80674 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

1See 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./Law

Regulation/OTCDERIVATIVES/index.htm. 

2Pursuant to section 701 of the Dodd-Frank Act, 

Title VII may be cited as the ‘‘Wall Street 

Transparency and Accountability Act of 2010.’’ 

3 7 U.S.C. 1 et seq. 

4 Direct access is defined in CEA section 

4(b)(1)(A). 

5See Registration of Foreign Boards of Trade, 75 

FR 70974 (November 19, 2010). 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 48 

RIN 3038–AD19 

Registration of Foreign Boards of 

Trade 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (Commission or 

CFTC) is issuing final rules to 

implement new statutory provisions 

enacted by Title VII of the Dodd-Frank 

Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act). On 

November 19, 2010, the Commission 

requested comment on proposed rules 

that would establish a registration 

requirement that applies to foreign 

boards of trade (FBOT) that wish to 

provide their identified members or 

other participants located in the United 

States with direct access to their 

electronic trading and order matching 

systems. After reviewing the comments 

submitted in response to the proposed 

rules, the Commission has determined 

to issue these final FBOT registration 

rules substantially as originally 

proposed, with certain modifications. 

DATES: Effective Date—February 21, 

2012. 

FOR FURTHER INFORMATION CONTACT: 

Duane C. Andresen, Senior Special 

Counsel, (202) 418–5492, 

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: 

Table of Contents 

I. Background 

A. Introduction 

B. Foreign Boards of Trade and Direct 

Access 

1. History of the No-action Process 

2. Commission Determination To Adopt 

Formal Registration Rules 

3. Overview of NPRM 

II. Summary of Comments 

A. General Comments 

B. Specific Comments 

1. Application for Registration 

a. Treatment of FBOTs With Existing Noaction Relief 

(i). Grandfathering and the Scope of the 

Limited Application 

(ii). 120 Days To File Limited Application 

(iii). Treatment of FBOTs That Have Not 

Obtained No-action Relief 

b. Timeliness of Commission Review of an 

Application 

2. Standard of Review 

a. Need for Registration 

b. Foreign Supervision and the 

Comparable, Comprehensive 

Determination 

(i). Consideration of the Totality of 

Regulation 

(ii). Comparability Reviews 

(iii). Limitations of Comparability Reviews 

(iv). Reconfirmation and Withdrawal of 

Registration 

c. International Standards 

d. Clearing Standards 

(i). DCOs 

(ii). RCCPs Standards for Non-DCOs 

e. Foreign Regulation of FBOT Participants 

3. Contracts 

a. Linked Contracts 

(i) Definition 

(ii). Conditions 

b. Swaps and Other Contracts 

(i). Swaps 

(ii). Clearing of Swaps 

(iii). Swaps Data Reporting 

(iv). Contracts Other Than Futures, Options 

and Swaps 

(v). Review of Contracts 

4. Direct Access Definition 

5. Scope of Registration (i.e., CEA Sections 

5 and 5a) 

6. Registration Requirements and 

Conditions 

a. Trading Rules 

b. Information Sharing 

c. Submission of U.S.-Domiciled Entities to 

Service of Process 

7. Modification of Registration 

Requirements 

8. Other Concerns 

a. Prescriptive Nature of the Regulations 

b. Alternative Trading Platforms 

c. Impact of FBOT Registration Rules 

9. On-going Review of Registered FBOTs 

10. The Appendix 

III. Conclusion and Effective Date 

A. Conclusion 

B. Effective Date 

IV. Related Matters 

A. Paperwork Reduction Act 

B. Cost Benefit Considerations 

C. Regulatory Flexibility Act 

I. Background 

A. Introduction 

On July 21, 2010, President Obama 

signed the Dodd-Frank Act.1 Title VII of 

the Dodd-Frank Act 2 amended the 

Commodity Exchange Act (CEA or the 

Act) 3 to establish a comprehensive new 

regulatory framework for swaps and 

security-based swaps. The legislation 

was enacted to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

among other things: (1) Providing for the 

registration and comprehensive 

regulation of swap dealers and major 

swap participants; (2) imposing clearing 

and trade execution requirements on 

standardized derivative products; (3) 

creating robust recordkeeping and realtime 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 

amended CEA section 4(b) to provide 

that the Commission may adopt rules 

and regulations requiring FBOTs that 

wish to provide their members or other 

participants located in the United States 

with direct access to the FBOT’s 

electronic trading and order matching 

system to register with the Commission. 

Direct access is defined in the statute as 

an explicit grant of authority by an 

FBOT to an identified member or other 

participant located in the U.S. to enter 

trades directly into the FBOT’s trade 

matching system.4 CEA section 4(b) also 

authorizes the Commission to 

promulgate rules and regulations 

prescribing procedures and 

requirements applicable to the 

registration of such FBOTs. 

Accordingly, on November 19, 2010, 

the Commission published a notice of 

proposed rulemaking that set forth 

proposed regulations that would 

establish a registration requirement and 

related registration procedures and 

conditions applicable to FBOTs that 

wish to provide their members or other 

participants located in the United States 

with direct access to their electronic 

trading and order matching system 

(NPRM).5 The Commission requested 

comment on all aspects of the proposed 

regulations. After thoroughly reviewing 

the comments submitted in response to 

the NPRM, the Commission has 

determined to issue these final rules 

which are substantially the same as 

those proposed, with some 

modifications made in response to 

certain of the comments received and 

with a partially revised format, as 

discussed below. 

B. Foreign Boards of Trade and Direct 

Access 

1. History of the No-action Process 

Since 1996, FBOT requests to provide 

members and other participants that are 

located in the U.S. with direct access to 

their electronic trading and order 

matching systems have been addressed 


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6See, 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. 

7One no-action relief letter was superseded and 

three were revoked when the FBOTs ceased 

operations as regulated or recognized markets. 

Currently, 14 of the FBOTs with active no-action 

relief report volume originating from the U.S. via 

direct access. 

8 75 FR 70974–76. 

9 In 2006, the Commission issued a Policy 

Statement in which it endorsed the no-action 

process for FBOTs that want to provide direct 

access to their trading systems to U.S.-based 

participants. Boards of Trade Located Outside of 

the United States and No-Action Relief From the 

Requirement To Become A Designated Contract 

Market or Derivatives Transaction Execution 

Facility, 71 FR 64843 (Nov. 2, 2006) (Policy 

Statement). With the exception of the Commission’s 

endorsement of the use of no-action relief to permit 

direct access, which is superseded by this final rule, 

the Policy Statement remains effective. 

10CEA section 4(b)(1)(B) defines a linked contract 

as an agreement, contract, or transaction that settles 

against any price (including the daily or final 

settlement price) of one or more contracts listed for 

trading on a registered entity. 

11The proposed rules would have required that 

FBOTs operating under existing no-action relief 

submit a limited application for registration within 

120 days of the effective date of the registration 

rules. An FBOT would be permitted to continue to 

operate pursuant to the no-action relief during the 

Continued 

by Commission staff in accordance with 

the no-action process set forth in 

Commission regulation 140.99.6

Specifically, such FBOTs seeking to 

provide direct access to members and 

participants located in the U.S. have 

requested, and, where appropriate, 

received from the relevant division of 

the Commission, a no-action letter in 

which division staff represents that, 

provided the FBOT satisfies the 

conditions set forth therein, the division 

will not recommend that the 

Commission institute enforcement 

action against the FBOT for failure to 

register as a designated contract market 

(DCM) or derivatives transaction facility 

(DTEF). Since 1996, Commission staff 

has issued 24 direct access no-action 

relief letters (formerly referred to as 

foreign terminal no-action relief letters) 

to FBOTs, 20 of which remain active.7

A detailed discussion of the history and 

evolution of the FBOT no-action process 

and the scope of the relief provided can 

be found in the NPRM.8

While the no-action process has 

served a useful purpose, the 

Commission, given the new authority 

provided by Congress in the Dodd-Frank 

Act to promulgate registration 

requirements applicable to FBOTs that 

provide direct access, has determined to 

replace the staff no-action process with 

generally applicable Commission 

regulations. 

2. Commission Determination To Adopt 

Formal Registration Rules 

In determining to adopt formal 

registration rules for FBOTs, the 

Commission has also considered that 

the no-action process is generally better 

suited for discrete, unique factual 

circumstances and for situations where 

neither the CEA nor the Commission’s 

regulations address the issue presented. 

The Commission has determined that, 

where the same type of relief is being 

granted on a regular and recurring basis, 

as it has been with respect to permitting 

FBOTs to provide direct access to their 

trading systems to specified members 

and other participants that are located 

in the U.S., it is no longer appropriate 

to handle requests for the relief through 

the no-action process. Rather, such 

matters should be addressed in 

generally applicable registration 

regulations. 

By implementing uniform application 

procedures and registration 

requirements and conditions, the 

process by which FBOTs are permitted 

to provide members and other 

participants located in the United States 

with direct access to their trading 

systems will become more standardized 

and more transparent to both 

registration applicants and the general 

public and will promote fair and 

consistent treatment of all applicants. 

Further, generally applicable regulations 

will provide greater legal certainty for 

FBOTs providing direct access than the 

no-action relief process because noaction letters are issued by the staff and 

are not binding on the Commission. The 

Commission also notes that an FBOT 

registration regime will be more 

consistent with the statutory authority 

pursuant to which other countries, 

including the United Kingdom, 

Australia, Singapore, Japan and 

Germany, among others, permit U.S.- 

based DCMs to provide direct access 

internationally. 

Accordingly, for the reasons noted 

above and pursuant to the new authority 

provided by amended CEA section 4(b), 

the Commission has determined to 

adopt FBOT registration regulations. 

The final rules will replace the existing 

policy of accepting and reviewing 

requests for no-action relief to permit an 

FBOT to provide for direct access to its 

trading system with a requirement that 

an FBOT seeking to provide such access 

must apply for and be granted 

registration with the Commission.9

3. Overview of NPRM 

As noted above, on November 19, 

2010, the Commission published a 

NPRM in which it proposed regulations 

that would require FBOTs that wish to 

provide their members or other 

participants located in the U.S. with 

direct access to the FBOT’s electronic 

trading and order matching system to 

become registered with the Commission. 

The proposed rules described the types 

of FBOTs that would be eligible for 

registration under the proposed 

regulations and prescribed the 

application procedures, requirements, 

and conditions that would be applicable 

to such registration. The rules were 

proposed to be codified in new Part 48 

of the Commission’s regulations. The 

proposed regulations provided that it 

would be unlawful for an FBOT to 

permit direct access to members and 

other participants in the U.S. unless the 

FBOT was registered with the 

Commission. The proposed 

requirements for registration were 

divided into the same seven general 

categories evaluated during the course 

of a review of a request for FBOT noaction relief: membership criteria, 

trading system, contracts, settlement 

and clearing, regulatory authorities, 

rules and rule enforcement, and 

information sharing. Pursuant to the 

proposed regulations, whether the 

registration requirements are 

successfully met would be determined 

by review of the information and 

documentation submitted by the 

applicant and, if appropriate, a staff onsite visit to the FBOT and clearing 

organization and their regulatory 

authorities to observe and discuss 

procedures and policies described in the 

information submitted by the applicant. 

The proposal also contained the 

conditions that a registered FBOT 

would be required to meet to retain its 

registration, including continued 

satisfaction of the registration 

requirements; conditions related to the 

FBOT’s regulation in its home country; 

satisfaction of comparable international 

standards; restrictions upon the FBOT’s 

provision of direct access; 

acknowledgement and agreement to 

Commission jurisdiction; informationsharing requirements; monitoring for 

and enforcing compliance with the 

conditions of registration; conditions 

specifically applicable to swap trading; 

reporting obligations; and special 

conditions that would apply to linked 

contracts.10 As proposed, the rules 

provided for a ‘‘limited’’ application 

process for FBOTs currently operating 

pursuant to existing no-action relief.11


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120-day period and until the Commission notified 

the FBOT that the application was approved or 

denied. 

12The comment file is available on the 

Commission’s Web site at http://comments.cftc.gov/ 

PublicComments/CommentList.aspx?id=902. 

13 Dubai Mercantile Exchange (DME), London 

Metal Exchange (LME), Australian Securities 

Exchange (ASX), Montreal Exchange Inc. (MX), 

Intercontinental Exchange (ICE) (owner of ICE 

Futures Europe and ICE Futures Canada), European 

Energy Exchange AG (EEX), Hong Kong Futures 

Exchange Limited (HKFE), BM&F Bovespa (BM&F), 

Nasdaq OMX Oslo ASA (OMX), NYSE Euronext 

(NYX) (operator of three FBOTs, Liffe 

Administration and Management, Euronext Paris 

SA, and Euronext Amsterdam N.V.), and Eurex 

Deutschland (Eurex). 

14Osaka Securities Exchange (OSE), Natural Gas 

Exchange, Inc. (NGX), and Bursa Malaysia 

Derivatives Exchange (Bursa Derivatives). A direct 

access no-action letter was issued to OSE on June 

1, 2011. NGX is currently operating as an exempt 

commercial market (ECM), and will continue to do 

so under the ECM grandfather relief provided for in 

the Dodd-Frank Act. 

15CME Group, which includes four CFTCregistered DCMs: The Chicago Mercantile Exchange 

Inc. (CME), the Board of Trade of the City of 

Chicago, Inc. (CBOT), the New York Mercantile 

Exchange, Inc. (NYMEX), and the Commodity 

Exchange, Inc. (COMEX). 

16Futures and Options Association (FOA), Air 

Transport Association of America (ATA) (two 

comment letters), and Petroleum Marketers 

Association of America and the New England Fuel 

Institute (Petroleum Marketers). 

17Better Markets, Inc. (Better Markets). Better 

Markets describes themselves as a non-profit 

organization that promotes the public interest in 

capital and commodity markets. 

18BG Americas & Global LNG (BG Americas). 

19European Securities and Markets Authority 

(ESMA). 

20Senator Carl Levin, Chairman of the United 

States Senate Permanent Subcommittee on 

Investigations. 

21The Commodity Market Oversight Coalition 

(CMOC) states that it represents an array of 

interests, including the interests of commodity 

producers, processors, distributors, retailers, 

commercial and industrial end-users, and average 

American consumers and that it was established to 

promote government policy and regulation in the 

commodity trading markets that preserve the 

interests of bona fide hedgers and consumers and 

the health of the broader economy. 

22Each of these letters contained a similar short 

paragraph specifically addressing the proposed 

FBOT rules. A representative letter stated: ‘‘I 

support the requirement that FBOTs register with 

the CFTC and make their trading data available as 

well as requiring that they adopt position limits and 

implement prohibitions on manipulation and 

excessive speculation. They should also be subject 

to ownership caps.’’ The Commission also received 

a brief comment from a private citizen. In addition, 

the comment file includes 26 comments submitted 

in response to the Commission’s reopening of the 

comment period for several Dodd-Frank related 

rulemakings. See Reopening and Extension of 

Comment Periods for Rulemakings Implementing 

the Dodd-Frank Wall Street Reform and Consumer 

Protection Act, 76 FR 25274 (May 4, 2011) 

(extending the comment deadline for multiple 

Dodd-Frank Act rulemakings to June 3, 2011). None 

of the comments submitted in response to the 

reopening of the comment period specifically 

addressed the proposed FBOT registration 

regulations and, therefore, they are not addressed in 

this document. 

23See letters from ASX, BM&F, Bursa Derivatives, 

Eurex, EEX, LME, MX, OMX, NGX, OSE, FOA, 

ATA, BG Americas, Petroleum Marketers, CMOC 

and Senator Levin. ICE commented that the CFTC 

‘‘generally strikes the right balance with the 

proposed rulemaking.’’ 

24NYX, HKFE, ESMA, and CME Group. 

25Better Markets. 

