[Federal Register Volume 75, Number 223 (Friday, November 19, 2010)]
[Proposed Rules]
[Pages 70974-70998]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29023]



[[Page 70973]]

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Part II





Commodity Futures Trading Corporation





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17 CFR Part 48



Registration of Foreign Boards of Trade; Proposed Rule

Federal Register / Vol. 75 , No. 223 / Friday, November 19, 2010 / 
Proposed Rules

[[Page 70974]]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 48

RIN 3038-AD19


Registration of Foreign Boards of Trade

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing rules to implement new statutory provisions enacted by 
Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act. These proposed rules establish a registration requirement that 
applies to foreign boards of trade (FBOT) that wish to provide their 
identified members or other participants located in the United States 
with direct access to their electronic trading and order matching 
systems.

DATES: Comments must be received on or before January 18, 2011. The 
Commission is not inclined to grant extensions of this comment period.

ADDRESSES: You may submit comments, identified by RIN number 3038-AD19, 
by any of the following methods:
    <bullet> Agency Web site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments 
through the Web site.
    <bullet> Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
    <bullet> Hand Delivery/Courier: same as mail above.
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
http://www.cftc.gov. You should submit only information that you wish 
to make available publicly. If you wish the Commission to consider 
information that is exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the established procedures in 
CFTC Regulation 145.9.\1\
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    \1\ 17 CFR 145.9.
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    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from http://www.cftc.gov that it may deem to be 
inappropriate for publication, such as obscene language. All 
submissions that have been redacted or removed that contain comments on 
the merits of the rulemaking will be retained in the public comment 
file and will be considered as required under the Administrative 
Procedure Act and other applicable laws, and may be accessible under 
the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: Duane C. Andresen, Senior Special 
Counsel, (202) 418-5492, <a href="/cdn-cgi/l/email-protection#dcb8bdb2b8aeb9afb9b29cbfbaa8bff2bbb3aa"><span class="__cf_email__" data-cfemail="a7c3c6c9c3d5c2d4c2c9e7c4c1d3c489c0c8d1">[email protected]</span></a>, or David Steinberg, 
Special Counsel, (202) 418-5102, <a href="/cdn-cgi/l/email-protection#85e1f6f1e0ecebe7e0f7e2c5e6e3f1e6abe2eaf3"><span class="__cf_email__" data-cfemail="94f0e7e0f1fdfaf6f1e6f3d4f7f2e0f7baf3fbe2">[email protected]</span></a>, Division of 
Market Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (the Dodd-Frank Act).\2\ Title VII 
of the Dodd-Frank Act \3\ amended the Commodity Exchange Act (CEA or 
the Act) \4\ to establish a comprehensive new regulatory framework for 
swaps and security-based swaps. The legislation was enacted to reduce 
risk, increase transparency, and promote market integrity within the 
financial system by, among other things: (1) Providing for the 
registration and comprehensive regulation of swap dealers and major 
swap participants; (2) imposing clearing and trade execution 
requirements on standardized derivative products; (3) creating robust 
recordkeeping and real-time reporting regimes; and (4) enhancing the 
Commission's rulemaking and enforcement authorities with respect to, 
among others, all registered entities and intermediaries subject to the 
Commission's oversight.
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    \2\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
    \3\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may 
be cited as the ``Wall Street Transparency and Accountability Act of 
2010.''
    \4\ 7 U.S.C. 1 et seq.
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    Section 738 of the Dodd-Frank Act amends Section 4(b) of the CEA to 
provide that the Commission may adopt rules and regulations requiring 
registration with the Commission for an FBOT that provides the members 
of the FBOT or other participants located in the United States with 
direct access to the electronic trading and order matching system of 
the FBOT, including rules and regulations prescribing procedures and 
requirements applicable to the registration of such FBOTs. The 
Commission has determined to promulgate rules to implement these 
provisions by July 15, 2011.\5\
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    \5\ See Section 738 of the Dodd-Frank Act.
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    Accordingly, the Commission is proposing to adopt a new part 48 \6\ 
to its regulations to establish a registration requirement and related 
registration procedures and conditions that apply to FBOTs that wish to 
provide their members or other participants located in the United 
States with direct access to their electronic trading and order 
matching systems. The Commission requests comment on all aspects of the 
proposed rules, as well as comment on the specific provisions and 
issues highlighted in the discussion below.
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    \6\ Commission regulations referred to herein are found at 17 
CFR Ch. 1.
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II. Relief Granted to Foreign Boards of Trade

    Since 1996, FBOT requests to provide direct access to their 
electronic trading and order matching systems (trading systems) from 
within the U.S. have been addressed by Commission staff via the no-
action process set forth in Commission regulation 140.99.\7\ 
Specifically, an FBOT wishing to provide its U.S.-located participants 
with direct access to the FBOT's trading system traditionally has 
submitted a request for a no-action letter to the Division of Market 
Oversight (DMO). The FBOT's no-action request must be accompanied by 
representations and supporting documentation from the FBOT regarding, 
among other things, its organization, presence in the U.S., 
participants, the products it wishes to list for direct access, its 
trading system and the regulatory regime and information-sharing 
arrangements to which the FBOT is subject. Staff then reviews the 
request and related information and documentation and, where 
appropriate, issues a ``direct access'' (formerly known as a ``foreign 
terminal'') no-action relief letter. When reviewing no-action requests, 
staff looks for a home regulatory regime that provides oversight over 
the FBOT in a manner that is comparable to the CFTC's oversight of 
DCMs. Specifically, does the FBOT's regulatory authority

[[Page 70975]]

support and enforce ``substantially equivalent regulatory objectives'' 
in its oversight of the FBOT?
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    \7\ See, e.g., CFTC Letter No. 96-28 (February 29, 1996). 
Commission regulation 140.99 defines the term ``no-action letter'' 
as a written statement issued by the staff of a Division of the 
Commission or of the Office of the General Counsel that it will not 
recommend enforcement action to the Commission for failure to comply 
with a specific provision of the Act or of a Commission rule, 
regulation or order if a proposed transaction is completed or a 
proposed activity is conducted by the beneficiary.
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    In the no-action letter, DMO staff represents that, provided the 
FBOT meets the conditions set out in the letter, DMO will not recommend 
that the Commission institute enforcement action against the FBOT for 
failure to register as a designated contract market (DCM) or 
derivatives transaction execution facility (DTEF) if the FBOT provides 
direct access to its order entry and trade matching system to FBOT 
members and other participants located in the U.S. The scope of the 
staff no-action relief has been restricted to providing relief from (1) 
the requirement that the FBOT obtain DCM or DTEF registration pursuant 
to Sections 5 and 5a of the CEA and (2) regulatory requirements related 
to the trading or offering of contracts on a DCM and DTEF if the 
contracts identified in the no-action letter (foreign futures or option 
contracts) are made available in the U.S. for trading in the manner set 
forth in the letter.
    The no-action relief also has been limited historically to FBOTs 
that provide direct access to the FBOTs' members and other participants 
that: (1) Trade in the U.S. for their proprietary accounts; (2) are 
registered with the Commission as futures commission merchants (FCM); 
or (3) are registered with the Commission as commodity pool operators 
(CPO) or are exempt from such registration and that are submitting 
orders for execution on behalf of U.S. pools they operate or commodity 
trading advisors (CTA) or are exempt from such registration and that 
are submitting orders for execution on behalf of accounts for which 
they have discretionary authority. With respect to such CPOs or CTAs, 
an FCM or a firm exempt from registration as an FCM pursuant to 
Commission Rule 30.10 (Rule 30.10 Firm) \8\ must act as a clearing firm 
and guarantees such trades. The no-action relief typically has been 
subject to numerous conditions designed to keep staff informed 
regarding the FBOT's status and activities from within the U.S., 
additional contracts to be made available, and significant changes in 
the information provided to the Commission in support of the no-action 
request. Significant changes in information include changes in the 
membership criteria, the location of the management, personnel or 
operations (particularly changes that may suggest an increased nexus 
between the FBOT's activities and the U.S.); the basic structure, 
nature, or operation of the trading system or its clearing 
organization; the regulatory or self-regulatory regime the FBOT is 
subject to; and any change in the authorization, licensure or 
registration of the FBOT.
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    \8\ A Rule 30.10 order permits firms that are members of a self-
regulatory organization and subject to regulation by the foreign 
regulator to conduct business from locations outside of the U.S. for 
U.S. persons on non-U.S. boards of trade without registering under 
the Act, based upon the person's substituted compliance with a 
foreign regulatory structure found comparable to that administered 
by the Commission under the CEA.
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    In 2006, following a series of market events and Commission 
deliberations, the Commission endorsed the continued use of the no-
action process as a mechanism for facilitating direct access to an 
FBOT's trading system. On January 17, 2006, ICE Futures Europe, a U.K. 
recognized investment exchange that provided direct access to its U.S. 
members pursuant to a no-action letter,\9\ notified the Commission that 
it would list a futures contract on West Texas Intermediate (WTI) light 
sweet crude oil whose settlement price would be linked to contracts 
traded on the New York Mercantile Exchange (NYMEX).\10\ ICE Futures 
Europe's notification of the proposed contract linked to a U.S. 
domestic contract prompted the Commission to undertake an evaluation of 
the use of the no-action process to permit direct access, including a 
re-examination of certain issues with respect to the Commission's 
statutory obligations to maintain the integrity of U.S. markets and to 
protect U.S. customers. Accordingly, on May 3, 2006, the Commission 
directed its staff to initiate a formal process to define what 
constitutes a ``board of trade, exchange, or market located outside the 
United States, its territories or possessions'' as that phrase is used 
in section 4(a) of the CEA and, in furtherance of that process, 
scheduled a public hearing.\11\ The Commission also issued a related 
Request for Public Comment.\12\ On October 27, 2006, following 
extensive debate, a review of comments submitted pursuant to the 
Commission's request for public comment and the Commission Hearing,\13\ 
the Commission issued a Policy Statement in which it endorsed the no-
action process for FBOTs that want to provide direct access to their 
trading systems to U.S.-based participants.\14\
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    \9\ On November 12, 1999, the Commission's Division of Trading 
and Markets (the predecessor to the CFTC's Division of Market 
Oversight) granted no-action relief to the International Petroleum 
Exchange of London (now ICE Futures Europe), permitting it to make 
its electronic trading and order matching system, known as Energy 
Trading System II, available to its members in the United States. 
CFTC Letter No. 99-69 (November 12, 1999).
    \10\ On April 12, 2006, ICE Futures Europe notified the Division 
of Market Oversight of its intent to launch the ICE Futures New York 
Harbour Heating Oil Futures Contract and the ICE Futures New York 
Harbour Unleaded Gasoline Blendstock (RBOB) Futures Contract each of 
which is cash-settled on the price of physically-settled contracts 
traded on the NYMEX.
    \11\ The hearing was conducted on June 27, 2006, at the 
Commission's headquarters in Washington, DC.
    \12\ 71 FR 34070 (June 13, 2006). The Commission requested 
comment on the issues related to developing an objective standard 
establishing a threshold that, if crossed by a foreign board of 
trade that permits direct access, would indicate that the board of 
trade is no longer outside the United States and, accordingly, may 
be required to become registered under the CEA.
    \13\ Comments submitted in response to the request for comment 
and at the Commission's Hearing were generally supportive of the no-
action process, praising the process in general for its flexibility. 
Many commenters suggested that the Commission should retain in large 
measure the essential contours of the no-action process. A 
transcript of the Commission's Hearing on what constitutes a board 
of trade located outside the United States under the Commodity 
Exchange Act section 4(a) (June 27, 2006), (``Hearing Tr.'') as well 
as all comment letters (``CL''), are located in comment file 06--002 
to 17 FR 34070 (June 13, 2006), available at http://www.cftc.gov/foia/comment06/foi06-002_1.htm.
    \14\ Boards of Trade Located Outside of the United States and 
No-Action Relief From the Requirement To Become A Designated 
Contract Market or Derivatives Transaction Execution Facility, 71 FR 
64843 (Nov. 2, 2006) (Policy Statement). In the Policy Statement, 
the Commission endorsed the no-action process for addressing FBOT 
direct access relief requests: ``The Commission endorses the 
continued use of the no-action process as an appropriate and 
flexible mechanism that should be used prospectively to facilitate 
direct access to the electronic trading system of a foreign board of 
trade by its U.S. members or authorized participants.'' Id. at 
64846.
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    In order to address concerns raised by the listing by ICE Futures 
Europe of the linked WTI contract for trading by direct access, 
Commission staff, on June 17, 2008, amended ICE Futures Europe's no-
action relief letter by adding additional conditions. The additional 
conditions included requirements relating to the reporting of large 
trader positions, the publication of daily trading information in the 
linked contracts, and the establishment of position limits or 
accountability levels that are comparable to the position limits or 
accountability levels for the counterpart linked contracts at 
NYMEX.\15\
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    \15\ CFTC Letter No. 08-09 (June 17, 2008). The Commission 
subsequently announced in the Federal Register that these additional 
conditions would apply to any FBOT that made available for trading 
by direct access a linked contract. See Notice of Additional 
Conditions on the No-Action Relief When Foreign Boards of Trade That 
Have Received Staff No-Action Relief To Permit Direct Access to 
Their Automated Trading Systems from Locations in the United States 
List for Trading from the U.S. Linked Futures and Option Contracts 
and a Revision of Commission Policy Regarding the Listing of Certain 
New Option Contracts. 74 FR 3570 (January 21, 2009).

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[[Page 70976]]

    Commission staff subsequently reexamined the issues raised by 
linked contracts and concluded that there were additional measures that 
should be taken to further allay concerns with respect to effective 
market surveillance and maintaining the integrity of the market. 
Accordingly, on June 20, 2009, staff again amended ICE Futures Europe's 
no-action relief by adding additional conditions with respect to linked 
contracts. These conditions included requirements that ICE Futures 
Europe provide CFTC staff trade execution and audit trail data for all 
linked contracts; copies of, or hyperlinks to, all rules, rule 
amendments, circulars and other notices published by the exchange; and 
copies of all disciplinary notices involving the linked contracts. They 
also provided for CFTC on-site visits to examine ICE Futures Europe's 
ongoing compliance with its no-action relief and, in the event that the 
CFTC directs that NYMEX take emergency action with respect to a linked 
contract (e.g., to cease trading in the contract), ICE Futures Europe, 
subject to information-sharing arrangements between the CFTC and the 
United Kingdom's Financial Services Authority (FSA), is required to 
promptly take similar action (e.g., cease trading in the contract) with 
respect to the linked contract at ICE Futures Europe.\16\
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    \16\ CFTC Letter No. 09-37 (August 20, 2009).
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    Since 1996, Commission staff has issued 23 direct access no-action 
relief letters to FBOTs, 20 of which remain active (one relief letter 
was superseded and two were revoked when the FBOTs ceased 
operations).\17\ While the no-action process has served a useful 
purpose, given the clear authority provided by Congress to create a 
registration program for FBOTs, the Commission concludes that it is in 
the public interest to replace the staff-initiated no-action process 
with a formal Commission registration provision.
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    \17\ Currently, 14 of the FBOTs with active no-action relief 
report volume originating from the U.S. via direct access.
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    The no-action process is better suited for discrete, unique factual 
circumstances and where regulations do not address the issue presented. 
In circumstances where the same type of relief is granted on a regular 
and recurring basis, as it has been with respect to permitting FBOTs to 
provide direct access to their trading systems to specified members and 
other participants that are located in the U.S., the Commission 
concludes believes that it is no longer appropriate to handle such 
matters through the no-action process. Instead, the process should 
become more transparent and standardized through generally applicable 
regulations. Among other things, a rulemaking would provide for a 
uniform application process, enhance the visibility of the process to 
both applicants and the public and assure fair and consistent treatment 
to all applicants. Further, no-action relief letters are issued by the 
staff and are not binding on the Commission and do not provide the same 
legal certainty to the FBOT recipients that a Commission-issued order 
would provide. The Commission believes that a formal registration 
procedure would provide more legal certainty for registered FBOTs and 
would be more consistent with the manner in which other countries 
permit U.S. DCMs to provide direct access internationally. Accordingly, 
for the reasons noted above and pursuant to the new authority of 
amended CEA Section 4(b), new Part 48 of the Commission's regulations, 
as proposed herein, would replace the existing policy of accepting and 
reviewing requests for no-action relief to permit an FBOT to provide 
for direct access to its trading system from within the U.S. with a 
requirement that an FBOT seeking to provide such access must apply for 
and be granted registration with the Commission.\18\
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    \18\ The proposed rules would provide for a ``limited'' 
application process for FBOTs currently operating under existing no-
action relief. The limited application would have to be submitted 
within 120 days of the effective date of the registration rules and 
the FBOT could continue to operate pursuant to the no-action relief 
during the 120 day period and until the Commission notifies the FBOT 
that the application has been approved or denied. In the event that 
the Commission denies an FBOT's application, it would expect staff 
to simultaneously withdraw the FBOT's no-action relief.
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    As a starting point for the proposed registration requirements, the 
Commission considered the experience gained from the current no-action 
review process. The proposed application submission requirements and 
staff review standards for FBOT registration under the new regulations 
generally are consistent with the application requirements and review 
standards that have guided the Commission's staff in issuing the more 
recent FBOT no-action relief letters. Under the proposed registration 
requirements, for instance, the Commission would not evaluate FBOTs for 
compliance with the core principles and/or regulatory requirements 
applicable to DCMs. Rather, the Commission would look to the FBOT's 
regulatory authority to determine that the home regulatory regime 
provides oversight over the FBOT in a manner that is comparable to the 
CFTC's oversight of DCMs. Specifically, the Commission would review the 
application to determine if the FBOT's regulatory authority supports 
and enforces substantially equivalent regulatory objectives, such as 
prevention of market manipulation and customer protection, in its 
oversight of the FBOT.
    The Commission notes that the staff's no-action process has not 
remained static since the first no-action relief letter was issued in 
1996. Instead, staff has generally been expanding the scope and level 
of its review of FBOTs to address activities not originally foreseen 
when the first no-action letter was issued. Likewise, the number and 
types of conditions imposed upon FBOTs seeking no-action relief have 
gradually expanded over time.\19\ Those conditions have generally been 
included in the proposed regulations, along with proposed conditions 
intended to address increasing technological innovation, new types of 
products, the impact on the market of different trading entities 
listing substantially similar or even connected products, and the 
requirements of the Dodd-Frank Act.
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    \19\ The first no-action relief letter required that Deutsche 
Terminborse comply with eight terms and conditions. CFTC Letter No. 
96-28 (February 29, 1996). Subsequent letters generally have 
required compliance with approximately 16 conditions, although the 
number varies based on the manner in which the FBOT operates. More 
recent additions to the conditions address, among other things, 
restriction to certain types of members, the inclusion of CTAs and 
CPOs as entities eligible for no-action relief, and a requirement 
that the FBOT provide an annual certification from its regulatory 
authority that the FBOT retains its authorization in good standing 
as an FBOT in its home country. As previously discussed, the staff 
has also added several conditions to the ICE Futures Europe no-
action letter in order to address the listing of linked contracts.
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III. The Proposed Rules

    The proposed regulation is divided into 10 sections and an appendix 
(Appendix), each proposed as described below.

