[Federal Register Volume 85, Number 53 (Wednesday, March 18, 2020)]
[Rules and Regulations]
[Pages 15359-15363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05097]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30

RIN 3038-AE86


Foreign Futures and Options Transactions

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission) is 
issuing a final rule that amends its regulations governing the offer 
and sale of foreign futures and options to customers located in the 
U.S. The amended regulation codifies the process

[[Page 15360]]

by which the Commission may terminate exemptive relief issued pursuant 
to its regulations.

DATES: The rule is effective March 18, 2020.

FOR FURTHER INFORMATION CONTACT: Joshua Sterling, Director, 
[email protected]; Frank Fisanich, Chief Counsel, [email protected]; 
or Andrew Chapin, Associate Chief Counsel, [email protected], Division 
of Swap Dealer and Intermediary Oversight, Commodity Futures Trading 
Commission, 1155 21st Street NW, Washington, DC 20581, (202) 418-5000.

SUPPLEMENTARY INFORMATION: 

I. Background

    Part 30 of the Commission's regulations governs the offer and sale 
of futures and option contracts traded on or subject to the regulations 
of a foreign board of trade (foreign futures and options) to customers 
located in the U.S.\1\ These regulations set forth requirements for 
foreign firms acting in the capacity of a futures commission merchant 
(FCM), introducing broker, commodity pool operator and commodity 
trading adviser with respect to the offer and sale of foreign futures 
and options to U.S. customers and are designed to ensure that such 
products offered and sold in the U.S. are subject to regulatory 
safeguards comparable to those applicable to transactions entered into 
on designated contract markets. Pursuant to Sec.  30.10(a), persons 
located outside the U.S. and subject to a comparable regulatory 
structure in the jurisdiction in which they are located may seek an 
exemption from certain of the requirements under part 30 of the 
Commission's regulations based upon compliance with the regulatory 
requirements of the person's home jurisdiction.\2\
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    \1\ 17 CFR part 30. The Commission promulgated part 30 of its 
regulations in 1987. See Foreign Futures and Foreign Options 
Transactions, 52 FR 28980 (Aug. 5, 1987). The Commission promulgated 
these regulations pursuant to Section 2(b)(2)(A) of the Commodity 
Exchange Act (CEA), 7 U.S.C. 6(b)(2)(A).
    \2\ 17 CFR 30.10(a).
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    A petition for exemption pursuant to Sec.  30.10(a) typically is 
filed on behalf of persons located and doing business outside the U.S. 
that seek access to U.S. customers by: (1) A governmental agency 
responsible for implementing and enforcing the foreign regulatory 
program; or (2) a self-regulatory organization (SRO) of which such 
persons are members. A petitioner who seeks an exemption pursuant to 
Sec.  30.10(a) must set forth with particularity the comparable 
regulations applicable in the jurisdiction in which that person is 
located. The Commission may, in its discretion, grant such an exemption 
if it is demonstrated to the Commission's satisfaction that the 
exemption is not otherwise contrary to the public interest or to the 
purposes of the provision from which exemption is sought. Appendix A to 
part 30, Interpretative Statement With Respect to the Commission's 
Exemptive Authority Under Sec.  30.10 of Its Rules (appendix A), 
generally sets forth the elements the Commission will evaluate in 
determining whether a particular regulatory program may be found to be 
comparable for purposes of exemptive relief pursuant to Sec.  30.10,\3\ 
and specifically states that in considering an exemption request, the 
Commission will take into account the extent to which United States 
persons or contracts regulated by the Commission are permitted to 
engage in futures-related activities or be offered in the country from 
which an exemption is sought.\4\
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    \3\ 52 FR 28990, 29001.
    \4\ 17 CFR part 30, appendix A.
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    If the Commission determines that relief pursuant to Sec.  30.10(a) 
is appropriate, the Commission issues an Order to the person that filed 
the petition for relief (typically the foreign regulator or SRO) that 
sets forth conditions governing such relief. After the relief is 
granted to the foreign regulator or SRO, persons under its regulatory 
oversight and located and doing business outside the U.S. may solicit 
or accept orders directly from U.S. customers for foreign futures or 
options transactions and, in the case of a person acting in the 
capacity of an FCM, accept customer money or other property, without 
registering under the CEA in the appropriate capacity.\5\ The 
Commission reserves the right within each Order issued pursuant to 
Sec.  30.10(a) to condition, modify, suspend, terminate, or otherwise 
restrict the exemptive relief granted, as appropriate, on its own 
motion.
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    \5\ The term ``futures commission merchant'' is defined in Sec.  
1.3, 17 CFR 1.3.
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II. The Proposal