The proposal also set forth the 

procedures to be followed should an 

FBOT wish to list additional contracts 

for trading by direct access after being 

registered. Finally, the proposal 

identified certain events that may trigger 

the revocation of an FBOT’s registration. 

II. Summary of Comments 

A. General Comments 

The Commission received 147 

comments in response to the NPRM.12

The comments included 24 comment 

letters that addressed a variety of 

substantive issues raised by the 

proposal. Those 24 comment letters 

came from entities representing a broad 

range of interests, including eleven 

letters representing fourteen FBOTs 

currently providing direct access to 

members or other participants in the 

U.S. pursuant to staff direct access noaction relief letters 13 and three letters 

from FBOTs that were not currently 

providing direct access to U.S. 

participants.14 The Commission also 

received comments from a U.S. 

derivatives marketplace,15 three 

industry or trade associations,16 a nonprofit organization,17 a natural gas 

company,18 a foreign regulator,19 a 

United States Senator,20 and the 

Commodity Market Oversight 

Coalition.21

The Commission also received 94 

virtually identical comment letters from 

self-identified small business owners in 

the oil and gas industry and/or grocery 

industry. Each of these letters presented 

a range of comments spanning several 

provisions of the Dodd-Frank Act and, 

with respect to the proposed FBOT 

regulations, included nearly identical 

text in which the commenters generally 

expressed support for the requirement 

that FBOTs register with the 

Commission and for the requirements 

that FBOTs adopt position limits, 

implement prohibitions on 

manipulation and excessive 

speculation, and be subject to 

ownership caps.22

Of the 24 comment letters addressing 

various substantive FBOT registration 

issues in the proposed regulations, 17 

letters voiced general support for the 

proposed rules and for the adoption of 

an FBOT registration process.23 For 

example, OMX stated: 

Our overall impression of the proposed 

rules is that they will create a more 

transparent and standardized process that 

will provide a greater legal certainty for 

FBOTs. We are thus under the impression 

that the new rules will represent an 

improvement of the legal process related to 

FBOTs. 

Similarly, Eurex commented: 

Eurex supports the proposed regulations as 

set forth in the [NPRM] and it values the legal 

certainty that registration by the Commission 

will provide. Eurex looks forward to being 

registered by the Commission as an FBOT 

and to the fuller participation in the 

development of the U.S. derivatives industry 

that it expects will accompany registration. 

Each of the generally supportive 

comments, however, also offered 

varying critiques that focused on 

specific issues. These are discussed in 

greater detail below. 

Four of these comment letters 

generally did not support the proposed 

rules 24 and one comment letter raised 

concerns with respect to the impact of 

FBOT registration on the effectiveness 

of the Dodd-Frank Act.25 For example, 

NYX and ESMA questioned whether a 

registration regime was superior to the 

existing no-action process. Specifically, 

NYX noted, ‘‘[W]e are not convinced 

that a move from the existing regime to 

a more formal, rules-based solution is 

either necessary or desirable.’’ ESMA 

noted that, ‘‘It seems to us that there is 

no legal provision that would require 

the CFTC to depart from the present 

practice of issuing no-action relief 

letters. [* * *] [T]he new registration 

procedure and the mandatory 

application of very comprehensive, 

ongoing requirements to all FBOTs 

would be burdensome and costly 

without any apparent improvements for 

the safeguard of public interests such as 

the maintenance of fair and orderly 

markets, investor protection and the 

resilience of the market.’’ Similarly, 

LME, while supporting the 

Commission’s desire to establish a 

standardized regulatory framework for 

FBOTs that wish to provide direct 

access to U.S.-domiciled market 

participants, commented that the 

approach of requiring FBOTs to register 

with the Commission would constitute 

an unnecessary burden on the CFTC and 

FBOT applicant resources and stated its 

preference for a comparability-based 

exemptive approach, which would 

accomplish the same objectives, rather 

than a registration regime. HKFE 

commented that creating unnecessary 

obstacles to cross-border trading will 

affect all markets and market 

participants and limit the use of risk 

mitigating instruments traded in global 

markets. 

The CME Group expressed concern 

that the prescriptive nature of the rules 


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26BM&F, DME, EEX, HKFE, ICE, MX, OMX, and 

NYX. 

may result in retaliatory, anticompetitive action by foreign regulators. 

CME Group commented that: 

[W]e have significant concern that the 

proposed rules are overly prescriptive and 

will have the effect of engendering retaliatory 

action by foreign regulators that will inhibit 

our ability to continue to grow our business 

and compete effectively in the current global 

environment. 

CME Group also argued that since the 

Dodd-Frank Act did not intend to grant 

the Commission general regulatory 

authority over FBOTs, the imposition of 

an information gathering process with 

limited utility would do little more than 

stretch already limited Commission 

resources. 

Better Markets argued that enabling 

FBOTs to provide direct access to 

members and other participants in the 

U.S. would ‘‘undercut[] the 

effectiveness of the Dodd-Frank Act’’ 

unless FBOTs were subject to regulatory 

requirements that are ‘‘the same as or 

equivalent to the Dodd-Frank Act 

structure.’’ Better Markets expressed 

concern that, even if there are parallel 

systems that are adequately structured 

in foreign jurisdictions, there is a risk 

that the regulatory regime will not be 

administered similarly to the markets 

subject to Commission oversight. 

B. Specific Comments 

The specific issues raised by 

commenters can be grouped generally 

into nine categories and include the 

following: Application for registration; 

standard of review; contracts; direct 

access definition; scope of registration; 

registration requirements and 

conditions; modification of registration 

requirements; other concerns; and 

ongoing review of registered FBOTs. 

These concerns and the Commission’s 

conclusions with respect to them are 

discussed below. 

1. Application for Registration 

a. Treatment of FBOTs With Existing 

No-Action Relief 

Proposed regulation 48.6 provides 

that FBOTs currently providing direct 

access pursuant to a Commission staff 

no-action letter would be required to 

apply for registration within 120 days of 

the effective date of the FBOT 

registration regulations, but would 

permit them to file a limited 

application, as described in the 

proposed regulation. Eurex expressly 

supported the proposed limited 

application process; ASX welcomed the 

formalization of the registration 

requirements. Twelve of the comment 

letters, however, were in favor of either 

further narrowing the scope of the 

limited application process or 

completely grandfathering FBOTs 

currently operating pursuant to noaction relief. Several commenters also 

requested that the time period for 

submitting a limited application be 

expanded. 

(i) Grandfathering and the Scope of the 

Limited Application 

Eight of the twelve commenters, 

including commenters representing 11 

FBOTs providing direct access to their 

trading systems pursuant to existing noaction relief 26 and the CME Group and 

FOA, specifically requested that the 

CFTC significantly narrow proposed 

§ 48.6 to either provide grandfathered 

registration to FBOTs operating under 

existing no-action relief or to require 

FBOTs applying for registration to 

supply only that information which (1) 

has materially changed since the time 

the FBOT’s no-action relief was granted, 

(2) was not previously filed with the 

Commission or (3) relates to newly 

imposed registration requirements. The 

commenters generally argued that the 

limited application process set forth in 

proposed § 48.6 is too burdensome and 

is unnecessary given that FBOTs and 

their regulatory regimes were reviewed 

by Commission staff during the process 

of issuing a no-action letter. 

FOA commented that FBOTs 

currently operating under no-action 

relief should not have to reapply for 

approval to allow direct access to their 

markets and recommended that the 

CFTC should principally rely on 

information previously provided by the 

FBOT and its regulator to satisfy the 

proposed registration requirements and 

should identify for each FBOT operating 

under a no-action letter what specific 

additional information is required. NYX 

generally agreed with this 

recommendation and further suggested 

that, if a limited application for 

registration is necessary, the FBOTs 

should be required to consult with the 

Commission in order to identify which 

specific information not previously 

submitted would be necessary to 

demonstrate compliance with the 

registration requirements. BM&F 

commented that where an FBOT had 

been granted no-action relief following 

adoption by the Commission of the 2006 

Policy Statement, that FBOT should 

only be required to certify that there 

have been no material changes to the 

information or representations in its 

request for no-action relief or, if there 

have been changes, to identify those 

changes and demonstrate how they 

would be in compliance with the 

registration rule. ICE commented that 

the FBOT should only be required to 

submit additional relevant information 

necessary to update the Commission’s 

understanding of the foreign regulatory 

regime. 

The Commission does not believe that 

it would be prudent to grandfather 

FBOTs that are operating under existing 

no-action relief without any further 

review to determine that the registration 

requirements set forth in § 48.7 are 

being met. FBOT requests for no-action 

relief were assessed based upon the 

information and documentation 

presented at the particular time of the 

request (some as early as 1999), were 

based upon a comparison of the 

regulatory regimes in the U.S. and the 

applicable foreign jurisdiction that 

existed at the time, were subject to 

varying standards of review that applied 

at the time (which have changed as 

statutes and policies have evolved), and 

were reviewed on a case-by-case basis. 

Just as the Dodd-Frank Act represents a 

significant change in the regulatory 

approach in the U.S., many foreign 

jurisdictions have changed their 

approaches since the time the existing 

no-action letters were granted as well. 

The Commission also does not believe 

that it would be either feasible or 

appropriate for the Commission staff to 

ascertain for each FBOT operating under 

existing no-action relief the precise 

information or documentation in its 

individual no-action request submission 

that would need to be updated or 

revised in order to satisfy registration 

requirements. The FBOTs are in a better 

position to recognize their own 

particular circumstances and to identify 

any information and documentation that 

may require updating in light of those 

changes. This is especially true of 

information regarding the relevant 

foreign regulations to which the FBOT 

is presently subject, as these may have 

differing applicability depending upon 

the FBOT’s particular business model. 

The FBOT should be afforded the 

opportunity to provide materials 

demonstrating that the foreign regime 

currently is comparable and 

comprehensive to the regulatory regime 

in the United States. 

In response to the comments received, 

the Commission has determined to 

modify the limited application 

documentation requirements in one 

aspect. The proposed limited 

application process required that, to the 

extent an FBOT operating under 

existing no-action relief intends to rely 

upon previously submitted information 

or documentation to demonstrate that it 

satisfies the registration requirements, 


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27 Documents submitted electronically can be 

more easily identified and located and can be 

retransmitted quickly and at less cost than 

documents in hard copy. It is also easier to identify 

and highlight those segments of an electronically 

submitted document that would satisfy a current 

requirement of registration. 

28BM&F, EEX, LME, and MX. 

29 ICE. 

30NYX and FOA. 

31 If, at any time after the 180-day deadline but 

before a limited application is approved or 

disapproved, the Commission determines that the 

application is materially incomplete, the 

Commission may, after providing the FBOT with 

notice and an opportunity to respond to the 

determination of incompleteness, withdraw the 

existing no-action relief if the Commission 

determines that the application cannot be made 

complete in a timely manner. 

32A Rule 30.10 order permits firms that are 

members of a self-regulatory organization and 

subject to regulation by a foreign regulator to 

conduct business from locations outside of the U.S. 

for U.S. persons on non-U.S. boards of trade 

without registering under the CEA, based upon the 

firm’s substituted compliance with a foreign 

regulatory structure found comparable to that 

administered by the Commission under the CEA. 

Among the issues considered by the Commission in 

determining whether to grant Rule 30.10 relief 

based on a foreign regulatory or self-regulatory 

authority are the authority’s: (i) Requirements 

relating to the registration, authorization, or other 

form of licensing, fitness review, or qualification of 

persons through whom customer orders are 

solicited and accepted; (ii) minimum financial 

requirements for those persons that accept customer 

funds; (iii) minimum sales practice standards, 

including risk disclosures, and the risk of 

transactions undertaken outside of the United 

States; (iv) procedures for auditing compliance with 

the requirements of the regulatory program, 

including recordkeeping and reporting 

requirements; (v) standards for the protection of 

customer funds from misapplication; and (vi) 

arrangements for the sharing of information with 

the United States. 

the FBOT must resubmit the 

information or documentation, identify 

the specific requirements for registration 

set forth in proposed § 48.7 that are 

satisfied by the resubmitted 

information, and certify that the 

information remains current and true. 

The Commission has determined to 

streamline the § 48.6 application 

requirements for any FBOT whose 

original no-action relief request was 

submitted electronically and remains on 

file with the Commission staff.27 In lieu 

of re-transmitting to the Commission 

previously submitted information and 

documentation, such FBOTs would be 

permitted to simply refer to each 

portion of their original submission that 

satisfies a particular registration 

requirement, identify the specific 

registration requirement that is fulfilled 

by that section, and certify that the 

information or documentation originally 

provided remains current and true. The 

FBOT would continue to be required to 

submit new information or 

documentation, to the extent that its 

original application would not 

adequately demonstrate that the FBOT 

would be in compliance with one or 

more of the registration requirements. 

This typically would be necessary 

where one of the registration 

requirements, such as a requirement 

applicable to clearing and settlement, 

imposes a standard that was not applied 

at the time of the original application for 

no-action relief. 

(ii) 120 Days To File Limited 

Application 

Seven commenters, including six 

FBOTs and one industry association, 

requested that the proposed 120-day 

time period within which an FBOT 

operating under existing no-action relief 

would be required to file a limited 

application be extended. Four 

specifically asked that the period be 

lengthened to 180 days,28 while another 

asked for a year.29 Two entities 

commented that the registration rules 

should provide that FBOTs with 

existing no-action relief may continue to 

operate as such as long as they submit 

an application within the 120-day 

period, which is determined in good 

faith by the applicant to be complete.30

Such commenters expressed concern 

that there may be an extended period of 

legal uncertainty after the 120-day 

period, but before the Commission acted 

upon the application. 

In response to these comments the 

Commission has determined to adopt 

the proposal with certain modifications. 

The final regulations provide that the 

required timeframe within which an 

FBOT operating pursuant to existing noaction relief is required to submit a 

limited application for registration, 

determined in good faith by the 

applicant to be complete, is 180 days 

from the effective date of the FBOT 

registration rules.31 The final rule also 

provides legal certainty in that § 48.6 

provides that an FBOT ‘‘may continue 

to operate pursuant to the existing noaction relief, subject to the terms and 

conditions contained therein, during the 

180-day period, while the Commission 

is reviewing its application, and until 

the Commission approves or 

disapproves the application or 

otherwise withdraws the existing noaction relief.’’ Thus, FBOTs could 

continue to provide for direct access 

pursuant to the no-action relief during 

the 180-day period and, if they 

submitted timely and complete 

applications for registration, until such 

time as the Commission acts upon the 

registration applications. 

(iii) Treatment of FBOTs That Have Not 

Obtained No-action Relief 

NGX asked whether FBOTs with 

pending applications could file a 

limited application and stated that, if so, 

the review of such applications should 

take precedence over the review of 

applications of FBOTs currently 

operating under existing no-action 

relief. Bursa Derivatives asked if the 

Commission would take into 

consideration any Regulation 30.10 

relief granted by the Commission to an 

FBOT or any visit made to an FBOT in 

the Regulation 30.10 review when 

evaluating such FBOT’s application 

under the proposed registration 

process.32

In consideration of the comments 

concerning limited applications for 

registration, the Commission has 

determined that an FBOT with a 

pending request for direct access noaction relief should be permitted to file 

a limited application for registration, 

recognizing that some of the required 

information and documentation is likely 

to have been recently submitted and, 

therefore, up-to-date. Thus, § 48.6 has 

been modified to provide that an FBOT 

that has submitted a complete 

application for no-action relief that is 

pending as of the effective date of the 

final rule could, as part of its 

application for registration, identify 

information or documents provided in 

its request for no-action relief that 

would satisfy particular registration 

requirements. Those aspects of the 

registration requirements that were not 

addressed in the materials submitted in 

connection with the no-action request 

would have to be addressed directly in 

the FBOT’s registration application. 