A. Scope

    The first section, 48.1, provides that part 48 applies to any FBOT 
that is registered or is applying to become registered with the 
Commission in order to provide its identified members or other 
participants located in the U.S.\20\ with direct access to its 
electronic trading and order matching system.
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    \20\ For purposes of FBOT registration, the term ``United 
States'' or ``U.S.'' includes the United States, its territories and 
possessions.

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B. Definitions

    Section 48.2 includes definitions applicable to FBOT registration. 
For instance, section 48.2 defines an ``FBOT'' as any board of trade, 
exchange or market located outside the U.S., its territories or 
possessions, whether incorporated or unincorporated, where foreign 
agreements, contracts or transactions are entered into. Section 48.2 
also identifies certain criteria an FBOT would have to meet in order to 
register to provide direct access, such as possessing the attributes of 
an established, organized exchange; adhering to appropriate rules 
prohibiting abusive trading practices; and enforcing appropriate rules 
to maintain market and financial integrity. Another defined term, 
further addressed below, is ``direct access,'' which is defined in the 
Dodd-Frank Act to refer to ``an explicit grant of authority by a 
foreign board of trade to an identified member or other participant 
located in the United States to enter trades directly into the trade 
matching system of the foreign board of trade.'' Section 48.2 also 
includes definitions, for purposes of this part, of ``linked 
contract,'' ``communications,'' ``material change,'' ``clearing 
organization,'' ``existing no-action relief,'' ``swaps,'' ``affiliate'' 
and ``member or other participant.''

C. Registration Required

    Section 48.3 provides that, except as otherwise specified in 
proposed new Part 48, it shall be unlawful for an FBOT to permit direct 
access to its electronic trading and order matching system from within 
the U.S. unless and until the Commission has issued an Order of 
Registration to the FBOT pursuant to the provisions of Part 48. The 
proposal also would provide that it would be unlawful for a board of 
trade to make false or misleading statements in any application for 
registration or in connection with any application for registration.

D. Registration Eligibility

    Section 48.4 describes registration eligibility. Generally, FBOTs 
that meet the requirements of the definition in section 48.2(b) would 
be eligible to be registered. Section 48.4 also identifies the persons 
to whom the registered FBOT could grant authority to trade by direct 
access. The Commission proposes that the persons that would be 
permitted by the FBOT to trade by direct access from the U.S. pursuant 
to the registration rules would be the types of persons that are 
currently able to trade by direct access pursuant to staff issued no-
action relief letters. Specifically, an FBOT could request registration 
in order to permit direct access from within the U.S. by identified 
members and other participants \21\ that: (1) Trade in the U.S. for 
their proprietary accounts; (2) are registered with the Commission as 
FCMs and submit orders to the trading system for execution on behalf of 
U.S. customers; or (3) are, subject to a specific clearing and 
guarantee requirement, registered with the Commission as CPOs or CTAs, 
or are exempt from such registration pursuant to Commission Rules 4.13 
or 4.14. The CPOs would be permitted to submit orders for execution on 
behalf of U.S. pools they operate, and CTAs would be permitted to do so 
for accounts of U.S. customers for which they have discretionary 
authority. The Commission requests comment concerning additional 
entities that should be eligible for direct access to the trading and 
order matching systems of the FBOT from the U.S.
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    \21\ For purposes of FBOT registration, identified member or 
other participant of the FBOT shall include any affiliate of any 
registered FBOT's member or other participant that has been granted 
direct access by the registered FBOT to the trading system. An 
affiliate of a registered FBOT member or other participant shall 
mean any person, as that term is defined in section 1a(38) of the 
CEA, that: (i) Owns 50% or more of the member or other participant; 
(ii) is owned 50% or more by the member or other participant; or 
(iii) is owned 50% or more by a third person that also owns 50% or 
more of the member or other participant.
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E. Registration Procedures

    Section 48.5 describes procedures to be followed to request and 
receive registration.\22\ The registration application must be 
submitted electronically, must be signed by the FBOT's chief executive 
officer (or functional equivalent), and must include the information 
and documentation set forth in the Appendix to Part 48 and any 
information and documentation necessary, in the discretion of the 
Commission, to effectively demonstrate that the FBOT and its clearing 
organization satisfy the registration requirements set forth in section 
48.7.
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    \22\ Draft submissions and a request for a preliminary review by 
Commission staff would be encouraged under the proposed rule. The 
Commission proposes that the final copy of an application for 
registration would be published on its Web site.
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    Section 48.5 also provides that the Commission will review the 
application for FBOT registration and may approve or deny the 
application. At this time, the proposed rule does not contain a 
timeline for Commission action.\23\ If the application is approved, the 
Commission will so notify the FBOT and will issue an Order of 
Registration. The Commission could, after appropriate notice and an 
opportunity for a hearing, amend, suspend, terminate or otherwise 
restrict the terms of the Order of Registration. If the application is 
denied, the Commission will issue a Notice of Action specifying that 
the application was not approved and the FBOT will not be registered 
and may not provide direct access to its trade matching engine from 
within the U.S. Following a denial, the FBOT may reapply for 
registration 360 days after the date of denial.
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    \23\ The Commission expects a surge of activity shortly after 
the registration rule goes into effect. Once this period has ended, 
the Commission anticipates that a timeline would be established. 
Such a timeline might require a Commission response to a completed 
application for registration within 120 days after the Commission, 
in its sole discretion, determines that the application is complete.
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    The Commission is also proposing that, in determining whether to 
grant or deny an application for FBOT registration, the Commission will 
thoroughly review the information and documentation submitted in the 
application and, as necessary, conduct an on-site due diligence visit 
at the FBOT to determine, as mandated by the Dodd-Frank Act, whether 
the FBOT and its clearing organization are subject to comprehensive 
supervision and regulation by the appropriate governmental authorities 
in their home country that is comparable to the comprehensive 
supervision and regulation to which DCMs and derivatives clearing 
organizations (DCO) are subject in the U.S.\24\ In this context, as 
previously noted, comparable does not necessarily mean identical. The 
comparability determination for registration purposes will be similar 
to that followed when reviewing direct access no-action requests. The 
Commission will evaluate whether the FBOT's home regulatory authority 
supports and enforces regulatory objectives in its oversight of the 
FBOT that are substantially equivalent to the regulatory objectives 
supported and enforced by the Commission in its oversight of DCMs.
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    \24\ The Dodd-Frank Act also mandated that the Commission 
consider any previous Commission findings that the FBOT and its 
clearing organization are subject to such comprehensive supervision 
and regulation by the appropriate government authorities in their 
home country. Such previous Commission findings would include staff 
conclusions drawn previously during the course of reviewing an 
application for direct access no-action relief.
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    The Commission notes that it uses a similar ``comparability'' 
analysis when evaluating foreign entities in the context of issuing 
Rule 30.10 exemptions to

[[Page 70978]]

intermediaries.\25\ When determining whether to issue a Rule 30.10 
exemption, staff evaluates whether the applicant is subject to a 
comparable regulatory scheme in the country in which it is located. In 
this evaluation, comparable does not necessarily mean identical: as set 
forth in Appendix A to Rule 30.10 with respect to the comparability 
determination, ``the Commission would have broad discretion to 
determine that the policies of any program element generally are met, 
notwithstanding the fact that the offshore program does not contain an 
element identical to that of the Commission's regulatory program.'' In 
the case of FBOT registration, a determination that the foreign 
regulatory authority enforces substantially equivalent regulatory 
objectives is a determination of comparability: The regulatory regime 
is comparable, although not necessarily identical, to that of the CFTC.
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    \25\ See supra note 8.
---------------------------------------------------------------------------

    In its review, the Commission would also consider whether the FBOT 
is eligible to be registered as defined in section 48.2(b) of this part 
and whether the FBOT has adequately demonstrated that it meets the 
requirements for registration specified in section 48.7 and any other 
requirements that the Commission, in its discretion, believes are 
necessary or appropriate to impose under the facts and circumstances 
presented.

F. FBOTs Providing Direct Access Pursuant to No-action Relief

    In Section 48.6, the Commission proposes to provide for a 
``limited'' application process for FBOTs currently operating pursuant 
to existing no-action relief. Such FBOTs would apply for registration 
by (1) identifying the specific requirements for registration set forth 
in section 48.7 or information and documentation required by the 
Appendix to Part 48 that are satisfied by information previously 
submitted in the request for no-action relief that remain current and 
true and resubmitting such information and documentation,\26\ and (2) 
submitting any information and documentation required in a complete 
application for registration that was not previously provided or is no 
longer current. The limited application for registration would have to 
be submitted within 120 days of the effective date of the registration 
rules, during which time the FBOT could continue to operate pursuant to 
the no-action relief. The no-action relief would, upon notice to the 
FBOT, be revoked after 120 days if a complete limited application is 
not received by the Commission by that time. If the FBOT files an 
application for registration within 120 days, the FBOT could continue 
to operate pursuant to the no-action relief until notified by the 
Commission that the application has been approved or denied. If the 
Commission revokes the no-action relief or denies the application, it 
will provide for a transition period for phasing out direct access.
---------------------------------------------------------------------------

    \26\ The Commission is requesting resubmission of original 
documentation, where appropriate, because such documentation, some 
of which dates back as much as fourteen years, may no longer be 
readily available for review because of incomplete and or misplaced 
files.
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G. Requirements for Registration

    Section 48.7 describes the requirements that the Commission 
proposes that an FBOT would be required to demonstrate in order to be 
registered. The requirements are divided into the same seven general 
categories currently evaluated during the course of a review of an 
application for no-action relief and they would be reviewed in a 
similar manner. Whether they are successfully met would be determined 
by a review of the information and documentation submitted by the 
applicant pursuant to the Appendix to proposed Part 48, any additional 
information or documentation requested by the Commission in connection 
with the application review, and, as necessary, a Commission staff due 
diligence on-site visit to the FBOT and clearing organization.
    First, with respect to FBOT and clearing membership, the FBOT would 
be required to demonstrate that FBOT and clearing organization members 
and other participants are fit and proper and meet appropriate 
financial and professional standards; that the FBOT and clearing 
organization have adequate conflict of interest provisions; and that 
the FBOT and clearing organization have and enforce rules prohibiting 
the disclosure of material, non-public information obtained as a result 
of a member's/other participant's performance of official duties.
    Second, the FBOT's automated trading system would be required to 
comply with the Principles for the Oversight of Screen-Based Trading 
Systems for Derivative Products developed by the Technical Committee of 
the International Organization of Securities Commissions (IOSCO 
Principles) and adopted by the Commission on November 21, 1990.\27\ In 
addition, the FBOT's trade matching algorithm would be required to 
match trades fairly and timely, the audit trail would be required to 
capture all relevant data (including changes to orders), and audit 
trail data would be required to be securely maintained and available 
for an adequate time period. Trade data would be required to be made 
available to users and to the public, the trading system would be 
required to have demonstrated reliability, and access to the trading 
system would be required to be secure and protected. Finally, adequate 
provisions for emergency operations and disaster recovery would be 
required, trading data would be required to be backed up to prevent its 
loss, and only approved contracts could be made available for trading 
by direct access from the U.S.
---------------------------------------------------------------------------

    \27\ The Commission adopted the IOSCO Principles as a statement 
of regulatory policy for the oversight of screen-based trading 
systems for derivative products. Policy Statement Concerning the 
Oversight of Screen-Based Trading Systems, 55 FR 48670 (Nov. 21, 
1990).
---------------------------------------------------------------------------

    Third, the contracts to be made available by direct access in the 
U.S. would be required to be futures, option or swaps contracts that 
would be eligible to be traded on a DCM and would be subject to prior 
review by the Commission. With respect to swaps, Section 733 of the 
Dodd-Frank Act adds section 5h to the CEA, which provides that a person 
operating a facility for the trading or processing of swaps must be 
registered as a swaps execution facility (SEF) or as a DCM. Section 733 
also adds section 5(g) to the CEA which provides that the ``Commission 
may exempt, conditionally or unconditionally, a swap execution facility 
from registration under this section if the Commission finds that the 
facility is subject to comparable, comprehensive supervision and 
regulation on a consolidated basis by the [SEC], a prudential 
regulator, or the appropriate governmental authorities in the home 
country of the facility.'' The approach for granting a SEF exemption 
(namely, ``subject to comparable, comprehensive supervision and 
regulation * * * in the home country of the facility'') is similar to 
that which applies to FBOTs seeking registration. Moreover, there is 
nothing in the Dodd-Frank Act, including Section 738 of the Dodd-Frank 
Act amending Section 4(b) of the CEA, which expressly precludes a 
registered FBOT from offering swaps through direct access.\28\ 
Accordingly, the Commission is proposing to permit a registered FBOT to 
offer and trade swaps though direct access, subject to the condition 
that the FBOT meet

[[Page 70979]]

certain standards or requirements that may apply to SEFs, as the 
Commission deems appropriate. The Commission requests comment with 
respect to whether a registered FBOT should be allowed to make 
available swaps through direct access and if so, under what conditions.
---------------------------------------------------------------------------

    \28\ Furthermore, under the Dodd-Frank Act, a DCM may trade 
swaps without additionally registering as a SEF.
---------------------------------------------------------------------------

    Contracts that are linked to a contract listed for trading on a 
U.S. registered entity would be required to be identified, as would 
contracts that share any other commonality with a contract listed for 
trading on a U.S. registered entity, i.e., both the FBOT's and the U.S. 
registered entity's contract settle to the price of the same third 
party-constructed index. Finally, the FBOT would be required to certify 
that it has listing standards in place that require that contracts not 
be readily susceptible to manipulation.\29\
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    \29\ The Commission considers that contracts that can be found 
to have the following are less likely to be susceptible to 
manipulation: (1) They rely for settlement pricing on a robust and 
transparent calculation, whether based on the contract's own trading 
or an externally calculated index; (2) they are subject to measures 
to reduce the ability of any party to disrupt pricing, e.g. position 
limits, intraday surveillance, and pre-trade screens; and (3) there 
is either ample deliverable supply or flexibility in the contract 
(alternate delivery mechanisms).
---------------------------------------------------------------------------

    Fourth, with respect to settlement and clearing, the clearing 
organization, would be required to comply with the current 
Recommendations for Central Counterparties (RCCPs) that have been 
issued jointly by the Committee on Payment and Settlement Systems 
(CPSS) and the Technical Committee of the International Organization of 
Securities Commissions (IOSCO), as updated, revised or otherwise 
amended, or successive standards, principles and guidance for central 
counterparties or financial market infrastructures adopted jointly by 
IOSCO and CPSS, and the clearing organization would be required to be 
in good regulatory standing in its home country jurisdiction. In the 
alternative, the clearing organization may be registered with the 
Commission as a DCO.\30\
---------------------------------------------------------------------------

    \30\ The Commission is including the option for the clearing 
organization to be registered as a DCO because it is aware that some 
foreign clearing organizations are registered as such. These include 
ICE Clear Europe Limited, LCH Clearnet Ltd. and Natural Gas Exchange 
Inc.
---------------------------------------------------------------------------

