[Federal Register Volume 71, Number 42 (Friday, March 3, 2006)]
[Notices]
[Pages 10958-10959]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-1940]


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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 Alberta Securities Commission and its 
supervision of NetThruPut, Inc., a recognized clearing agency in 
Alberta, Canada.

DATES: Effective Date: February 27, 2006.

FOR FURTHER INFORMATION CONTACT: Andrew V. Chapin, Special Counsel, 
Division of Clearing and Intermediary Oversight, Commodity Futures 
Trading Commission, 1155 21st Street, NW., Washington, DC 20581. 
Telephone: (202) 418-5430. Email: [email protected].

SUPPLEMENTARY INFORMATION: The Commission has issued the following 
Order: Order Issued Pursuant to Section 409 of the Federal Deposit 
Insurance Corporation Improvement Act Regarding the Multilateral 
Clearing Activities of NetThruPut, Inc., in Connection with 
Transactions Entered into on NTP's Online Trading Platform.
    The Commodity Futures Modernization Act (``CFMA'') 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

[[Page 10959]]

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 OTC derivative instrument 
to include any agreement, contract, or transaction exempt under 
Section 2(h) of the CEA.
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    NetThruPut, Inc. (``NTP'') has requested that the Commission 
determine that the oversight of its activities by the Alberta 
Securities Commission satisfies the criteria for operating as an MCO 
set forth in Section 409(b)(3) of FDICIA.\4\ NTP intends to operate as 
an MCO with respect to OTC derivatives transactions to be executed on 
its online trading platform. NTP's online trading platform provides 
anonymous trading of crude oil, condensate and other energy contracts.
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    \4\ Letter from Kenneth M. Raisler, Esq., Sullivan & Cromwell, 
counsel to NTP, to Jean Webb, Secretary, Commodity Futures Trading 
Commission, dated November 7, 2005, with exhibits.
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    In its request, NTP provided the Commission with a detailed 
description of the regulatory program applicable to clearing 
organizations in Alberta, Canada. NTP also provided the Commission with 
information comparing the regulatory requirements applicable to NTP and 
the regulatory requirements applicable to derivatives clearing 
organizations (``DCOs'') in the U.S.,\5\ as set forth in Section 5b of 
the CEA and Part 39 of the Commission's regulations.\6\ The Commission 
evaluated the regulatory program of the ASC in the context of the 
Principles and Objectives of Securities Regulation issued by the 
International Organization of Securities Commissions.
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    \5\ As a matter of first impression, the ASC determined to 
direct NTP to address in its application for recognition compliance 
with the fourteen Core Principles set forth under Section 5b(c)(2) 
of the CEA for registration as a DCO and to provide supporting 
documentation manifesting its compliance with the Core Principles. 
See Letter from Allan R. Twa, counsel for NTP, to the ASC, dated 
November 10, 2004 (``Recognized Clearing Agency Application--
NetThruPut Inc.'').
    \6\ See 66 FR 45604 (August 29, 2001). Part 39 of the 
Commission's regulations 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 regulations 
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 NTP's request for relief, the ASC confirmed that:
     The ASC is authorized under the Alberta Securities Act to 
supervise the clearing of financial instruments by persons located in 
Alberta, Canada, and has the ability to enforce compliance with the 
applicable laws, rules and regulations;
     Clearing in Alberta, Canada, of exchange contracts, as 
defined in the Alberta Securities Act, may be conducted only by a 
clearing agency recognized by the ASC;\7\
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    \7\ See Alberta Securities Act Section 67.
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     The clearing of contracts entered into on NTP's online 
trading platform is subject to regulatory oversight by the ASC;
     The ASC is an associate member of IOSCO, has adopted 
IOSCO's Principles and Objectives of Securities Regulation, and has 
established systems consistent with those Principles and Objectives; 
and
     The ASC has the ability and undertakes to share with the 
Commission, upon request, information in its possession regarding NTP's 
activities as a recognized clearing agency and to otherwise cooperate 
with the CFTC, subject to Alberta law.\8\
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    \8\ See Securities Act, Sections 46 and 46.1; see also the 
Freedom of Information and Protection of Privacy Act.
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    Based upon the information and materials submitted by NTP, and the 
representations made by the ASC, the Commission has determined that the 
supervision by ASC of an MCO for OTC derivatives operated by NTP 
satisfies the criteria set forth in Section 409(b)(3) of FDICIA. 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 February 27, 2006.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 06-1940 Filed 3-2-06; 8:45 am]
BILLING CODE 6351-01-P