[Federal Register Volume 76, Number 247 (Friday, December 23, 2011)]
[Rules and Regulations]
[Pages 80674-80723]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31637]



[[Page 80673]]

Vol. 76

Friday,

No. 247

December 23, 2011

Part VI





 Commodity Futures Trading Commission





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17 CFR Part 48





 Registration of Foreign Boards of Trade; Final Rule

  Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / 
Rules and Regulations  

[[Page 80674]]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 48

RIN 3038-AD19


Registration of Foreign Boards of Trade

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is issuing final rules to implement new statutory provisions enacted by 
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act (Dodd-Frank Act). On November 19, 2010, the Commission requested 
comment on proposed rules that would establish a registration 
requirement that applies to foreign boards of trade (FBOT) that wish to 
provide their identified members or other participants located in the 
United States with direct access to their electronic trading and order 
matching systems. After reviewing the comments submitted in response to 
the proposed rules, the Commission has determined to issue these final 
FBOT registration rules substantially as originally proposed, with 
certain modifications.

DATES: Effective Date--February 21, 2012.

FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Senior Special 
Counsel, (202) 418-5492, [email protected], or David Steinberg, 
Special Counsel, (202) 418-5102, [email protected], Division of 
Market Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
    A. Introduction
    B. Foreign Boards of Trade and Direct Access
    1. History of the No-action Process
    2. Commission Determination To Adopt Formal Registration Rules
    3. Overview of NPRM
II. Summary of Comments
    A. General Comments
    B. Specific Comments
    1. Application for Registration
    a. Treatment of FBOTs With Existing No-action Relief
    (i). Grandfathering and the Scope of the Limited Application
    (ii). 120 Days To File Limited Application
    (iii). Treatment of FBOTs That Have Not Obtained No-action 
Relief
    b. Timeliness of Commission Review of an Application
    2. Standard of Review
    a. Need for Registration
    b. Foreign Supervision and the Comparable, Comprehensive 
Determination
    (i). Consideration of the Totality of Regulation
    (ii). Comparability Reviews
    (iii). Limitations of Comparability Reviews
    (iv). Reconfirmation and Withdrawal of Registration
    c. International Standards
    d. Clearing Standards
    (i). DCOs
    (ii). RCCPs Standards for Non-DCOs
    e. Foreign Regulation of FBOT Participants
    3. Contracts
    a. Linked Contracts
    (i) Definition
    (ii). Conditions
    b. Swaps and Other Contracts
    (i). Swaps
    (ii). Clearing of Swaps
    (iii). Swaps Data Reporting
    (iv). Contracts Other Than Futures, Options and Swaps
    (v). Review of Contracts
    4. Direct Access Definition
    5. Scope of Registration (i.e., CEA Sections 5 and 5a)
    6. Registration Requirements and Conditions
    a. Trading Rules
    b. Information Sharing
    c. Submission of U.S.-Domiciled Entities to Service of Process
    7. Modification of Registration Requirements
    8. Other Concerns
    a. Prescriptive Nature of the Regulations
    b. Alternative Trading Platforms
    c. Impact of FBOT Registration Rules
    9. On-going Review of Registered FBOTs
    10. The Appendix
III. Conclusion and Effective Date
    A. Conclusion
    B. Effective Date
IV. Related Matters
    A. Paperwork Reduction Act
    B. Cost Benefit Considerations
    C. Regulatory Flexibility Act

I. Background

A. Introduction

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\1\ 
Title VII of the Dodd-Frank Act \2\ amended the Commodity Exchange Act 
(CEA or the Act) \3\ to establish a comprehensive new regulatory 
framework for swaps and security-based swaps. The legislation was 
enacted to reduce risk, increase transparency, and promote market 
integrity within the financial system by, among other things: (1) 
Providing for the registration and comprehensive regulation of swap 
dealers and major swap participants; (2) imposing clearing and trade 
execution requirements on standardized derivative products; (3) 
creating robust recordkeeping and real-time reporting regimes; and (4) 
enhancing the Commission's rulemaking and enforcement authorities with 
respect to, among others, all registered entities and intermediaries 
subject to the Commission's oversight.
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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
    \2\ Pursuant to section 701 of the Dodd-Frank Act, Title VII may 
be cited as the ``Wall Street Transparency and Accountability Act of 
2010.''
    \3\ 7 U.S.C. 1 et seq.
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    Section 738 of the Dodd-Frank Act amended CEA section 4(b) to 
provide that the Commission may adopt rules and regulations requiring 
FBOTs that wish to provide their members or other participants located 
in the United States with direct access to the FBOT's electronic 
trading and order matching system to register with the Commission. 
Direct access is defined in the statute as an explicit grant of 
authority by an FBOT to an identified member or other participant 
located in the U.S. to enter trades directly into the FBOT's trade 
matching system.\4\ CEA section 4(b) also authorizes the Commission to 
promulgate rules and regulations prescribing procedures and 
requirements applicable to the registration of such FBOTs.
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    \4\ Direct access is defined in CEA section 4(b)(1)(A).
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    Accordingly, on November 19, 2010, the Commission published a 
notice of proposed rulemaking that set forth proposed regulations that 
would establish a registration requirement and related registration 
procedures and conditions applicable to FBOTs that wish to provide 
their members or other participants located in the United States with 
direct access to their electronic trading and order matching system 
(NPRM).\5\ The Commission requested comment on all aspects of the 
proposed regulations. After thoroughly reviewing the comments submitted 
in response to the NPRM, the Commission has determined to issue these 
final rules which are substantially the same as those proposed, with 
some modifications made in response to certain of the comments received 
and with a partially revised format, as discussed below.
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    \5\ See Registration of Foreign Boards of Trade, 75 FR 70974 
(November 19, 2010).
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B. Foreign Boards of Trade and Direct Access

1. History of the No-action Process
    Since 1996, FBOT requests to provide members and other participants 
that are located in the U.S. with direct access to their electronic 
trading and order matching systems have been addressed

[[Page 80675]]

by Commission staff in accordance with the no-action process set forth 
in Commission regulation 140.99.\6\ Specifically, such FBOTs seeking to 
provide direct access to members and participants located in the U.S. 
have requested, and, where appropriate, received from the relevant 
division of the Commission, a no-action letter in which division staff 
represents that, provided the FBOT satisfies the conditions set forth 
therein, the division will not recommend that the Commission institute 
enforcement action against the FBOT for failure to register as a 
designated contract market (DCM) or derivatives transaction facility 
(DTEF). Since 1996, Commission staff has issued 24 direct access no-
action relief letters (formerly referred to as foreign terminal no-
action relief letters) to FBOTs, 20 of which remain active.\7\ A 
detailed discussion of the history and evolution of the FBOT no-action 
process and the scope of the relief provided can be found in the 
NPRM.\8\
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    \6\ See, e.g., CFTC Letter No. 96-28 (February 29, 1996). 
Commission regulation 140.99 defines the term ``no-action letter'' 
as a written statement issued by the staff of a Division of the 
Commission or of the Office of the General Counsel that it will not 
recommend enforcement action to the Commission for failure to comply 
with a specific provision of the Act or of a Commission rule, 
regulation or order if a proposed transaction is completed or a 
proposed activity is conducted by the beneficiary.
    \7\ One no-action relief letter was superseded and three were 
revoked when the FBOTs ceased operations as regulated or recognized 
markets. Currently, 14 of the FBOTs with active no-action relief 
report volume originating from the U.S. via direct access.
    \8\ 75 FR 70974-76.
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    While the no-action process has served a useful purpose, the 
Commission, given the new authority provided by Congress in the Dodd-
Frank Act to promulgate registration requirements applicable to FBOTs 
that provide direct access, has determined to replace the staff no-
action process with generally applicable Commission regulations.
2. Commission Determination To Adopt Formal Registration Rules
    In determining to adopt formal registration rules for FBOTs, the 
Commission has also considered that the no-action process is generally 
better suited for discrete, unique factual circumstances and for 
situations where neither the CEA nor the Commission's regulations 
address the issue presented. The Commission has determined that, where 
the same type of relief is being granted on a regular and recurring 
basis, as it has been with respect to permitting FBOTs to provide 
direct access to their trading systems to specified members and other 
participants that are located in the U.S., it is no longer appropriate 
to handle requests for the relief through the no-action process. 
Rather, such matters should be addressed in generally applicable 
registration regulations.
    By implementing uniform application procedures and registration 
requirements and conditions, the process by which FBOTs are permitted 
to provide members and other participants located in the United States 
with direct access to their trading systems will become more 
standardized and more transparent to both registration applicants and 
the general public and will promote fair and consistent treatment of 
all applicants. Further, generally applicable regulations will provide 
greater legal certainty for FBOTs providing direct access than the no-
action relief process because no-action letters are issued by the staff 
and are not binding on the Commission. The Commission also notes that 
an FBOT registration regime will be more consistent with the statutory 
authority pursuant to which other countries, including the United 
Kingdom, Australia, Singapore, Japan and Germany, among others, permit 
U.S.-based DCMs to provide direct access internationally.
    Accordingly, for the reasons noted above and pursuant to the new 
authority provided by amended CEA section 4(b), the Commission has 
determined to adopt FBOT registration regulations. The final rules will 
replace the existing policy of accepting and reviewing requests for no-
action relief to permit an FBOT to provide for direct access to its 
trading system with a requirement that an FBOT seeking to provide such 
access must apply for and be granted registration with the 
Commission.\9\
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    \9\ In 2006, the Commission issued a Policy Statement in which 
it endorsed the no-action process for FBOTs that want to provide 
direct access to their trading systems to U.S.-based participants. 
Boards of Trade Located Outside of the United States and No-Action 
Relief From the Requirement To Become A Designated Contract Market 
or Derivatives Transaction Execution Facility, 71 FR 64843 (Nov. 2, 
2006) (Policy Statement). With the exception of the Commission's 
endorsement of the use of no-action relief to permit direct access, 
which is superseded by this final rule, the Policy Statement remains 
effective.
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3. Overview of NPRM
    As noted above, on November 19, 2010, the Commission published a 
NPRM in which it proposed regulations that would require FBOTs that 
wish to provide their members or other participants located in the U.S. 
with direct access to the FBOT's electronic trading and order matching 
system to become registered with the Commission. The proposed rules 
described the types of FBOTs that would be eligible for registration 
under the proposed regulations and prescribed the application 
procedures, requirements, and conditions that would be applicable to 
such registration. The rules were proposed to be codified in new Part 
48 of the Commission's regulations. The proposed regulations provided 
that it would be unlawful for an FBOT to permit direct access to 
members and other participants in the U.S. unless the FBOT was 
registered with the Commission. The proposed requirements for 
registration were divided into the same seven general categories 
evaluated during the course of a review of a request for FBOT no-action 
relief: membership criteria, trading system, contracts, settlement and 
clearing, regulatory authorities, rules and rule enforcement, and 
information sharing. Pursuant to the proposed regulations, whether the 
registration requirements are successfully met would be determined by 
review of the information and documentation submitted by the applicant 
and, if appropriate, a staff on-site visit to the FBOT and clearing 
organization and their regulatory authorities to observe and discuss 
procedures and policies described in the information submitted by the 
applicant. The proposal also contained the conditions that a registered 
FBOT would be required to meet to retain its registration, including 
continued satisfaction of the registration requirements; conditions 
related to the FBOT's regulation in its home country; satisfaction of 
comparable international standards; restrictions upon the FBOT's 
provision of direct access; acknowledgement and agreement to Commission 
jurisdiction; information-sharing requirements; monitoring for and 
enforcing compliance with the conditions of registration; conditions 
specifically applicable to swap trading; reporting obligations; and 
special conditions that would apply to linked contracts.\10\ As 
proposed, the rules provided for a ``limited'' application process for 
FBOTs currently operating pursuant to existing no-action relief.\11\

[[Page 80676]]

The proposal also set forth the procedures to be followed should an 
FBOT wish to list additional contracts for trading by direct access 
after being registered. Finally, the proposal identified certain events 
that may trigger the revocation of an FBOT's registration.
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    \10\ CEA section 4(b)(1)(B) defines a linked contract as an 
agreement, contract, or transaction that settles against any price 
(including the daily or final settlement price) of one or more 
contracts listed for trading on a registered entity.
    \11\ The proposed rules would have required that FBOTs operating 
under existing no-action relief submit a limited application for 
registration within 120 days of the effective date of the 
registration rules. An FBOT would be permitted to continue to 
operate pursuant to the no-action relief during the 120-day period 
and until the Commission notified the FBOT that the application was 
approved or denied.
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II. Summary of Comments

A. General Comments

    The Commission received 147 comments in response to the NPRM.\12\ 
The comments included 24 comment letters that addressed a variety of 
substantive issues raised by the proposal. Those 24 comment letters 
came from entities representing a broad range of interests, including 
eleven letters representing fourteen FBOTs currently providing direct 
access to members or other participants in the U.S. pursuant to staff 
direct access no-action relief letters \13\ and three letters from 
FBOTs that were not currently providing direct access to U.S. 
participants.\14\ The Commission also received comments from a U.S. 
derivatives marketplace,\15\ three industry or trade associations,\16\ 
a non-profit organization,\17\ a natural gas company,\18\ a foreign 
regulator,\19\ a United States Senator,\20\ and the Commodity Market 
Oversight Coalition.\21\
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    \12\ The comment file is available on the Commission's Web site 
at http://comments.cftc.gov/PublicComments/CommentList.aspx?id=902.
    \13\ Dubai Mercantile Exchange (DME), London Metal Exchange 
(LME), Australian Securities Exchange (ASX), Montreal Exchange Inc. 
(MX), Intercontinental Exchange (ICE) (owner of ICE Futures Europe 
and ICE Futures Canada), European Energy Exchange AG (EEX), Hong 
Kong Futures Exchange Limited (HKFE), BM&F Bovespa (BM&F), Nasdaq 
OMX Oslo ASA (OMX), NYSE Euronext (NYX) (operator of three FBOTs, 
Liffe Administration and Management, Euronext Paris SA, and Euronext 
Amsterdam N.V.), and Eurex Deutschland (Eurex).
    \14\ Osaka Securities Exchange (OSE), Natural Gas Exchange, Inc. 
(NGX), and Bursa Malaysia Derivatives Exchange (Bursa Derivatives). 
A direct access no-action letter was issued to OSE on June 1, 2011. 
NGX is currently operating as an exempt commercial market (ECM), and 
will continue to do so under the ECM grandfather relief provided for 
in the Dodd-Frank Act.
    \15\ CME Group, which includes four CFTC-registered DCMs: The 
Chicago Mercantile Exchange Inc. (CME), the Board of Trade of the 
City of Chicago, Inc. (CBOT), the New York Mercantile Exchange, Inc. 
(NYMEX), and the Commodity Exchange, Inc. (COMEX).
    \16\ Futures and Options Association (FOA), Air Transport 
Association of America (ATA) (two comment letters), and Petroleum 
Marketers Association of America and the New England Fuel Institute 
(Petroleum Marketers).
    \17\ Better Markets, Inc. (Better Markets). Better Markets 
describes themselves as a non-profit organization that promotes the 
public interest in capital and commodity markets.
    \18\ BG Americas & Global LNG (BG Americas).
    \19\ European Securities and Markets Authority (ESMA).
    \20\ Senator Carl Levin, Chairman of the United States Senate 
Permanent Subcommittee on Investigations.
    \21\ The Commodity Market Oversight Coalition (CMOC) states that 
it represents an array of interests, including the interests of 
commodity producers, processors, distributors, retailers, commercial 
and industrial end-users, and average American consumers and that it 
was established to promote government policy and regulation in the 
commodity trading markets that preserve the interests of bona fide 
hedgers and consumers and the health of the broader economy.
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    The Commission also received 94 virtually identical comment letters 
from self-identified small business owners in the oil and gas industry 
and/or grocery industry. Each of these letters presented a range of 
comments spanning several provisions of the Dodd-Frank Act and, with 
respect to the proposed FBOT regulations, included nearly identical 
text in which the commenters generally expressed support for the 
requirement that FBOTs register with the Commission and for the 
requirements that FBOTs adopt position limits, implement prohibitions 
on manipulation and excessive speculation, and be subject to ownership 
caps.\22\
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    \22\ Each of these letters contained a similar short paragraph 
specifically addressing the proposed FBOT rules. A representative 
letter stated: ``I support the requirement that FBOTs register with 
the CFTC and make their trading data available as well as requiring 
that they adopt position limits and implement prohibitions on 
manipulation and excessive speculation. They should also be subject 
to ownership caps.'' The Commission also received a brief comment 
from a private citizen. In addition, the comment file includes 26 
comments submitted in response to the Commission's reopening of the 
comment period for several Dodd-Frank related rulemakings. See 
Reopening and Extension of Comment Periods for Rulemakings 
Implementing the Dodd-Frank Wall Street Reform and Consumer 
Protection Act, 76 FR 25274 (May 4, 2011) (extending the comment 
deadline for multiple Dodd-Frank Act rulemakings to June 3, 2011). 
None of the comments submitted in response to the reopening of the 
comment period specifically addressed the proposed FBOT registration 
regulations and, therefore, they are not addressed in this document.
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    Of the 24 comment letters addressing various substantive FBOT 
registration issues in the proposed regulations, 17 letters voiced 
general support for the proposed rules and for the adoption of an FBOT 
registration process.\23\ For example, OMX stated:
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    \23\ See letters from ASX, BM&F, Bursa Derivatives, Eurex, EEX, 
LME, MX, OMX, NGX, OSE, FOA, ATA, BG Americas, Petroleum Marketers, 
CMOC and Senator Levin. ICE commented that the CFTC ``generally 
strikes the right balance with the proposed rulemaking.''

    Our overall impression of the proposed rules is that they will 
create a more transparent and standardized process that will provide 
a greater legal certainty for FBOTs. We are thus under the 
impression that the new rules will represent an improvement of the 
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legal process related to FBOTs.

Similarly, Eurex commented:

    Eurex supports the proposed regulations as set forth in the 
[NPRM] and it values the legal certainty that registration by the 
Commission will provide. Eurex looks forward to being registered by 
the Commission as an FBOT and to the fuller participation in the 
development of the U.S. derivatives industry that it expects will 
accompany registration.

Each of the generally supportive comments, however, also offered 
varying critiques that focused on specific issues. These are discussed 
in greater detail below.
    Four of these comment letters generally did not support the 
proposed rules \24\ and one comment letter raised concerns with respect 
to the impact of FBOT registration on the effectiveness of the Dodd-
Frank Act.\25\ For example, NYX and ESMA questioned whether a 
registration regime was superior to the existing no-action process. 
Specifically, NYX noted, ``[W]e are not convinced that a move from the 
existing regime to a more formal, rules-based solution is either 
necessary or desirable.'' ESMA noted that, ``It seems to us that there 
is no legal provision that would require the CFTC to depart from the 
present practice of issuing no-action relief letters. [* * *] [T]he new 
registration procedure and the mandatory application of very 
comprehensive, ongoing requirements to all FBOTs would be burdensome 
and costly without any apparent improvements for the safeguard of 
public interests such as the maintenance of fair and orderly markets, 
investor protection and the resilience of the market.'' Similarly, LME, 
while supporting the Commission's desire to establish a standardized 
regulatory framework for FBOTs that wish to provide direct access to 
U.S.-domiciled market participants, commented that the approach of 
requiring FBOTs to register with the Commission would constitute an 
unnecessary burden on the CFTC and FBOT applicant resources and stated 
its preference for a comparability-based exemptive approach, which 
would accomplish the same objectives, rather than a registration 
regime. HKFE commented that creating unnecessary obstacles to cross-
border trading will affect all markets and market participants and 
limit the use of risk mitigating instruments traded in global markets.
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    \24\ NYX, HKFE, ESMA, and CME Group.
    \25\ Better Markets.
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    The CME Group expressed concern that the prescriptive nature of the 
rules

[[Page 80677]]

may result in retaliatory, anti-competitive action by foreign 
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regulators. CME Group commented that:

    [W]e have significant concern that the proposed rules are overly 
prescriptive and will have the effect of engendering retaliatory 
action by foreign regulators that will inhibit our ability to 
continue to grow our business and compete effectively in the current 
global environment.

CME Group also argued that since the Dodd-Frank Act did not intend to 
grant the Commission general regulatory authority over FBOTs, the 
imposition of an information gathering process with limited utility 
would do little more than stretch already limited Commission resources.
    Better Markets argued that enabling FBOTs to provide direct access 
to members and other participants in the U.S. would ``undercut[] the 
effectiveness of the Dodd-Frank Act'' unless FBOTs were subject to 
regulatory requirements that are ``the same as or equivalent to the 
Dodd-Frank Act structure.'' Better Markets expressed concern that, even 
if there are parallel systems that are adequately structured in foreign 
jurisdictions, there is a risk that the regulatory regime will not be 
administered similarly to the markets subject to Commission oversight.

B. Specific Comments

    The specific issues raised by commenters can be grouped generally 
into nine categories and include the following: Application for 
registration; standard of review; contracts; direct access definition; 
scope of registration; registration requirements and conditions; 
modification of registration requirements; other concerns; and ongoing 
review of registered FBOTs. These concerns and the Commission's 
conclusions with respect to them are discussed below.
1. Application for Registration
a. Treatment of FBOTs With Existing No-Action Relief
    Proposed regulation 48.6 provides that FBOTs currently providing 
direct access pursuant to a Commission staff no-action letter would be 
required to apply for registration within 120 days of the effective 
date of the FBOT registration regulations, but would permit them to 
file a limited application, as described in the proposed regulation. 
Eurex expressly supported the proposed limited application process; ASX 
welcomed the formalization of the registration requirements. Twelve of 
the comment letters, however, were in favor of either further narrowing 
the scope of the limited application process or completely 
grandfathering FBOTs currently operating pursuant to no-action relief. 
Several commenters also requested that the time period for submitting a 
limited application be expanded.
(i) Grandfathering and the Scope of the Limited Application
    Eight of the twelve commenters, including commenters representing 
11 FBOTs providing direct access to their trading systems pursuant to 
existing no-action relief \26\ and the CME Group and FOA, specifically 
requested that the CFTC significantly narrow proposed Sec.  48.6 to 
either provide grandfathered registration to FBOTs operating under 
existing no-action relief or to require FBOTs applying for registration 
to supply only that information which (1) has materially changed since 
the time the FBOT's no-action relief was granted, (2) was not 
previously filed with the Commission or (3) relates to newly imposed 
registration requirements. The commenters generally argued that the 
limited application process set forth in proposed Sec.  48.6 is too 
burdensome and is unnecessary given that FBOTs and their regulatory 
regimes were reviewed by Commission staff during the process of issuing 
a no-action letter.
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    \26\ BM&F, DME, EEX, HKFE, ICE, MX, OMX, and NYX.
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    FOA commented that FBOTs currently operating under no-action relief 
should not have to reapply for approval to allow direct access to their 
markets and recommended that the CFTC should principally rely on 
information previously provided by the FBOT and its regulator to 
satisfy the proposed registration requirements and should identify for 
each FBOT operating under a no-action letter what specific additional 
information is required. NYX generally agreed with this recommendation 
and further suggested that, if a limited application for registration 
is necessary, the FBOTs should be required to consult with the 
Commission in order to identify which specific information not 
previously submitted would be necessary to demonstrate compliance with 
the registration requirements. BM&F commented that where an FBOT had 
been granted no-action relief following adoption by the Commission of 
the 2006 Policy Statement, that FBOT should only be required to certify 
that there have been no material changes to the information or 
representations in its request for no-action relief or, if there have 
been changes, to identify those changes and demonstrate how they would 
be in compliance with the registration rule. ICE commented that the 
FBOT should only be required to submit additional relevant information 
necessary to update the Commission's understanding of the foreign 
regulatory regime.
    The Commission does not believe that it would be prudent to 
grandfather FBOTs that are operating under existing no-action relief 
without any further review to determine that the registration 
requirements set forth in Sec.  48.7 are being met. FBOT requests for 
no-action relief were assessed based upon the information and 
documentation presented at the particular time of the request (some as 
early as 1999), were based upon a comparison of the regulatory regimes 
in the U.S. and the applicable foreign jurisdiction that existed at the 
time, were subject to varying standards of review that applied at the 
time (which have changed as statutes and policies have evolved), and 
were reviewed on a case-by-case basis. Just as the Dodd-Frank Act 
represents a significant change in the regulatory approach in the U.S., 
many foreign jurisdictions have changed their approaches since the time 
the existing no-action letters were granted as well.
    The Commission also does not believe that it would be either 
feasible or appropriate for the Commission staff to ascertain for each 
FBOT operating under existing no-action relief the precise information 
or documentation in its individual no-action request submission that 
would need to be updated or revised in order to satisfy registration 
requirements. The FBOTs are in a better position to recognize their own 
particular circumstances and to identify any information and 
documentation that may require updating in light of those changes. This 
is especially true of information regarding the relevant foreign 
regulations to which the FBOT is presently subject, as these may have 
differing applicability depending upon the FBOT's particular business 
model. The FBOT should be afforded the opportunity to provide materials 
demonstrating that the foreign regime currently is comparable and 
comprehensive to the regulatory regime in the United States.
    In response to the comments received, the Commission has determined 
to modify the limited application documentation requirements in one 
aspect. The proposed limited application process required that, to the 
extent an FBOT operating under existing no-action relief intends to 
rely upon previously submitted information or documentation to 
demonstrate that it satisfies the registration requirements,

[[Page 80678]]

the FBOT must resubmit the information or documentation, identify the 
specific requirements for registration set forth in proposed Sec.  48.7 
that are satisfied by the resubmitted information, and certify that the 
information remains current and true. The Commission has determined to 
streamline the Sec.  48.6 application requirements for any FBOT whose 
original no-action relief request was submitted electronically and 
remains on file with the Commission staff.\27\ In lieu of re-
transmitting to the Commission previously submitted information and 
documentation, such FBOTs would be permitted to simply refer to each 
portion of their original submission that satisfies a particular 
registration requirement, identify the specific registration 
requirement that is fulfilled by that section, and certify that the 
information or documentation originally provided remains current and 
true. The FBOT would continue to be required to submit new information 
or documentation, to the extent that its original application would not 
adequately demonstrate that the FBOT would be in compliance with one or 
more of the registration requirements. This typically would be 
necessary where one of the registration requirements, such as a 
requirement applicable to clearing and settlement, imposes a standard 
that was not applied at the time of the original application for no-
action relief.
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    \27\ Documents submitted electronically can be more easily 
identified and located and can be retransmitted quickly and at less 
cost than documents in hard copy. It is also easier to identify and 
highlight those segments of an electronically submitted document 
that would satisfy a current requirement of registration.
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(ii) 120 Days To File Limited Application
    Seven commenters, including six FBOTs and one industry association, 
requested that the proposed 120-day time period within which an FBOT 
operating under existing no-action relief would be required to file a 
limited application be extended. Four specifically asked that the 
period be lengthened to 180 days,\28\ while another asked for a 
year.\29\ Two entities commented that the registration rules should 
provide that FBOTs with existing no-action relief may continue to 
operate as such as long as they submit an application within the 120-
day period, which is determined in good faith by the applicant to be 
complete.\30\ Such commenters expressed concern that there may be an 
extended period of legal uncertainty after the 120-day period, but 
before the Commission acted upon the application.
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    \28\ BM&F, EEX, LME, and MX.
    \29\ ICE.
    \30\ NYX and FOA.
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    In response to these comments the Commission has determined to 
adopt the proposal with certain modifications. The final regulations 
provide that the required timeframe within which an FBOT operating 
pursuant to existing no-action relief is required to submit a limited 
application for registration, determined in good faith by the applicant 
to be complete, is 180 days from the effective date of the FBOT 
registration rules.\31\ The final rule also provides legal certainty in 
that Sec.  48.6 provides that an FBOT ``may continue to operate 
pursuant to the existing no-action relief, subject to the terms and 
conditions contained therein, during the 180-day period, while the 
Commission is reviewing its application, and until the Commission 
approves or disapproves the application or otherwise withdraws the 
existing no-action relief.'' Thus, FBOTs could continue to provide for 
direct access pursuant to the no-action relief during the 180-day 
period and, if they submitted timely and complete applications for 
registration, until such time as the Commission acts upon the 
registration applications.
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    \31\ If, at any time after the 180-day deadline but before a 
limited application is approved or disapproved, the Commission 
determines that the application is materially incomplete, the 
Commission may, after providing the FBOT with notice and an 
opportunity to respond to the determination of incompleteness, 
withdraw the existing no-action relief if the Commission determines 
that the application cannot be made complete in a timely manner.
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(iii) Treatment of FBOTs That Have Not Obtained No-action Relief
    NGX asked whether FBOTs with pending applications could file a 
limited application and stated that, if so, the review of such 
applications should take precedence over the review of applications of 
FBOTs currently operating under existing no-action relief. Bursa 
Derivatives asked if the Commission would take into consideration any 
Regulation 30.10 relief granted by the Commission to an FBOT or any 
visit made to an FBOT in the Regulation 30.10 review when evaluating 
such FBOT's application under the proposed registration process.\32\
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    \32\ A Rule 30.10 order permits firms that are members of a 
self-regulatory organization and subject to regulation by a foreign 
regulator to conduct business from locations outside of the U.S. for 
U.S. persons on non-U.S. boards of trade without registering under 
the CEA, based upon the firm's substituted compliance with a foreign 
regulatory structure found comparable to that administered by the 
Commission under the CEA. Among the issues considered by the 
Commission in determining whether to grant Rule 30.10 relief based 
on a foreign regulatory or self-regulatory authority are the 
authority's: (i) Requirements relating to the registration, 
authorization, or other form of licensing, fitness review, or 
qualification of persons through whom customer orders are solicited 
and accepted; (ii) minimum financial requirements for those persons 
that accept customer funds; (iii) minimum sales practice standards, 
including risk disclosures, and the risk of transactions undertaken 
outside of the United States; (iv) procedures for auditing 
compliance with the requirements of the regulatory program, 
including recordkeeping and reporting requirements; (v) standards 
for the protection of customer funds from misapplication; and (vi) 
arrangements for the sharing of information with the United States.
---------------------------------------------------------------------------