    Fifth, the FBOT's and the clearing organization's regulatory 
authorities would be required to provide comprehensive supervision and 
regulation of the FBOT and the clearing organization that is comparable 
to the comprehensive supervision and regulation to which DCMs and DCOs 
are subject in the U.S., would be required to have the power to 
intervene in the market and authority to share information with the 
Commission, and would be required to provide for ongoing regulatory 
supervision of the FBOT and its trading system, the clearing 
organization and its clearing system and intermediaries--with 
particular attention to market integrity and customer protection and 
the manner in which the exchange enforces its rules. In the case of 
FBOTs with listed swaps, the Commission proposes to take into 
consideration the regulation of relevant market participants (e.g., 
swap dealers) regarding their exchange-trading activity when analyzing 
the comparability and comprehensiveness of the regulatory regime 
applicable to exchange-listed swaps in the FBOT's home country.
    Sixth, the FBOT and the clearing organization would be required to 
have appropriate rules and would be required to enforce them. Among 
other things, the FBOT and the clearing organization would be required 
to have sufficient compliance staff and resources to fulfill their 
respective regulatory responsibilities, including the capacity to 
detect, investigate, and sanction persons who violate their respective 
rules. The FBOT would be required to implement and enforce rules 
relating to oversight of trading practices, including appropriate trade 
practice surveillance, real-time market monitoring and market 
surveillance. The FBOT's and the clearing organization's rules would be 
required to authorize the compliance staff to obtain, from market 
participants, any information and cooperation necessary to conduct 
effective rule enforcement and investigations, and the FBOT would be 
required to have and enforce rules with respect to access to the 
trading system and the means by which the connection is accomplished. 
The FBOT and the clearing organization (or their respective regulatory 
authorities) would be required to have implemented and enforce 
disciplinary procedures that empower them to recommend and prosecute 
disciplinary actions for suspected rule violations, impose adequate 
sanctions for such violations, and provide adequate protections to 
charged parties pursuant to fair and clear standards. The FBOT would be 
required to have the capacity to detect and deter market manipulation, 
attempted manipulation, price distortion, and other disruptions of the 
market and would be required to have and enforce rules designed to 
maintain market and financial integrity and prohibit other trading and 
market abuses. Finally, the FBOT would be required to have and enforce 
rules and procedures that ensure a competitive, open and efficient 
market and mechanism for executing transactions.
    Finally, satisfactory information-sharing arrangements among the 
FBOT, the clearing organization, their respective regulatory 
authorities, and the Commission would be required to be in place. The 
regulatory authorities would be required to be signatories to the IOSCO 
Multilateral Memorandum of Understanding (IOSCO MOU) \31\ or, if not 
signatories to the IOSCO MOU, would have to inform the Commission of 
the reasons why the document has not been signed, supply any additional 
information requested by the Commission, and ensure alternative 
information sharing arrangements that are satisfactory to the 
Commission are in place. The regulatory authority also would be 
required to be a signatory to the Declaration on Cooperation and 
Supervision of International Futures Exchanges and Clearing 
Organizations (Boca Declaration),\32\ or otherwise commit to share the 
types of information contemplated by the International Information 
Sharing Memorandum of Understanding and Agreement (Exchange 
International MOU) \33\ with the Commission. The FBOT would be required 
to have executed, or have committed to execute, the Exchange 
International MOU. In addition, pursuant to the proposed conditions of 
registration described in section 48.8(a)(6)(iii), the FBOT would

[[Page 70980]]

be required to provide certain information directly to the Commission.
---------------------------------------------------------------------------

    \31\ Memorandum of Understanding Concerning Consultation, 
Cooperation and the Exchange of Information of the International 
Organization of Securities Commissions, October 16, 2003. The IOSCO 
MOU is the first worldwide multilateral enforcement cooperation 
arrangement among securities and derivatives regulators. It provides 
for the exchange of essential information to investigate cross-
border securities and derivatives violations, including the most 
serious offenses, such as manipulation, insider trading and customer 
fraud. The IOSCO MOU enables regulators to share critical 
information, including bank, brokerage, and client identification 
records and to use that information in civil and criminal 
prosecutions.
    \32\ The Boca Declaration was developed through discussions at 
the CFTC's international regulators conference, and was motivated by 
work recommendations issued from the Windsor Conference and Tokyo 
Conference, which were convened by the CFTC, the U.K. FSA and 
Japanese regulators to respond to the cross-border issues raised by 
the failure of Barings Plc. The Declaration was developed to address 
instances in which an exchange would not be able to share 
information directly with another exchange under the Exchange 
International MOU, described below.
    \33\ The development of the Exchange International MOU was one 
of the achievements that resulted from the Futures Industry 
Association-sponsored Global Task Force on Financial Integrity, 
which was convened to address the cross-border issues that were 
identified in connection with the failure of Barings Plc.
---------------------------------------------------------------------------

H. Conditions Upon FBOT Registration

    As previously noted, Section 738 of the Dodd-Frank Act amends 
Section 4(b) of the CEA to provide that the Commission may adopt rules 
and regulations requiring registration with the Commission of an FBOT 
that provides identified members of the FBOT or other participants 
located in the United States with direct access to the electronic 
trading and order matching system of the FBOT, including rules and 
regulations prescribing procedures and requirements applicable to the 
registration of such FBOTs. Proposed Section 48.8 provides for certain 
procedures and requirements applicable to maintaining the registration 
of such FBOTs and describes the specified conditions upon FBOT 
registration that the Commission believes are essential in assuring 
effective market integrity and customer protection. As previously 
noted, the conditions applicable to existing no-action relief have 
expanded over time to address activities not foreseen when the earliest 
no-action letters were issued. In the proposed regulations, the 
Commission has added further conditions to address increasing 
technological innovation, new types of products, the impact on the 
market of different trading entities listing substantially similar or 
even connected products, and the requirements of the Dodd-Frank Act. 
The specified conditions are divided into three categories: Specified 
conditions for maintaining registration, other continuing obligations, 
and additional specified conditions for FBOTs with linked contracts. A 
registered FBOT would have an ongoing obligation to monitor and enforce 
compliance with the specified conditions of its registration and with 
any additional conditions that the Commission, in its discretion and 
upon notice to the FBOT and subsequent to an opportunity to be heard, 
may impose.
(1) Specified Conditions
    With respect to the regulatory regimes under which they operate, 
the FBOT and the clearing organization, respectively, would be required 
to continue to satisfy the criteria for a regulated market and clearing 
organization pursuant to their home regulatory regimes identified in 
the application for registration and would be required to continue to 
be subject to oversight by their home regulatory authorities. In 
addition, the laws, systems, rules, and compliance mechanisms of the 
applicable regulatory regimes would be required to continue to require 
the FBOT to maintain fair and orderly markets; prohibit fraud, abuse, 
and market manipulation; and provide that such requirements are subject 
to the oversight of appropriate regulatory authorities. With respect to 
international standards, the FBOT would be required to continue to 
adhere to the IOSCO Principles, to the extent such principles do not 
contravene U.S. law. The clearing organization would be required to 
continue to satisfy, as applicable, the rules, regulations and core 
principles applicable to its registration as a DCO or the RCCPs or 
successive standards, principles or guidance that may be adopted 
jointly by IOSCO and CPSS, to the extent such recommendations, 
standards, principles or guidance do not contravene U.S. law.
    The FBOT would be required to restrict direct access to the trading 
system from the U.S. to identified members or other participants and 
take reasonable steps to prevent third parties from providing such 
access to the FBOT's trading system to persons other than the 
identified members or other participants.\34\ All orders transmitted 
through the FBOT's trading system by an FBOT-identified member or other 
participant by direct access would be required to be for the member's 
or other participant's own account unless: (a) The member or other 
participant is an FCM or (b) subject to certain clearing requirements, 
the member or other participant is a CPO or CTA, or is exempt from such 
registration pursuant to Commission regulation 4.13 or 4.14.
---------------------------------------------------------------------------

    \34\ The Commission believes that such steps would include 
specific prohibitions on sharing access in the FBOT's rules and 
membership agreements and a review of how access is granted by and 
to the identified member's or other participant's infrastructure 
during audits of those entities.
    The Commission will continue to evaluate new developments in 
technology and business arrangements that may be used by FBOTs to 
provide U.S. participants with direct access to its trade matching 
system in the context of these proposed rules.
---------------------------------------------------------------------------

    The specified conditions also include several documentation 
requirements to assist the Commission in monitoring the activities of a 
registered FBOT and the clearing organization. Each current and 
prospective member or other participant that is granted direct access 
to the FBOT's trading system from the U.S. and that is not registered 
as an FCM, a CTA or a CPO would be required to file with the FBOT (a) A 
written representation stating that the member or other participant 
agrees to and submits to the jurisdiction of the CFTC with respect to 
activities conducted pursuant to the registration; (b) a valid and 
binding appointment of a U.S. agent for service of process in the U.S.; 
and (c) a written representation that the member or other participant 
granted direct access pursuant to this regulation will provide, upon 
the request of the Commission, the U.S. Department of Justice and, if 
appropriate, the National Futures Association (NFA) (collectively, the 
U.S. Agencies), prompt access to the entity's, member's or other 
participant's original books and records or, at the election of the 
requesting U.S. Agency, a copy of specified information containing such 
books and records, as well as access to the premises where the trading 
system is available in the U.S. The FBOT and the clearing organization 
also would be required to file with the Commission a valid and binding 
appointment of an agent for service of process in the U.S. and maintain 
with the FBOT written representations concerning U.S. Agencies' access 
to original books and records or, at the election of the requesting 
U.S. Agency, a copy of specified information containing such books and 
records, as well as access to the premises where the trading system is 
available in the U.S. The FBOT would be required to maintain all the 
representations required pursuant to this regulation as part of its 
books and records and make them available upon the request of a 
Commission representative.
    With respect to information sharing, the specified conditions 
mandate that information-sharing arrangements satisfactory to the 
Commission are in effect among the Commission and the regulatory 
authorities that oversee both the FBOT and the clearing organization 
and that the Commission is able to obtain sufficient information 
regarding the FBOT, the clearing organization and their respective 
members and other participants operating pursuant to the FBOT's 
registration. The FBOT would be required to provide information 
directly to the Commission in response to a Commission request. In the 
event that the FBOT and the clearing organization are separate 
entities, the proposed rule would require the clearing organization to 
enter into a written agreement with the FBOT in which the clearing 
organization is contractually obligated to promptly provide any and all 
information and documentation that may be required of the clearing 
organization under the regulation.
    With respect to swaps contracts, if the FBOT makes swaps contracts 
available by direct access, the FBOT would be required to report to the 
public, on a real-time basis, data relating to each

[[Page 70981]]

swap transaction, including price and volume, as soon as 
technologically practicable after execution of the swap transaction. In 
addition, the FBOT would be required to ensure that all swap 
transaction data is timely reported to a swap data repository that is 
either registered with, or has an information-sharing arrangement with, 
the Commission. The FBOT also must agree to coordinate with the 
Commission with respect to arrangements established to address cross 
market oversight issues, including surveillance, emergency actions and 
the monitoring of trading. In addition, particularly with respect to 
the listing of swaps contracts, the Commission may, in its discretion 
and after notice and an opportunity to be heard, impose additional 
conditions upon the FBOT's registration. Finally, all futures, option 
and swaps contracts must be cleared.
(2) Other Continuing Obligations
    Among the proposed specified conditions identified as other 
continuing obligations are quarterly, upon occurrence, and annual 
reporting requirements that the Commission determines are necessary to 
provide ongoing visibility with respect to a registered FBOT's 
performance as it relates to U.S. persons. First, as is the case now 
with the no-action relief recipients, the FBOT would be required to 
maintain and provide to the Commission on at least a quarterly basis, 
and at any time promptly upon request, volume data that reflects the 
percentage of trading originating in the U.S. Thus, the FBOT would be 
required to provide, for each contract available to be traded through 
its trading system, the following: (a) The total trade volume 
originating from electronic trading devices providing direct access to 
the trading system in the U.S., (b) the total trade volume for such 
products traded through the trading system worldwide, and (c) the total 
trade volume for such products traded on the FBOT generally. The FBOT 
would also be required to provide a listing of the names, NFA ID 
numbers (if applicable), and main business addresses in the U.S. of all 
members and other participants that have access to the trading system 
in the U.S.
    With respect to reporting the occurrence of events that may have an 
impact on the FBOT's capability to meet its registration requirements, 
the FBOT would be required to promptly provide the Commission with 
written notice of the following: (a) Any material change in the 
information provided in the FBOT's registration application or in the 
FBOT's or clearing organization's rules or in the laws, rules, and 
regulations in the home jurisdictions of the FBOT or the clearing 
organization; (b) any matter known to the FBOT or the clearing 
organization that, in their judgment, could affect the financial or 
operational viability of the FBOT or the clearing organization; (c) any 
default, insolvency, or bankruptcy of any FBOT trading member or other 
participant that may have a material, adverse impact upon the condition 
of the FBOT or upon any U.S. customer or firm, or any default, 
insolvency or bankruptcy of any member of the FBOT's clearing 
organization; (d) any known violation by the FBOT, its clearing 
organization or any trading or clearing member or other participant of 
the specified conditions of registration or failure to satisfy the 
requirements for registration; and (e) any disciplinary action taken by 
the FBOT or its clearing organization against any FBOT trading member 
or other participant or a member of the clearing organization that 
involves any market manipulation, fraud, deceit, or conversion or that 
results in suspension or expulsion that involves a contract or 
contracts available for trading from within the U.S. pursuant to 
registration.
    Finally, the FBOT or the clearing organization, as applicable, 
would be required to provide the following to the Commission on an 
annual basis: (a) A certification from the FBOT's regulatory authority 
confirming that the FBOT retains its authorization in good standing as 
a regulated market/exchange; (b) a certification from the clearing 
organization's regulatory authority confirming the clearing 
organization's regulatory status (i.e., its authorization, licensure, 
or registration) and continued ``good standing'' in its authorized 
jurisdiction; (c) if the clearing organization is not a DCO, 
recertification of the clearing organization's compliance with the 
RCCPs or successive standards, principles or guidance; (d) a 
description of any material changes to any relevant representation 
regarding the FBOT or clearing organization made to the Commission that 
have not been previously disclosed; (e) a description of any 
significant disciplinary or enforcement actions that have been 
instituted by or against the FBOT or the clearing organization or the 
senior officers of either in the prior year; and (f) a written 
description of any material changes to the regulatory regime to which 
the FBOT or the clearing organization are subject that have not been 
previously disclosed, in writing, to the Commission (or a certification 
that no material changes have been made).
(3) Linked Contract Conditions
    The proposed rule also would include additional specified 
conditions for FBOTs that make linked contracts available for direct 
access. These proposed additional specified conditions are divided into 
two categories: Statutory conditions, which are specifically required 
by the Dodd-Frank Act, and other conditions on linked contracts, which 
are additional conditions that the Commission believes are necessary 
because such linkages create a single market for the subject contracts 
and, in the absence of certain preventive measures at the FBOT, could 
compromise the Commission's ability to carry out its market 
surveillance responsibilities. Because of the linkage, the trading of 
the linked contracts on an FBOT affects the pricing of contracts traded 
on U.S.-registered entities.
(a) Statutory Conditions
    The statutory conditions mandated by Section 738 of the Dodd-Frank 
Act are substantially similar to the previously discussed additional 
conditions the Commission imposed on the no-action relief issued to ICE 
Futures Europe when that exchange made available a WTI futures contract 
that cash-settled on the price of a physically-settled Light Sweet 
Crude Oil futures contract traded on the NYMEX,\35\ include the 
following: (i) The FBOT must make public certain daily trading 
information regarding the linked contract; (ii) the FBOT (or its 
regulatory authority) must (A) Adopt position limits for the linked 
contract that are comparable to the position limits adopted by the 
registered entity for the contract to which it is linked; (B) have the 
authority to require or direct market participants to limit, reduce, or 
liquidate any position the FBOT (or its regulatory authority) 
determines to be necessary to prevent or reduce the threat of price 
manipulation, excessive speculation as described in section 4a of the 
Act, price distortion, or disruption of delivery or the cash settlement 
process; (C) agree to promptly notify the Commission, with regard to 
the linked contract, of any changes with respect to (i) and (ii) above 
and any other area of interest expressed by the Commission to the FBOT 
or its regulatory authority; (D) provide information to the Commission 
regarding large trader positions in the linked contract that is 
comparable to the large trader position information collected by the 
Commission for the contract to which it is linked; and (E) provide the 
Commission such information as is necessary to publish

[[Page 70982]]

reports on aggregate trader positions for the linked contract that are 
comparable to such reports on aggregate trader positions for the 
contract to which it is linked.
---------------------------------------------------------------------------

    \35\ See CFTC Letter No. 08-09 (June 17, 2008).
---------------------------------------------------------------------------

    One statutory condition is mandated by Section 737 of the Dodd-
Frank Act, and would require that if the Commission establishes 
speculative position limits (including related hedge exemption 
provisions) on the aggregate number or amount of positions in a 
contract traded on a U.S. registered entity and the registered FBOT 
lists a linked contract, the FBOT (or its regulatory authority) must 
adopt position limits (including related hedge exemption provisions) 
for the linked contract as determined by the Commission.
(b) Other Conditions on Linked Contracts
    The other conditions on linked contracts, also imposed pursuant to 
the Commission's new Section 4(b)(1)(A) authority to adopt rules and 
regulations prescribing procedures and requirements applicable to the 
registration of FBOTs, represent the second set of additional 
conditions the Commission imposed on the no-action relief issued to ICE 
Futures Europe when that exchange made available for trading by direct 
access contracts linked to the prices of contracts traded on NYMEX.\36\ 
The conditions as proposed would require that the FBOT, among other 
things, (i) Inform the Commission in a quarterly report of any member 
that had positions in a linked contract above the applicable FBOT 
position limit, (ii) provide trade execution and audit trail data for 
input to the CFTC's Trade Surveillance System on a trade-date plus one 
basis, (iii) provide for CFTC on-site visits for the purpose of 
overseeing the FBOT's and the clearing organization's ongoing 
compliance with registration requirements and the conditions of 
registration, (iv) provide, at least one day prior to the effective 
date, copies of, or hyperlinks to, all rules, rule amendments, 
circulars and other notices published by the FBOT with respect to all 
linked contracts, (v) provide copies of all Disciplinary Notices 
involving the FBOT's linked contracts upon closure of the action, and 
(vi) promptly take similar action with respect to its linked contract 
in the event that the CFTC, pursuant to its emergency powers authority, 
directs that the U.S. registered entity which lists the contract to 
which the FBOT's contract is linked to take emergency action with 
respect to a linked contract (e.g., to cease trading in the contract).
---------------------------------------------------------------------------

