[Federal Register Volume 67, Number 89 (Wednesday, May 8, 2002)]
[Rules and Regulations]
[Pages 30785-30788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11013]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30


Foreign Futures and Options Transactions

AGENCY: Commodity Futures Trading Commission.

ACTION: Order.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or 
``CFTC'') is granting an exemption to designated members of Eurex 
Deutschland (``Eurex'') from the application of certain of the 
Commission's foreign futures and option rules based on substituted 
compliance with certain comparable regulatory and self-regulatory 
requirements of a foreign regulatory authority consistent with 
conditions specified by the Commission, as set forth herein. This Order 
is issued pursuant to Commission Rule 30.10, which permits specified 
persons to file a petition with the Commission for exemption from the 
application of certain of the rules set forth in Part 30 and authorizes 
the Commission to grant such an exemption if such action would not be 
otherwise contrary to the public interest or to the purposes of the 
provision from which exemption is sought. By this Order, the Commission 
also confirms that members of Eurex that have received confirmation of 
the relief set forth herein may engage in limited marketing conduct 
from a non-permanent U.S. location with respect to the offer and sale 
to certain qualified customers located in the U.S. of foreign futures 
and foreign options, subject to the terms and conditions of prior 
Commission orders.

EFFECTIVE DATE: May 8, 2002.

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Esq., Associate 
Chief Counsel, Susan A. Elliott, Esq., Staff Attorney, or Andrew V. 
Chapin, Esq., Staff Attorney, Division of Trading and Markets, 
Commodity Futures Trading Commission, 1155 21st Street, NW., 
Washington, DC 20581. Telephone: (202) 418-5430.

[[Page 30786]]


