65584 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 

1Registration with IPE is not registration with 

FSA or any other government entity. Criteria and 

procedures for obtaining membership or trading 

privileges on IPE are discussed below.

2The Commission previously determined to 

expand ECE eligibility to include, subject to certain 

conditions, Commission-registered floor brokers 

and floor traders. See 68 FR 2319 (January 16, 

2003). That action applied to Commissionregistered floor brokers and floor traders conducting 

business on electronic or open outcry markets. 

Similarly, this action applies to IPE brokers and 

local traders conducting business on IPE in either 

electronic or open outcry trading environments. As 

used in this Federal Register notice and in the prior 

Federal Register notice, the term proprietary 

trading means trading for one’s own account.

3Section 1a(14) of the Act defines the term 

‘‘exempt commodity’’ to mean a commodity that is 

not an excluded commodity or an agricultural 

commodity. Section 1a(13) defines the term 

‘‘excluded commodity’’ to mean, among other 

things, an interest rate, exchange rate, currency, 

credit risk or measure, debt instrument, measure of 

inflation, or other macroeconomic index or 

measure. Although the term ‘‘agricultural 

commodity’’ is not defined in the Act, section 1a(4) 

enumerates a non-exclusive list of several 

agricultural-based commodities and products. The 

broadest type of commodities that fall into the 

exempt category are energy and metals products.

4Under section 2(h)(3), ECMs are markets that 

meet the requirements of section 2(h)(3)–(5) by 

notifying the Commission of their intention to 

operate a trading facility in reliance on the 

exemption and by limiting themselves to 

transactions: (1) In exempt commodities, (2) entered 

into on a principal-to-principal basis by ECEs, and 

(3) executed or traded on an electronic trading 

facility. An ECM is not a registered entity, but is 

required to notify the Commission of its intention 

to operate an electronic trading facility in reliance 

on the exemption set forth in section 2(h)(3). The 

notification of operation as an ECM must include 

several certifications and, pursuant to Commission 

regulation 36.3(c)(3), a representation that it will 

require each participant to comply with all 

applicable law and that it has a reasonable basis for 

believing that authorized participants are ECEs. 

Section 2(h)(4) reserves, with respect to transactions 

eligible for the 2(h)(3) exemption, certain provisions 

of the Act, including certain anti-fraud and antimanipulation provisions.

5Section 1a(12) lists those entities and 

individuals included within the ECP category. 

Included generally as ECPs are financial 

institutions; insurance companies; and investment 

companies subject to regulation; commodity pools 

and employee benefit plans subject to regulation 

and asset requirements; other entities subject to 

asset requirements or whose obligations are 

guaranteed by an ECP that meets a net worth 

requirement; governmental entities; brokers,

enhancement permit 1493 for takes of 

endangered species.

SUMMARY: This notice advises the public 

that a scientific research permit to the 

Bonneville Power Administration (BPA) 

and the Confederated Tribes and Bands 

of the Yakama Nation, as their agent, 

pursuant to the Endangered Species Act 

of 1973 (ESA), has been issued and that 

the decision documents are available 

upon request.

DATES: Permit 1493 was issued on 

September 15, 2004, subject to certain 

conditions set forth therein. The permit 

expires on September 15, 2009.

ADDRESSES: Requests for copies of the 

decision documents or any of the other 

associated documents should be 

directed to the Salmon Recovery 

Division, NOAA Fisheries, 525 NE 

Oregon Street, Suite 510, Portland, 

Oregon 97232. The documents are also 

available on the Internet at 

www.nwr.noaa.gov.

FOR FURTHER INFORMATION CONTACT:

Kristine Petersen, Portland, OR, at 

phone number: (503) 230–5409, e-mail: 

Kristine.Petersen@noaa.gov

SUPPLEMENTARY INFORMATION: The 

following species and evolutionarily 

significant units (ESUs) are covered in 

the permit:

Steelhead (Oncorhynchus mykiss): 

endangered Upper Columbia River.

Chinook salmon (O. tshawytscha): 

endangered Upper Columbia River 

spring run.

Issuance of this permit, as required by 

the ESA, was based on a finding that 

such permits: (1) were applied for in 

good faith; (2) will not operate to the 

disadvantage of the listed species which 

are the subject of the permits; and (3) is 

consistent with the purposes and 

policies set forth in section 2 of the 

ESA. This permit was issued in 

accordance with, and is subject to, 50 

CFR part 222, the NMFS regulations 

governing listed species permits.

Dated: November 9, 2004.

Phil Williams,

Chief, Endangered Species Division, Office 

of Protected Resources, National Marine 

Fisheries Service.

[FR Doc. 04–25317 Filed 11–12–04; 8:45 am]

BILLING CODE 3510–22–S

COMMODITY FUTURES TRADING 

COMMISSION 

In the Matter of the Intercontinental 

Exchange, Inc. Petition for Expansion 

of the Definition of an Eligible 

Commercial Entity Under Section 

1a(11)(C) of the Commodity Exchange 

Act

AGENCY: Commodity Futures Trading 

Commission.

ACTION: Order.

SUMMARY: In response to a petition from 

the Intercontinental Exchange, Inc. 

(‘‘Intercontinental’’), the Commodity 

Futures Trading Commission 

(‘‘Commission’’ or ‘‘CFTC’’), pursuant to 

section 1a(11)(C) of the Commodity 

Exchange Act (‘‘Act’’), is issuing an 

order that deems, subject to certain 

conditions, brokers and traders 

associated with the International 

Petroleum Exchange (‘‘IPE’’), a 

recognized investment exchange (‘‘RIE’’) 

located in the United Kingdom (‘‘U.K.’’), 

who are either authorized by the 

Financial Services Authority (‘‘FSA’’) or 

registered with the IPE,1 when acting in 

a proprietary trading capacity, to be an 

‘‘eligible commercial entity’’ as defined 

in section 1a(11) of the Act.2

Accordingly, subject to certain 

conditions as set forth in the 

Commission’s order, IPE members 

authorized as commodity brokers by 

FSA or registered as local traders with 

IPE, when acting for their own accounts, 

are permitted to enter into transactions 

in exempt commodities on exempt 

commercial markets pursuant to section 

2(h)(3) of the Act. In order to 

participate, the FSA-authorized broker 

or IPE-registered trader must either be 

an eligible contract participant, as that 

term is defined in section 1a(12) of the 

Act, or have its trades on the exempt 

commercial market guaranteed by a 

clearing member that is both a member 

of an FSA-recognized derivatives 

clearing organization and is an eligible 

contract participant.

EFFECTIVE DATE: This order is effective 

November 15, 2004.

FOR FURTHER INFORMATION CONTACT:

Clarence Sanders, Special Counsel, 

Division of Market Oversight, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Telephone: (202) 418–5068. 

Electronic mail: csanders@cftc.gov.

SUPPLEMENTARY INFORMATION: 

I. Statutory Background 

The Commodity Futures 

Modernization Act of 2000 (‘‘CFMA’’), 

Public Law No. 106–554, was signed 

into law on December 21, 2000. Under 

amendments implemented by the 

CFMA, section 2(h)(3) of the Act 

authorizes trading in an ‘‘exempt 

commodity’’ 3 on an exempt commercial 

market (‘‘ECM’’) meeting the 

requirements of section 2(h) (3)–(5). 