With respect to the question of 

precedence of review, the Commission 

is not assigning precedence to any group 

of applicants. The Commission does, 

however, anticipate that the 

applications of FBOTs with pending 

relief requests generally will be 

submitted, and acted upon, before those 

of FBOTs which have no-action relief, 

largely because the latter FBOTs can 

continue to operate pursuant to the 

existing no-action relief during the 180- 

day timeframe for submission of an 

application and so long as a complete 

and timely application is submitted. In 

contrast, those FBOTs with pending 

relief requests cannot provide for direct 

access until they submit an application 

and receive an Order of Registration. 

With respect to consideration of any 

regulation 30.10 relief granted by the 

Commission to an FBOT or related visits 

in evaluating the FBOT’s application for 

registration, the Commission believes it 

would be appropriate to consider such 

information only to the extent that it is 


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Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 80679 

33ESMA. 

relevant to particular registration 

requirements (e.g., requirements that 

members be fit and proper and other 

foreign regulatory regime standards 

applicable to market participants) and is 

identified as such by the FBOT. The 

Commission notes that there is limited 

overlap between the factors considered 

when granting regulation 30.10 relief 

and those that will be examined in 

connection with FBOT registration. 

Regulation 30.10 review primarily is 

focused on the foreign regulatory 

standards applicable to market 

participants. While regulation 30.10 

relief could inform the Commission’s 

decision to register an FBOT, it would 

not be an appropriate substitute for the 

comparability and comprehensiveness 

analysis required under the FBOT 

registration regulations. 

b. Timeliness of Commission Review of 

an Application 

The proposed regulations did not 

include a proposed timeline for 

completion of Commission staff review 

of an application. Bursa Derivatives 

suggested that the Commission adopt a 

timeline of 180 days for the Commission 

to notify FBOTs whether an application 

has been approved or denied. The 

commenter noted that this would be 

consistent with the 180 days allotted for 

reviewing a designated contract market 

application. 

The Commission has determined not 

to adopt a firm timeline for completion 

of Commission staff review of an 

application. The Commission is 

committed to completing its review of 

applications for FBOT registration 

within a year or in as timely a manner 

as circumstances and resources will 

allow. However, the Commission can 

neither predict the total number of 

applications for registration that will be 

submitted nor whether such 

applications will be received 

simultaneously or over a period of time 

and, thus, cannot be assured that it 

would have sufficient resources at all 

times to meet such a self-imposed 

deadline. The Commission is likely to 

receive applications from most of the 20 

FBOTs currently operating under 

existing no-action relief in addition to 

applications from other FBOTs that 

wish to register. The Commission notes 

that the lack of a specific deadline for 

the review of FBOT registration 

applications will not have a significant 

impact on those FBOTs currently able to 

provide direct access pursuant to a staff 

no-action letter that submit timely 

applications for registration. As 

previously noted, the final regulations 

permit such FBOTs to continue to 

provide direct access to FBOT members 

and other participants located in the 

U.S. during the review period, subject to 

compliance with the terms and 

conditions of their no-action relief 

letters. 

2. Standard of Review 

a. Need for Registration 

One foreign regulator, ESMA, 

questioned whether replacing the 

practice of issuing no-action letters with 

a process whereby FBOTs would 

register with, and become subject to, the 

jurisdiction of the Commission would 

provide sufficiently enhanced public 

safeguards to outweigh the burdens 

imposed. Noting that section 738 of the 

Dodd-Frank Act seems to provide the 

Commission full flexibility on whether 

and how to implement the rules on 

registration, ESMA stated that: ‘‘Since 

the CFTC has also verified in the past 

that a FBOT and its clearing 

organisation are subject to 

comprehensive regulation and 

comparable oversight by the home 

regulatory authority, * * * the creation 

of new US regulatory measures with 

extra-territorial application should be 

avoided as far as possible and replaced 

by effective co-operation between the 

home and host regulatory authorities. 

Jurisdiction should indeed generally be 

exercised by the home country alone. 

The necessary cooperation could be 

ensured by an MoU determining how 

the home and the host authority should 

collaborate, exchange information and 

conduct common reviews and 

inspections.’’ 33

HKFE and MX commented that the 

CFTC has already determined that 

FBOTs currently allowed to operate in 

the U.S. are subject to comprehensive 

and comparable regulation in their 

home jurisdictions under the no-action 

relief regime. HKFE further stated that, 

therefore, a substantive or a rule-by-rule 

review by the CFTC for the purposes of 

FBOT registration may not be necessary 

or appropriate except where the CFTC 

has fundamental concerns about a 

jurisdiction’s regulations, regulatory 

objectives or practices. 

As previously noted, requests for noaction relief were submitted to and 

reviewed by Commission staff and not 

by the Commission itself and the letters 

granting no-action relief are not binding 

upon the Commission. Moreover, in 

analyzing requests for no-action relief, 

staff did not review the requests under 

the same standards that will be 

universally applied under the final 

regulations. For example, staff did not 

specifically consider whether an FBOT 

or its clearing organization was subject 

to ‘‘comprehensive regulation and 

comparable oversight by the home 

regulatory authority.’’ Rather, staff’s 

standard of review has ranged from 

determining that the FBOT is regulated 

by a legitimate regulatory authority to 

determining that the FBOT and its 

regulatory authority support and enforce 

standards for trading and customer and 

market protection that are equivalent to 

those supported by the CFTC and its 

regulated DCMs. 

The Commission believes that the 

application procedures contained in the 

final registration regulation would 

provide for appropriate review. While 

the rule would create a new registration 

category, that category would operate 

pursuant to open and transparent 

standards and procedures that may not 

have been uniformly applied with 

respect to FBOT no-action letters. The 

proposed regulatory measures are 

applicable only to FBOTs that choose to 

provide for direct access to their trading 

systems to persons located in the U.S. 

In addition, the Commission believes 

that the rule, as proposed, would 

encourage effective co-operation 

between the home and host regulatory 

authorities in that it, among other 

things, provides for expanded 

information sharing between the 

regulatory authorities. Finally, with 

respect to the comment that the 

proposal is creating new U.S. regulatory 

measures with extra-territorial 

application, the Commission notes that 

Congress has authorized the registration 

of FBOTs in the Dodd-Frank Act. 

Moreover, the FBOT registration process 

relies significantly upon the 

Commission’s determination that the 

FBOT’s home country regulatory 

authority provides for comparable, 

comprehensive supervision and 

regulation. The Commission finds it 

particularly noteworthy that other 

countries that permit direct access, 

including the UK, Japan, Singapore, 

Hong Kong, Germany and Australia, 

among others, do so under a registration 

or licensing scheme. Accordingly, the 

Commission believes that the 

establishment of the FBOT registration 

regime in the final rule is generally 

consistent with international practices. 

b. Foreign Supervision and the 

Comparable, Comprehensive 

Determination 

As required by CEA section 

4(b)(1)(A)(i), proposed § 48.5(d)(2) 

provided that the Commission, when 

reviewing an application for FBOT 

registration, will consider whether the 

FBOT and its clearing organization are 

subject to comprehensive supervision 


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80680 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

34Eurex, FOA, LME, EEX, OMX, Better Markets, 

and CME Group. 

35LME and EEX. EEX commented that all trading 

venues recognized as a ‘‘Regulated Market’’ under 

the European Union’s (EU) Markets in Financial 

Instruments Directive (MiFID) should be deemed fit 

to meet the regulatory standards of a registered 

FBOT. LME commented that the Commission 

should take the same jurisdictional approach with 

respect to the review of clearing organizations. 

36The proposed rules included an appendix that 

identified the information required in, and 

provided guidelines for submitting, an application 

for registration as an FBOT. That appendix 

included detailed descriptions of the minimum 

required documentation and information that 

should be included in an application. In these final 

rules, the Commission has revised the proposed 

appendix to include the submission requirements 

identified therein in standardized application 

forms, Form FBOT and Supplement S–1 to Form 

FBOT. Form FBOT is to be completed by an FBOT 

applying for registration and Supplement S–1 is to 

be completed by the clearing organization affiliated 

with the FBOT. The substance and content of Form 

FBOT and Supplement S–1 are parallel to those 

requirements and guidelines that were originally 

included in the appendix to the proposed rules. 

37Notwithstanding the above, in a situation 

where an FBOT applying for registration is located 

in the same jurisdiction and subject to the same 

regulatory regime as a registered FBOT, the 

Commission believes that it would be acceptable for 

the FBOT applying for registration to include by 

reference, as part of its application, information 

about the regulatory regime that is posted on the 

Commission’s Web site. The FBOT applying for 

registration must specifically identify the applicable 

information and certify that the information thus 

included in the application is directly applicable to 

it and remains current and valid. 

and regulation by the appropriate 

governmental authorities in their home 

country that is comparable to the 

comprehensive supervision and 

regulation to which DCMs and 

derivatives clearing organizations 

(DCO), respectively, are subject in the 

United States. Seven commenters 

specifically addressed this provision, 

offering critiques of the Commission’s 

approach to evaluating an FBOT’s home 

regulatory regime.34

Two commenters recommended that 

the Commission make a determination 

as to whether an FBOT is subject to a 

comparable comprehensive regulatory 

regime on a jurisdiction-by-jurisdiction 

basis where appropriate.35 For example, 

if more than one FBOT is subject to the 

regulatory regime in the United 

Kingdom, the Commission could make 

a single determination as to the 

comparability and comprehensiveness 

of the regulatory regime in the United 

Kingdom. 

In consideration of these comments, 

the final regulation, in the application 

form for registration, Form FBOT,36

provides for a jurisdiction-based review 

of the comparability of the foreign 

regulatory regime when multiple FBOTs 

that are subject to the same regulatory 

regime are applying for registration. 

Specifically, the regulation, through the 

Form FBOT, provides that multiple 

FBOTs that are subject to the same 

regulatory regime and that are applying 

for registration at the same time may 

collectively provide information 

regarding the regulatory regime under 

which they operate. The information 

may be provided by the FBOTs 

themselves, or by the applicable foreign 

regulatory authority. 

The Commission does not agree, 

however, that a determination that an 

FBOT operating in one jurisdiction 

should be registered eliminates the need 

to conduct a subsequent inquiry into the 

laws and regulations applicable to a 

different FBOT in the same jurisdiction 

that applies for registration at a different 

time. Additionally, a single 

jurisdictional analysis of 

comprehensiveness and comparability 

may not be able to take into account the 

fact that different FBOTs operating in 

the same jurisdiction may be subject to 

different regulations, depending upon a 

host of factors including, among other 

things, their business structure, the 

participants they accept, the products 

they trade and the exceptions and 

exemptions provided in the relevant 

regulatory regime. Accordingly, two 

FBOTs operating in the same country 

may be subject to regulation that differs 

in substantive ways. Moreover, financial 

markets worldwide are currently in an 

enhanced state of regulatory flux, 

making it a particularly inopportune 

time to state that once a jurisdiction is 

deemed comparable, it will be deemed 

comparable for the purpose of all future 

applications.37

(i) Consideration of the Totality of 

Regulation 

Eurex, noting that in many 

jurisdictions the concept of selfregulation is not as established as in the 

U.S. and that foreign exchanges are not 

empowered in the same way as DCMs, 

recommended that, in considering the 

comparability of regulation, the CFTC 

explicitly incorporate that it may rely on 

the totality of the regulation—self and 

governmental—of the FBOT in 

evaluating the FBOT for comparable 

comprehensive supervision and 

regulation. The Commission has 

determined to adopt the rule as 

proposed, but notes that consistent with 

this Eurex comment, the Commission 

will rely on the totality of the regulation 

of the FBOT and its clearing 

organization in evaluating whether they 

are subject to comparable 

comprehensive supervision and 

regulation. 

(ii) Comparability Reviews 

FOA expressed concern that the 

proposed registration regulations would 

change the approach to comparability 

used under the existing no-action 

review process into what is effectively 

a rules-equivalence approach and that 

this could lead to a ‘‘line by line’’ 

examination of the European Union’s 

approach to the regulation of derivatives 

transactions, central counterparties and 

trade repositories. FOA commented that 

a ‘‘line by line’’ examination of the 

foreign regulator’s approach would 

complicate cross-border business and 

increase the risk of inadvertent 

breaches. 

The Commission has determined to 

adopt the rule as proposed. As in the 

case of the review performed under the 

no-action review process, the 

Commission’s determination of the 

comparability of the foreign regulatory 

regime to which the FBOT applying for 

registration is subject will not be a ‘‘line 

by line’’ examination of the foreign 

regulator’s approach to supervision of 

the FBOTs it regulates. Rather, it will be 

a principles-based review conducted in 

a manner consistent with the part 48 

regulations pursuant to which the 

Commission will look to determine if 

that regime supports and enforces 

regulatory objectives in the oversight of 

the FBOT and the clearing organization 

that are substantially equivalent to the 

regulatory objectives supported and 

enforced by the Commission in its 

oversight of DCMs and DCOs. 

(iii) Limitations of Comparability 

Reviews 

CME Group suggested that the 

Commission’s analysis should be more 

narrowly tailored and that the 

Commission should limit its inquiry to 

questions regarding the comparability of 

the regulatory regime in the FBOT’s 

home jurisdiction, focusing on (1) the 

regulatory regime in the FBOT’s home 

jurisdiction, (2) the FBOT’s status in its 

home jurisdiction and its rules and 

enforcement thereof, and (3) any 

existing information-sharing agreements 

between the FBOT, the Commission, 

and the home jurisdiction regulator. 

CME Group argued that such an 

approach would focus the Commission’s 

attention on the legitimacy of the home 

regulator rather than on the broader 

inquiries that have informed the noaction process. 

The Commission has determined to 

adopt the rule as proposed. The 

Commission does not believe that its 

review of an FBOT seeking to provide 

direct access to its trading system to 

persons located in the U.S. should be 


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Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 80681 

38The IOSCO Principles were formulated by eight 

jurisdictions which comprised Working Party 7 

(Working Party) of the Technical Committee of 

IOSCO under the chairmanship of the Commission. 

The Working Party’s mandate included, among 

other things, the identification of issues related to 

screen-based trading systems for derivative 

products. In considering the special concerns for 

screen-based trading systems, the Working Party 

identified and addressed the following issues: 

transparency, order execution algorithms, 

operational issues, security and system 

vulnerability, access, financial integrity, disclosure, 

and the role of system providers, and articulated for 

each issue a broad principle to assist regulatory 

authorities in overseeing screen-based trading 

systems. The IOSCO Principles were adopted by 

IOSCO on November 15, 1990 and set out in broad 

terms the international consensus as to the 

regulatory considerations to be addressed in 

reviewing mechanisms for cross-border screenbased trading. The Commission adopted the IOSCO 

Principles as a statement of regulatory policy for the 

oversight of screen-based trading systems for 

derivative products. Policy Statement Concerning 

the Oversight of Screen-Based Trading Systems. 55 

FR 48670 (Nov. 21, 1990). 

39A review of the FBOT requests for no-action 

relief to permit direct access reveals that most of the 

applicants stated that their regulatory authority has 

endorsed the IOSCO Principles. Several of the 

FBOTs indicated that that their regulatory 

authority, in its review of the FBOT’s trading 

system during development and/or on an ongoing 

basis, specifically took into account the IOSCO 

Principles. 

restricted to the three areas suggested by 

the commenter. The Commission 

believes that the broader review 

contemplated by the proposed 

regulations, which is an outgrowth of 

the review conducted during the noaction process, is necessary to ensure 

the protection of persons located in the 

U.S. that will be trading by direct access 

on the FBOT. Accordingly, the final 

regulations continue to require the 

FBOT to provide sufficient information 

and to demonstrate that the registration 

requirements set forth in § 48.7 are 

satisfied (e.g., information and 

documentation on the relevant 

membership standards, the contracts to 

be made available in the U.S. and the 

automated trading and clearing and 

settlement systems). The Commission 

believes that its review of the 

information and documentation 

provided in these areas is necessary to 

provide greater assurance that, among 

other things, the members of the FBOT 

and its clearing organization members 

are subject to appropriate standards, the 

contracts to be made available are not 

readily susceptible to manipulation, all 

linked contracts are identified, the 

trading system complies with the 

Principles for Screen-Based Trading 

developed by the Technical Committee 

of the International Organization of 

Securities Commissions (IOSCO 

Principles) 38 and produces an adequate 

audit trail, and the clearing and 

settlement systems satisfy appropriate 

standards. 