SUPPLEMENTARY INFORMATION: The Commission has issued the following 
Order:
    Order Under CFTC Rule 30.10 Exempting Firms Designated by Eurex 
Deutschland (``Eurex'') From the Application of Certain of the Foreign 
Futures and Option Rules the Later of the Date of Publication of the 
Order Herein in the Federal Register or After Filing of Consents by 
Such Firms and the Regulatory or Self-Regulatory Organization, as 
Appropriate, to the Terms and Conditions of the Order Herein; and 
Confirming that Designated Members of Eurex May Engage in Limited 
Marketing Conduct With Respect to Qualified Customers Located in the 
U.S., as Set Forth in Prior Commission Orders
    Commission rules governing the offer and sale of commodity futures 
and option contracts traded on or subject to the rules of a foreign 
board of trade to customers located in the U.S. are contained in Part 
30 of the Commission's rules.\1\ These rules include requirements for 
intermediaries with respect to registration, disclosure, capital 
adequacy, protection of customer funds, recordkeeping and reporting, 
and sales practice and compliance procedures, that are generally 
comparable to those applicable to transactions on U.S. markets.
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    \1\ Commission rules referred to herein are found at 17 CFR Ch. 
I (2001).
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    In formulating a regulatory program to govern the offer and sale of 
foreign futures and option products to customers located in the U.S., 
the Commission, among other things, considered the desirability of 
ameliorating the potential extraterritorial impact of such a program 
and avoiding duplicative regulation of firms engaged in international 
business. Based upon these considerations, the Commission determined to 
permit persons located outside the U.S. and subject to a comparable 
regulatory structure in the jurisdiction in which they were located to 
seek an exemption from certain of the requirements under Part 30 of the 
Commission's rules based upon substituted compliance with the 
comparable regulatory requirements of the foreign jurisdiction.
    Appendix A to Part 30, ``Interpretative Statement With Respect to 
the Commission's Exemptive Authority Under 30.10 of Its Rules'' 
(``Appendix A''), generally sets forth the elements the Commission will 
evaluate in determining whether a particular regulatory program may be 
found to be comparable for purposes of exemptive relief pursuant to 
Rule 30.10.\2\ These elements include: (1) Registration, authorization 
or other form of licensing, fitness review or qualification of persons 
through whom customer orders are solicited and accepted; (2) minimum 
financial requirements for those persons who accept customer funds; (3) 
protection of customer funds from misapplication; (4) recordkeeping and 
reporting requirements; (5) sales practice standards; (6) procedures to 
audit for compliance with, and to take action against those persons who 
violate, the requirements of the program; and (7) information sharing 
arrangements between the Commission and the appropriate governmental 
and/or self-regulatory organization to ensure Commission access on an 
``as needed'' basis to information essential to maintaining standards 
of customer and market protection within the U.S.
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    \2\ 52 FR 28980, 29001 (August 5, 1987).
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    Moreover, the Commission specifically stated in adopting Rule 30.10 
that no exemption of a general nature would be granted unless the 
persons to whom the exemption is to be applied: (1) Submit to 
jurisdiction in the U.S. by designating an agent for service of process 
in the U.S. with respect to transactions subject to Part 30 and filing 
a copy of the agency agreement with the National Futures Association 
(``NFA''); (2) agree to provide access to their books and records in 
the U.S. to Commission and Department of Justice representatives; and 
(3) notify NFA of the commencement of business in the U.S.\3\
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    \3\ 52 FR 28980, 28981 and 29002.
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    By letter dated April 23, 2001 and subsequent correspondence 
through November 21, 2001, Eurex petitioned the Commission on behalf of 
certain firms located and doing business in Germany for an exemption 
from the application of the Commission's Part 30 rules to those firms. 
In support of its petition, Eurex states that granting such an 
exemption with respect to firms that it has authorized to conduct 
foreign futures and options transactions on behalf of customers located 
in the U.S. would not be contrary to the public interest or to the 
purposes of the provisions from which the exemption is sought because 
such firms are subject to a regulatory framework comparable to that 
imposed by the Commodity Exchange Act (``Act'') and the rules 
thereunder.
    Based upon a review of the petition, supporting materials filed by 
Eurex and the recommendation of the Commission's staff, the Commission 
has concluded that the standards for relief set forth in Rule 30.10 
and, in particular, Appendix A thereof, have generally been satisfied 
and that compliance with applicable German law and Eurex rules may be 
substituted for compliance with those sections of the Act and rules 
thereunder more particularly set forth herein.
    By this Order, the Commission hereby exempts, subject to specified 
conditions, those firms identified to the Commission by Eurex as 
eligible for the relief granted herein from: --Registration with the 
Commission for firms and for firm representatives;
--The separate account requirement contained in Commission Rule 30.7, 
17 CFR 30.7;
--The requirement in Commission Rule 30.6(a) and (d), 17 CFR 30.6(a) 
and (d), that firms provide customers located in the U.S. with the risk 
disclosure statements in Commission Rule 1.55(b), 17 CFR 1.55(b) and 
Commission Rule 33.7, 17 CFR 33.7, or as otherwise approved under 
Commission Rule 1.55(c), 17 CFR 1.55(c);
--Those sections of Part 1 of the Commission's financial rules that 
apply to foreign futures and options sold in the U.S. as set forth in 
Part 30; and
--Those sections of Part 1 of the Commission's rules relating to books 
and records that apply to transactions subject to Part 30, based upon 
substituted compliance by such persons with the applicable statutes and 
regulations in effect in Germany.
    This determination to permit substituted compliance is based on, 
among other things, the Commission's finding that the regulatory scheme 
governing persons in Germany who would be exempted hereunder provides:
    (1) A system of qualification or authorization of firms who deal in 
transactions subject to regulation under Part 30 that includes, for 
example, criteria and procedures for granting, monitoring, suspending 
and revoking licenses, and provisions for requiring and obtaining 
access to information about authorized firms and persons who act on 
behalf of such firms;
    (2) Financial requirements for firms including, without limitation, 
a requirement that all firms immediately notify Eurex if the firms' 
liable equity capital falls below a specified level and daily mark-to-
market settlement and/or accounting procedures;
    (3) A system for the protection of customer assets that is designed 
to preclude the use of customer assets to satisfy house obligations and 
requires separate accounting for such assets, augmented by a 
compensation program

[[Page 30787]]

