[Federal Register Volume 68, Number 197 (Friday, October 10, 2003)]
[Rules and Regulations]
[Pages 58583-58587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-25298]


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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: By this Order, the Commodity Futures Trading Commission 
(``Commission'') is consolidating and updating the relief set forth in 
prior orders issued pursuant to Commission Rule 30.10 regarding the 
offer and sale of foreign futures and options contracts to customers 
located in the U.S. by firms located in the U.K. to reflect the 
substitution of the Financial Services Authority for various U.K. 
regulatory and self-regulatory organizations.

EFFECTIVE DATE: October 10, 2003.

FOR FURTHER INFORMATION CONTACT: Lawrence B. Patent, Esq., Deputy 
Director, or Andrew V. Chapin, Esq., Special Counsel, Compliance and 
Registration Section, Division of Clearing and Intermediary Oversight, 
Commodity Futures Trading Commission, 1155 21st Street, NW., 
Washington, DC, 20581. Telephone: (202) 418-5430. E-mail: 
[email protected] or [email protected], respectively.

SUPPLEMENTARY INFORMATION: The Commission has issued the following 
Order:

Order Substituting the Financial Services Authority as the Sole 
Regulatory Authority in the United Kingdom in Prior Commission Orders 
and Amending Certain Terms and Conditions

Existing Rule 30.10 Relief

    In 1989, the Commission issued a series of orders pursuant to Rule 
30.10 authorizing certain firms located in the U.K. to conduct 
brokerage activities for U.S. customers on certain non-U.S. exchanges 
without having to register with the Commission as a futures commission 
merchant or otherwise comply with certain other requirements set forth 
in Parts 1 and 30 of the Commission's rules.\1\ The Orders were issued 
to the Securities Investment Board (``SIB''), the Investment Management 
Regulatory Organisation (``IMRO''), the Association of Futures Brokers 
and Dealers (``AFBD''), and The Securities Association (``TSA'').\2\ 
The U.K. Rule 30.10 Orders applied to brokerage activities on or 
subject to the rules of Recognized Investment Exchanges (``RIES'') in 
the U.K. or any non-U.S. exchange designated by the SIB as an 
investment exchange (referred to as Designated Investment Exchanges or 
``DIEs'') undertaken by firms authorized to conduct investment business 
in the U.K. from a location in the U.K.
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    \1\ Commission rules referred to herein are found at 17 CFR Ch. 
I (2003). Rule 30.10 permits a person affected by the requirements 
contained in Part 30 of the Commission's rules to petition the 
Commission for an exemption from such requirements. Appendix A to 
the Part 30 rules provides an interpretative statement that 
clarifies that a foreign regulator or self-regulatory organization 
(``SRO'') can petition the Commission under Rule 30.10 for an order 
to permit regulatees or members to conduct business from locations 
outside the U.S. for U.S. persons on non-U.S. exchanges without 
registering as a futures commission merchant under the Commodity 
Exchange Act (``Act''), based upon the person's substituted 
compliance with a foreign regulatory structure found comparable to 
that administered by the Commission under the Act.
    \2\ 54 FR 21599 (May 9, 1989) (SIB); 54 FR 21604 (May 19, 1989) 
(AFBD); 54 FR 21609 (May 19, 1989) (TSA); 54 FR 21614 (May 19, 1989) 
(IMRO) (along with the SFA Order, collectively, the ``U.K. Rule 
30.10 Orders'').
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    Since 1989, the Commission has amended and supplemented the U.K. 
30.10 Orders to reflect changes in the U.K. regulatory structure, 
clarify the terms and conditions set forth therein, and provide related 
relief. First, effective April 1, 1991, the TSA and AFBD merged to form 
the SFA. Accordingly, the Commission issued an order acknowledging the 
substitution of SFA as a party to several ongoing information sharing 
and financial intermediary recognition arrangements entered into with 
the AFBD, TSA and SIB pursuant to Part 30 of the Commissions' rules.\3\ 
In particular, the Commission acknowledged that all confirmations of 
Rule 30.10 relief previously extended to AFBD and TSA firms remained 
effective with respect to such firms in their capacity as members of 
SFA.\4\
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    \3\ 56 FR 14017 (April 5, 1991).
    \4\ Id. at 14018.
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    Second, in 1992, the Commission issued an order commonly referred 
to as the Limited Marketing Order.\5\ The Limited Marketing Order 
permits firms that have received confirmation of Rule 30.10 relief, 
without prior notice to the Commission, to engage in limited marketing 
conduct with respect to foreign futures or option contracts within the 
U.S. through their employees or other representatives, subject to the 
terms and conditions set forth therein. As part of the Limited 
Marketing Order, the Commission confirmed that the relief set forth 
therein applied to those firms having received confirmation of relief 
under the Rule 30.10 orders issued to the SIB, SFA and IMRO.
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    \5\ 57 FR 49644 (November 3, 1992). In 1994, the Commission 
expanded the category of persons to whom qualified firms may direct 
limited marketing conduct. 59 FR 42156 (August 17, 1994).
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    Third, in 1997, the Commission clarified the procedures set forth 
in prior Rule 30.10 Orders applicable to the treatment of customer 
funds for transactions occurring on or subject to the rules of a board 
of trade located outside the jurisdiction of the recipient of the Rule 
30.10 Order. In doing so, the Commission interpreted prior Rule 30.10 
Orders to require firms having received confirmation of Rule 30.10 
relief to comply with requirements consistent with the secured amount 
requirement applicable to futures commission merchants as set forth in 
Rule 30.7.\6\ Specifically, the Commission interpreted Rule 30.7 to 
require each FCM and Rule 30.10 firm to: (a) obtain and retain in its 
files an acknowledgment from the depository maintaining customer funds 
or property that the depositor was informed that such money or property 
was held on behalf of foreign futures and foreign options customer 
funds in accordance with Rule 30.7; and (b) take appropriate action 
(i.e., set aside funds in a ``mirror'' account) in the event that it 
became aware that foreign futures and foreign options customer funds 
were not being held in the appropriate manner. With respect to the 
U.K., the Commission clarified the procedures with which SFA and IMRO 
members should comply