    \36\ See CFTC Letter No. 09-37 (August 20, 2009).
---------------------------------------------------------------------------

    The Commission questions whether there are additional conditions 
that it could impose on registered FBOTs that list linked contracts to 
promote orderly markets and customer protection, such as automatic 
safety features to protect against errors in the entry of orders, 
price-banding mechanisms, maximum order size limitations, or trading 
pauses to prevent cascading stop-loss orders.\37\
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    \37\ Many of these mechanisms are discussed in the Commission's 
recent joint study with the SEC of the market events of May 6, 2010. 
See Preliminary Findings Regarding the Market Events of May 6, 
2010--Report of the Staffs of the CFTC and SEC to the Joint Advisory 
Committee on Emerging Regulatory Issues (May 18, 2010), Appendix B-
11.
---------------------------------------------------------------------------

I. Revocation of Registration

    Section 48.9 addresses certain events which could lead the 
Commission to revoke an FBOT's registration. With respect to failure to 
satisfy any of the registration requirements or conditions of 
registration, the proposed rule provides that if the Commission 
believes that a registration requirement or condition is not being met, 
the Commission may request that the registered FBOT file a written 
demonstration showing it is in compliance with the requirement or 
condition. If the Commission determines that an FBOT (or its clearing 
organization) has failed to satisfy any of the registration 
requirements or conditions, the FBOT would be given an opportunity to 
bring itself into compliance with the requirement or condition. If the 
FBOT fails to make changes necessary to comply with the requirement or 
condition within 30 days after receiving a notification that it was not 
satisfying one or more requirements or conditions, the Commission may 
revoke the FBOT's registration, after appropriate notice and an 
opportunity for a hearing. If the Commission revokes the registration, 
it will provide for a transition period for phasing out direct access. 
Finally, an FBOT whose registration has been revoked for failure to 
satisfy a registration requirement or condition could apply for re-
registration after 360 days if the deficiency causing the revocation 
has been cured or relevant facts and circumstances have changed.
    Section 48.9 of the proposed rule also identifies four other events 
that, without limitation, could result in revocation, generally after 
appropriate notice and an opportunity for a hearing. The Commission may 
revoke an FBOT's registration (1) If the Commission determines that a 
representation made in the application for registration relevant to the 
Commission's decision to register the entity is found to have been 
untrue or materially misleading; (2) if there is a material change in 
the regulatory regime applicable to the FBOT or clearing organization; 
(3) in the event of an emergency or in a circumstance where the 
Commission determines that revocation would be necessary or appropriate 
in the public interest; or (4) the FBOT or the clearing organization is 
no longer authorized, licensed or registered, as applicable, as a 
regulated market and/or exchange or clearing organization or ceases to 
operate as an FBOT or clearing organization. Revocation under these 
circumstances would not necessarily follow the procedures delineated 
for revocation for failure to continue to satisfy registration 
requirements or conditions, but would be handled by the Commission as 
relevant facts or circumstances warrant.
    The Commission acknowledges that there are other actions that, if 
undertaken by a registered FBOT, could lead the Commission to exercise 
its discretion and consider a full range of corrective actions, 
including revocation of the FBOT's registration, requiring enhanced 
information sharing arrangements and surveillance procedures, imposing 
trading restrictions on U.S. persons trading on the FBOT, imposing 
additional conditions on the registration, or taking other appropriate 
action. For instance, the Commission believes that the listing of 
certain products on an FBOT could potentially have an adverse impact on 
the market and the public interest. Thus, the Commission would take 
corrective action as necessary if it become aware that a registered 
FBOT permits the trading of products that potentially could: (1) Affect 
adversely the pricing of contracts traded on any registered entity as 
defined in section 1a(40) of the Act, or of contracts traded on any 
cash market for commodities subject to the CEA; (2) create unacceptable 
systemic risks or disruptions in those markets or the U.S. financial 
system, including capital markets; or (3) facilitate abusive trading 
practices on U.S. markets or otherwise interfere with the ability of 
the Commission to carry out its regulatory responsibilities. The 
Commission retains plenary authority to address manipulative or abusive 
trading practices that affect U.S. futures and cash markets and market 
users, and would use that enforcement authority when necessary and 
appropriate.

[[Page 70983]]

J. Additional Contracts

    Section 48.10 would establish the procedures for a registered FBOT 
to make available futures, option and swaps contracts that were not 
included in the registration application on a trading system to which 
FBOT members and other participants in the U.S. have been granted 
direct access. These procedures are substantially similar to the 
procedures established for the listing of additional contracts under 
direct access no-action relief.\38\ Generally, for other than security 
index futures contracts, a registered FBOT would be required to submit 
a written request prior to offering the additional futures and option 
and swaps contracts from within the U.S. Such a written request would 
include the terms and conditions of the additional contracts to be made 
available and a certification that (1) the additional contracts meet 
the requirements of Section 48.7(c) of this part and (2) the FBOT and 
the clearing organization continue to satisfy the conditions of 
registration. The FBOT would be permitted to make available for trading 
the additional contracts ten business days after the date of receipt by 
the Commission of the written request, unless the Commission notifies 
the FBOT that additional time is needed to complete its review of 
policy or other issues pertinent to the additional contracts.
---------------------------------------------------------------------------

    \38\ See Notice of Revision of Commission Policy Regarding the 
Listing of New Futures and Option Contracts by Foreign Boards of 
Trade That Have Received Staff No-Action Relief to Provide Direct 
Access to Their Automated Trading Systems from Locations in the 
United States. 71 FR 19877 (April 18, 2006); corrected at 71 FR 
21003 (April 24, 2006).
---------------------------------------------------------------------------

    A registered foreign board of trade would be permitted to list for 
trading an additional futures contract on a non-narrow-based security 
index pursuant to the no-action relief procedures set forth in Appendix 
D to Part 30 of the Commissions regulations. Such procedures would 
require that the registered FBOT's request to make the non-narrow-based 
security index futures contract available for trading by direct access 
be included in the FBOT's request that the Commission's Office of the 
General Counsel issue no-action relief providing that the non-narrow-
based security index futures contract may be offered or sold to persons 
located within the U.S. in accordance with Section 2(a)(1)(C)(iv) of 
the Act.
    With respect to making available for trading by direct access an 
option contract on a previously approved futures contract, the proposed 
procedures are also substantially similar to the procedures established 
for the listing such option contracts under direct access no-action 
relief.\39\ The proposed procedures would provide the following, 
depending on the type of option contract. (1) If the option is on a 
futures contract that is not a linked contract, the option contract 
could be made available for trading by direct access by filing with the 
Commission no later than the business day preceding the initial listing 
of the contract: (i) A copy of the terms and conditions of the 
additional contract and (ii) a certification that the FBOT continues to 
satisfy the conditions of its registration. (2) If the option is on a 
futures contract that is a linked contract, the option contract may be 
made available for trading by direct access in the same manner as (1) 
above except that the certification must represent that the FBOT 
continues to satisfy the conditions of its registration, including the 
conditions specifically applicable to linked contracts set forth in 
Section 48.8(c). (3) If the option is on a non-narrow-based security 
index futures contract which may be offered or sold in the U.S. 
pursuant to a no-action letter issued by the Office of General Counsel, 
the option contract could be listed for direct access without further 
action by either the registered FBOT or the Commission.
---------------------------------------------------------------------------

    \39\ See Notice of Additional Conditions on the No-Action Relief 
When Foreign Boards of Trade That Have Received Staff No-Action 
Relief To Permit Direct Access to Their Automated Trading Systems 
from Locations in the United States List for Trading from the U.S. 
Linked Futures and Option Contracts and a Revision of Commission 
Policy Regarding the Listing of Certain New Option Contracts. 74 FR 
3570 (January 21, 2009).
---------------------------------------------------------------------------

 K. Appendix to Part 48--Contents of Application

    The Appendix to the proposed Part 48 includes a description of what 
the Commission believes should be included in the application for 
registration in order for the FBOT to demonstrate, and for the 
Commission to conclude, that the FBOT meets the requirements for 
registration. The Appendix reflects submission requirements in eight 
areas, including general information about the FBOT and seven areas 
that specifically address the registration requirements identified in 
Section 48.7. The Commission requests comments with respect to whether 
the application contents requirements of the Appendix are adequate to 
completely address the registration requirements.

IV. Request for Comments Regarding the Proposed Registration Procedures

    In the proposed rule, the Commission has included swaps in the set 
of contracts that a registered FBOT may list on a trading system to 
which it has provided direct access to U.S.-located members and other 
participants. As previously stated, there is nothing in the Dodd-Frank 
Act, including Section 738 of the Dodd-Frank Act amending Section 4(b) 
of the CEA, which expressly precludes a registered FBOT from offering 
swaps through direct access. Accordingly, the Commission is proposing 
to permit a registered FBOT to offer and trade swaps though direct 
access, subject to the condition that the FBOT meet certain standards 
or requirements that may apply to SEFs, as the Commission deems 
appropriate.\40\ The Commission requests comment with respect to 
whether a registered FBOT should be allowed to make available swaps 
through direct access and if so, under what conditions. FBOTs have 
historically, at least in the context of granting direct access no-
action relief, been viewed by Commission staff as DCM-equivalent 
entities. The proposed FBOT registration requirements are based upon 
the premise that in reviewing the FBOT for being subject to comparable, 
comprehensive supervision and regulation by the appropriate 
governmental authorities in its home country, the point of reference is 
how DCMs operate and are regulated and overseen by the CFTC.
---------------------------------------------------------------------------

    \40\ As previously noted, under the Dodd-Frank Act, a DCM may 
trade swaps without additionally registering as a SEF.
---------------------------------------------------------------------------

    Finally, the Commission requests comment on whether, to the extent 
an FBOT is permitted to list swaps on a trading system to which the 
FBOT has granted direct access to members and other participants in the 
U.S., the Commission should examine the oversight of relevant market 
participants (e.g., the functional equivalents of swap dealers and 
major swap participants, as those terms are defined by the Dodd-Frank 
Act) in the applicable home country jurisdictions when making a 
determination as to the comparability and comprehensiveness of the 
supervision and regulation of the relevant regulatory regime. For 
example, the Commission may wish to consider whether swap dealers are 
permitted to provide counterparties with the right to segregate 
collateral. In the case of swaps, certain portions of the regulatory 
regime applicable to market participants with respect to their exchange 
trading activity (e.g., business conduct standards) may be imposed by 
the primary regulatory authority in the home jurisdiction of the 
participant instead of by the exchange on which such participants 
conduct their transactions. Accordingly, it may be necessary or 
appropriate to review the

[[Page 70984]]

regulations applicable to such participants in order to ascertain 
whether the foreign regulatory regime with respect to the foreign board 
of trade, in its totality, is both comprehensive and comparable to that 
in the U.S. The Commission requests comment regarding whether such a 
review is necessary or appropriate. The Commission invites public 
comment with respect to all areas described in the proposed 
registration rule.

V. Related Matters

A. The Paperwork Reduction Act

    The purposes of the Paperwork Reduction Act (``PRA'') are, among 
other things, to minimize the paperwork burden to the private sector, 
ensure that any collection of information by a government agency is put 
to the greatest possible uses, and minimize duplicative information 
collections across government.\41\ The PRA applies with extraordinary 
breadth to all information, ``regardless of form or format,'' a 
government agency is ``obtaining, causing to be obtained [or] 
soliciting'' and includes requiring ``disclosure to third parties or 
the public, of facts or opinion,'' when the information collection 
calls for ``answers to identical questions posed to, or identical 
reporting or recordkeeping requirements imposed on, ten or more 
people.'' \42\ This provision has been determined to include not only 
mandatory but also voluntary information collections, and to not only 
written but also oral communications.\43\
---------------------------------------------------------------------------

    \41\ 44 U.S.C. 3501.
    \42\ 44 U.S.C. 3502.
    \43\ 5 CFR 1320.3(c)(1).
---------------------------------------------------------------------------

    To effect the purposes of the PRA, Congress requires all agencies 
to quantify and justify the burden of any information collection it 
imposes.\44\ This includes submitting each collection, whether or not 
it is contained in a rulemaking, to the Office of Management and Budget 
(``OMB'') for review.\45\ The OMB submission process includes 
completing a form 83-I and a supporting statement with the agency's 
burden estimate and justification for the collection. When the 
information collection is established within a rulemaking, the agency's 
burden estimate and justification should be provided in the proposed 
rulemaking, subjecting it to the rulemaking's public comment process.
---------------------------------------------------------------------------

    \44\ 44 U.S.C. 3506.
    \45\ 44 U.S.C. 3507.
---------------------------------------------------------------------------

    The Commission will protect proprietary information according to 
the Freedom of Information Act and 17 CFR part 145, ``Commission 
Records and Information.'' In addition, section 8(a)(1) of the Act 
strictly prohibits the Commission, unless specifically authorized by 
the Act, from making public ``data and information that would 
separately disclose the business transactions or market positions of 
any person and trade secrets or names of customers.'' The Commission 
also is required to protect certain information contained in a 
government system of records according to the Privacy Act of 1974, 5 
U.S.C. 552a.
    If the proposed rules are promulgated in final form, they would 
require FBOT registrants to collect and submit, pursuant to part 48 of 
the Regulations, information to the Commission, which has never been 
required. For each proposed requirement, set forth below are estimates 
of: (i) The number of respondents; (ii) the number of annual responses 
by each respondent; (iii) the average hours per response; and (iv) the 
aggregate annual reporting burden. New OMB control numbers will be 
assigned to these proposed information collection requirements.
1. New Collection 3038-NEW
    Regulation 48.6 requires each FBOT currently providing direct 
access pursuant to no-action relief to submit a ``complete limited 
application'' with the Commission to satisfy the registration 
requirement, which includes information and documentation set forth in 
the Appendix to this part that was not previously provided or is not 
current.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 20.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 50.
    Aggregate annual reporting burden: 1,000.
2. New Collection 3038-NEW
    Regulation 48.7 provides the information and documentation 
requirements that a new FBOT must submit to become registered with the 
Commission, including FBOT membership information, automated trading 
system, terms and conditions of contracts to be made available in the 
U.S., settlement and clearing, the regulatory regime governing the FBOT 
and clearing organization, the FBOT and clearing organization rules and 
enforcement thereof, and information sharing agreements.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 7.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 1,000.
    Aggregate annual reporting burden: 7,000.
3. New Collection 3038-NEW
    Regulation 48.8(a)(8)(i) requires each registered FBOT that makes 
swap contracts available by direct access to report to the public, on a 
real-time basis, data relating to each swap transaction, including 
price and volume, as soon as technologically practicable after 
execution of the swap transactions.\46\
---------------------------------------------------------------------------

    \46\ Because the Commission has not previously regulated the 
swap market, the Commission was unable to collect data relevant to 
these estimates. Therefore, the Commission requests comment on these 
estimates.
---------------------------------------------------------------------------

    OMB Control Number 3038-NEW.
    Estimated number of respondents: 4.
    Annual responses by each respondent: 250.
    Estimated average hours per response: 8.32.
    Aggregate annual reporting burden: 8,320.
4. New Collection 3038-NEW
    Regulation 48.8(a)(8)(ii) requires each registered FBOT that makes 
swap contracts available by direct access to ensure that all swap 
transaction data is timely reported to a swap data repository.\47\
---------------------------------------------------------------------------

    \47\ Because the Commission has not previously regulated the 
swap market, the Commission was unable to collect data relevant to 
these estimates. Therefore, the Commission requests comment on these 
estimates.
---------------------------------------------------------------------------

    OMB Control Number 3038-NEW.
    Estimated number of respondents: 4.
    Annual responses by each respondent: 250.
    Estimated average hours per response: 8.32.
    Aggregate annual reporting burden: 8,320.
5. New Collection 3038-NEW
    Regulation 48.8(b)(1)(i)(A) and (B) requires each registered FBOT 
to provide the Commission with certain trading volume information and 
certain information regarding the FBOT members and other participants 
in the U.S. that have direct access to the FBOT's trading system on at 
least a quarterly basis.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 27.
    Annual responses by each respondent: 4.
    Estimated average hours per response: 6.
    Aggregate annual reporting burden: 648.
6. New Collection 3038-NEW
    Regulation 48.8(b)(1)(ii)(A)-(F) requires each registered FBOT to