(iv) Reconfirmation and Withdrawal of 

Registration 

Better Markets commented that 

proposed § 48.8(a)(2)(iii), which would 

impose continuing requirements on the 

foreign regulatory structure to maintain 

its laws governing the FBOT, was too 

narrow and too focused on the letter of 

the law, rather than the realities of the 

marketplace. Better Markets proposed 

an annual reconfirmation and 

demonstration of the appropriateness of 

the FBOT’s regulatory regime and, 

further, that an FBOT’s registration 

should be discontinued if the foreign 

regulatory regime changes in ways such 

that the FBOT would not be able to 

qualify for initial registration. 

The Commission has determined to 

adopt the rule as proposed, with slight 

modifications. The Commission notes 

that the regulations contain multiple 

provisions designed to demonstrate that 

the FBOT continues to be subject to an 

appropriate regulatory regime. For 

example, § 48.8(a)(1) conditions 

continued FBOT registration upon the 

FBOT’s and its clearing organization’s 

satisfaction of all of the registration 

requirements set forth in § 48.7; 

§ 48.8(a)(2)(i) conditions registration 

upon the FBOT continuing to satisfy the 

criteria for a regulated market or 

licensed exchange pursuant to the 

regulatory regime described in its 

application and continuing to be subject 

to oversight by the regulatory authorities 

described in the registration application; 

§ 48.8(a)(2)(ii) imposes a similar 

condition with respect to the FBOT’s 

clearing organization; § 48.8(a)(2)(iii) 

conditions registration upon the laws, 

systems, rules, and compliance 

mechanisms of the regulatory regime 

applicable to the FBOT continuing to 

require the FBOT to maintain fair and 

orderly markets, prohibit fraud, abuse, 

and market manipulation, and provide 

that such requirements are subject to the 

oversight of appropriate regulatory 

authorities; and § 48.8(a)(3) conditions 

continued registration upon the FBOT’s 

and, if the FBOT’s clearing organization 

is not a DCO, the clearing organization’s 

satisfaction of certain internationally 

recognized standards. 

In addition, § 48.8(b)(1)(iii)(G) 

requires that the FBOT and its clearing 

organization, or their respective 

regulatory authorities, as applicable, 

provide to the Commission annually a 

written description of any material 

changes to the regulatory regime to 

which the foreign board of trade or the 

clearing organization is subject that 

have not been previously disclosed or a 

certification that no material changes 

have occurred. Further, proposed 

§ 48.9(b)(2) provides that the 

Commission may revoke an FBOT’s 

registration, after appropriate notice and 

an opportunity for a hearing, if there is 

a material change in the regulatory 

regime applicable to the FBOT or its 

clearing organization. The Commission 

has modified § 48.9(b)(2) to provide that 

the Commission may revoke an FBOT’s 

registration, after appropriate notice and 

an opportunity to respond, if there is a 

material change in the regulatory regime 

applicable to the FBOT or its clearing 

organization such that the regulatory 

regime no longer satisfies any 

registration requirement or condition for 

registration applicable to the regulatory 

regime. The Commission believes that 

in this instance, as in other instances in 

the final rule where the FBOT is 

provided appropriate notice by the 

Commission of an issue about which it 

is expected to communicate with the 

Commission, an opportunity to respond 

is adequate for the purpose of 

addressing the issue. 

c. International Standards 

The requirements for and conditions 

of registration set forth in proposed 

§ 48.7 and § 48.8, respectively, would 

require an FBOT and its clearing 

organization to observe specified 

international standards. In order to 

become registered, an FBOT would be 

required to successfully demonstrate 

that its trading system complied with 

the current IOSCO Principles.39 Unless 

the FBOT’s clearing organization is 

registered with the Commission as a 

DCO, the FBOT also would be required 

to demonstrate that the clearing 

organization observed: (1) The current 

Recommendations for Central 

Counterparties jointly issued by the 

Committee on Payment and Settlement 

Systems (CPSS) and the Technical 

Committee of IOSCO, as updated, 

revised or otherwise amended, or (2) 

successor standards, principles and 

guidance for central counterparties or 

financial market infrastructures adopted 

jointly by CPSS and IOSCO’s Technical 

Committee (RCCPs). OMX commented 

that, in order to provide more flexibility, 

the registration requirements should 

refer to ‘‘recognized international 

standards,’’ rather than specific 

international regulations. 

The Commission has determined to 

adopt §§ 48.7(b)(1) and (d)(1) and 

§ 48.8(a)(3) substantially as proposed. 

The use of a singular set of 

internationally recognized standards 

provides clarity, consistency and 

certainty to the application 

requirements and the standards 


sroberts on DSK5SPTVN1PROD with RULES
80682 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

40The current RCCPs were finalized in 2004 by 

a CPSS–IOSCO Task Force that included 

representatives from the following entities: National 

Bank of Belgium; Comissa ̃o de Valores Mobilia ́rios, 

Brazil; People’s Bank of China; Czech National 

Bank; European Central Bank; Autorite ́ des Marche ́s 

Financiers, France; Bank of France; Deutsche 

Bundesbank; BaFin (German Financial Services 

Authority); Securities and Futures Commission, 

Hong Kong; Reserve Bank of India; Securities and 

Exchange Board of India; Commissione Nazionale 

per le Societa` e la Borsa, Italy; Bank of Japan, 

Financial Services Authority, Japan; Malaysian 

Securities Commission; Bank of Mexico; 

Netherlands Authority for Financial Markets; Saudi 

Arabian Monetary Agency; Comisio ́n Nacional del 

Mercado de Valores, Spain; Monetary Authority of 

Singapore; Bank of England; Financial Services 

Authority, United Kingdom; Securities and 

Exchange Commission; CFTC; Board of Governors 

of the Federal Reserve System; Federal Reserve 

Bank of New York; International Monetary Fund; 

and the World Bank. The recommendations were 

initially released in a consultative document that 

requested public comment. The final version 

incorporates consideration of the comments 

received from central banks, regulators and the 

operators of and participants in central 

counterparties. 

41Not all of the FMI Principles are applicable to 

central counterparties. 

identified in the proposal are directly 

relevant to the review to be afforded 

FBOTs and their clearing organizations. 

In addition, due to the breadth of 

participation by sponsoring 

organizations 40 and the approval of the 

standards by IOSCO and CPSS, these 

principles are considered the premier 

standards in the industry and are likely 

to have greater global recognition than 

similar regional standards. 

The Commission did not receive 

comments specifically related to the 

requirement that an FBOT’s clearing 

organization observe any ‘‘successor 

standards, principles and guidance’’ to 

the current RCCPs that may be jointly 

issued by CPSS and IOSCO in the 

future. The Commission wishes to 

clarify, however, that such standards 

would include, to the extent applicable, 

the ‘‘Principles for Financial Market 

Infrastructures’’ (FMI Principles) 41 that 

CPSS and the IOSCO Technical 

Committee intend to finalize in early 

2012 and that, when effective, would 

replace the current RCCPs as the CPSS/ 

IOSCO standards applicable to central 

counterparties. In March 2011, CPSS 

and the IOSCO Technical Committee 

publicly issued a ‘‘Consultative Report’’ 

that included the then-current draft of 

the FMI Principles and that requested 

comment upon the draft by July 29, 

2011. CPSS and the IOSCO Technical 

Committee are in the process of 

reviewing the comments received and 

finalizing the FMI Principles. The 

Commission would not expect an 

FBOT’s clearing organization to observe 

the FMI Principles until the effective 

date thereof established by CPSS and 

IOSCO. However, because it is 

anticipated that several FBOTs may 

wish to apply for registration between 

the time that the final FMI Principles 

are published and the time that the FMI 

Principles become effective and that 

clearing organizations for FBOTs may 

find that they already observe the FMI 

Principles, an FBOT that applies for 

registration after the FMI Principles are 

published in final form may 

demonstrate that its clearing 

organization observes those principles 

in lieu of demonstrating observance of 

the RCCPs. 

d. Clearing Standards 

The FBOT registration requirements 

set forth in proposed § 48.7 include 

certain substantive standards that would 

have to be satisfied by an FBOT’s 

clearing organization or the FBOT itself, 

if it is performing its own clearing 

functions. Among other things, an FBOT 

would be required to demonstrate that 

the members of its clearing organization 

are fit and proper and meet appropriate 

financial and professional standards; 

that the clearing organization is 

registered with the Commission as a 

DCO or observes the RCCPs or successor 

standards; that the clearing organization 

is in good regulatory standing in its 

home country jurisdiction; that the 

regulatory authorities governing the 

activities of the clearing organization 

provide comprehensive supervision and 

regulation comparable to that provided 

by the Commission to DCOs and engage 

in ongoing supervision and oversight of 

the clearing organization; that the 

clearing organization has the capacity to 

detect, investigate and sanction persons 

who violate its rules; and that the 

clearing organization has sufficient 

compliance staff and resources. 

(i) DCOs 

LME and CME Group commented that 

if an FBOT’s clearing organization is 

registered with the Commission as a 

DCO, the FBOT should not be required 

to establish that the clearing 

organization satisfies the remaining 

criteria set forth in the proposed 

regulation. The Commission has 

determined to adopt the approach 

suggested by the commenters. Much of 

the criteria set forth in § 48.7 are likely 

to have been reviewed in connection 

with the clearing organization’s 

application for a registration as a DCO 

and any additional review would be 

redundant. Accordingly, proposed 

§ 48.7 has been modified to reflect that 

the registration requirements applicable 

to an FBOT’s clearing organizations may 

alternatively be demonstrated by a 

statement from the clearing organization 

that it is registered and in good standing 

with the Commission as a DCO. 

(ii) RCCPs Standards for Non-DCOs 

Certain commenters questioned the 

appropriateness of the proposal’s 

requirement that clearing organizations 

that are not CFTC-registered DCOs 

would have to demonstrate compliance 

with the RCCPs. MX suggested that the 

Commission should instead require the 

clearing organization to demonstrate 

that the regulations, standards, and 

policies of the applicable foreign 

regulator are comparable to those of the 

Commission; ICE suggested that the 

CFTC should rely on the expertise of the 

foreign regulator to regulate its own 

clearing organizations. As noted above, 

OMX recommended that the registration 

requirements permit clearing firms to 

demonstrate that they satisfy certain 

recognized international standards for 

central counterparties, rather than 

referring specifically to the RCCPs. By 

contrast, Eurex suggested that the 

inquiry into a firm’s clearing 

organization should be restricted to a 

demonstration that the RCCPs are 

satisfied. 

NYX suggested that if the proposed 

RCCP standard is adopted, the CFTC 

should obtain confirmation of that fact 

from the firm’s home country regulator, 

in lieu of requiring the information from 

the clearing organization itself. Bursa 

Derivatives suggested that the 

Commission should clarify that a 

clearing organization’s reasons for noncompliance with certain RCCPs would 

be considered by the Commission and 

asked whether a time period would be 

specified for the clearing organization to 

comply with all of the RCCPs in such 

instance. 

The Commission has determined to 

adopt §§ 48.7(d)(1) and 48.8(a)(3)(ii) 

substantially as proposed. As noted 

above, the Commission believes that 

requiring an FBOT’s clearing 

organization to demonstrate that it 

observes a singular set of internationally 

recognized standards provides clarity, 

consistency and certainty to the 

application requirements. Such 

representations also enable the 

Commission to obtain assurance that the 

clearing organizations used by the 

FBOTs observe, among other things, 

appropriate criteria for participation; 

measurement and management of credit 

exposures; management of custody, 

investment and operational risk; margin; 

financial resources; default procedures; 

governance; and transparency without 

specifically requiring the clearing 

organizations to demonstrate 

compliance with requirements that are 

identical to those that would be 


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Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 80683 

42The Commission expects to take a similar 

approach with respect to the FMI Principles, when 

finalized. As currently drafted, the FMI Principles 

will include general principles, key considerations 

that explain the general principle, and explanatory 

notes that discuss the objective and rationale 

behind the principle and that provide guidance on 

how the standards expressed therein can be 

implemented. In some cases, annexes will provide 

additional information and guidance. When 

published, the document also will be accompanied 

by an assessment methodology. 

imposed upon a DCO. The use of an 

international standard that is 

substantially similar, though not 

identical, to the requirements imposed 

upon U.S. registrants is consistent with 

the directive in CEA section 4(b)(1)(A)(i) 

that the Commission consider whether 

the relevant regulatory regime is 

‘‘comparable’’ and ‘‘comprehensive.’’ It 

is also consistent with section 752 of the 

Dodd-Frank Act, which seeks to 

promote consistency in global 

regulation of swaps and futures 

contracts and the requirement set forth 

in §§ 48.7(b)(1) and 48.8(a)(3)(i) that the 

FBOT itself comply with the IOSCO 

Principles. The RCCPs were developed 

with broad participation and comment 

from entities from multiple nations and 

have been approved by both IOSCO’s 

Technical Committee and the CPSS. The 

same will be true of the FMI Principles, 

when finalized. Accordingly, the 

Commission believes that the RCCPs 

and their successor standards are the 

appropriate criteria to use when 

reviewing an FBOT’s clearing 

organization that is not registered as a 

DCO. 

The Commission notes that the RCCPs 

consist of recommendations that are 

expressed as general principles, 

explanations thereof, and key issues and 

questions to be considered when 

assessing observance of the 

recommendations, rather than a 

checklist of obligations to be reviewed. 

The Commission recognizes that the 

generality of the recommendations and 

the explanations thereof afford some 

flexibility in assessing a clearing 

organization’s observance thereto. The 

Commission anticipates that, for 

purposes of an FBOT registration 

application, clearing organizations may 

demonstrate observance of individual 

RCCPs, as well as observance of the 

RCCPs as a whole, in a variety of 

ways.42

CPSS and IOSCO encourage relevant 

national authorities to assess observance 

of the RCCPs by the central 

counterparties in their jurisdictions as 

well as RCCP assessments by 

international financial institutions (i.e., 

the International Monetary Fund and 

the World Bank) as part of their 

Financial Sector Assessment Programs. 

The Commission anticipates that a 

similar approach will be taken with 

regard to the FMI Principles. The 

Commission encourages FBOT 

registration applicants to submit with 

their registration applications any such 

assessments that have been made of 

their clearing organizations and any 

other information from their home 

country regulator(s) (provided that 

submitting such assessments to the 

Commission is not inconsistent with 

any applicable laws of the home 

country) that would be relevant to a 

determination that the clearing 

organization observes the RCCPs. Such 

assessments will inform the 

Commission’s review of the clearing 

portion of the application. Due to the 

generality of the RCCPs, however, the 

Commission believes that a certification 

from a regulatory authority that the 

clearing organization observes the 

RCCPs, without more, would not 

provide it with sufficient information as 

to the relevant clearing operations to 

adequately assess the FBOT application 

and, thus, would not be sufficient to 

demonstrate that the RCCP requirement 

is met. 

With respect to Bursa Derivatives’ 

request that the Commission consider a 

clearing organization’s reasons for noncompliance with certain RCCPs, the 

Commission generally believes that a 

registered FBOT’s clearing organization 

should be able to represent that it 

observes the RCCPs or successor 

standards. However, the Commission 

recognizes that a clearing organization 

may have very unique factual 

circumstances that may warrant an 

exception to the requirement with 

respect to a limited scope of RCCPs. 