[[Page 58584]]

when dealing on behalf of U.S. customers on a DIE.\7\
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    \6\ Rule 30.7 requires FCMs who accept money, securities or 
property from foreign futures and foreign options customers to 
maintain in a separate account or accounts, such money, securities 
or property in an amount at least sufficient to cover or satisfy all 
of its current obligations to those customers. The separate account 
or accounts must be maintained under an account name that clearly 
identifies the funds as belonging to foreign futures and foreign 
options customers at a depository that meets the requirements of 
Rule 30.7(c).
    \7\ 62 FR 10447 (March 7, 1997) (SFA); 62 FR 10449 (March 7, 
1997) (IMRO).
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    Fourth, in 2000, the Commission further clarified the procedures 
applicable to the treatment of customer funds by FCMs and Rule 30.10 
firms. In new Appendix B to Part 30 \8\ and an order amending prior 
Rule 30.10 orders,\9\ the Commission revised its prior interpretation 
of the Rule 30.7 secured amount requirement. In particular, the 
Commission stated that, subject to an additional disclosure 
requirement, the Rule 30.7 acknowledgment only applies to the 
maintenance of the account or accounts containing foreign futures and 
foreign options customer funds by the initial depository, and not to 
the manner in which any subsequent depository holds or subsequently 
transmits those funds. Only if an FCM or Rule 30.10 firm fails to 
receive the required acknowledgment from the initial depository or 
provide the necessary disclosure statement, must it then set aside 
funds with an acceptable depository and receive from such depository 
the required acknowledgment. With respect to the U.K., the Commission 
clarified the procedures with which SFA and IMRO members should comply 
when dealing on behalf of U.S. customers on a DIE.\10\
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    \8\ 65 FR 60558 (October 11, 2000).
    \9\ 65 FR 60560 (October 11, 2000) (referred to herein as the 
``Supplemental Client Money Order'').
    \10\ 65 FR at 60563-64.
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Information Sharing