    The Commission published for public comment in the Federal Register 
on July 5, 2019 a notice of proposed rulemaking (the Proposal) 
proposing amendments to regulation Sec.  30.10.\6\ As noted above, 
Sec.  30.10(a) sets forth the process by which any person adversely 
affected by any requirement set forth in part 30 may file a petition 
with the Commission seeking an exemption. While Sec.  30.10(a) provides 
that the Commission may grant an exemption subject to any terms or 
conditions it may find appropriate, the regulation does not provide a 
specific course of action should the Commission determine that 
exemptive relief is no longer warranted. Accordingly, the Commission 
proposed to amend Sec.  30.10 by adding a new paragraph (c) to codify 
the process by which the Commission may terminate exemptive relief 
issued pursuant to paragraph (a).
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    \6\ See Foreign Futures and Options Transactions, 84 FR 32105 
(Jul. 5, 2019).
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    Specifically, the Proposal provided that the Commission may 
terminate exemptive relief, after appropriate notice and an opportunity 
to respond, under certain circumstances. First, the Commission could 
terminate the relief should it determine that there has been a material 
change or omission in the facts and circumstances pursuant to which 
relief was granted that demonstrate that the standards set forth in 
appendix A forming the basis for granting such relief are no longer 
met. Second, the Commission could terminate relief should it determine 
that the continued exemptive relief would be contrary to the public 
interest or inconsistent with the purposes of the regulation Sec.  
30.10 exemption. For example, in considering whether exemptive relief 
continues to be warranted, the Commission could take into account any 
material changes in the applicable regulatory regime, including a lack 
of comity relating to the execution or clearing of any commodity 
interest \7\ subject to the Commission's exclusive jurisdiction.\8\ 
Third, the Commission could terminate relief should it determine that 
information-sharing arrangements no longer adequately support exemptive 
relief.
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    \7\ The term ``commodity interest'' includes, among other 
things, any contract for the purchase or sale of a commodity for 
future delivery, or any swap as defined in the CEA. See 17 CFR 1.3.
    \8\ The Commission's exclusive jurisdiction is set forth in 7 
U.S.C. 2(a).
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    The Proposal also provided any affected person with an appropriate 
opportunity to respond to any notice by the Commission issued pursuant 
to Sec.  30.10(c)(1). The affected person is the foreign regulator, 
SRO, or other entity that filed the original petition for relief.\9\ 
The Commission proposed that the timing for any opportunity to respond 
would take into account the exigency of circumstances. The Commission 
noted that it is able to suspend immediately the relief set forth in 
any Order issued pursuant to Sec.  30.10(a) should exigent 
circumstances occur. Thus, the Proposal stated that the affected party 
would have a period of 30 business days, or

[[Page 15361]]

such time as the Commission permits in writing to respond to the 
notification. This time period could be less than 30 business days 
depending on the exigency of the circumstances and other relevant 
considerations.
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    \9\ Paragraph (a) of the current regulation states that any 
person adversely affected by any requirement of this part may file a 
petition. 17 CFR 30.10(a).
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    Should the Commission ultimately determine to terminate any 
exemptive relief, it proposed that the Commission would be required to 
notify the affected person in writing setting forth the particular 
reasons why relief is no longer warranted and issue an Order 
terminating exemptive relief to be published in the Federal Register. 
Proposed Sec.  30.10(c)(2)-(4) provided further that any Order 
terminating exemptive relief would set forth an appropriate time frame 
for the orderly transfer or close out of any accounts held by U.S. 
customers impacted by such an Order. Finally, proposed Sec.  30.10 
(c)(5) provided that any person whose relief has been terminated may 
re-apply for exemptive relief 360 days after the issuance of the 
relevant Order by the Commission if the deficiency causing the 
revocation has been cured or relevant facts and circumstances have 
changed.