Accordingly, the Commission would, 

where circumstances warrant, entertain 

applications from FBOT’s whose 

clearing organizations do not observe all 

of the RCCPs. 

e. Foreign Regulation of FBOT 

Participants 

In the proposed rules, the 

Commission specifically asked for 

comment as to whether, to the extent an 

FBOT is permitted to list swaps, the 

Commission should examine the 

regulatory oversight of relevant market 

participants (e.g., the functional 

equivalents of swap dealers (SD) and 

major swap participants (MSP)) in the 

applicable foreign jurisdictions when 

making a determination as to the 

comparability and comprehensiveness 

of the supervision and regulation of the 

relevant regulatory regime. Three 

commenters addressed the issues 

related to market participants. Better 

Markets commented that ‘‘[s]uch 

examination is critical * * * [and must 

include an assessment of] rules relating 

to collateral, business conduct and 

trading behavior.’’ It noted that ‘‘SDs 

and MSPs are subject to rigorous 

standards because safeguards for these 

important market participants enhance 

the continued financial integrity of the 

marketplace.’’ Better Markets further 

argued that the requirements for the 

foreign equivalents of SDs and MSPs 

should be the same as or equivalent to 

those imposed by the Dodd-Frank Act. 

In contrast, ICE commented that 

requiring equivalent or comparable 

regulation of foreign swap dealers or 

major swap participants is premature, 

positing that the proper course is for the 

CFTC to ‘‘work with foreign regulators 

to ensure high-level comparable 

regulation of market participants.’’ As 

previously noted, FOA expressed 

concern that this type of analysis could 

easily lead to a ‘‘line by line’’ 

examination of the EU’s approach to the 

regulation of derivatives transactions, 

central counterparties and trade 

repositories, which would complicate 

cross-border business and increase the 

risk of inadvertent breaches of rules. 

The Commission has determined that 

it would not be appropriate, in the 

context of this rulemaking, when 

making a determination as to the 

comparability and comprehensiveness 

of the supervision and regulation of the 

relevant regulatory regime with respect 

to the registration of an FBOT, to require 

examination of the regulatory oversight 

of SDs and MSPs in the applicable home 

country jurisdictions. CEA section 4(b) 

applies with respect to FBOTs that wish 

to provide for direct access and the CEA 

section 4(b)(1)(A)(i) standard of review 

to be applied is ‘‘whether any such 

foreign board of trade is subject to 

comparable, comprehensive supervision 

and regulation by the appropriate 

governmental authorities in the foreign 

board of trade’s home country.’’ The 

Commission believes that the review 

standard is thereby appropriately 

focused on an FBOT’s operations, 

including its clearing organization, and 

its regulatory authority. Thus, the 

appropriate review here is to examine 

the FBOT’s membership and trading 

participant standards as they relate to 

trading on the FBOT. If such 

membership and/or trading participant 

standards have been determined to be 

adequate by the FBOT’s regulatory 

authority, which has been determined to 

provide comparable, comprehensive 

supervision and regulation of the FBOT, 

any further participant review would be 

beyond the scope of CEA section 4(b). 


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80684 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

43Registered entity is defined in CEA section 

1a(40) to mean: (A) A board of trade designated as 

a contract market under section 5 of the Act; (B) a 

derivatives clearing organization registered under 

section 5b of the Act; (C) a board of trade designated 

as a contract market under section 5f of the Act; (D) 

a swap execution facility registered under section 

5h of the Act; (E) a swap data repository registered 

under section 21 of the Act; and (F) with respect 

to a contract that the Commission determines is a 

significant price discovery contract, any electronic 

trading facility on which the contract is executed 

or traded. 

44NGX, Better Markets, and LME. 

45The Commission does not believe that any LME 

contract currently made available for direct access 

under LME’s no-action relief, all of which settle 

against prices generated by the LME, would fall into 

that definition. 

46Under the proposed regulations, the 

requirements to register and to comply with the 

conditions for making available linked contracts are 

applicable only to those FBOTs which make such 

contracts available through direct access. The 

registration and linked contract provisions of the 

final rule do not extend to FBOTs that do not 

provide direct access to the FBOT’s trade matching 

system from the U.S. 

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

48LME, OSE, Senator Carl Levin, CMOC and 

ATA. 

3. Contracts 

a. Linked Contracts 

(i) Definition 

Proposed § 48.2(d) defined a linked 

contract as ‘‘a futures or option or swap 

contract made available for direct access 

from the United States by a registered 

foreign board of trade that settles against 

any price (including the daily or final 

settlement price) of one or more 

contracts listed for trading on a 

registered entity as defined in section 

1a(40) of the Act.’’ 43 Three commenters 

requested clarification with respect to 

this definition.44 NGX requested that the 

Commission clarify the definition of 

linked contract to take into account the 

nuanced distinction between (1) 

contracts which are settled against the 

settlement price of a contract listed for 

trading on a U.S. contract market and (2) 

basis contracts, the prices of which are 

merely quoted with reference to another 

market. Better Markets commented that 

the definition of linked contract is far 

too narrow, and argued that it should 

include contracts that are reasonably 

likely to influence prices of the DCM/ 

SEF-traded contracts as well as 

contracts that directly reference the 

prices of DCM/SEF-traded contracts. 

LME requested clarification on the 

scope of the definition of linked 

contract, commenting that LME did not 

believe the definition captured any 

contract of the type traded on LME. 

The Commission has determined to 

adopt the definition in § 48.2(d) 

substantially as proposed. The 

definition of linked contract leading to 

the requirement to impose additional 

conditions on such contracts is based 

upon the statutory description of linked 

contracts found in CEA section 

4(b)(1)(B).45 With respect to contracts 

that do not meet the definition of linked 

contracts, the proposal provided that 

applicants must identify contracts that 

share any other commonality (changed 

to relationship in the final rule) with a 

contract listed for trading on a registered 

entity— for example, if both the FBOT’s 

and the registered entity’s contracts 

settle to the price of the same third 

party-constructed index. With respect to 

these types of contracts, as with all 

conditions of registration, the final rule 

provides that the Commission, in its 

discretion and after appropriate notice 

and opportunity to respond, may 

impose additional conditions on the 

registered FBOT. Such additional 

conditions would be imposed if deemed 

necessary by the Commission to 

maintain its ability to carry out its 

market surveillance responsibilities 

when faced with contract relationships 

that essentially create a single market 

for the contracts listed by the FBOT and 

the registered entity and could include, 

among others, the conditions applicable 

to the listing of a linked contract. 

(ii) Conditions 

Proposed § 48.8(c) applied certain 

additional specified conditions for 

FBOTs that make linked contracts 

available by direct access. 46 The 

conditions included in § 48.8(c)(1), as 

set forth in CEA section 4(b)(1)(B), 

included: (1) Making public daily 

trading information regarding the linked 

contract that is comparable to the daily 

trading information published for the 

contract to which it is linked; (2) 

adopting position limits for the linked 

contract that are comparable to the 

position limits adopted by the registered 

entity for the contract to which it is 

linked; (3) having the authority to 

require or direct any market participant 

to limit, reduce, or liquidate any 

position; (4) agreeing to promptly notify 

the Commission of certain changes with 

respect to the linked contract; (5) 

providing information to the 

Commission regarding large trader 

positions in the linked contract that is 

comparable to the large trader position 

information collected by the 

Commission for the contract to which it 

is linked; and (6) providing the 

Commission such information as is 

necessary to publish reports on 

aggregate trader positions for the linked 

contract that are comparable to such 

reports on aggregate trader positions for 

the contract to which it is linked. 

The other conditions on linked 

contracts, set forth in § 48.8(c)(2), are 

based on the second set of additional 

conditions the Commission imposed on 

the no-action relief issued to ICE 

Futures Europe when that exchange 

made available for trading by direct 

access certain contracts in energy 

commodities linked to the prices of 

contracts traded on NYMEX.47 The 

conditions would require that the 

FBOT, among other things, (1) inform 

the Commission in a quarterly report of 

any member that had positions in a 

linked contract above the applicable 

FBOT position limit, (2) provide trade 

execution and audit trail data for input 

to the CFTC’s Trade Surveillance 

System (TSS), (3) provide for CFTC onsite visits for the purpose of overseeing 

the FBOT’s and the clearing 

organization’s ongoing compliance with 

registration requirements and 

conditions, (4) provide, at least one day 

prior to the effective date, copies of, or 

hyperlinks to, all rules, rule 

amendments, circulars and other notices 

published by the FBOT with respect to 

all linked contracts, (5) provide copies 

of all disciplinary notices involving the 

FBOT’s linked contracts, and (6) 

promptly take similar action with 

respect to its linked contract in the 

event that the CFTC, pursuant to its 

emergency powers authority, directs 

that the U.S. registered entity which 

lists the contract to which the FBOT’s 

contract is linked to take emergency 

action with respect to a linked contract 

(e.g., to reduce positions in or cease 

trading in the contract). 

Five commenters addressed these 

additional conditions.48 With respect to 

linked contracts and position limits, 

LME, noting that foreign markets may 

well implement restrictions that could 

be more effective than position limits in 

addressing the regulatory objectives to 

be addressed by position limits, 

suggested that FBOTs should be 

permitted to adopt the position limits of 

a linked market as a safe harbor, but that 

the CFTC should also permit applicants 

to submit for approval any alternative 

approach that the Commission 

determines to be comparable in result. 

OSE argued that the proposed 

additional conditions for linked 

contracts are only necessary when an 

FBOT has more than a de minimis 

amount of trading in a linked contract. 

OSE also noted that the burdens 

associated with proposed § 48.8(c)(2) 

may be overly costly and could be 

narrowed. Specifically, OSE commented 

on proposed § 48.8(c)(2)(ii), which 

would require that the FBOT provide 

trade execution and audit trail data on 


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Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 80685 

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

50The Commission notes that its decision to 

permit registered FBOTs to make swaps available 

via direct access to persons located in the U.S. is 

guided in part by the fact that the Dodd-Frank Act 

permits swaps to be listed for trading on a DCM and 

the FBOTs that are eligible to be registered are 

defined by § 48.2(b) as FBOTs that possess the 

attributes of an established, organized exchange. 

This definition was intended to restrict FBOT 

registration eligibility to entities similar in nature 

to those that received direct access no-action relief 

in the past (e.g., entities that are comparable in 

operation and regulation to registered DCMs). 

Moreover, there is nothing in the Dodd-Frank Act, 

including section 738 of the Dodd-Frank Act 

amending section 4(b) of the Act, which expressly 

precludes a registered FBOT from offering swaps 

through direct access. However, the Commission 

also believes that the terms and conditions of any 

swap contract to be made available to persons 

located in the United States through direct access 

must demonstrate that such contract would meet 

review standards similar to those of a swap to be 

listed on a DCM and must demonstrate that the 

contract is not one that a U.S. person would be 

prohibited from trading. 

a linked contract for input into the TSS 

on a routine basis by the day following 

the trade date. OSE suggested that the 

Commission assess the relative burdens 

of the requirement and whether it could 

achieve the regulatory purpose through 

a more targeted requirement, such as 

requiring the data on an ‘‘as necessary’’ 

rather than on a daily basis. OSE also 

expressed concern about proposed 

§ 48.8(c)(2)(vi), which would require the 

FBOT, in the event that the Commission 

directs that the registered entity that 

lists the contract to which the FBOT’s 

contract is linked take emergency action 

with respect to a linked contract, subject 

to information-sharing arrangements 

between the Commission and its 

regulatory authority, to promptly take 

similar action with respect to the its 

linked contract. OSE suggested that it is 

preferable for the Commission to 

coordinate the actions that the FBOT 

should take in response to a market 

disruption or event through the FBOT’s 

regulator, in recognition of international 

comity. 

Two commenters, Senator Carl Levin 

and ATA, strongly supported the 

proposed linked contract conditions, 

both specifically identifying the 

requirement that the FBOT share its 

trade execution and audit trail data, as 

well as the position limit provisions. 

Senator Levin commented that sharing 

trading data is vital for the Commission 

to detect price manipulation and 

excessive speculation involving U.S. 

futures traded on foreign exchanges. 

Further, Senator Levin noted that he 

believed the linked contract provisions 

would help to close the ‘‘London 

loophole’’ (a scheme, whereby, 

according to Senator Levin, traders 

move their trading activity to foreign 

markets to avoid position limits set by 

U.S. exchanges) by ensuring that the 

Commission is able to police FBOT 

trading in U.S. commodities to stop 

excessive speculation, price 

manipulation, and market disruptions. 

CMOC encouraged the CFTC to require 

that the FBOT impose position limits 

that are at least equal to or lower than 

the limits to be imposed in the U.S. on 

registered entities under the Dodd-Frank 

Act. 

The Commission has determined to 

adopt § 48.8(c) substantially as 

proposed. The first set of conditions for 

linked contracts, found in § 48.8(c)(1) 

are statutory-based conditions which are 

specifically required by the CEA section 

4(b)(1)(B). The second set of conditions 

for linked contracts, found in 

§ 48.8(c)(2), as previously noted, 

represent the second group of additional 

conditions the Commission imposed on 

the no-action relief issued to ICE 

Futures Europe when that exchange 

made available for trading by direct 

access contracts linked to the prices of 

contracts traded on NYMEX. These 

conditions remain necessary because 

such linkages create a single market for 

the subject contracts and, in the absence 

of certain preventive measures at the 

FBOT, could compromise the 

Commission’s ability to carry out its 

market surveillance responsibilities. 

Because of the linkage, the trading of the 

linked contracts on an FBOT potentially 

affects the pricing of contracts traded on 

registered entities. 

With respect to the proposed 

§ 48.8(c)(2)(ii) trade execution and audit 

trail data on a linked contract reporting 

requirement, the Commission has 

considered comments urging the 

Commission to require the data on an 

‘‘as necessary’’ rather than on a daily 

basis and has determined that the timely 

provision of such information is 

essential if the Commission is to 

adequately carry out its trade practice 

and market surveillance responsibilities 

with respect to the linked contract listed 

on the registered entity. Commission 

staff conducts surveillance and reviews 

the trading data on a daily basis, and the 

trade data from the FBOT’s linked 

contract are a critical component of this 

surveillance. With respect to the 

proposed § 48.8(c)(2)(vi) coordinated 

emergency action requirement, the 

Commission believes that the timeliness 

of any required emergency action, 

which would be taken only if necessary 

to protect the market and the public, is 

critical and outweighs the benefit that 

would be derived from coordinating 

actions through the FBOT’s regulator. 

The Commission notes that the 

requirement to take emergency action is 

an extremely rare event and, in the 

normal course of business, the 

Commission would, time permitting, 

coordinate with the FBOT’s regulator 

regarding critical actions to be taken 

concerning a linked contract. 

The Commission has determined to 

modify the second set of conditions on 

linked contracts by moving the 

requirement in proposed § 48.8(c)(2)(iii), 

which provided for CFTC on-site visits 

for the purpose of overseeing the 

FBOT’s and the clearing organization’s 

ongoing compliance with registration 

requirements and conditions, to 

§ 48.8(a)(8), thus making it a general 

condition for maintaining registration. 

b. Swaps and Other Contracts 

(i) Swaps 

Under proposed § 48.7(c)(1)(i), a 

registered FBOT would be permitted to 

provide direct access to futures, options, 

and swap contracts that would be 

eligible to be listed for trading on a 

DCM. Five commenters supported 

permitting the execution of swaps on an 

FBOT by persons located in the U.S. by 

direct access.49 Eurex, for instance, 

commented that the Commission should 

permit FBOTs to provide trading access 

to qualified U.S. persons for trading 

swaps that are listed on the FBOT, 

noting that the currently proposed 

conditions on FBOTs would be 

sufficient for them to comply with the 

purposes of the Dodd-Frank Act 

regarding swap trading. 