    Prior to the issuance of the U.K. Rule 30.10 Orders, the Commission 
entered into the Financial Information Sharing Memorandum of 
Understanding (``FISMOU'') with, among others, SIB, AFBD, TSA and 
IMRO.\11\ In order to facilitate the exchange of information related to 
the U.K. Rule 30.10 Orders, the Commission subsequently entered into 
the ``Addendum dated May 15, 1989 to Financial Information Sharing 
Memorandum of Understanding'' (``Addendum'') with, among others, SIB, 
AFBD, TSA and IMRO.\12\ The Commission and SIB also exchanged letters, 
referred to as the Side Letter and the Note to the Side Letter, 
regarding the continued application of a separate information sharing 
arrangement between U.S. and U.K. regulators entered into originally in 
1986.\13\
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    \11\ Dated September 1, 1988.
    \12\ See, e.g., 54 FR 21604, 21607-08.
    \13\ See, e.g., 54 FR 21604, 21608. The Side Letter and Note to 
the Side Letter referred to the 1986 Memorandum of Understanding 
Between the United States Securities and Exchange Commission and the 
United Kingdom Department of Trade and Industry in Matters Relating 
to Securities and between the United States Commodity Futures 
Trading Commission and the United Kingdom Department of Trade and 
Industry in Matters Relating to Futures (dated September 23, 1986), 
as supplemented by the Memorandum Relating to US/UK MOU (dated 
November 22, 1988), and superseded by the Memorandum of 
Understanding on Mutual Assistance and the Exchange of Information 
Between United States Securities and Exchange Commission and 
Commodity Futures Trading Commission and the United Kingdom 
Department of Trade and Industry and the Securities and Investment 
Board (dated September 25, 1991) (collectively, the ``US/UK MOU''). 
After the 1991 update to the US/UK MOU, the SIB and CFTC exchanged 
letters confirming the continued applicability of the Side Letter 
and the Note to the Side Letter. See Letters exchanged by Wendy L. 
Gramm, Chairman, Commission, and Sir David Walker, Chairman, SIB, 
dated September 25, 1991.
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Recent Changes to the U.K. Regulatory Structure

    On December 1, 2001, pursuant to the Financial Services and Markets 
Act 2000(``2000 Act''), the Financial Services Authority (``FSA''), as 
the successor organization to SIB,\14\ assumed its role as the single 
U.K. regulator directly responsible for the regulation of investment 
business, including the offer and sale of commodity futures and 
options. Prior to the enactment of the 2000 Act, the responsibility for 
supervising commodity futures markets and intermediaries rested with 
FSA and certain SROs, including the SFA and IMRO. Pursuant to the 1986 
Financial Services Act (``FSAct''), FSA regulated the U.K. financial 
markets and established general standards for investor protection. The 
SROs conferred the status of authorization for intermediaries and 
promulgated general fitness standards, financial requirements, sales 
practice rules and rules designed to ensure the integrity of the 
market. With the enactment of the 2000 Act, the responsibility for each 
of these tasks has been assumed by FSA as the single supervisory 
authority, the U.K. SROs have been wound up, and the members of these 
now-defunct organizations are deemed to have been authorized by FSA. In 
addition, the FSA Handbook replaces all prior rules and regulations 
regarding firm conduct and operations. In light of its new regulatory 
role, FSA has requested that the Commission amend the U.K. 30.10 Orders 
to reflect this change in regulatory oversight.
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    \14\ In 1977, SIB's name was formally changed to FSA as a first 
step to unite banking supervision and investment services regulation 
under one body. In 1998, banking supervision was transferred to FSA 
from the Bank of England.
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Recent Changes Under the Commodity Futures Modernization Act

    The Commission notes that the Commodity Futures Modernization Act 
\15\ amended the Act to provide the Commission greater regulatory 
flexibility to streamline and eliminate unnecessary regulation for the 
entities regulated under the Act. With this in mind, Commission staff 
has reviewed the Commission Orders issued pursuant to Rule 30.10. As 
part of this review, Commission staff has discussed with each Rule 
30.10 Order recipient how best to update, if necessary, the information 
contained in the Order, whether some or all of the terms and conditions 
of the order continue to be necessary, and whether new conditions may 
be required based upon developments in the relevant jurisdiction.
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    \15\ Pub. L. 106-554, 114 Stat. 2763 (December 21, 2000).
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    In response to Commission staff's discussion with it, FSA has 
requested further that the Commission amend certain terms and 
conditions set forth within the U.K. Rule 30.10 Orders.\16\ 
Specifically, FSA requested the following changes:
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    \16\ See Letter from Michael Folger, Director of Conduct of 
Business Standards, FSA, to Jane Kang Thorpe, Director for the 
Division of Clearing and Intermediary Oversight, dated July 24, 2003 
(``July 24 Letter''). As part of its policy to promote more 
transparency to the activities of the Commission and to permit 
affected parties to voice their support or concerns, the July 24 
Letter was posted on the Commission's Web site and interested 
parties were provided a two-week period to submit any comments. No 
comments were received.

