70974 Federal Register / Vol. 75, No. 223 / Friday, November 19, 2010 / Proposed Rules 

1 17 CFR 145.9. 

2See 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. 

3Pursuant 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. 

5See Section 738 of the Dodd-Frank Act. 

6Commission regulations referred to herein are 

found at 17 CFR Ch. 1. 

7See, 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. 

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. 

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: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: same as 

mail above. 

• 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

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, 

dandresen@cftc.gov, or David Steinberg, 

Special Counsel, (202) 418–5102, 

dsteinberg@cftc.gov, 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. 

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

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. 

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 


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Federal Register / Vol. 75, No. 223 / Friday, November 19, 2010 / Proposed Rules 70975 

8A 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. 

9On 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). 

10On 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. 

11The 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. 

13Comments 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. 

14Boards 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 noaction 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. 

15CFTC 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 

Continued 

support and enforce ‘‘substantially 

equivalent regulatory objectives’’ in its 

oversight of the FBOT? 

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 noaction 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 selfregulatory regime the FBOT is subject 

to; and any change in the authorization, 

licensure or registration of the FBOT. 

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 reexamination 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

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


srobinson on DSKHWCL6B1PROD with PROPOSALS2
70976 Federal Register / Vol. 75, No. 223 / Friday, November 19, 2010 / Proposed Rules 

a Revision of Commission Policy Regarding the 

Listing of Certain New Option Contracts. 74 FR 

3570 (January 21, 2009). 

16CFTC Letter No. 09–37 (August 20, 2009). 

17Currently, 14 of the FBOTs with active noaction relief report volume originating from the U.S. 

via direct access. 

18The 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. 

19The 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 noaction letter in order to address the listing of linked 

contracts. 

20For purposes of FBOT registration, the term 

‘‘United States’’ or ‘‘U.S.’’ includes the United States, 

its territories and possessions. 

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

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 noaction 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 staffinitiated no-action process with a formal 

Commission registration provision. 

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 Commissionissued 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

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. 

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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Federal Register / Vol. 75, No. 223 / Friday, November 19, 2010 / Proposed Rules 70977 

21For 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. 

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. 

23The 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. 

24The 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. 

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 noaction 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. 

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. 

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. 

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. 

The Commission notes that it uses a 

similar ‘‘comparability’’ analysis when 

evaluating foreign entities in the context 

of issuing Rule 30.10 exemptions to 


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25See supra note 8. 

26The 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. 

27The 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). 

28Furthermore, under the Dodd-Frank Act, a 

DCM may trade swaps without additionally 

registering as a SEF. 

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. 

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 noaction 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. 

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. 

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 DoddFrank 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 


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29The 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). 

30The 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. 

31Memorandum 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. 

32The 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. 

33The 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. 

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. 

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 partyconstructed 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

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

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 exchangetrading 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 informationsharing 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 


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70980 Federal Register / Vol. 75, No. 223 / Friday, November 19, 2010 / Proposed Rules 

34The 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. 

be required to provide certain 

information directly to the Commission. 

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 noaction 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. 

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 


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

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 informationsharing 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 DoddFrank 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 


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

37Many 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. 

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. 

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). 

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

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. 


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38See 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). 

39See Notice of Additional Conditions on the NoAction 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). 

40As previously noted, under the Dodd-Frank 

Act, a DCM may trade swaps without additionally 

registering as a SEF. 

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. 

A registered foreign board of trade 

would be permitted to list for trading an 

additional futures contract on a nonnarrow-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-narrowbased 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 nonnarrow-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. 

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. 

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 DoddFrank 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 


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41 44 U.S.C. 3501. 

42 44 U.S.C. 3502. 

43 5 CFR 1320.3(c)(1). 

44 44 U.S.C. 3506. 

45 44 U.S.C. 3507. 

46Because 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. 

47Because 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. 

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

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. 

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

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

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 


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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 


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70986 Federal Register / Vol. 75, No. 223 / Friday, November 19, 2010 / Proposed Rules 

48 7 U.S.C. 19(a). 

49E.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 costbenefit analyses). 50See CFTC Letter No. 08–09, June 17, 2008. 

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 

OIRAsubmissions@omb.eop.gov. 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

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 noaction relief under existing procedures 

is substantial. FBOTs requesting noaction 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 noaction 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

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 noaction 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 


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51 5 U.S.C. 601 et seq. 

52 5 U.S.C. 601 et seq. 

53See 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.’’ 

54CEA § 1a(2). 

55CEA § 1a(27). 

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

a contract traded on a Commissionregulated 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. 

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 noaction 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

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. 

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 noaction 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. 

§ 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. 

§ 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, 


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(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 selfregulatory 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. 

§ 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. 

§ 48.4 Registration eligibility. 

(a) Only foreign boards of trade 

eligible to be registered, as defined in 

§ 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 


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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. 

§ 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 

FBOTRegistration@cftc.gov. 

(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. 

§ 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 noaction relief has otherwise been 

withdrawn. 

§ 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, 


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(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 ScreenBased 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 partyconstructed 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, 


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(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. 

§ 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 


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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, 


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(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 § 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, 


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(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. 

§ 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. 

§ 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 


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


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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 riskmanagement 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 nonnarrow based stock index futures contracts, 

provide the information required in 

Appendix D to Part 30 of this chapter. A noaction 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 


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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 


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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 Statesregistered 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 caseby-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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