[[Page 70985]]

provide the Commission on an ongoing basis with written notice of 
certain information, including any material changes to the registration 
information and documents previously submitted to the Commission; any 
matter known to the FBOT concerning the financial or operational 
viability of the FBOT or its clearing organization; and any known 
violation by the FBOT, its clearing organization, any member of the 
FBOT or its clearing organization or any other participant of the terms 
or conditions of registration.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 27.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 2.
    Aggregate annual reporting burden: 54.
7. New Collection 3038-NEW
    Regulation 48.8(b)(1)(iii)(A)-(F) requires each registered FBOT to 
provide the Commission on an annual basis with certain information 
including a certification from the FBOT's regulatory authority that the 
FBOT retains its authorization in good standing as a regulated exchange 
under the licensing used in the FBOT's home country, a description of 
any significant disciplinary or enforcement actions that have been 
instituted by the FBOT in the prior year, and a written description of 
any material changes to the regulatory regime to which the FBOT is 
subject to that have not previously been disclosed to the Commission.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 27.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 4.
    Aggregate annual reporting burden: 108.
8. New Collection 3038-NEW
    Regulation 48.8(c)(1)(ii)(C)(1)-(4) requires each registered FBOT 
to promptly notify the Commission, with regard to the linked contract, 
of any changes regarding information that the FBOT will make publicly 
available, enforcement of position limits, and position reductions 
required to prevent manipulation, excessive speculation as described in 
section 4a of the Act, price distortion, or disruption of delivery or 
the cash settlement process, and any other area of interest expressed 
by the Commission to the FBOT or its regulatory authority.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 1.
    Annual responses by each respondent: 2.
    Estimated average hours per response: 3.
    Aggregate annual reporting burden: 6.
9. New Collection 3038-NEW
    Regulation 48.8(c)(1)(ii)(D) requires each registered FBOT with a 
linked contract to provide the Commission with large trader position 
information.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 1.
    Annual responses by each respondent: 250.
    Estimated average hours per response: 2.
    Aggregate annual reporting burden: 500.
10. New Collection 3038-NEW
    Regulation 48.8(c)(1)(ii)(E) requires each registered FBOT with a 
linked contract to provide the Commission with such information as 
necessary to publish reports on aggregate trader positions.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 1.
    Annual responses by each respondent: 250.
    Estimated average hours per response: 2.
    Aggregate annual reporting burden: 500.
11. New Collection 3038-NEW
    Regulation 48.8(c)(2)(i) requires each registered FBOT with a 
linked contract to provide the Commission with a quarterly report of 
any member that had positions in a linked contract above the FBOT 
position limit, whether a hedge exemption was granted, and if not, 
whether a disciplinary action was taken.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 1.
    Annual responses by each respondent: 4.
    Estimated average hours per response: 3.
    Aggregate annual reporting burden: 12.
12. New Collection 3038-NEW
    Regulation 48.8(c)(2)(ii) requires each registered FBOT with a 
linked contract to provide the Commission with trade execution and 
audit trail data on a trade-date plus one basis.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 1.
    Annual responses by each respondent: 250.
    Estimated average hours per response: 3.
    Aggregate annual reporting burden: 750.
13. New Collection 3038-NEW
    Regulation 48.8(c)(2)(iv) requires each registered FBOT with a 
linked contract to provide the Commission with a copy of all rules, 
rule amendments, and other notices published by the FBOT with respect 
to all linked contracts.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 1.
    Annual responses by each respondent: 20.
    Estimated average hours per response: 2.
    Aggregate annual reporting burden: 40.
14. New Collection 3038-NEW
    Regulation 48.8(c)(2)(v) requires each registered FBOT with a 
linked contract to provide the Commission with a copy of all 
disciplinary notices involving the FBOT's linked contract upon closure 
of the action.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 1.
    Annual responses by each respondent: 2.
    Estimated average hours per response: 2.
    Aggregate annual reporting burden: 4.
15. New Collection 3038-NEW
    Regulation 48.9 requires each registered FBOT, upon request by the 
Commission, to file a written demonstration that the FBOT is in 
compliance with the conditions for registration.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 26.
    Annual responses by each respondent: .25.
    Estimated average hours per response: 8.
    Aggregate annual reporting burden: 52.
16. New Collection 3038-NEW
    Regulation 48.10 requires each registered FBOT that wishes to list 
additional futures and options contracts for trading by direct access 
to request in writing and receive approval from the Commission prior to 
offering the contracts from within the U.S.
    OMB Control Number 3038-NEW.
    Estimated number of respondents: 27.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 4.
    Aggregate annual reporting burden: 108.
    The Commission invites the public and other Federal agencies to 
comment on any aspect of the reporting and recordkeeping burdens 
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission 
solicits comments in order to: (i) Evaluate whether the proposed 
collection of information is necessary for the proper performance of 
the

[[Page 70986]]

functions of the Commission, including whether the information will 
have practical utility; (ii) evaluate the accuracy of the Commission's 
estimate of the burden of the proposed collection of information; (iii) 
determine whether there are ways to enhance the quality, utility, and 
clarity of the information to be collected; and (iv) minimize the 
burden of the collection of information on those who are to respond, 
including through the use of automated collection techniques or other 
forms of information technology.
    Comments may be submitted directly to the Office of Information and 
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at 
<a href="/cdn-cgi/l/email-protection#afe0e6fdeedcdacdc2c6dcdcc6c0c1dcefc0c2cd81cac0df81c8c0d9"><span class="__cf_email__" data-cfemail="df90968d9eacaabdb2b6acacb6b0b1ac9fb0b2bdf1bab0aff1b8b0a9">[email protected]</span></a>. Please provide the Commission with a copy 
of submitted comments so that all comments can be summarized and 
addressed in the final rule preamble. Refer to the Addresses section of 
this notice of proposed rulemaking for comment submission instructions 
to the Commission. A copy of the supporting statements for the 
collections of information discussed above may be obtained by visiting 
RegInfo.gov. OMB is required to make a decision concerning the 
collection of information between 30 and 60 days after publication of 
this release in the Federal Register. Consequently, a comment to OMB is 
most assured of being fully effective if received by OMB (and the 
Commission) within 30 days after publication of this notice of proposed 
rulemaking. Nothing in the foregoing affects the deadline enumerated 
above for public comment to the Commission on the proposed rules.

B. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its actions before issuing a new regulation or 
order under the Act.\48\ By its terms, Section 15(a) does not require 
the Commission to quantify the costs and benefits of a new rule or to 
determine whether the benefits of the adopted rule outweigh its costs. 
Rather, Section 15(a) requires the Commission to ``consider the costs 
and benefits'' of a proposed rule. Section 15(a) further specifies the 
costs and benefits of proposed rules 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. In conducting its analysis, the Commission may, in its 
discretion, give greater weight to any one of the five enumerated areas 
of concern and may determine that, notwithstanding its costs, a 
particular rule 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 rule.\49\
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    \48\ 7 U.S.C. 19(a).
    \49\ E.g., Fishermen's Dock Co-op., Inc v. Brown, 75 F3d 164 
(4th Cir. 1996); Center for Auto Safety v. Peck, 751 F.2d 1336 (D.C. 
Cir. 1985) (agency has discretion to weigh factors in undertaking 
cost-benefit analyses).
---------------------------------------------------------------------------

    The proposed regulations implement the Dodd-Frank Act by 
establishing a registration requirement for all FBOTs that wish to 
provide their members or other participants located in the U.S. with 
direct access to the FBOT's electronic trading and order matching 
system. Pursuant to proposed Commission Regulation 48.5, FBOTs wishing 
to provide direct access to their trading systems to members and other 
participants located in the U.S. would be required to file an 
application for registration with the Commission that contains all of 
the information and documentation set forth in the Appendix to the Part 
48 regulations and any additional information and documentation 
required to successfully demonstrate that the FBOT satisfies the 
registration requirements contained in Rule 48.7.
    Regarding FBOTs that currently do not have no-action relief from 
Commission staff, the Commission understands that costs associated with 
the submission of an application for registration could be 
considerable. However, the cost of applying for no-action relief under 
existing procedures is substantial. FBOTs requesting no-action relief 
currently are required to provide much of the information that would be 
required under the proposed regulation. For example, FBOTs requesting 
no-action relief under existing procedures have been required to 
provide the Commission with information including the FBOT's trading 
system, terms and conditions of contracts made available in the U.S., 
and the regulatory regime governing the FBOT in its home country. This 
same information would be required as part of the registration process 
under the proposed regulations. The additional cost of applying for 
registration rather than applying for no-action relief is significant, 
but not overly large.
    FBOTs that currently have no-action relief from the Commission 
would be required to register with the Commission and only provide a 
limited application pursuant to the proposed regulations. This should 
have the effect of limiting the costs to these FBOTs since they would 
be required only to provide information that was not previously 
provided or is not current.
    The proposed regulations would authorize the Commission to impose 
additional conditions on FBOTs that desire to make a linked contract 
available by direct access to members of the FBOT or other participants 
located in the U.S. These conditions would be required as part of the 
FBOT registration process, and include among other things, the 
imposition of speculative position limits and the submission of audit 
trail data and large trader position information to the Commission for 
all linked contracts. Any additional costs incurred by an FBOT with 
existing no-action relief would be offset in part due to the 
substantial overlap between the conditions already promulgated by the 
Commission as a general policy applicable to FBOTs with linked 
contracts and the conditions being proposed by the Commission under 
regulation 48.8.\50\
---------------------------------------------------------------------------

    \50\ See CFTC Letter No. 08-09, June 17, 2008.
---------------------------------------------------------------------------

    The proposed FBOT registration regulations offer significant 
benefits over the no-action process through which requests to provide 
direct access to FBOT trading systems were handled in the past. While 
the no-action process has served a useful purpose, the no-action 
process is designed for discrete, unique factual circumstances where 
regulations do not address the issue presented. Where the same type of 
relief is granted on a regular and recurring basis, as it has been with 
respect to direct access to FBOT trading systems, the Commission 
believes that it is more appropriate to provide the relevant relief 
through a generally applicable rulemaking. The proposed regulations 
would provide a more standardized and efficient application process, 
enhance the visibility of the process to both applicants and the 
public, and ensure fair and consistent treatment to applicants. 
Moreover, the Order of Registration issued by the Commission pursuant 
to this proposal would provide greater legal certainty to FBOTs 
operating pursuant to those Orders than no-action letters, which are 
issued by the staff and not binding on the Commission.
    In addition, there is substantial value in the information and 
documentation that the Commission will be able to obtain, and the 
obligations that may be imposed pursuant to the conditions applicable 
to FBOT registration. For example, an FBOT that lists for trading a 
contract which settles on the price of

[[Page 70987]]

a contract traded on a Commission-regulated exchange raises serious 
concerns for the Commission. The position limit requirement and the 
submission of large trader position information and audit trail data to 
the Commission, pursuant to the conditions placed upon an FBOT that 
offers a linked contract for trading via direct access to its members 
or other participants located in the U.S., will enhance the 
Commission's ability to carry out its market surveillance 
responsibilities. The proposed regulations and related conditions also 
will ensure that transactions executed on an FBOT do not adversely 
affect U.S. cash and futures markets, market participants, and 
customers, as well as the consumers affected by those transactions. 
Finally, the proposed regulations are designed to ensure that the U.S. 
commodity markets operate fairly and efficiently and are free from 
fraud, manipulation and other market abuses.
    After considering the costs and benefits, the Commission has 
determined to propose the regulations discussed above. The Commission 
invites public comment on its evaluation of the costs and benefits of 
the proposed regulations. Specifically, commenters are invited to 
submit data quantifying the costs and benefits of the proposed 
regulations with their comment letters.

C. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \51\ requires that 
agencies consider whether the rules they propose will have a 
significant economic impact on a substantial number of small entities 
and, if so, provide a regulatory flexibility analysis respecting the 
impact.\52\ The proposed rules detailed in this release would only 
affect FBOTs. The rules would replace the policy of issuing staff no-
action letters to permit FBOTs to provide for direct access, defined in 
the Dodd-Frank Act to refer to an explicit grant of authority by an 
FBOT to an identified member or other participant to enter trades 
directly into the FBOT's trade matching system.
---------------------------------------------------------------------------

    \51\ 5 U.S.C. 601 et seq.
    \52\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

    As a threshold matter, because the proposed application 
requirements and standards for FBOT registration under the new rules 
generally are consistent with the application requirements and review 
standards that have guided the Commission's staff in issuing FBOT no-
action relief letters, the Commission believes that these rules will 
not have a significant economic effect on any substantial number of 
FBOTs, whether they are large or small entities. Moreover, the 
Commission does not believe that FBOTs would be small entities. For 
both reasons, the Commission believes that a regulatory flexibility 
analysis is not required for this rulemaking.
    The Commission has not previously addressed the question whether 
FBOTs are, in fact, small entities for purposes of the RFA since FBOTs 
are a new category of registrant created by the Dodd-Frank Act. 
However, the term ``foreign board of trade'' has been used in the CEA 
and defined in the Commission Regulations to be a ``board of trade, 
exchange or market located outside the U.S.'' \53\ The term ``board of 
trade,'' in turn, is defined in the CEA as ``any organized exchange or 
trading facility.'' \54\ An organized exchange includes designated or 
registered exchanges, such as DCMs.\55\
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    \53\ See Commission Regulation 1.33(ss). Additionally, the term 
``board of trade, exchange or market located outside the U.S.'' is 
used interchangeably in the CEA with the term ``foreign board of 
trade.'' For example, Section 4(a) carves out ``board of trade, 
exchange or market located outside the U.S.'' from the requirement 
that futures contracts in the U.S. must be traded on a DCM or DTEF; 
new Section 4(b)(2)(C) provides that the Commission may not, except 
as provided in section 4(b)(1) and (2), directly regulate a 
``foreign board of trade.''
    \54\ CEA Sec.  1a(2).
    \55\ CEA Sec.  1a(27).
---------------------------------------------------------------------------

    The Commission has previously determined that DCMs are not ``small 
entities'' for purposes of the RFA.\56\ Key to the Commission's 
determination was that DCMs perform a central role in the regulatory 
scheme for futures trading, requiring the DCM to employ significant 
resources, including personnel, in the performance of this statutory 
role. The Commission designates a contract market only when it meets 
specific criteria including expenditure of sufficient resources to 
establish and maintain adequate self-regulatory programs.
---------------------------------------------------------------------------

    \56\ 47 FR 18618, 18619 (April 30, 1982).
---------------------------------------------------------------------------

    Likewise, the Commission will register an FBOT to provide direct 
access only after it has met similar criteria. Critically, an FBOT will 
only be registered by demonstrating that it possesses the attributes of 
an established, organized exchange; adheres to appropriate rules 
prohibiting abusive trading practices; and enforces appropriate rules 
to maintain market and financial integrity. Because FBOTs and DCMs are 
functionally equivalent entities in these regards, the Commission is 
determining that FBOTs, like DCMs, are not small entities for purposes 
of the RFA. In light of the foregoing, the Chairman on behalf of the 
Commission hereby certifies, pursuant to 5 U.S.C. 605(b), that the 
proposed rules will not have a significant impact on a substantial 
number of small entities.

List of Subjects in 17 CFR Part 48

    Foreign boards of trade, Commodity futures, Options, Swaps, Direct 
access, Linked contract, Registration, Existing no-action relief, 
Conditions of registration.

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

PART 48--REGISTRATION OF FOREIGN BOARDS OF TRADE

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

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


Sec.  48.1  Scope.

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


Sec.  48.2  Definitions.

    (a) Foreign board of trade. For purposes of this part, foreign 
board of trade means any board of trade, exchange or market located 
outside the United States, its territories or possessions, whether 
incorporated or unincorporated, where foreign agreements, contracts or 
transactions are entered into.
    (b) Foreign board of trade eligible to be registered. A foreign 
board of trade eligible to be registered means a foreign board of trade 
that satisfies the requirements for registration specified in section 
48.7 of this part and
    (1) Possesses the attributes of an established, organized exchange,

[[Page 70988]]

    (2) Adheres to appropriate rules prohibiting abusive trading 
practices,
    (3) Enforces appropriate rules to maintain market and financial 
integrity,
    (4) Has been authorized by a regulatory process that examines 
customer and market protections, and
    (5) Is subject to continued oversight by a regulator that has power 
to intervene in the market and the authority to share information with 
the Commission.
    (c) Direct access. For purposes of this part, direct access means 
an explicit grant of authority by a foreign board of trade to an 
identified member or other participant located in the United States to 
enter trades directly into the trade matching system of the foreign 
board of trade.
    (d) Linked contract. For purposes of this part, a linked contract 
is a futures or option or swaps contract made available for direct 
access from the United States by a registered foreign board of trade 
that settles against any price (including the daily or final settlement 
price) of one or more contracts listed for trading on a registered 
entity as defined in section 1a(40) of the Act.
    (e) Communications. For purposes of this part, communications is 
defined to include any summons, complaint, order, subpoena, request for 
information, notice, or any other written or electronic documentation 
or correspondence issued by or on behalf of the Commission.
    (f) Material change. For purposes of this part, material changes in 
the information provided to the Commission in support of the 
registration application would include, without limitation, a 
modification of any of the following: The membership criteria of the 
foreign board of trade or its clearing organization; the location of 
the management, personnel or operations of the foreign board of trade 
or its clearing organization (particularly changes that may suggest an 
increased nexus between the foreign board of trade's activities and the 
United States); the basic structure, nature, or operation of the 
trading system or its clearing organization; the regulatory or self-
regulatory regime applicable to the foreign board of trade, its 
clearing organization, and their respective members and other 
participants (including, without limitation, the rules applicable to or 
oversight thereof), any change in the authorization, licensure or 
registration of the foreign board of trade or clearing organization, 
and any information that may impact the ability of the clearing 
organization to satisfy the current Recommendations for Central 
Counterparties that have been issued jointly by the Committee on 
Payment and Settlement Systems and the Technical Committee of the 
International Organization of Securities Commissions as updated, 
revised or otherwise amended, or successive standards, principles and 
guidance for central counterparties or financial market infrastructures 
adopted jointly by the International Organization of Securities 
Commissions and the Committee on Payment and Settlement Systems.
    (g) Clearing organization. For purposes of this part, clearing 
organization means the foreign board of trade, affiliate of the foreign 
board of trade or any third party clearing house, clearing association, 
clearing corporation or similar entity, facility or organization that, 
with respect to any agreement, contract or transaction executed on or 
through the foreign board of trade, would be:
    (1) Defined as a derivatives clearing organization under section 
1a(9) of the Act;
    (2) Defined as a central counterparty by the Recommendations for 
Central Counterparties that have been issued jointly by the Committee 
on Payment and Settlement Systems and the Technical Committee of the 
International Organization of Securities Commissions, as updated, 
revised or otherwise amended, or successive standards, principles and 
guidance for central counterparties adopted or financial market 
infrastructures adopted jointly by the Committee on Payment and 
Settlement Systems or the International Organization of Securities 
Commissions; or
    (3) Otherwise interposes itself between the counterparties to the 
agreements, contracts or transactions (or subset thereof) executed on 
or through the foreign board of trade, becoming the buyer to every 
seller and the seller to every buyer.
    (h) Existing no-action relief. For purposes of this part, existing 
no-action relief means a no-action letter issued by a division of the 
Commission to the foreign board of trade in which the division informs 
the foreign board of trade that it will not recommend that the 
Commission institute enforcement action against the foreign board of 
trade if the foreign board of trade does not seek designation as either 
a designated contract market pursuant to section 5 of the Act or a 
derivatives transaction execution facility pursuant to section 5a of 
the Act in connection with the provision of direct access to the 
foreign board of trade's trade matching system by its members and other 
participants located in the United States.
    (i) Swaps. For purposes of this part, swaps is defined to mean 
swaps as defined in section 1a(47) of the Act, and any Commission 
regulation adopted thereunder, and any transaction or contract that is 
regulated as a swap under the regulatory regime to which the FBOT is 
subject.
    (j) Affiliate. For purposes of this part, an affiliate of a 
registered foreign board of trade member or other participant shall 
mean any person, as that term is defined in section 1a(38) of the CEA, 
that:
    (1) Owns 50% or more of the member or other participant;
    (2) Is owned 50% or more by the member or other participant; or
    (3) Is owned 50% or more by a third person that also owns 50% or 
more of the member or other participant.
    (k) Member or other participant. For purposes this part, the terms 
member or other participant of the registered foreign board of trade 
shall include any affiliate of any registered foreign board of trade's 
member or other participant that has been granted direct access to the 
trading system by the registered foreign board of trade.