    In consideration of the comments concerning limited applications 
for registration, the Commission has determined that an FBOT with a 
pending request for direct access no-action relief should be permitted 
to file a limited application for registration, recognizing that some 
of the required information and documentation is likely to have been 
recently submitted and, therefore, up-to-date. Thus, Sec.  48.6 has 
been modified to provide that an FBOT that has submitted a complete 
application for no-action relief that is pending as of the effective 
date of the final rule could, as part of its application for 
registration, identify information or documents provided in its request 
for no-action relief that would satisfy particular registration 
requirements. Those aspects of the registration requirements that were 
not addressed in the materials submitted in connection with the no-
action request would have to be addressed directly in the FBOT's 
registration application. With respect to the question of precedence of 
review, the Commission is not assigning precedence to any group of 
applicants. The Commission does, however, anticipate that the 
applications of FBOTs with pending relief requests generally will be 
submitted, and acted upon, before those of FBOTs which have no-action 
relief, largely because the latter FBOTs can continue to operate 
pursuant to the existing no-action relief during the 180-day timeframe 
for submission of an application and so long as a complete and timely 
application is submitted. In contrast, those FBOTs with pending relief 
requests cannot provide for direct access until they submit an 
application and receive an Order of Registration.
    With respect to consideration of any regulation 30.10 relief 
granted by the Commission to an FBOT or related visits in evaluating 
the FBOT's application for registration, the Commission believes it 
would be appropriate to consider such information only to the extent 
that it is

[[Page 80679]]

relevant to particular registration requirements (e.g., requirements 
that members be fit and proper and other foreign regulatory regime 
standards applicable to market participants) and is identified as such 
by the FBOT. The Commission notes that there is limited overlap between 
the factors considered when granting regulation 30.10 relief and those 
that will be examined in connection with FBOT registration. Regulation 
30.10 review primarily is focused on the foreign regulatory standards 
applicable to market participants. While regulation 30.10 relief could 
inform the Commission's decision to register an FBOT, it would not be 
an appropriate substitute for the comparability and comprehensiveness 
analysis required under the FBOT registration regulations.
b. Timeliness of Commission Review of an Application
    The proposed regulations did not include a proposed timeline for 
completion of Commission staff review of an application. Bursa 
Derivatives suggested that the Commission adopt a timeline of 180 days 
for the Commission to notify FBOTs whether an application has been 
approved or denied. The commenter noted that this would be consistent 
with the 180 days allotted for reviewing a designated contract market 
application.
    The Commission has determined not to adopt a firm timeline for 
completion of Commission staff review of an application. The Commission 
is committed to completing its review of applications for FBOT 
registration within a year or in as timely a manner as circumstances 
and resources will allow. However, the Commission can neither predict 
the total number of applications for registration that will be 
submitted nor whether such applications will be received simultaneously 
or over a period of time and, thus, cannot be assured that it would 
have sufficient resources at all times to meet such a self-imposed 
deadline. The Commission is likely to receive applications from most of 
the 20 FBOTs currently operating under existing no-action relief in 
addition to applications from other FBOTs that wish to register. The 
Commission notes that the lack of a specific deadline for the review of 
FBOT registration applications will not have a significant impact on 
those FBOTs currently able to provide direct access pursuant to a staff 
no-action letter that submit timely applications for registration. As 
previously noted, the final regulations permit such FBOTs to continue 
to provide direct access to FBOT members and other participants located 
in the U.S. during the review period, subject to compliance with the 
terms and conditions of their no-action relief letters.
2. Standard of Review
a. Need for Registration
    One foreign regulator, ESMA, questioned whether replacing the 
practice of issuing no-action letters with a process whereby FBOTs 
would register with, and become subject to, the jurisdiction of the 
Commission would provide sufficiently enhanced public safeguards to 
outweigh the burdens imposed. Noting that section 738 of the Dodd-Frank 
Act seems to provide the Commission full flexibility on whether and how 
to implement the rules on registration, ESMA stated that: ``Since the 
CFTC has also verified in the past that a FBOT and its clearing 
organisation are subject to comprehensive regulation and comparable 
oversight by the home regulatory authority, * * * the creation of new 
US regulatory measures with extra-territorial application should be 
avoided as far as possible and replaced by effective co-operation 
between the home and host regulatory authorities. Jurisdiction should 
indeed generally be exercised by the home country alone. The necessary 
cooperation could be ensured by an MoU determining how the home and the 
host authority should collaborate, exchange information and conduct 
common reviews and inspections.'' \33\
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    \33\ ESMA.
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    HKFE and MX commented that the CFTC has already determined that 
FBOTs currently allowed to operate in the U.S. are subject to 
comprehensive and comparable regulation in their home jurisdictions 
under the no-action relief regime. HKFE further stated that, therefore, 
a substantive or a rule-by-rule review by the CFTC for the purposes of 
FBOT registration may not be necessary or appropriate except where the 
CFTC has fundamental concerns about a jurisdiction's regulations, 
regulatory objectives or practices.
    As previously noted, requests for no-action relief were submitted 
to and reviewed by Commission staff and not by the Commission itself 
and the letters granting no-action relief are not binding upon the 
Commission. Moreover, in analyzing requests for no-action relief, staff 
did not review the requests under the same standards that will be 
universally applied under the final regulations. For example, staff did 
not specifically consider whether an FBOT or its clearing organization 
was subject to ``comprehensive regulation and comparable oversight by 
the home regulatory authority.'' Rather, staff's standard of review has 
ranged from determining that the FBOT is regulated by a legitimate 
regulatory authority to determining that the FBOT and its regulatory 
authority support and enforce standards for trading and customer and 
market protection that are equivalent to those supported by the CFTC 
and its regulated DCMs.
    The Commission believes that the application procedures contained 
in the final registration regulation would provide for appropriate 
review. While the rule would create a new registration category, that 
category would operate pursuant to open and transparent standards and 
procedures that may not have been uniformly applied with respect to 
FBOT no-action letters. The proposed regulatory measures are applicable 
only to FBOTs that choose to provide for direct access to their trading 
systems to persons located in the U.S. In addition, the Commission 
believes that the rule, as proposed, would encourage effective co-
operation between the home and host regulatory authorities in that it, 
among other things, provides for expanded information sharing between 
the regulatory authorities. Finally, with respect to the comment that 
the proposal is creating new U.S. regulatory measures with extra-
territorial application, the Commission notes that Congress has 
authorized the registration of FBOTs in the Dodd-Frank Act. Moreover, 
the FBOT registration process relies significantly upon the 
Commission's determination that the FBOT's home country regulatory 
authority provides for comparable, comprehensive supervision and 
regulation. The Commission finds it particularly noteworthy that other 
countries that permit direct access, including the UK, Japan, 
Singapore, Hong Kong, Germany and Australia, among others, do so under 
a registration or licensing scheme. Accordingly, the Commission 
believes that the establishment of the FBOT registration regime in the 
final rule is generally consistent with international practices.
b. Foreign Supervision and the Comparable, Comprehensive Determination
    As required by CEA section 4(b)(1)(A)(i), proposed Sec.  48.5(d)(2) 
provided that the Commission, when reviewing an application for FBOT 
registration, will consider whether the FBOT and its clearing 
organization are subject to comprehensive supervision

[[Page 80680]]

and regulation by the appropriate governmental authorities in their 
home country that is comparable to the comprehensive supervision and 
regulation to which DCMs and derivatives clearing organizations (DCO), 
respectively, are subject in the United States. Seven commenters 
specifically addressed this provision, offering critiques of the 
Commission's approach to evaluating an FBOT's home regulatory 
regime.\34\
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    \34\ Eurex, FOA, LME, EEX, OMX, Better Markets, and CME Group.
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    Two commenters recommended that the Commission make a determination 
as to whether an FBOT is subject to a comparable comprehensive 
regulatory regime on a jurisdiction-by-jurisdiction basis where 
appropriate.\35\ For example, if more than one FBOT is subject to the 
regulatory regime in the United Kingdom, the Commission could make a 
single determination as to the comparability and comprehensiveness of 
the regulatory regime in the United Kingdom.
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    \35\ LME and EEX. EEX commented that all trading venues 
recognized as a ``Regulated Market'' under the European Union's (EU) 
Markets in Financial Instruments Directive (MiFID) should be deemed 
fit to meet the regulatory standards of a registered FBOT. LME 
commented that the Commission should take the same jurisdictional 
approach with respect to the review of clearing organizations.
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    In consideration of these comments, the final regulation, in the 
application form for registration, Form FBOT,\36\ provides for a 
jurisdiction-based review of the comparability of the foreign 
regulatory regime when multiple FBOTs that are subject to the same 
regulatory regime are applying for registration. Specifically, the 
regulation, through the Form FBOT, provides that multiple FBOTs that 
are subject to the same regulatory regime and that are applying for 
registration at the same time may collectively provide information 
regarding the regulatory regime under which they operate. The 
information may be provided by the FBOTs themselves, or by the 
applicable foreign regulatory authority.
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    \36\ The proposed rules included an appendix that identified the 
information required in, and provided guidelines for submitting, an 
application for registration as an FBOT. That appendix included 
detailed descriptions of the minimum required documentation and 
information that should be included in an application. In these 
final rules, the Commission has revised the proposed appendix to 
include the submission requirements identified therein in 
standardized application forms, Form FBOT and Supplement S-1 to Form 
FBOT. Form FBOT is to be completed by an FBOT applying for 
registration and Supplement S-1 is to be completed by the clearing 
organization affiliated with the FBOT. The substance and content of 
Form FBOT and Supplement S-1 are parallel to those requirements and 
guidelines that were originally included in the appendix to the 
proposed rules.
---------------------------------------------------------------------------

    The Commission does not agree, however, that a determination that 
an FBOT operating in one jurisdiction should be registered eliminates 
the need to conduct a subsequent inquiry into the laws and regulations 
applicable to a different FBOT in the same jurisdiction that applies 
for registration at a different time. Additionally, a single 
jurisdictional analysis of comprehensiveness and comparability may not 
be able to take into account the fact that different FBOTs operating in 
the same jurisdiction may be subject to different regulations, 
depending upon a host of factors including, among other things, their 
business structure, the participants they accept, the products they 
trade and the exceptions and exemptions provided in the relevant 
regulatory regime. Accordingly, two FBOTs operating in the same country 
may be subject to regulation that differs in substantive ways. 
Moreover, financial markets worldwide are currently in an enhanced 
state of regulatory flux, making it a particularly inopportune time to 
state that once a jurisdiction is deemed comparable, it will be deemed 
comparable for the purpose of all future applications.\37\
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    \37\ Notwithstanding the above, in a situation where an FBOT 
applying for registration is located in the same jurisdiction and 
subject to the same regulatory regime as a registered FBOT, the 
Commission believes that it would be acceptable for the FBOT 
applying for registration to include by reference, as part of its 
application, information about the regulatory regime that is posted 
on the Commission's Web site. The FBOT applying for registration 
must specifically identify the applicable information and certify 
that the information thus included in the application is directly 
applicable to it and remains current and valid.
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(i) Consideration of the Totality of Regulation
    Eurex, noting that in many jurisdictions the concept of self-
regulation is not as established as in the U.S. and that foreign 
exchanges are not empowered in the same way as DCMs, recommended that, 
in considering the comparability of regulation, the CFTC explicitly 
incorporate that it may rely on the totality of the regulation--self 
and governmental--of the FBOT in evaluating the FBOT for comparable 
comprehensive supervision and regulation. The Commission has determined 
to adopt the rule as proposed, but notes that consistent with this 
Eurex comment, the Commission will rely on the totality of the 
regulation of the FBOT and its clearing organization in evaluating 
whether they are subject to comparable comprehensive supervision and 
regulation.
(ii) Comparability Reviews
    FOA expressed concern that the proposed registration regulations 
would change the approach to comparability used under the existing no-
action review process into what is effectively a rules-equivalence 
approach and that this could lead to a ``line by line'' examination of 
the European Union's approach to the regulation of derivatives 
transactions, central counterparties and trade repositories. FOA 
commented that a ``line by line'' examination of the foreign 
regulator's approach would complicate cross-border business and 
increase the risk of inadvertent breaches.
    The Commission has determined to adopt the rule as proposed. As in 
the case of the review performed under the no-action review process, 
the Commission's determination of the comparability of the foreign 
regulatory regime to which the FBOT applying for registration is 
subject will not be a ``line by line'' examination of the foreign 
regulator's approach to supervision of the FBOTs it regulates. Rather, 
it will be a principles-based review conducted in a manner consistent 
with the part 48 regulations pursuant to which the Commission will look 
to determine if that regime supports and enforces regulatory objectives 
in the oversight of the FBOT and the clearing organization that are 
substantially equivalent to the regulatory objectives supported and 
enforced by the Commission in its oversight of DCMs and DCOs.
(iii) Limitations of Comparability Reviews
    CME Group suggested that the Commission's analysis should be more 
narrowly tailored and that the Commission should limit its inquiry to 
questions regarding the comparability of the regulatory regime in the 
FBOT's home jurisdiction, focusing on (1) the regulatory regime in the 
FBOT's home jurisdiction, (2) the FBOT's status in its home 
jurisdiction and its rules and enforcement thereof, and (3) any 
existing information-sharing agreements between the FBOT, the 
Commission, and the home jurisdiction regulator. CME Group argued that 
such an approach would focus the Commission's attention on the 
legitimacy of the home regulator rather than on the broader inquiries 
that have informed the no-action process.
    The Commission has determined to adopt the rule as proposed. The 
Commission does not believe that its review of an FBOT seeking to 
provide direct access to its trading system to persons located in the 
U.S. should be

[[Page 80681]]

restricted to the three areas suggested by the commenter. The 
Commission believes that the broader review contemplated by the 
proposed regulations, which is an outgrowth of the review conducted 
during the no-action process, is necessary to ensure the protection of 
persons located in the U.S. that will be trading by direct access on 
the FBOT. Accordingly, the final regulations continue to require the 
FBOT to provide sufficient information and to demonstrate that the 
registration requirements set forth in Sec.  48.7 are satisfied (e.g., 
information and documentation on the relevant membership standards, the 
contracts to be made available in the U.S. and the automated trading 
and clearing and settlement systems). The Commission believes that its 
review of the information and documentation provided in these areas is 
necessary to provide greater assurance that, among other things, the 
members of the FBOT and its clearing organization members are subject 
to appropriate standards, the contracts to be made available are not 
readily susceptible to manipulation, all linked contracts are 
identified, the trading system complies with the Principles for Screen-
Based Trading developed by the Technical Committee of the International 
Organization of Securities Commissions (IOSCO Principles) \38\ and 
produces an adequate audit trail, and the clearing and settlement 
systems satisfy appropriate standards.
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    \38\ The IOSCO Principles were formulated by eight jurisdictions 
which comprised Working Party 7 (Working Party) of the Technical 
Committee of IOSCO under the chairmanship of the Commission. The 
Working Party's mandate included, among other things, the 
identification of issues related to screen-based trading systems for 
derivative products. In considering the special concerns for screen-
based trading systems, the Working Party identified and addressed 
the following issues: transparency, order execution algorithms, 
operational issues, security and system vulnerability, access, 
financial integrity, disclosure, and the role of system providers, 
and articulated for each issue a broad principle to assist 
regulatory authorities in overseeing screen-based trading systems. 
The IOSCO Principles were adopted by IOSCO on November 15, 1990 and 
set out in broad terms the international consensus as to the 
regulatory considerations to be addressed in reviewing mechanisms 
for cross-border screen-based trading. The Commission adopted the 
IOSCO Principles as a statement of regulatory policy for the 
oversight of screen-based trading systems for derivative products. 
Policy Statement Concerning the Oversight of Screen-Based Trading 
Systems. 55 FR 48670 (Nov. 21, 1990).
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(iv) Reconfirmation and Withdrawal of Registration
    Better Markets commented that proposed Sec.  48.8(a)(2)(iii), which 
would impose continuing requirements on the foreign regulatory 
structure to maintain its laws governing the FBOT, was too narrow and 
too focused on the letter of the law, rather than the realities of the 
marketplace. Better Markets proposed an annual reconfirmation and 
demonstration of the appropriateness of the FBOT's regulatory regime 
and, further, that an FBOT's registration should be discontinued if the 
foreign regulatory regime changes in ways such that the FBOT would not 
be able to qualify for initial registration.
    The Commission has determined to adopt the rule as proposed, with 
slight modifications. The Commission notes that the regulations contain 
multiple provisions designed to demonstrate that the FBOT continues to 
be subject to an appropriate regulatory regime. For example, Sec.  
48.8(a)(1) conditions continued FBOT registration upon the FBOT's and 
its clearing organization's satisfaction of all of the registration 
requirements set forth in Sec.  48.7; Sec.  48.8(a)(2)(i) conditions 
registration upon the FBOT continuing to satisfy the criteria for a 
regulated market or licensed exchange pursuant to the regulatory regime 
described in its application and continuing to be subject to oversight 
by the regulatory authorities described in the registration 
application; Sec.  48.8(a)(2)(ii) imposes a similar condition with 
respect to the FBOT's clearing organization; Sec.  48.8(a)(2)(iii) 
conditions registration upon the laws, systems, rules, and compliance 
mechanisms of the regulatory regime applicable to the FBOT continuing 
to require the FBOT to maintain fair and orderly markets, prohibit 
fraud, abuse, and market manipulation, and provide that such 
requirements are subject to the oversight of appropriate regulatory 
authorities; and Sec.  48.8(a)(3) conditions continued registration 
upon the FBOT's and, if the FBOT's clearing organization is not a DCO, 
the clearing organization's satisfaction of certain internationally 
recognized standards.
    In addition, Sec.  48.8(b)(1)(iii)(G) requires that the FBOT and 
its clearing organization, or their respective regulatory authorities, 
as applicable, provide to the Commission annually a written description 
of any material changes to the regulatory regime to which the foreign 
board of trade or the clearing organization is subject that have not 
been previously disclosed or a certification that no material changes 
have occurred. Further, proposed Sec.  48.9(b)(2) provides that the 
Commission may revoke an FBOT's registration, after appropriate notice 
and an opportunity for a hearing, if there is a material change in the 
regulatory regime applicable to the FBOT or its clearing organization. 
The Commission has modified Sec.  48.9(b)(2) to provide that the 
Commission may revoke an FBOT's registration, after appropriate notice 
and an opportunity to respond, if there is a material change in the 
regulatory regime applicable to the FBOT or its clearing organization 
such that the regulatory regime no longer satisfies any registration 
requirement or condition for registration applicable to the regulatory 
regime. The Commission believes that in this instance, as in other 
instances in the final rule where the FBOT is provided appropriate 
notice by the Commission of an issue about which it is expected to 
communicate with the Commission, an opportunity to respond is adequate 
for the purpose of addressing the issue.
c. International Standards
    The requirements for and conditions of registration set forth in 
proposed Sec.  48.7 and Sec.  48.8, respectively, would require an FBOT 
and its clearing organization to observe specified international 
standards. In order to become registered, an FBOT would be required to 
successfully demonstrate that its trading system complied with the 
current IOSCO Principles.\39\ Unless the FBOT's clearing organization 
is registered with the Commission as a DCO, the FBOT also would be 
required to demonstrate that the clearing organization observed: (1) 
The current Recommendations for Central Counterparties jointly issued 
by the Committee on Payment and Settlement Systems (CPSS) and the 
Technical Committee of IOSCO, as updated, revised or otherwise amended, 
or (2) successor standards, principles and guidance for central 
counterparties or financial market infrastructures adopted jointly by 
CPSS and IOSCO's Technical Committee (RCCPs). OMX commented that, in 
order to provide more flexibility, the registration requirements should 
refer to ``recognized international standards,'' rather than specific 
international regulations.
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    \39\ A review of the FBOT requests for no-action relief to 
permit direct access reveals that most of the applicants stated that 
their regulatory authority has endorsed the IOSCO Principles. 
Several of the FBOTs indicated that that their regulatory authority, 
in its review of the FBOT's trading system during development and/or 
on an ongoing basis, specifically took into account the IOSCO 
Principles.
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    The Commission has determined to adopt Sec. Sec.  48.7(b)(1) and 
(d)(1) and Sec.  48.8(a)(3) substantially as proposed. The use of a 
singular set of internationally recognized standards provides clarity, 
consistency and certainty to the application requirements and the 
standards

[[Page 80682]]

identified in the proposal are directly relevant to the review to be 
afforded FBOTs and their clearing organizations. In addition, due to 
the breadth of participation by sponsoring organizations \40\ and the 
approval of the standards by IOSCO and CPSS, these principles are 
considered the premier standards in the industry and are likely to have 
greater global recognition than similar regional standards.
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    \40\ The current RCCPs were finalized in 2004 by a CPSS-IOSCO 
Task Force that included representatives from the following 
entities: National Bank of Belgium; Comiss[atilde]o de Valores 
Mobili[aacute]rios, Brazil; People's Bank of China; Czech National 
Bank; European Central Bank; Autorit[eacute] des March[eacute]s 
Financiers, France; Bank of France; Deutsche Bundesbank; BaFin 
(German Financial Services Authority); Securities and Futures 
Commission, Hong Kong; Reserve Bank of India; Securities and 
Exchange Board of India; Commissione Nazionale per le Societ[agrave] 
e la Borsa, Italy; Bank of Japan, Financial Services Authority, 
Japan; Malaysian Securities Commission; Bank of Mexico; Netherlands 
Authority for Financial Markets; Saudi Arabian Monetary Agency; 
Comisi[oacute]n Nacional del Mercado de Valores, Spain; Monetary 
Authority of Singapore; Bank of England; Financial Services 
Authority, United Kingdom; Securities and Exchange Commission; CFTC; 
Board of Governors of the Federal Reserve System; Federal Reserve 
Bank of New York; International Monetary Fund; and the World Bank. 
The recommendations were initially released in a consultative 
document that requested public comment. The final version 
incorporates consideration of the comments received from central 
banks, regulators and the operators of and participants in central 
counterparties.
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    The Commission did not receive comments specifically related to the 
requirement that an FBOT's clearing organization observe any 
``successor standards, principles and guidance'' to the current RCCPs 
that may be jointly issued by CPSS and IOSCO in the future. The 
Commission wishes to clarify, however, that such standards would 
include, to the extent applicable, the ``Principles for Financial 
Market Infrastructures'' (FMI Principles) \41\ that CPSS and the IOSCO 
Technical Committee intend to finalize in early 2012 and that, when 
effective, would replace the current RCCPs as the CPSS/IOSCO standards 
applicable to central counterparties. In March 2011, CPSS and the IOSCO 
Technical Committee publicly issued a ``Consultative Report'' that 
included the then-current draft of the FMI Principles and that 
requested comment upon the draft by July 29, 2011. CPSS and the IOSCO 
Technical Committee are in the process of reviewing the comments 
received and finalizing the FMI Principles. The Commission would not 
expect an FBOT's clearing organization to observe the FMI Principles 
until the effective date thereof established by CPSS and IOSCO. 
However, because it is anticipated that several FBOTs may wish to apply 
for registration between the time that the final FMI Principles are 
published and the time that the FMI Principles become effective and 
that clearing organizations for FBOTs may find that they already 
observe the FMI Principles, an FBOT that applies for registration after 
the FMI Principles are published in final form may demonstrate that its 
clearing organization observes those principles in lieu of 
demonstrating observance of the RCCPs.
---------------------------------------------------------------------------

    \41\ Not all of the FMI Principles are applicable to central 
counterparties.
---------------------------------------------------------------------------

d. Clearing Standards
    The FBOT registration requirements set forth in proposed Sec.  48.7 
include certain substantive standards that would have to be satisfied 
by an FBOT's clearing organization or the FBOT itself, if it is 
performing its own clearing functions. Among other things, an FBOT 
would be required to demonstrate that the members of its clearing 
organization are fit and proper and meet appropriate financial and 
professional standards; that the clearing organization is registered 
with the Commission as a DCO or observes the RCCPs or successor 
standards; that the clearing organization is in good regulatory 
standing in its home country jurisdiction; that the regulatory 
authorities governing the activities of the clearing organization 
provide comprehensive supervision and regulation comparable to that 
provided by the Commission to DCOs and engage in ongoing supervision 
and oversight of the clearing organization; that the clearing 
organization has the capacity to detect, investigate and sanction 
persons who violate its rules; and that the clearing organization has 
sufficient compliance staff and resources.
(i) DCOs
    LME and CME Group commented that if an FBOT's clearing organization 
is registered with the Commission as a DCO, the FBOT should not be 
required to establish that the clearing organization satisfies the 
remaining criteria set forth in the proposed regulation. The Commission 
has determined to adopt the approach suggested by the commenters. Much 
of the criteria set forth in Sec.  48.7 are likely to have been 
reviewed in connection with the clearing organization's application for 
a registration as a DCO and any additional review would be redundant. 
Accordingly, proposed Sec.  48.7 has been modified to reflect that the 
registration requirements applicable to an FBOT's clearing 
organizations may alternatively be demonstrated by a statement from the 
clearing organization that it is registered and in good standing with 
the Commission as a DCO.
(ii) RCCPs Standards for Non-DCOs
    Certain commenters questioned the appropriateness of the proposal's 
requirement that clearing organizations that are not CFTC-registered 
DCOs would have to demonstrate compliance with the RCCPs. MX suggested 
that the Commission should instead require the clearing organization to 
demonstrate that the regulations, standards, and policies of the 
applicable foreign regulator are comparable to those of the Commission; 
ICE suggested that the CFTC should rely on the expertise of the foreign 
regulator to regulate its own clearing organizations. As noted above, 
OMX recommended that the registration requirements permit clearing 
firms to demonstrate that they satisfy certain recognized international 
standards for central counterparties, rather than referring 
specifically to the RCCPs. By contrast, Eurex suggested that the 
inquiry into a firm's clearing organization should be restricted to a 
demonstration that the RCCPs are satisfied.
    NYX suggested that if the proposed RCCP standard is adopted, the 
CFTC should obtain confirmation of that fact from the firm's home 
country regulator, in lieu of requiring the information from the 
clearing organization itself. Bursa Derivatives suggested that the 
Commission should clarify that a clearing organization's reasons for 
non-compliance with certain RCCPs would be considered by the Commission 
and asked whether a time period would be specified for the clearing 
organization to comply with all of the RCCPs in such instance.
    The Commission has determined to adopt Sec. Sec.  48.7(d)(1) and 
48.8(a)(3)(ii) substantially as proposed. As noted above, the 
Commission believes that requiring an FBOT's clearing organization to 
demonstrate that it observes a singular set of internationally 
recognized standards provides clarity, consistency and certainty to the 
application requirements. Such representations also enable the 
Commission to obtain assurance that the clearing organizations used by 
the FBOTs observe, among other things, appropriate criteria for 
participation; measurement and management of credit exposures; 
management of custody, investment and operational risk; margin; 
financial resources; default procedures; governance; and transparency 
without specifically requiring the clearing organizations to 
demonstrate compliance with requirements that are identical to those 
that would be

[[Page 80683]]

imposed upon a DCO. The use of an international standard that is 
substantially similar, though not identical, to the requirements 
imposed upon U.S. registrants is consistent with the directive in CEA 
section 4(b)(1)(A)(i) that the Commission consider whether the relevant 
regulatory regime is ``comparable'' and ``comprehensive.'' It is also 
consistent with section 752 of the Dodd-Frank Act, which seeks to 
promote consistency in global regulation of swaps and futures contracts 
and the requirement set forth in Sec. Sec.  48.7(b)(1) and 
48.8(a)(3)(i) that the FBOT itself comply with the IOSCO Principles. 
The RCCPs were developed with broad participation and comment from 
entities from multiple nations and have been approved by both IOSCO's 
Technical Committee and the CPSS. The same will be true of the FMI 
Principles, when finalized. Accordingly, the Commission believes that 
the RCCPs and their successor standards are the appropriate criteria to 
use when reviewing an FBOT's clearing organization that is not 
registered as a DCO.
    The Commission notes that the RCCPs consist of recommendations that 
are expressed as general principles, explanations thereof, and key 
issues and questions to be considered when assessing observance of the 
recommendations, rather than a checklist of obligations to be reviewed. 
The Commission recognizes that the generality of the recommendations 
and the explanations thereof afford some flexibility in assessing a 
clearing organization's observance thereto. The Commission anticipates 
that, for purposes of an FBOT registration application, clearing 
organizations may demonstrate observance of individual RCCPs, as well 
as observance of the RCCPs as a whole, in a variety of ways.\42\
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    \42\ The Commission expects to take a similar approach with 
respect to the FMI Principles, when finalized. As currently drafted, 
the FMI Principles will include general principles, key 
considerations that explain the general principle, and explanatory 
notes that discuss the objective and rationale behind the principle 
and that provide guidance on how the standards expressed therein can 
be implemented. In some cases, annexes will provide additional 
information and guidance. When published, the document also will be 
accompanied by an assessment methodology.
---------------------------------------------------------------------------

    CPSS and IOSCO encourage relevant national authorities to assess 
observance of the RCCPs by the central counterparties in their 
jurisdictions as well as RCCP assessments by international financial 
institutions (i.e., the International Monetary Fund and the World Bank) 
as part of their Financial Sector Assessment Programs. The Commission 
anticipates that a similar approach will be taken with regard to the 
FMI Principles. The Commission encourages FBOT registration applicants 
to submit with their registration applications any such assessments 
that have been made of their clearing organizations and any other 
information from their home country regulator(s) (provided that 
submitting such assessments to the Commission is not inconsistent with 
any applicable laws of the home country) that would be relevant to a 
determination that the clearing organization observes the RCCPs. Such 
assessments will inform the Commission's review of the clearing portion 
of the application. Due to the generality of the RCCPs, however, the 
Commission believes that a certification from a regulatory authority 
that the clearing organization observes the RCCPs, without more, would 
not provide it with sufficient information as to the relevant clearing 
operations to adequately assess the FBOT application and, thus, would 
not be sufficient to demonstrate that the RCCP requirement is met.
    With respect to Bursa Derivatives' request that the Commission 
consider a clearing organization's reasons for non-compliance with 
certain RCCPs, the Commission generally believes that a registered 
FBOT's clearing organization should be able to represent that it 
observes the RCCPs or successor standards. However, the Commission 
recognizes that a clearing organization may have very unique factual 
circumstances that may warrant an exception to the requirement with 
respect to a limited scope of RCCPs. Accordingly, the Commission would, 
where circumstances warrant, entertain applications from FBOT's whose 
clearing organizations do not observe all of the RCCPs.
e. Foreign Regulation of FBOT Participants
    In the proposed rules, the Commission specifically asked for 
comment as to whether, to the extent an FBOT is permitted to list 
swaps, the Commission should examine the regulatory oversight of 
relevant market participants (e.g., the functional equivalents of swap 
dealers (SD) and major swap participants (MSP)) in the applicable 
foreign jurisdictions when making a determination as to the 
comparability and comprehensiveness of the supervision and regulation 
of the relevant regulatory regime. Three commenters addressed the 
issues related to market participants. Better Markets commented that 
``[s]uch examination is critical * * * [and must include an assessment 
of] rules relating to collateral, business conduct and trading 
behavior.'' It noted that ``SDs and MSPs are subject to rigorous 
standards because safeguards for these important market participants 
enhance the continued financial integrity of the marketplace.'' Better 
Markets further argued that the requirements for the foreign 
equivalents of SDs and MSPs should be the same as or equivalent to 
those imposed by the Dodd-Frank Act. In contrast, ICE commented that 
requiring equivalent or comparable regulation of foreign swap dealers 
or major swap participants is premature, positing that the proper 
course is for the CFTC to ``work with foreign regulators to ensure 
high-level comparable regulation of market participants.'' As 
previously noted, FOA expressed concern that this type of analysis 
could easily lead to a ``line by line'' examination of the EU's 
approach to the regulation of derivatives transactions, central 
counterparties and trade repositories, which would complicate cross-
border business and increase the risk of inadvertent breaches of rules.
    The Commission has determined that it would not be appropriate, in 
the context of this rulemaking, when making a determination as to the 
comparability and comprehensiveness of the supervision and regulation 
of the relevant regulatory regime with respect to the registration of 
an FBOT, to require examination of the regulatory oversight of SDs and 
MSPs in the applicable home country jurisdictions. CEA section 4(b) 
applies with respect to FBOTs that wish to provide for direct access 
and the CEA section 4(b)(1)(A)(i) standard of review to be applied is 
``whether any such foreign board of trade is subject to comparable, 
comprehensive supervision and regulation by the appropriate 
governmental authorities in the foreign board of trade's home 
country.'' The Commission believes that the review standard is thereby 
appropriately focused on an FBOT's operations, including its clearing 
organization, and its regulatory authority. Thus, the appropriate 
review here is to examine the FBOT's membership and trading participant 
standards as they relate to trading on the FBOT. If such membership 
and/or trading participant standards have been determined to be 
adequate by the FBOT's regulatory authority, which has been determined 
to provide comparable, comprehensive supervision and regulation of the 
FBOT, any further participant review would be beyond the scope of CEA 
section 4(b).