III. Comments

    The Commission received three comment letters on the Proposal from 
the Intercontinental Exchange, Inc. (ICE); the Futures Industry 
Association (FIA); and the CME Group Inc. (CME Group).\10\ Each of the 
commenters commended the long-standing success of the Commission's 
program for regulatory deference set forth in Sec.  30.10 and generally 
supported the Proposal to provide greater transparency to the process 
by which the Commission may terminate exemptive relief.
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    \10\ The comment letters can be found at: https://comments.cftc.gov/PublicComments/CommentList.aspx?id=3002.
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    Both CME Group and FIA urged the Commission to adhere to the 
standard set forth in appendix A regarding principles of regulatory 
comity. In particular, these commenters noted that the Commission, in 
consideration of any petition submitted pursuant to Sec.  30.10(a), 
should take into account the extent to which U.S. persons or contracts 
regulated by the Commission are permitted to engage in futures-related 
activities or be offered in the country from which an exemption is 
sought. Both commenters recognized that complementary regulatory 
programs of mutual recognition across jurisdictional boundaries reduce 
artificial barriers to market access, encourage liquidity, promote 
price discovery, and mitigate market fragmentation. Otherwise, market 
intermediaries will be required to comply with more costly, overlapping 
regulation that fail to take into account the market structure and 
participants in local markets.
    With respect to specific rule text, both ICE and FIA requested that 
the final regulation provide all market participants--and not simply 
the foreign regulator or SRO to which the Order was issued--with notice 
and opportunity to comment on any notification by the Commission of its 
intention to terminate exemptive relief. Both commenters noted that 
market intermediaries taking advantage of such relief would be better 
positioned to plan for, and potentially mitigate, any possible business 
and market disruptions resulting from the termination of relief with 
formal notice from the Commission.

IV. Final Rule

    The Commission has considered the comments from ICE, FIA, and CME 
Group and is adopting Sec.  30.10(c) as proposed, with two 
modifications. The Commission agrees with comments that market 
intermediaries taking advantage of such relief and other market 
participants impacted by the potential termination of relief may 
provide helpful insight to the Commission as it considers whether 
termination is appropriate. Accordingly, the Commission is adopting a 
change to proposed Sec.  30.10(c)(2) to provide parties other than the 
affected person with notice of and opportunity to comment on any 
potential termination of relief.
    Revised Sec.  30.10(c)(2) will require the Commission to publish on 
its website any notice of an intention to terminate relief. The 
Commission expects that the notice would be published on the website at 
substantially the same time that it is sent to the affected person, 
subject to any logistical or similar considerations. In this manner, 
market intermediaries--and derivatively, their U.S. customers--will be 
prompted to communicate with the Commission regarding any issues 
relevant to the potential termination of relief, including those 
regarding the potential transfer of customer accounts and property. The 
Commission also is adopting a corresponding change to Sec.  30.10(c)(3) 
to provide persons other than the affected party with the opportunity 
to respond to the notification in writing no later than 30 business 
days following the publication on the Commission's website of the 
notification, or at such time as the Commission permits in writing 
(which could be more or less than 30 business days, depending on the 
exigency of the circumstances and other relevant considerations).

V. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that Federal agencies 
consider whether the rules that they issue will have a significant 
economic impact on a substantial number of small entities and, if so, 
to provide a regulatory flexibility analysis regarding the impact on 
those entities. Each Federal agency is required to conduct an initial 
and final regulatory flexibility analysis for each rule of general 
applicability for which the agency issues a general notice of proposed 
rulemaking.\11\
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    \11\ See U.S.C. 601 et seq.
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    As noted in the Proposal, this rule would affect foreign members of 
foreign boards of trade who perform the functions of an FCM. While the 
RFA may not apply to foreign entities,\12\ the Commission previously 
determined that FCMs should be excluded from the definition of small 
entities.\13\ Accordingly, the Chairman, on behalf of the Commission, 
hereby certifies, pursuant to 5 U.S.C. 605(b), that the final 
regulations will not have a significant impact on a substantial number 
of small entities.
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    \12\ See 13 CFR 121.105 (noting that a small business is a 
business entity organized for profit, with a place of business 
located in the U.S., and which operates primarily within the U.S., 
or which makes a significant contribution to the U.S. economy 
through payment of taxes or use of American products, materials or 
labor).
    \13\ See, e.g., Policy Statement and Establishment of 
Definitions of ``Small Entities'' for purposes of the Regulatory 
Flexibility Act, 47 FR 18618, 18619 (Apr. 30, 1982).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) 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. Under 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 from the Office of Management and Budget (OMB). The final 
regulations adopted would result in a collection of information within 
the meaning of the PRA, as discussed below. Therefore, the Commission 
is submitting the Final Rules to OMB for approval.
    As discussed in the Proposal, final Sec.  30.10(c)(2) will result 
in a collection of information within the meaning of the PRA, as 
discussed below. This final rule contains a collection of information 
for

