. 41116 (February 26, 
1999) 64 FR 10564 (March 5, 1999).
    \15\ See, e.g., Securities Exchange Act Release No. 36530 
(November 30, 1995) 60 FR 62323 (December 6, 1995) (amending the 
Rule to add Mexico because the Commission believed that as a whole, 
the market for Mexican sovereign debt was sufficiently liquid and 
deep for the purposes of the Rule); Securities Exchange Act Release 
No. 36940 (March 7, 1996) 61 FR 10271 (March 13, 1996) (amending the 
Rule to add Brazil, Argentina and Venezuela because the Commission 
believed that the market for the sovereign debt of those countries 
was sufficiently liquid and deep for the purposes of the Rule).
    \16\ The two highest categories used by Moody's Investor 
Services (Moody's) for long-term debt are ``Aaa'' and ``Aa.'' The 
two highest categories used by Standard and Poor's (S&P) for long-
term debt are ``AAA'' and ``AA.''
    \17\ See, e.g., Securities Exchange Act Release No. 30166 
(January 6, 1992) 57 FR 1375 (January 14, 1992) (amending the Rule 
to include debt securities issued by Ireland and Italy--Ireland's 
long-term sovereign debt was rated Aa3 by Moody's and AA- by S&P, 
and Italy's long-term sovereign debt was rated Aaa by Moody's and 
AA+ by S&P); and Securities Exchange Act Release No. 34908 (October 
27, 1994) 59 FR 54812 (November 2, 1994) (amending the Rule to 
include Spain, which had long-term debt ratings of Aa2 from Moody's 
and AA from S&P); see also Securities Exchange Act Release No. 36213 
(September 11, 1995) 60 FR 48078 (September 18, 1995) (proposal to 
add Mexico to list of countries encompassed by the Rule); Securities 
Exchange Act Release No. 24428 (May 5, 1987) 52 FR 18237 (May 14, 
1987) (proposed amendment, which was not implemented, that would 
have extended the Rule to encompass all countries rated in one of 
the two highest categories by at least two NRSROs).
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    Portugal's long-term local and foreign currency ratings meet the 
credit rating standard. Moody's has assigned Portugal a long-term local 
currency credit rating of Aa2 and a long-term foreign currency credit 
rating of Aa2. S&P has assigned Portugal a long-term local currency 
credit rating of AA and a long-term foreign currency credit rating of 
AA.
    The Commission also observes that market data indicates that there 
exists an active and liquid trading market for Portuguese issued debt 
instruments. At the end of 1998, the total Portuguese direct public 
debt outstanding was equivalent to approximately US$66.35 billion 
(11.70 trillion Portuguese escudo (PTE)).\18\ As of January 31, 1999, 
the largest portion of this debt, Fixed Rate Bonds (OT) denominated in 
Portuguese escudo or euro, amounted to approximately US$29.26 
billion.\19\ Floating Rate Notes (FIP and OTRV) amounted to 
approximately US$7.38 billion.\20\ Treasury Bills (BT) amounted to 
approximately US$2.12 billion.\21\ Other non-escudo and non-euro 
foreign currency-denominated debt amounted to in excess of 
approximately US$14.1 million.\22\
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    \18\ See BDP Petition, supra note 10. All U.S. dollar 
equivalents set forth in this release are based on a conversion rate 
of PTE 176.31 for US$1.00 in effect as of January 29, 1999. The BDP 
calculated this rate used for its representations by taking the 
January 29, 1999 noon buying rate in The City of New York for cable 
transfers in euro as certified for customs purposes by the Federal 
Reserve Bank of New York ($1.1371=1 euro) multiplied by the European 
Monetary Union's official determination of the number of Portuguese 
escudo per euro (1 euro=PTE 200.482). See id.
    \19\ See BDP Petition, supra note 10.
    \20\ See BDP Petition, supra note 10.
    \21\ See BDP Petition, supra note 10. Other escudo-denominated 
and euro-denominated tradable Portuguese domestic debt securities 
amounted to US$35.6 million.
    \22\ See BDP Petition, supra note 10.
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    The BDP has submitted data indicating that secondary market trading 
in OT Fixed Rate Bonds amounted to approximately US$71.7 billion (PTE 
12.637 trillion) in 1997, approximately US$125 billion (PTE 22.005 
trillion) in 1998, and approximately US$15.9 billion (PTE 2.809 
trillion) in the first month of 1999.\23\ The average daily trading 
volume was US$290 million (PTE 51.195 billion) in 1997, US$505 million 
(PTE 88.959 billion) in 1998, and US$797 million (PTE 140.450 billion) 
for the first month of 1999.\24\ The BDP adds that there were 44,873

