[Federal Register Volume 68, Number 130 (Tuesday, July 8, 2003)]
[Rules and Regulations]
[Pages 40498-40500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17145]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30


Foreign Futures and Foreign Options Transactions

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'' 
or ``CFTC'') is adopting amendments to Rule 30.5, which provides an 
exemption from registration for firms located outside the U.S. that, 
with regard to foreign futures and options, are acting in a capacity 
that requires registration, other than registration as a futures 
commission merchant. The amendments being adopted herein are necessary 
to facilitate the ongoing program of converting from a paper-based 
registration system to online registration. Currently, pursuant to Rule 
30.5, firms that qualify for the exemption under the rule must file a 
petition for exemption with the National Futures Association and 
designate an agent for service of process in the U.S. The amendments 
being adopted herein facilitate the electronic submission of petitions 
for exemptions under Rule 30.5 through the online registration system 
and are technical in nature.

EFFECTIVE DATE: July 8, 2003.

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Deputy Director, 
Compliance and Registration Section, Division of Clearing and 
Intermediary Oversight, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581. 
Telephone: (202) 418-5439.

SUPPLEMENTARY INFORMATION:

I. Background

    Commission Rule 30.5 provides an exemption from the registration 
requirement for any person located outside the U.S. who is required to 
be registered with the Commission under part 30 of the Commission's 
rules, other than a person required to register as a futures commission 
merchant (``FCM'')--i.e., an introducing broker (``IB''), commodity 
pool operator (``CPO''), or commodity trading advisor (``CTA'').\1\ 
Pursuant to Rule 30.5, any person seeking exemption from registration 
under the rule must designate an agent for service of process in the 
U.S. and submit a petition for exemption to the National Futures 
Association (``NFA''). The designated agent must be the FCM located in 
the U.S. through which business is done, any registered futures 
association (currently NFA is the only registered futures association), 
or any person located in the U.S. in the business of providing services 
as an agent for service of process.
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    \1\ Commission rules referred to herein may be found at 17 CFR 
Ch. I (2002).
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    In June 2002, NFA implemented an electronic online registration 
system (``ORS'') to replace a paper-based registration system. As part 
of the ongoing program of updating the registration process, NFA has 
submitted to the Commission for its approval, pursuant to Section 17(j) 
of the Commodity Exchange Act (the ``Act''),\2\ amendments to NFA 
registration rules that would require applicants seeking exemption 
pursuant Commission Rule 30.5 to file such petitions electronically 
through ORS. On July 1, 2003, the Commission approved these amendments 
to the NFA registration rules.
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    \2\ 7 U.S.C. 1 et seq. (2000).
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    The addition of the Rule 30.5 exemption to NFA's ORS should 
streamline the exemption process and provide a quicker and easier way 
for persons to provide NFA with the required information and enable NFA 
to process this information more efficiently and confirm exemption from 
registration pursuant to Rule 30.5 more quickly. Additionally, 
information on persons exempt from registration pursuant to Rule 30.5 
should be more readily accessible by the public, NFA, and the 
Commission.

II. The Rule Amendments

    Under the ORS, persons submitting a petition for exemption from 
registration pursuant to Rule 30.5 will file a Form 7-R. When a person 
indicates that it wishes to process a Part 30 exemption application, 
the ORS will follow the applicable ``path'' of the online Form 7-R, 
requiring the person to submit the information required by Rule 30.5. 
Currently, Rule 30.5 does not require a petition for exemption to be 
completed on a particular form, but instead requires the petition to be 
in writing and sets forth the information that must be included in the 
petition. The Commission is amending Rule 30.5 to make clear that a 
petition for exemption must be filed on a Form 7-R completed in 
accordance with the instructions therein.
    Current Rule 30.5 provides the postal address where the petition 
should be submitted to NFA. As the petition will now be submitted 
through the ORS, it is unnecessary to include the postal address in the 
rule.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \3\ requires that 
agencies, in proposing rules, consider the impact of those rules on 
small businesses. The rule amendments being adopted herein will not 
place any additional burdens since all persons seeking the exemption 
provided for pursuant to Rule 30.5 are already subject to the filing 
requirements of Rule 30.5. To the contrary, the amendments will help to 
streamline and simplify the current exemption procedures. Accordingly, 
the Chairman, on behalf of the Commission, certifies pursuant to 
Section 3(a) of the RFA \4\ that the proposed rules will not have a 
significant economic impact on a substantial number of small entities.
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    \3\ 5 U.S.C. 601 et seq.
    \4\ 5 U.S.C. 605(b).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \5\ imposes certain 
requirements on federal agencies (including the Commission) in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA. The rule amendments do not require a 
new collection of information on the part of any entities subject to 
the proposed rule amendments. Accordingly, for purposes of the PRA, the 
Commission certifies that these rule amendments will not impose any new 
reporting or recordkeeping requirements. The Commission has submitted 
hard copies of how the new Form 7-R path will appear in the electronic 
registration system to the Office of Management and Budget.
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    \5\ 44 U.S.C. 3501 et seq.
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C. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its action before issuing a new regulation under 
the Act. By its terms, section 15(a) does not require the Commission to 
quantify the costs and benefits of a new regulation or to determine 
whether the benefits of the proposed regulation outweigh its costs. 
Rather, section 15(a) simply requires the Commission to ``consider the 
costs and benefits'' of its action.
    Section 15(a) further specifies that costs and benefits shall be 
evaluated in light of five broad areas of market and