Under those provisions, transactions 

between an eligible commercial entity 

(‘‘ECE’’) in an exempt commodity on an 

ECM are exempt from all but certain 

limited requirements of the Act.4

Section 1a(11) of the Act lists those 

eligible contract participants (‘‘ECP’’) 5

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 65585

dealers, and futures commission merchants 

(‘‘FCM’’) subject to regulation and organized as 

other than natural persons or proprietorships; 

brokers, dealers, and FCMs subject to regulation 

and organized as natural persons or proprietorships 

subject to total asset requirements or whose 

obligations are guaranteed by an ECP that meets a 

net worth requirement; floor brokers or floor traders 

subject to regulation in connection with 

transactions that take place on or through the 

facilities of a registered entity or an exempt board 

of trade; individuals subject to total asset 

requirements; an investment adviser or commodity 

trading adviser acting as an investment manager or 

fiduciary for another ECP, and any other person that 

the Commission deems eligible in light of the 

financial or other qualifications of the person.

6Section 1a(11) defines the term ECE by listing 

those entities and individuals considered to be 

ECEs. Generally, an ECE is an ECP that (1) in 

connection with its business, demonstrates the 

ability to make or take delivery of the underlying 

commodity; incurs risk, in addition to price risk 

related to the commodity; or is a dealer that 

regularly provides risk management or hedging 

services to, or engages in market-making activities 

with, the foregoing entities with respect to the 

commodity or derivatives transactions in the 

commodity; or (2) is other than a natural person or 

government entity and regularly enters into 

transactions with respect to the commodity, subject 

to certain qualification or total asset requirements; 

or (3) such other persons as the Commission shall 

determine appropriate.

7 Intercontinental submitted its notice of 

operation as an ECM to the Commission on 

December 27, 2001. Intercontinental is one of 11 

ECMs that have submitted notices to the 

Commission to date. 8The two classes denominated as brokers or local 

traders encompass four separate types of holders of 

trading privileges on IPE. Within the broker class 

there are Floor Members and General Participants. 

Floor Members hold privileges to trade on the IPE 

floor, whereas General Participants may trade only 

through the IPE electronic trading system. After 

establishment by IPE of the General Participant 

class, Floor Members were eligible to be 

grandfathered as General Participants. Also new 

Floor Members can elect to qualify as General 

Participants. The class denominated as local traders 

by IPE can similarly be broken down into two 

separate trader types. These are called Local 

Members and Individual Participants. Local 

Members may trade on the IPE floor, but Individual 

Participants may trade solely through the IPE 

electronic trading system. During July 2003 IPE 

introduced a new ‘‘electronic’’ membership 

structure. FSA recognizes all four classes as 

‘‘members,’’ irrespective of whether the individual 

class is vested with equity or voting rights. See FSA 

Handbook Glossary at M8, 01/10/04, which defines 

a member as ‘‘a person who is entitled, under an 

arrangement or agreement between him and that 

body, to use that body’s facilities.’’

9FSA recognition requirements place obligations 

on an RIE to put in place satisfactory arrangements 

for securing clearing and settlement services, which 

generally will be carried out by a Recognized 

Clearing House. 10Although IPE brokers have FSA authorization 

to conduct transactions on behalf of customers, any 

relief granted in response to the Intercontinental 

petition would be solely for their proprietary 

trading activities.

P=’65585’≤that are qualified to be 

ECEs.6 As defined under section 1a(11), 

floor brokers and floor traders, even if 

determined to fall within the definition 

of an ECP, do not, as a category, fall 

within the statutory definition of an 

ECE. Thus, commodity brokers and 

traders, whether conducting business in 

either electronic or open outcry trading 

environments, are prohibited from 

entering into transactions on ECMs.

Section 1a(11)(C) of the Act, however, 

vests the Commission with discretion to 

expand the list of entities qualifying as 

an ECE. Specifically, under that 

provision, the definition of an ECE shall 

include ‘‘such other persons as the 

Commission shall determine 

appropriate and shall designate by rule, 

regulation, or order.’’ Therefore, a 

Commission-determination recognizing 

that IPE brokers and traders, either 

authorized by FSA or registered with 

IPE, are considered to be ECEs would 

permit these entities to enter into 

exempt commodity transactions on 

ECMs pursuant to section 2(h)(3) of the 

Act.

II. The Petition 

A. Scope of Request 

By letter dated February 9, 2004, 

Intercontinental requested that the 

Commission issue an order pursuant to 

section 1a(11) of the Act that would 

expand the ECE category to include 

certain IPE brokers and local traders, 

who are either authorized by FSA or 

registered with IPE, thus permitting 

them to trade on ECMs.7

Intercontinental operates a commodities 

trading platform for energy and metals 

(the ‘‘Intercontinental electronic 

platform’’) and is itself an ECM. 

Intercontinental also owns IPE, a U.K. 

futures exchange that trades energy 

futures products. The Intercontinental 

electronic platform is used by IPE for its 

electronic trading system. 

Intercontinental stated that including 

IPE brokers and local traders as ECEs 

would be consistent with the CFMA and 

would recognize their value as both 

liquidity providers and market makers.

As more fully described below, 

Intercontinental’s request applies to 

certain IPE brokers and local traders 

conducting business on IPE in either 

electronic or open outcry trading 

environments.8 Specifically, 

Intercontinental proposed that eligible 

IPE brokers must be located in the U.K., 

be authorized and regulated by the FSA, 

and be a member of the IPE. For IPE 

local traders, Intercontinental proposed 

that eligible local traders be located in 

the U.K., be outside the scope of the 

Financial Services and Markets Act of 

2000 (‘‘FSMA’’), and be a member of, or 

registered to, the IPE. Additionally, for 

both brokers and local traders, 

Intercontinental proposed that they 

have, as a part of their business 

activities, the business of acting as a 

broker or local trader but need not have 

any connection or experience in the 

underlying physical commodity. 

Finally, Intercontinental proposed that 

an eligible IPE broker or local trader 

must be an ECP or, if not an ECP, then 

the IPE broker or local trader must have 

its trades on the ECM guaranteed by an 

entity that is both an ECP and a clearing 

member of a U.K. recognized clearing 

organization.

In its petition, Intercontinental noted 

that the Commission has previously 

expanded the eligibility criteria for ECE 

status to include Commission-registered 

floor brokers and floor traders when 

acting in a proprietary trading capacity. 

In this respect, Intercontinental 

commented that the relief it seeks for 

IPE brokers and local traders is an 

appropriate extension of the 

Commission’s previous expansion of the 

ECE definition. Moreover, 

Intercontinental contends that the IPE 

brokers and local traders, much as the 

CFTC registered floor brokers and floor 

traders qualifying under the 

Commission’s prior action, are 

commodity professionals supervised by 

a central regulator, the FSA, or the IPE. 

