[Federal Register Volume 67, Number 12 (Thursday, January 17, 2002)]
[Notices]
[Pages 2419-2420]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-1205]


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COMMODITY FUTURES TRADING COMMISSION


Recognition of Multilateral Clearing Organizations

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice and order.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
issuing an Order pursuant to section 409(b)(3) of the Federal Deposit 
Insurance Corporation Improvement Act (``FDICIA''). Section 409 
provides that the Commission (or one of several other authorized U.S. 
financial regulators) may determine that the supervision by a foreign 
financial regulator of a multilateral clearing organization for over-
the-counter derivative instruments satisfies appropriate standards. The 
Commission is issuing this Order pursuant to section 409(b)(3) of 
FDICIA with respect to the Norwegian Banking, Insurance and Securities 
Commission and its supervision of NOS Clearing ASA, a Norwegian 
clearing house.

EFFECTIVE DATE: January 11, 2002.

FOR FURTHER INFORMATION CONTACT: Andrew V. Chapin, Staff Attorney, 
Division of Trading and Markets, Commodity Futures Trading Commission, 
1155 21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5430.

SUPPLEMENTARY INFORMATION: The Commission has issued the following 
Order:

[[Page 2420]]

Order Issued Pursuant to Section 409 of the Federal Deposit 
Insurance Corporation Improvement Act Regarding the Multilateral 
Clearing Activities of NOS Clearing ASA in Connection With 
Transactions Entered Into on the International Maritime Exchange

    On December 21, 2000, the President signed into law the Commodity 
Futures Modernization Act (``CFMA''), which substantially revised the 
Commodity Exchange Act (``CEA'') and other federal statutes, including 
FDICIA.\1\ In particular, new section 409 of FDICIA provides that a 
clearing organization may operate a multilateral clearing organization 
(``MCO'') \2\ for over-the-counter derivatives instruments (``OTC 
derivatives'') \3\ if, among other alternatives, it is supervised by a 
foreign financial regulator that the Comptroller of the Currency, the 
Board of Governors of the Federal Reserve System, the Federal Deposit 
Insurance Corporation, the Securities and Exchange Commission, or the 
Commission, as applicable, has determined satisfies appropriate 
standards.
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    \1\ See Appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).
    \2\ Section 408(1) of FDICIA defines MCO to mean ``a system 
utilized by more than [two] participants in which the bilateral 
credit exposures of participants arising from the transactions 
cleared are effectively eliminated and replaced by a system of 
guarantees, insurance, or mutualized risk of loss.''
    \3\ Section 408(2) of FDICIA defines over-the-counter derivative 
instrument to include any agreement, contract, or transaction exempt 
under section 2(h) of the CEA.
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    NOS Clearing ASA (``NOS'') has requested that the Commission 
determine that the oversight of its activities by the Norwegian 
Banking, Insurance and Securities Commission (``BISC'') satisfies the 
criteria for operating as an MCO set forth in section 409(b)(3) of 
FDICIA.\4\ NOS intends to operate as an MCO with respect to OTC 
derivatives transactions to be executed on the International Maritime 
Exchange (``IMAREX'').\5\ IMAREX operates an electronic trading 
facility for cash-settled futures contracts for the transportation of 
maritime freight.
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    \4\ Letter from Joshua M. Cohn, Esq., Allen & Overy, counsel to 
NOS, to Jean Webb, Secretary, Commodity Futures Trading Commission, 
dated December 21, 2001, with exhibits.
    \5\ IMAREX filed a notification with the Commission indicating 
its intent to operate an electronic trading facility in reliance on 
the exemption set forth in section 2(h)(3) of the CEA. In accordance 
with the notification requirement applicable to section 2(h)(3) 
electronic trading facilities, IMAREX identified NOS as the MCO to 
which IMAREX will transmit transaction data for the purpose of 
facilitating clearance and settlement of transactions. IMAREX 
commenced trading on November 2, 2001.
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    In its request, NOS provided the Commission with a detailed 
description of the Norwegian regulatory program applicable to clearing 
organizations along with English translations of the relevant Norwegian 
statutes and regulations. NOS also provided the Commission with 
information comparing the regulatory requirements applicable to NOS and 
the regulatory requirements applicable to derivatives clearing 
organizations (``DCOs'') in the U.S., as set forth in Part 39 of the 
Commission's rules.\6\ The Commission also evaluated the oversight 
activities undertaken by BISC in the context of the Principles and 
Objectives of Securities Regulation issued by the International 
Organization of Securities Commissions.
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    \6\ See 66 FR 45604 (August 29, 2001). Part 39 of the 
Commission's rules stipulates the form and provides guidance for 
what should be included in applications for DCO registration. Part 
39 also addresses ongoing compliance by DCOs with the core 
principles and other provisions of the CEA and rules thereunder. The 
guidance set forth in Part 39 merely illustrates the manner in which 
a clearing organization may meet a core principle and is not 
intended to be a mandatory checklist.
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    In support of NOS's request for relief, BISC confirmed that:
     BISC is authorized under the Norwegian Securities Trading 
Act and the Financial Supervision Act to supervise the clearing of 
financial instruments by persons located in Norway and has the ability 
to enforce compliance with the applicable laws, rules and 
regulations;\7\
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    \7\ See Act on Securities Trading, No. 79 of 19 June 1997 
(``Securities Trading Act''); Act on the Supervision of Credit 
Institutions, Insurance Companies and Securities Trading of 1956 
(``Financial Supervision Act''), paragraph 1 No. 13.
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     Clearing in Norway of financial derivatives, including 
commodity derivatives, as defined in the Securities Trading Act,\8\ as 
well as financial forward contracts, options or swaps, may be conducted 
only by a clearing house with authorization from the Norwegian Ministry 
of Finance, and NOS Clearing ASA has received such authorization;
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    \8\ See Securities Trading Act, section 1-2 paragraph 2 No. 8.
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     Trading on IMAREX that is cleared by NOS is subject to 
regulatory oversight by BISC;
     BISC is a member of IOSCO, has adopted IOSCO's Principles 
and Objectives of Securities Regulation, and has established systems 
consistent with those Principles and Objectives; and
     BISC has the ability and undertakes to share with the 
Commodity Futures Trading Commission, upon request, information in its 
possession regarding U.S. persons using NOS as a clearing facility in 
connection with contracts listed for trading on IMAREX and to otherwise 
cooperate with the CFTC, subject to Norwegian law.\9\
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    \9\ See Act of 10 February 1967 Relating to Procedure in Cases 
Concerning the Public Administration; Act of 19 June 1970 no. 69 on 
Public Access to Documents in the Public Administration; Financial 
Supervision Act.
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    Based upon the information and materials submitted by NOS, and the 
representations made by BISC, the Commission has determined that the 
supervision by BISC of an MCO for OTC derivatives operated by NOS 
satisfies the criteria set forth in section 409(b)(3) of FDICIA. The 
Commission has not, however, made any independent investigation or 
assessment of the Norwegian regulatory program applicable to NOS and 
its clearing activities. Any material changes or omissions in the facts 
and circumstances pursuant to which this Order is issued might require 
the Commission to reconsider this matter.

    Issued in Washington, DC on January 11, 2002.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 02-1205 Filed 1-16-02; 8:45 am]
BILLING CODE 6351-01-M