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which the Commission has not previously received control numbers from 
the Office of Management and Budget (OMB). As noted in the Proposal, 
the Commission has submitted to OMB an information collection request 
to obtain an OMB control number for the collection contained in this 
proposal in accordance with 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    Specifically, final Sec.  30.10(c)(3) provides any party affected 
by the Commission's determination to terminate relief with the 
opportunity to respond to the notification in writing no later than 30 
business days following the receipt of the notification, or at such 
time as the Commission permits in writing. The Commission estimates 
that, if adopted, it would receive one response to this collection 
resulting in eight burden hours annually.
    In the Proposal, the Commission invited the public and other 
Federal agencies to comment on any aspect of the proposed information 
collection requirements discussed therein.\14\ The Commission did not 
receive any such comments.
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    \14\ Proposal, 84 FR at 32107.
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C. Cost-Benefit Considerations

1. Summary
    Section 15(a) of the CEA \15\ requires the Commission to consider 
the costs and benefits of its actions before promulgating a regulation 
under the CEA or issuing certain orders. The baseline for this 
consideration of costs and benefits is the current status, where the 
Commission has not codified the procedures by which the Commission may 
terminate exemptive relief issued pursuant to Sec.  30.10(a). As noted 
in the Proposal, the Commission has not yet terminated such relief, so 
the Commission has not yet implemented a procedure for terminating such 
exemptions. Moreover, the Commission has limited relevant or useful 
quantitative data to assess the potential costs and benefits of the 
final regulation Sec.  30.10(c). Accordingly, the Commission generally 
considered the costs and benefits of final regulation Sec.  30.10(c) in 
qualitative terms. The Commission invited comment on its preliminary 
consideration of the costs and benefits associated with the proposed 
changes to Sec.  30.10,\16\ and received no such comments.
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    \15\ 7 U.S.C. 19(a).
    \16\ Id.
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    As a general matter, final Sec.  30.10(c) will inform the public, 
affected persons and market participants of the basis on which the 
Commission may terminate exemptive relief pursuant to Sec.  30.10(a) 
and establishing a process whereby an affected party would first be 
notified and given an opportunity to respond before the Commission 
would take any action. The affected party will benefit from the clear 
process set forth in the final regulation. The affected person will 
only incur costs in connection with the final regulation to the extent 
that the Commission identified a basis for terminating the exemption 
and notified the party of that basis. Similarly, market participants 
and other interested members of the public would incur costs in 
connection with responding to the posting of the notice on the 
Commission's website. Those costs would include reviewing and 
responding to the notification, which the Commission believes would 
vary depending on the circumstances, including the stated basis for 
termination. As stated above, the Commission believes that 30 days, or 
such additional or less time as the Commission may permit in writing 
due to any exigent circumstances, will be sufficient for the affected 
person and other interested parties to develop a response while 
allowing the Commission to take timely action to consider their 
interests.
    The Commission requested comment on the potential costs and 
benefits of proposed Sec.  30.10(c), including, where possible, 
quantitative data, and on any alternative proposals that might achieve 
the objectives of the proposed regulation, and the costs and benefits 
associated with any such alternatives.\17\ The Commission did not 
receive any such comments.
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    \17\ Proposal, 84 FR 32108.
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2. Section 15(a) Factors
    Section 15(a) specifies that the costs and benefits shall be 
evaluated 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 the futures markets; (3) 
price discovery; (4) sound risk management practices; and (5) other 
public interest considerations.
    The Commission is considering the costs and benefits of these rules 
in light of the specific provisions of Section 15(a) of the CEA:
    a. Protection of Market Participants and the Public. Section 
15(a)(2)(A) of the CEA requires the Commission to evaluate the costs 
and benefits of a proposed regulation in light of protection of market 
participants and the public. The final regulations will benefit 
affected persons, market participants and the public by setting forth a 
clear procedure for the Commission's termination of exemptive relief 
issued pursuant to Sec.  30.10(a). The final regulations will provide 
affected persons, market participants and the public with a reasonable 
timeframe to communicate any concerns to the Commission and, if 
necessary, for the orderly transfer of any accounts held by U.S. 
customers impacted by an order terminating relief.
    b. Efficiency, Competitiveness, and Financial Integrity of Markets. 
Section 15(a)(2)(B) of the CEA requires the Commission to evaluate the 
costs and benefits of a proposed regulation in light of efficiency, 
competitiveness, and financial integrity considerations. The Commission 
has not identified a specific effect on the efficiency and financial 
integrity of markets as a result of the proposed regulations. There may 
be a minor impact from termination of an exemption on the 
competitiveness of futures markets. Foreign futures and options may 
compete directly or indirectly with contracts listed on DCMs. Due to 
legal restrictions in foreign jurisdictions, the only way that U.S. 
customers may access certain foreign contracts may be through an exempt 
foreign firm. The termination of any exemptive relief therefore may 
reduce the available options for U.S. market participants.
    c. Price Discovery. Section 15(a)(2)(C) of the CEA requires the 
Commission to evaluate the costs and benefits of a proposed regulation 
in light of price discovery considerations. The Commission believes 
that the final regulations will not have any significant impact on 
price discovery.
    d. Sound Risk Management Practices. Section 15(a)(2)(D) of the CEA 
requires the Commission to evaluate the costs and benefits of a 
proposed regulation in light of sound risk management practices. The 
Commission believes that the final regulations will not have a large 
impact on the risk management practices of the futures and options 
industry. However, to the extent that having a transparent process for 
terminating exemptions issued to foreign regulatory or self-regulatory 
organizations on behalf of individual firms may encourage an increased 
offer and sale of contracts that more closely match the hedging needs 
of particular U.S. market participants, the practice of sound risk 
management might be improved slightly.
    e. Other Public Interest Considerations. Section 15(a)(2)(E) of the 
CEA requires the Commission to evaluate the costs and benefits of a 
proposed regulation in light of other