Intercontinental also notes that the IPE 

brokers and local traders regularly trade 

on the IPE as part of their business and 

would utilize ECMs in connection with 

their trading activities. Intercontinental 

also observes that the Commission’s 

prior action effectively acknowledges 

that floor brokers and floor traders are 

sophisticated market participants who 

are subject to a comprehensive 

regulatory scheme, such as that 

provided under FSA and IPE 

regulations. Intercontinental concludes 

that IPE brokers and local traders satisfy 

similar criteria, including that of having 

their trades guaranteed by the 

arrangements put in place by an RIE, 

and should therefore be eligible for the 

same type of relief.9

B. IPE Brokers 

The petition requests that the ECE 

definition be expanded to include IPE 

brokers that are located in the UK when 

acting in a proprietary capacity. The IPE 

brokers include IPE Floor Members and 

IPE General Participants. IPE Floor 

Members may trade in either the open 

outcry or electronic markets; General 

Participants are restricted to the 

electronic market only. 

As the petition describes, IPE brokers 

are firms authorized to transact business 

on behalf of customers or for the firm’s 

proprietary account.10 When acting on 

behalf of customers, the firm’s business 

activities fall within the scope of the 

FSMA. Thus, a firm conducting such

65586 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 

11Under the U.K. regulatory regime, FSA also is 

responsible for approving persons who perform 

certain ‘‘controlled functions’’ for an authorized 

person. The FSA has specified 27 separate 

controlled functions, which fall into two main 

groups. The first of these two groups is the 

‘‘significant influence functions’’ group, which 

includes activities carried out by persons in 

positions having a significant influence over 

conduct of the firm, such as governing functions (a 

Board Director or Chief Executive) or required 

functions (Compliance Officer or MoneyLaundering Reporting Officer). The other group is 

the ‘‘customer functions’’ group, which includes 

persons performing advisory functions or customer 

trading and investment management functions.

12 In order to qualify for membership as a Floor 

member on IPE, an applicant also must meet a 

schedule of IPE eligibility requirements. Under this 

schedule, an applicant must (1) be a firm or 

company, (2) meet IPE requirements on recordkeeping, training and fitness of staff and directors, 

and implement internal procedures to ensure 

compliance with regulations, (3) meet minimum 

IPE-established net worth requirements, (4) 

maintain a properly established office in an IPEapproved location for the conduct of business, (5) 

have a continuing interest in trading and maintain 

trading staff on the IPE floor, (6) be a clearing 

member of LCH.Clearnet or be a party to a clearing 

agreement with another firm that is a member of 

LCH.Clearnet, and (7) hold at least one seat on IPE, 

where the applicant wishes to self-execute 

transactions on the IPE floor.

13Under the applicable schedule of requirements, 

the applicant must (1) demonstrate fitness to be a 

member, (2) demonstrate sufficiency of controls and 

procedures to ensure that employees, agents, and 

representatives are fit and proper, suitably qualified 

and experienced, adequately trained, and properly 

supervised, (3) maintain a properly established 

office in an IPE-approved location for the conduct 

of business, (4) meet minimum IPE-established 

financial standing requirements, (5) be a party to an 

IPE-prescribed Platform User Agreement, (6) 

maintain access to the Trading Server via a front 

end application meeting IPE criteria, (7) be a 

clearing member of LCH.Clearnet or be a party to 

a clearing agreement with another firm that is a 

member of LCH.Clearnet, (8) hold all necessary 

licenses, authorizations, and consents or qualifies 

for an exclusion permitting the conduct of business 

on the Platform in accordance with applicable law 

and regulation, and (9) identify the location of all 

RIs, along with related details and information on 

order routing, upon request from IPE.

14A third local trader class, Trade Participant 

membership, also exists but relief is not being 

sought for this class. Trade Participants are 

companies limited to trading for their own account.

15To qualify as an IPE Local Member an applicant 

must (1) demonstrate fitness as a member and an 

intention to comply with IPE regulations, (2) 

register with IPE and successfully pass the 

Registered Floor Trader examination, (3) 

demonstrate that the applicant will become a party 

to a clearing agreement with a clearing member of 

LCH.Clearnet, (4) demonstrate that the applicant is 

entitled, upon admission to membership, to acquire 

or lease a minimum of one seat on IPE, (5) 

demonstrate that the applicant is either a sole trader 

or a company where 90 percent of issued share 

capital is owned by the sole trader or 90 percent 

of voting rights of a non-share capital company is 

held by the sole trader, and (6) provide any other 

information or documents requested by IPE.

16To demonstrate eligibility an applicant as an 

Individual Participant must (1) demonstrate fitness 

as a member and an intention to comply with IPE 

regulations, (2) register with IPE as an RI and 

successfully pass the Registered Trader 

examination, (3) be a party to an IPE-prescribed 

Platform User Agreement, (4) maintain access to the 

Trading Server via a front end application meeting 

IPE criteria, (5) demonstrate that the applicant will 

become a party to a clearing agreement with a 

clearing member of LCH.Clearnet, and (6) 

demonstrate substantial experience trading on a UK 

futures exchanges, or otherwise meet the 

Intermediate Customer Standards found in FSA 

Conduct of Business Rule 4.1.9R.

17 IPE Local Members and Individual Participants 

were determined to be outside the scope of FSMA 

by Order 2001. Local Members and Individual 

Participants may be individuals or corporations, 

although in the case of a corporation, 90 percent of 

the share capital or voting rights must be held by 

a single member.

18FSA confirms that IPE regulations appear to 

meet the requirements in the FSA sourcebook on 

Recognized Investment Exchanges and Recognized 

Clearing Houses.

19All IPE members and holders of trading 

privileges must execute an IPE-prescribed 

agreement consenting to be bound by IPE rules. See

IPE Rule B.1.4.

20See COB Rule 4.1.4, FSA Handbook, Release 

034, September 2004.

21Under the first tier, which concerns the 

establishment of a client relationship, COB Rule 

4.1.9R requires that a firm take reasonable care to 

determine that the client has sufficient experience 

and understanding, disclose in writing the 

regulatory protections waived by such 

classification, provide the client sufficient time to 

consider the determination, and obtain the client’s 

written consent or otherwise demonstrate that 

informed consent has been given by the client.

activities in the UK is subject to 

regulation by the FSA. Among other 

qualifying criteria, such firms must 

obtain FSA authorization prior to 

engaging in the commodity brokerage 

business.11

As there are two separate trading 

venues at IPE, conduct of business by 

IPE brokers may take two different 

forms. Each IPE floor-based broker (i.e., 

Floor Members) is represented on the 

trading floor by one or more individual 

traders.12

General Participants are IPE brokers 

authorized to conduct business solely 

on the electronic trading platform. IPEestablished eligibility requirements for 

this class of membership differ from 

those applicable to floor members. 

However, both classes of IPE brokers are 

authorized by FSA and therefore under 

FSA oversight. When operating on the 

IPE electronic trading platform, 

representatives of IPE General 

Participants are registered with the IPE 

as a Responsible Individual (‘‘RI’’) or, 

alternatively, are registered with the 

FSA as an Approved Person linked to a 

particular General Participant.13

C. IPE Local Traders 

The petition also requests that the 

ECE definition be expanded to include 

IPE local traders located in the UK. 