The Commission has determined to 

adopt the rule as proposed. The 

Commission notes, however, that the 

regulations would only permit an FBOT 

to make swaps available to persons 

located in the U.S. for trading by direct 

access after the FBOT, its clearing 

organization, and the swaps to be made 

available by direct access have been 

determined by the Commission to be 

subject to comparable, comprehensive 

supervision and regulation by the 

appropriate governmental authorities in 

the FBOT’s home country. Moreover, 

only swaps that would be permitted to 

be traded on a DCM could be made 

available, all such traded swaps would 

be required to be cleared, and the 

parties trading such swaps would be 

required to satisfy FBOT membership/ 

trading participant standards that would 

have been reviewed and approved by 

the FBOT’s regulatory authority.50

Registered FBOTs that permit swaps 

to be traded by direct access would also 

be subject to additional conditions, 

including the requirement to ensure that 

all swap transaction data, including 

price and volume, are timely reported as 

soon as technologically practicable after 

execution of the swap transaction to a 


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80686 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

51 ICE noted that the SDR rules for domestic 

markets have not been finalized and SDRs are not 

yet operational and that, accordingly, the CFTC 

should delay implementation of this requirement 

until SDR rules are finalized and SDRs are 

operational. Further, the CFTC could rely on 

reporting to the CFTC from the FBOT, its clearing 

organization, or the foreign regulatory authority 

under an information-sharing arrangement. 

swap data repository (SDR) that is either 

registered with the Commission or has 

an information-sharing arrangement 

with the Commission. Additionally, the 

FBOT must agree to coordinate with the 

Commission with respect to 

arrangements established to address 

cross market oversight issues involving 

swaps trading, including surveillance, 

emergency actions, and the monitoring 

of trading. Finally, based on its 

experience in administering these FBOT 

registration provisions and other rules 

related to swaps trading, the 

Commission may, in its discretion and 

after notice and an opportunity to 

respond, impose additional conditions 

upon the FBOT’s registration with 

respect to the listing of swaps contracts. 

(ii) Clearing of Swaps 

Under proposed § 48.7(c)(1)(ii), all 

contracts that could be made available 

to be traded by direct access, including 

swaps, would be required to be cleared. 

ICE, BG Americas, and NGX opposed 

the mandatory clearing requirement for 

swaps. ICE commented that the clearing 

mandate contained in the proposed 

regulations differed from the clearing 

requirements applicable to swaps 

transactions on U.S. markets. 

Specifically, transactions executed on a 

swap execution facility (SEF) would not 

be required to be cleared if such 

transactions were not subject to the 

mandatory clearing requirements set 

forth in the Act. NGX noted that end 

users executing swaps on SEFs would 

be exempt from the mandatory clearing 

requirements pursuant to section 2(h)(7) 

of the Act. Similarly, BG Americas 

commented that the mandatory clearing 

standard applicable to transactions 

executed on an FBOT would be higher 

than that applicable to U.S. exchanges, 

in light of the available exemptions from 

the clearing requirement in the CEA, 

and recommended that the Commission 

clarify in the final rule that the 

mandatory clearing requirements on 

FBOTs will be no different from the 

clearing requirements on U.S. 

exchanges. 

The Commission has determined to 

adopt § 48.7(c)(1)(ii) as proposed. All 

three commenters supported their view 

by referencing the clearing standards 

applicable to transactions executed on 

SEFs, not on DCMs. As stated above, 

both the proposed and final § 48.2(b) 

restrict the universe of FBOTs that are 

eligible to be registered under part 48 to 

those that possess ‘‘the attributes of an 

established, organized exchange or other 

trading facility.’’ This provision is 

intended to limit FBOT registration 

eligibility to the types of entities to 

which direct access no-action relief has 

been granted in the past (e.g., entities 

that are comparable in operation and 

regulation to registered DCMs). 

Accordingly, the Commission believes 

that the treatment of swaps that 

registered FBOTs will make available 

for trading to members and other 

participants located in the U.S. through 

direct access should parallel the 

treatment afforded to swaps transactions 

that may be traded on DCMs. 

The CEA requires swaps transactions 

that are traded on a DCM to be cleared. 

Specifically, CEA section 5(d)(11) 

includes DCM Core Principle 11, 

‘‘Financial Integrity of Transactions,’’ 

which requires a board of trade to 

establish and enforce rules and 

procedures for ensuring the financial 

integrity of transactions entered into on 

or through the facilities of the contract 

market (including the clearing and 

settlement of transactions with a DCO). 

Accordingly, the Commission believes 

that it is appropriate to require that all 

transactions (including swaps) that are 

eligible to be traded by direct access 

pursuant to an FBOT registration be 

cleared. 

(iii) Swaps Data Reporting 

Under proposed § 48.8(a)(9)(i), a 

registered FBOT permitting swaps to be 

traded by direct access would be 

required to report to the public, on a 

real-time basis, data relating to each 

swap transaction, including price and 

volume, as soon as technologically 

practicable after execution of the swap 

transaction. Under proposed 

§ 48.8(a)(9)(ii), a registered FBOT 

permitting swaps to be traded by direct 

access would be required to ensure that 

all swap transaction data is timely 

reported to an SDR that is either 

registered with the Commission or has 

an information-sharing arrangement 

with the Commission. 

Two commenters addressed these 

reporting requirements. ATA expressed 

concern about the effect of real-time 

reporting on their members’ ability to 

hedge and recommended that this 

requirement be revised to allow delayed 

reporting to permit counterparties to 

close their related transactions. ICE 

expressed the view that the CFTC 

should not require all FBOTs to report 

swaps transactions to an SDR.51

The Commission has determined to 

retain both reporting requirements, but 

to modify the proposed rule with 

respect to the responsibility for realtime reporting of swaps transaction 

information to the public. The 

Commission recognizes that the realtime reporting of swaps information to 

the public and the reporting of swaps 

transactions to an SDR are key 

objectives of the Dodd-Frank Act. Realtime reporting enhances price 

discovery. Reporting swaps transactions 

is necessary to permit the Commission 

and other regulatory authorities to view 

the market as a whole. As previously 

stated, § 48.2 is intended to restrict the 

universe of FBOTs that are eligible to be 

registered under part 48 to those entities 

that are comparable in operation and 

regulation to registered DCMs. The 

Commission anticipates that DCMs will 

be required to ensure that all swap 

transaction data, including price and 

volume, are timely reported to an SDR 

after execution of the swap transaction. 

Real-time swap transaction and pricing 

data will then, in turn, be publicly 

disseminated by the SDR. Accordingly, 

the Commission has determined to limit 

the registered FBOT reporting 

requirements contained in § 48.8(a)(9)(i) 

to an obligation to ensure that all 

transaction data relating to each swap 

transaction, including price and 

volume, be reported to an SDR that is 

registered with the Commission or has 

an information sharing arrangement 

with the Commission. 

The Commission is aware that no 

SDRs are either registered or operational 

at this time. Accordingly, until such 

time as appropriate SDR operations are 

in place, the conditions contained in 

Orders of Registration issued to FBOTs 

that wish to permit members and other 

participants to trade swaps via direct 

access will indicate that the FBOT may 

list such swaps for direct access but will 

be required to comply with 

§ 48.8(a)(9)(i) as soon as practicable 

following the licensing or registration of 

a SDR that meets applicable 

requirements. 

(iv) Contracts Other Than Futures, 

Options, and Swaps 

Proposed § 48.7(c)(1)(i) provided that 

contracts that may be made available by 

direct access by a registered FBOT must 

be futures, option, or swaps contracts. 

LME and NGX requested clarification 

with respect to whether the proposed 

rules would permit an FBOT to offer 

spot and forward contracts and other 

similar physically-settled transactions. 

NGX also asked the Commission to 

clarify that, although the proposed 

regulations would permit a registered 

FBOT to list for trading through direct 

access any contract that is legally 


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52See Foreign Futures and Options Contracts on 

a Non-Narrow-Based Security Index; Commission 

Certification Procedures, 76 FR 59241 (September 

26, 2011). 

53Upon the implementation date, regulations 

48.7(c) and 48.10 supersede and replace the 

provisions included in the ‘‘Notice of Revision of 

Commission Policy Regarding the Listing of New 

Futures and Option Contracts by Foreign Boards of 

Trade That Have Received Staff No-Action Relief to 

Provide Direct Access to Their Automated Trading 

Systems from Locations in the United States’’ (71 

FR 19877; April 18, 2006; corrected at 71 FR 21003, 

April 24, 2006) and the ‘‘Notice of Additional 

Conditions on the No-Action Relief When Foreign 

Boards of Trade That Have Received Staff NoAction 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). 

offered in the U.S., only those contracts 

that are regulated under the Act would 

be within the scope of the FBOT 

registration provision. 

The Commission has determined to 

adopt the rule as proposed. As stated in 

the proposal, those types of contracts 

subject to the CFTC’s jurisdiction are 

within the ambit of the FBOT 

registration rules. The registration 

provisions do not preclude an FBOT 

from making available to participants 

located in the U.S. other products (e.g., 

spot contracts and forward contracts) to 

the extent applicable law otherwise 

allows. The Commission also has 

determined to remove any reference to 

products from the FBOT definition set 

forth in § 48.2(a). 

(v) Review of Contracts 

Proposed § 48.7(c) would require that 

an FBOT, as part of its application for 

registration, provide, among other 

things, the terms and conditions of the 

futures, option and swaps contracts 

intended to be made available for direct 

access. Additionally, proposed § 48.10 

would require a registered FBOT that 

wishes to offer new contracts 

subsequent to registration to submit 

such contracts to the CFTC for review 

prior to making the additional contracts 

available for trading by direct access. 

LME commented that the Commission 

should adopt an exemptive, rather than 

a registration, regime and require 

contract designation, similar to that 

applied by the Commission when a 

DCM submits a new contract for listing, 

only with respect to linked contracts. 

The Commission has determined to 

adopt §§ 48.7(c) and 48.10 as proposed, 

modified to reflect newly adopted 

procedures, discussed below, applicable 

to the offer or sale, to persons in the 

U.S., of non-narrow-based security 

index futures and option contracts. The 

Commission believes that it is necessary 

to review the terms and specifications of 

all contracts before they are made 

available for trading by direct access to 

ensure that the contracts would be 

legally permitted to be traded on a DCM 

and otherwise conform to the 

requirements and conditions applicable 

to contracts listed on the FBOT for 

trading by direct access by persons 

located in the U.S. The Commission also 

believes that it is necessary and 

appropriate to review new contracts in 

order to, among other things, determine 

that the contracts are actually futures, 

option, or swap contracts; ensure that 

they are not contracts determined by the 

Commission pursuant to CEA section 

5c(c)(5)(C)(i) to be contrary to the public 

interest; ensure that they are not 

contracts on such products as security 

futures or narrow-based stock indexes or 

other securities regulated by the U.S. 

Securities and Exchange Commission; 

and determine whether the contract is 

linked to or may otherwise have some 

impact on a contract traded on a CFTCregulated entity. The Commission notes 

that the treatment of new products set 

forth in the proposed and final rules is 

consistent with the existing practice 

under the no-action regime. The 

Commission further notes that, in the 

past, Commission staff has attempted to 

complete its review of additional 

contracts proposed to be made available 

for direct access promptly. Thus, an 

FBOT’s ability to bring such contracts to 

market quickly generally has not been 

impaired. 

With respect to the listing of 

additional non-narrow-based security 

index futures and option contracts to be 

made available by direct access, 

proposed § 48.10 provided that a 

registered FBOT could list for trading 

such an additional futures contract 

pursuant to the procedures set forth in 

Appendix D to Part 30. Proposed § 48.10 

also provided that a registered FBOT 

could, without further action by either 

the FBOT or the Commission, list for 

trading an additional option contract on 

a non-narrow-based security index 

futures contract which could be offered 

or sold in the United States pursuant to 

a no-action letter issued by the 

Commission’s Office of the General 

Counsel. HKFE requested clarification 

with respect to any interrelationship 

between the proposed rules and the 

approval process for the offer and sale 

of index products to persons in the U.S. 

The Commission has revised its 

procedures applicable to the offer or 

sale, to persons in the U.S., of a nonnarrow-based security index futures 

contract traded on an FBOT to conform 

to recent amendments to its 

regulations.52 Generally, the new 

procedures involve the issuance of a 

Commission certification rather than a 

no-action letter. Accordingly, 

§ 48.7(c)(2) has been added and 

provides that foreign futures (and option 

contracts) on non-narrow-based security 

indexes must have been certified by the 

Commission pursuant to the procedures 

set forth in § 30.13, and § 48.10 has been 

updated and now provides that a 

registered FBOT may list for trading by 

direct access an additional futures (or 

option contract) on a non-narrow-based 

security index pursuant to the 

Commission certification procedures set 

forth in § 30.13(d) and Appendix D to 

Part 30. Further, with respect to option 

contracts, if the option is on a nonnarrow-based security index futures 

contract which may be offered or sold 

in the United States pursuant to a 

Commission certification issued 

pursuant to § 30.13, the option contract 

may be listed for trading by direct 

access without further action by either 

the registered FBOT or the 

Commission.53 In response to HKFE’s 

query, the Commission notes that the 

Commission certification procedures for 

non-narrow-based security indexes and 

the FBOT registration procedures are 

independent of each other, with the 

exception that a registered FBOT 

applying for Commission certification to 

offer or sell to persons located within 

the U.S. a non-narrow-based security 

index contract may, in that same 

request, pursuant to § 30.13(k), request 

that such contract be made available for 

trading by direct access. 

4. Direct Access Definition 

Proposed § 48.2(c) defines direct 

access to mean ‘‘an explicit grant of 

authority by a foreign board of trade to 

an identified member or other 

participant located in the United States 

to enter trades directly into the trade 

matching system of the foreign board of 

trade,’’ which is identical to the 

definition provided in CEA section 

4(b)(1)(A). LME and HKFE requested 

clarification of the definition. 

LME requested clarification of the 

degree to which the definition covers 

access to application programming 

interfaces (API) developed by members 

to interface with exchange systems. 

LME indicated that it understood the 

direct access definition to include 

access to the graphical user interface of 

an FBOT, and not indirect access via an 

API. HKFE asked the Commission to 

clarify the meaning of ‘‘explicit grant of 

authority’’ and to provide examples of 

the kind of conduct or actions on the 

part of an FBOT that would be regarded 


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54CFTC Letters No. 01–75 (July 30, 2001) and No. 

04–32 (October 25, 2004). 

55CFTC Letter No. 01–74 (July 30, 2001). 

as ‘‘an explicit grant of authority.’’ 

HKFE also requested that the CFTC 

clarify the position taken previously in 

connection with the granting of a direct 

access no-action letter that an automatic 

order routing connection from the U.S. 

to an FBOT would not be considered as 

‘‘direct access.’’ Similarly, in relation to 

proposed § 48.8(a)(4), which addresses 

restrictions on direct access, ASX 

requested that the placement of 

terminals in non-exchange participant 

offices, and the conditions thereof, be 

specified in the new rules. 

The Commission has determined to 

adopt the rule as proposed. Direct 

access is defined in the CEA and in the 

proposed and final regulations to mean 

an explicit grant of authority by an 

FBOT to an identified member or other 

participant located in the U.S. to enter 

trades directly into the trade matching 

system of the foreign board of trade. 

This means that the FBOT itself, and not 

its members or participants, has 

identified and permitted a member or 

participant to enter trades directly into 

the FBOT’s order matching and trade 

entry system from the U.S. The 

electronic means of entry to the trading 

system may be through the internet, a 

dedicated closed electronic system, an 

API, or other type of electronic 

interface—the dispositive factor is that 

the order is transmitted by an identified 

member or other participant located in 

the U.S. and the order is entered 

directly into the trade matching system. 