[[Page 80684]]

3. Contracts
a. Linked Contracts
(i) Definition
    Proposed Sec.  48.2(d) defined a linked contract as ``a futures or 
option or swap contract made available for direct access from the 
United States by a registered foreign board of trade that settles 
against any price (including the daily or final settlement price) of 
one or more contracts listed for trading on a registered entity as 
defined in section 1a(40) of the Act.'' \43\ Three commenters requested 
clarification with respect to this definition.\44\ NGX requested that 
the Commission clarify the definition of linked contract to take into 
account the nuanced distinction between (1) contracts which are settled 
against the settlement price of a contract listed for trading on a U.S. 
contract market and (2) basis contracts, the prices of which are merely 
quoted with reference to another market. Better Markets commented that 
the definition of linked contract is far too narrow, and argued that it 
should include contracts that are reasonably likely to influence prices 
of the DCM/SEF-traded contracts as well as contracts that directly 
reference the prices of DCM/SEF-traded contracts. LME requested 
clarification on the scope of the definition of linked contract, 
commenting that LME did not believe the definition captured any 
contract of the type traded on LME.
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    \43\ Registered entity is defined in CEA section 1a(40) to mean: 
(A) A board of trade designated as a contract market under section 5 
of the Act; (B) a derivatives clearing organization registered under 
section 5b of the Act; (C) a board of trade designated as a contract 
market under section 5f of the Act; (D) a swap execution facility 
registered under section 5h of the Act; (E) a swap data repository 
registered under section 21 of the Act; and (F) with respect to a 
contract that the Commission determines is a significant price 
discovery contract, any electronic trading facility on which the 
contract is executed or traded.
    \44\ NGX, Better Markets, and LME.
---------------------------------------------------------------------------

    The Commission has determined to adopt the definition in Sec.  
48.2(d) substantially as proposed. The definition of linked contract 
leading to the requirement to impose additional conditions on such 
contracts is based upon the statutory description of linked contracts 
found in CEA section 4(b)(1)(B).\45\ With respect to contracts that do 
not meet the definition of linked contracts, the proposal provided that 
applicants must identify contracts that share any other commonality 
(changed to relationship in the final rule) with a contract listed for 
trading on a registered entity-- for example, if both the FBOT's and 
the registered entity's contracts settle to the price of the same third 
party-constructed index. With respect to these types of contracts, as 
with all conditions of registration, the final rule provides that the 
Commission, in its discretion and after appropriate notice and 
opportunity to respond, may impose additional conditions on the 
registered FBOT. Such additional conditions would be imposed if deemed 
necessary by the Commission to maintain its ability to carry out its 
market surveillance responsibilities when faced with contract 
relationships that essentially create a single market for the contracts 
listed by the FBOT and the registered entity and could include, among 
others, the conditions applicable to the listing of a linked contract.
---------------------------------------------------------------------------

    \45\ The Commission does not believe that any LME contract 
currently made available for direct access under LME's no-action 
relief, all of which settle against prices generated by the LME, 
would fall into that definition.
---------------------------------------------------------------------------

(ii) Conditions
    Proposed Sec.  48.8(c) applied certain additional specified 
conditions for FBOTs that make linked contracts available by direct 
access. \46\ The conditions included in Sec.  48.8(c)(1), as set forth 
in CEA section 4(b)(1)(B), included: (1) Making public daily trading 
information regarding the linked contract that is comparable to the 
daily trading information published for the contract to which it is 
linked; (2) adopting position limits for the linked contract that are 
comparable to the position limits adopted by the registered entity for 
the contract to which it is linked; (3) having the authority to require 
or direct any market participant to limit, reduce, or liquidate any 
position; (4) agreeing to promptly notify the Commission of certain 
changes with respect to the linked contract; (5) providing information 
to the Commission regarding large trader positions in the linked 
contract that is comparable to the large trader position information 
collected by the Commission for the contract to which it is linked; and 
(6) providing the Commission such information as is necessary to 
publish reports on aggregate trader positions for the linked contract 
that are comparable to such reports on aggregate trader positions for 
the contract to which it is linked.
---------------------------------------------------------------------------

    \46\ Under the proposed regulations, the requirements to 
register and to comply with the conditions for making available 
linked contracts are applicable only to those FBOTs which make such 
contracts available through direct access. The registration and 
linked contract provisions of the final rule do not extend to FBOTs 
that do not provide direct access to the FBOT's trade matching 
system from the U.S.
---------------------------------------------------------------------------

    The other conditions on linked contracts, set forth in Sec.  
48.8(c)(2), are based on the second set of additional conditions the 
Commission imposed on the no-action relief issued to ICE Futures Europe 
when that exchange made available for trading by direct access certain 
contracts in energy commodities linked to the prices of contracts 
traded on NYMEX.\47\ The conditions would require that the FBOT, among 
other things, (1) inform the Commission in a quarterly report of any 
member that had positions in a linked contract above the applicable 
FBOT position limit, (2) provide trade execution and audit trail data 
for input to the CFTC's Trade Surveillance System (TSS), (3) provide 
for CFTC on-site visits for the purpose of overseeing the FBOT's and 
the clearing organization's ongoing compliance with registration 
requirements and conditions, (4) provide, at least one day prior to the 
effective date, copies of, or hyperlinks to, all rules, rule 
amendments, circulars and other notices published by the FBOT with 
respect to all linked contracts, (5) provide copies of all disciplinary 
notices involving the FBOT's linked contracts, and (6) promptly take 
similar action with respect to its linked contract in the event that 
the CFTC, pursuant to its emergency powers authority, directs that the 
U.S. registered entity which lists the contract to which the FBOT's 
contract is linked to take emergency action with respect to a linked 
contract (e.g., to reduce positions in or cease trading in the 
contract).
---------------------------------------------------------------------------

    \47\ See CFTC Letter No. 09-37 (August 20, 2009).
---------------------------------------------------------------------------

    Five commenters addressed these additional conditions.\48\ With 
respect to linked contracts and position limits, LME, noting that 
foreign markets may well implement restrictions that could be more 
effective than position limits in addressing the regulatory objectives 
to be addressed by position limits, suggested that FBOTs should be 
permitted to adopt the position limits of a linked market as a safe 
harbor, but that the CFTC should also permit applicants to submit for 
approval any alternative approach that the Commission determines to be 
comparable in result. OSE argued that the proposed additional 
conditions for linked contracts are only necessary when an FBOT has 
more than a de minimis amount of trading in a linked contract.
---------------------------------------------------------------------------

    \48\ LME, OSE, Senator Carl Levin, CMOC and ATA.
---------------------------------------------------------------------------

    OSE also noted that the burdens associated with proposed Sec.  
48.8(c)(2) may be overly costly and could be narrowed. Specifically, 
OSE commented on proposed Sec.  48.8(c)(2)(ii), which would require 
that the FBOT provide trade execution and audit trail data on

[[Page 80685]]

a linked contract for input into the TSS on a routine basis by the day 
following the trade date. OSE suggested that the Commission assess the 
relative burdens of the requirement and whether it could achieve the 
regulatory purpose through a more targeted requirement, such as 
requiring the data on an ``as necessary'' rather than on a daily basis. 
OSE also expressed concern about proposed Sec.  48.8(c)(2)(vi), which 
would require the FBOT, in the event that the Commission directs that 
the registered entity that lists the contract to which the FBOT's 
contract is linked take emergency action with respect to a linked 
contract, subject to information-sharing arrangements between the 
Commission and its regulatory authority, to promptly take similar 
action with respect to the its linked contract. OSE suggested that it 
is preferable for the Commission to coordinate the actions that the 
FBOT should take in response to a market disruption or event through 
the FBOT's regulator, in recognition of international comity.
    Two commenters, Senator Carl Levin and ATA, strongly supported the 
proposed linked contract conditions, both specifically identifying the 
requirement that the FBOT share its trade execution and audit trail 
data, as well as the position limit provisions. Senator Levin commented 
that sharing trading data is vital for the Commission to detect price 
manipulation and excessive speculation involving U.S. futures traded on 
foreign exchanges. Further, Senator Levin noted that he believed the 
linked contract provisions would help to close the ``London loophole'' 
(a scheme, whereby, according to Senator Levin, traders move their 
trading activity to foreign markets to avoid position limits set by 
U.S. exchanges) by ensuring that the Commission is able to police FBOT 
trading in U.S. commodities to stop excessive speculation, price 
manipulation, and market disruptions. CMOC encouraged the CFTC to 
require that the FBOT impose position limits that are at least equal to 
or lower than the limits to be imposed in the U.S. on registered 
entities under the Dodd-Frank Act.
    The Commission has determined to adopt Sec.  48.8(c) substantially 
as proposed. The first set of conditions for linked contracts, found in 
Sec.  48.8(c)(1) are statutory-based conditions which are specifically 
required by the CEA section 4(b)(1)(B). The second set of conditions 
for linked contracts, found in Sec.  48.8(c)(2), as previously noted, 
represent the second group of additional conditions the Commission 
imposed on the no-action relief issued to ICE Futures Europe when that 
exchange made available for trading by direct access contracts linked 
to the prices of contracts traded on NYMEX. These conditions remain 
necessary because such linkages create a single market for the subject 
contracts and, in the absence of certain preventive measures at the 
FBOT, could compromise the Commission's ability to carry out its market 
surveillance responsibilities. Because of the linkage, the trading of 
the linked contracts on an FBOT potentially affects the pricing of 
contracts traded on registered entities.
    With respect to the proposed Sec.  48.8(c)(2)(ii) trade execution 
and audit trail data on a linked contract reporting requirement, the 
Commission has considered comments urging the Commission to require the 
data on an ``as necessary'' rather than on a daily basis and has 
determined that the timely provision of such information is essential 
if the Commission is to adequately carry out its trade practice and 
market surveillance responsibilities with respect to the linked 
contract listed on the registered entity. Commission staff conducts 
surveillance and reviews the trading data on a daily basis, and the 
trade data from the FBOT's linked contract are a critical component of 
this surveillance. With respect to the proposed Sec.  48.8(c)(2)(vi) 
coordinated emergency action requirement, the Commission believes that 
the timeliness of any required emergency action, which would be taken 
only if necessary to protect the market and the public, is critical and 
outweighs the benefit that would be derived from coordinating actions 
through the FBOT's regulator. The Commission notes that the requirement 
to take emergency action is an extremely rare event and, in the normal 
course of business, the Commission would, time permitting, coordinate 
with the FBOT's regulator regarding critical actions to be taken 
concerning a linked contract.
    The Commission has determined to modify the second set of 
conditions on linked contracts by moving the requirement in proposed 
Sec.  48.8(c)(2)(iii), which provided for CFTC on-site visits for the 
purpose of overseeing the FBOT's and the clearing organization's 
ongoing compliance with registration requirements and conditions, to 
Sec.  48.8(a)(8), thus making it a general condition for maintaining 
registration.
b. Swaps and Other Contracts
(i) Swaps
    Under proposed Sec.  48.7(c)(1)(i), a registered FBOT would be 
permitted to provide direct access to futures, options, and swap 
contracts that would be eligible to be listed for trading on a DCM. 
Five commenters supported permitting the execution of swaps on an FBOT 
by persons located in the U.S. by direct access.\49\ Eurex, for 
instance, commented that the Commission should permit FBOTs to provide 
trading access to qualified U.S. persons for trading swaps that are 
listed on the FBOT, noting that the currently proposed conditions on 
FBOTs would be sufficient for them to comply with the purposes of the 
Dodd-Frank Act regarding swap trading.
---------------------------------------------------------------------------

    \49\ Eurex, ICE, NGX, MX, and BG.
---------------------------------------------------------------------------

    The Commission has determined to adopt the rule as proposed. The 
Commission notes, however, that the regulations would only permit an 
FBOT to make swaps available to persons located in the U.S. for trading 
by direct access after the FBOT, its clearing organization, and the 
swaps to be made available by direct access have been determined by the 
Commission to be subject to comparable, comprehensive supervision and 
regulation by the appropriate governmental authorities in the FBOT's 
home country. Moreover, only swaps that would be permitted to be traded 
on a DCM could be made available, all such traded swaps would be 
required to be cleared, and the parties trading such swaps would be 
required to satisfy FBOT membership/trading participant standards that 
would have been reviewed and approved by the FBOT's regulatory 
authority.\50\
---------------------------------------------------------------------------

    \50\ The Commission notes that its decision to permit registered 
FBOTs to make swaps available via direct access to persons located 
in the U.S. is guided in part by the fact that the Dodd-Frank Act 
permits swaps to be listed for trading on a DCM and the FBOTs that 
are eligible to be registered are defined by Sec.  48.2(b) as FBOTs 
that possess the attributes of an established, organized exchange. 
This definition was intended to restrict FBOT registration 
eligibility to entities similar in nature to those that received 
direct access no-action relief in the past (e.g., entities that are 
comparable in operation and regulation to registered DCMs). 
Moreover, there is nothing in the Dodd-Frank Act, including section 
738 of the Dodd-Frank Act amending section 4(b) of the Act, which 
expressly precludes a registered FBOT from offering swaps through 
direct access. However, the Commission also believes that the terms 
and conditions of any swap contract to be made available to persons 
located in the United States through direct access must demonstrate 
that such contract would meet review standards similar to those of a 
swap to be listed on a DCM and must demonstrate that the contract is 
not one that a U.S. person would be prohibited from trading.
---------------------------------------------------------------------------

    Registered FBOTs that permit swaps to be traded by direct access 
would also be subject to additional conditions, including the 
requirement to ensure that all swap transaction data, including price 
and volume, are timely reported as soon as technologically practicable 
after execution of the swap transaction to a

[[Page 80686]]

swap data repository (SDR) that is either registered with the 
Commission or has an information-sharing arrangement with the 
Commission. Additionally, the FBOT must agree to coordinate with the 
Commission with respect to arrangements established to address cross 
market oversight issues involving swaps trading, including 
surveillance, emergency actions, and the monitoring of trading. 
Finally, based on its experience in administering these FBOT 
registration provisions and other rules related to swaps trading, the 
Commission may, in its discretion and after notice and an opportunity 
to respond, impose additional conditions upon the FBOT's registration 
with respect to the listing of swaps contracts.
(ii) Clearing of Swaps
    Under proposed Sec.  48.7(c)(1)(ii), all contracts that could be 
made available to be traded by direct access, including swaps, would be 
required to be cleared. ICE, BG Americas, and NGX opposed the mandatory 
clearing requirement for swaps. ICE commented that the clearing mandate 
contained in the proposed regulations differed from the clearing 
requirements applicable to swaps transactions on U.S. markets. 
Specifically, transactions executed on a swap execution facility (SEF) 
would not be required to be cleared if such transactions were not 
subject to the mandatory clearing requirements set forth in the Act. 
NGX noted that end users executing swaps on SEFs would be exempt from 
the mandatory clearing requirements pursuant to section 2(h)(7) of the 
Act. Similarly, BG Americas commented that the mandatory clearing 
standard applicable to transactions executed on an FBOT would be higher 
than that applicable to U.S. exchanges, in light of the available 
exemptions from the clearing requirement in the CEA, and recommended 
that the Commission clarify in the final rule that the mandatory 
clearing requirements on FBOTs will be no different from the clearing 
requirements on U.S. exchanges.
    The Commission has determined to adopt Sec.  48.7(c)(1)(ii) as 
proposed. All three commenters supported their view by referencing the 
clearing standards applicable to transactions executed on SEFs, not on 
DCMs. As stated above, both the proposed and final Sec.  48.2(b) 
restrict the universe of FBOTs that are eligible to be registered under 
part 48 to those that possess ``the attributes of an established, 
organized exchange or other trading facility.'' This provision is 
intended to limit FBOT registration eligibility to the types of 
entities to which direct access no-action relief has been granted in 
the past (e.g., entities that are comparable in operation and 
regulation to registered DCMs). Accordingly, the Commission believes 
that the treatment of swaps that registered FBOTs will make available 
for trading to members and other participants located in the U.S. 
through direct access should parallel the treatment afforded to swaps 
transactions that may be traded on DCMs.
    The CEA requires swaps transactions that are traded on a DCM to be 
cleared. Specifically, CEA section 5(d)(11) includes DCM Core Principle 
11, ``Financial Integrity of Transactions,'' which requires a board of 
trade to establish and enforce rules and procedures for ensuring the 
financial integrity of transactions entered into on or through the 
facilities of the contract market (including the clearing and 
settlement of transactions with a DCO). Accordingly, the Commission 
believes that it is appropriate to require that all transactions 
(including swaps) that are eligible to be traded by direct access 
pursuant to an FBOT registration be cleared.
(iii) Swaps Data Reporting
    Under proposed Sec.  48.8(a)(9)(i), a registered FBOT permitting 
swaps to be traded by direct access would be required to report to the 
public, on a real-time basis, data relating to each swap transaction, 
including price and volume, as soon as technologically practicable 
after execution of the swap transaction. Under proposed Sec.  
48.8(a)(9)(ii), a registered FBOT permitting swaps to be traded by 
direct access would be required to ensure that all swap transaction 
data is timely reported to an SDR that is either registered with the 
Commission or has an information-sharing arrangement with the 
Commission.
    Two commenters addressed these reporting requirements. ATA 
expressed concern about the effect of real-time reporting on their 
members' ability to hedge and recommended that this requirement be 
revised to allow delayed reporting to permit counterparties to close 
their related transactions. ICE expressed the view that the CFTC should 
not require all FBOTs to report swaps transactions to an SDR.\51\
---------------------------------------------------------------------------

    \51\ ICE noted that the SDR rules for domestic markets have not 
been finalized and SDRs are not yet operational and that, 
accordingly, the CFTC should delay implementation of this 
requirement until SDR rules are finalized and SDRs are operational. 
Further, the CFTC could rely on reporting to the CFTC from the FBOT, 
its clearing organization, or the foreign regulatory authority under 
an information-sharing arrangement.
---------------------------------------------------------------------------

    The Commission has determined to retain both reporting 
requirements, but to modify the proposed rule with respect to the 
responsibility for real-time reporting of swaps transaction information 
to the public. The Commission recognizes that the real-time reporting 
of swaps information to the public and the reporting of swaps 
transactions to an SDR are key objectives of the Dodd-Frank Act. Real-
time reporting enhances price discovery. Reporting swaps transactions 
is necessary to permit the Commission and other regulatory authorities 
to view the market as a whole. As previously stated, Sec.  48.2 is 
intended to restrict the universe of FBOTs that are eligible to be 
registered under part 48 to those entities that are comparable in 
operation and regulation to registered DCMs. The Commission anticipates 
that DCMs will be required to ensure that all swap transaction data, 
including price and volume, are timely reported to an SDR after 
execution of the swap transaction. Real-time swap transaction and 
pricing data will then, in turn, be publicly disseminated by the SDR. 
Accordingly, the Commission has determined to limit the registered FBOT 
reporting requirements contained in Sec.  48.8(a)(9)(i) to an 
obligation to ensure that all transaction data relating to each swap 
transaction, including price and volume, be reported to an SDR that is 
registered with the Commission or has an information sharing 
arrangement with the Commission.
    The Commission is aware that no SDRs are either registered or 
operational at this time. Accordingly, until such time as appropriate 
SDR operations are in place, the conditions contained in Orders of 
Registration issued to FBOTs that wish to permit members and other 
participants to trade swaps via direct access will indicate that the 
FBOT may list such swaps for direct access but will be required to 
comply with Sec.  48.8(a)(9)(i) as soon as practicable following the 
licensing or registration of a SDR that meets applicable requirements.
(iv) Contracts Other Than Futures, Options, and Swaps
    Proposed Sec.  48.7(c)(1)(i) provided that contracts that may be 
made available by direct access by a registered FBOT must be futures, 
option, or swaps contracts. LME and NGX requested clarification with 
respect to whether the proposed rules would permit an FBOT to offer 
spot and forward contracts and other similar physically-settled 
transactions. NGX also asked the Commission to clarify that, although 
the proposed regulations would permit a registered FBOT to list for 
trading through direct access any contract that is legally

[[Page 80687]]

offered in the U.S., only those contracts that are regulated under the 
Act would be within the scope of the FBOT registration provision.
    The Commission has determined to adopt the rule as proposed. As 
stated in the proposal, those types of contracts subject to the CFTC's 
jurisdiction are within the ambit of the FBOT registration rules. The 
registration provisions do not preclude an FBOT from making available 
to participants located in the U.S. other products (e.g., spot 
contracts and forward contracts) to the extent applicable law otherwise 
allows. The Commission also has determined to remove any reference to 
products from the FBOT definition set forth in Sec.  48.2(a).
(v) Review of Contracts
    Proposed Sec.  48.7(c) would require that an FBOT, as part of its 
application for registration, provide, among other things, the terms 
and conditions of the futures, option and swaps contracts intended to 
be made available for direct access. Additionally, proposed Sec.  48.10 
would require a registered FBOT that wishes to offer new contracts 
subsequent to registration to submit such contracts to the CFTC for 
review prior to making the additional contracts available for trading 
by direct access. LME commented that the Commission should adopt an 
exemptive, rather than a registration, regime and require contract 
designation, similar to that applied by the Commission when a DCM 
submits a new contract for listing, only with respect to linked 
contracts.
    The Commission has determined to adopt Sec. Sec.  48.7(c) and 48.10 
as proposed, modified to reflect newly adopted procedures, discussed 
below, applicable to the offer or sale, to persons in the U.S., of non-
narrow-based security index futures and option contracts. The 
Commission believes that it is necessary to review the terms and 
specifications of all contracts before they are made available for 
trading by direct access to ensure that the contracts would be legally 
permitted to be traded on a DCM and otherwise conform to the 
requirements and conditions applicable to contracts listed on the FBOT 
for trading by direct access by persons located in the U.S. The 
Commission also believes that it is necessary and appropriate to review 
new contracts in order to, among other things, determine that the 
contracts are actually futures, option, or swap contracts; ensure that 
they are not contracts determined by the Commission pursuant to CEA 
section 5c(c)(5)(C)(i) to be contrary to the public interest; ensure 
that they are not contracts on such products as security futures or 
narrow-based stock indexes or other securities regulated by the U.S. 
Securities and Exchange Commission; and determine whether the contract 
is linked to or may otherwise have some impact on a contract traded on 
a CFTC-regulated entity. The Commission notes that the treatment of new 
products set forth in the proposed and final rules is consistent with 
the existing practice under the no-action regime. The Commission 
further notes that, in the past, Commission staff has attempted to 
complete its review of additional contracts proposed to be made 
available for direct access promptly. Thus, an FBOT's ability to bring 
such contracts to market quickly generally has not been impaired.
    With respect to the listing of additional non-narrow-based security 
index futures and option contracts to be made available by direct 
access, proposed Sec.  48.10 provided that a registered FBOT could list 
for trading such an additional futures contract pursuant to the 
procedures set forth in Appendix D to Part 30. Proposed Sec.  48.10 
also provided that a registered FBOT could, without further action by 
either the FBOT or the Commission, list for trading an additional 
option contract on a non-narrow-based security index futures contract 
which could be offered or sold in the United States pursuant to a no-
action letter issued by the Commission's Office of the General Counsel. 
HKFE requested clarification with respect to any interrelationship 
between the proposed rules and the approval process for the offer and 
sale of index products to persons in the U.S.
    The Commission has revised its procedures applicable to the offer 
or sale, to persons in the U.S., of a non-narrow-based security index 
futures contract traded on an FBOT to conform to recent amendments to 
its regulations.\52\ Generally, the new procedures involve the issuance 
of a Commission certification rather than a no-action letter. 
Accordingly, Sec.  48.7(c)(2) has been added and provides that foreign 
futures (and option contracts) on non-narrow-based security indexes 
must have been certified by the Commission pursuant to the procedures 
set forth in Sec.  30.13, and Sec.  48.10 has been updated and now 
provides that a registered FBOT may list for trading by direct access 
an additional futures (or option contract) on a non-narrow-based 
security index pursuant to the Commission certification procedures set 
forth in Sec.  30.13(d) and Appendix D to Part 30. Further, with 
respect to option contracts, if the option is on a non-narrow-based 
security index futures contract which may be offered or sold in the 
United States pursuant to a Commission certification issued pursuant to 
Sec.  30.13, the option contract may be listed for trading by direct 
access without further action by either the registered FBOT or the 
Commission.\53\ In response to HKFE's query, the Commission notes that 
the Commission certification procedures for non-narrow-based security 
indexes and the FBOT registration procedures are independent of each 
other, with the exception that a registered FBOT applying for 
Commission certification to offer or sell to persons located within the 
U.S. a non-narrow-based security index contract may, in that same 
request, pursuant to Sec.  30.13(k), request that such contract be made 
available for trading by direct access.
---------------------------------------------------------------------------

    \52\ See Foreign Futures and Options Contracts on a Non-Narrow-
Based Security Index; Commission Certification Procedures, 76 FR 
59241 (September 26, 2011).
    \53\ Upon the implementation date, regulations 48.7(c) and 48.10 
supersede and replace the provisions included in the ``Notice of 
Revision of Commission Policy Regarding the Listing of New Futures 
and Option Contracts by Foreign Boards of Trade That Have Received 
Staff No-Action Relief to Provide Direct Access to Their Automated 
Trading Systems from Locations in the United States'' (71 FR 19877; 
April 18, 2006; corrected at 71 FR 21003, April 24, 2006) and the 
``Notice of Additional Conditions on the No-Action Relief When 
Foreign Boards of Trade That Have Received Staff No-Action Relief To 
Permit Direct Access to Their Automated Trading Systems from 
Locations in the United States List for Trading from the U.S. Linked 
Futures and Option Contracts and a Revision of Commission Policy 
Regarding the Listing of Certain New Option Contracts,'' 74 FR 3570 
(January 21, 2009).
---------------------------------------------------------------------------

4. Direct Access Definition
    Proposed Sec.  48.2(c) defines direct access to mean ``an explicit 
grant of authority by a foreign board of trade to an identified member 
or other participant located in the United States to enter trades 
directly into the trade matching system of the foreign board of 
trade,'' which is identical to the definition provided in CEA section 
4(b)(1)(A). LME and HKFE requested clarification of the definition.
    LME requested clarification of the degree to which the definition 
covers access to application programming interfaces (API) developed by 
members to interface with exchange systems. LME indicated that it 
understood the direct access definition to include access to the 
graphical user interface of an FBOT, and not indirect access via an 
API. HKFE asked the Commission to clarify the meaning of ``explicit 
grant of authority'' and to provide examples of the kind of conduct or 
actions on the part of an FBOT that would be regarded