Under IPE rules, local traders are 

authorized to trade for their own 

account but are prohibited from 

engaging in customer brokerage. As 

noted above, IPE local traders as a class 

are composed of two separate types of 

holders of trading privileges. These are 

Local Members and Individual 

Participants.14 Qualifying criteria for 

these two trader classes differ in some 

respects. Local Members hold privileges 

to trade on the IPE floor.15 Individual 

Participants are authorized to trade 

solely on the electronic trading 

platform.16

Notably, both Local Members and 

Individual Participants are outside the 

scope of the FSMA and therefore need 

not be authorized by the FSA—either 

when trading on IPE on behalf of their 

own account or on behalf of other IPE 

members.17 However, both Local 

Members and Individual Participants 

must be members of, or registered with, 

the IPE, and must meet independent 

qualifying criteria established by IPE 

under an FSA-recognized regime.18 The 

IPE actively monitors Local Member and 

Individual Participant trading activity, 

and has authority to impose sanctions 

for improper trading conduct.19

D. Qualifying Experience for Individual 

Participants 

IPE affirms that it will determine 

whether an applicant has substantial 

qualifying experience by applying the 

standards set out under the definition of 

an Intermediate Customer contained in 

FSA regulations. In particular, IPE 

represents that the standards defining 

an expert private client as an 

Intermediate Customer found in Rule 

4.1.9R of the FSA Conduct of Business 

(‘‘COB’’) sourcebook will be applied as 

the primary guide in determining the 

adequacy of an applicant’s experience 

for this purpose.

COB Rule 4.1.9R imposes a two-tiered 

regulatory structure on financial 

services firms servicing accounts of 

expert private clients. This structure is 

divided between (1) procedural steps in 

establishing a client relationship with 

an expert private client and (2) objective 

steps in determining the adequacy of the 

expert private client’s trading and 

business experience. More specifically, 

under FSA regulations, a financial 

intermediary is required to classify a 

client in one of three classifications: 

these are private (‘‘retail’’) customer, 

intermediate customer, or market 

counterparty.20 Provisions under COB 

Rule 4.1.9R, permit a financial services 

firm to classify a client who would 

otherwise be a private, or retail, 

customer as an Intermediate Customer 

only upon a determination that the 

client is an ‘‘expert’’ private client.

COB 4.1.9R requires a firm to assess 

the adequacy of a client’s experience 

and knowledge as an expert private 

client.21 In this respect, COB Rule

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 65587

22 69 FR 13286 (March 22, 2004).

23Recognized Investment Exchanges and 

Recognized Clearing Houses, FSA Handbook, 

Release 033, July 2004. More specifically, 

Intercontinental represents that Part 2.7 of the RIE 

Sourcebook imposes obligations requiring an RIE to 

restrict membership to applicants (1) over whom it 

can with reasonable certainty enforce its rules 

contractually, (2) who have sufficient technical 

competence to use its facilities, (3) who it is 

appropriate to admit to membership having regard 

to the size and sophistication of users of its 

facilities and the nature of the business effected by 

means of or cleared through its facilities, and (4) if 

appropriate who have adequate financial resources 

in relation to their exposure to the UK recognized 

body or its central counterparty. See also FSA 

Handbook Glossary at M8, 01/10/04, which defines 

a member as ‘‘a person who is entitled, under an 

arrangement or agreement between him and that 

body, to use that body’s facilities.’’ Thus, all holders 

of IPE trading privileges are deemed ‘‘members,’’

and are regulated as such under FSA regulations, 

irrespective of whether individuals within a 

particular class of traders hold any equity or voting 

rights in IPE.

4.1.9R requires that a firm inquire about 

the client’s knowledge, understanding, 

and awareness of risks in the applicable 

investments and markets. The rule also 

requires a firm to consider the length of 

time the client has been active in the 

applicable markets, the frequency of 

dealings, and the extent to which the 

client has relied on advice. Finally, the 

rule instructs a firm to inquire about or 

consider the size and nature of any 

transactions undertaken for the client, 

and the client’s financial standing, 

including where appropriate an 

assessment of the client’s net worth and 

portfolio holdings.

Essentially, IPE has determined to 

adopt the COB Rule 4.1.9R standards as 

qualifying criteria for applicants as IPE 

Individual Participants. Thus, these 

standards, otherwise imposed upon 

financial services firms regulated by 

FSA, will also be part of IPE procedures 

and serve as a screening device for 

determining the sufficiency of an 

applicant’s experience and knowledge 

for admission on the IPE as an 

Individual Participant. In this respect, 

IPE confirms that its application of the 

criteria found in Rule 4.1.9R, to assess 

experience and knowledge of Individual 

Participant applicants, will be part of an 

independent determination made by IPE 

management. Moreover, IPE represents 

that any prior status an applicant may 

have attained as a customer of a 

financial services firm would not be 

determinative of eligibility, but that IPE 

would undertake an independent 

assessment of the applicant’s experience 

and knowledge under the standards of 

COB Rule 4.1.9R. 

E. Comments 

The Intercontinental petition was 

published in the Federal Register for a 

15-day public comment period on 

March 22, 2004.22 In addition, the 

Federal Register release includes a 

series of questions posed by the 

Commission regarding the petition. 

Those questions focus on whether the 

petition should be granted; what 

conditions if any should apply; whether 

any grant of the petition should be 

specifically tailored to the 

Intercontinental ECM or be more 

broadly applied to other ECMs as well; 

whether relief should extend to IPE 

traders with rights to trade only on the 

IPE electronic platform, or to IPE locals 

not registered with the FSA and, if so, 

what standards should apply to evaluate 

the qualifications of such persons.

In total, the Commission received 

three comment letters responding to the 

Federal Register notice, two of which 

were submitted by the New York 

Mercantile Exchange (‘‘NYMEX’’) in 

letters dated April 7, and May 27, 2004. 

The other comment was submitted by 

Intercontinental in a letter dated April 

28, 2004. The Intercontinental comment 

letter primarily responded to issues 

critically raised in the NYMEX letter of 

April 7, 2004. 

1. NYMEX Comment Letters 

The NYMEX comment letters include 

a generalized critical assessment of the 

petition. In so doing, the letters 

characterize the relief being sought as 

‘‘broad and unrestricted,’’ and argue 

against the grant of the petition. In 

arriving at this conclusion, NYMEX 

emphasizes several different aspects of 

the IPE institutional and regulatory 

environment.

In particular, NYMEX sets out its 

view of the regulatory landscape 

governing ECMs as one in which 

statutory exemption is conditioned on 

the commercial nature of the market. 

Following this line of reasoning, 

NYMEX asserts that the IPE electronic 

traders are best characterized as 

representing a retail rather than a 

commercial interest and, on that basis, 

concludes they should be denied 

eligibility to obtain trading privileges on 

ECMs. 

In amplifying its objection to a grant 

of access for IPE electronic traders, 

NYMEX asserts that granting the 

petition for IPE electronic traders would 

open ECM access to a ‘‘potentially large 

group of unschooled and 

unsophisticated electronic traders who 

are not required to be registered here or 

in the U.K.’’ NYMEX further concludes 

that granting such regulatory relief 

could impose risks to the integrity of 

trading on an ECM. Thus, NYMEX 

concludes that a grant of relief sought by 

Intercontinental would be contrary to 

statutory intent and the public interest. 