designed to compensate customers whose assets are segregated and who 
have suffered a loss as a result of fraud and/or insolvency of a firm;
    (4) Recordkeeping and reporting requirements pertaining to 
financial and trade information including, without limitation, order 
tickets, trade confirmations, monthly customer account statements, 
customers' segregation records, accounting records for customer and 
proprietary trades and discretionary account documentation;
    (5) Sales practice standards for authorized firms and persons 
acting on their behalf that include, for example, a requirement that 
authorized persons know their customers, required disclosures to 
prospective customers and prohibitions on misleading advertising and 
improper trading activities;
    (6) Procedures to audit for compliance with, and to redress 
violations of, customer protection and sales practice requirements 
including, without limitation, an affirmative surveillance program 
designed to detect trading activities that take advantage of customers, 
and the existence of broad powers of investigation relating to sales 
practice abuses; and
    (7) Mechanisms for sharing of information between the Commission, 
the Eurex, and the relevant German regulators on an ``as needed'' basis 
including, without limitation, confirmation data, data necessary to 
trace funds related to trading futures products subject to regulation 
in Germany, position data, and data on firms' standing to do business 
and financial condition.
    This Order does not provide an exemption from any provision of the 
Act or rules thereunder not specified herein, for example, without 
limitation, the santifraud provision in Rule 30.9. Moreover, the relief 
granted is limited to brokerage activities undertaken on behalf of 
customers located in the U.S. with respect to transactions on or 
subject to the rules of Eurex for products that customers located in 
the U.S. may trade.\4\ The relief also extends to otherwise permitted 
transactions on or subject to the rules of any other non-U.S. market 
where Eurex members are authorized by Germany law to conduct brokerage 
activities.\5\ The relief, however, does not extend to rules relating 
to trading, directly or indirectly, on U.S. exchanges. For example, a 
firm trading in U.S. markets for its own account would be subject to 
the Commission's large trader reporting requirements.\6\ Similarly, if 
such a firm were carrying a position on a U.S. exchange on behalf of 
foreign clients, it would be subject to the reporting requirements 
applicable to foreign brokers.\7\ The relief herein is inapplicable 
where the firm solicits or accepts orders from customers located in the 
U.S. for transactions on U.S. markets. In that case, the firm must 
comply with all applicable U.S. laws and regulations, including the 
requirement to register in the appropriate capacity.
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    \4\ This Order granting exemptive relief does not authorize the 
offer or sale of any contract beyond the scope of the Part 30 rules 
or otherwise inconsistent with the CEA. Thus, for example, Eurex 
members may not offer or sell to U.S. customers any security futures 
product or any non-narrow-based stock index futures product. See, 
e.g., Sections 2(a)(1)(c) and (d) of the Commodity Exchange Act.
    \5\ See, e.g., 64 FR 50248, 50251 (September 16, 
1999)(permitting designated members of the Singapore Exchange 
Derivatives Trading Limited to solicit and accept from U.S. 
customers foreign futures and foreign options orders for otherwise 
permitted transactions on an exchange located outside Singapore).
    \6\ See, e.g., 17 CFR Part 18 (2001).
    \7\ See, e.g., 17 CFR Parts 17 and 21 (2001).
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    The eligibility of any firm to seek relief under this exemptive 
Order is subject to the following conditions:
    (1) The regulatory or self-regulatory organization responsible for 
monitoring the compliance of such firms with the regulatory 
requirements described in the Rule 30.10 petition must represent in 
writing to the CFTC that:
    (a) Each firm for which relief is sought is registered, licensed or 
authorized, as appropriate, and is otherwise in good standing under the 
standards in place in Germany; such firm is engaged in business with 
customers in Germany as well as in the U.S.; and such firm and its 
principals and employees who engage in activities subject to Part 30 
would not be statutorily disqualified from registration under Section 
8a(2) of the Act, 7 U.S.C. 12(a)(2);
    (b) It will monitor firms to which relief is granted for compliance 
with the regulatory requirements for which substituted compliance is 
accepted and will promptly notify the Commission or NFA of any change 
in status of a firm that would affect its continued eligibility for the 
exemption granted hereunder, including the termination of its 
activities in the U.S.;
    (c) All transactions with respect to customers located in the U.S. 
will be made on or subject to the rules of Eurex and the Commission 
will receive prompt notice of all material changes to the relevant laws 
in Germany, any rules promulgated thereunder and Eurex rules;
    (d) Customers located in the U.S. will be provided no less 
stringent regulatory protection than German customers under all 
relevant provisions of German law; and
    (e) It will cooperate with the Commission with respect to any 
inquiries concerning any activity subject to regulation under the Part 
30 rules, including sharing the information specified in Appendix A on 
an ``as needed'' basis and will use its best efforts to notify the 
Commission if it becomes aware of any information that in its judgment 
affects the financial or operational viability of a member firm doing 
business in the U.S. under the exemption granted by this Order.
    (2) Each firm seeking relief hereunder must represent in writing 
that it:
    (a) Is located outside the U.S., its territories and possessions, 
and where applicable, has subsidiaries or affiliates domiciled in the 
U.S. with a related business (e.g., banks and broker/dealer affiliates) 
along with a brief description of each subsidiary's or affiliate's 
identity and principal business in the U.S.;
    (b) Consents to jurisdiction in the U.S. under the Act by filing a 
valid and binding appointment of an agent in the U.S. for service of 
process in accordance with the requirements set forth in Rule 30.5;
    (c) Agrees to provide access to its books and records related to 
transactions under Part 30 required to be maintained under the 
applicable statutes and regulations in effect in Germany upon the 
request of any representative of the Commission or U.S. Department of 
Justice at the place in the U.S. designated by such representative, 
within 72 hours, or such lesser period of time as specified by that 
representative as may be reasonable under the circumstances after 
notice of the request;
    (d) Has no principal, or employee who solicits or accepts orders 
from customers located in the U.S., who would be disqualified from 
directly applying to do business in the U.S. under Section 8a(2) of the 
Act, 7 U.S.C. 12(a)(2);
    (e) Consents to participate in any NFA arbitration program that 
offers a procedure for resolving customer disputes on the papers where 
such disputes involve representations or activities with respect to 
transactions under Part 30, even in circumstances where the claim 
involves a matter arising primarily out of delivery, clearing, 
settlement or floor practices, and consents to notify customers located 
in the U.S. of the availability of such a program;