[[Page 80688]]

as ``an explicit grant of authority.'' HKFE also requested that the 
CFTC clarify the position taken previously in connection with the 
granting of a direct access no-action letter that an automatic order 
routing connection from the U.S. to an FBOT would not be considered as 
``direct access.'' Similarly, in relation to proposed Sec.  48.8(a)(4), 
which addresses restrictions on direct access, ASX requested that the 
placement of terminals in non-exchange participant offices, and the 
conditions thereof, be specified in the new rules.
    The Commission has determined to adopt the rule as proposed. Direct 
access is defined in the CEA and in the proposed and final regulations 
to mean an explicit grant of authority by an FBOT to an identified 
member or other participant located in the U.S. to enter trades 
directly into the trade matching system of the foreign board of trade. 
This means that the FBOT itself, and not its members or participants, 
has identified and permitted a member or participant to enter trades 
directly into the FBOT's order matching and trade entry system from the 
U.S. The electronic means of entry to the trading system may be through 
the internet, a dedicated closed electronic system, an API, or other 
type of electronic interface--the dispositive factor is that the order 
is transmitted by an identified member or other participant located in 
the U.S. and the order is entered directly into the trade matching 
system. Thus, it does not constitute direct access if the order is sent 
by a person in the U.S. by means of an automated order routing system 
(AORS) to an intermediary located outside of the U.S. for further 
action or to pass through an order entry or risk management filter at 
the intermediary prior to reaching the trade matching engine.
    Proposed Sec.  48.8(a)(4), which addresses restrictions on direct 
access, requires that the FBOT not provide, and take reasonable steps 
to prevent, third parties from providing direct access to the FBOT. 
This provision is intended to restrict direct access to FBOT-authorized 
persons by such methods as restricted access to hardware, password 
control, and other similar physical or electronic security measures. It 
is not intended to prohibit a registered FBOT from authorizing its 
member firms or other participants eligible to handle U.S. customer 
orders to permit their customers in the U.S. to access the trading 
system using the member firm's or participant's member ID (mnemonic) or 
password. In other words, a registered FBOT's member or participant 
located outside of the U.S. may, if so authorized by the FBOT, permit 
customers in the U.S. to transmit orders directly to the trade matching 
engine. The Commission is aware that two FBOTs currently operating with 
direct access no-action relief--ASX \54\ and HKFE \55\--permit their 
exchange participants to allow non-exchange participants in the U.S. to 
have access to the exchanges' trading systems, subject to a guarantee 
from an exchange participant firm.
---------------------------------------------------------------------------

    \54\ CFTC Letters No. 01-75 (July 30, 2001) and No. 04-32 
(October 25, 2004).
    \55\ CFTC Letter No. 01-74 (July 30, 2001).
---------------------------------------------------------------------------

5. Scope of Registration (i.e., CEA Sections 5 and 5a)
    HKFE commented that there is no express provision in the proposed 
rules stating that registration under Part 48 would relieve an FBOT 
from compliance with CEA section 5 or 5a (that is, registering as 
either a DCM or DTEF). HKFE asked for clarification as to whether 
registration would relieve an FBOT from compliance with CEA section 5 
or 5a.
    The Commission has determined to adopt the rule as proposed. 
Registration with the Commission under the Part 48 regulations would 
relieve an FBOT from compliance with CEA section 5 and its requirement 
to register with the Commission as a DCM and comply with the core 
principles and regulations associated with DCMs to the extent that its 
activity within the U.S. is limited to permitting members and other 
participants located in the U.S. to have direct access to its trade 
matching system, subject to the terms and conditions of registration, 
and so long as it remains an FBOT. Of course, the registered FBOT 
could, alternatively, choose to comply with CEA section 5 and become a 
registered DCM, subject to the regulatory requirements applicable 
thereto. The Commission notes that CEA section 5a was repealed by the 
Dodd-Frank Act.
6. Registration Requirements and Conditions
    Proposed Sec.  48.7 identified certain requirements that must be 
satisfied by an FBOT seeking to register with the Commission. Proposed 
Sec.  48.8 imposed various continuing conditions on registered FBOTs. 
Several commenters raised issues related to the proposed requirements 
and conditions.
a. Trading Rules
    Proposed Sec.  48.7(b) identified the attributes of the automated 
trading system that would be required to be met by any FBOT seeking to 
register with the Commission. In response to the proposal's request for 
comment with respect to whether the Commission should require FBOTs to 
adopt additional conditions to promote orderly markets and customer 
protection, such as automated safety features to protect against errors 
in the entry of orders, price-banding mechanisms, maximum order size 
limitations, or trading pauses to prevent cascading stop-loss orders, 
ICE commented that the Commission should not issue prescriptive trading 
rules for FBOTs and that the foreign regulator, not the CFTC, has the 
primary interest in adopting rules in this area. Further, ICE noted 
that the CFTC should work through international regulatory groups like 
IOSCO to implement consistent controls, instead of prescriptive rules.
    The Commission has determined not to require, as a requirement for, 
or a condition of, registration, that FBOTs adopt such automated safety 
features. The Commission believes that the primary interest in adopting 
rules in this area remains with the foreign regulatory authority. The 
Commission believes that the trading system attributes described in and 
required by Sec.  48.7(b), which include compliance with the IOSCO 
Principles for Screen-Based Trading, are adequate to ensure the FBOT's 
trading system, among other things, is fair, reliable, capable of 
responding to emergencies, provides an adequate audit trail, and 
provides for reporting of trade data. They are features common to all 
automated trading systems that staff has reviewed in the context of the 
no-action process.
b. Information Sharing
    Proposed Sec.  48.8(a)(6) imposed certain information sharing 
obligations on a registered FBOT and its clearing organization. NYX 
asserted that the CFTC should not seek to obtain information directly 
from a clearing organization. Rather, the CFTC should look to the 
exchange--which should always be able to provide all the information 
held by the clearing organization in relation to business conducted on 
that exchange. NYX also commented that some European clearing 
organizations have the status of banks (e.g., LCH Clearnet SA), and so 
may find it difficult to share information directly with the Commission 
rather than through their regulators.
    The Commission continues to believe that it would be appropriate 
and expedient to obtain information regarding the clearing function 
directly from the clearing organization, in lieu of relying upon 
intermediation by another entity. Nonetheless, with respect to the FBOT 
being better able to provide

[[Page 80689]]

information requested of the clearing organization, the Commission 
notes that Sec.  48.8(a)(6)(iii) provides that the FBOT and its 
clearing organization, as applicable, will provide information for 
certain purposes directly to the Commission. Accordingly, an FBOT could 
provide the information directly to the Commission, if it were better 
able to do so. Such information also could be provided by the 
applicable regulatory authority, although the FBOT and its clearing 
organization remain ultimately responsible to provide the information 
directly to the Commission under the final rule.
c. Submission of U.S.-Domiciled Entities to Service of Process
    As a condition of registration, proposed Sec.  48.8(a)(5) would 
require that certain members or other participants granted direct 
access by a registered FBOT (1) file a written representation with the 
Commission submitting to the CFTC's jurisdiction, (2) file a valid and 
binding appointment with the FBOT of an agent for service of process in 
the U.S., and (3) maintain a written representation with the FBOT that 
it will provide the Commission and other U.S. authorities with access 
to books and records and to the premises where the FBOT's trading 
system is made available in the U.S. LME questioned the need to require 
U.S.-based persons with direct access to foreign markets (FBOTs) that 
trade from the U.S. to comply with these three conditions. LME argued 
that in terms of personal jurisdiction, a U.S.-based person with direct 
access to an FBOT raises no more jurisdictional issues than a U.S.-
based person trading on a U.S. market, as long as both traders are 
conducting their trading from the U.S.
    Upon further review and consideration of the comments received, the 
Commission has determined that Sec.  48.8(a)(5)(iii), which obligated a 
registered FBOT to require that each current and prospective member or 
other participant that is granted direct access pursuant to the FBOT's 
registration and that is not registered with the Commission as a FCM, a 
CTA or a CPO file with the FBOT a valid and binding appointment of a 
U.S. agent for service of process in the U.S., is not necessary. 
Accordingly, that section has been deleted from the final rule. 
However, the Commission has determined that the remaining two 
conditions applicable to members and participants should be adopted as 
proposed. The Commission believes these conditions remain necessary to 
ensure that the FBOT members and other participants that have been 
granted direct access to an FBOT's trading system knowingly consent to 
submit to the CFTC's jurisdiction and to provide the Commission and 
other appropriate U.S. authorities with access to relevant books, 
records and trading premises in the U.S.
7. Modification of Registration Requirements
    Proposed Sec.  48.5(e) provided that the Commission may, after 
appropriate notice and an opportunity for hearing, amend, suspend, 
terminate or otherwise restrict the terms of an Order of Registration. 
ASX noted that the proposed rules refer to the ability to modify 
relief, and asked whether the Commission would provide any clarity with 
respect to applying for modification and the criteria for modification.
    The Commission believes it is not necessary to promulgate a 
specific procedure for applying for modification of FBOT registration 
requirements or to delineate the circumstances under which modification 
might be granted. While the Commission would consider a request for 
modification of specified registration requirements or conditions if 
such request is supported by adequate justification and appropriate 
documentation, the Commission does not anticipate that modifications 
would be granted unless particularly unique factual circumstances are 
presented. Given that such requests would involve a unique set of facts 
and circumstances, the Commission believes that a case-by-case approach 
is appropriate and thus, is adopting Sec.  48.5(e) substantially as 
proposed, except that the rule now provides for appropriate notice and 
an opportunity to respond.
8. Other Concerns
a. Prescriptive Nature of the Regulations
    Three commenters voiced concern regarding the risk of protectionism 
by foreign regulators that might arise in the event that the Commission 
adopts overly prescriptive registration regulations for FBOTs.\56\ FOA 
noted that the standards set in the U.S. for recognition of foreign 
regulators would impact, for example, the European approach to the 
recognition of U.S. market infrastructures. CME Group expressed concern 
that the proposed rules were overly prescriptive and noted that the 
Commission should be cognizant of the ``realistic possibility'' that 
enacting the proposed rules might encourage foreign regulators to adopt 
a reactive regulatory stance toward U.S.-based exchanges. HKFE asserted 
that the adoption of the proposed rules would be a departure from the 
CFTC's long-standing policy of mutual recognition and comity and that 
this could lead to the diminution rather than the expansion of global 
connectivity.
---------------------------------------------------------------------------

    \56\ HKFE, FOA, and CME Group.
---------------------------------------------------------------------------

    The Commission has determined to adopt the rule as proposed. The 
Commission believes that its final regulations properly standardize the 
process by which FBOTs are permitted to provide direct access to U.S.-
located persons, enhance the transparency of that process, ensure 
consistency and fairness to all applicants for registration, provide 
greater legal certainty to registered FBOTs, and are more consistent 
with the manner in which other countries permit U.S. DCMs to provide 
direct access to their trading systems from within their borders. As 
previously noted, the Commission believes that the registration 
requirements in the final rule represent a principles-based approach to 
limited oversight and are not overly prescriptive. FBOTs will be 
required to demonstrate, in a manner consistent with the part 48 
regulations, that they operate under supervision and regulation that is 
comparable to that provided by the Commission's regulatory regime for 
DCMs, but will not be required to comply with the core principles 
applicable to DCMs under the CEA and the Commission's regulations.
b. Alternative Trading Platforms
    HKFE questioned whether the proposal's definition of FBOT would 
cover alternative trading platforms such as non-U.S.-based dark pools. 
Further, HKFE questioned whether, if the intention of the proposed 
rules is to not cover non-U.S. based dark pools or is designed with 
such threshold requirements as to effectively affect only traditional 
exchanges in overseas jurisdictions (as not all FBOTs (as defined) are 
eligible for registration under the proposed rules), an uneven playing 
field may be created in favor of these dark pools if access to them is 
available from the U.S.\57\
---------------------------------------------------------------------------

    \57\ The definition of ``board of trade'' as set forth in CEA 
section 1a(2) refers to ``any organized exchange or other trading 
facility.'' As such, the statutory definition of ``board of trade'' 
does not preclude the possibility of alternative trading platforms 
being covered by the FBOT registration scheme.
---------------------------------------------------------------------------

    The Commission has determined to adopt the rule as proposed. The 
proposal generally limited the markets eligible for FBOT registration 
to bona fide exchanges that satisfy the eligibility standards set forth 
in Sec.  48.2(b). The Commission expects that such exchanges might 
include, for example,

[[Page 80690]]

exchanges recognized in the EU as Regulated Markets, in the UK as 
Recognized Investment Exchanges (RIE), or in Japan as Licensed 
Financial Instruments Exchanges. Of course, even if deemed a ``foreign 
board of trade eligible to be registered'' under Sec.  48.2(b), the 
FBOT would still have to satisfy all of the requirements and conditions 
for registration set forth in the regulations. Foreign SEFs and similar 
entities likely would not be eligible for FBOT registration unless they 
could demonstrate they are operated and regulated in a manner that is 
comparable and comprehensive to the manner in which DCMs (not U.S. 
SEFs), are regulated by the Commission. The FBOT registration rule 
should not create an uneven playing field in favor of dark pools since 
such pools are not likely to qualify for registration and, thus, could 
not provide for direct access under the FBOT registration rules.
c. Impact of FBOT Registration Rules
    ICE suggested that the CFTC should consider the impact of its 
registration scheme against the broader impact of the Dodd-Frank Act 
and similar financial reform measures taken by other countries. The 
Commission has determined to adopt the rule as proposed. The proposed 
FBOT rules were considered against the international implications of 
the Dodd-Frank Act and similar financial reform measures being taken by 
other countries. Relevant financial reform measures taken by other 
countries will be reviewed as part of the examination of the FBOT's 
application for registration and, to the extent that such relevant 
reform measures support regulatory objectives that are consistent with 
those supported by the CFTC, will be favorably considered. The 
Commission notes that the historical process of examining whether the 
FBOT is subject to comparable and comprehensive regulation in its home 
country has been, and will continue to be, the proper approach to 
maintaining this balance between reliance upon a foreign regulatory 
regime and ensuring that an FBOT whose trading and order matching 
system can be accessed by U.S. customers provides adequate protections.
9. On-Going Review of Registered FBOTs
    Three commenters indicated that under their interpretation of the 
NPRM, the Commission would conduct on-going surveillance and 
examination of FBOTs and their clearing organizations.\58\ For example, 
Better Markets expressed the view that it is important to continuously 
monitor both the structure of the foreign regulatory regime to which an 
FBOT is subject and the quality of the administration of that structure 
and that FBOTs should be required to annually re-affirm and demonstrate 
the appropriateness of their foreign regulatory regimes, based upon the 
standards relevant to their initial application for registration.
---------------------------------------------------------------------------

    \58\ Better Markets, CME Group, and Senator Levin.
---------------------------------------------------------------------------

    As previously discussed, CME Group suggested that the Commission's 
analysis of the FBOT and its regulatory regime should be more narrowly 
tailored and that the Commission should limit its inquiry to questions 
regarding the comparability of the regulatory regime in the FBOT's home 
jurisdiction. If this approach were adopted, CME Group indicated that 
it would expect that the Commission would continue to vigorously 
monitor compliance with the core regulatory principles and ensure that 
the process is not being abused to avoid legitimate CFTC regulation.
    Senator Levin similarly commented that, to ensure market integrity, 
the Commission must effectively police U.S.-based trading in FBOTs and 
incorporate that activity into its regular surveillance and enforcement 
efforts. He also noted that the proposed rules would need a robust 
program of FBOT supervision, as well as surveillance and examination 
programs that include an integrated review of the FBOT's U.S. trading 
activity, asserting that the Commission also would need to bring 
enforcement cases against individuals who engage in manipulative or 
abusive trading practices that affect U.S. futures and cash markets and 
market users and attempt to avoid detection by trading in foreign 
markets in order to deter such activity.
    The Commission has determined to adopt the rule as proposed. As 
previously discussed, FBOTs will be required, prior to being 
registered, to submit information and documentation demonstrating that 
they are subject to comprehensive supervision and regulation by the 
appropriate governmental authorities in their home country that is 
comparable to the comprehensive supervision and regulation to which 
DCMs are subject in the U.S. While the regulations require the FBOT and 
its regulatory authority to provide critical information on an ongoing 
basis to the Commission, any on-going review of the FBOT and its 
clearing organization by the Commission generally will be limited to 
reviewing the required information and documentation that the FBOT must 
submit periodically to the CFTC and will not include direct 
surveillance of trading activity. Staff may conduct periodic on-site 
visits to validate information submitted as part of the registration 
application and/or required to be submitted as a condition of 
registration. Staff will, however, conduct additional review with 
respect to linked contracts, and will monitor these contracts pursuant 
to the additional conditions levied upon the FBOT for listing such 
contracts, e.g., large trader and TSS reporting and comparable position 
limits. The Commission believes that these provisions are adequate to 
monitor the activities of the FBOT conducted pursuant to an Order of 
Registration.
10. The Appendix
    For purposes of enhanced clarity and standardization, the 
Commission has elected to revise the proposed Appendix to Part 48 to 
include the submission requirements identified therein in the proposal 
in a standardized application form, Form FBOT and Supplement S-1 (for 
the clearing organization) to Form FBOT. The Commission believes that 
the use of this form will make it easier to guide applicants in the 
organization and presentation of information and documentation and to 
ensure that all required information is included in the application. 
Use of the form also will improve the staff's ability to organize and 
review the information in a timely manner.

III. Conclusion and Effective Date

A. Conclusion

    For the reasons stated above and in the NPRM and after considering 
the complete record in this matter, including all comments, the 
Commission is adopting part 48 substantially as proposed, subject to 
the revisions to the proposed rules identified above in response to 
comments submitted or otherwise initiated by the Commission. This new 
part 48 provides the rules and procedures to be followed by FBOTs that 
wish to register in order to provide identified members and other 
participants that are located in the U.S. with direct access to the 
FBOT's order entry and trade matching system. Part 48 replaces the 
practice, used since 1996, of issuing staff direct access no-action 
relief letters to permit FBOTs to provide their members and other 
participants located in the U.S. with direct access to their trading 
systems and provides a transitional period for

[[Page 80691]]

those FBOTs that have received staff no-action relief.

B. Effective Date

    This rule shall become 60 days after publication in the Federal 
Register.

IV. Related Matters

A. The Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \59\ 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. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid control number. The 
final Part 48 rules impose new collection of information requirements 
within the meaning of the PRA. Accordingly, the Commission requested, 
but the Office of Management and Budget (OMB) has not yet assigned a 
control number for the new collection of information. However, OMB has 
assigned the reference number 201011-3038-003 in the interim. The 
Commission has submitted this final rule along with supporting 
documentation for OMB's review in accordance with 44 U.S.C. 3507(d) and 
5 CFR 1320.11. The information collection burdens in the final rules 
are identical to the collection burdens estimated by the Commission in 
the proposing release, subject to the modifications discussed 
below.\60\
---------------------------------------------------------------------------

    \59\ 44 U.S.C. 3501 et seq.
    \60\ See the Commission's Paperwork Reduction Act analysis at 75 
FR 70984-86 (Nov. 19, 2010).
---------------------------------------------------------------------------

    The Commission protects proprietary information according to the 
Freedom of Information Act and 17 CFR part 145, ``Commission Records 
and Information.'' In addition, section 8(a)(1) of the Act strictly 
prohibits the Commission, unless specifically authorized by the Act, 
from making public ``data and information that would separately 
disclose the business transactions or market positions of any person 
and trade secrets or names of customers.'' The Commission is also 
required to protect certain information contained in a government 
system of records according to the Privacy Act of 1974, 5 U.S.C. 552a.
    The Commission invited the public and other Federal agencies to 
comment on any aspect of the information collection requirements 
discussed in the NPRM. Pursuant to 44 U.S.C. 3506(c)(2)(B), the 
Commission solicited comments in order to: (i) Evaluate whether the 
proposed collections of information were necessary for the proper 
performance of the functions of the Commission, including whether the 
information will have practical utility; (ii) evaluate the accuracy of 
the Commission's estimates of the burden of the proposed collections of 
information; (iii) determine whether there are ways to enhance the 
quality, utility and clarity of the information to be collected; and 
(iv) minimize the burden of the collections of information on those who 
are to respond, including through the use of automated collection 
techniques or other forms of information technology.
    In response to the Commission's request in the NPRM for comments on 
any potential paperwork burden associated with the final rules, two 
commenters provided substantive comments addressing the merits of the 
Commission's proposed PRA calculations with respect to Sec.  48.6 and 
the ``limited'' application. DME argued that limited applications by 
FBOTs operating under no-action relief could easily take 200 to 300 
hours to complete rather than the Commission's proposed estimate of 50 
hours. Similarly, HKFE contended that the work involved in submitting a 
limited application under the proposed regime would be substantially 
more than the 50 hours estimated by the Commission.
    The Commission estimated in the NPRM that a total of 20 FBOTs would 
file a registration application with the Commission pursuant to the 
limited application procedures in Sec.  48.6. The Commission notes that 
the final rules governing the limited application differentiate between 
those FBOTs whose original no-action relief request was submitted 
electronically and remains on file with Commission staff and those 
FBOTs whose original no-action relief request was not submitted 
electronically to the Commission. The Commission estimates that ten 
FBOTs would be able to take advantage of the streamlined application 
procedures in final Sec.  48.6. Indeed, the ten FBOTs would be 
permitted to simply refer to each portion of their original submissions 
that satisfies a particular registration requirement, identify the 
specific registration requirement that is fulfilled by that section, 
and certify that the information or documentation originally provided 
remains current and true. After considering the comments from DME and 
HKFE, in conjunction with the streamlined application requirements 
adopted by the Commission in the final rules, the Commission has 
determined that it is not amending its estimate of 50 burden hours for 
the FBOTs whose original no-action relief request was submitted 
electronically. However, with respect to the ten FBOTs that would need 
to submit the complete limited application because Commission staff 
does not have the original no-action relief request on file in an 
electronic format, the Commission finds some merit in the comments from 
DME and HKFE and the Commission is revising its estimates accordingly. 
Specifically, the Commission estimates that the effect of the final 
rules on these FBOTs will be to increase the information collection 
burden by approximately 200 hours, and result in approximately 250 
hours per FBOT. Consequently, it is anticipated that ten FBOTs will 
incur an aggregate of 2,500 burden hours compared to the 500 burden 
hours estimated in the NPRM for such FBOTs.
    The Commission is also revising its information burden collection 
estimate for FBOTs with pending requests for direct access no-action 
relief. In the NPRM, the Commission estimated that seven FBOTs, 
including one new FBOT and six FBOTs that currently have pending 
requests for no-action relief, would submit a full FBOT registration 
application. The Commission estimated that the seven FBOTs would expend 
1,000 burden hours per FBOT to satisfy the registration requirement. 
However, the Commission has determined to amend its proposal to 
substantially reduce the information collection requirements for the 
six FBOTs with pending requests for no-action relief. Specifically, the 
final rules provide that an FBOT with a pending no-action request as of 
the effective date of the rule could, as part of its application for 
registration, identify information or documents provided in its 
original no-action submission that would satisfy particular 
registration requirements. In light of the amendments to the 
Commission's final rules, the Commission is revising its previous 
estimate by reducing the information collection burden for the six 
FBOTs from 1,000 burden hours to 250 hours for each FBOT. Thus, it is 
anticipated that the six FBOTs will incur an aggregate reduction of 
4,500 burden hours than what was stated in the NPRM.
    Finally, the Commission estimated in the NPRM that four registered 
FBOTs would permit swaps to be traded by direct access. Proposed Sec.  
48.8(a)(8)(i) required a registered FBOT to report to the public, on a 
real-time basis, data relating to each swap transaction, including 
price and volume, as soon as technologically practicable after 
execution of the swap transaction. In the final rules, the Commission 
is eliminating the real-time reporting

[[Page 80692]]

requirement for FBOTs because that requirement is being placed on swap 
data repositories. The Commission previously estimated that each of the 
four FBOTs would incur an annual reporting burden of 2,080 hours to 
comply with the real-time reporting requirement. Therefore, the 
Commission has determined that this rule modification will result in an 
aggregate reduction of 8,320 burden hours.
    Accordingly, the Commission has submitted to the OMB an amended 
calculation of the annual burden hours for FBOTs.

B. Cost Benefit Considerations

    Section 15(a) of the CEA requires the Commission to ``consider the 
costs and benefits'' of its actions in light of five broad areas of 
market and public concern: (1) Protection of market participants and 
the public; (2) efficiency, competitiveness, and financial integrity of 
futures markets; (3) price discovery; (4) sound risk management 
practices; and (5) other public interest considerations.\61\ The 
Commission may, in its discretion, give greater weight to any one of 
the five enumerated areas and may determine that, notwithstanding 
costs, a particular rule protects the public interest.
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    \61\ 7 U.S.C. 19(a).
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1. Background
(a) Description of the Statutory Registration Authority per the Dodd-
Frank Act
    Section 738 of the Dodd-Frank Act amended CEA section 4(b) to 
provide that the Commission may adopt rules and regulations requiring 
FBOTs that wish to provide their members or other participants located 
in the United States with direct access to register with the 
Commission.\62\ Section 738 also authorizes the Commission to 
promulgate rules and regulations prescribing procedures and 
requirements applicable to the registration of such FBOTs. Accordingly, 
on November 19, 2010, the Commission published a notice of proposed 
rulemaking that set forth proposed regulations that would establish a 
registration requirement and related registration procedures and 
conditions applicable to FBOTs that wish to provide their members or 
other participants located in the United States with direct access to 
the FBOT's electronic trading and order matching system (NPRM).\63\
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    \62\ Direct access is defined in section 4(b) of the CEA, as 
amended by section 738 of the Dodd-Frank Act, to refer to an 
explicit grant of authority by an FBOT to an identified member or 
other participant located in the U.S. to enter trades directly into 
the FBOT's trade matching system.
    \63\ See Registration of Foreign Boards of Trade, 75 FR 70974 
(Nov. 19, 2010).
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(b) Prior No-Action Regime
    Since 1996, FBOT requests to provide members and other participants 
with direct access to their electronic trading and order matching 
systems from within the U.S. have been addressed by Commission staff 
pursuant to the no-action process set forth in Commission regulation 
140.99.\64\ Specifically, such FBOTs have requested, and, where 
appropriate, received from the relevant Commission division, a no-
action letter. As part of the no-action letter, division staff would 
represent that the division will not recommend that the Commission 
institute enforcement action against the FBOT for failure to register 
as a DCM or DTEF if the FBOT provides direct access to members and 
participants located in the U.S, provided the FBOT satisfies the 
conditions set forth therein. A no-action request from an FBOT was 
required to include representations and supporting documentation from 
the FBOT regarding, among other things, its organization, presence in 
the U.S., participants, the products it wishes to list for direct 
access, its trading system and the regulatory regime and information-
sharing arrangements to which the FBOT is subject. As noted above, 
since 1996, Commission staff has issued 24 direct access no-action 
relief letters to FBOTs, 20 of which remain active.\65\ A detailed 
discussion of the history and evolution of the FBOT no-action process 
and the scope of the relief provided can be found in the NPRM.\66\
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    \64\ See, e.g., CFTC Letter No. 96-28 (Feb. 29, 1996). 
Commission regulation 140.99 defines the term ``no-action letter'' 
as a written statement issued by the staff of a Division of the 
Commission or of the Office of the General Counsel that it will not 
recommend enforcement action to the Commission for failure to comply 
with a specific provision of the Act or of a Commission rule, 
regulation or order if a proposed transaction is completed or a 
proposed activity is conducted by the beneficiary.
    \65\ One no-action relief letter was superseded and three were 
revoked when the FBOTs ceased operations as regulated or recognized 
markets. Currently, 14 of the FBOTs with active no-action relief 
report volume originating from the U.S. via direct access.
    \66\ 75 FR 70974-76.
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(c) Replacing No-Action Regime With Registration Requirement
    (i) Overview. As described in detail in the preamble, the 
registration regime established in new part 48 will replace the direct 
access no-action relief process. That registration regime is being 
established pursuant to the Commission's authority found in section 
4(b) of the CEA, as amended by section 738 of the Dodd-Frank Act, as 
described above. Based on the nature of the directives in CEA section 
4(b), this final rulemaking contains certain statutorily mandated 
components as well as other discretionary components.
    (ii) Mandatory components of statute. The adoption of a 
registration regime applicable to FBOTs that desire to provide their 
members or other participants located in the U.S. with direct access to 
their trading systems is discretionary. However, if the Commission 
determines to adopt such a registration regime, certain non-
discretionary guidelines are mandated in the statute. Specifically, CEA 
section 4(b)(1)(A) provides that:

    In adopting such rules and regulations, the Commission shall 
consider--
    (i) Whether any such foreign board of trade is subject to 
comparable, comprehensive supervision and regulation by the 
appropriate governmental authorities in the foreign board of trade's 
home country; and
    (ii) Any previous commission findings that the foreign board of 
trade is subject to comparable comprehensive supervision and 
regulation by the appropriate government authorities in the foreign 
board of trade's home country.