Along a similar line of reasoning, 

NYMEX questions whether the IPE local 

traders (both Local Members and 

Individual Participants) could meet 

commercial standards justifying access 

to an ECM. NYYMEX supports this 

conclusion by arguing that the lack of 

FSA registration for IPE local traders, 

combined with a lack of express 

qualifying and trading participation 

requirements, raises a question as to 

whether such traders could serve as 

effective ‘‘liquidity providers’’ on an 

ECM. 

NYMEX also questions whether the 

petition is imbued with a full 

understanding of the meaning of 

‘‘trading for one’s own account’’ within 

the context of obtaining trading access 

to an ECM. 

The NYMEX comments also respond 

to the Commission’s inquiry whether 

any regulatory response to the petition 

should be tailored specifically to permit 

IPE members to trade solely on 

Intercontinental or should be more 

broadly designed to permit IPE members 

to trade on other ECMs as well. 

Although more generally opposing the 

grant of the petition, NYMEX, in 

response to this question, comments 

that it is unable to identify any factual 

circumstances that would be unique to 

Intercontinental’s ECM. On this basis, 

NYMEX concludes there is no need to 

tailor any hypothetical relief to the 

specific factual circumstances of the 

Intercontinental ECM and, in this 

respect, questions the wisdom of 

‘‘creating private definitions for public 

statutory categories.’’ In summary, 

although NYMEX argues against 

granting the petition, NYMEX suggests 

that in any grant of relief the 

Commission ‘‘may wish to consider 

allowing such IPE members to trade on 

other ECMs.’’

2. Intercontinental Letter 

As noted, Intercontinental submitted 

a comment letter dated April 28, 2004. 

That letter generally responds to the 

issues raised in the NYMEX letter of 

April 7, 2004. At the outset, 

Intercontinental notes that the IPE, as an 

RIE regulated by FSA, is subject to a 

panoply of FSA requirements, which, 

according to Intercontinental, are 

designed to protect the functioning of 

the market and the interests of users.23

Intercontinental also comments that 

these FSA requirements on member 

access to an RIE should also be read in 

conjunction with the rules and 

requirements independently applied by

65588 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 

24These are the same rules and requirements 

outlined above in Section II.

25 68 FR 2319 (January 16, 2003). The 

Commission also incorporated floor brokers and 

floor traders in the definition of an ECE as it relates 

to trading on a Derivatives Transaction Execution 

Facility. See Commission Regulation 37.1(b), and 

the discussion thereunder at 66 FR 42256.

26See IPE Rule G.10(c). The Registered Floor 

Trader exam tests knowledge of trading behavior 

and of the rules and regulations of IPE.

IPE.24 As a supplement to these rules 

and requirements, Intercontinental 

comments that IPE also applies a 

membership due diligence screening 

process in which the IPE inquiry seeks 

information on an applicant’s personal 

history including, but not limited to, the 

applicant’s experience and knowledge 

of derivatives trading, whether an 

individual applicant has been registered 

by another regulatory body, has ever 

been disciplined by another regulatory 

body, or been insolvent. Additionally, 

Intercontinental comments that, as part 

of the due diligence screening, IPE 

conducts an identification inquiry 

under anti-money laundering standards 

and reviews or confirms all information 

obtained with appropriate agencies.

With respect to IPE contracts traded 

on the electric platform, 

Intercontinental comments that IPE 

makes available two different training 

programs for new members before they 

can access the system. As a consequence 

of these requirements, Intercontinental 

maintains that the characterization by 

NYMEX that IPE electronic traders are 

‘‘unschooled and unsophisticated,’’ or 

of a retail nature, is not accurate. On 

this basis, Intercontinental concludes 

that the IPE members should be viewed 

as eligible to access the over-the-counter 

contracts traded on Intercontinental’s 

ECM. 

Intercontinental’s comment letter also 

notes that it is not seeking relief solely 

for its own ECM, but rather does not 

oppose broad ECM access for the IPE 

membership. Intercontinental also 

acknowledges that relief is being sought 

solely for ‘‘principal-to-principal’’

trading. 

While not responding to any aspect of 

NYMEX’s comment letter, 

Intercontinental did add several 

clarifications with respect to its relief 

request. For instance, Intercontinental 

remarks that its systems are adequate to 

enforce the requirement that IPE 

members eligible for relief must be 

located in the U.K., as it inquires into 

a participant’s physical location by 

collecting information on a participant’s 

principal business address. 

Intercontinental also comments that it 

conducts an anti-money laundering 

inquiry for privately-owned companies 

in which the participant must present 

the company’s registered address, as 

well as collecting the address and 

telephone number for each user as part 

of its process for new market users. 

III. Discussion 

Under the CEA, ECMs are commercial 

markets executing principal-to-principal 

transactions. In view of the unregulated 

nature of these markets, Congress 

intended that access should be confined 

to professional traders—either ECEs as 

defined in section 1a(11) or other 

traders that have an interest in the 

underlying commodity as part of their 

business operations, perform a marketmaking role, or otherwise provide a 

similar trading function that improves 

market liquidity. 

As noted above the Commission has 

previously acted to expand the ECE 

definition to include floor brokers and 

floor traders registered with the 

Commission and acting in a proprietary 

capacity, since these persons operate as 

knowledgeable, experienced 

professional traders who historically 

have provided a trading function that 

improves market liquidity.25 The 

Commission stated in the Federal 

Register notice accompanying that 

action that in order to qualify as an ECE 

under the Order, the ‘‘CFTC-registered 

floor broker or floor trader must be a 

member of a DCM or otherwise have 

trading privileges on a DCM * * * [and 

act] as a floor broker or floor trader, 

either on a DCM’s open outcry market 

or [perform] an equivalent function on 

the DCM’s electronic market.’’ In the 

Federal Register notice, the 

Commission also acknowledged, as 

professional traders providing marketmaking type activities, that the floor 

broker or floor trader ‘‘need not have 

any connection to or experience in the 

underlying physical commodity.’’

Finally, the Commission stated that the 

‘‘floor broker or floor trader must either 

be an ECP or have its trades on the ECM 

guaranteed by a clearing member that is 

both a member of a CFTC-registered 

derivatives clearing organization and an 

ECP.’’

Underlying the Commission’s prior 

action was the notion that registration 

was a proxy for the aforementioned 

knowledge, experience, and 

professionalism, and for the provision of 

a market-making or similar trading 

function that improves market liquidity. 

As outlined above in Section II.A, 

Intercontinental maintains that its 

petition seeks relief of a similar nature, 

and further represents that granting its 

request would constitute an appropriate 

extension of the Commission’s prior 

action. Although NYMEX supported the 

Commission’s prior action, NYMEX 

now opposes the Intercontinental 

petition for IPE traders. In contrast to 

Intercontinental’s declaration, the 

comment letters submitted by NYMEX 

argue that the Intercontinental petition 

fails to satisfy standards established 

under the Commission’s prior action to 

include CFTC-registered floor brokers 

and floor traders in the definition of an 

ECE.