[[Page 41058]]

transactions in OT Fixed Rate Bonds in 1997, 45,676 transactions in 
1998, and 3,835 transactions in the first month of 1999.\25\
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    \23\ See BDP Petition, supra note 10. The BDP states that the 
statistics about secondary market trading in Portuguese debt were 
derived from information supplied by Sistema de Informacao de Bolsa 
do Porto (SIBOP). SIBOP is an electronic market information system 
managed by the BDP and is used by market members and institutional 
investors. The SIBOP system provides market participants with 
securities and futures real time data, historical information for 
securities and derivatives, daily and monthly trading volume 
information, market news, and file transfer capabilities. Id.
    \24\ See BDP Petition, supra note 10. The BDP represents that 
the activity and liquidity of the OT Fixed Rate Bond secondary 
market has increased substantially during the past two years. The 
BDP believes that the increase in average daily and monthly trading 
volumes for OT Fixed Rate Bonds reflects both Portugal's decision to 
issue a greater number of OT fixed Rate Bonds in lieu of other 
classes of securities and increased market interest in Portugal's 
securities. See id.
    \25\ See BDP Petition, supra note 10.
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    The BDP also submitted data stating that secondary market trading 
in FIP Floating Notes amounted to approximately US$3.6 billion (PTE 640 
billion) in 1997, approximately US$0.01 billion (PTE 2.4 billion) in 
1998, and approximately US$0.00007 billion (PTE 0.01 billion) in the 
first month of 1999.\26\ The average daily trading volume was US$14.2 
million (PTE 2.501 billion) in 1997, US$0.05 million (PTE 9.3 million 
in 1998), and US$0.003 million (PTE 0.6 million) for the first month of 
1999.\27\ The BDP adds that there were 2,414 transactions in FIP 
Floating Notes in 1997, 1,777 transactions in 1998, and 74 transactions 
in the first month of 1999.\28\
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    \26\ See BDP Petition, supra note 10.
    \27\ See BDP Petition, supra note 10.
    \28\ See BDP Petition, supra note 10.
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    The BDP further submitted data stating that secondary market 
trading in ORTV Floating Notes amounted to approximately US$4.7 billion 
(PTE 827 billion) in 1997, approximately US$4.2 billion (PTE 739 
billion) in 1998, and approximately US$0.4 billion (PTE 72.7 billion) 
in the first month of 1999.\29\ The average daily trading volume was 
US$19.6 million (PTE 3.477 billion) in 1997, US$17.3 million (PTE 3.047 
billion in 1998), and US$20.6 million (PTE 3.633 billion) for the first 
month of 1999.\30\ The BDP adds that there were 2,679 transactions in 
FIP Floating Notes in 1997, 2,284 transactions in 1998, and 127 
transactions in the first month of 1999.\31\
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    \29\ See BDP Petition, supra note 10.
    \30\ See BDP Petition, supra note 10.
    \31\ See BDP Petition, supra note 10.
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    In light of the above data, the Commission preliminarily believes 
that the debt obligations of Portugal should be subject to the same 
regulatory treatment under the Rule as the debt obligations of the 
Designated Foreign Governments.

IV. General Request for Comments

    The Commission seeks comments on the desirability of designating 
the debt securities of Portugal as exempted securities under Rule 3a12-
8. Comments should address whether the trading or other characteristics 
of Portugal's sovereign debt warrant an exemption for purposes of 
futures trading. Commentators may wish to discuss whether there are any 
legal or policy reasons for distinguishing between Portugal and the 
Designated Foreign Governments for purposes of the Rule. The Commission 
also requests information regarding the potential impact of the 
proposed rule on the U.S. economy on an annual basis. If possible, 
commenters should provide empirical data to support their views. The 
Commission also seeks comments on the general application and operation 
of the Rule given the increased globalization of the securities markets 
since the Rule was adopted.

V. Costs and Benefits of the Proposed Amendments

    The Commission has considered the costs and benefits of the 
proposed amendment to the Rule and preliminarily believes that the 
proposed amendment offers potential benefits for U.S. investors, with 
no direct costs. If adopted, the proposed amendment would allow U.S. 
and foreign boards of trade to offer in the United States, and U.S. 
investors to trade, a greater range of futures contracts on foreign 
government debt obligations. Consistent with Congressional support for 
futures on foreign sovereign debt securities, the trading of futures on 
the sovereign debt of Portugal should provide U.S. investors with a 
vehicle for hedging the risks involved in the trading of the underlying 
sovereign debt of Portugal. The Commission does not anticipate that the 
proposed amendment would result in any direct cost for U.S. investors 
or others because the proposed amendment would impose no recordkeeping 
or compliance burdens, and merely would provide a limited purpose 
exemption under the federal securities laws. The restrictions imposed 
under the proposed amendment are identical to the restrictions 
currently imposed under the terms of the Rule and are designed to 
protect U.S. investors.
    The Commission requests comments on the costs and benefits of the 
proposed amendment to Rule 3a12-8. In particular, the Commission 
requests commentators to address whether the proposed amendment would 
generate the anticipated benefits, or impose any costs on U.S. 
investors or others.