    Because the Commission is promulgating an FBOT registration scheme, 
the Commission is required to incorporate these two guidelines in 
issuing the final rules. In accordance with these two guidelines, part 
48 includes certain requirements, procedures, and conditions for FBOT 
registration. While there are some costs inherent in a FBOT 
registration scheme that follows the scope of review mandated by 
Congress, the Commission considers the costs and benefits associated 
with implementing the discretionary components of this FBOT 
registration scheme below.
    Several provisions applicable to a linked contract are mandatory 
regardless of whether the Commission adopts FBOT registration 
rules.\67\ Specifically, CEA section 4(b)(1)(B), as amended by the 
Dodd-Frank Act, mandates that the Commission may not permit an FBOT to 
make a linked contract available via direct access absent several 
statutorily specified conditions. These conditions, set forth

[[Page 80693]]

in Sec.  48.8(c)(1), address (1) making public daily trading 
information regarding the linked contract that is comparable to the 
daily trading information published for the contract to which it is 
linked; (2) adopting position limits for the linked contract that are 
comparable to the position limits adopted by the registered entity for 
the contract to which it is linked; (3) having the authority to require 
or direct any market participant to limit, reduce, or liquidate any 
position; (4) agreeing to promptly notify the Commission of certain 
changes with respect to the linked contract; (5) providing information 
to the Commission regarding large trader positions in the linked 
contract that is comparable to the large trader position information 
collected by the Commission for the contract to which it is linked; and 
(6) providing the Commission such information as is necessary to 
publish reports on aggregate trader positions for the linked contract 
that are comparable to such reports on aggregate trader positions for 
the contract to which it is linked.
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    \67\ Based upon the statutory provision regarding linked 
contracts in CEA section 4(b)(1)(B), Sec.  48.2(d) defines a linked 
contract as a futures, option or swap contract that is made 
available for trading by direct access by a registered FBOT that 
settles against any price (including the daily or final settlement 
price) of one or more contracts listed for trading on a registered 
entity as defined in section 1a(40) of the Act.
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    Congress mandated these linked-contract conditions on FBOTs. To the 
extent that these new rules reflect the statutory provisions of the 
Dodd-Frank Act, such rules will not create costs and benefits in 
addition to the costs and benefits that already will result from the 
action of Congress in passing the Dodd-Frank Act. However, such rules 
may generate costs and benefits that are attributable to the 
determinations made by the Commission regarding the manner in which 
statutory provisions in the Dodd-Frank Act should be implemented. The 
costs and benefits of these Commission determinations are considered in 
light of the five factors set forth in CEA section 15(a).
(d) Purpose of the Final Rules
    As described in the preamble, the purpose of these final rules is 
to formalize and standardize the process by which an FBOT may provide 
traders located in the U.S. with direct access to its trading system. 
By implementing uniform application procedures and registration 
requirements and conditions, the process will become more standardized 
and more transparent to both registration applicants and the general 
public and will promote fair and consistent treatment of all 
applicants. Further, generally applicable regulations will provide 
greater legal certainty for FBOTs providing direct access than the no-
action relief process because no-action letters are issued by the staff 
and are not binding on the Commission.
    In determining to adopt formal registration rules for FBOTs, the 
Commission has considered that the no-action process is generally 
better suited for discrete, unique factual circumstances and for 
situations where neither the CEA nor the Commission's regulations 
directly address the issue presented. The Commission has determined 
that, where the same type of relief is being granted on a regular and 
recurring basis, as it has been with respect to permitting FBOTs to 
provide direct access to their trading systems to specified members and 
other participants that are located in the U.S., it is no longer 
appropriate to handle requests for the relief through the no-action 
process. Rather, such matters should be addressed in generally 
applicable regulations. The Commission also notes that a statutory-
based regulatory FBOT registration regime will be more consistent with 
the statutory-based framework under which other countries, including 
the UK, Australia, Singapore, Japan and Germany, among others, permit 
DCMs to provide direct access internationally.
(e) Public Comment
    As described in detail in the preamble, the Commission, in 
preparing these final rules, sought and incorporated comment from the 
public. In the NPRM, the Commission specifically requested comment on 
the cost benefit section and invited commenters to provide data 
quantifying the costs and benefits of the proposed regulations. The 
Commission received 14 comments discussing the costs and benefits of 
the proposed rules, but none that provided quantitative data. These 
comments included 10 letters from entities representing thirteen FBOTs 
operating under existing no-action relief,\68\ one letter from another 
exchange,\69\ and one letter each from FOA, CME Group, and ESMA. Those 
comments are specifically addressed in the context of the extended cost 
benefit consideration discussion below.
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    \68\ DME, LME, MX, ICE (owner of ICE Futures Europe and ICE 
Futures Canada), HKFE, BM&F, OMX, NYX (operator of Liffe, Euronext 
Paris SA, and Euronext Amsterdam N.V.), Eurex, and OSE.
    \69\ NGX.
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2. Summary of the Final Rules
    As described in detail in section III of the preamble, new part 48 
provides the procedures, requirements, and conditions to be met by 
FBOTs that seek to provide their members and other participants in the 
U.S. with direct access to the FBOT's order entry and trade matching 
system. The final rules set forth, among other things, procedures an 
FBOT must follow in applying for registration, requirements that an 
FBOT must meet in order to obtain registration, conditions that an FBOT 
must satisfy on a continuing basis upon obtaining registration, and 
provisions for the termination of registration.
    Specifically, Sec.  48.1 sets forth the scope of the rules and 
Sec.  48.2 provides definitions applicable to the registration 
provisions. Section 48.3 makes it clear that registration is required 
if an FBOT wishes to provide for direct access. Section 48.4 
establishes registration eligibility and identifies the entities to 
which an FBOT can permit direct access once it is registered. Pursuant 
to Sec.  48.5, FBOTs wishing to provide direct access to their trading 
systems to members and other participants located in the U.S. will be 
required to file an application for registration with the Commission 
that contains all of the information and documentation necessary to 
successfully demonstrate that the FBOT satisfies the registration 
requirements contained in Sec.  48.7. In addition, Sec.  48.5 describes 
the procedures for applying for registration, notices the applicant 
that the Commission will be considering the two statutorily-mandated 
guidelines, among other things, in its review of the application, and 
describes the Commission response following approval or disapproval of 
the application. Section 48.6 provides a limited application procedure 
for FBOTs currently operating under existing no-action relief and FBOTs 
that have submitted a complete application for no-action relief that is 
pending as of the effective date of this regulation. Section 48.7, 
previously mentioned, includes the requirements that must be met before 
an FBOT can be registered. Once registered, all FBOTs will have to 
maintain continuing compliance with the conditions listed in Sec.  48.8 
of the final rules, including the statutorily-mandated conditions on 
linked contracts. Section 48.9 provides the rules for the revocation of 
registration. Finally, Sec.  48.10 establishes the process for an FBOT 
to make additional contracts available for direct access following an 
initial registration.
3. Factors Affecting the Scope of the Final Rules
    The costs that the rules impose on FBOTs seeking registration will 
vary depending on various factors including the size of the FBOT and 
whether the FBOT's clearing organization is a DCO. Larger FBOTs are 
more likely to have the means to hire U.S. counsel or sufficient staff 
expertise to submit a complete registration application in an

[[Page 80694]]

efficient manner than smaller FBOTs. It may be less costly to 
demonstrate that a clearing organization is a DCO than that it complies 
with the RCCPs. Another factor that could affect costs is demonstrating 
the comparability of the supervision by the FBOT's home regulator, 
since regulatory structures in different countries vary. Moreover, the 
cost of filing a limited application for FBOTs operating under the no-
action regime will vary, depending on whether or not the FBOT's 
original request was filed electronically and remains on file with the 
Commission.
    The Commission's consideration of costs and benefits contains 
discussions of three general aspects of the rulemaking: the 
requirements for filing a new registration application; the limited 
application requirement for FBOTs operating under the current no-action 
regime; and compliance costs. The Commission is only considering the 
marginal costs and benefits of the proposed regulations that are in 
addition to, or in lieu of, the costs and benefits associated with the 
current no-action regime.
4. Filing a New Application for Registration
    Costs: The Commission estimates that it will cost approximately 
$46,310 for an FBOT to submit a new registration application. This is 
based on an average wage for a compliance staffer and a compliance 
attorney of $46.31 per hour \70\ and a total burden of 1,000 hours. The 
Commission recognizes that some FBOTs hire outside counsel based in the 
U.S. with expertise in the FBOT registration process. While the 
Commission is uncertain about the billing rates that FBOTs pay for U.S. 
counsel, the Commission believes that such counsel may bill at a rate 
of several hundred dollars per hour. U.S. counsel may be able to 
leverage its expertise to substantially reduce the number of hours 
needed to fill out an application, but an FBOT that utilizes outside 
counsel may incur higher costs than an FBOT that does not use outside 
counsel. The Commission notes that any determination to use outside 
counsel is at the discretion of the FBOT.
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    \70\ As noted on page six of the Paperwork Reduction Act 
Supporting Statement (PRA Supporting Statement) for the final FBOT 
registration rules, this number is derived from SIFMA's ``Report on 
Management & Professional Earnings in the Securities Industry--
2010'' and represents the estimated average wage of a compliance 
attorney and a compliance staffer in the U.S. While wages in the 
home countries of FBOTs may differ, the Commission does not have 
access to data on the compensation of compliance staffers in other 
countries and is using the information in the SIFMA report as a best 
available estimate. The PRA Supporting Statement can be accessed at 
http://www.reginfo.gov/public/do/PRAViewDocument?ref_nbr=201011-3038-003.
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    The Commission notes that the proposed registration process is an 
outgrowth of the existing policy of allowing FBOTs to provide U.S.-
based traders with direct access to their trading systems through staff 
no-action letters and that most of the costs associated with this rule 
also are associated with applying for no-action relief. The costs that 
will be incurred by an FBOT as a result of the registration 
requirements and the conditions contained in the proposed regulations, 
with certain exceptions (e.g., additional submission requirements 
related to the FBOTs regulatory authority and clearing and settlement 
policies and procedures), substantially replicate the costs that would 
otherwise be incurred by an FBOT applying for no-action relief under 
the existing process. For example, FBOTs requesting no-action relief 
under existing procedures are required to provide the Commission staff 
with similar information and documentation to that which would be 
required for registration under the proposed regulations (e.g., 
information regarding the FBOT's trading system, terms and conditions 
of contracts to be made available by direct access in the U.S., and the 
regulatory regime governing the FBOT in its home country). The 
Commission believes that these costs, for the most part, do not 
represent a substantial increased burden, but rather reflect the 
continuation of an existing process--which is now proposed to be 
formalized. The Commission estimates that the increase in costs for new 
FBOTs to register rather than obtain a no-action letter is within a 
range between 100 hours or $4,631 per FBOT and 200 hours or $9,262 per 
FBOT.\71\
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    \71\ This increase in costs reflects the registration 
requirements that were not required in the no-action process, 
including additional submission requirements related to the FBOTs 
regulatory authority and clearing and settlement policies and 
procedures.
---------------------------------------------------------------------------

    There may be some costs for certain FBOTs if they need to upgrade 
their systems or procedures to meet the registration requirements. For 
example, an FBOT electing to offer linked contracts that did not 
previously impose position limits may need to establish a procedure for 
enforcing position limits. The Commission is unable to quantify these 
costs since it does not know what particular changes future FBOTs may 
need to make in their systems or procedures to comply with the 
registration requirements. However, the Commission anticipates that 
FBOTs applying for registration in the future, like FBOTs that applied 
for no-action relief in the past, generally will be compliant with the 
requirements before submitting their applications, so the cost of 
upgrading their systems and procedures should be minimal for most 
FBOTs. As discussed in the preamble, the FBOT requirements generally 
reflect existing industry practice and FBOTs are required to be subject 
to a comparable regulatory regime. Therefore, the Commission expects 
that FBOTs that meet the requirements of their home regulator and 
follow industry practice will meet the registration requirements and 
that most FBOTs will not need to make any upgrades to their systems or 
procedures.
    As noted above, the Commission has determined to amend its proposal 
to substantially reduce the information collection requirements for the 
six FBOTs with pending requests for no-action relief. Specifically, the 
final rules provide that an FBOT with a pending no-action request as of 
the effective date of the rule could, as part of its application for 
registration, identify information or documentation provided in its 
original no-action submission that would satisfy particular 
registration requirements. As noted in the PRA section, the Commission 
estimates that each of these FBOTs will have to devote 250 hours to 
converting the no-action request to a registration application at a 
cost of about $11,578 per FBOT for a cumulative cost of $69,468.
    Benefits: The Commission notes that the no-action process has been 
effective in permitting FBOTs to provide for direct access while 
protecting U.S. persons trading by direct access by seeking to ensure 
that the FBOT's rules and procedures are adequate and that the 
regulatory regime of its home regulatory authority supports regulatory 
objectives that are substantially similar to those supported by the 
CFTC. The Commission believes that formalizing the registration process 
will provide the additional benefits of increased standardization for 
filing requirements and greater levels of legal certainty for operating 
FBOTs. In addition, formalized registration rules, including the 
application form, will create an efficient application process with 
enhanced visibility to ensure fair and consistent treatment of 
applicants. In particular, the registration procedure and application 
form will also assist applicants in determining what information needs 
to be provided to obtain registration, which may reduce costs by making 
it more likely that the application will be complete upon initial 
submission. These benefits, which are not readily quantifiable, are

[[Page 80695]]

not, for the most part, currently available under the no-action 
process.
    Public Comments: The Commission received comments about the 
registration system in general as well as about specific aspects, 
including the regulatory comparability and clearing requirements.
    Registration System: Five commenters \72\ stated that the proposed 
registration system was overly burdensome, overly prescriptive, or that 
it unnecessarily subjected FBOTs to duplicative regulation without 
corresponding benefit. OMX stated: ``Our main concern related to the 
proposed rules is that they will involve a quite extensive process in 
order to obtain and maintain registration. [* * *] [E]xtensive and 
detailed requirements * * * may be deemed to impose an unreasonable 
burden on the applicants.'' ESMA said, ``[T]he new registration 
procedure and the mandatory application of very comprehensive, ongoing 
requirements to all FBOTs would be burdensome and costly without any 
apparent improvements for the safeguard of public interests such as the 
maintenance of fair and orderly markets, investor protection and the 
resilience of the market.''
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    \72\ OMX, NYX, FOA, ESMA, and CME.
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    As discussed above, the Commission notes that the proposed 
registration process is an outgrowth of the existing policy of issuing 
no-action letters and that it entails costs that are similar to that of 
the existing no-action process.
    In connection with commenters criticizing the ``overly 
prescriptive'' nature of the proposed rules, the Commission has 
identified, based upon its experience with its regulation of DCMs and 
the Commission staff experience in reviewing and evaluating FBOTs for 
purposes of no-action relief, several areas which it considers critical 
in determining if the FBOT has established its ability to provide on an 
ongoing basis, adequate protection to U.S. participants who trade and 
clear on the FBOT. These areas include, among others, compliance of the 
trading system with the IOSCO Principles, adequate trade practice and 
market surveillance programs, and a clearing and settlement 
organization that meets universally recognized standards. Moreover, 
amended CEA section 4(b) requires the Commission to consider whether 
the relevant FBOT is subject to comparable, comprehensive supervision 
and regulation by appropriate governmental authorities in the FBOT's 
home country. The Commission believes that, in these instances, rules 
are necessary in order to ensure that the Commission receives 
sufficient information and documentation to make these assessments and 
to ensure that registration applicants are subject to standardized and 
transparent obligations. The Commission also notes that the proposed 
regulations were drafted to provide flexibility where possible and 
warranted. For example, the final rules require the FBOT's clearing 
organization to successfully demonstrate that it satisfies the RCCPs, 
but do not mandate the manner in which the clearing organization must 
fulfill those principles.
    Nonetheless, the Commission has identified specific areas in which 
it is able to set forth the FBOT registration requirements in a less-
prescriptive manner. For example, the Commission is modifying the 
proposed regulations to clarify that an FBOT whose clearing 
organization is registered with the Commission as a DCO would not be 
required to separately establish that it satisfies the requirements 
contained in proposed Sec.  48.7 (e.g., a clearing organization that is 
registered as a DCO would not be required to demonstrate that its 
participants are fit and proper and meet appropriate financial and 
professional standards).
    Finally, in an effort to avoid unnecessary duplication in the text 
of the rule, the Commission has removed the appendix from the rules and 
is replacing it with a standardized application form.
    Regulatory Comparability: Two comment letters stated that the 
comparability analysis in conjunction with the broad set of 
requirements and conditions described in the proposed rules was overly 
burdensome. LME suggested that it would be better if the Commission 
made a single comparability determination for FBOTs residing in the 
same jurisdiction. CME suggested that the proposed comparability 
evaluation by the Commission was too burdensome on both FBOTs and the 
Commission. As an alternative, CME suggested that the Commission should 
limit its assessment to whether an FBOT is subject to a comparable 
regulatory regime by its home country regulator. This commenter said, 
``[W]e have a significant concern that the proposed rules are too 
prescriptive and would impose significant burdens without corresponding 
benefit.''
    The Commission reiterates that the statute requires that if the 
Commission implements a formal registration system, it must review 
whether any applicant ``is subject to comparable, comprehensive 
supervision and regulation by the appropriate governmental authorities 
in the foreign board of trade's home country.'' The Commission does 
have discretion on how to implement this requirement and is using that 
discretion to revise the final rule to provide an option for evaluation 
of the regulatory authority when multiple FBOTs that are subject to the 
same regulatory regime are applying for registration at the same time. 
In other words, the rule, as adopted, would permit multiple FBOTs that 
are subject to the same regulatory regime that are applying for 
registration at the same time to collectively provide information 
regarding their regulatory regime and would permit a foreign regulator 
(rather than the FBOT) to provide the required information regarding 
the regulatory regime to which those multiple FBOTs may be subject. 
This should significantly reduce the cost burden to FBOTs when there 
are multiple FBOTs under the same regulatory regime. However, the 
Commission notes that any evaluation will not begin and end with a 
review of the FBOT's regulatory authority. The nature of the FBOT's 
trading and clearing systems, rule enforcement, surveillance practices, 
and information-sharing ability, among other things, are critical to 
any pre-registration review.
    Clearing: As discussed in section II.B.2.d. above, Eurex stated 
that extending the Commission's review to FBOT clearing would impose 
increased burdens on the Commission's limited resources. This commenter 
suggested that the Commission should rather require than an FBOT simply 
demonstrate that, if its clearing organization is not a DCO, the 
clearing organization complies with the RCCPs.
    The Commission notes that consideration of a foreign board of 
trade's clearing and settlement function, to a certain extent, is 
already incorporated into the existing no-action process and, 
accordingly, is not itself a totally new requirement. In this respect, 
the final rules seek to provide transparency and standardization with 
respect to the necessary clearing organization attributes by requiring 
that the clearing firm either satisfy an internationally recognized 
standard for central counterparties or be registered as a DCO. This 
will benefit U.S. persons trading on the FBOT by providing an added 
level of security in knowing that the FBOT's clearing organization has 
represented that it meets internationally recognized standards or is a 
DCO. The Commission, however, has streamlined the regulation in the 
final rule to eliminate the requirements contained in Sec.  48.7 if the 
clearing firm is registered

[[Page 80696]]

with the Commission as a DCO. The cost of demonstrating that a clearing 
organization is a DCO is de minimus. Because the manner of satisfying 
the RCCPs or their successor standards is at the discretion of the 
FBOT's clearing organization, the Commission is unable to quantify the 
costs of demonstrating that the clearing organization observes the 
RCCPs or their successor standards.
    ICE stated that ``the CFTC should not place a greater burden on 
FBOTs than it does on U.S. regulated markets,'' in particular by 
imposing mandatory clearing requirements on swaps executed on FBOTs. 
ICE noted that SEFs are not subject to mandatory clearing requirements. 
However, the Commission notes that under the Dodd-Frank Act, swaps 
traded on DCMs will be subject to mandatory clearing requirements. The 
Commission believes that the treatment of swaps registered FBOTs will 
make available for trading to members and other participants located in 
the U.S. through direct access should parallel the treatment afforded 
to swaps transactions that may be traded on DCMs and, thus, they must 
be cleared. It is not clear whether a foreign SEF-equivalent would meet 
the FBOT eligibility requirements outlined in Rule 48.2(b) or be 
eligible for FBOT registration, but it is unlikely that such an entity 
would be eligible unless the entity could demonstrate that it is 
operated and regulated in a manner that is comparable and comprehensive 
to the manner in which DCMs (not U.S. SEFs), are regulated by the 
Commission. An FBOT could still offer non-cleared swaps to its market 
participants, but would be unable to offer such contracts via direct 
access in the U.S. The Commission is unable to quantify the costs of 
mandatory clearing of swaps on FBOT market participants, but such costs 
would approximate the costs of clearing futures since any listed swap 
contracts would have standardized terms and would resemble futures 
contracts. The Commission also cannot predict, at this time, whether 
FBOTs will elect to list swap contracts for direct access and, if so, 
how many FBOTs will make available how many swaps contracts.
5. Filing a Limited Application
    Costs: As noted, the Commission is requiring the 20 FBOTs currently 
operating under no-action relief to register, but is permitting them to 
file a limited application for registration. This is an additional cost 
being imposed on these FBOTs as a consequence of this rule. The ten 
FBOTs that filed their no-action requests electronically will be able 
to simply refer to each portion of their original submissions that 
satisfies each particular registration requirement and certify that the 
information or documentation originally provided remains current and 
true. The Commission estimates that the cost of filing a limited 
application for each of these FBOTs will be approximately $2,316 (50 
hours at $46.31 per hour) for a cumulative cost of $23,160. The 
remaining 10 FBOTs that did not file electronically will have to 
resubmit much of the material and therefore will each incur higher 
costs of approximately $11,578 (250 hours at $46.31 per hour) for a 
cumulative cost of $115,780. The cumulative cost across 20 FBOTs will 
be $138,940.
    Benefits: FBOTs using the limited application process will receive 
the benefits noted above of receiving a formal Commission registration 
order rather than a staff no-action letter (which provided for less 
legal certainty). These FBOTs will be operating on firmer legal ground 
and the Commission, market participants, and the public will benefit 
from the knowledge that all FBOTs offering direct access in the U.S. 
meet the registration requirements. There are also benefits that accrue 
to registering all FBOTs under the same transparent requirements, thus 
ensuring a ``level playing field'' going forward and ensuring that the 
Commission has the same set of information on file regarding each 
registered FBOT.
    Public Comments: As discussed above, several commenters \73\ 
addressed the proposed ``limited application'' scheme, suggesting that 
the limited application was overly burdensome, of limited value, or 
even unnecessary--preferring a grandfather provision for FBOTs 
operating under existing no-action relief. They commented in the 
context of the cost benefit section that the limited application 
process was too burdensome in its entirety for an FBOT that had 
previously obtained no-action relief. And at least two of the 
commenters, DME and CME, noted that, in the context of evaluating the 
burdens imposed by the proposed registration process, providing 
grandfather registration for FBOTs with existing no-action relief would 
be the better course. Finally, as addressed above, multiple commenters 
requested that the time-frame within which a limited application must 
be filed should be extended to at least 180 days following the 
effective date of final registration rules in order to ease the 
administrative burden of preparing and filing the proper documentation. 
Specifically, NYX stated:
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    \73\ BM&F, OMX, NYX, DME, CME, and MX.

    Under the [p]roposal, an FBOT with an existing no-action relief 
letter is required to submit a completed limited application for 
registration within 120 days of the effective date of the Proposal. 
The Proposal, however, would create a burdensome process requiring 
re-submission of voluminous materials, information and data that was 
previously provided to the Commission--a time-consuming and 
expensive exercise for FBOTs that previously have invested 
considerable resources to receive and maintain no-action relief 
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letters.

In the context of the burdens of preparing documentation for the 
limited application, MX argues that, ``Placing greater reliance on [the 
Commission's] past findings [of comparability] under the no-action 
process will not only lessen the burden on FBOTs, but it will conserve 
constrained Commission resources with no diminution of protections to 
the public or any increase in systemic risk.'' NGX stated that an FBOT 
with a pending no-action request should be considered to be eligible to 
file a limited application rather than a complete application.
    As discussed above, the Commission is extending the time for filing 
a limited application to 180 days from 120 after the effective date of 
this final rule. This change will address comments that the 120 day 
timeline placed an excessive burden on applicants. The Commission also 
is revising the rule to permit an FBOT with a pending no-action request 
to file a limited application rather than a complete application.
    The limited application procedure will, as noted, benefit market 
participants, and the public by ensuring that all FBOTs offering direct 
access in the U.S. meet the current registration requirements. This 
benefit would be foregone if the Commission were to grandfather FBOTs 
that are operating under existing no-action relief without any further 
review. FBOT requests for no-action relief were assessed based upon the 
information and documentation presented at the particular time of the 
request (as early as 1999) and the assessments were based upon a 
comparison of the regulatory regimes in the U.S. and the applicable 
foreign jurisdiction that existed at the time. In addition, early no-
action letters included only a limited analysis of the FBOT's clearing 
system because the current regulatory structure applicable to U.S. 
clearing organizations did not exist at that time of issuance.
    The Commission also does not believe that it would be either 
feasible or appropriate for the Commission staff to ascertain for each 
FBOT operating under

[[Page 80697]]

existing no-action relief the precise information in its individual no-
action request that would need to be updated or revised to satisfy 
registration requirements. The FBOTs are in a better position to 
recognize their own particular circumstances and to identify the 
additional information and documentation that may require updating in 
light of those changes. The FBOT should be afforded the opportunity to 
provide materials demonstrating that the foreign regime is comparable 
and comprehensive to the regulatory regime in the U.S.
6. Complying With Conditions Applicable to Registration
    Once registered, an FBOT will be required to file a number of 
reports with the Commission. Most of these reports are required under 
the current no-action regime and therefore requiring these reports of 
registrants will not impose additional costs on FBOTs that are 
currently providing direct access pursuant to no-action letters. 
Specific reporting requirements that are currently required under the 
no-action regime include Sec.  48.8(b)(1)(i)(A) and (B) regarding 
trading volume information, Sec.  48.8(b)(1)(ii)(A)-(F) regarding 
material changes to registration information (except where requirements 
specifically address the FBOT's clearing organization), and Sec.  48.10 
regarding the listing of additional futures and options contracts. New 
requirements include Sec.  48.8(b)(1)(iii)(B)-(G) regarding annual 
submission of information and Sec.  48.9 regarding demonstration of 
compliance with conditions for registration, as well as the requirement 
regarding material changes to the clearing organization. In the PRA 
section of the NPRM, it was estimated that the total annual burden of 
all reporting requirements for all registered FBOTs combined was 972 
hours.\74\ The Commission estimates that approximately 150 of these 972 
hours represent the new reporting requirements that were not required 
under the no-action regime and the cumulative annual cost of complying 
with these new requirements will be $6,947 (150 hours at $46.31 per 
hour).
---------------------------------------------------------------------------

    \74\ See 75 FR 70984-85 (Nov. 19, 2010) and PRA Supporting 
Statement at 12 (Nov. 23, 2010).
---------------------------------------------------------------------------

    There are also a number of provisions that apply to contracts that 
are linked to U.S. futures contracts. These provisions, set forth in 
Sec.  48.8(c)(1) and described above, and their associated costs 
generally are required under the CEA as amended by Dodd-Frank and the 
Commission lacks discretion regarding their implementation. Other 
provisions, set forth in Sec.  48.8(c)(2), are also currently imposed 
on FBOTs with linked contracts operating under no-action relief.\75\ 
Therefore, the costs associated with the linked contract provisions 
required by Sec.  48.8(c)(2) are not increased relative to those 
incurred by FBOTs currently.
---------------------------------------------------------------------------

    \75\ See CFTC Letter No. 09-37 (August 20, 2009).
---------------------------------------------------------------------------

    Benefits: The new recordkeeping requirements in Regulation 
48.8(b)(1)(iii)(B)-(G) regarding annual submission of information and 
Regulation 48.9 regarding demonstration of compliance with conditions 
for registration will provide the Commission, market participants and 
the public with the benefit of knowing that registered FBOTs are 
continuing to meet the requirements for registration, including 
providing fair and equitable trading platforms, and that the contracts 
available for direct access are not readily susceptible to 
manipulation.
    Public comments: The Commission received cost-benefit related 
comments regarding the linked contract provisions.
    Linked contract provisions: In connection with the burdens imposed 
by the proposed linked contract provisions, OSE stated that extra 
conditions were only necessary for FBOTs offering linked contracts in 
which there is more than a de minimis amount of trading. OSE 
specifically highlighted the imposition of speculative position limits 
on linked contracts as an example of a condition which would create an 
excessive burden. OSE also objected to the requirement that trade 
execution and audit trail data for linked contracts be submitted to the 
Commission on a daily basis. They suggested that the benefit of such a 
condition, in comparison to the costs, may be more useful if FBOTs were 
only required to submit trade execution and audit trail data for linked 
contracts on an ``as necessary'' basis--rather than on a daily basis.
    The Commission notes that some of the linked contract conditions/
requirements in the final rule are mandated by the Dodd-Frank Act, 
including the position limit requirements. Other provisions, such as 
the requirement that trade execution and audit trail data for linked 
contracts be submitted to the Commission on a daily basis, have been 
imposed by Commission staff on FBOTs that list linked contracts and 
have been found to be useful in accomplishing the Commission's market 
surveillance responsibilities. Commission staff conducts surveillance 
and reviews the trading data on a daily basis, and the trade data 
submitted daily from the FBOT's linked contract are a critical 
component of this surveillance. The Commission is of the opinion that 
the linked contract provisions serve to enhance the Commission's market 
surveillance capabilities because such linkages create a single market 
for the subject contracts and, in the absence of certain preventive 
measures at the FBOT, could compromise the Commission's ability to 
carry out its market surveillance responsibilities. Because of the 
linkage, the trading of the linked contracts on an FBOT potentially 
affects the pricing of contracts traded on U.S.-registered entities.
Section 15(a) Factors
1. Protection of Market Participants and the Public
    The final rules will further the protection of market participants 
and the public in numerous ways, including ensuring that FBOTs' 
automated trading systems comply with the IOSCO principles, match 
trades fairly and timely with a proper audit trail, and meet other 
requirements as described in Rule 48.7(b) and that the clearing 
organizations are DCOs or observe the RCCPs or their successor 
standards. The rules requiring that contracts offered by FBOTs are not 
readily susceptible to manipulation and the rules regarding linked 
contracts, including the requirement that linked contracts have 
appropriate position limits, will also further the protection of market 
participants and the public. Further protection is provided by the 
requirement that FBOTs offering direct access to U.S. participants and 
their clearing organizations have proper rule enforcement procedures 
and are subject to comprehensive supervision and regulation by the 
appropriate government authorities in their home country that is 
comparable to the Commission's comprehensive supervision and regulation 
and that information sharing agreements are in place. Finally, the 
examination of FBOT and clearing organization membership standards will 
also further the protection of market participants and the public.
2. Efficiency, Competitiveness, and Financial Integrity of the Markets
    The requirements that the FBOTs' automated trading systems contain 
a trade matching algorithm that matches trades in a fair and timely 
manner and that trading data be made available to users and the public 
will further the efficiency and competitiveness of the markets. The 
financial integrity of the markets will be furthered by the rules

[[Page 80698]]

requiring that clearing organizations be DCOs and meet DCO requirements 
or specifically represent that they observe each of the RCCPs (or their 
successor standards) and by the examination of FBOT and clearing 
organization membership standards. The rules requiring that contracts 
offered by FBOTs not be readily susceptible to manipulation will also 
further these considerations. The linked contract rules, including the 
position limit requirement, will also further the efficiency, 
competitiveness, and financial integrity of markets.
3. Price Discovery
    The rules regarding the automated trading systems, including the 
trade matching rule, will further the price discovery process in FBOT 
contracts. The linked contract provisions will protect the price 
discovery process for linked contracts and the U.S. contracts that they 
are linked to by ensuring that the linked contracts have position 
limits and accountability provisions comparable to the corresponding 
U.S.-based contracts and that the price and volume data for linked 
contracts are disseminated in a comparable manner to their U.S. 
counterparts. The rules requiring that contracts offered by FBOTs for 
direct access not be readily susceptible to manipulation will also help 
protect the price discovery process.
4. Sound Risk Management Procedures
    The requirement that FBOTs' clearing organizations be DCOs or 
demonstrate observance of the RCCPs or their successor standards will 
further sound risk management procedures by ensuring that clearing 
organizations represent that they use risk management procedures that 
are consistent either with Commission regulations or internationally 
recognized standards.
5. Other Public Interest Considerations
    The Commission believes that adopting formal registration 
provisions will further other public interest considerations by 
replacing the no-action procedure with a standardized and transparent 
application process and providing enhanced legal certainty to 
registered FBOTs and their clearing organizations.

C. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') requires Federal agencies 
to consider the impact of its rules on ``small entities.'' \76\ A 
regulatory flexibility analysis or certification typically is required 
for ``any rule for which the agency publishes a general notice of 
proposed rulemaking pursuant to'' the notice-and-comment provisions of 
the Administrative Procedure Act, 5 U.S.C. 553(b).\77\ The Commission 
noted in the proposing release that although it has established certain 
definitions of ``small entity'' to be used in evaluating the impact of 
its rules under the RFA, it had not previously addressed the question 
of whether FBOTs are small entities for purposes of the RFA.\78\ The 
Commission previously determined that DCMs are not small entities for 
purposes of the RFA.\79\ In the proposing release, the Commission 
determined that because FBOTs and DCMs are functionally equivalent 
entities, FBOTs like DCMs are not ``small entities'' for purposes of 
the RFA.
---------------------------------------------------------------------------

    \76\ 5 U.S.C. 601 et seq.
    \77\ 5 U.S.C. 601(2), 603, 604 and 605.
    \78\ See 75 FR 70987 (Nov. 19, 2010).
    \79\ See 47 FR 18618, 18619, Apr. 30, 1982.
---------------------------------------------------------------------------

    In response to the Proposed Rules, the Not-For-Profit Electric End 
User Coalition (Coalition) submitted a comment generally criticizing 
the Commission's ``rule-makings [as] an accumulation of interrelated 
regulatory burdens and costs on non-financial small entities like the 
NFP Electric End Users, who seek to transact in Energy Commodity Swaps 
and ``referenced contracts'' only to hedge the commercial risks of 
their not-for-profit public service activities.'' \80\ In addition, the 
Coalition requested ``that the Commission streamline the use of the 
bona fide hedging exemption for non-financial entities, especially for 
those that engage in CFTC-regulated transactions as `end user only/bona 
fide hedger only' market participants.''
---------------------------------------------------------------------------

    \80\ See Coalition at 29.
---------------------------------------------------------------------------

    After further consideration in light of this comment, the 
Commission has determined that this final rulemaking, which is 
applicable only to FBOTs, will not have a substantial economic effect 
on a substantial number of small businesses. Accordingly, for the 
reasons stated in the proposal and the fact that the Coalition does not 
represent bodies that will be registering with the Commission as FBOTs, 
the Chairman, on behalf of the Commission, hereby certifies pursuant to 
5 U.S.C. 605(b) that these rules will not have a significant economic 
impact on a substantial number of small entities. The Chairman made the 
same certification in the NPRM, and the Commission did not receive any 
comments on the RFA in relation to the proposed rulemaking.

List of Subjects in 17 CFR Part 48

    Foreign Boards of Trade, Commodity futures, Options, Swaps, Direct 
Access, Linked Contract, Registration, Existing No-action Relief, 
Conditions of Registration.

    In consideration of the foregoing, and pursuant to the authority 
contained in the Act, and, in particular, sections 3, 4 and 8a of the 
Act, the Commission hereby amends Chapter I of Title 17 of the Code of 
Federal Regulations by adding part 48 to read as follows:

PART 48--REGISTRATION OF FOREIGN BOARDS OF TRADE

Sec.
48.1 Scope.
48.2 Definitions.
48.3 Registration required.
48.4 Registration eligibility and scope.
48.5 Registration procedures.
48.6 Foreign boards of trade providing direct access pursuant to 
existing no-action relief.
48.7 Requirements for registration.
48.8 Conditions of registration.
48.9 Revocation of registration.
48.10 Additional contracts.
Appendix--Part 48--Form FBOT

    Authority: 7 U.S.C. 5, 6 and 12a, unless otherwise noted.


Sec.  48.1  Scope.

    The provisions of this part apply to any foreign board of trade 
that is registered, required to be registered, or applying to become 
registered with the Commission in order to provide its identified 
members or other participants located in the United States with direct 
access to its electronic trading and order matching system.


Sec.  48.2  Definitions.

    For purposes of this part:
    (a) Foreign board of trade. Foreign board of trade means any board 
of trade, exchange or market located outside the United States, its 
territories or possessions, whether incorporated or unincorporated.
    (b) Foreign board of trade eligible to be registered. A foreign 
board of trade eligible to be registered means a foreign board of trade 
that satisfies the requirements for registration specified in Sec.  
48.7 and:
    (1) Possesses the attributes of an established, organized exchange,
    (2) Adheres to appropriate rules prohibiting abusive trading 
practices,
    (3) Enforces appropriate rules to maintain market and financial 
integrity,
    (4) Has been authorized by a regulatory process that examines 
customer and market protections, and
    (5) Is subject to continued oversight by a regulator that has power 
to intervene in the market and the authority to share information with 
the Commission.

[[Page 80699]]

    (c) Direct access. Direct access means an explicit grant of 
authority by a foreign board of trade to an identified member or other 
participant located in the United States to enter trades directly into 
the trade matching system of the foreign board of trade.
    (d) Linked contract. Linked contract means a futures, option or 
swap contract that is made available for trading by direct access by a 
registered foreign board of trade that settles against any price 
(including the daily or final settlement price) of one or more 
contracts listed for trading on a registered entity as defined in 
section 1a(40) of the Act.
    (e) Communications. Communications means any written or electronic 
documentation or correspondence issued by or on behalf of the 
Commission, the United States Department of Justice, or the National 
Futures Association.
    (f) Material change. Material change means a material change in the 
information provided to the Commission in support of an application for 
registration under this part. Subsequent to registration, material 
change also includes a material change in the operations of the foreign 
board of trade or its clearing organization and, without limitation, a 
change in any of the following: The membership or participant criteria 
of the foreign board of trade or its clearing organization; the 
location of the management, personnel or operations of the foreign 
board of trade or its clearing organization; the structure, nature, or 
operation of the trading or clearing systems; the regulatory or self-
regulatory regime applicable to the foreign board of trade, its 
clearing organization, or their respective members and other 
participants; the authorization, licensure, registration or recognition 
of the foreign board of trade or clearing organization; and the ability 
of the clearing organization to observe the Recommendations for Central 
Counterparties.
    (g) Clearing organization. Clearing organization means the foreign 
board of trade, affiliate of the foreign board of trade or any third 
party clearing house, clearing association, clearing corporation or 
similar entity, facility or organization that, with respect to any 
agreement, contract or transaction executed on or through the foreign 
board of trade, would be:
    (1) Defined as a derivatives clearing organization under section 
1a(15) of the Act; or
    (2) Defined as a central counterparty by the Recommendations for 
Central Counterparties.
    (h) Existing no-action relief. Existing no-action relief means a 
no-action letter issued by a division of the Commission to the foreign 
board of trade in which the division informs the foreign board of trade 
that it will not recommend that the Commission institute enforcement 
action against the foreign board of trade if the foreign board of trade 
does not seek designation as either a designated contract market 
pursuant to section 5 of the Act or a derivatives transaction execution 
facility pursuant to section 5a of the Act in connection with the 
granting of direct access.
    (i) Swap. Swap means a swap as defined in section 1a(47) of the Act 
and any Commission regulation further defining the term adopted 
thereunder.
    (j) Recommendations for Central Counterparties. Recommendations for 
Central Counterparties means:
    (1) The current Recommendations for Central Counterparties issued 
jointly by the Committee on Payment and Settlement Systems and the 
Technical Committee of the International Organization of Securities 
Commissions as updated, revised or otherwise amended; or
    (2) Successor standards, principles and guidance for central 
counterparties or financial market infrastructures adopted jointly by 
the Technical Committee of the International Organization of Securities 
Commissions and the Committee on Payment and Settlement Systems.
    (k) Affiliate. An affiliate of a registered foreign board of trade 
member or other participant means any person, as that term is defined 
in section 1a(38) of the Act, that:
    (1) Owns 50% or more of the member or other participant;
    (2) Is owned 50% or more by the member or other participant; or
    (3) Is owned 50% or more by a third person that also owns 50% or 
more of the member or other participant.
    (l) Member or other participant. Member or other participant means 
a member or other participant of a foreign board of trade that is 
registered under this part and any affiliate thereof that has been 
granted direct access by the foreign board of trade.


Sec.  48.3  Registration required.

    (a) Except as specified in this part, it shall be unlawful for a 
foreign board of trade to permit direct access to its electronic 
trading and order matching system unless and until the Commission has 
issued a valid and current Order of Registration to the foreign board 
of trade pursuant to the provisions of this part.
    (b) It shall be unlawful for a foreign board of trade or the 
clearing organization to make false or misleading statements in or in 
connection with any application for registration under this part.


Sec.  48.4  Registration eligibility and scope.

    (a) Only foreign boards of trade eligible to be registered, as 
defined in Sec.  48.2(b) of this part, are eligible for registration 
with the Commission pursuant to this part.
    (b) A foreign board of trade may apply for registration under this 
part in order to permit the members and other participants of the 
foreign board of trade that are located in the United States to enter 
trades directly into the trading and order matching system of the 
foreign board of trade, to the extent that such members or other 
participants are:
    (1) Entering orders for the member's or other participant's 
proprietary accounts;
    (2) Registered with the Commission as futures commission merchants 
and are submitting customer orders to the trading system for execution; 
or
    (3) Registered with the Commission as a commodity pool operator or 
commodity trading advisor, or are exempt from such registration 
pursuant to Sec.  4.13 or Sec.  4.14 of this chapter, and are 
submitting orders for execution on behalf of a United States pool that 
the member or other participant operates or an account of a United 
States customer for which the member or other participant has 
discretionary authority, respectively, provided that a futures 
commission merchant or a firm exempt from such registration pursuant to 
Sec.  30.10 of this chapter acts as clearing firm and guarantees, 
without limitation, all such trades of the commodity pool operator or 
commodity trading advisor effected through submission of orders to the 
trading system.


Sec.  48.5  Registration procedures.

    (a) A foreign board of trade seeking registration with the 
Commission pursuant to this part must electronically file an 
application for registration with the Secretary of the Commission at 
its Washington DC headquarters at [email protected].
    (b) A complete application for registration must include:
    (1) A completed Form FBOT and Form Supplement S-1, as set forth in 
the Appendix to this part, or any successor forms, and all information 
and documentation described in such forms; and
    (2) Any additional information and documentation necessary, in the 
discretion of the Commission, to supplement the application including, 
but not limited to, documentation and

[[Page 80700]]

information provided during the course of an on-site visit, as 
applicable, to the foreign board of trade, the clearing organization 
and the regulatory authority or authorities, to effectively demonstrate 
that the foreign board of trade and its clearing organization satisfy 
the registration requirements set forth in Sec.  48.7.
    (c) An applicant for registration must identify with particularity 
any information in the application that will be subject to a request 
for confidential treatment and must provide support for any request for 
confidential treatment pursuant to the procedures set forth in Sec.  
145.9 of this chapter.
    (d) If, upon review, the Commission finds the application for 
registration to be complete, the Commission may approve or deny the 
application. In reviewing the application, the Commission will 
consider, among other things:
    (1) Whether the foreign board of trade is eligible to be registered 
as defined in Sec.  48.2(b) and;
    (2) Whether the foreign board of trade and its clearing 
organization are subject to comprehensive supervision and regulation by 
the appropriate governmental authorities in their home country or 
countries that is comparable to the comprehensive supervision and 
regulation to which designated contract markets and derivatives 
clearing organizations are respectively subject under the Act, 
Commission regulations, and other applicable United States laws and 
regulations, if any, and;
    (3) Any previous Commission findings that the foreign board of 
trade and its clearing organization are subject to comprehensive 
supervision and regulation by the appropriate government authorities in 
their home country or countries that is comparable to the comprehensive 
supervision and regulation to which designated contract markets and 
derivatives clearing organizations are subject under the Act, 
Commission regulations, and other applicable United States laws and 
regulations, if any; and
    (4) Whether the foreign board of trade and its clearing 
organization have adequately demonstrated that they meet the 
requirements for registration specified in Sec.  48.7.
    (5) The Commission's determination that the foreign board of trade 
and its clearing organization are subject to comprehensive supervision 
and regulation by the appropriate government authorities in their home 
country or countries that is comparable to the comprehensive 
supervision and regulation to which designated contract markets and 
derivatives clearing organizations are subject will be based upon a 
principles-based review conducted in a manner consistent with this part 
48 pursuant to which the Commission will look to determine if the 
government authorities support and enforce regulatory objectives in the 
oversight of the foreign board of trade and the clearing organization 
that are substantially equivalent to the regulatory objectives 
supported and enforced by the Commission in its oversight of designated 
contract markets and derivatives clearing organizations.
    (e) If the Commission approves the application, the Commission will 
issue an Order of Registration. If the Commission does not approve the 
application, the Commission will, after appropriate notice and an 
opportunity to respond, issue a Notice of Action specifying that the 
application was not approved and setting forth the reasons therefor. 
The Commission, in its discretion, may impose conditions in the Order 
of Registration and may, after appropriate notice and an opportunity to 
respond, amend, suspend, or otherwise restrict the terms of an issued 
Order of Registration or issue an Order revoking registration.
    (f) A foreign board of trade whose application is not approved may 
reapply for registration 360 days after the issuance of the Notice of 
Action if the foreign board of trade has addressed any deficiencies in 
its original application or facts and circumstances relevant to the 
Commission's review of the application have changed.


Sec.  48.6  Foreign boards of trade providing direct access pursuant to 
existing no-action relief.

    (a) A foreign board of trade operating pursuant to existing no-
action relief as of the effective date of this Part 48 must register 
with the Commission pursuant to this part in order to continue to 
provide direct access to its electronic trading and order matching 
system from the United States.
    (b)(1) The application of a foreign board of trade operating 
pursuant to existing no-action relief must include a complete Form FBOT 
and Supplement S-1, as set forth in the Appendix to this part. If the 
foreign board of trade, as part of its application for registration, 
wishes to rely on information and documentation previously submitted 
electronically in connection with its request for no-action relief in 
order to demonstrate that it satisfies the registration requirements 
set forth in Sec.  48.7, (limited application) the foreign board of 
trade must:
    (i) Specifically identify the information or documentation 
previously submitted;
    (ii) Identify the specific registration requirements set forth in 
Sec.  48.7 that are satisfied by such information or documentation; and
    (iii) Certify that the information remains accurate and current.
    (2) If the foreign board of trade wishes to rely on information and 
documentation previously submitted in hard copy in connection with its 
application for no-action relief, the foreign board of trade must also 
resubmit the identified information or documentation. A foreign board 
of trade that has submitted a complete application for no-action relief 
that is pending as of February 21, 2012 may also apply for registration 
pursuant to these limited application procedures.
    (c) A foreign board of trade operating pursuant to existing no-
action relief must submit a limited application for registration, 
determined in good faith by the applicant to be complete, within 180 
days of February 21, 2012. If, at any time after August 20, 2012 but 
before a limited application is approved or disapproved, the Commission 
determines that the application is materially incomplete, the 
Commission may, after providing the foreign board of trade with notice 
and an opportunity to respond to the determination of incompleteness, 
withdraw the existing no-action relief if the Commission determines 
that the application cannot be made complete in a timely manner. The 
foreign board of trade may continue to operate pursuant to the existing 
no-action relief, subject to the terms and conditions contained 
therein, August 20, 2012, while the Commission is reviewing its 
application, and until the Commission approves or disapproves the 
application or otherwise withdraws the existing no-action relief. The 
no-action relief is automatically withdrawn upon issuance of an Order 
of Registration or upon disapproval.


Sec.  48.7  Requirements for registration.

    An applicant for registration must demonstrate that it and, where 
applicable, its clearing organization meet the following requirements. 
The registration requirements applicable to clearing organizations may 
alternatively be met by demonstrating that the clearing organization is 
registered and in good standing with the Commission as a derivatives 
clearing organization. The Commission, in its discretion, may request 
additional information and documentation in connection with an 
application for registration and an applicant for registration must 
provide

[[Page 80701]]

promptly any such additional information or documentation. The 
Commission, in its discretion, also may impose additional registration 
requirements that the Commission deems necessary after appropriate 
notice and opportunity to respond.
    (a) Foreign Board of Trade and Clearing Membership:
    (1) The members and other participants of the foreign board of 
trade and its clearing organization are fit and proper and meet 
appropriate financial and professional standards;
    (2) The foreign board of trade and its clearing organization have 
and enforce provisions to minimize and resolve conflicts of interest; 
and
    (3) The foreign board of trade and its clearing organization have 
and enforce rules prohibiting the disclosure, both during and 
subsequent to service on a board or committee, of material non-public 
information obtained as a result of a member's or other participant's 
performance of duties as a member of their respective governing boards 
and significant committees.
    (b) The Automated Trading System:
    (1) The trading system complies with Principles for the Oversight 
of Screen-Based Trading Systems for Derivative Products developed by 
the Technical Committee of the International Organization of Securities 
Commissions,
    (2) The trade matching algorithm matches trades fairly and timely,
    (3) The audit trail captures all relevant data, including changes 
to orders, and audit trail data is securely maintained and available 
for an adequate time period,
    (4) Adequate and appropriate trade data is made available to users 
and the public,
    (5) The trading system has demonstrated reliability,
    (6) Access to the trading system is secure and protected,
    (7) There are adequate provisions for emergency operations and 
disaster recovery,
    (8) Trading data is backed up to prevent loss of data, and
    (9) Only those futures, option or swap contracts that have been 
identified to the Commission in the foreign board of trade's 
application for registration or permitted to be made available for 
trading by direct access pursuant to the procedures set forth in Sec.  
48.10 of this part are made available for trading by direct access.
    (c) Terms and Conditions of Contracts to Be Made Available in the 
United States.
    (1) Contracts must meet the following standards:
    (i) Contracts must be futures, option or swap contracts that would 
be eligible to be traded on a designated contract market;
    (ii) Contracts must be cleared;
    (iii) Contracts must not be prohibited from being traded by United 
States persons; and
    (iv) Contracts must not be readily susceptible to manipulation.
    (2) Foreign futures and option contracts on non-narrow-based 
security indexes must have been certified by the Commission pursuant to 
the procedures set forth in Sec.  30.13 of this chapter.
    (3) Contracts that have the following characteristics must be 
specifically identified as having such characteristics:
    (i) Contracts that are linked to a contract listed for trading on a 
registered entity as defined in section 1a(40) of the Act, and
    (ii) Contracts that have any other relationship with a contract 
listed for trading on a registered entity (for example, if both the 
foreign board of trade's and the registered entity's contract settle to 
the price of the same third party-constructed index).
    (d) Settlement and Clearing:
    (1) The clearing organization observes the Recommendations for 
Central Counterparties or is registered with the Commission as a 
derivatives clearing organization, and
    (2) The clearing organization is in good regulatory standing in its 
home country jurisdiction.
    (e) The Regulatory Regimes Governing the Foreign Board of Trade and 
the Clearing Organization:
    (1) The regulatory authorities provide comprehensive supervision 
and regulation of the foreign board of trade, the clearing 
organization, and the type of contracts to be made available through 
direct access that is comparable to the comprehensive supervision and 
regulation provided by the Commission to designated contract markets, 
derivatives clearing organizations and such contracts. That is, the 
regulatory authorities support and enforce regulatory objectives in the 
oversight of the foreign board of trade, clearing organization and the 
type of contracts that the foreign board of trade wishes to make 
available through direct access that are substantially equivalent to 
the regulatory objectives supported and enforced by the Commission in 
its oversight of designated contract markets, derivatives clearing 
organizations, and such products.
    (2) The regulatory authorities engage in ongoing regulatory 
supervision and oversight of the foreign board of trade and its trading 
system, the clearing organization and its clearing system, and the 
members, intermediaries and other participants of the foreign board of 
trade and clearing organization, with respect to, among other things, 
market integrity, customer protection, clearing and settlement and the 
enforcement of the rules of the foreign board of trade and the clearing 
organization.
    (3) The regulatory authorities have the power to share information 
directly with the Commission, upon request, including information 
necessary to evaluate the continued eligibility of the foreign board of 
trade for registration and to audit for compliance with the terms and 
conditions of the registration.
    (4) The regulatory authorities have the power to intervene in the 
market.
    (f) The Rules of the Foreign Board of Trade and the Clearing 
Organization and Enforcement Thereof:
    (1) The foreign board of trade and its clearing organization have 
implemented and enforce rules to ensure compliance with the 
requirements of registration contained in this part;
    (2) The foreign board of trade and its clearing organization have 
the capacity to detect, investigate, and sanction persons who violate 
their respective rules;
    (3) The foreign board of trade and the clearing organization (or 
their respective regulatory authorities) have implemented and enforce 
disciplinary procedures that empower them to recommend and prosecute 
disciplinary actions for suspected rule violations, impose adequate 
sanctions for such violations, and provide adequate protections to 
charged parties pursuant to fair and clear standards;
    (4) The foreign board of trade and its clearing organization are 
authorized by rule or by contractual agreement to obtain, from members 
and other participants, any information and cooperation necessary to 
conduct investigations, to effectively enforce their respective rules, 
and to ensure compliance with the conditions of registration;
    (5) The foreign board of trade and its clearing organization have 
sufficient compliance staff and resources, including by delegation and/
or outsourcing to a third party, to fulfill their respective regulatory 
responsibilities, including appropriate trade practice surveillance, 
real time market monitoring, market surveillance, financial 
surveillance, protection of customer funds, enforcement of clearing and 
settlement provisions and other compliance and regulatory 
responsibilities;
    (6) The foreign board of trade has implemented and enforces rules 
with respect to access to the trading system

[[Page 80702]]

and the means by which the connection thereto is accomplished;
    (7) The foreign board of trade's audit trail captures and retains 
sufficient order and trade-related data to allow its compliance staff 
to detect trading and market abuses and to reconstruct all transactions 
within a reasonable period of time;
    (8) The foreign board of trade has implemented and enforces rules 
prohibiting fraud and abusive trading practices including, but not 
limited to, wash sales and trading ahead;
    (9) The foreign board of trade has the capacity to detect and 
deter, and has implemented and enforces rules relating to, market 
manipulation, attempted manipulation, price distortion, and other 
disruptions of the market; and
    (10) The foreign board of trade has and enforces rules and 
procedures that ensure a competitive, open and efficient market and 
mechanism for executing transactions.
    (g) Information Sharing:
    (1) The regulatory authorities governing the activities of the 
foreign board of trade and the clearing organization are signatories to 
the International Organization of Securities Commissions Multilateral 
Memorandum of Understanding, or otherwise ensure that substitute 
information sharing arrangements that are satisfactory to the 
Commission are in place;
    (2) The regulatory authorities governing the activities of the 
foreign board of trade and the clearing organization are signatories to 
the Declaration on Cooperation and Supervision of International Futures 
Exchanges and Clearing Organizations or otherwise commit, in writing, 
to share the types of information contemplated by the International 
Information Sharing Memorandum of Understanding and Agreement with the 
Commission;
    (3) The foreign board of trade has executed the International 
Information Sharing Memorandum of Understanding and Agreement; and
    (4) Pursuant to the conditions described in Sec.  48.8(a)(6), the 
foreign board of trade and clearing organization agree to provide 
directly to the Commission, upon request, any information necessary, in 
the discretion of the Commission, to evaluate the continued eligibility 
and appropriateness of the foreign board of trade and the clearing 
organization, or their respective members or other participants for 
registration, to audit for and enforce compliance with the requirements 
and conditions of the registration, or to enable the Commission to 
carry out its duties under the Act and Commission regulations.


Sec.  48.8  Conditions of registration.

    Upon registration under this part, and on an ongoing basis 
thereafter, the foreign board of trade and the clearing organization 
shall comply with the applicable conditions of registration set forth 
in this section and any additional conditions that the Commission deems 
necessary and may impose, in its discretion, and after appropriate 
notice and opportunity to respond. Such conditions could include, but 
are not limited to, additional conditions applicable to the listing of 
swap contracts. Continued registration is expressly conditioned upon 
satisfaction of these conditions.
    (a) Specified Conditions for Maintaining Registration
    (1) Registration Requirements: The foreign board of trade and its 
clearing organization shall continue to satisfy all of the requirements 
for registration set forth in Sec.  48.7.
    (2) Regulatory Regime:
    (i) The foreign board of trade will continue to satisfy the 
criteria for a regulated market or licensed exchange pursuant to the 
regulatory regime described in its application and will continue to be 
subject to oversight by the regulatory authorities described in its 
application.
    (ii) The clearing organization will continue to satisfy the 
criteria for a regulated clearing organization pursuant to the 
regulatory regime described in the application for registration and 
will continue to be in good standing with the relevant regulatory 
authority.
    (iii) The laws, systems, rules, and compliance mechanisms of the 
regulatory regime applicable to the foreign board of trade will 
continue to require the foreign board of trade to maintain fair and 
orderly markets; prohibit fraud, abuse, and market manipulation and 
other disruptions of the market; and provide that such requirements are 
subject to the oversight of appropriate regulatory authorities.
    (3) Satisfaction of International Standards:
    (i) The foreign board of trade will continue to comply with the 
Principles for the Oversight of Screen-Based Trading Systems for 
Derivative Products developed by the Technical Committee of the 
International Organization of Securities Commissions, as updated, 
revised, or otherwise amended, to the extent such principles do not 
contravene United States law.
    (ii) The clearing organization will continue to:
    (A) Be registered with the Commission as a derivatives clearing 
organization and be in compliance with the laws and regulations related 
thereto; or
    (B) Observe the Recommendations for Central Counterparties.
    (4) Restrictions on Direct Access:
    (i) Only the foreign board of trade's identified members or other 
participants will have direct access to the foreign board of trade's 
trading system from the United States and the foreign board of trade 
will not provide, and will take reasonable steps to prevent, third 
parties from providing direct access to persons other than the 
identified members or other participants.
    (ii) All orders that are transmitted to the foreign board of 
trade's trading system by a foreign board of trade's identified member 
or other participant that is operating pursuant to the foreign board of 
trade's registration will be solely for the member's or trading 
participant's own account unless such member or other participant is 
registered with the Commission as a futures commission merchant or such 
member or other participant is registered with the Commission as a 
commodity pool operator or commodity trading advisor, or is exempt from 
such registration pursuant to Sec.  4.13 or Sec.  4.14 of this chapter, 
provided that a futures commission merchant or a firm exempt from such 
registration pursuant to Sec.  30.10 of this chapter acts as clearing 
firm and guarantees, without limitation, all such trades of the 
commodity pool operator or commodity trading advisor effected through 
submission of orders on the trading system.
    (5) Submission to Commission Jurisdiction:
    (i) Prior to operating pursuant to registration under this part and 
on a continuing basis thereafter, a registered foreign board of trade 
will require that each current and prospective member or other 
participant that is granted direct access to the foreign board of 
trade's trading system and that is not registered with the Commission 
as a futures commission merchant, a commodity trading advisor or a 
commodity pool operator, file with the foreign board of trade a written 
representation, executed by a person with the authority to bind the 
member or other participant, stating that as long as the member or 
other participant is authorized to enter orders directly into the trade 
matching system of the foreign board of trade, the member or other 
participant agrees to and submits to the jurisdiction of the Commission 
with respect to activities conducted pursuant to the registration.