The Commission believes that 

granting relief for IPE brokers would 

comply with the Commission’s prior 

action to expand the ECE category to 

include CFTC-registered floor brokers 

and floor traders. IPE brokers, by virtue 

of having received FSA authorization as 

a prerequisite to engaging in the 

conduct of commodity brokerage on IPE, 

conform to that part of the standards 

enunciated in the Commission’s prior 

action. The Commission also has 

entered into an information-sharing 

arrangement with the FSA. 

With respect to IPE floor and 

electronic local traders, NYMEX 

correctly concludes that these traders 

are neither authorized nor approved by 

FSA, the U.K. regulator with 

jurisdiction over commodity futures 

exchanges and other instrumentalities 

operating in the U.K. financial services 

industry. Nonetheless, the Commission 

believes that it is appropriate to include 

these traders under the ECE category 

since, as identified above, IPE floor and 

electronic local traders do have to meet 

a schedule of criteria in order to 

establish eligibility as an IPE Local 

Member or Individual Participant. In 

order to demonstrate fitness, both IPE 

Local Members and Individual 

Participants must, among other things, 

successfully pass the Registered Trader 

examination that is administered by 

IPE.26

As either an applicant or an IPEapproved trader, Local Members and 

Individual Participants must meet a 

schedule of fees that is essentially the 

same for both classes of membership. 

Each applicant is required to pay an 

application fee of 500 pounds. If 

accepted to membership, each applicant 

would then be required to pay an 

annual subscription fee of 350 pounds 

per seat or membership. Additionally, 

each applicant would be subject to an 

annual minimum activity charge of 1000 

pounds, if the applicant failed to trade 

at least 4000 lots per year. 

Other applicable criteria differ for 

each of these two trader classes, most

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 65589

27See IPE Rule 1.3.2.

28See IPE Rule 1.6.7(f).

29Under IPE Rule 1.6.7, the probationary period 

runs for a period of 90 days unless terminated 

earlier at the discretion of the IPE Trading 

Committee.

30 IPE is posting the Individual Participant 

application form on its Web site. The application 

form includes an eligibility requirement in 

reference to the Intermediate Customer standards 

under FSA COB 4.1.9R. There are no specific FSA 

regulations governing an RIE’s record-keeping 

obligations regarding membership applications or 

documents relating thereto. However, IPE maintains 

that Money Laundering Regulations 1993 require 

IPE retention of new client records, including IPE 

members, for a five-year period following the 

termination of the business relationship. In the case 

of an IPE member or holder of trading privileges, 

the five-year period would run from the date of 

rejection or resignation from membership.

31Administratively, REC Rule 2.7.3 also seeks to 

ensure that an RIE’s membership criteria are 

objective in their scope and are applied in an 

objective, non-discriminatory manner. Specifically, 

for access to electronic markets, REC Rule 2.7.4 

provides that the FSA may review an RIE’s rules 

and practices concerning procedures, controls, and 

security for inputting instructions into the system; 

the facilities provided and restrictions imposed on 

clients inputting instructions into the system; 

practices used to detect, identify, and prevent 

instructions to the system that breach any relevant 

restrictions; the quality and completeness of the 

audit trail; and procedures governing the 

determination to suspend system trading or member 

access.

notably with respect to evidencing an 

adequate level of experience and 

knowledge. Local Members are required 

to either purchase or lease a seat on IPE 

and to serve both a trainee and 

probationary period. While in trainee 

status, an applicant may only enter a 

trading pit as an observer.27 In order to 

achieve probationary status, an 

applicant must pass the Registered 

Trader exam. During the probationary 

period, an applicant may execute 

transactions on the exchange, but only 

under the supervision of another IPE 

member.28

After completion of the probationary 

period, the applicant’s performance is 

subjected to peer review by other IPE 

members and the IPE Trading 

Committee.29 Final acceptance or denial 

of membership is conditioned on 

confirmation of the IPE Trading 

Committee. Thus, the trainee and 

probationary periods required of Local 

Members appear to serve as a training 

period or apprenticeship preparatory to 

a new member receiving full floor 

trading privileges.

For Individual Participants, who only 

have trading privileges for the IPE 

electronic system, IPE has implemented 

other requirements that differ from 

those applicable to Local Members. 

Under IPE requirements, as in the case 

of Local Members, Individual 

Participants must also show fitness to be 

a member. However, as outlined above 

in Section II.C, in addition to 

successfully passing the Registered 

Trader Exam, applicants for Individual 

Participant membership must 

demonstrate substantial experience 

trading on a U.K. futures exchange, or 

otherwise satisfy the standards defining 

an Intermediate Customer under FSA 

Conduct of Business Rule 4.1.9R. 

According to Intercontinental, 

electronic trader eligibility is limited to 

existing IPE-registered traders, to traders 

at other U.K. exchanges, to other 

individuals with substantial trading 

experience on U.K. futures exchanges, 

or to traders who have successfully 

passed the Registered Trader exam. 

Thus, according to Intercontinental, 

FSA-developed standards under COB 

Rule 4.1.9R, which define an 

intermediate customer, are used by IPE 

as a screening device to differentiate 

professional from retail experience 

among applicants. 

As the above suggests, criteria set out 

under COB Rule 4.1.9R are intended for 

use in determining whether a client 

would have experience meeting or 

qualifying at the intermediate customer 

level. Thus COB Rule 4.1.9R instructs 

that, in determining a client’s 

experience and knowledge, a firm 

should inquire about:

1. The client’s knowledge, 

understanding, and awareness of risks 

in the applicable investments and 

markets, 

2. The length of time the client has 

been active in these markets, the 

frequency of dealings, and the extent to 

which client relied on advice, 

3. The size and nature of the 

transactions undertaken for the client, 

and 

4. The client’s financial standing, 

which may include an assessment of net 

worth and portfolio. 

As a practice that is functionally 

parallel to that required of financial 

firms under COB Rule 4.1.9R, 

Intercontinental has represented that 

IPE will confine eligibility for admission 

as an electronic trader to applicants 

with: 

1. Sufficient knowledge and 

understanding of market and risks, 

2. Who were active on such markets 

for a reasonable length of time, 

3. Who have traded in appropriate 

size and quantity, and 

4. Who have appropriate financial 

standing. 

In this respect, IPE confirms that it 

will apply the criteria found in Rule 

4.1.9R applicable to assessing 

experience and knowledge of an expert 

private customer as part of an 

independent determination made by IPE 

management. Moreover, IPE represents 

that the prior status an applicant may 

have attained as a customer of a 

financial services firm would not be 

determinative of eligibility, but that IPE 

would undertake an independent 

assessment of the applicant’s experience 

and knowledge under the standards of 

COB Rule 4.1.9R.30

As a general matter, IPE also 

maintains that as an RIE it is organized 

as a wholesale market and is not open 

to retail membership. In this regard, IPE 

points out that FSA rules and standards 

found in the Recognized Investment 

Exchange and Clearing House 

sourcebook (‘‘REC’’) impose 

requirements on types of applicants 

eligible for membership. Among other 

things, REC Rule 2.7.3 states that FSA 

may conduct assessments of whether 

access to a UK recognized body’s 

facilities is based on criteria designed to 

protect the orderly functioning of the 

market and the interests of investors. 