VI. Effect of the Proposed Amendment on Competition, Efficiency and 
Capital Formation

    Section 23(a)(2) of the Exchange Act \32\ requires the Commission, 
in adopting rules under the Exchange Act, to consider the competitive 
effect of such rules, if any, and to refrain from adopting a rule that 
would impose a burden on competition not necessary or appropriate in 
furthering the purposes of the Exchange Act. Moreover, Section 3 of the 
Exchange Act,\33\ as amended by the National Securities Markets 
Improvement Act of 1996,\34\ provides that whenever the Commission is 
engaged in a rulemaking and is required to consider or determine 
whether an action is necessary or appropriate in the public interest, 
the Commission must consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition and 
capital formation.
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    \32\ 15 U.S.C. 78w(a)(2).
    \33\ 15 U.S.C. 78c.
    \34\ Pub. L. 104-290, 110 Stat. 3416 (1996).
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    In light of the standards cited in Sections 3 and 23(a)(2) of the 
Exchange Act, the Commission preliminarily believes that the proposed 
amendment to the Rule will promote efficiency, competition and capital 
formation. The proposal is intended to expand the range of financial 
products available in the United States, and will make available to 
U.S. investors an additional product to use to hedge the risks 
associated with the trading of the underlying sovereign debt of 
Portugal. Insofar as the proposed amendment contains limitations, they 
are designed to promote the purposes of the Exchange Act by ensuring 
that futures trading on government securities of Portugal is consistent 
with the goals and purposes of the federal securities laws by 
minimizing the impact of the Rule on securities trading and 
distribution in the United States.
    The Commission requests comments as to whether the amendment to the 
Rule will have any anti-competitive effects.

VII. Administrative Requirements

    Pursuant to Section 605(b) of the Regulatory Flexibility Act, 5 
U.S.C. 605(b), the Chairman of the Commission has certified that the 
amendment proposed herein would not, if adopted, have a significant 
economic impact on a substantial number of small entities. This 
certification, including the reasons therefor, is attached to this 
release as Appendix A. We encourage written comments on the 
Certification. Commentators are asked to describe the nature of any 
impact on small entities and provide empirical data to support the 
extent of the impact.
    The Paperwork Reduction Act does not apply because the proposed 
amendment does not impose recordkeeping or information collection 
requirements, or other collections of information that require the 
approval of the Office of Management and Budget under 44 U.S.C. 3501, 
et seq.

[[Page 41059]]

VIII. Statutory Basis

    The amendment to Rule 3a12-8 is being proposed pursuant to 15 
U.S.C. 78a et seq., particularly Sections 3(a)(12) and 23(a), 15 U.S.C. 
78c(a)(12) and 78w(a).

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

Text of the Proposed Amendment

    For the reasons set forth in the preamble, the Commission is 
proposing to amend Part 240 of Chapter II, Title 17 of the Code of 
Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. The authority citation for Part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77eee, 
77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78f, 78i, 78j, 78j-1, 78k, 
78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll(d), 
78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and 
80b-11, unless otherwise noted.
* * * * *
    2. Section 240.3a12-8 is amended by removing the word ``or'' at the 
end of paragraph (a)(1)(xx), removing the period at the end of 
paragraph (a)(1)(xxi) and adding ``; or'' in its place, and adding 
paragraph (a)(1)(xxii), to read as follows:


Sec. 240.3a12-8  Exemption for designated foreign government securities 
for purposes of futures trading.

    (a) * * *
    (1) * * *
    (xxii) The Republic of Portugal.
* * * * *
    Dated: July 23, 1999.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
    Note: Appendix A to the Preamble will not appear in the Code of 
Federal Regulations.

Appendix A

Regulatory Flexibility Act Certification

    I, Arthur Levitt, Jr., Chairman of the Securities and Exchange 
Commission, hereby certify, pursuant to 5 U.S.C. 605(b), that the 
proposed amendment to Rule 3a12-8 (Rule) under the Securities 
Exchange Act of 1934 (Exchange Act), which would define the 
government debt securities of the Republic of Portugal (Portugal) as 
exempted securities under the Exchange Act for the purpose of 
trading futures on such securities, will not have a significant 
economic impact on a substantial number of small entities for the 
following reasons. First, the proposed amendment imposes no record-
keeping or compliance burden in itself and merely allows, in effect, 
the marketing and trading in the United States of futures contracts 
overlying the government debt securities of Portugal. Second, 
because futures contracts on the twenty-one countries whose debt 
obligations are designated as ``exempted securities'' under the 
Rule, which already can be traded and marketed in the United States, 
still will be eligible for trading under the proposed amendment, the 
proposal will not affect any entity currently engaged in trading 
such futures contracts. Third, because those primarily interested in 
trading such futures contracts are large, institutional investors, 
neither the availability nor the unavailability of these futures 
products will have a significant economic impact on a substantial 
number of small entities, as that term is defined for broker-dealers 
in 17 CFR 240.0-10.

    Dated: July 21, 1999.
Arthur Levitt, Jr.,
Chairman.
[FR Doc. 99-19415 Filed 7-28-99; 8:45 am]
BILLING CODE 8010-01-P