[[Page 80703]]

    (ii) The foreign board of trade and its clearing organization will 
file with the Commission a valid and binding appointment of an agent 
for service of process in the United States pursuant to which the agent 
is authorized to accept delivery and service of communications, as 
defined in Sec.  48.2(e) issued by or on behalf of the Commission, the 
United States Department of Justice, or the National Futures 
Association.
    (iii) The foreign board of trade, clearing organization, and each 
current and prospective member or other participant that is granted 
direct access to the foreign board of trade's trading system and that 
is not registered with the Commission as a futures commission merchant, 
a commodity trading advisor, or a commodity pool operator will maintain 
with the foreign board of trade written representations, executed by 
persons with the authority to bind the entity making them, stating that 
as long as the foreign board of trade is registered under this 
regulation, the foreign board of trade, the clearing organization or 
member of either or other participant granted direct access pursuant to 
this regulation will provide, upon the request of the Commission, the 
United States Department of Justice and, if appropriate, the National 
Futures Association, prompt access to the entity's, member's, or other 
participant's original books and records or, at the election of the 
requesting agency, a copy of specified information containing such 
books and records, as well as access to the premises where the trading 
system is available in the United States.
    (iv) The foreign board of trade will maintain all representations 
required pursuant to Sec.  48.8(a)(5) as part of its books and records 
and make them available to the Commission upon request.
    (6) Information Sharing:
    (i) Information-sharing arrangements satisfactory to the 
Commission, including but not limited to those set forth in Sec.  
48.7(g), are in effect between the Commission and the regulatory 
authorities that govern the activities of both the foreign board of 
trade and the clearing organization.
    (ii) The Commission is, in fact, able to obtain sufficient 
information regarding the foreign board of trade, the clearing 
organization, their respective members and participants and the 
activities related to the foreign board of trade's registration.
    (iii) The foreign board of trade and its clearing organization, as 
applicable, will provide directly to the Commission any information 
necessary to evaluate the continued eligibility and appropriateness of 
the foreign board of trade for registration, the capability and 
determination to enforce compliance with the requirements and 
conditions of the registration, or to enable the Commission to carry 
out its duties under the Act and Commission regulations and to provide 
adequate protection to the public or United States registered entities.
    (iv) In the event that the foreign board of trade and the clearing 
organization are separate entities, the foreign board of trade will 
require the clearing organization to enter into a written agreement in 
which the clearing organization is contractually obligated to promptly 
provide any and all information and documentation that may be required 
of the clearing organization under this regulation and such agreement 
shall be made available to the Commission, upon request.
    (7) Monitoring for Compliance: The foreign board of trade and the 
clearing organization will employ reasonable procedures for monitoring 
and enforcing compliance with the specified conditions of its 
registration.
    (8) On-Site Visits: The foreign board of trade and the clearing 
organization will permit and will cooperate with Commission staff with 
respect to on-site visits for the purpose of overseeing ongoing 
compliance of the foreign board of trade and the clearing organization 
with registration requirements and conditions of registration.
    (9) Conditions Applicable to Swap Trading:
    (i) The foreign board of trade will ensure that all transaction 
data relating to each swap transaction, including price and volume, are 
reported as soon as technologically practicable after execution of the 
swap transaction to a swap data repository that is either registered 
with the Commission or has an information sharing arrangement with the 
Commission.
    (ii) The foreign board of trade will agree to coordinate with the 
Commission with respect to arrangements established to address cross 
market oversight issues involving swap trading, including surveillance, 
emergency actions and the monitoring of trading.
    (b) Other Continuing Obligations.
    (1) Registered foreign boards of trade and their clearing 
organizations will continue to comply with the following obligations on 
an ongoing basis:
    (i) The foreign board of trade will maintain the following updated 
information and submit such information to the Commission on at least a 
quarterly basis, not later than 30 days following the end of the 
quarter, and at any time promptly upon the request of a Commission 
representative, computed based upon separating buy sides and sell 
sides, in a format as determined by the Commission:
    (A) For each contract available to be traded through the foreign 
board of trade's trading system;
    (1) The total trade volume originating from electronic trading 
devices providing direct access;
    (2) The total trade volume for such contracts traded through the 
trading system worldwide;
    (3) The total trade volume for such contracts traded on the foreign 
board of trade generally; and
    (B) A listing of the names, National Futures Association 
identification numbers (if applicable), and main business addresses in 
the United States of all members and other participants that have 
direct access.
    (ii) The foreign board of trade will promptly provide to the 
Commission written notice of the following:
    (A) Any material change to the information provided in the foreign 
board of trade's registration application.
    (B) Any material change in the rules of the foreign board of trade 
or clearing organization or the laws, rules, or regulations in the home 
country jurisdictions of the foreign board of trade or clearing 
organization relevant to futures, option or swap contracts made 
available by direct access.
    (C) Any matter known to the foreign board of trade, the clearing 
organization or its representatives that, in the judgment of the 
foreign board of trade or clearing organization, may affect the 
financial or operational viability of the foreign board of trade or its 
clearing organization with respect to contracts traded by direct 
access, including, but not limited to, any significant system failure 
or interruption.
    (D) Any default, insolvency, or bankruptcy of any foreign board of 
trade member or other participant that is or should be known to the 
foreign board of trade or its representatives or the clearing 
organization or its representatives that may have a material, adverse 
impact upon the condition of the foreign board of trade as it relates 
to trading by direct access, its clearing organization or upon any 
United States customer or firm or any default, insolvency or bankruptcy 
of any member of the foreign board of trade's clearing organization.
    (E) Any violation of any specified conditions of the foreign board 
of trade's registration or failure to satisfy the requirements for 
registration under this part that is known or should be known by the 
foreign board of trade, the

[[Page 80704]]

clearing organization or any of their respective members or 
participants.
    (F) Any disciplinary action by the foreign board of trade or its 
clearing organization, or any regulatory authority that governs their 
respective activities, taken against any of their respective members or 
participants with respect to any contract available to be traded by 
direct access that involves any market manipulation, abuse, fraud, 
deceit, or conversion or that results in suspension or expulsion.
    (iii) The foreign board of trade and the clearing organization, or 
their respective regulatory authorities, as applicable, will provide 
the following to the Commission annually as of June 30 and not later 
than July 31.
    (A) A certification from the foreign board of trade's regulatory 
authority confirming that the foreign board of trade retains its 
authorization, licensure or registration, as applicable, as a regulated 
market and/or exchange under the authorization, licensing, recognition 
or other registration methodology used by the foreign board of trade's 
regulatory authority and that the foreign board of trade is in 
continued good standing.
    (B) If the clearing organization is not a derivatives clearing 
organization registered with the Commission, a certification from the 
clearing organization's regulatory authority confirming that the 
clearing organization retains its authorization, licensure or 
registration, as applicable, as a clearing organization under the 
authorization, licensing or other registration methodology used by the 
clearing organization's regulatory authority and is in continued good 
standing.
    (C) If the clearing organization is not a derivatives clearing 
organization registered with the Commission, a recertification of the 
clearing organization's observance of the Recommendations for Central 
Counterparties.
    (D) A certification that affiliates, as defined in Sec.  48.2(k), 
continue to be required to comply with the rules of the foreign board 
of trade and clearing organization and that the members or other 
participants to which they are affiliated remain responsible to the 
foreign board of trade for ensuring their affiliates' compliance.
    (E) A description of any material changes regarding the foreign 
board of trade or clearing organization that have not been previously 
disclosed, in writing, to the Commission, or a certification that no 
such material changes have occurred.
    (F) A description of any significant disciplinary or enforcement 
actions that have been instituted by or against the foreign board of 
trade or the clearing organization or the senior officers of either 
during the prior year.
    (G) A written description of any material changes to the regulatory 
regime to which the foreign board of trade or the clearing organization 
are subject that have not been previously disclosed, in writing, to the 
Commission, or a certification that no material changes have occurred.
    (2) The above-referenced annual reports must be signed by an 
officer of the foreign board of trade or the clearing organization who 
maintains the authority to bind the foreign board of trade or clearing 
organization, as applicable, and must be based on the officer's 
personal knowledge.
    (c) Additional Specified Conditions for Foreign Boards of Trade 
with Linked Contacts. If a registered foreign board of trade grants 
members or other participants direct access and makes available for 
trading a linked contract, the following additional conditions apply:
    (1) Statutory Conditions.
    (i) The foreign board of trade will make public daily trading 
information regarding the linked contract that is comparable to the 
daily trading information published by the registered entity for the 
contract to which the foreign board of trade's contract is linked, and
    (ii) The foreign board of trade (or its regulatory authority) will:
    (A) Adopt position limits (including related hedge exemption 
provisions) applicable to all market participants for the linked 
contract that are comparable to the position limits (including related 
hedge exemption provisions) adopted by the registered entity for the 
contract to which it is linked;
    (B) Have the authority to require or direct any market participant 
to limit, reduce, or liquidate any position the foreign board of trade 
(or its regulatory authority) determines to be necessary to prevent or 
reduce the threat of price manipulation, excessive speculation as 
described in section 4a of the Act, price distortion, or disruption of 
delivery on the cash settlement process;
    (C) Agree to promptly notify the Commission, with regard to the 
linked contract, of any change regarding--
    (1) The information that the foreign board of trade will make 
publicly available,
    (2) The position limits that foreign board of trade or its 
regulatory authority will adopt and enforce,
    (3) The position reductions required to prevent manipulation, 
excessive speculation as described in section 4a of the Act, price 
distortion, or disruption of delivery or the cash settlement process, 
and
    (4) Any other area of interest expressed by the Commission to the 
foreign board of trade or its regulatory authority;
    (D) Provide information to the Commission regarding large trader 
positions in the linked contract that is comparable to the large trader 
position information collected by the Commission for the contract to 
which it is linked; and
    (E) Provide the Commission such information as is necessary to 
publish reports on aggregate trader positions for the linked contract 
that are comparable to such reports on aggregate trader positions for 
the contract to which it is linked.
    (2) Other Conditions on Linked Contracts.
    (i) The foreign board of trade will inform the Commission in a 
quarterly report of any member that had positions in a linked contract 
above the applicable foreign board of trade position limit, whether a 
hedge exemption was granted, and if not, whether a disciplinary action 
was taken.
    (ii) The foreign board of trade will provide the Commission, either 
directly or through its agent, with trade execution and audit trail 
data for the Commission's Trade Surveillance System on a trade-date 
plus one basis and in a form, content and manner acceptable to the 
Commission for all linked contracts.
    (iii) The foreign board of trade will provide to the Commission, at 
least one day prior to the effective date thereof, except in the event 
of an emergency market situation, copies of, or hyperlinks to, all 
rules, rule amendments, circulars and other notices published by the 
foreign board of trade with respect to all linked contracts.
    (iv) The foreign board of trade will provide to the Commission 
copies of all reports of disciplinary action involving the foreign 
board of trade's linked contracts upon closure of the action. Such 
reports should include the reason the action was undertaken, the 
results of the investigation that led to the disciplinary action, and 
any sanctions imposed.
    (v) In the event that the Commission, pursuant to its emergency 
powers authority, directs that the registered entity which lists the 
contract to which the foreign board of trade's contract is linked to 
take emergency action with respect to a linked contract (for example, 
to cease trading in the contract), the foreign board of trade, subject 
to information-sharing

[[Page 80705]]

arrangements between the Commission and its regulatory authority, will 
promptly take similar action with respect to the its linked contract.


Sec.  48.9  Revocation of registration.

    (a) Failure to Satisfy Registration Requirements or Conditions:
    (1) If the Commission determines that a registered foreign board of 
trade or the clearing organization has failed to satisfy any 
registration requirements or conditions for registration, the 
Commission shall notify the foreign board of trade of such 
determination, including the particular requirements or conditions that 
are not being satisfied, and shall afford the foreign board of trade or 
clearing organization an opportunity to make appropriate changes to 
bring it into compliance.
    (2) If, not later than 30 days after receiving a notification under 
paragraph (a)(1) of this section, the foreign board of trade or 
clearing organization fails to make changes that, in the opinion of the 
Commission, are necessary to comply with the registration requirements 
or conditions of registration, the Commission may revoke the foreign 
board of trade's registration, after appropriate notice and an 
opportunity to respond, by issuing an Order Revoking Registration which 
sets forth the reasons therefor.
    (3) A foreign board of trade whose registration has been revoked 
for failure to satisfy a registration requirement or condition of 
registration may apply for re-registration 360 days after the issuance 
of the Order Revoking Registration if the deficiency causing the 
revocation has been cured or relevant facts and circumstances have 
changed.
    (b) Other Events that Could Result in Revocation. Notwithstanding 
Sec.  48.9(a), revocation under these circumstances will be handled by 
the Commission as relevant facts or circumstances warrant.
    (1) The Commission may revoke a foreign board of trade's 
registration, after appropriate notice and an opportunity to respond, 
if the Commission determines that a representation made in the foreign 
board of trade's application for registration is found to be untrue or 
materially misleading or if the foreign board of trade failed to 
include information in the application that would have been material to 
the Commission's determination as to whether to issue an Order of 
Registration.
    (2) The Commission may revoke a foreign board of trade's 
registration, after appropriate notice and an opportunity to respond, 
if there is a material change in the regulatory regime applicable to 
the foreign board of trade or clearing organization such that the 
regulatory regime no longer satisfies any registration requirement or 
condition for registration applicable to the regulatory regime.
    (3) The Commission may revoke a foreign board of trade's 
registration in the event of an emergency or in a circumstance where 
the Commission determines that revocation would be necessary or 
appropriate in the public interest. Following revocation, the 
Commission will provide notice and an opportunity to respond.
    (4) The Commission may revoke a foreign board of trade's 
registration in the event the foreign board of trade or the clearing 
organization is no longer authorized, licensed or registered, as 
applicable, as a regulated market and/or exchange or clearing 
organization or ceases to operate as a foreign board of trade or 
clearing organization, subject to notice and an opportunity to respond.
    (c) Upon request by the Commission, a registered foreign board of 
trade must file with the Commission a written demonstration, containing 
such supporting data, information, and documents, in such form and 
manner and within such timeframe as the Commission may specify, that 
the foreign board of trade or clearing organization is in compliance 
with the registration requirements and/or conditions for registration.


Sec.  48.10  Additional contracts.

    (a) Generally. A registered foreign board of trade that wishes to 
make an additional futures, option or swap contract available for 
trading by identified members or other participants located in the 
United States with direct access to its electronic trading and order 
matching system must submit a written request prior to offering the 
contracts from within the United States. Such a written request must 
include the terms and conditions of the additional futures, option or 
swap contracts and a certification that the additional contracts meet 
the requirements of Sec.  48.8(c), if applicable, and that the foreign 
board of trade and the clearing organization continue to satisfy the 
requirements and conditions of registration. The foreign board of trade 
can make available for trading by direct access the additional 
contracts ten business days after the date of receipt by the Commission 
of the written request, unless the Commission notifies the foreign 
board of trade that additional time is needed to complete its review of 
policy or other issues pertinent to the additional contracts. A 
registered foreign board of trade may list for trading by direct access 
an additional futures or option contract on a non-narrow-based security 
index pursuant to the Commission certification procedures set forth in 
Sec.  30.13(d) and Appendix D to Part 30 of this chapter.
    (b) Option contracts on previously approved futures contracts. (1) 
If the option is on a futures contract that is not a linked contract, 
the option contract may be made available for trading by direct access 
by filing with the Commission no later than the business day preceding 
the initial listing of the contract:
    (i) A copy of the terms and conditions of the additional contract 
and
    (ii) A certification that the foreign board of trade and the 
clearing organization continue to satisfy the conditions of its 
registration.
    (2) If the option is on a futures contract that is a linked 
contract, the option contract may be made available for trading by 
direct access by filing with the Commission no later than the business 
day preceding the initial listing of the contract:
    (i) A copy of the terms and conditions of the additional contract; 
and
    (ii) A certification that the foreign board of trade and the 
clearing organization continue to satisfy the conditions of its 
registration, including the conditions specifically applicable to 
linked contracts set forth in Sec.  48.8(c).
    (3) If the option is on a non-narrow-based security index futures 
contract which may be offered or sold in the United States pursuant to 
a Commission certification issued pursuant to Sec.  30.13 of this 
chapter, the option contract may be listed for trading by direct access 
without further action by either the registered foreign board of trade 
or the Commission.

Appendix to Part 48--Form FBOT

COMMODITY FUTURES TRADING COMMISSION

FORM FBOT

FOREIGN BOARD OF TRADE APPLICATION FOR REGISTRATION (IN ORDER TO PERMIT 
DIRECT ACCESS TO MEMBERS AND OTHER PARTICIPANTS)

APPLICATION INSTRUCTIONS

DEFINITIONS

    1. Unless the context requires otherwise, all terms used in this 
application have the same meaning as in the Commodity Exchange Act, as

[[Page 80706]]

amended (CEA or Act),\1\ and in the regulations of the Commodity 
Futures Trading Commission (Commission or CFTC).\2\
---------------------------------------------------------------------------

    \1\ 7 U.S.C. 1 et seq.
    \2\ 17 CFR chapter I.
---------------------------------------------------------------------------

    2. For the purposes of this Form FBOT, the term ``applicant'' 
refers to the foreign board of trade applying for registration pursuant 
to CEA section 4(b) and part 48 of the Commission's regulations. The 
term ``clearing organization'' refers to the clearing organization that 
will be clearing trades executed on the trading system of such foreign 
board of trade.

GENERAL INSTRUCTIONS

    1. A Form FBOT (including exhibits) shall be completed by any 
foreign board of trade applying for registration with the Commission 
pursuant to CEA section 4(b) and part 48 of the Commission's 
regulations.
    2. Form FBOT (including exhibits and any supplement thereto) 
(collectively, the ``application'' or ``application for registration'') 
must be filed electronically with the Secretary of the Commission at 
[email protected]. Applicants may prepare their own Form FBOT, 
but must follow the format prescribed herein.
    3. The name of any individual listed in Form FBOT shall be provided 
in full (Last Name, First Name and Middle Name or Initial).
    4. Form FBOT must be signed by the Chief Executive Officer (or the 
functional equivalent) of the foreign board of trade who must possess 
the authority to bind the foreign board of trade.
    5. If this Form FBOT is being filed as a new application for 
registration, all applicable items on the Form FBOT must be answered in 
full. Non-applicable items should be indicated by marking ``none'' or 
``N/A.''
    6. Submission of a complete Form FBOT (including all information, 
documentation and exhibits requested therein, and any required 
supplement) is mandatory and must be received by the Commission before 
it will begin to process a foreign board of trade's application for 
registration. The information provided with a Form FBOT (including 
exhibits and any supplement thereto) will be used to determine whether 
the Commission should approve or deny registration to an applicant. 
Pursuant to its regulations, the Commission may determine that 
information and/or documentation in addition to that requested in the 
Form FBOT is required from the applicant in order to process the 
application for registration or to determine whether registration is 
appropriate.
    7. Pursuant to Commission regulations, an applicant or its clearing 
organization must identify with particularity any information in the 
application (including, but not limited to, any information contained 
in this Form FBOT) that will be the subject of a request for 
confidential treatment and must provide support for any request for 
confidential treatment pursuant to the procedures set forth in 
Commission regulation 145.9.\3\ Except in cases where confidential 
treatment is granted by the Commission pursuant to the Freedom of 
Information Act and Commission regulations, information supplied in the 
Form FBOT (including exhibits and any supplement thereto) will be 
included routinely in the public files of the Commission and will be 
available for inspection and comment by any interested person.
---------------------------------------------------------------------------

    \3\ 17 CFR 145.9.
---------------------------------------------------------------------------

    8. A Form FBOT that is not prepared and executed in compliance with 
applicable requirements and instructions may be returned as not 
acceptable for filing.\4\ Acceptance of a Form FBOT by the Commission, 
however, shall not constitute a finding that the Form FBOT has been 
filed as required or that the information submitted is verified to be 
true, current, or complete. The Commission may revoke a foreign board 
of trade's registration, after appropriate notice and an opportunity to 
respond, if the Commission determines that a representation made in 
this Form FBOT is found to be untrue or materially misleading or if the 
foreign board of trade failed to include information in this Form FBOT 
that would have been material to the Commission's determination as to 
whether to issue an Order of Registration.
---------------------------------------------------------------------------

    \4\ Applicants and their clearing organizations are encouraged 
to correspond with the Commission's Division of Market Oversight 
regarding any content, procedural, or formatting questions 
encountered in connection with the preparation of a Form FBOT, or 
any exhibits or supplements thereto, prior to formally submitting 
those documents to the Commission. When appropriate, potential 
applicants and clearing organizations, as applicable, may provide a 
complete draft Form FBOT (including exhibits and any required 
supplement) to the Division of Market Oversight for early review to 
minimize the risk of having a submission returned or otherwise 
denied as not acceptable for filing. Review of draft submissions by 
any division of the Commission and any comments provided by a 
division of the Commission are for consultation purposes only and do 
not bind the Commission. To obtain instructions for submitting 
drafts, please contact the Division of Market Oversight.
---------------------------------------------------------------------------

    9. In addition to this Form FBOT, the clearing organization 
associated with the foreign board of trade must complete and submit 
Supplement S-1 to this Form FBOT in accordance with the instructions 
thereto. To the extent a single document or description is responsive 
to more than one request for the same information in either the Form 
FBOT or the Supplement S-1, the document or description need only be 
provided once and may be cross-referenced elsewhere.
    10. All documents submitted as part of this Form FBOT (or exhibits 
thereto) must be written in English or accompanied by a certified 
English translation.

UPDATING INFORMATION ON THE FORM FBOT

    Pursuant to the Commission's regulations, if any information or 
documentation contained in this Form FBOT (including exhibits or any 
supplement or amendment thereto) is or becomes inaccurate for any 
reason prior to the issuance of an Order of Registration, an amendment 
correcting such information must be filed promptly with the Commission. 
A registered foreign board of trade also may submit an amendment to 
this Form FBOT to correct information that has become inaccurate 
subsequent to the receipt of an Order of Registration.
BILLING CODE 6351-01-P

[[Page 80707]]

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[[Page 80710]]


[GRAPHIC] [TIFF OMITTED] TR23DE11.054

BILLING CODE 6351-01-C

INSTRUCTIONS FOR EXHIBITS TO FORM FBOT

    1. The following exhibits must be filed with the Commission by any 
foreign board of trade (1) seeking registration for purposes of 
granting direct access to its members and other participants or (2) 
amending a

[[Page 80711]]

previously submitted application, pursuant to CEA section 4(b) and part 
48 of the Commission's regulations. The information and documentation 
requested relates to the activities of the foreign board of trade, 
unless otherwise stated.
    2. The exhibits should be filed in accordance with the General 
Instructions to this Form FBOT and labeled as specified herein. If any 
exhibit is not applicable, please specify the exhibit letter and number 
and indicate by marking ``none'' or ``N/A.'' If any exhibit may be 
satisfied by documentation or information submitted in a different 
exhibit, the documentation or information need not be submitted more 
than once--please use internal cross-references where appropriate.

GENERAL REQUIREMENTS

    A foreign board of trade applying for registration must submit 
sufficient information and documentation to successfully demonstrate to 
Commission staff that the foreign board of trade and its clearing 
organization satisfy all of the requirements of Commission regulation 
48.7. With respect to its review of the foreign board of trade, the 
Commission anticipates that such information and documentation would 
necessarily include, but not be limited to, the following:

EXHIBIT A--GENERAL INFORMATION AND DOCUMENTATION

    Attach, as Exhibit A-1, a description of the following for the 
foreign board of trade: Location, history, size, ownership and 
corporate structure, governance and committee structure, current or 
anticipated presence of offices or staff in the United States, and 
anticipated volume of business emanating from members and other 
participants that will be provided direct access to the foreign board 
of trade's trading system.
    Attach, as Exhibit A-2, the following:
    Articles of association, constitution, or other similar 
organizational documents.
    Attach, as Exhibit A-3, the following:
    (1) Membership and trading participant agreements.
    (2) Clearing agreements.
    Attach, as Exhibit A-4, the following:
    Terms and conditions of contracts to be available through direct 
access (as specified in Exhibit E).
    Attach, as Exhibit A-5, the following:
    The national statutes, laws and regulations governing the 
activities of the foreign board of trade and its respective 
participants.
    Attach, as Exhibit A-6, the following:
    The current rules, regulations, guidelines and bylaws of the 
foreign board of trade.
    Attach, as Exhibit A-7, the following:
    Evidence of the authorization, licensure or registration of the 
foreign board of trade pursuant to the regulatory regime in its home 
country jurisdiction and a representation by its regulator(s) that it 
is in good regulatory standing in the capacity in which it is 
authorized, licensed or registered.
    Attach, as Exhibit A-8, the following document:
    A summary of any disciplinary or enforcement actions or proceedings 
that have been brought against the foreign board of trade, or any of 
the senior officers thereof, in the past five years and the resolution 
of those actions or proceedings.
    Attach, as Exhibit A-9, the following document:
    An undertaking by the chief executive officer(s) (or functional 
equivalent[s]) of the foreign board of trade to notify Commission staff 
promptly if any of the representations made in connection with or 
related to the foreign board of trade's application for registration 
cease to be true or correct, or become incomplete or misleading.

EXHIBIT B--MEMBERSHIP CRITERIA

    Attach, as Exhibit B, the following, separately labeling each 
description:
    (1) A description of the categories of membership and participation 
in the foreign board of trade and the access and trading privileges 
provided by the foreign board of trade. The description should include 
any restrictions applicable to members and other participants to which 
the foreign board of trade intends to grant direct access to its 
trading system.
    (2) A description of all requirements for each category of 
membership and participation on the trading system and the manner in 
which members and other participants are required to demonstrate their 
compliance with these requirements. The description should include, but 
not be limited to, the following:
    (i) Professional Qualification. A description of the specific 
professional requirements, qualifications, and/or competencies required 
of members or other participants and/or their staff and a description 
of the process by which the foreign board of trade confirms compliance 
with such requirements.
    (ii) Authorization, Licensure and Registration. A description of 
any regulatory and self-regulatory authorization, licensure or 
registration requirements that the foreign board of trade imposes upon, 
or enforces against, its members and other participants including, but 
not limited to any authorization, licensure or registration 
requirements imposed by the regulatory regime/authority in the home 
country jurisdiction(s) of the foreign board of trade. Please also 
include a description of the process by which the foreign board of 
trade confirms compliance with such requirements.
    (iii) Financial Integrity. A description of the following:
    (A) The financial resource requirements, standards, guides or 
thresholds required of members and other participants.
    (B) The manner in which the foreign board of trade evaluates the 
financial resources/holdings of its members or participants.
    (C) The process by which applicants demonstrate compliance with 
financial requirements for membership or participation including, as 
applicable:
    (i) Working capital and collateral requirements, and
    (ii) Risk management mechanisms for members allowing customers to 
place orders.
    (iv) Fit and Proper Standards. A description of how the foreign 
board of trade ensures that potential members/other participants meet 
fit and proper standards.

EXHIBIT C--BOARD AND/OR COMMITTEE MEMBERSHIP

    Attach, as Exhibit C, the following:
    (1) A description of the requirements applicable to membership on 
the governing board and significant committees of the foreign board of 
trade.
    (2) A description of the process by which the foreign board of 
trade ensures that potential governing board and committee members/
other participants meet these standards.
    (3) A description of the provisions to minimize and resolve 
conflicts of interest with respect to membership on the governing board 
and significant committees of the foreign board of trade.
    (4) A description of the rules with respect to the disclosure of 
material non-public information obtained as a result of a member's or 
other participant's performance on the governing board or significant 
committee.

EXHIBIT D--THE AUTOMATED TRADING SYSTEM

    Attach, as Exhibit D-1, a description of (or where appropriate, 
documentation addressing) the following, separately labeling each 
description:
    (1) The order matching/trade execution system, including a complete

[[Page 80712]]

description of all permitted ways in which members or other 
participants (or their customers) may connect to the trade matching/
execution system and the related requirements (for example, 
authorization agreements).
    (2) The architecture of the systems, including hardware and 
distribution network, as well as any pre- and post-trade risk-
management controls that are made available to system users.
    (3) The security features of the systems.
    (4) The length of time such systems have been operating.
    (5) Any significant system failures or interruptions.
    (6) The nature of any technical review of the order matching/trade 
execution system performed by the foreign board of trade, the home 
country regulator, or a third party.
    (7) Trading hours.
    (8) Types and duration of orders accepted.
    (9) Information that must be included on orders.
    (10) Trade confirmation and error trade procedures.
    (11) Anonymity of participants.
    (12) Trading system connectivity with clearing system.
    (13) Response time.
    (14) Ability to determine depth of market.
    (15) Market continuity provisions.
    (16) Reporting and recordkeeping requirements.
    Attach, as Exhibit D-2, a description of the manner in which the 
foreign board of trade assures the following with respect to the 
trading system, separately labeling each description:
    (1) Algorithm. The trade matching algorithm matches trades fairly 
and timely.
    (2) IOSCO Principles. The trading system complies with the 
Principles for the Oversight of Screen-Based Trading Systems for 
Derivative Products developed by the Technical Committee of the 
International Organization of Securities Commissions (IOSCO 
Principles). Provide a copy of any independent certification received 
or self-certification performed and identify any system deficiencies 
with respect to the IOSCO Principles.
    (3) Audit Trail.
    (i) The audit trail timely captures all relevant data, including 
changes to orders.
    (ii) Audit trail data is securely maintained and available for an 
adequate time period.
    (4) Public Data. Adequate and appropriate trade data is available 
to users and the public.
    (5) Reliability. The trading system has demonstrated reliability.
    (6) Secure Access. Access to the trading system is secure and 
protected.
    (7) Emergency Provisions. There are adequate provisions for 
emergency operations and disaster recovery.
    (8) Data Loss Prevention. Trading data is backed up to prevent loss 
of data.
    (9) Contracts Available. Mechanisms are available to ensure that 
only those futures, option or swap contracts that have been identified 
to the Commission as part of the application or permitted to be made 
available for trading by direct access pursuant to the procedures set 
forth in Sec.  48.10 are made available for trading by direct access.
    (10) Predominance of the Centralized Market. Mechanisms are 
available that ensure a competitive, open, and efficient market and 
mechanism for executing transactions.

EXHIBIT E--THE TERMS AND CONDITIONS OF CONTRACTS PROPOSED TO BE MADE 
AVAILABLE IN THE UNITED STATES

    Attach, as Exhibit E-1, a description of the terms and conditions 
of futures, option or swap contracts intended to be made available for 
direct access. With respect to each contract, indicate whether the 
contract is regulated or otherwise treated as a futures, option or swap 
contract in the regulatory regime(s) of the foreign board of trade's 
home country.
    As Exhibit E-2, demonstrate that the contracts are not prohibited 
from being traded by United States persons, i.e., the contracts are not 
prohibited security futures or single stock contracts or narrow-based 
index contracts. For non-narrow based stock index futures contracts, 
demonstrate that the contracts have received Commission certification 
pursuant to the procedures set forth in Sec.  30.13 and Appendix D to 
part 30 of this chapter.
    As Exhibit E-3, demonstrate that the contracts are required to be 
cleared.
    As Exhibit E-4, identify any contracts that are linked to a 
contract listed for trading on a United States-registered entity, as 
defined in section 1a(40) of the Act. A linked contract is a contract 
that settles against any price (including the daily or final settlement 
price) of one or more contracts listed for trading on such registered 
entity.
    As Exhibit E-5, identify any contracts that have any other 
relationship with a contract listed for trading on a registered entity, 
i.e., both the foreign board of trade's and the registered entity's 
contract settle to the price of the same third party-constructed index.
    As Exhibit E-6, demonstrate that the contracts are not readily 
susceptible to manipulation. In addition, for each contract to be 
listed, describe each investigation, action, proceeding or case 
involving manipulation and involving such contract in the three years 
preceding the application date, whether initiated by the foreign board 
of trade, a regulatory or self-regulatory authority or agency or other 
government or prosecutorial agency. For each such action, proceeding or 
case, describe the alleged manipulative activity and the current status 
or resolution thereof.