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public considerations. The Commission believes that having a 
transparent process for terminating an exemption from registration 
will, in the event that the Commission believes such a termination may 
be warranted, provide an appropriate notice and opportunity to comment 
to the public, affected persons, exempt Sec.  30.10 firms, and market 
participants who may be affected by the termination of an order of 
Sec.  30.10 exemption.
3. Antitrust Considerations
    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least competitive means of achieving the 
objectives of the CEA in issuing any order or adopting any Commission 
regulation. The Commission has determined that the final amendments to 
Sec.  30.10 have no anticompetitive effects. The final regulation is a 
procedural rule that will not cause a change in the behavior that would 
alter the level playing fields of regulated entities.

List of Subjects in 17 CFR Part 30

    Consumer protection, Fraud.

    For the reasons set forth in the preamble, the Commodity Futures 
Trading Commission amends 17 CFR part 30 as follows:

PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS

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

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


0
2. Add paragraph (c) to Sec.  30.10 to read as follows:


Sec.  30.10  Petitions for exemption.

* * * * *
    (c)(1) The Commission may, in its discretion and upon its own 
initiative, terminate the exemptive relief granted to any person 
pursuant to paragraph (a) of this section, after appropriate notice and 
an opportunity to respond, if the Commission determines that:
    (i) There is a material change or omission in the facts and 
circumstances pursuant to which relief was granted that demonstrate 
that the standards set forth in appendix A to this part forming the 
basis for granting such relief are no longer met; or
    (ii) The continued effectiveness of any such exemptive relief would 
be contrary to the public interest or inconsistent with the purposes of 
the exemption under paragraph (a) of this section; or
    (iii) The arrangements in place for the sharing of information with 
the Commission do not warrant continuation of the exemptive relief 
granted.
    (2) The Commission shall provide written notification to the 
affected party of its intention to terminate an exemption pursuant to 
paragraph (a) of this section and the basis for that intention. Such 
written notification also shall be published prominently on the 
Commission's website.
    (3) The affected party may respond to the notification in writing 
no later than 30 business days following the receipt of the 
notification, or at such time as the Commission permits in writing. Any 
other person may respond to the notification in writing no later than 
30 business days following the publication on the Commission's website 
of the written notice issued to the affected party, or at such time as 
the Commission permits in writing.
    (4) If, after providing any affected person appropriate notice and 
opportunity to respond, the Commission determines that relief pursuant 
to paragraph (a) of this section is no longer warranted, the Commission 
shall notify the person of such determination in writing, including the 
particular reasons why relief is no longer warranted, and issue an 
Order Terminating Exemptive Relief. Any Order Terminating Exemptive 
Relief shall provide an appropriate timeframe for the orderly transfer 
or close out of any accounts held by U.S. customers impacted by such an 
Order.
    (5) Any person whose relief has been terminated may apply for 
exemptive relief 360 days after the issuance of the Order Terminating 
Exemptive Relief if the deficiency causing the revocation has been 
cured or relevant facts and circumstances have changed.

    Issued in Washington, DC, on March 9, 2020, by the Commission.
Robert Sidman,
Deputy Secretary of the Commission.

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


Appendix to Foreign Futures and Options Transactions--Commission Voting 
Summary

    On this matter, Chairman Tarbert and Commissioners Quintenz, 
Behnam, Stump, and Berkovitz voted in the affirmative. No 
Commissioner voted in the negative.

[FR Doc. 2020-05097 Filed 3-17-20; 8:45 am]
 BILLING CODE 6351-01-P