Further, Rule 2.7.3 states that FSA, in 

conducting any such assessments, may 

consider: (a) Whether the RIE limits 

access as a member to persons over 

whom it can with reasonable certainty 

enforce its rules, (b) who have sufficient 

technical competence to use the 

market’s facilities, (c) whom it is 

appropriate to admit to membership 

having regard for the size and 

sophistication of users of its facilities 

and the nature of business thereon, and 

(d) where appropriate, the adequacy of 

financial resources in relation to a 

member’s exposure to the UK 

recognized body or central 

counterparty.31

As noted, IPE local traders need not 

be authorized or approved by FSA as a 

pre-condition in obtaining trading 

privileges on IPE. The U.K. approach 

therefore differs somewhat from that 

applied under U.S. regulation, where 

Commission requirements mandate 

registration with a government body for 

both floor brokers and floor traders. 

However, even though qualifying 

determinations for local traders are 

reserved to IPE, those procedures are 

subject to FSA supervision. Thus, 

notwithstanding the formalistic 

differences in the treatment of local 

traders in the U.S. and U.K. regulatory 

systems, the Commission believes that 

the U.K. regulatory structure facilitates 

and enforces a level of regulation for the 

IPE local traders that meets applicable 

standards of professionalism established 

under the Commission’s prior action 

expanding the ECE category to include

65590 Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 

32The Commission has found the U.K. regulatory 

program generally comparable to the U.S. 

framework pursuant to a grant of relief under CFTC 

regulation 30.10. The review for this determination 

focused generally upon firms acting in the capacity 

of futures commission merchants for U.S. customers 

trading on U.K. exchanges, rather than on 

proprietary trading by brokers and traders. See 68 

FR 58583 (October 10, 2003).

33As noted, Intercontinental seeks to include in 

the definition of an ECE four separate types of 

holders of trading privileges on IPE: the broker class 

is composed of Floor Members and General 

Participants and the local trader class is composed 

of Local Members and Individual Participants.

34The Commission’s prior action to include 

CFTC-registered floor brokers and floor traders in 

the ECE definition specifically acknowledged that 

the prior action would reach a ‘‘floor broker or floor 

trader, either on a DCM’s open outcry market or 

[when] performing an equivalent function on the 

DCM’s electronic market.’’ See 68 FR 2323 (January 

16, 2003). 35Commission regulation 37.1(b).

CFTC-registered floor brokers and floor 

traders.32

IV. Conclusion 

After consideration of the 

Intercontinental petition, and the 

additional material submitted by 

Intercontinental to accompany the 

petition, and the comment letters 

submitted in response to the Federal 

Register notice, the Commission has 

determined, consistent with the 

Intercontinental petition, that it is 

appropriate to issue an order, pursuant 

to Section 1a(11)(c) of the Act, that 

includes certain IPE floor and electronic 

brokers and traders, subject to certain 

conditions, within the definition of an 

ECE for eligibility to trade on an ECM.33

As in the prior action to expand the ECE 

definition to include CFTC-registered 

floor brokers and floor traders, either in 

open outcry or electronic markets, the 

Commission believes that expanding the 

definition to include IPE floor and 

electronic brokers and traders is 

consistent with the purposes of the 

CFMA.34 Moreover, and again as in the 

prior action, the Commission believes 

that inclusion of IPE floor and electronic 

brokers and traders in the definition of 

an ECE could potentially increase 

competition and efficiency, and reduce 

liquidity risk, on ECMs.

As noted above, underlying the 

Commission’s prior action was the 

notion that registration serves as a proxy 

for the aforementioned knowledge, 

experience and professionalism, and for 

the provision of a market-making or 

similar trading function that improves 

market liquidity. Commission action 

taken here makes a similar finding for 

IPE floor and electronic brokers and 

traders with respect to their knowledge, 

experience and professionalism, and 

their ability to provide market-making 

or similar trading functions that 

improve market liquidity. 

The Commission also notes that IPE 

registration of electronic local traders is 

based on eligibility pursuant to the 

Intermediate Customer standards under 

FSA COB 4.1.9R. The Commission 

considers the inclusion of this process 

in IPE registration as a reasonable proxy 

for an electronic local trader’s 

knowledge, experience, professionalism, 

and ability to provide a market-making 

or similar trading function that 

improves market liquidity. Moreover, 

the Commission believes that the IPE 

has the experience and ability to apply 

the standards in an efficient and 

prudent manner. The Commission 

points out that these determinations are 

based on materials provided by, and/or 

representations made by, IPE and FSA 

and, as such, are particular to IPE. If 

another market or governmental 

regulator petitioned the Commission for 

a similar expansion of the ECE 

definition, an analogous showing to the 

Commission would be necessary. 

The Commission also notes that it has 

previously expanded the ECE definition 

for purposes of trading on a DTEF.35

That action incorporated within the ECE 

definition registered floor brokers and 

floor traders, whose trading obligations 

are guaranteed by a registered FCM, 

when trading for their own accounts on 

a DTEF.

In order to qualify as an ECE under 

the Commission’s order, an IPE floor or 

electronic broker or trader must be a 

member of IPE or otherwise have 

trading privileges on IPE and be located 

in the U.K. Pursuant to those 

requirements, the qualifying IPE floor or 

electronic broker or trader also must be 

authorized by FSA or registered with 

IPE. The IPE floor or electronic broker 

or trader must have as a part of its 

business the business of acting as a 

commodity broker or local trader, either 

on IPE’s open outcry or electronic 

market, but need not have any 

connection to or experience in the 

underlying physical commodity. The 

Commission believes that the trading 

expertise of IPE floor or electronic 

brokers or traders would be applicable 

to trading in any commodity product 

traded on an ECM. Among other things, 

the ability of an IPE floor or electronic 

broker or trader to interpret market 

momentum, and facilitate the 

adjustment of market prices to new 

information, is more a function of 

trading expertise than of experience in 

the underlying physical commodity. 

A qualifying IPE floor or electronic 

broker or trader must be either an ECP 

or have its trades on the ECM 

guaranteed by a clearing member that is 

both a member of an FSA-recognized 

derivatives clearing organization and an 

ECP. The Commission believes that 

requiring either the IPE floor or 

electronic broker or trader, or the 

guarantor thereof, to be an ECP provides 

sufficient financial backing for the IPE 

floor or electronic broker or trader and 

mitigates any credit and collection risk 

that might otherwise arise. The 

Commission notes that the guarantor of 

an IPE floor or electronic broker or 

trader would be placing its own money 

at risk, and expects that such guarantor 

would carefully consider the risk 

involved in the provision of the 

guarantee for that particular broker or 

trader. 

V. Cost Benefit Analysis 

Section 15 of the Act, as amended by 

section 119 of the CFMA, requires the 

Commission to consider the costs and 

benefits of its action before issuing a 

new order under the Act. By its terms, 

section 15 does not require the 

Commission to quantify the costs and 

benefits of its action or to determine 

whether the benefits of the action 

outweigh the costs. Rather, section 15 

simply requires the Commission to 

‘‘consider the costs and benefits’’ of its 

order.