    1. Risk Disclosure. Subsequent to the Commission issuing the 
U.K. Rule 30.10 Orders, it adopted Appendix A to Rule 1.55(c).\17\ 
In doing so, the Commission noted that the generic risk disclosure 
statement set forth in Appendix A may be used in lieu of the 
statements required by Commission Rules 1.55, Rule 33.7 and the 
special bankruptcy disclosures of Commission Rule 190.1(c).\18\ The 
Commission determined further that all firms operating pursuant to 
confirmed Rule 30.10 relief may elect to use the generic risk 
disclosure statement or the risk disclosure statements mandated by 
Commission Rules 1.55 and 33.7 and applicable Commission orders, as 
appropriate.\19\ FSA has provided DCIO with the written disclosures 
required to be provided to prospective customers pursuant to FSA 
conduct of business rules and DCIO has determined that such 
disclosures track the language set forth in the generic risk 
disclosure statement. Accordingly, FSA requested that the Commission 
exempt firms designated by FSA from compliance with the Commission's 
risk disclosure requirements as they apply to transactions under 
Part 30.
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    \17\ 59 FR 34376 (July 5, 1994).
    \18\ Id. 34378.
    \19\ Id. 34379.
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    2. Segregation of Customer Funds. At the time that the 
Commission issued the U.K. Rule 30.10 Orders, U.S. customers were 
not permitted to opt out of segregation. Accordingly, each U.K. firm 
receiving

[[Page 58585]]

confirmation of relief was required to consent to refuse U.S. 
customers the option of not segregating funds notwithstanding 
relevant provisions of the U.K. regulatory system.\20\ The Act 
recently was amended, however, to permit intermediaries conducting 
business on a derivatives transaction execution facility (``DTEF'') 
to offer any customer that is an eligible contract participant 
(``ECP'') the right to opt out of segregation for any transactions 
entered into on the DTEF. Pursuant to this authority, the Commission 
adopted Rule 1.68, which permits a DTEF to adopt rules allowing 
futures commission merchants (``FCMs'') to offer certain 
sophisticated customers the right to elect not to have funds, that 
are being carried by the FCM for purposes of margining, 
guaranteeing, or securing the customers' trades on or through a 
DTEF, separately accounted for and segregated.\21\ Given that the 
bulk of foreign futures and options activity undertaken by U.S. 
persons is conducted by sophisticated customers, FSA requested that 
the Commission authorize U.K. firms to permit U.S. customers that 
are ECPs to opt out of segregation with respect to those foreign 
futures and options transactions entered into pursuant to the 
revised Order.
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    \20\ The Part 30 Orders mandated compliance with Rule 30.7's 
secured amount requirement or foreign equivalent. The secured amount 
requirement set forth in Rule 30.7, and described more fully in 
Appendix B to Part 30, is similar to the segregation requirement set 
forth in Section 4d of the Act and rules promulgated thereunder.
    \21\ 66 FR 20740 (April 25, 2001). At the time of the 
rulemaking, the Commission determined to defer its decision whether 
to extend the choice to opt out of segregation to ECPs trading on 
designated contract markets, but noted that it may reconsider the 
issue in the future. Id. at 20743.
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    3. Bank Undertakings. Currently, each U.K. firm using an 
approved bank undertaking to meet any part of its financial 
resources requirement is subject to a notification requirement 
should the value of customer funds segregated on behalf of U.S. 
customers exceed a specified multiple of the firm's minimum 
financial requirement. If such an event were to occur, the firm 
consents to notify FSA on its quarterly financial statement to FSA, 
or at such other times as may be specified by FSA, the value of 
funds required to be segregated on behalf of U.S. customers. This 
notification requirement was designed to take into account the 
impact of bank undertakings in the context of the Commission's 
minimum financial resource requirement for futures commission 
merchants (i.e., four percent of segregated funds). FSA has 
represented that the European Union's Capital Adequacy Directive 
forbids certain regulated financial institutions, including firms 
authorized by FSA to conduct futures business and hold customer 
funds, from using bank undertakings. Accordingly, FSA requested that 
the Commission eliminate the notification requirement for firms 
using an approved bank undertaking.
    4. Regulated Markets. Currently, the scope of the U.K. Rule 
30.10 Orders is limited to foreign futures and options traded on a 
Recognized Investment Exchange (``RIE'') or a Designated Investment 
Exchange (``DIE''). As part of the European Union's (``E.U.'s'') 
attempt to create a single marketplace among all member states, the 
Investment Services Directive applicable to all E.U. members created 
a category of markets known as a Regulated Market. A Regulated 
Market is an exchange organized and operating from within one of the 
E.U. member states that has been recognized by the E.U. as meeting 
certain standards for financial integrity and customer protection. 
With the exception of the London Metal Exchange, the International 
Petroleum Exchange and EDX London, all U.K. exchanges that are RIEs 
are now also Regulated Markets within the meaning of the Investment 
Services Directive. Non-U.K. Regulated Markets have been 
progressively removed from the category of DIEs because they are 
exempt from the requirement to be authorized in order to conduct 
investment business in the U.K. The DIE classification presently 
includes only non-U.K., non-E.U. markets recognized by FSA. 
Accordingly, FSA has requested that the Commission expand the scope 
of the revised Order to include transactions executed on or subject 
to the rules of RIEs, DIEs, and Regulated Markets, subject to the 
existing limitation that an exempt firm may not intermediate 
transactions on behalf of U.S. customers on U.S. exchanges.
    Upon consideration of the foregoing, the Commission has determined 
to consolidate and amend the Orders into a single Order restating the 
terms and conditions for relief as requested by FSA. Accordingly, the 
Commission hereby:

    (1) Acknowledges that:
    (a) Pursuant to the Financial Services and Markets Act 2000, FSA 
has succeeded the SIB, SFA and IMRO as the relevant U.K. regulatory 
organization for the supervision of commodity futures and options 
transactions conducted within the U.K.;
    (b) Firms authorized under the Financial Services act 1986 are 
now authorized to carry on designated investment business under the 
Financial Services and Markets Act 2000;
    (c) Provisions made under the Financial Services Act of 1986 
have been replaced by generally equivalent provisions of the FSA 
Handbook for rules and guidance under the Financial Services and 
Markets Act 2000;
    (d) All confirmations of Rule 30.10 relief previously extended 
and then in effect by Commission staff or the National Futures 
Association (``NFA'') \22\ to SIB, SFA and IMRO firms remain 
effective with respect to such firms in their capacity as new 
regulatees of FSA;
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    \22\ See infra n.37.
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    (e) The Financial Information Sharing Memorandum of 
Understanding and related information-sharing arrangements remain 
applicable, and that firms authorized to carry on designated 
investment business by FSA shall be entitled to all of the benefits, 
subject to the remaining parties' performance of their respective 
responsibilities, including compliance with the Side Letter and Note 
to the Side Letter; and
    (f) The relief set forth previously in the Limited Marketing 
Orders and the Supplemental Client Money Order remains effective 
with respect to each firm that has received confirmation of Rule 
30.10 relief pursuant to this Order; and
    (2) Confirms that the relief granted pursuant to this Order 
extends to brokerage activities conducted on or subject to the rules 
of an RIE, DIE or Regulated Market, but does not extend to rules or 
regulations relating to trading, directly or indirectly, on U.S. 
contract markets or derivatives transaction execution facilities; 
and
    (3) Revokes the relief set forth in Orders dated May 19, 1989 
and April 5, 1991, issued previously to the now-defunct SIB (54 FR 
21599), IMRO (54 FR 21614), and SFA (56 FR 14017).

    In connection with the Rule 30.10 relief previously granted to the 
U.K. regulatory and self-regulatory organizations, Commission staff has 
issued certain no-action letters regarding the treatment of customer 
funds attributable to trading on the LME.\23\ In light of the changes 
to the U.K. regulatory program, the Commission believes that it is 
appropriate to amend these letters by substituting all prior references 
to AFBD and SFA with FSA.
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    \23\ See Letter from Andrea Corcoran, Director, Division of 
Trading and Markets, to the Hon. Christopher J. Sharples, Chairman, 
AFBD, dated October 10, 1989; Letter from Andrea Corcoran, Director, 
Division, to A.R.G. Frase, AFBD, dated June 19, 1990; Letter from 
Andrea Corcoran, Director, Division of Trading and Markets, to 
Phillip Thorpe, Chief Executive, AFBD, and Chief Designate, SFA, 
dated April 1, 1991; Letter from John C. Lawton, Acting Director, 
Division of Trading and Markets, to Alan Whiting, Executive Director 
for Regulation and Compliance, LME, dated April 3, 2000.
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    Based upon the Commission's prior determination to issue relief 
under Rule 30.10, the information provided to the Commission by FSA 
describing the recent changes to the U.K. regulatory framework, and the 
recommendation of Commission staff, the Commission has concluded that 
the standards for relief set forth in Rule 30.10 and, in particular, 
Appendix A thereof, generally have been satisfied and that compliance 
with applicable U.K. law and FSA 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 FSA as eligible 
for the relief granted herein from:

--Registration with the Commission for firms and for firm 
representatives;
--The separate account requirements 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

[[Page 58586]]

(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 which apply to transactions subject to Part 30,

based upon substituted compliance by such persons with the applicable 
statutes and regulations in effect in the U.K.
    This determination to permit substituted compliance is based on, 
among other things, the Commission's finding that the regulatory scheme 
governing persons in U.K. who would be exempted hereunder provides:

    (1) A system of qualification or authorization of firms who deal 
in transactions subject top 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 FSA if 
the firms' adjusted net capital falls below a specified level and 
daily mark-to-market settlement and/or accounting procedures;
    (3) A system for the protection of assets of appropriate 
customers that is designed to preclude the use of such customer 
assets to satisfy house obligations and requires separate accounting 
for such assets, augmented by a compensation scheme 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 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 
and FSA and the availability of related mechanisms for sharing 
monitoring information with the Commission on an ``as needed'' basis 
including, without limitation, confirmation data, data necessary to 
trace funds related to trading futures products subject to 
regulation in U.K., position data, data on firms' standing to do 
business and financial condition, and for cooperating with the 
Commission and NFA in inquiries, compliance matters, investigations 
and enforcement proceedings.

    This Order does not provide an exemption from any provision of the 
Act or rules thereunder not specified herein, for example, without 
limitation, the antifraud 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 an RIE, DIE, or a regulated Market for products 
that customers located in the U.S. may trade.\24\ The relief 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.\25\ 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.\26\ 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.\27\ 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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    \24\ See, e.g., Sections 2(a)(1)(C) and (D) of the Commodity 
Exchange Act.
    \25\ See, e.g., 17 CFR Part 18 (2000).
    \26\ See, e.g., 17 CFR Parts 17 and 21 (2000).
    \27\ See, also, CFTC Interpretative Letter 03-28 [Current 
Transfer Binder] Comm. Fut. L. Rep. (CCH) ] 29,559 (July 25, 2003) 
(no-action letter permitting a specific foreiign entity that has 
previously been granted exemption from registration by a Commission 
order issued under Rule 30.10 in connection with foreign futures and 
options to also act as an introducing broker with respect to trades 
executed on U.S. markets for U.S. institutional customers without 
registering as an introducing broker).
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    The eligibility of any firm to seek relief under this exemptive 
Order is subject to the following conditions:

    (1) The FSA must present in writing to the Commission that:
    (a) Each firm of which relief is sought is registered, licensed 
or authorized, as appropriate, and is otherwise in good standing 
under the standards in place in the U.K.; such firm is engaged in 
business with customers in the U.K. 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 89a(2) of the Act, 7 U.S.C. Sec.  
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 
the 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) It will provide the Commission with prompt notice of all 
material changes to the relevant laws in the U.K., or any rules 
promulgated thereunder;
    (d) Customers located in the U.S. will be provided no less 
stringent regulatory protection than U.K. customers under all 
relevant provisions of U.K. law; and
    (e) It will cooperate with the Commission in connection with 
information sharing pursuant to the FISMOU.
    (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 identify 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) Acknowledges that it can be required by FSA to provide to 
FSA immediate 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 the U.K. and that 
FSA will cooperate in providing access to such books and records in 
accordance with the FISMOU;
    (d) Consents that all futures and options transactions with 
respect to customers located in the U.S. will be made on or subject 
to the rules of an RIE, DIE located outside the U.S., or Regulated 
Market, and will be undertaken consistent with the Financial 
Services and Markets Act 2000 and the rules and guidance set forth 
in the FSA Handbook;
    (e) 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. Sec.  12(a)(2);
    (f) 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; 
provided, however, that the firm may require its customers resident 
in the U.S. to execute the consent attached hereto as

[[Page 58587]]