Sec.  48.3  Registration required.

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


Sec.  48.4  Registration eligibility.

    (a) Only foreign boards of trade eligible to be registered, as 
defined in Sec.  48.2(b) of this part, are eligible for registration 
with the Commission pursuant to this part.
    (b) An applicant may request foreign board of trade registration in 
order to permit direct access from within the United States to its 
members and other participants that:
    (1) Trade in the United States for their proprietary accounts;
    (2) Are registered with the Commission as futures commission 
merchants and submit orders for United States customers to the trading 
system for execution; or
    (3) Are registered with the Commission as a commodity pool

[[Page 70989]]

operator or commodity trading advisor, or are exempt from such 
registration pursuant to section 4.13 or 4.14 of this chapter, and that 
submit orders for execution on behalf of United States pools they 
operate or accounts of United States customers for which they have 
discretionary authority, respectively, provided that a futures 
commission merchant or a firm exempt from such registration pursuant to 
Commission Rule 30.10 acts as clearing firm and guarantees, without 
limitation, all such trades of the commodity pool operator or commodity 
trading advisor effected through submission of orders to the trading 
system.


Sec.  48.5  Registration procedures.

    (a) A foreign board of trade seeking registration with the 
Commission pursuant to this part must electronically file an 
application for registration, labeled as an Application for Foreign 
Board of Trade Registration pursuant to part 48 of the Commission's 
Regulations, with the Secretary of the Commission, at 
<a href="/cdn-cgi/l/email-protection#581e1a170c0a3d3f312b2c2a392c313736183b3e2c3b763f372e"><span class="__cf_email__" data-cfemail="a3e5e1ecf7f1c6c4cad0d7d1c2d7cacccde3c0c5d7c08dc4ccd5">[email protected]</span></a>.
    (b) An application for registration must be signed by the foreign 
board of trade's chief executive officer (or functional equivalent) and 
must include the information and documentation set forth in the 
Appendix to this part 48 and any information and documentation 
necessary, in the discretion of the Commission, to effectively 
demonstrate that the foreign board of trade and its clearing 
organization satisfy the registration requirements set forth in this 
part. The application must include a certification by the chief 
executive officer (or functional equivalent) of the foreign board of 
trade and the clearing organization that representations made in 
connection with, or relevant to, the application and the information 
and documentation provided in support thereof are true, correct and 
complete.
    (c) A foreign board of trade registration applicant must identify 
with particularity any information in the application that will be 
subject to a request for confidential treatment and must provide 
support for any request for confidential treatment pursuant to the 
procedures set forth in section 145.9 of this chapter.
    (d) The Commission will review the application for foreign board of 
trade registration and, if the Commission finds the application to be 
complete, may approve or deny the application. In its review, the 
Commission will consider, among other things:
    (1) Whether the foreign board of trade is eligible to be registered 
as defined in section 48.2(b) of this part;
    (2) Whether the foreign board of trade and its clearing 
organization are subject to comprehensive supervision and regulation by 
the appropriate governmental authorities in their home country that is 
comparable to the comprehensive supervision and regulation to which 
designated contract markets and derivatives clearing organizations are 
respectively subject in the United States;
    (3) Any previous Commission findings that the foreign board of 
trade and its clearing organization are subject to comprehensive 
supervision and regulation by the appropriate government authorities in 
the foreign board of trade's home country that is comparable to the 
comprehensive supervision and regulation to which designated contract 
markets and derivatives clearing organizations are subject in the 
United States; and
    (4) Whether the foreign board of trade and its clearing 
organization have adequately demonstrated that they meet the 
requirements for registration specified in section 48.7 of this part.
    (e) If the Commission approves the application, the Commission will 
register the foreign board of trade by issuing an Order of 
Registration. If the Commission does not approve the application, the 
foreign board of trade will not be registered and may not provide 
direct access to its electronic trading and order matching systems from 
within the United States, and the Commission will issue a Notice of 
Action specifying that the application was not approved and setting 
forth the reasons therefor. The Commission may, after appropriate 
notice and an opportunity for a hearing, amend, suspend, terminate or 
otherwise restrict the terms of the Order of Registration.
    (f) A foreign board of trade whose application is not approved may 
reapply for registration 360 days after the issuance of the Notice of 
Action if the foreign board of trade has addressed any deficiencies in 
its original application or facts and circumstances relevant to the 
Commission's review of the application have changed.


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

    (a) A foreign board of trade operating pursuant to existing no-
action relief as of the effective date of this Part 48 must register 
with the Commission pursuant to this Part 48 in order to continue to 
provide direct access to its electronic trading and order matching 
system from the United States.
    (b) Such foreign board of trade's application for registration must 
include all of the information and documentation set forth in the 
Appendix to this part 48. To the extent that the foreign board of trade 
intends to rely upon previously submitted information or documentation 
to demonstrate that it satisfies the requirements of the Appendix or 
the registration requirements set forth in section 48.7 of this part, 
the foreign board of trade must resubmit the information or 
documentation, identify the specific requirements for registration set 
forth in section 48.7 of this part that are satisfied by the 
resubmitted information, and certify that the information remains 
current and true (limited application).
    (c) Foreign boards of trade operating pursuant to existing no-
action relief must submit a complete limited application for 
registration within 120 days of the effective date of this regulation 
and the no-action relief will, upon notice to the foreign board of 
trade, be revoked if a complete limited application is not received by 
the Commission within that 120 days. The foreign board of trade may 
continue to provide direct access from the United States pursuant to 
the no-action relief during the 120-day period, during the period in 
which the complete limited application is being reviewed by the 
Commission, and until the Commission notifies the foreign board of 
trade that the application has been approved or not approved or that 
the existing no-action relief has otherwise been withdrawn.


Sec.  48.7  Requirements for registration.

    An applicant for registration under this part must include all of 
the information and documentation set forth in the Appendix to this 
Part 48 and any other information and documentation necessary or 
appropriate to determine that the following requirements for 
registration are met. The Commission, in its discretion, may impose 
additional registration requirements and request additional information 
and documentation in connection with an application for registration. 
An applicant for registration must provide promptly any additional 
information or documentation requested by the Commission in connection 
with the application.
    (a) Foreign Board of Trade and Clearing Membership. An applicant 
for registration must demonstrate that:
    (1) The members and other participants of the foreign board of 
trade and its clearing organization are fit and proper and meet 
appropriate financial and professional standards,

[[Page 70990]]

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

[[Page 70991]]

    (6) The foreign board of trade has implemented and enforces rules 
with respect to access to the trading system and the means by which the 
connection is accomplished,
    (7) The foreign board of trade's audit trail captures and retains 
sufficient order and trade-related data to allow its compliance staff 
to detect trading and market abuses and to reconstruct all transactions 
within a reasonable period of time,
    (8) The foreign board of trade has implemented and enforces rules 
relating to prohibited trading practices (for example wash sales or 
trading ahead),
    (9) The foreign board of trade has the capacity to detect and 
deter, and has implemented and enforces rules relating to, market 
manipulation, attempted manipulation, price distortion, and other 
disruptions of the market, and
    (10) The foreign board of trade has and enforces rules and 
procedures that ensure a competitive, open and efficient market and 
mechanism for executing transactions.
    (g) Information Sharing. An applicant for registration must 
demonstrate that:
    (1) The regulatory authorities governing the activities of and 
providing supervision and oversight of the foreign board of trade and 
the clearing organization are signatories to the International 
Organization of Securities Commissions Multilateral Memorandum of 
Understanding; if the regulatory authorities are not signatories to the 
International Organization of Securities Commissions Multilateral 
Memorandum of Understanding, they must inform the Commission of the 
reasons why the document has not been signed, supply any additional 
information requested by the Commission, and ensure alternative 
information sharing arrangements that are satisfactory to the 
Commission are in place.
    (2) The regulatory authorities governing the activities of and 
providing supervision and oversight of the foreign board of trade and 
the clearing organization are signatories to the Declaration on 
Cooperation and Supervision of International Futures Exchanges and 
Clearing Organizations or otherwise commits to share the types of 
information contemplated by the International Information Sharing 
Memorandum of Understanding and Agreement with the Commission,
    (3) The foreign board of trade has executed, or commits to execute, 
the International Information Sharing Memorandum of Understanding and 
Agreement, and
    (4) Pursuant to the conditions described in section 48.8(a)(6) of 
this part, the foreign board of trade and clearing organization must 
provide directly to the Commission information necessary to evaluate 
the continued eligibility of the foreign board of trade clearing 
organization, or their respective members or other participants for 
registration, to audit for and enforce compliance with the specified 
conditions of the registration, or to enable the Commission to carry 
out its duties under the Act and Commission regulations.


Sec.  48.8  Conditions of registration.

    Immediately upon registration, and on an ongoing basis thereafter, 
the foreign board of trade and the clearing organization shall comply 
with the conditions of registration set forth in this section and any 
additional conditions that the Commission may impose, in its 
discretion, and after appropriate notice and opportunity for a hearing. 
Such conditions could include, but are not limited to, the conditions 
set forth in section 48.8(c) of this part and, with respect to the 
listing of swaps contracts, any additional conditions that the 
Commission deems necessary. Continued registration is expressly 
conditioned upon satisfaction of these conditions.
    (a) Specified Conditions for Maintaining Registration.
    (1) Registration Requirements: The foreign board of trade and its 
clearing organization shall continue to satisfy all of the requirements 
for registration set forth in section 48.7 and the conditions for 
maintaining registration set forth herein.
    (2) Regulatory Regime:
    (i) The foreign board of trade will continue to satisfy the 
criteria for a regulated market pursuant to the regulatory regime 
described in its application and will continue to be subject to 
oversight by the regulatory authorities described in its application 
with respect to transactions effected through the foreign board of 
trade's trading system.
    (ii) The clearing organization will continue to satisfy the 
criteria for a regulated clearing organization pursuant to the 
regulatory regime described in the application for registration; the 
clearing organization and its participants will continue to be subject 
to comprehensive supervision, regulation and oversight by the 
regulatory authorities as described in the application and that is 
comparable to the comprehensive supervision, regulation to which such 
entities would be subject in the United States; and the clearing 
organization shall continue to be in good standing with the relevant 
regulatory authority.
    (iii) The laws, systems, rules, and compliance mechanisms of the 
regulatory regime applicable to the foreign board of trade will 
continue to require the foreign board of trade to maintain fair and 
orderly markets; prohibit fraud, abuse, and market manipulation; and 
provide that such requirements are subject to the oversight of 
appropriate regulatory authorities.
    (3) Satisfaction of Comparable International Standards:
    (i) The foreign board of trade will continue to adhere to the 
Principles for the Oversight of Screen-Based Trading Systems for 
Derivative Products developed by the Technical Committee of the 
International Organization of Securities Commissions, as updated, 
revised, or otherwise amended, to the extent such principles do not 
contravene United States law.
    (ii) The clearing organization will continue to: (A) Be registered 
as a derivatives clearing organization and be in compliance with the 
laws and regulations related thereto or (B) satisfy the Recommendations 
for Central Counterparties that have been issued jointly by the 
Committee on Payment and Settlement Systems and the Technical Committee 
of the International Organization of Securities Commissions, as 
updated, revised or otherwise amended, or successive standards, 
principles and guidance for central counterparties or financial market 
infrastructures adopted jointly by the Committee on Payment and 
Settlement Systems and the Technical Committee of the International 
Organization of Securities Commissions.
    (4) Restrictions on Direct Access:
    (i) Only the foreign board of trade's identified members or other 
participants will have direct access to the foreign board of trade's 
trading system from the United States and the foreign board of trade 
will not provide, and will take reasonable steps to prevent, third 
parties from providing direct access to the foreign board of trade to 
persons other than the identified members or other participants.
    (ii) All orders that are transmitted through the foreign board of 
trade's trading system by a foreign board of trade identified member or 
other participant that is operating pursuant to the foreign board of 
trade's registration will be solely for the member's or trading 
participant's own account unless such member or other participant is 
registered with the Commission as a futures commission merchant or such 
member or other participant is registered with the Commission as a 
commodity pool operator or commodity trading advisor, or is exempt from 
such

[[Page 70992]]

registration pursuant to section 4.13 or 4.14 of this chapter, provided 
that a futures commission merchant or a firm exempt from such 
registration pursuant to Commission Rule 30.10 acts as clearing firm 
and guarantees, without limitation, all such trades of the commodity 
pool operator or commodity trading advisor effected through submission 
of orders on the trading system.
    (5) Submission to Commission Jurisdiction:
    (i) The foreign board of trade will require that each current and 
prospective member or other participant that is granted direct access 
to the foreign board of trade's trading system pursuant to the foreign 
board of trade's registration and that is not registered with the 
Commission as a futures commission merchant, a commodity trading 
advisor or a commodity pool operator file with the foreign board of 
trade a written representation, executed by a person with the authority 
to bind the member or other participant, stating that as long as the 
member or other participant grants direct access to the foreign board 
of trade's trading system pursuant to the foreign board of trade 
registration, the member or other participant agrees to and submits to 
the jurisdiction of the Commission with respect to activities conducted 
pursuant to the registration.
    (ii) The foreign board of trade and its clearing organization will 
file with the Commission a valid and binding appointment of an agent 
for service of process in the United States pursuant to which the agent 
is authorized to accept delivery and service of communications issued 
by or on behalf of the Commission.
    (iii) The foreign board of trade will require that each current and 
prospective member or other participant of the foreign board of trade 
that is granted direct access to the foreign board of trade's trading 
system pursuant to the foreign board of trade's registration with the 
Commission and that is not registered with the Commission as a futures 
commission merchant, a commodity trading advisor or a commodity pool 
operator file with the foreign board of trade a valid and binding 
appointment of a United States agent for service of process in the 
United States pursuant to which the agent is authorized to accept 
delivery and service of communications issued by or on behalf of the 
Commission.
    (iv) The foreign board of trade, clearing organization, and each 
current and prospective member or other participant of either that is 
granted direct access to the foreign board of trade's trading system 
pursuant to the foreign board of trade's registration and that is not 
registered with the Commission as a futures commission merchant, a 
commodity trading advisor, or a commodity pool operator will maintain 
with the foreign board of trade written representations, executed by 
persons with the authority to bind the entity making them, stating that 
as long as the foreign board of trade is registered under this 
regulation, the foreign board of trade, the clearing organization or 
member of either or other participant granted direct access pursuant to 
this regulation will provide, upon the request of the Commission, the 
United States Department of Justice and, if appropriate, the National 
Futures Association, prompt access to the entity's, member's, or other 
participant's original books and records or, at the election of the 
requesting agency (the Commission, the United States Department of 
Justice, or the National Futures Association), a copy of specified 
information containing such books and records, as well as access to the 
premises where the trading system is available in the United States.
    (v) The foreign board of trade will maintain all representations 
required pursuant to this regulation as part of its books and records 
and will make them available to the Commission upon request.
    (6) Information Sharing:
    (i) Information-sharing arrangements satisfactory to the 
Commission, including but not limited to those set forth in section 
48.7(g) of the registration requirements, are in effect between the 
Commission and the regulatory authorities that supervise both the 
foreign board of trade and the clearing organization.
    (ii) The Commission is, in fact, able to obtain sufficient 
information regarding the foreign board of trade, the clearing 
organization, their respective members and participants and the 
activities related to the foreign board of trade's registration.
    (iii) The foreign board of trade, and its clearing organization, as 
applicable, will provide directly to the Commission any information 
necessary to evaluate the continued eligibility of the foreign board of 
trade or its members or other participants for registration, the 
capability and determination to enforce compliance with these specified 
conditions of the registration or, in the event that the Commission has 
been unable to satisfactorily obtain necessary information from the 
regulatory authority, to enable the Commission to carry out its duties 
under the Act and Commission regulations and to provide adequate 
protection to the public or United States registered entities.
    (iv) In the event that the foreign board of trade and the clearing 
organization are separate entities, the foreign board of trade will 
require the clearing organization to enter into a written agreement in 
which the clearing organization is contractually obligated to promptly 
provide any and all information and documentation that may be required 
of the clearing organization under this regulation and such agreement 
shall be made available to the Commission, upon request.
    (7) Monitoring for Compliance:
    The foreign board of trade and the clearing organization will 
employ reasonable procedures for monitoring and enforcing compliance 
with the specified conditions of its registration.
    (8) Conditions Applicable to Swaps Trading:
    (i) If the foreign board of trade makes swaps contracts available 
by direct access, the foreign board of trade must report to the public, 
on a real-time basis, data relating to each swap transaction, including 
price and volume, as soon as technologically practicable after 
execution of the swap transaction.
    (ii) If the foreign board of trade makes swaps contracts available 
by direct access, the foreign board of trade must ensure that all swap 
transaction data is timely reported to a swap data repository that is 
either A. registered with the Commission, or B. has an information 
sharing arrangement with, the Commission.
    (iii) If the foreign board of trade makes swaps contracts available 
by direct access, the foreign board of trade must agree to coordinate 
with the Commission with respect to arrangements established to address 
cross market oversight issues, including surveillance, emergency 
actions and the monitoring of trading.
    (b) Other Continuing Obligations.
    (1) Foreign boards of trade registered under this part and their 
clearing organizations must also comply with the following regulatory 
obligations on an ongoing basis:
    (i) The foreign board of trade will maintain the following updated 
information and submit such information to the Commission on at least a 
quarterly basis, not later than 30 days following the end of the 
quarter, and at any time promptly upon the request of a Commission 
representative, computed based upon separating buy sides and sell 
sides:
    (A) For each contract available to be traded through the foreign 
board of trade's trading system,