Thus, it does not constitute direct access 

if the order is sent by a person in the 

U.S. by means of an automated order 

routing system (AORS) to an 

intermediary located outside of the U.S. 

for further action or to pass through an 

order entry or risk management filter at 

the intermediary prior to reaching the 

trade matching engine. 

Proposed § 48.8(a)(4), which 

addresses restrictions on direct access, 

requires that the FBOT not provide, and 

take reasonable steps to prevent, third 

parties from providing direct access to 

the FBOT. This provision is intended to 

restrict direct access to FBOTauthorized persons by such methods as 

restricted access to hardware, password 

control, and other similar physical or 

electronic security measures. It is not 

intended to prohibit a registered FBOT 

from authorizing its member firms or 

other participants eligible to handle U.S. 

customer orders to permit their 

customers in the U.S. to access the 

trading system using the member firm’s 

or participant’s member ID (mnemonic) 

or password. In other words, a 

registered FBOT’s member or 

participant located outside of the U.S. 

may, if so authorized by the FBOT, 

permit customers in the U.S. to transmit 

orders directly to the trade matching 

engine. The Commission is aware that 

two FBOTs currently operating with 

direct access no-action relief—ASX 54

and HKFE 55—permit their exchange 

participants to allow non-exchange 

participants in the U.S. to have access 

to the exchanges’ trading systems, 

subject to a guarantee from an exchange 

participant firm. 

5. Scope of Registration (i.e., CEA 

Sections 5 and 5a) 

HKFE commented that there is no 

express provision in the proposed rules 

stating that registration under Part 48 

would relieve an FBOT from 

compliance with CEA section 5 or 5a 

(that is, registering as either a DCM or 

DTEF). HKFE asked for clarification as 

to whether registration would relieve an 

FBOT from compliance with CEA 

section 5 or 5a. 

The Commission has determined to 

adopt the rule as proposed. Registration 

with the Commission under the Part 48 

regulations would relieve an FBOT from 

compliance with CEA section 5 and its 

requirement to register with the 

Commission as a DCM and comply with 

the core principles and regulations 

associated with DCMs to the extent that 

its activity within the U.S. is limited to 

permitting members and other 

participants located in the U.S. to have 

direct access to its trade matching 

system, subject to the terms and 

conditions of registration, and so long as 

it remains an FBOT. Of course, the 

registered FBOT could, alternatively, 

choose to comply with CEA section 5 

and become a registered DCM, subject to 

the regulatory requirements applicable 

thereto. The Commission notes that CEA 

section 5a was repealed by the DoddFrank Act. 

6. Registration Requirements and 

Conditions 

Proposed § 48.7 identified certain 

requirements that must be satisfied by 

an FBOT seeking to register with the 

Commission. Proposed § 48.8 imposed 

various continuing conditions on 

registered FBOTs. Several commenters 

raised issues related to the proposed 

requirements and conditions. 

a. Trading Rules 

Proposed § 48.7(b) identified the 

attributes of the automated trading 

system that would be required to be met 

by any FBOT seeking to register with 

the Commission. In response to the 

proposal’s request for comment with 

respect to whether the Commission 

should require FBOTs to adopt 

additional conditions to promote 

orderly markets and customer 

protection, such as automated safety 

features to protect against errors in the 

entry of orders, price-banding 

mechanisms, maximum order size 

limitations, or trading pauses to prevent 

cascading stop-loss orders, ICE 

commented that the Commission should 

not issue prescriptive trading rules for 

FBOTs and that the foreign regulator, 

not the CFTC, has the primary interest 

in adopting rules in this area. Further, 

ICE noted that the CFTC should work 

through international regulatory groups 

like IOSCO to implement consistent 

controls, instead of prescriptive rules. 

The Commission has determined not 

to require, as a requirement for, or a 

condition of, registration, that FBOTs 

adopt such automated safety features. 

The Commission believes that the 

primary interest in adopting rules in 

this area remains with the foreign 

regulatory authority. The Commission 

believes that the trading system 

attributes described in and required by 

§ 48.7(b), which include compliance 

with the IOSCO Principles for ScreenBased Trading, are adequate to ensure 

the FBOT’s trading system, among other 

things, is fair, reliable, capable of 

responding to emergencies, provides an 

adequate audit trail, and provides for 

reporting of trade data. They are features 

common to all automated trading 

systems that staff has reviewed in the 

context of the no-action process. 

b. Information Sharing 

Proposed § 48.8(a)(6) imposed certain 

information sharing obligations on a 

registered FBOT and its clearing 

organization. NYX asserted that the 

CFTC should not seek to obtain 

information directly from a clearing 

organization. Rather, the CFTC should 

look to the exchange—which should 

always be able to provide all the 

information held by the clearing 

organization in relation to business 

conducted on that exchange. NYX also 

commented that some European 

clearing organizations have the status of 

banks (e.g., LCH Clearnet SA), and so 

may find it difficult to share information 

directly with the Commission rather 

than through their regulators. 

The Commission continues to believe 

that it would be appropriate and 

expedient to obtain information 

regarding the clearing function directly 

from the clearing organization, in lieu of 

relying upon intermediation by another 

entity. Nonetheless, with respect to the 

FBOT being better able to provide 


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56HKFE, FOA, and CME Group. 

57The definition of ‘‘board of trade’’ as set forth 

in CEA section 1a(2) refers to ‘‘any organized 

exchange or other trading facility.’’ As such, the 

statutory definition of ‘‘board of trade’’ does not 

preclude the possibility of alternative trading 

platforms being covered by the FBOT registration 

scheme. 

information requested of the clearing 

organization, the Commission notes that 

§ 48.8(a)(6)(iii) provides that the FBOT 

and its clearing organization, as 

applicable, will provide information for 

certain purposes directly to the 

Commission. Accordingly, an FBOT 

could provide the information directly 

to the Commission, if it were better able 

to do so. Such information also could be 

provided by the applicable regulatory 

authority, although the FBOT and its 

clearing organization remain ultimately 

responsible to provide the information 

directly to the Commission under the 

final rule. 

c. Submission of U.S.-Domiciled 

Entities to Service of Process 

As a condition of registration, 

proposed § 48.8(a)(5) would require that 

certain members or other participants 

granted direct access by a registered 

FBOT (1) file a written representation 

with the Commission submitting to the 

CFTC’s jurisdiction, (2) file a valid and 

binding appointment with the FBOT of 

an agent for service of process in the 

U.S., and (3) maintain a written 

representation with the FBOT that it 

will provide the Commission and other 

U.S. authorities with access to books 

and records and to the premises where 

the FBOT’s trading system is made 

available in the U.S. LME questioned 

the need to require U.S.-based persons 

with direct access to foreign markets 

(FBOTs) that trade from the U.S. to 

comply with these three conditions. 

LME argued that in terms of personal 

jurisdiction, a U.S.-based person with 

direct access to an FBOT raises no more 

jurisdictional issues than a U.S.-based 

person trading on a U.S. market, as long 

as both traders are conducting their 

trading from the U.S. 

Upon further review and 

consideration of the comments received, 

the Commission has determined that 

§ 48.8(a)(5)(iii), which obligated a 

registered FBOT to require that each 

current and prospective member or 

other participant that is granted direct 

access pursuant to the FBOT’s 

registration and that is not registered 

with the Commission as a FCM, a CTA 

or a CPO file with the FBOT a valid and 

binding appointment of a U.S. agent for 

service of process in the U.S., is not 

necessary. Accordingly, that section has 

been deleted from the final rule. 

However, the Commission has 

determined that the remaining two 

conditions applicable to members and 

participants should be adopted as 

proposed. The Commission believes 

these conditions remain necessary to 

ensure that the FBOT members and 

other participants that have been 

granted direct access to an FBOT’s 

trading system knowingly consent to 

submit to the CFTC’s jurisdiction and to 

provide the Commission and other 

appropriate U.S. authorities with access 

to relevant books, records and trading 

premises in the U.S. 

7. Modification of Registration 

Requirements 

Proposed § 48.5(e) provided that the 

Commission may, after appropriate 

notice and an opportunity for hearing, 

amend, suspend, terminate or otherwise 

restrict the terms of an Order of 

Registration. ASX noted that the 

proposed rules refer to the ability to 

modify relief, and asked whether the 

Commission would provide any clarity 

with respect to applying for 

modification and the criteria for 

modification. 

The Commission believes it is not 

necessary to promulgate a specific 

procedure for applying for modification 

of FBOT registration requirements or to 

delineate the circumstances under 

which modification might be granted. 

While the Commission would consider 

a request for modification of specified 

registration requirements or conditions 

if such request is supported by adequate 

justification and appropriate 

documentation, the Commission does 

not anticipate that modifications would 

be granted unless particularly unique 

factual circumstances are presented. 

Given that such requests would involve 

a unique set of facts and circumstances, 

the Commission believes that a case-bycase approach is appropriate and thus, 

is adopting § 48.5(e) substantially as 

proposed, except that the rule now 

provides for appropriate notice and an 

opportunity to respond. 

8. Other Concerns 

a. Prescriptive Nature of the Regulations 

Three commenters voiced concern 

regarding the risk of protectionism by 

foreign regulators that might arise in the 

event that the Commission adopts 

overly prescriptive registration 

regulations for FBOTs.56 FOA noted that 

the standards set in the U.S. for 

recognition of foreign regulators would 

impact, for example, the European 

approach to the recognition of U.S. 

market infrastructures. CME Group 

expressed concern that the proposed 

rules were overly prescriptive and noted 

that the Commission should be 

cognizant of the ‘‘realistic possibility’’ 

that enacting the proposed rules might 

encourage foreign regulators to adopt a 

reactive regulatory stance toward U.S.- 

based exchanges. HKFE asserted that the 

adoption of the proposed rules would be 

a departure from the CFTC’s longstanding policy of mutual recognition 

and comity and that this could lead to 

the diminution rather than the 

expansion of global connectivity. 

The Commission has determined to 

adopt the rule as proposed. The 

Commission believes that its final 

regulations properly standardize the 

process by which FBOTs are permitted 

to provide direct access to U.S.-located 

persons, enhance the transparency of 

that process, ensure consistency and 

fairness to all applicants for registration, 

provide greater legal certainty to 

registered FBOTs, and are more 

consistent with the manner in which 

other countries permit U.S. DCMs to 

provide direct access to their trading 

systems from within their borders. As 

previously noted, the Commission 

believes that the registration 

requirements in the final rule represent 

a principles-based approach to limited 

oversight and are not overly 

prescriptive. FBOTs will be required to 

demonstrate, in a manner consistent 

with the part 48 regulations, that they 

operate under supervision and 

regulation that is comparable to that 

provided by the Commission’s 

regulatory regime for DCMs, but will not 

be required to comply with the core 

principles applicable to DCMs under the 

CEA and the Commission’s regulations. 

b. Alternative Trading Platforms 

HKFE questioned whether the 

proposal’s definition of FBOT would 

cover alternative trading platforms such 

as non-U.S.-based dark pools. Further, 

HKFE questioned whether, if the 

intention of the proposed rules is to not 

cover non-U.S. based dark pools or is 

designed with such threshold 

requirements as to effectively affect only 

traditional exchanges in overseas 

jurisdictions (as not all FBOTs (as 

defined) are eligible for registration 

under the proposed rules), an uneven 

playing field may be created in favor of 

these dark pools if access to them is 

available from the U.S.57

The Commission has determined to 

adopt the rule as proposed. The 

proposal generally limited the markets 

eligible for FBOT registration to bona 

fide exchanges that satisfy the eligibility 

standards set forth in § 48.2(b). The 

Commission expects that such 

exchanges might include, for example, 


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58Better Markets, CME Group, and Senator Levin. 

exchanges recognized in the EU as 

Regulated Markets, in the UK as 

Recognized Investment Exchanges (RIE), 

or in Japan as Licensed Financial 

Instruments Exchanges. Of course, even 

if deemed a ‘‘foreign board of trade 

eligible to be registered’’ under § 48.2(b), 

the FBOT would still have to satisfy all 

of the requirements and conditions for 

registration set forth in the regulations. 

Foreign SEFs and similar entities likely 

would not be eligible for FBOT 

registration unless they could 

demonstrate they are operated and 

regulated in a manner that is 

comparable and comprehensive to the 

manner in which DCMs (not U.S. SEFs), 

are regulated by the Commission. The 

FBOT registration rule should not create 

an uneven playing field in favor of dark 

pools since such pools are not likely to 

qualify for registration and, thus, could 

not provide for direct access under the 

FBOT registration rules. 

c. Impact of FBOT Registration Rules 

ICE suggested that the CFTC should 

consider the impact of its registration 

scheme against the broader impact of 

the Dodd-Frank Act and similar 

financial reform measures taken by 

other countries. The Commission has 

determined to adopt the rule as 

proposed. The proposed FBOT rules 

were considered against the 

international implications of the DoddFrank Act and similar financial reform 

measures being taken by other 

countries. Relevant financial reform 

measures taken by other countries will 

be reviewed as part of the examination 

of the FBOT’s application for 

registration and, to the extent that such 

relevant reform measures support 

regulatory objectives that are consistent 

with those supported by the CFTC, will 

be favorably considered. The 

Commission notes that the historical 

process of examining whether the FBOT 

is subject to comparable and 

comprehensive regulation in its home 

country has been, and will continue to 

be, the proper approach to maintaining 

this balance between reliance upon a 

foreign regulatory regime and ensuring 

that an FBOT whose trading and order 

matching system can be accessed by 

U.S. customers provides adequate 

protections. 

9. On-Going Review of Registered 

FBOTs 

Three commenters indicated that 

under their interpretation of the NPRM, 

the Commission would conduct ongoing surveillance and examination of 

FBOTs and their clearing 

organizations.58 For example, Better 

Markets expressed the view that it is 

important to continuously monitor both 

the structure of the foreign regulatory 

regime to which an FBOT is subject and 

the quality of the administration of that 

structure and that FBOTs should be 

required to annually re-affirm and 

demonstrate the appropriateness of their 

foreign regulatory regimes, based upon 

the standards relevant to their initial 

application for registration. 

As previously discussed, CME Group 

suggested that the Commission’s 

analysis of the FBOT and its regulatory 

regime should be more narrowly 

tailored and that the Commission 

should limit its inquiry to questions 

regarding the comparability of the 

regulatory regime in the FBOT’s home 

jurisdiction. If this approach were 

adopted, CME Group indicated that it 

would expect that the Commission 

would continue to vigorously monitor 

compliance with the core regulatory 

principles and ensure that the process is 

not being abused to avoid legitimate 

CFTC regulation. 

Senator Levin similarly commented 

that, to ensure market integrity, the 

Commission must effectively police 

U.S.-based trading in FBOTs and 

incorporate that activity into its regular 

surveillance and enforcement efforts. He 

also noted that the proposed rules 

would need a robust program of FBOT 

supervision, as well as surveillance and 

examination programs that include an 

integrated review of the FBOT’s U.S. 

trading activity, asserting that the 

Commission also would need to bring 

enforcement cases against individuals 

who engage in manipulative or abusive 

trading practices that affect U.S. futures 

and cash markets and market users and 

attempt to avoid detection by trading in 

foreign markets in order to deter such 

activity. 