Exhibit A concerning the exhaustion of certain mediation or 
conciliation procedures made available by FSA prior to bringing an 
NFA arbitration proceeding; and provided further, that the firm must 
undertake to provide the customer with information concerning how to 
commence such procedures and documentation of the commencement of 
such procedures pursuant to the consent attached hereto as Exhibit 
A;
    (g) Consents to refuse those customers resident in the U.S. that 
do not satisfy the criteria for being an Eligible Contract 
Participant, as defined in section 1a(12) of the Commodity Exchange 
Act, 7 U.S.C. 1a(12), the option of not segregating funds 
notwithstanding relevant provisions of the U.K. regulatory system;
    (h) Consents to provide all customers resident in the U.S. no 
less stringent regulatory protection than U.K. customers under all 
relevant provisions of U.K. law; and
    (i) Undertakes to comply with the applicable provisions of U.K. 
law and FSA rules and guidance 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.\28\ 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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    \28\ 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 qualify firms.
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    Any material changes or omissions in the facts and circumstances 
pursuant to which this Order is granted might require the Commission to 
reconsider its findings that the standards for relief set forth in 
Commission Rule 30.10 and, in particular, Appendix A thereof, have 
generally been satisfied. In addition, if experience demonstrates that 
the continued effectiveness of this Order in general, or with respect 
to a particular firm, would be contrary to the public interest, or 
other circumstances to not warrant continuation of the exemptive relief 
granted therein, the Commission may condition, modify, suspend, 
terminate, withhold as to a specific firm or otherwise restrict, the 
exemptive relief granted, as appropriate on its own motion.

0
Accordingly, 17 CFR part 30 is amended as follows:

PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS

0
1. The authority citation for part 30 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 4, 6, 6c and 12a, unless otherwise 
noted.


0
2. Appendix C to part 30 is amended by:
0
A. Removing the entries for:
    Firms designated by the Securities and Investment Board;
    Firms designated by the Association of Futures Brokers and Dealers;
    Firms designated by the Securities Association; and
    Firms designated by the Investment Management Regulatory 
Organization
0
B. Adding the following entry at the end of the appendix:

Appendix C--Foreign Petitioners Granted Relief From the Application of 
Certain of the Part 30 Rules Pursuant to Sec.  30.10

* * * * *
    Firms designated by the Financial Services Authority (``FSA'').
    FR date and citation: October 10, 2003, [insert FR citation].

    Issued in Washington, DC, on September 30, 2003.
Jean A. Webb,
Secretary of the Commission.

    Note: The following Exhibit A will not appear in the Code of 
Federal Regulations.

Exhibit A--Form of Consent

    In the event that a dispute arises between you, ------------, 
and ------------ with respect to transactions subject to Part 30 of 
the Commodity Futures Trading Commission's Rules, various forums may 
be available for resolving the dispute, including courts of 
competent jurisdiction in the United States and United Kingdom and 
arbitration programs made available both in the United States and 
United Kingdom.
    In the event you wish to initiate an arbitration proceeding 
against the firm to resolve such dispute under the applicable rules 
of the National Futures Association (``NFA'') in the United States, 
you hereby consent that you will first commence conciliation in 
accordance with such procedures as may be made available by the 
relevant United Kingdom regulator, details of which are provided to 
you herewith. The outcome of such United Kingdom conciliation is non 
binding. You may subsequently accept this resolution, or you may 
proceed either to binding arbitration under the rules of the 
relevant United Kingdom regulator or to binding arbitration in the 
United States under the rules of NFA. If you accept the conciliated 
resolution or elect to proceed to arbitration, or to any other form 
of binding resolution, under the rules of the relevant United 
Kingdom regulator or foreign exchange, you will be precluded from 
subsequently initiating an arbitration proceeding at NFA.
    You may initiate an NFA arbitration proceeding upon receipt of 
documentation from the relevant United Kingdom regulator:
    (i) Evidencing completion of the conciliation process and 
reminding you of your right of access to NFA's arbitration 
proceeding, or
    (ii) Representing that more than nine months have elapsed since 
you commenced the conciliation process and that such process is not 
yet complete and reminding you of your right of access to NFA's 
arbitration proceeding.
    The documentation referred to above must be presented to NFA at 
the time you initiate the NFA arbitration proceeding. NFA will 
exercise its discretion not to accept your demand for arbitration in 
the absence of such documentation.
    By signing this consent, you are not waiving any other rights to 
any other legal remedies available under law.
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Customer Signature

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Date

[FR Doc. 03-25298 Filed 10-9-03; 8:45 am]
BILLING CODE 6351-01-M