[[Page 70993]]

    (1) The total trade volume originating from electronic trading 
devices providing direct access to the trading system in the United 
States,
    (2) The total trade volume for such products traded through the 
trading system worldwide, and
    (3) The total trade volume for such products traded on the foreign 
board of trade generally; and
    (B) A listing of the names, National Futures Association 
identification numbers (if applicable), and main business addresses in 
the United States of all members and other participants that have 
direct access to the trading system in the United States.
    (ii) The foreign board of trade will promptly provide to the 
Commission written notice of the following:
    (A) Any material change in the information provided in the 
registration application.
    (B) Any material change in the foreign board of trade's or clearing 
organization's rules or the laws, rules, and regulations in the home 
country jurisdictions of the foreign board of trade or clearing 
organization relevant to futures, options and swaps contracts.
    (C) Any matter known to the foreign board of trade, the clearing 
organization or its representatives that, in the judgment of the 
foreign board of trade or clearing organization judgment, may affect 
the financial or operational viability of the foreign board of trade or 
its clearing organization with respect to contracts traded by direct 
access, including, but not limited to, any significant system failure 
or interruption.
    (D) Any default, insolvency, or bankruptcy of any foreign board of 
trade member or other participant that is or should be known to the 
foreign board of trade or its representatives or the clearing 
organization or its representatives that may have a material, adverse 
impact upon the condition of the foreign board of trade as it relates 
to trading by direct access, its clearing organization or upon any 
United States customer or firm or any default, insolvency or bankruptcy 
of any member of the foreign board of trade's clearing organization.
    (E) Any violation of the specified conditions of the foreign board 
of trade's registration or failure to satisfy the requirements for 
registration under this part that is known or should be known by the 
foreign board of trade, the clearing organization or any of their 
respective members or participants.
    (F) Any disciplinary action by the foreign board of trade or its 
clearing organization with respect to any contract available to be 
traded by direct access taken against any of their respective members 
or participants that involves any market manipulation, fraud, deceit, 
or conversion or that results in suspension or expulsion.
    (iii) The foreign board of trade and the clearing organization, as 
applicable, must provide the following to the Commission on an annual 
basis.
    (A) A certification from the foreign board of trade's regulatory 
authority confirming that the foreign board of trade retains its 
authorization, licensure or registration, as applicable, as a regulated 
market and/or exchange under the authorization, licensing or other 
registration methodology used by the foreign board of trade's 
regulatory authority and that the foreign board of trade is in 
continued good standing.
    (B) A certification from the clearing organization's regulatory 
authority confirming that the clearing organization retains its 
authorization, licensure or registration, as applicable, as a clearing 
organization under the authorization, licensing or other registration 
methodology used by the clearing organization's regulatory authority 
and is in continued good standing.
    (C) If the clearing organization is not a derivatives clearing 
organization, a recertification of the clearing organization's 
compliance with the Recommendations for Central Counterparties that 
have been issued jointly by the Committee on Payment and Settlement 
Systems and the Technical Committee of the International Organization 
of Securities Commissions, as updated, revised or otherwise amended, or 
successive standards, principles and guidance for central 
counterparties and financial market infrastructures adopted jointly by 
the Committee on Payment and Settlement Systems and the International 
Organization of Securities Commissions.
    (D) A certification that affiliates of members and other 
participants, as defined in Sec.  48.2(j) of this part continue to be 
required to comply with appropriate registration requirements, 
conditions for registration and the rules of the foreign board of trade 
and that the members or other participants to which they are affiliated 
remain responsible to the foreign board of trade for ensuring their 
affiliates' compliance.
    (E) A description of any material changes to any relevant 
representation regarding the foreign board of trade or clearing 
organization made to the Commission that have not been previously 
disclosed, in writing, or a certification that no material changes have 
been made.
    (F) A description of any significant disciplinary or enforcement 
actions that have been instituted by or against the foreign board of 
trade or the clearing organization or the senior officers of either in 
the prior year.
    (G) A written description of any material changes to the regulatory 
regime to which the foreign board of trade or the clearing organization 
are subject that have not been previously disclosed, in writing, to the 
Commission, or a certification that no material changes have occurred.
    (2) The above-referenced materials must be signed by an officer of 
the foreign board of trade or the clearing organization who maintains 
the authority to bind the foreign board of trade or clearing 
organization, as applicable, and be based on the officer's personal 
knowledge.
    (c) Additional Specified Conditions for Foreign Boards of Trade 
with Linked Contacts. If a registered foreign board of trade grants 
members or other participants located in the United States direct 
access and makes available to them a linked contract, the following 
additional conditions apply:
    (1) Statutory Conditions.
    (i) The foreign board of trade must make public daily trading 
information regarding the linked contract that is comparable to the 
daily trading information published by the registered entity for the 
contract to which the foreign board of trade's contract is linked, and
    (ii) The foreign board of trade (or its regulatory authority) must:
    (A) Adopt position limits (including related hedge exemption 
provisions) applicable to all market participants for the linked 
contract that are comparable to the position limits (including related 
hedge exemption provisions) adopted by the registered entity for the 
contract to which it is linked;
    (B) Have the authority to require or direct any market participant 
to limit, reduce, or liquidate any position the foreign board of trade 
(or its regulatory authority) determines to be necessary to prevent or 
reduce the threat of price manipulation, excessive speculation as 
described in section 4a of the Act, price distortion, or disruption of 
delivery on the cash settlement process;
    (C) Agree to promptly notify the Commission, with regard to the 
linked contract, of any change regarding--
    (1) The information that the foreign board of trade will make 
publicly available,
    (2) The position limits that foreign board of trade or its 
regulatory authority will adopt and enforce,

[[Page 70994]]

    (3) The position reductions required to prevent manipulation, 
excessive speculation as described in section 4a of the Act, price 
distortion, or disruption of delivery or the cash settlement process, 
and
    (4) Any other area of interest expressed by the Commission to the 
foreign board of trade or its regulatory authority;
    (D) Provide information to the Commission regarding large trader 
positions in the linked contract that is comparable to the large trader 
position information collected by the Commission for the contract to 
which it is linked; and
    (E) Provide the Commission such information as is necessary to 
publish reports on aggregate trader positions for the linked contract 
that are comparable to such reports on aggregate trader positions for 
the contract to which it is linked, and
    (iii) If the Commission establishes speculative position limits 
(including related hedge exemption provisions) on the aggregate number 
or amount of positions in a contract traded on a United States 
registered entity and the registered foreign board of trade lists a 
contract that is linked to the contract listed for trading on the 
registered entity, the foreign board of trade (or its regulatory 
authority) must adopt position limits (including related hedge 
exemption provisions) for the linked contract as determined by the 
Commission.
    (2) Other Conditions on Linked Contracts:
    (i) The foreign board of trade will inform the Commission in a 
quarterly report of any member that had positions in a linked contract 
above the applicable foreign board of trade position limit, whether a 
hedge exemption was granted, and if not, whether a disciplinary action 
was taken.
    (ii) The foreign board of trade will provide Commission staff, 
either directly or through its agent, with trade execution and audit 
trail data for the Commission's Trade Surveillance System on a trade-
date plus one basis and in a form, content and manner acceptable to the 
Commission for all linked contracts.
    (iii) The foreign board of trade and the clearing organization will 
permit and cooperate with Commission on-site visits for the purpose of 
overseeing the foreign board of trade's ongoing compliance with 
registration requirements and conditions of registration. The 
Commission will provide notice to the foreign board of trade's 
regulatory authority of any requests for an on-site visit.
    (iv) The foreign board of trade will provide to Commission staff, 
at least one day prior to the effective date thereof, except in the 
event of an emergency market situation, copies of, or hyperlinks to, 
all rules, rule amendments, circulars and other notices published by 
the foreign board of trade with respect to all linked contracts.
    (v) The foreign board of trade will provide to Commission staff 
copies of all Disciplinary Notices involving the foreign board of 
trade's linked contracts upon closure of the action. Such Notices 
should include the reason the action was undertaken, the results of the 
investigation that led to the disciplinary action, and any sanctions 
imposed.
    (vi) In the event that the Commission, pursuant to its emergency 
powers authority, directs that the United States registered entity 
which lists the contract to which the foreign board of trade's contract 
is linked take emergency action with respect to a linked contract (for 
example, to cease trading in the contract), the foreign board of trade, 
subject to information-sharing arrangements between the Commission and 
its regulatory authority, agrees to promptly take similar action with 
respect to its linked contract.


Sec.  48.9  Revocation of registration.

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


Sec.  48.10  Additional contracts.

    (a) Generally. Registered foreign boards of trade that wish to list 
additional futures and option and swaps contracts for trading by direct 
access to the foreign board of trades' electronic trading and order 
matching systems from the United States must submit a written request 
prior to offering the contracts from within the United States. Such a 
written request must include the terms and conditions of the additional

[[Page 70995]]

futures and option and swaps contracts that the foreign board of trade 
wishes to make available and a certification that the additional 
contracts meet the requirements of section 48.7(c) of this part and the 
foreign board of trade and the clearing organization continue to 
satisfy the conditions of registration. The foreign board of trade can 
make available for trading the additional contracts ten business days 
after the date of receipt by the Commission of the written request, 
unless the Commission notifies the foreign board of trade that 
additional time is needed to complete its review of policy or other 
issues pertinent to the additional contracts. A registered foreign 
board of trade may list for trading an additional futures contract on a 
non-narrow-based security index pursuant to the procedures set forth in 
Appendix D to part 30 of this chapter.
    (b) Option contracts on previously approved futures contracts.
    (1) If the option is on a futures contract that is not a linked 
contract, the option contract may be made available for trading by 
direct access by filing with the Commission no later than the business 
day preceding the initial listing of the contract:
    (i) A copy of the terms and conditions of the additional contract 
and
    (ii) A certification that the foreign board of trade and the 
clearing organization continue to satisfy the conditions of its 
registration.
    (2) If the option is on a futures contract that is a linked 
contract, the option contract may be made available for trading by 
direct access by filing with the Commission no later than the business 
day preceding the initial listing of the contract:
    (i) A copy of the terms and conditions of the additional contract 
and
    (ii) A certification that the foreign board of trade and the 
clearing organization continue to satisfy the conditions of its 
registration, including the conditions specifically applicable to 
linked contracts set forth in section 48.8(c) of this part.
    (3) If the option is on a non-narrow-based security index futures 
contract which may be offered or sold in the United States pursuant to 
a no-action letter issued by the Commission's Office of the General 
Counsel, the option contract may be listed for trading by direct access 
without further action by either the registered foreign board of trade 
or the Commission.

Appendix--Part 48--Contents of Application

I. General Information and Documentation

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

II. Membership Criteria

    The following for the foreign board of trade and the clearing 
organization:
    (a) Membership or Participant Categories and Access.
    A description of the categories of membership and participation 
in the foreign board of trade or clearing organization and the 
access, trading and clearing privileges provided by the board of 
trade or clearing organization, as applicable. The description 
should include any restrictions thereto for all entities to which 
the foreign board of trade intends to grant direct access to its 
trading system.
    (b) Membership Criteria.
    (1) A description of requirements for membership and 
participation on the trading or clearing system, as applicable, and 
the manner in which members and other participants must demonstrate 
their compliance with these requirements.
    (2) Professional Standards. A description of the professional 
requirements, qualifications, and/or competencies required of 
members or other participants and/or their staff.
    (c) Financial Integrity.
    (1) A description of the manner in which the foreign board of 
trade and the clearing organization evaluate the financial resources 
holdings of its members or participants, including any financial 
requirements, standards, guides, or thresholds used to qualify 
members and other participants.
    (2) Describe the process by which applicants demonstrate 
compliance with financial requirements for membership participation 
including:
    (i) Working capital and collateral requirements,
    (ii) Risk management mechanisms for members allowing customers 
to place orders.
    (d) Authorization, Licensure or Registration Requirements. 
Describe any regulatory and self-regulatory authorization, licensure 
or registration requirements that the foreign board of trade and the 
clearing organization impose upon its members and other participants 
including, but not limited to any authorization, licensure or 
registration requirements imposed by the regulatory authorities in 
the home country jurisdiction(s) of the foreign board of trade and 
clearing organization. Describe the process by which the foreign 
board of trade and the clearing organization, as applicable, confirm 
compliance with those requirements.
    (e) Fit and Proper. Describe how the foreign board of trade and 
clearing organization ensure that potential members/other 
participants meet fit and proper standards.
    (f) Qualifications for Board and/or Committee Membership. 
Describe the requirements applicable to membership on the governing 
board and significant committees of the foreign board of trade and 
clearing organization, and describe how the foreign board of trade 
and clearing organization ensure that potential governing board and 
committee members/other participants meet these standards.
    (g) Conflict of Interest Provisions. Describe the provisions to 
minimize and resolve conflicts of interest with respect to 
membership on the governing board and significant committees of the 
foreign board of trade and the clearing organization.
    (h) Disclosure of Information. Describe the rules with respect 
to the disclosure of material non-public information obtained as a 
result of a member's or other participant's performance on the 
governing board or significant committee.

III. The Automated Trading System

    (a) A description of the following:
    (1) the order matching/execution system, including a complete 
description of all permitted ways in which members or other 
participants (or their customers) may connect

[[Page 70996]]

to the trade matching/execution system and the related requirements 
(for example, authorization agreements, technical compliance 
verifications, identification of order routing systems and/or users,
    (2) the architecture of the systems, including hardware and 
distribution network, as well as any pre-trade risk-management 
controls that are made available to system users,
    (3) the security features of the systems,
    (4) the length of time such systems have been operating,
    (5) any significant system failures or interruptions,
    (6) the nature of any technical review of the order matching/
execution system performed by the home country regulator,
    (7) provide a copy of any order or certification or self-
certification received and any discrepancies between the standard of 
review and the Principles for the Oversight of Screen-Based Trading 
Systems for Derivative Products developed by the Technical Committee 
of the International Organization of Securities Commissions,
    (8) trading hours,
    (9) types and duration of orders accepted,
    (10) information that must be included on orders,
    (11) trade confirmation and trade error procedures,
    (12) anonymity of participants,
    (13) trading system connectivity with clearing system,
    (14) response time,
    (15) ability to determine depth of market,
    (16) market continuity provisions,
    (17) reporting and recordkeeping requirements, and
    (18) error trade policies.
    (b) A description of the manner in which the foreign board of 
trade assures the following with respect to the trading system:
    (1) Algorithm. The trade matching algorithm matches trades 
fairly and timely.
    (2) IOSCO Principles. The trading system's compliance with the 
Principles for the Oversight of Screen-Based Trading Systems for 
Derivative Products developed by the Technical Committee of the 
International Organization of Securities Commissions.
    (3) Audit Trail.
    (i) The audit trail captures all relevant data, including 
changes to orders.
    (ii) Audit trail data is securely maintained and available for 
an adequate time period.
    (4) Public Data. Trade data is available to users and the 
public.
    (5) Reliability. The trading system has demonstrated 
reliability.
    (6) Secure Access. Access to the trading system is secure and 
protected.
    (7) Emergency Provisions. There are adequate provisions for 
emergency operations and disaster recovery.
    (8) Data Loss Prevention. Trading data is backed up to prevent 
loss of data.
    (9) Contracts Available. Mechanisms are available to ensure that 
only those futures and option contracts or swaps that have been 
identified to the Commission as part of the application or permitted 
to be made available for trading by direct access pursuant to the 
procedures set forth in section 48.10 of this part are made 
available for trading on connections in the United States.
    (10) Predominance of the Centralized Market. Mechanisms are 
available that ensure a competitive, open and efficient market and 
mechanism for executing transactions.