Section 15(a) further specifies that the 

costs and benefits of the proposed order 

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 futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. The Commission may, 

in its discretion, give greater weight to 

any one of the five enumerated areas of 

concern and may, in its discretion, 

determine that, notwithstanding its 

costs, a particular order is necessary or 

appropriate to protect the public interest 

or to effectuate any of the provisions or 

to accomplish any of the purposes of the 

Act. 

The subject order is intended to 

reduce regulatory barriers to permit 

certain IPE floor or electronic brokers or 

traders, when acting in a proprietary 

capacity, to enter into transactions in 

exempt commodities on ECMs pursuant 

to section 2(h)(3) of the Act if such 

entities are either ECPs or have obtained 

a financial guarantee for such 

transactions from a clearing member 

that is both a member of a FSAregistered derivatives clearing 

organization and an ECP. The 

Commission has considered the costs 

and benefits of the order in light of the

Federal Register / Vol. 69, No. 219 / Monday, November 15, 2004 / Notices 65591

specific provisions of section 15(a) of 

the Act. 

A. Protection of Market Participants and 

the Public 

The order would deem certain 

professional IPE floor or electronic 

brokers or traders meeting the required 

conditions who are ECPs, or who have 

guarantees from clearing members that 

are members of FSA-registered 

derivatives clearing organizations and 

are ECPs, to be ECEs under section 

1a(11)(c) and thus permit them to enter 

into proprietary transactions in exempt 

commodities on ECMs. Under the Act, 

ECEs are sophisticated investors who 

have the financial wherewithal or 

trading expertise to participate in these 

markets. Accordingly, there should be 

no effect on the Commission’s ability to 

protect market participants and the 

public. 

B. Efficiency and Competition 

The order is expected to benefit 

efficiency and competition by, among 

other things, providing essential trading 

expertise to the market that enhances 

price discovery through both the speed 

and efficiency of market adjustment to 

new fundamentals and by generally 

increasing the pool of potential 

counterparties for participants trading 

on exempt commercial markets. 

C. Financial Integrity of Futures Markets 

and Price Discovery 

The order should have no effect, from 

the standpoint of imposing costs or 

creating benefits, on the financial 

integrity of the futures and options 

markets. The order should enhance the 

price discovery function of such 

markets. 

D. Sound Risk Management Practices 

The order should have no effect, from 

the standpoint of imposing costs, on the 

risk management practices of the futures 

and options industry. Where an 

individual or entity is qualified as an 

ECP, the individual or entity has been 

deemed under the Act to be sufficiently 

responsible to execute trades in certain 

excluded or exempt commodity 

transactions, and no further mitigation 

of credit risk is necessary. Moreover, 

where an individual or entity does not 

qualify as an ECP, the order requires 

that a clearing member of an FSArecognized derivatives clearing 

organization that is itself an ECP 

guarantee the trades in order to mitigate 

the credit and collection risk. 

E. Other Public Interest Considerations 

The order is consistent with one of 

the purposes of the Act as articulated in 

section 3 in that it would promote 

responsible innovation and fair 

competition among boards of trade, 

other markets, and market participants. 

VI. Order 

Upon due consideration, and 

pursuant to its authority under section 

1a(11)(C) of the Act, the Commission 

hereby determines that certain 

professional International Petroleum 

Exchange (‘‘IPE’’) floor or electronic 

brokers or local traders, who are 

authorized by the Financial Services 

Authority (‘‘FSA’’) or registered with the 

IPE, when acting in a proprietary 

capacity, are appropriate persons as 

defined in section 1a(11)(C) and, thus, 

are deemed to be eligible commercial 

entities and may enter into contracts, 

agreements or transactions in an exempt 

commodity on an exempt commercial 

market under the following conditions: 

1. The contracts, agreements, or 

transactions must be executed on an 

exempt commercial market that meets 

the requirements of section 2(h)(3)–(5) 

of the Act. 

2. The IPE floor or electronic broker, 

denominated as either a Floor Member 

or General Participant pursuant to IPE 

membership rules, must be a member of 

IPE or otherwise have trading privileges 

on IPE, be located in the U.K., and be 

subject to the rules of IPE. 

3. The IPE local trader, denominated 

as a Local Member or Individual 

Participant pursuant to IPE membership 

rules, must be a member of IPE or 

otherwise have trading privileges on 

IPE, be located in the U.K., and be 

subject to the rules of IPE. 

4. The IPE Floor Member or General 

Participant must be authorized and 

regulated by the FSA. 

5. The IPE Local Member or 

Individual Participant must be 

registered with the IPE. 

6. The IPE Floor Member, General 

Participant, Local Member, or 

Individual Participant must have as a 

part of its business the business of 

acting as a professional commodity 

broker or trader on either the IPE open 

outcry or electronic markets. 

7. The IPE Individual Participant 

must meet and satisfy the current 

qualifying standards of an Intermediate 

Customer pursuant to FSA Conduct of 

Business (‘‘COB’’) Rule 4.1.9R. IPE must 

notify the Commission of any changes to 

the standards included in FSA COB 

Rule 4.1.9R. 

8. The IPE Floor Member, General 

Participant, Local Member, or 

Individual Participant must be either an 

eligible contract participant, as that term 

is defined in section 1a(12) of the Act, 

or have its trades on the exempt 

commercial market guaranteed by a 

clearing member that is a member of an 

FSA-recognized derivatives clearing 

organization and is an eligible contract 

participant.

Issued by the Commission this 8th day of 

November, 2004, in Washington, DC. 

Jean A. Webb, 

Secretary of the Commission.

[FR Doc. 04–25282 Filed 11–12–04; 8:45 am] 

BILLING CODE 6351–01–P

DEPARTMENT OF DEFENSE

GENERAL SERVICES 

ADMINISTRATION

NATIONAL AERONAUTICS AND 

SPACE ADMINISTRATION

[OMB Control No. 9000–0078]

Federal Acquisition Regulation; 

Submission for OMB Review; Make-orBuy Program

AGENCIES: Department of Defense (DOD), 

General Services Administration (GSA), 

and National Aeronautics and Space 

Administration (NASA).

ACTION: Notice of request for comments 

regarding an extension to an existing 

OMB clearance (9000–0078).

SUMMARY: Under the provisions of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. Chapter 35), the Federal 

Acquisition Regulation (FAR) 

Secretariat has submitted to the Office 

of Management and Budget (OMB) a 

request to review and approve an 

extension of a currently approved 

information collection requirement 

concerning make-or-buy programs. A 

request for public comments was 

published at 69 FR 44645, July 27, 2004. 

No comments were received.

Public comments are particularly 

invited on: Whether this collection of 

information is necessary for the proper 

performance of functions of the FAR, 

and whether it will have practical 

utility; whether our estimate of the 

public burden of this collection of 

information is accurate, and based on 

valid assumptions and methodology; 

ways to enhance the quality, utility, and 

clarity of the information to be 

collected; and ways in which we can 

minimize the burden of the collection of 

information on those who are to 

respond, through the use of appropriate 

technological collection techniques or 

other forms of information technology.

DATES: Submit comments on or before 

December 15, 2004.

ADDRESSES: Submit comments regarding 

this burden estimate or any other aspect