[[Page 40499]]

public concern: Protection of market participants and the public; 
efficiency, competitiveness, and financial integrity of futures 
markets; price discovery; sound risk management practices; and other 
public interest considerations. Accordingly, the Commission could in 
its discretion give greater weight to any one of the five enumerated 
areas and could in its discretion determine that, notwithstanding its 
costs, a particular rule was necessary or appropriate to protect the 
public interest or to effectuate any of the provisions or to accomplish 
any of the purposes of the Act.
    These amendments are intended to facilitate a streamlined exemption 
process that would result in quicker processing of petitions. The 
Commission is considering the costs and benefits of these rules in 
light of the specific provisions of section 15(a) of the Act:
    1. Protection of market participants and the public. While the 
amendments are expected to lessen the burden imposed upon persons 
submitting petitions for exemption, they do not affect the requirements 
to qualify for the exemption. Accordingly, they should have no effect 
on the Commission's ability to protect market participants and the 
public.
    2. Efficiency and competition. The amendments are expected to 
benefit efficiency and competition by more quickly facilitating entry 
into the industry and by enabling information to be collected and made 
available in a more timely manner.
    3. Financial integrity of futures markets and price discovery. The 
amendments should have no effect, from the standpoint of imposing costs 
or creating benefits, on the financial integrity or price discovery 
function of the futures and options markets.
    4. Sound risk management practices. The amendments being adopted 
herein should have no effect on the risk management practices of the 
futures and options industry.
    5. Other public interest considerations. The amendments, in 
facilitating the ongoing program of building an online registration 
system, are expected to result in a system that is easier to use and 
more efficient in its processing exemption applications. Additionally, 
the system should permit more information about persons exempt from 
registration pursuant to Rule 30.5 be readily accessible by the public 
more quickly.
    After considering these factors, the Commission has determined to 
adopt the amendments discussed above.

D. Administrative Procedure Act

    The Commission has determined that the amendments discussed herein 
relate solely to agency organization, procedure, and practice. 
Accordingly, the provisions of the Administrative Procedure Act that 
generally require notice of proposed rulemaking and that provide other 
opportunities for public participation are not applicable.\6\ The 
Commission further finds that, because the amendments relieve a 
restriction, in so far as they provide for a process that will make the 
submission of a petition for exemption under Rule 30.5, and the 
subsequent confirmation of such exemption, quicker and more efficient, 
and the amendments have no adverse effect upon a member of the public, 
there is good cause to make it effective less than thirty days after 
publication in the Federal Register.\7\
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    \6\ 5 U.S.C. 553(b)(3)(A).
    \7\ See 5 U.S.C. 553(d).
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List of Subjects in 17 CFR Part 30

    Commodity futures, consumer protection, fraud.

0
For the reasons discussed in the foregoing, the Commission hereby 
amends Chapter I of Title 17 of the Code of Federal Regulations as 
follows:

PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

0
1. The authority citation for Part 30 is revised to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise 
noted.

0
2. Section 30.5 is amended as follows:
0
a. By revising the introductory text;
0
b. By revising paragraph (a);
0
c. By revising paragraph (b); and
0
d. By removing paragraph (e).
    The revisions 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 with the National 
Futures Association a Form 7-R completed and filed in accordance with 
the instructions thereto and designating an agent for service of 
process, as specified below. A person who receives confirmation of an 
exemption pursuant to this section must engage in all transactions 
subject to regulation under Part 30 through a registered futures 
commission merchant or a foreign broker who has received confirmation 
of an exemption pursuant to Sec.  30.10 in accordance with the 
provisions of Sec.  30.3(b).
    (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 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 National Futures Association. For the purposes 
of this section, the term ``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.
    (b) Termination of agreement. Whenever the agreement referred to in 
paragraph (a) of this section is terminated or is otherwise no longer 
in effect, the futures commission merchant or any other person that is 
party to the agreement shall immediately notify the National Futures 
Association and the futures commission merchant through which business 
is done, as appropriate. Upon notice, a futures commission merchant 
shall not accept from the person that has entered into such agreement 
any order, other than liquidating order(s), for, or on behalf of

[[Page 40500]]

a foreign futures or foreign options customer. Notwithstanding the 
termination of the agreement referred to in paragraph (a) of this 
section, 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 the agreement shall nonetheless constitute valid 
and effective service or delivery upon such person with respect to any 
transaction entered into on or before the date of the termination of 
the agreement.
* * * * *

    Issued in Washington, DC, on July 1, 2003, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 03-17145 Filed 7-7-03; 8:45 am]
BILLING CODE 6351-01-P