IV. The Terms and Conditions of Contracts Proposed To Be Made Available 
in the United States

    (a) Provide the terms and conditions of futures, option and 
swaps contracts intended to be made available for direct access.
    (b) Demonstrate that contracts are not prohibited from being 
traded by United States persons.
    (c) Demonstrate that contracts are cleared.
    (d) Identify any contracts that are linked to a contract listed 
for trading on a United States-registered entity, for example, a 
contract that settles against any price (including the daily or 
final settlement price) of one or more contracts listed for trading 
on a United States-registered entity.
    (e) Identify any contracts that share any other commonality with 
a contract listed for trading on a United States-registered entity, 
for example, both the foreign board of trade's and the United 
States-registered entity's contract settle to the price of the same 
third party-constructed index.
    (f) Demonstrate that the contracts are not readily susceptible 
to manipulation, as follows:
    (1) Generally. For contracts other than broad-based stock 
indexes, provide the information required in Appendix A to Part 40 
(Guideline No. 1) with regard to manipulation.
    (i) For delivered contracts: a demonstration that the terms and 
conditions of the contract will result in a deliverable supply so 
that the contract will not be conducive to price manipulation or 
distortion and that the deliverable supply reasonably can be 
expected to be available to short traders and salable by long 
traders at its market value in normal cash marketing channels.
    (ii) For cash-settled contracts: a demonstration that cash 
settlement mechanism of the contract is at a price reflecting the 
underlying cash market (or the level or index if there is no 
underlying cash market), will not be readily subject to manipulation 
or distortion, and is reliable, acceptable, publicly available and 
timely.
    (iii) To deter and detect abusive or disruptive trading behavior 
that could result in price distortions: A demonstration that the 
foreign board of trade has rules and mechanisms, for example, 
position limits, restrictions on size and pricing of block trades, 
restrictions on market on close or trade at settlement orders during 
the daily close and settlement, and prohibitions on, and the 
capacity to detect, ``marking'' of the trading close or important 
economic announcements.
    (2) Broad-Based Stock Indexes. For non-narrow based stock index 
futures contracts, provide the information required in Appendix D to 
Part 30 of this chapter. A no-action letter from the Commission's 
Office of General Counsel is required to offer futures contracts on 
non-narrow-based stock index futures contracts to United States 
citizens.
    (3) Manipulation Cases. With respect to contracts to be listed 
for trading by direct access, describe each investigation, action, 
proceeding or case involving manipulation and involving a contract 
traded on the foreign board of trade in the three years preceding 
the application date, whether initiated by the foreign board of 
trade, a regulatory or self-regulatory authority or agency or 
another government or prosecutorial agency. For each such action, 
proceeding or case, describe the alleged manipulative activity and 
the current status re resolution thereof.

V. Settlement and Clearing

    (a) Clearing System. A description of the clearing 
organization's clearing and settlement systems.
    (b) Certification. A certification, signed by the chief 
executive officer (or functional equivalent) of the clearing 
organization, that the clearing system complies with the current 
Recommendations for Central Counterparties that have been issued 
jointly by the Committee on Payment and Settlement Systems and the 
Technical Committee of the International Organization of Securities 
Commissions, as updated, revised or otherwise amended, or successive 
standards, principles and guidance for central counterparties or 
financial market infrastructures adopted jointly by the Committee on 
Payment and Settlement Systems or the International Organization of 
Securities Commissions.
    (c) RCCP Compliance. A detailed description of the manner in 
which the clearing organization complies with each of the 
Recommendations for Central Counterparties that have been issued 
jointly by the Committee on Payment and Settlement Systems and the 
Technical Committee of the International Organization of Securities 
Commissions, as updated, revised or amended, (or successive 
standards, principles and guidance for central counterparties or 
financial infrastructures adopted jointly by the Committee on 
Payment and Settlement Systems or the International Organization of 
Securities Commissions) and documentation supporting the 
representations made, including any relevant rules or written 
policies or procedures of the clearing organization.

VI. The Regulatory Regime Governing the Foreign Board of Trade and 
Clearing Organization in Their Home Countries

    Provide information or documentation necessary to demonstrate 
that the foreign board of trade and its clearing organization are 
subject to comprehensive supervision and regulation by the 
appropriate governmental authorities in their home countries that is 
comparable to the comprehensive supervision and regulation to which 
designated contract markets, derivatives clearing organizations and 
market participants are subject in the United States. The 
information and documentation provided must be sufficient to 
demonstrate that the foreign board of trade and clearing 
organization are subject to an established regulatory regime that is 
based upon regulatory objectives equivalent (not necessarily 
identical) to those applicable to designated contract markets and 
derivatives

[[Page 70997]]

clearing organizations in the United States and that provides basic 
protections for customers trading on markets and for the integrity 
of the markets themselves:
    (a) Regulatory Authority.
    (1) Structure, function and powers. Describe the regulatory 
authority's structure, resources, staff and scope of authority; the 
regulator's authorizing statutes, including the source of its 
authority to supervise the foreign board of trade and the clearing 
organization; the rules and policy statements issued by the 
regulator with respect to the authorization and continuing oversight 
of markets, electronic trading systems and clearing organizations 
and the financial protections afforded customer funds. Provide 
copies of recent public reports disclosing the regulator's oversight 
and enforcement activities which are, in the judgment of the 
regulator, relevant to the FBOT's status as a registered FBOT.
    (2) Authorization and continuing oversight of the foreign board 
of trade and clearing organization. Describe and provide copies 
(with, as applicable, English translations) of the laws, rules, 
regulations and policies applicable to the authorization, licensure 
or registration of the foreign board of trade and clearing 
organization and the continuing oversight thereof; the regulatory 
authority's program for the ongoing supervision and oversight of the 
foreign board of trade and clearing organization and the enforcement 
of their respective trading and clearing rules; the financial 
resources requirements applicable to the authorization, licensure or 
registration of the foreign board of trade and clearing organization 
and the continued operations thereof; the extent to which the 
Principles for the Oversight of Screen-Based Trading Systems for 
Derivative Products developed by the Technical Committee of the 
International Organization of Securities Commissions and the current 
Recommendations for Central Counterparties that have been issued 
jointly by the Committee on Payment and Settlement Systems and the 
Technical Committee of the International Organization of Securities 
Commissions, as updated, revised or amended, or successive 
standards, principles and guidance for central counterparties or 
financial market infrastructures adopted jointly by the Committee on 
Payment and Settlement Systems or the International Organization of 
Securities Commissions are used or applied by the regulatory 
authority in its supervision and oversight of the foreign board of 
trade or clearing organization or are incorporated into its rules 
and regulations and the extent to which the regulatory authorities 
review the applicable trading and clearing systems for compliance 
therewith; the extent to which the regulatory authority reviews and/
or approves the trading and clearing rules of the foreign board of 
trade or clearing organization prior to their implementation; the 
extent to which the regulatory authority reviews and/or approves 
exchange contracts prior to their being listed for trading; and the 
regulatory authority's approach to the detection and deterrence of 
market manipulation and other unfair trading practices.
    (3) Intermediary Oversight. Describe the laws, rules, 
regulations and policies that govern the authorization and ongoing 
supervision and oversight of market intermediaries who may deal with 
United States participants accessing the foreign board of trade, 
including:
    (i) Recordkeeping requirements,
    (ii) The protection of customer funds, and
    (iii) Procedures for dealing with the failure of a market 
intermediary in order to minimize damage and loss to investors and 
to contain systemic risk.
    (4) Enforcement. Describe the regulatory authority's inspection, 
investigation and surveillance powers; and the program pursuant to 
which the regulatory authority uses those powers to inspect, 
investigate, and enforce rules applicable to the foreign board of 
trade and the clearing organization.
    (b) Demonstration of Continuing Regulatory ``Good Standing.''
    The regulatory authorities governing the activities of the 
foreign board of trade and clearing organization must submit a 
report confirming that the foreign board of trade and clearing 
organization are in regulatory good standing. The report should 
include:
    (1) Confirmation of regulatory status (including proper 
authorization, licensure and registration) of the foreign board of 
trade and clearing organization;
    (2) Any recent oversight reports generated by the regulatory 
authority which are, in the judgment of the regulatory authority, 
relevant to the FBOT's status as a registered FBOT;
    (3) Disclosure of any significant regulatory concerns, inquiries 
or investigations by the regulatory authority, including any 
concerns, inquiries or investigations with regard to the foreign 
board of trade's arrangements to monitor trading by members or other 
participants located in the United States, the adequacy of the risk 
management controls of the trading or of the clearing system; and
    (4) A description of any investigations (formal or informal) or 
disciplinary actions initiated by the regulatory authority or any 
other self-regulatory, regulatory or governmental entity against the 
foreign board of trade, the clearing organization or any of their 
respective senior officers during the past year.
    (c) Staff Visits with Regulatory Authorities. The regulatory 
authorities governing the activities of the foreign board of trade 
and the clearing organization must agree to cooperate with a 
Commission staff visit subsequent to the application period on an 
``as needed basis,'' the objective of which will be to familiarize 
Commission staff with oversight supervisory staff of the regulatory 
authority; discuss any changes to the law, rules and regulations 
that formed the basis of the application; discuss the cooperation 
and coordination between the authorities, including, without 
limitation, information sharing arrangements; and discuss issues of 
concern as they may develop from time to time (for example, linked 
contracts, unusual trading that may be of concern to Commission 
surveillance staff).

VII. The Rules of the Foreign Board of Trade and Its Clearing 
Organization and Enforcement Thereof

    With respect to the foreign board of trade and the clearing 
organization, as applicable:
    (a) Describe the regulatory or compliance department, to include 
size, experience level, competencies, duties and responsibilities.
    (b) Describe the foreign board of trade's trade practice rules. 
Include in the description the following:
    (1) Capacity of the foreign board of trade. Does the foreign 
board of trade have the capacity to detect, investigate, and 
sanction persons who violate foreign board of trade rules?
    (2) Abusive Trading Practices Prohibited. Does the foreign board 
of trade implement and enforce rules that prohibit abusive trading 
practices (for example, wash sales or trading ahead) and other 
market abuses, including the ability to detect and deter insider 
trading?
    (3) Trade Surveillance System. Does the foreign board of trade 
maintain a trade practice surveillance system appropriate to the 
foreign board of trade capable of detecting and investigating 
potential trade practice violations?
    (4) Trade Practice/Audit Trail. Does the foreign board of 
trades' audit trail capture and retain sufficient order and trade-
related data to allow their compliance staffs to detect trading and 
market abuses and to reconstruct all transactions within a 
reasonable period of time?
    (5) Real-time Market Monitoring. Does the foreign board of trade 
maintain appropriate resources to conduct real-time supervision of 
trading?
    (6) Compliance Staff and Resources. Does the foreign board of 
trade have sufficient compliance staff and resources, including 
those outsourced or delegated to third parties, to fulfill their 
regulatory responsibilities?
    (7) Ability to Obtain Information. Do the foreign board of 
trade's rules authorize compliance staff to obtain, from market 
participants, any information and cooperation necessary to conduct 
effective rule enforcement and investigations?
    (8) Investigations and Investigation Reports. Does the foreign 
board of trade's compliance staff investigate suspected rule 
violations and prepare reports of their finding and recommendations?
    (9) Access Requirements. Does the foreign board of trade 
implement and enforce rules relating to the persons that may trade 
on the foreign board of trade, and the means by which they connect 
to it?
    (10) Jurisdiction. Does the foreign board of trade require 
market participants to submit to the foreign board of trade's 
jurisdiction as a condition of access to the market?
    (c) Describe the foreign board of trade's and, if appropriate, 
the clearing organization's disciplinary rules, addressing the 
following:
    (1) Disciplinary Authority and Procedures. Do the foreign board 
of trade and, the clearing organization, have and enforce 
disciplinary procedures that empower staff to recommend and 
prosecute disciplinary actions for suspected rule violations? Do the 
procedures include the authority to fine, suspend, or expel any 
market participant pursuant to fair and clear standards?
    (2) Warning Letters and Summary Actions. Do the foreign board of 
trade and the clearing

[[Page 70998]]

organization authorize staff to issue warning letters and/or summary 
fines for specified rule violations?
    (3) Review of Investigation Reports. Do the compliance staffs of 
the foreign board of trade and the clearing organization present 
their findings to a disciplinary panel or other authority for 
issuance of charges, instruction to investigate further, or finding 
that insufficient basis exists to issue charges?
    (4) Disciplinary Committees. Do the foreign board of trade and 
the clearing organization take disciplinary action via disciplinary 
committees and formal disciplinary processes unless the violation is 
subject to foreign board of trade staff's summary fining authority?
    (5) Disciplinary Decisions. Do the foreign board of trade, 
clearing organization or their regulatory authorities articulate the 
rationale for their decisions?
    (6) Adequacy of Sanctions. Are the sanctions commensurate with 
the violations committed and do they serve as effective deterrents 
to future violations?
    (d) Describe Market Surveillance rules, addressing the 
following:
    Does the foreign board of trade have a dedicated market 
surveillance department or effective delegation or outsourcing of 
that function? If so, provide a general description of the staff, 
the data collected on traders' market activity, data collected to 
determine whether prices are responding to supply and demand, data 
on the size and ownership of deliverable supplies, a description of 
the manner in which the foreign board of trade detects and deters 
market manipulation, for cash-settled contracts, methods of 
monitoring the settlement price or value, and any foreign board of 
trade large-trader or other position reporting system.
    (e) Describe the Clearing Organization rules, addressing the 
following:
    Does the clearing organization maintain rules that require that 
the clearing organization comply with the Recommendations for 
Central Counterparties that have been issued jointly by the 
Committee on Payment and Settlement Systems and the Technical 
Committee of the International Organization of Securities 
Commissions (or successive standards) and, if so, provide copies of 
the rules.

VIII. Information Sharing Agreements Among the Commission, the Foreign 
Board of Trade, the Clearing Organization and Relevant Regulatory 
Authorities

    With respect to the foreign board of trade, the clearing 
organization, and their respective regulatory authorities:
    (a) Describe the arrangements among the Commission, the foreign 
board of trade, the clearing organization and the relevant foreign 
regulatory authorities that govern the sharing of information 
regarding the transactions that are executed pursuant to the foreign 
board of trade's registration and the clearing and settlement of 
those transactions. This discussion should include:
    (1) The foreign board of trade, clearing organization and the 
regulatory authorities governing the activities of the foreign board 
of trade and clearing organization commit, in writing to provide 
immediately and directly to the Commission information and 
documentation requested by Commission staff that Commission staff 
determines is needed:
    (i) To evaluate the continued eligibility of the foreign board 
of trade for registration,
    (ii) To enforce compliance with the specified conditions of the 
registration,
    (iii) To enable the Commission to carry out its duties under the 
Act and Commission regulations and to provide adequate protection to 
the public or registered entities,
    (iv) To respond to potential market abuse associated with 
trading by direct access on the registered foreign board of trade, 
and
    (v) Where Commission staff, in its discretion, determines that a 
contract traded on a registered foreign board of trade may affect 
the Commission's ability to carry out surveillance with respect to a 
United States-registered entity.
    (2) Exchange International MOU. The foreign board of trade must 
execute, or commit to execute, the International Information Sharing 
Memorandum of Understanding and Agreement.
    (b) Regulatory Authority and the IOSCO MOU. The regulatory 
authorities governing the activities of and providing supervision 
and oversight of the foreign board of trade and clearing 
organization must be signatories to the International Organization 
of Securities Commissions Multilateral Memorandum of Understanding. 
If the regulator is not a signatory to the International 
Organization of Securities Commissions Multilateral Memorandum of 
Understanding, the regulator must inform the Commission of the 
reasons why the document has not been signed (for example, in the 
process of applying, application is under consideration by the 
International Organization of Securities Commissions Multilateral 
Memorandum of Understanding Screening Group) and supply any 
additional information requested by the Commission. The Commission 
will determine, on a case-by-case basis, whether any interim 
information sharing arrangement will be acceptable.
    (c) Declaration on Cooperation and Supervision of International 
Futures Exchanges and Clearing Organizations (Boca Declaration). The 
regulatory authorities governing the activities of and providing 
supervision and oversight of the foreign board of trade and clearing 
organization must sign the Declaration on Cooperation and 
Supervision of International Futures Exchanges and Clearing 
Organizations or otherwise commit to share the types of information 
contemplated by the International Information Sharing Memorandum of 
Understanding and Agreement with the Commission pursuant to an 
existing memorandum of understanding or other arrangement with the 
Commission.

    Issued in Washington, DC, November 10, 2010, by the Commission.
David A. Stawick,
Secretary of the Commission.

Statement of Chairman Gary Gensler

Notice of Proposed Rulemaking--Registration of Foreign Boards of Trade

    I support the proposed rulemaking to implement a registration 
system for Foreign Boards of Trade (FBOTs) seeking to offer market 
participants in the United States direct access to the FBOTs' 
trading systems. This registration system replaces the agency's 
current practice of issuing no-action letters to such FBOTs. 
Importantly, this will bring consistency and transparency to the 
Commission's oversight of such entities. Today's proposal also 
provides that FBOTs subject to comparable, comprehensive supervision 
and regulation in their home country and that meet conditions 
outlined in the proposal would be allowed to make available swaps 
contracts through direct access to U.S. market participants.

[FR Doc. 2010-29023 Filed 11-18-10; 8:45 am]
BILLING CODE P


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