[[Page 30788]]

    (f) Consents to refuse customers resident in the U.S. the option of 
not segregating funds notwithstanding relevant provisions of the German 
regulatory system and otherwise consents to provide all customers 
resident in the U.S. no less stringent regulatory protection than 
German customers under all relevant provisions of German law; and
    (g) Undertakes to comply with the applicable provisions of German 
laws and Eurex rules that form the basis upon which this exemption from 
certain provisions of the Act and rules thereunder is granted.
As set forth in the Commission's September 11, 1997 Order delegating to 
NFA certain responsibilities, the written representations set forth in 
paragraph (2) shall be filed with NFA.\8\ Each firm seeking relief 
hereunder has an ongoing obligation to notify NFA should there be a 
material change to any of the representations required in the firm's 
application for relief.
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    \8\ 62 FR 47792, 47793 (September 11, 1999). Among other duties, 
the Commission authorized NFA to receive requests for confirmation 
of Rule 30.10 relief on behalf of particular firms, to verify such 
firms' fitness and compliance with the conditions of the appropriate 
Rule 30.10 Order and to grant exemptive relief from registration to 
qualifying firms.
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    The Commission also confirms that Eurex members that receive 
confirmation of relief set forth herein may engage in limited marketing 
conduct with respect to certain qualified customers located in the U.S. 
from a non-permanent location in the U.S., subject to the terms and 
conditions set forth in prior Commission Orders.\9\ The Commission 
notes that any firm and their employees or other representatives which 
engage in marketing conduct pursuant to this relief are deemed to have 
consented to the Commission's jurisdiction over such marketing 
activities by their filing of a valid and binding appointment of an 
agent in the U.S. for service of process.
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    \9\ See 57 FR 49644 (November 3, 1992)(permitted limited 
marketing of foreign futures and foreign options products to certain 
governmental and institutional customers located in the U.S.); 59 FR 
42156 (August 17, 1994)(expanding the relief set forth in the 1992 
release to conduct directed towards ``accredited investors'', as 
defined in the Securities and Exchange Commission's Regulation D 
issued pursuant to the Securities Act of 1933).
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    This Order will become effective as to any designated Eurex member 
firm the later of the date of publication of the Order in the Federal 
Register or the filing of the consents set forth in paragraph (2). Upon 
filing of the notice required under paragraph (1)(b) as to any such 
firm, the relief granted by this Order may be suspended immediately as 
to that firm. That suspension will remain in effect pending further 
notice by the Commission, or the Commission's designee, to the firm and 
Eurex.
    This Order is issued pursuant to Rule 30.10 based on the 
comparability representations made and supporting material provided to 
the Commission and the recommendation of the staff, and is made 
effective as to any firm granted relief hereunder based upon the 
filings and representations of such firms required hereunder. Any 
material changes or omissions in the facts and circumstances pursuant 
to which this Order is granted might require the Commission to 
reconsider its finding that the standards for relief set forth in Rule 
30.10 and, in particular, Appendix A, have generally been satisfied. 
Further, if experience demonstrates that the continued effectiveness of 
this Order in general, or with respect to a particular firm, would be 
contrary to public policy or the public interest, or that the systems 
in place for the exchange of information or other circumstances do not 
warrant continuation of the exemptive relief granted herein, the 
Commission may condition, modify, suspend, terminate, withhold as to a 
specific firm, or otherwise restrict the exemptive relief granted in 
this Order, as appropriate, on its own motion.
    The Commission will continue to monitor the implementation of its 
program to exempt firms located in jurisdictions generally deemed to 
have a comparable regulatory program from the application of certain of 
the foreign futures and option rules and will make necessary 
adjustments if appropriate.

    Issued in Washington, DC on April 29, 2002.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 02-11013 Filed 5-7-02; 8:45 am]
BILLING CODE 6351-01-P