EXHIBIT F--THE REGULATORY REGIME GOVERNING THE FOREIGN BOARD OF TRADE 
IN ITS HOME COUNTRY \5\ OR COUNTRIES

    With respect to each relevant regulatory regime or authority 
governing the foreign board of trade, attach, as Exhibit F, the 
following (including, where appropriate, an indication as to whether 
the applicable regulatory regime is dependent on the home country's 
classification of the product being traded on the foreign board of 
trade as a future, option, swap, or otherwise, and a description of any 
difference between the applicable regulatory regime for each product 
classification type):
---------------------------------------------------------------------------

    \5\ Where multiple foreign boards of trade subject to the same 
regulatory regime/authority and are similarly regulated are applying 
for registration at the same time, a single Exhibit E-1 may be 
submitted as part of the application for all such foreign boards of 
trade either by one of the applicant foreign boards of trade or by 
the regulatory regime/authority with responsibility to oversee each 
of the multiple foreign boards of trade applying for registration. 
Where an FBOT applying for registration is located in the same 
jurisdiction and subject to the same regulatory regime as a 
registered FBOT, the FBOT applying for registration may include by 
reference, as part of its application, information about the 
regulatory regime that is posted on the Commission's Web site. The 
FBOT applying for registration must certify that the information 
thus included in the application is directly applicable to it and 
remains current and valid.
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    (1) A description of the regulatory regime/authority's structure, 
resources, staff, and scope of authority; the regulatory regime/
authority's authorizing statutes, including the source of its authority 
to supervise the foreign board of trade; the rules and policy 
statements issued by the regulator with respect to the authorization 
and continuing oversight of markets, electronic trading systems, and 
clearing organizations; and the financial protections afforded customer 
funds.
    (2) A description of and, where applicable, copies of the laws, 
rules, regulations and policies applicable to: \6\
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    \6\ To the extent that any such laws, rules, regulations or 
policies were provided as part of Exhibit A-5, they need not be 
duplicated. They may be cross-referenced.

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[[Page 80713]]

    (i) The authorization, licensure or registration of the foreign 
board of trade.
    (ii) The regulatory regime/authority's program for the ongoing 
supervision and oversight of the foreign board of trade and the 
enforcement of its trading rules.
    (iii) The financial resource requirements applicable to the 
authorization, licensure or registration of the foreign board of trade 
and the continued operations thereof.
    (iv) The extent to which the IOSCO Principles are used or applied 
by the regulatory regime/authority in its supervision and oversight of 
the foreign board of trade or are incorporated into its rules and 
regulations and the extent to which the regulatory regime/authority 
reviews the applicable trading systems for compliance therewith.
    (v) The extent to which the regulatory regime/authority reviews 
and/or approves the trading rules of the foreign board of trade prior 
to their implementation.
    (vi) The extent to which the regulatory regime/authority reviews 
and/or approves futures, option or swap contracts prior to their being 
listed for trading.
    (vii) The regulatory regime/authority's approach to the detection 
and deterrence of abusive trading practices, market manipulation, and 
other unfair trading practices or disruptions of the market.
    (3) A description of the laws, rules, regulations and policies that 
govern the authorization and ongoing supervision and oversight of 
market intermediaries who may deal with members and other participants 
located in the United States participants, including:
    (i) Recordkeeping requirements.
    (ii) The protection of customer funds.
    (iii) Procedures for dealing with the failure of a market 
intermediary in order to minimize damage and loss to investors and to 
contain systemic risk.
    (4) A description of the regulatory regime/authority's inspection, 
investigation and surveillance powers; and the program pursuant to 
which the regulatory regime/authority uses those powers to inspect, 
investigate, and enforce rules applicable to the foreign board of 
trade.
    (5) For both the foreign board of trade and the clearing 
organization (unless addressed in Supplement S-1), a report confirming 
that the foreign board of trade and clearing organization are in 
regulatory good standing, which report should be prepared subsequent to 
consulting with the regulatory regime/authority governing the 
activities of the foreign board of trade and any associated clearing 
organization. The report should include:
    (i) Confirmation of regulatory status (including proper 
authorization, licensure and registration) of the foreign board of 
trade and clearing organization.
    (ii) Any recent oversight reports generated by the regulatory 
regime/authority that are, in the judgment of the regulatory regime/
authority, relevant to the foreign board of trade's status as a 
registered foreign board of trade.
    (iii) Disclosure of any significant regulatory concerns, inquiries 
or investigations by the regulatory regime/authority, including any 
concerns, inquiries or investigations with regard to the foreign board 
of trade's arrangements to monitor trading by members or other 
participants located in the United States or the adequacy of the risk 
management controls of the trading or of the clearing system.
    (iv) A description of any investigations (formal or informal) or 
disciplinary actions initiated by the regulatory regime/authority or 
any other self-regulatory, regulatory or governmental entity against 
the foreign board of trade, the clearing organization or any of their 
respective senior officers during the past year.
    (6) For both the foreign board of trade and the clearing 
organization (unless addressed in Supplement S-1), a confirmation that 
the regulatory regime/authority governing the activities of the foreign 
board of trade and the clearing organization agree to cooperate with a 
Commission staff visit subsequent to submission of the application on 
an ``as needed basis,'' the objectives of which will be to, among other 
things, familiarize Commission staff with supervisory staff of the 
regulatory regime/authority; discuss the laws, rules and regulations 
that formed the basis of the application and any changes thereto; 
discuss the cooperation and coordination between the authorities, 
including, without limitation, information sharing arrangements; and 
discuss issues of concern as they may develop from time to time (for 
example, linked contracts or unusual trading that may be of concern to 
Commission surveillance staff).

EXHIBIT G--THE RULES OF THE FOREIGN BOARD OF TRADE AND ENFORCEMENT 
THEREOF

    Attach, as Exhibit G-1, the following:
    A description of the foreign board of trade's regulatory or 
compliance department, including its size, experience level, 
competencies, duties and responsibilities.
    Attach, as Exhibit G-2, the following:
    A description of the foreign board of trade's trade practice rules, 
including but not limited to rules that address the following--
    (1) Capacity of the foreign board of trade to detect, investigate, 
and sanction persons who violate foreign board of trade rules.
    (2) Prohibition of fraud and abuse, as well as abusive trading 
practices including, but not limited to, wash sales and trading ahead, 
and other market abuses.
    (3) A trade surveillance system appropriate to the foreign board of 
trade and capable of detecting and investigating potential trade 
practice violations.
    (4) An audit trail that captures and retains sufficient order and 
trade-related data to allow the compliance staff to detect trading and 
market abuses and to reconstruct all transactions within a reasonable 
period of time.
    (5) Appropriate resources to conduct real-time supervision of 
trading.
    (6) Sufficient compliance staff and resources, including those 
outsourced or delegated to third parties, to fulfill regulatory 
responsibilities.
    (7) Rules that authorize compliance staff to obtain, from market 
participants, information and cooperation necessary to conduct 
effective rule enforcement and investigations.
    (8) Staff investigations and investigation reports demonstrating 
that the compliance staff investigates suspected rule violations and 
prepares reports of their finding and recommendations.
    (9) Rules determining access requirements with respect to the 
persons that may trade on the foreign board of trade, and the means by 
which they connect to it.
    (10) The requirement that market participants submit to the foreign 
board of trade's jurisdiction as a condition of access to the market.
    Attach, as Exhibit G-3, the following:
    A description of the foreign board of trade's disciplinary rules, 
including but not limited to rules that address the following--
    (1) Disciplinary authority and procedures that empower staff to 
recommend and prosecute disciplinary actions for suspected rule 
violations and that provide the authority to fine, suspend, or expel 
any market participant pursuant to fair and clear standards.
    (2) The issuance of warning letters and/or summary fines for 
specified rule violations.
    (3) The review of investigation reports by a disciplinary panel or 
other authority for issuance of charges or

[[Page 80714]]

instructions to investigate further, or findings that an insufficient 
basis exists to issue charges.
    (4) Disciplinary committees of the foreign board of trade that take 
disciplinary action via formal disciplinary processes.
    (5) Whether and how the foreign board of trade articulates its 
rationale for disciplinary decisions.
    (6) The sanctions for particular violations and a discussion of the 
adequacy of sanctions with respect to the violations committed and 
their effectiveness as a deterrent to future violations.
    Attach, as Exhibit G-4, the following:
    A description of the market surveillance program (and any related 
rules), addressing the following--
    The dedicated market surveillance department or the delegation or 
outsourcing of that function, including a general description of the 
staff; the data collected on traders' market activity; data collected 
to determine whether prices are responding to supply and demand; data 
on the size and ownership of deliverable supplies; a description of the 
manner in which the foreign board of trade detects and deters market 
manipulation; for cash-settled contracts, methods of monitoring the 
settlement price or value; and any foreign board of trade position 
limit, position management, large trader or other position reporting 
system.

EXHIBIT H--INFORMATION SHARING AGREEMENTS AMONG THE COMMISSION, THE 
FOREIGN BOARD OF TRADE, THE CLEARING ORGANIZATION, AND RELEVANT 
REGULATORY AUTHORITIES

    Attach, as Exhibit H, the following:
    (1) A description of the arrangements among the Commission, the 
foreign board of trade, the clearing organization, and the relevant 
foreign regulatory authorities that govern the sharing of information 
regarding the transactions that will be executed pursuant to the 
foreign board of trade's registration with the Commission and the 
clearing and settlement of those transactions. This description should 
address or identify whether and how the foreign board of trade, 
clearing organization, and the regulatory authorities governing the 
activities of the foreign board of trade and clearing organization 
agree to provide directly to the Commission information and 
documentation requested by Commission staff that Commission staff 
determines is needed:
    (i) To evaluate the continued eligibility of the foreign board of 
trade for registration.
    (ii) To enforce compliance with the specified conditions of the 
registration.
    (iii) To enable the CFTC to carry out its duties under the Act and 
Commission regulations and to provide adequate protection to the public 
or registered entities.
    (iv) To respond to potential market abuse associated with trading 
by direct access on the registered foreign board of trade.
    (v) To enable Commission staff to effectively accomplish its 
surveillance responsibilities with respect to a registered entity where 
Commission staff, in its discretion, determines that a contract traded 
on a registered foreign board of trade may affect such ability.
    (2) A statement as to whether and how the foreign board of trade 
has executed the International Information Sharing Memorandum of 
Understanding and Agreement.
    (3) A statement as to whether the regulatory authorities governing 
the activities of the foreign board of trade and clearing organization 
are signatories to the International Organization of Securities 
Commissions Multilateral Memorandum of Understanding. If not, describe 
any substitute information-sharing arrangements that are in place.
    (4) A statement as to whether the regulatory authorities governing 
the activities of the foreign board of trade and clearing organization 
are signatories to the Declaration on Cooperation and Supervision of 
International Futures Exchanges and Clearing Organizations. If not, a 
statement as to whether and how they have committed to share the types 
of information contemplated by the International Information Sharing 
Memorandum of Understanding and Agreement with the Commission, whether 
pursuant to an existing memorandum of understanding or some other 
arrangement.

EXHIBIT I--ADDITIONAL INFORMATION AND DOCUMENTATION

    Attach, as Exhibit I, any additional information or documentation 
necessary to demonstrate that the requirements for registration 
applicable to the foreign board of trade set forth in Commission 
regulation 48.7 are satisfied.

Continuation of Appendix to Part 48--Supplement S-1 to Form FBOT

COMMODITY FUTURES TRADING COMMISSION

SUPPLEMENT S-1 to FORM FBOT

CLEARING ORGANIZATION SUPPLEMENT TO FOREIGN BOARD OF TRADE APPLICATION 
FOR REGISTRATION

SUPPLEMENT INSTRUCTIONS

DEFINITIONS

    1. Unless the context requires otherwise, all terms used in this 
supplement have the same meaning as in the Commodity Exchange Act, as 
amended (CEA or Act),\7\ and in the regulations of the Commodity 
Futures Trading Commission (Commission or CFTC).\8\
---------------------------------------------------------------------------

    \7\ 7 U.S.C. 1 et seq.
    \8\ 17 CFR chapter I.
---------------------------------------------------------------------------

    2. For the purposes of this Supplement S-1, the term ``applicant'' 
refers to the foreign board of trade applying for registration pursuant 
to CEA section 4(b) and part 48 of the Commission's regulations. The 
term ``clearing organization'' refers to the clearing organization that 
will be clearing trades executed on the trading system of such foreign 
board of trade.

GENERAL INSTRUCTIONS

    1. A Supplement S-1 (including exhibits) shall be completed by each 
clearing organization that will be clearing trades executed on the 
trading system of a foreign board of trade applying for registration 
with the Commission pursuant to CEA section 4(b) and part 48 of the 
Commission's regulations. Each clearing organization shall submit a 
separate Supplement S-1.
    2. In the event that the clearing functions of the foreign board of 
trade applying for registration will be performed by the foreign board 
of trade itself, the foreign board of trade shall complete this 
Supplement S-1, but need not duplicate information provided on its Form 
FBOT. Specific reference to or incorporation of information or 
documentation (including exhibits) on the associated Form FBOT, where 
appropriate, is acceptable. To the extent a singular document or 
description is responsive to more than one request for information in 
this Supplement S-1, the document or description need only be provided 
once and may be cross-referenced elsewhere.
    3. Supplement S-1, including exhibits, should accompany the foreign 
board of trade's Form FBOT and must

[[Page 80715]]

be filed electronically with the Secretary of the Commission at 
[email protected]. Clearing organizations may prepare their own 
Supplement S-1, but must follow the format prescribed herein.
    4. The name of any individual listed in Supplement S-1 shall be 
provided in full (Last Name, First Name and Middle Name or Initial).
    5. Supplement S-1 must be signed by the Chief Executive Officer (or 
the functional equivalent) of the clearing organization who must 
possess the authority to bind the clearing organization.
    6. If this Supplement S-1 is being filed in connection with a new 
application for registration, all applicable items must be answered in 
full. If any item is not applicable, indicate by marking ``none'' or 
``N/A.''
    7. Submission of a complete Form FBOT and Supplement S-1 (including 
all information, documentation and exhibits requested therein) is 
mandatory and must be received by the Commission before it will begin 
to process a foreign board of trade's application for registration. The 
information provided with a Form FBOT and Supplement S-1 will be used 
to determine whether the Commission should approve or deny registration 
to an applicant. Pursuant to its regulations, the Commission may 
determine that information and/or documentation in addition to that 
requested in the Form FBOT and Supplement S-1 is required from the 
applicant and/or its clearing organization(s) in order to process the 
application for registration or to determine whether registration is 
appropriate.
    8. Pursuant to Commission regulations, an applicant or its clearing 
organization must identify with particularity any information in the 
application (including, but not limited to, any information contained 
in this Supplement S-1), that will be the subject of a request for 
confidential treatment and must provide support for any request for 
confidential treatment pursuant to the procedures set forth in 
Commission regulation 145.9.\9\ Except in cases where confidential 
treatment is granted by the Commission, pursuant to the Freedom of 
Information Act and Commission regulations, information supplied in the 
Supplement S-1 will be included routinely in the public files of the 
Commission and will be available for inspection by any interested 
person.
---------------------------------------------------------------------------

    \9\ 17 CFR 145.9.
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    9. A Supplement S-1 that is not prepared and executed in compliance 
with applicable requirements and instructions may be returned as not 
acceptable for filing.\10\ Acceptance of either a Form FBOT or 
Supplement S-1 by the Commission, however, shall not constitute a 
finding that the either have been filed as required or that the 
information submitted is verified to be true, current, or complete. The 
Commission may revoke a foreign board of trade's registration, after 
appropriate notice and an opportunity to respond, if the Commission 
determines that a representation made in this Supplement S-1 is found 
to be untrue or materially misleading or if the foreign board of trade 
and/or clearing organization failed to include information in this 
Supplement S-1 that would have been material to the Commission's 
determination as to whether to issue an Order of Registration.
---------------------------------------------------------------------------

    \10\ Applicants and their clearing organizations are encouraged 
to correspond with the Commission's Division of Market Oversight 
regarding any content, procedural, or formatting questions 
encountered in connection with the preparation of a Form FBOT, 
Supplement S-1, or exhibits thereto prior to formally submitting 
those documents to the Commission. When appropriate, potential 
applicants and clearing organizations, as applicable, may provide a 
complete draft Form FBOT and Supplement S-1 to the Division of 
Market Oversight for early review to minimize the risk of having a 
submission returned or otherwise denied as not acceptable for 
filing. Review of draft submissions by any division of the 
Commission and any comments provided by a division of the Commission 
are for consultation purposes only and do not bind the Commission. 
To obtain instructions for submitting drafts, please contact the 
Division of Market Oversight.
---------------------------------------------------------------------------

    10. All documents submitted as part of this Supplement S-1 (or 
exhibits thereto) must be written in English or accompanied by a 
certified English translation.

UPDATING INFORMATION

    Pursuant to the Commission's regulations, if any information or 
documentation contained in this Supplement S-1 (including exhibits) is 
or becomes inaccurate for any reason prior to the issuance of an Order 
of Registration, an amendment correcting such information must be filed 
promptly with the Commission. A clearing organization also may submit 
an amendment to this Supplement S-1 to correct information that has 
become inaccurate subsequent to the issuance of an Order of 
Registration.
BILLING CODE 6351-01-P

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BILLING CODE 6351-01-C

INSTRUCTIONS FOR EXHIBITS TO SUPPLEMENT S-1

    1. The following exhibits must be filed with the Commission by the 
clearing organization(s) that will be clearing trades executed on the 
trading system of a foreign board of trade applying for registration 
with the Commission pursuant to CEA section 4(b) and part 48 of 
Commission's regulations. The information and documentation requested 
relates to the activities of the clearing organization.
    2. The exhibits should be filed in accordance with the General 
Instructions to this Supplement S-1 and labeled as specified herein. If 
any exhibit is not applicable, please specify the exhibit letter and 
number and indicate by marking ``none'' or ``N/A.'' If any exhibit may 
be satisfied by documentation or information submitted in a different 
exhibit, the documentation or information need not be submitted more 
than once--please use internal cross-references where appropriate.

[[Page 80721]]

GENERAL REQUIREMENTS

    A foreign board of trade applying for registration must submit 
sufficient information and documentation to successfully demonstrate to 
Commission staff that the foreign board of trade and its clearing 
organization satisfy all of the requirements of Commission regulation 
48.7. With respect to its review of the foreign board of trade's 
clearing organization, the Commission anticipates that such information 
and documentation would necessarily include, but not be limited to, the 
following:

EXHIBIT A--GENERAL INFORMATION AND DOCUMENTATION

    Attach, as Exhibit A-1, a description of the following for the 
clearing organization:
    Location, history, size, ownership and corporate structure, 
governance and committee structure, and current or anticipated presence 
of staff in the United States.
    Attach, as Exhibit A-2, the following:
    Articles of association, constitution, or other similar 
organizational documents.
    Attach, as Exhibit A-3, the following:
    (1) Membership and participation agreements.
    (2) Clearing agreements.
    Attach, as Exhibit A-4, the following:
    The national statutes, laws and regulations governing the 
activities of the clearing organization and its members.
    Attach, as Exhibit A-5, the following:
    The current rules, regulations, guidelines and bylaws of the 
clearing organization.
    Attach, as Exhibit A-6, the following:
    Evidence of the authorization, licensure or registration of the 
clearing organization pursuant to the regulatory regime in its home 
country jurisdiction(s) and a representation by its regulator(s) that 
it is in good regulatory standing in the capacity in which it is 
authorized, licensed or registered.
    Attach, as Exhibit A-7, the following document:
    A summary of any disciplinary or enforcement actions or proceedings 
that have been brought against the clearing organization, or any of the 
senior officers thereof, in the past five years and the resolution of 
those actions or proceedings.
    Attach, as Exhibit A-8, the following document:
    An undertaking by the chief executive officer(s) (or functional 
equivalent[s]) of the clearing organization to notify Commission staff 
promptly if any of the representations made in connection with this 
supplement cease to be true or correct, or become incomplete or 
misleading.

EXHIBIT B--MEMBERSHIP CRITERIA

    Attach, as Exhibit B, the following, separately labeling each 
description:
    (1) A description of the categories of membership and participation 
in the clearing organization and the access and clearing privileges 
provided to each by the clearing organization.
    (2) A description of all requirements for each category of 
membership and participation and the manner in which members and other 
participants are required to demonstrate their compliance with these 
requirements. The description should include, but not be limited to, 
the following:
    (i) Professional Qualification. A description of the specific 
professional requirements, qualifications, and/or competencies required 
of members or other participants and/or their staff and a description 
of the process by which the clearing organization confirms compliance 
with such requirements.
    (ii) Authorization, Licensure and Registration. A description of 
any regulatory or self-regulatory authorization, licensure or 
registration requirements that the clearing organization imposes upon, 
or enforces against, its members and other participants including, but 
not limited to any authorization, licensure or registration 
requirements imposed by the regulatory regime/authority in the home 
country jurisdiction(s) of the clearing organization, and a description 
of the process by which the clearing organization confirms compliance 
with such requirements.
    (iii) Financial Integrity. A description of the following:
    (A) The financial resource requirements, standards, guides or 
thresholds required of members and other participants.
    (B) The manner in which the clearing organization evaluates the 
financial resources/holdings of its members or other participants.
    (C) The process by which applicants for clearing membership or 
participation demonstrate compliance with financial requirements 
including:
    (1) Working capital and collateral requirements, and
    (2) Risk management mechanisms.
    (iv) Fit and Proper Standards. A description of any other ways in 
which the clearing organization ensures that potential members/other 
participants meet fit and proper standards.

EXHIBIT C--BOARD AND/OR COMMITTEE MEMBERSHIP

    Attach, as Exhibit C, the following:
    (1) A description of the requirements applicable to membership on 
the governing board and significant committees of the clearing 
organization.
    (2) A description of how the clearing organization ensures that 
potential governing board and committee members meet these standards.
    (3) A description of the clearing organization's provisions to 
minimize and resolve conflicts of interest with respect to membership 
on the governing board and significant committees of the clearing 
organization.
    (4) A description of the clearing organization's rules with respect 
to the disclosure of material non-public information obtained as a 
result of a member's performance on the governing board or on a 
significant committee.

EXHIBIT D--SETTLEMENT AND CLEARING

    Attach, as Exhibit D-1, the following:
    A description of the clearing and settlement systems, including, 
but not limited to, the manner in which such systems interface with the 
foreign board of trade's trading system and its members and other 
participants.
    Attach, as Exhibit D-2, the following:
    A certification, signed by the chief executive offer (or functional 
equivalent) of the clearing organization, that the clearing system 
observes (1) the current Recommendations for Central Counterparties 
that have been issued jointly by the Committee on Payment and 
Settlement Systems and the Technical Committee of the International 
Organization of Securities Commissions, as updated, revised or 
otherwise amended, or (2) successor standards, principles and guidance 
for central counterparties or financial market infrastructures adopted 
jointly by the Committee on Payment and Settlement Systems or the 
International Organization of Securities Commissions (RCCPs).
    Attach, as Exhibit D-3, the following:
    A detailed description of the manner in which the clearing 
organization observes each of the RCCPs or successor standards and 
documentation supporting the representations made, including any 
relevant rules or written policies or procedures of the clearing 
organization. Each RCCP should be addressed separately within the 
exhibit.

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EXHIBIT E--THE REGULATORY REGIME GOVERNING THE CLEARING ORGANIZATION IN 
ITS HOME COUNTRY OR COUNTRIES

    With respect to each relevant regulatory regime or authority 
governing the clearing organization, attach, as Exhibit E, the 
following:
    (1) A description of the regulatory regime/authority's structure, 
resources, staff and scope of authority.
    (2) The regulatory regime/authority's authorizing statutes, 
including the source of its authority to supervise the clearing 
organization.
    (3) A description of and, where applicable, copies of the laws, 
rules, regulations and policies applicable to: \11\
---------------------------------------------------------------------------

    \11\ To the extent that any such laws, rules, regulations or 
policies were provided as part of Exhibit A-4, they need not be 
duplicated. They may be cross-referenced.
---------------------------------------------------------------------------

    (i) The authorization, licensure or registration of the clearing 
organization.
    (ii) The financial resource requirements applicable to the 
authorization, licensure or registration of the clearing organization 
and the continued operations thereof.
    (iii) The regulatory regime/authority's program for the ongoing 
supervision and oversight of the clearing organization and the 
enforcement of its clearing rules.
    (iv) The extent to which the current RCCPs are used or applied by 
the regulatory regime/authority in its supervision and oversight of the 
clearing organization or are incorporated into its rules and 
regulations and the extent to which the regulatory regime/authority 
reviews the clearing systems for compliance therewith.
    (v) The extent to which the regulatory regime/authority reviews 
and/or approves the rules of the clearing organization prior to their 
implementation.
    (vi) The regulatory regime/authority's inspection, investigation 
and surveillance powers; and the program pursuant to which the 
regulatory regime/authority uses those powers to inspect, investigate, 
sanction, and enforce rules applicable to the clearing organization.
    (vii) The financial protection afforded customer funds.

EXHIBIT F--THE RULES OF THE CLEARING ORGANIZATION AND ENFORCEMENT 
THEREOF

    Attach, as Exhibit F-1, the following:
    A description of the clearing organization's regulatory or 
compliance department, including its size, experience level, 
competencies, duties and responsibilities of staff.
    Attach, as Exhibit F-2, the following:
    A description of the clearing organization's rules and how they are 
enforced, with reference to any rules provided as part of Exhibit A-5 
that require the clearing organization to comply with one or more of 
the RCCPs.
    Attach, as Exhibit F-3, the following, to the extent not included 
in Exhibit F-2:
    A description of the clearing organization's disciplinary rules, 
including but not limited to rules that address the following--
    (1) Disciplinary authority and procedures that empower staff to 
recommend and prosecute disciplinary actions for suspected rule 
violations and that provide the authority to fine, suspend, or expel 
any clearing participant pursuant to fair and clear standards.
    (2) The issuance of warning letters and/or summary fines for 
specified rule violations.
    (3) The review of investigation reports by a disciplinary panel or 
other authority for issuance of charges or instructions to investigate 
further, or findings that an insufficient basis exists to issue 
charges.
    (4) Disciplinary committees of the clearing organization that take 
disciplinary action via formal disciplinary processes.
    (5) Whether and how the clearing organization articulates its 
rationale for disciplinary decisions.
    (6) The sanctions for particular violations and a discussion of the 
adequacy of sanctions with respect to the violations committed and 
their effectiveness as deterrents to future violations.
    Attach, as Exhibit F-4, the following, to the extent not provided 
in Exhibit F-2:
    A demonstration that the clearing organization is authorized by 
rule or contractual agreement to obtain, from members and other 
participants, any information and cooperation necessary to conduct 
investigations, to effectively enforce its rules, and to ensure 
compliance with the conditions of registration.

EXHIBIT G--INFORMATION SHARING AGREEMENTS AMONG THE COMMISSION, THE 
FOREIGN BOARD OF TRADE, THE CLEARING ORGANIZATION, AND RELEVANT 
REGULATORY AUTHORITIES

    Attach, as Exhibit G, the following:
    (1) A description of the arrangements among the Commission, the 
foreign board of trade, the clearing organization, and the relevant 
foreign regulatory authorities that govern the sharing of information 
regarding the transactions that will be executed pursuant to the 
foreign board of trade's registration with the Commission and the 
clearing and settlement of those transactions. This description should 
address or identify whether and how the foreign board of trade, 
clearing organization, and the regulatory authorities governing the 
activities of the foreign board of trade and clearing organization 
agree to provide directly to the Commission information and 
documentation requested by Commission staff that Commission staff 
determines is needed:
    (i) To evaluate the continued eligibility of the foreign board of 
trade for registration.
    (ii) To enforce compliance with the specified conditions of the 
registration.
    (iii) To enable the CFTC to carry out its duties under the Act and 
Commission regulations and to provide adequate protection to the public 
or registered entities.
    (iv) To respond to potential market abuse associated with trading 
by direct access on the registered foreign board of trade.
    (v) To enable Commission staff to effectively accomplish its 
surveillance responsibilities with respect to a registered entity where 
Commission staff, in its discretion, determines that a contract traded 
on a registered foreign board of trade may affect such ability.
    (2) A statement as to whether the regulatory authorities governing 
the activities of the foreign board of trade and clearing organization 
are signatories to the International Organization of Securities 
Commissions Multilateral Memorandum of Understanding. If not, describe 
any substitute information-sharing arrangements that are in place.
    (3) A statement as to whether the regulatory authorities governing 
the activities of the foreign board of trade and clearing organization 
are signatories to the Declaration on Cooperation and Supervision of 
International Futures Exchanges and Clearing Organizations. If not, a 
statement as to whether and how they have committed to share the types 
of information contemplated by the International Information Sharing 
Memorandum of Understanding and Agreement with the Commission, whether 
pursuant to an existing memorandum of understanding or some other 
arrangement.

EXHIBIT H--ADDITIONAL INFORMATION AND DOCUMENTATION

    Attach, as EXHIBIT H, any additional information or documentation 
necessary to demonstrate that the requirements for registration 
applicable to the clearing

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organization or clearing system set forth in Commission regulation 48.7 
are satisfied.

    Issued in Washington, DC, December 5, 2011, by the Commission.
David A. Stawick,
Secretary of the Commission.

    Note: The following appendices will not appear in the Code of 
Federal Regulations

    Appendices to Final Rule--Registration of Foreign Boards of 
Trade--Commission Voting Summary and Statements of Commissioners

Appendix 1--Commission Voting Summary

    In this matter, Chairman Gensler and Commissioners Sommers, 
Chilton, O'Malia and Wetjen voted in the affirmative; no 
Commissioner noted in the negative.

Appendix 2--Statement of Chairman Gary Gensler

    I support the final rule to implement a registration system for 
Foreign Boards of Trade (FBOTs) seeking to make futures and swaps 
contracts directly available to U.S. market participants. This 
registration system replaces the Commodity Futures Trading 
Commission's current practice of staff issuing no-action letters to 
FBOTs to permit them to provide such direct access for futures 
contracts. Importantly, the registration system will bring 
consistency, standardization and transparency--both for applicants 
and the public--to the process. In order to directly access U.S. 
market participants, the FBOTs and their clearing organizations must 
be subject to comparable and comprehensive supervision and 
regulation in their home countries and meet certain standards in the 
rule.

[FR Doc. 2011-31637 Filed 12-22-11; 8:45 am]
BILLING CODE 6351-01-P