The Commission has determined to 

adopt the rule as proposed. As 

previously discussed, FBOTs will be 

required, prior to being registered, to 

submit information and documentation 

demonstrating that they are subject to 

comprehensive supervision and 

regulation by the appropriate 

governmental authorities in their home 

country that is comparable to the 

comprehensive supervision and 

regulation to which DCMs are subject in 

the U.S. While the regulations require 

the FBOT and its regulatory authority to 

provide critical information on an 

ongoing basis to the Commission, any 

on-going review of the FBOT and its 

clearing organization by the 

Commission generally will be limited to 

reviewing the required information and 

documentation that the FBOT must 

submit periodically to the CFTC and 

will not include direct surveillance of 

trading activity. Staff may conduct 

periodic on-site visits to validate 

information submitted as part of the 

registration application and/or required 

to be submitted as a condition of 

registration. Staff will, however, 

conduct additional review with respect 

to linked contracts, and will monitor 

these contracts pursuant to the 

additional conditions levied upon the 

FBOT for listing such contracts, e.g., 

large trader and TSS reporting and 

comparable position limits. The 

Commission believes that these 

provisions are adequate to monitor the 

activities of the FBOT conducted 

pursuant to an Order of Registration. 

10. The Appendix 

For purposes of enhanced clarity and 

standardization, the Commission has 

elected to revise the proposed Appendix 

to Part 48 to include the submission 

requirements identified therein in the 

proposal in a standardized application 

form, Form FBOT and Supplement S–1 

(for the clearing organization) to Form 

FBOT. The Commission believes that 

the use of this form will make it easier 

to guide applicants in the organization 

and presentation of information and 

documentation and to ensure that all 

required information is included in the 

application. Use of the form also will 

improve the staff’s ability to organize 

and review the information in a timely 

manner. 

III. Conclusion and Effective Date 

A. Conclusion 

For the reasons stated above and in 

the NPRM and after considering the 

complete record in this matter, 

including all comments, the 

Commission is adopting part 48 

substantially as proposed, subject to the 

revisions to the proposed rules 

identified above in response to 

comments submitted or otherwise 

initiated by the Commission. This new 

part 48 provides the rules and 

procedures to be followed by FBOTs 

that wish to register in order to provide 

identified members and other 

participants that are located in the U.S. 

with direct access to the FBOT’s order 

entry and trade matching system. Part 

48 replaces the practice, used since 

1996, of issuing staff direct access noaction relief letters to permit FBOTs to 

provide their members and other 

participants located in the U.S. with 

direct access to their trading systems 

and provides a transitional period for 


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59 44 U.S.C. 3501 et seq. 

60See the Commission’s Paperwork Reduction 

Act analysis at 75 FR 70984–86 (Nov. 19, 2010). 

those FBOTs that have received staff noaction relief. 

B. Effective Date 

This rule shall become 60 days after 

publication in the Federal Register. 

IV. Related Matters 

A. The Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(PRA) 59 imposes certain requirements 

on federal agencies (including the 

Commission) in connection with their 

conducting or sponsoring any collection 

of information as defined by the PRA. 

An agency may not conduct or sponsor, 

and a person is not required to respond 

to, a collection of information unless it 

displays a currently valid control 

number. The final Part 48 rules impose 

new collection of information 

requirements within the meaning of the 

PRA. Accordingly, the Commission 

requested, but the Office of Management 

and Budget (OMB) has not yet assigned 

a control number for the new collection 

of information. However, OMB has 

assigned the reference number 201011– 

3038–003 in the interim. The 

Commission has submitted this final 

rule along with supporting 

documentation for OMB’s review in 

accordance with 44 U.S.C. 3507(d) and 

5 CFR 1320.11. The information 

collection burdens in the final rules are 

identical to the collection burdens 

estimated by the Commission in the 

proposing release, subject to the 

modifications discussed below.60

The Commission protects proprietary 

information according to the Freedom of 

Information Act and 17 CFR part 145, 

‘‘Commission Records and 

Information.’’ In addition, section 

8(a)(1) of the Act strictly prohibits the 

Commission, unless specifically 

authorized by the Act, from making 

public ‘‘data and information that 

would separately disclose the business 

transactions or market positions of any 

person and trade secrets or names of 

customers.’’ The Commission is also 

required to protect certain information 

contained in a government system of 

records according to the Privacy Act of 

1974, 5 U.S.C. 552a. 

The Commission invited the public 

and other Federal agencies to comment 

on any aspect of the information 

collection requirements discussed in the 

NPRM. Pursuant to 44 U.S.C. 

3506(c)(2)(B), the Commission solicited 

comments in order to: (i) Evaluate 

whether the proposed collections of 

information were necessary for the 

proper performance of the functions of 

the Commission, including whether the 

information will have practical utility; 

(ii) evaluate the accuracy of the 

Commission’s estimates of the burden of 

the proposed collections of information; 

(iii) determine whether there are ways 

to enhance the quality, utility and 

clarity of the information to be 

collected; and (iv) minimize the burden 

of the collections of information on 

those who are to respond, including 

through the use of automated collection 

techniques or other forms of information 

technology. 

In response to the Commission’s 

request in the NPRM for comments on 

any potential paperwork burden 

associated with the final rules, two 

commenters provided substantive 

comments addressing the merits of the 

Commission’s proposed PRA 

calculations with respect to § 48.6 and 

the ‘‘limited’’ application. DME argued 

that limited applications by FBOTs 

operating under no-action relief could 

easily take 200 to 300 hours to complete 

rather than the Commission’s proposed 

estimate of 50 hours. Similarly, HKFE 

contended that the work involved in 

submitting a limited application under 

the proposed regime would be 

substantially more than the 50 hours 

estimated by the Commission. 

The Commission estimated in the 

NPRM that a total of 20 FBOTs would 

file a registration application with the 

Commission pursuant to the limited 

application procedures in § 48.6. The 

Commission notes that the final rules 

governing the limited application 

differentiate between those FBOTs 

whose original no-action relief request 

was submitted electronically and 

remains on file with Commission staff 

and those FBOTs whose original noaction relief request was not submitted 

electronically to the Commission. The 

Commission estimates that ten FBOTs 

would be able to take advantage of the 

streamlined application procedures in 

final § 48.6. Indeed, the ten FBOTs 

would be permitted to simply refer to 

each portion of their original 

submissions that satisfies a particular 

registration requirement, identify the 

specific registration requirement that is 

fulfilled by that section, and certify that 

the information or documentation 

originally provided remains current and 

true. After considering the comments 

from DME and HKFE, in conjunction 

with the streamlined application 

requirements adopted by the 

Commission in the final rules, the 

Commission has determined that it is 

not amending its estimate of 50 burden 

hours for the FBOTs whose original noaction relief request was submitted 

electronically. However, with respect to 

the ten FBOTs that would need to 

submit the complete limited application 

because Commission staff does not have 

the original no-action relief request on 

file in an electronic format, the 

Commission finds some merit in the 

comments from DME and HKFE and the 

Commission is revising its estimates 

accordingly. Specifically, the 

Commission estimates that the effect of 

the final rules on these FBOTs will be 

to increase the information collection 

burden by approximately 200 hours, 

and result in approximately 250 hours 

per FBOT. Consequently, it is 

anticipated that ten FBOTs will incur an 

aggregate of 2,500 burden hours 

compared to the 500 burden hours 

estimated in the NPRM for such FBOTs. 

The Commission is also revising its 

information burden collection estimate 

for FBOTs with pending requests for 

direct access no-action relief. In the 

NPRM, the Commission estimated that 

seven FBOTs, including one new FBOT 

and six FBOTs that currently have 

pending requests for no-action relief, 

would submit a full FBOT registration 

application. The Commission estimated 

that the seven FBOTs would expend 

1,000 burden hours per FBOT to satisfy 

the registration requirement. However, 

the Commission has determined to 

amend its proposal to substantially 

reduce the information collection 

requirements for the six FBOTs with 

pending requests for no-action relief. 

Specifically, the final rules provide that 

an FBOT with a pending no-action 

request as of the effective date of the 

rule could, as part of its application for 

registration, identify information or 

documents provided in its original noaction submission that would satisfy 

particular registration requirements. In 

light of the amendments to the 

Commission’s final rules, the 

Commission is revising its previous 

estimate by reducing the information 

collection burden for the six FBOTs 

from 1,000 burden hours to 250 hours 

for each FBOT. Thus, it is anticipated 

that the six FBOTs will incur an 

aggregate reduction of 4,500 burden 

hours than what was stated in the 

NPRM. 

Finally, the Commission estimated in 

the NPRM that four registered FBOTs 

would permit swaps to be traded by 

direct access. Proposed § 48.8(a)(8)(i) 

required a registered FBOT to report to 

the public, on a real-time basis, data 

relating to each swap transaction, 

including price and volume, as soon as 

technologically practicable after 

execution of the swap transaction. In the 

final rules, the Commission is 

eliminating the real-time reporting 


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80692 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

61 7 U.S.C. 19(a). 

62 Direct access is defined in section 4(b) of the 

CEA, as amended by section 738 of the Dodd-Frank 

Act, to refer to an explicit grant of authority by an 

FBOT to an identified member or other participant 

located in the U.S. to enter trades directly into the 

FBOT’s trade matching system. 

63See Registration of Foreign Boards of Trade, 75 

FR 70974 (Nov. 19, 2010). 

64See, e.g., CFTC Letter No. 96–28 (Feb. 29, 

1996). Commission regulation 140.99 defines the 

term ‘‘no-action letter’’ as a written statement 

issued by the staff of a Division of the Commission 

or of the Office of the General Counsel that it will 

not recommend enforcement action to the 

Commission for failure to comply with a specific 

provision of the Act or of a Commission rule, 

regulation or order if a proposed transaction is 

completed or a proposed activity is conducted by 

the beneficiary. 

65One no-action relief letter was superseded and 

three were revoked when the FBOTs ceased 

operations as regulated or recognized markets. 

Currently, 14 of the FBOTs with active no-action 

relief report volume originating from the U.S. via 

direct access. 

66 75 FR 70974–76. 

67Based upon the statutory provision regarding 

linked contracts in CEA section 4(b)(1)(B), § 48.2(d) 

defines a linked contract as a futures, option or 

swap contract that is made available for trading by 

direct access by a registered FBOT that settles 

against any price (including the daily or final 

settlement price) of one or more contracts listed for 

trading on a registered entity as defined in section 

1a(40) of the Act. 

requirement for FBOTs because that 

requirement is being placed on swap 

data repositories. The Commission 

previously estimated that each of the 

four FBOTs would incur an annual 

reporting burden of 2,080 hours to 

comply with the real-time reporting 

requirement. Therefore, the Commission 

has determined that this rule 

modification will result in an aggregate 

reduction of 8,320 burden hours. 

Accordingly, the Commission has 

submitted to the OMB an amended 

calculation of the annual burden hours 

for FBOTs. 

B. Cost Benefit Considerations 

Section 15(a) of the CEA requires the 

Commission to ‘‘consider the costs and 

benefits’’ of its actions in light of five 

broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations.61 The 

Commission may, in its discretion, give 

greater weight to any one of the five 

enumerated areas and may determine 

that, notwithstanding costs, a particular 

rule protects the public interest. 

1. Background 

(a) Description of the Statutory 

Registration Authority per the DoddFrank Act 

Section 738 of the Dodd-Frank Act 

amended CEA section 4(b) to provide 

that the Commission may adopt rules 

and regulations requiring FBOTs that 

wish to provide their members or other 

participants located in the United States 

with direct access to register with the 

Commission.62 Section 738 also 

authorizes the Commission to 

promulgate rules and regulations 

prescribing procedures and 

requirements applicable to the 

registration of such FBOTs. 

Accordingly, on November 19, 2010, the 

Commission published a notice of 

proposed rulemaking that set forth 

proposed regulations that would 

establish a registration requirement and 

related registration procedures and 

conditions applicable to FBOTs that 

wish to provide their members or other 

participants located in the United States 

with direct access to the FBOT’s 

electronic trading and order matching 

system (NPRM).63

(b) Prior No-Action Regime 

Since 1996, FBOT requests to provide 

members and other participants with 

direct access to their electronic trading 

and order matching systems from within 

the U.S. have been addressed by 

Commission staff pursuant to the noaction process set forth in Commission 

regulation 140.99.64 Specifically, such 

FBOTs have requested, and, where 

appropriate, received from the relevant 

Commission division, a no-action letter. 

As part of the no-action letter, division 

staff would represent that the division 

will not recommend that the 

Commission institute enforcement 

action against the FBOT for failure to 

register as a DCM or DTEF if the FBOT 

provides direct access to members and 

participants located in the U.S, 

provided the FBOT satisfies the 

conditions set forth therein. A no-action 

request from an FBOT was required to 

include representations and supporting 

documentation from the FBOT 

regarding, among other things, its 

organization, presence in the U.S., 

participants, the products it wishes to 

list for direct access, its trading system 

and the regulatory regime and 

information-sharing arrangements to 

which the FBOT is subject. As noted 

above, since 1996, Commission staff has 

issued 24 direct access no-action relief 

letters to FBOTs, 20 of which remain 

active.65 A detailed discussion of the 

history and evolution of the FBOT noaction process and the scope of the 

relief provided can be found in the 

NPRM.66

(c) Replacing No-Action Regime With 

Registration Requirement 

(i) Overview. As described in detail in 

the preamble, the registration regime 

established in new part 48 will replace 

the direct access no-action relief 

process. That registration regime is 

being established pursuant to the 

Commission’s authority found in 

section 4(b) of the CEA, as amended by 

section 738 of the Dodd-Frank Act, as 

described above. Based on the nature of 

the directives in CEA section 4(b), this 

final rulemaking contains certain 

statutorily mandated components as 

well as other discretionary components. 

(ii) Mandatory components of statute. 

The adoption of a registration regime 

applicable to FBOTs that desire to 

provide their members or other 

participants located in the U.S. with 

direct access to their trading systems is 

discretionary. However, if the 

Commission determines to adopt such a 

registration regime, certain nondiscretionary guidelines are mandated 

in the statute. Specifically, CEA section 

4(b)(1)(A) provides that: 

In adopting such rules and regulations, the 

Commission shall consider— 

(i) Whether any such foreign board of trade 

is subject to comparable, comprehensive 

supervision and regulation by the 

appropriate governmental authorities in the 

foreign board of trade’s home country; and 

(ii) Any previous commission findings that 

the foreign board of trade is subject to 

comparable comprehensive supervision and 

regulation by the appropriate government 

authorities in the foreign board of trade’s 

home country. 

Because the Commission is 

promulgating an FBOT registration 

scheme, the Commission is required to 

incorporate these two guidelines in 

issuing the final rules. In accordance 

with these two guidelines, part 48 

includes certain requirements, 

procedures, and conditions for FBOT 

registration. While there are some costs 

inherent in a FBOT registration scheme 

that follows the scope of review 

mandated by Congress, the Commission 

considers the costs and benefits 

associated with implementing the 

discretionary components of this FBOT 

registration scheme below. 

Several provisions applicable to a 

linked contract are mandatory 

regardless of whether the Commission 

adopts FBOT registration rules.67

Specifically, CEA section 4(b)(1)(B), as 

amended by the Dodd-Frank Act, 

mandates that the Commission may not 

permit an FBOT to make a linked 

contract available via direct access 

absent several statutorily specified 

conditions. These conditions, set forth 


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Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 80693 

68 DME, LME, MX, ICE (owner of ICE Futures 

Europe and ICE Futures Canada), HKFE, BM&F, 

OMX, NYX (operator of Liffe, Euronext Paris SA, 

and Euronext Amsterdam N.V.), Eurex, and OSE. 69NGX. 

in § 48.8(c)(1), address (1) making 

public daily trading information 

regarding the linked contract that is 

comparable to the daily trading 

information published for the contract 

to which it is linked; (2) adopting 

position limits for the linked contract 

that are comparable to the position 

limits adopted by the registered entity 

for the contract to which it is linked; (3) 

having the authority to require or direct 

any market participant to limit, reduce, 

or liquidate any position; (4) agreeing to 

promptly notify the Commission of 

certain changes with respect to the 

linked contract; (5) providing 

information to the Commission 

regarding large trader positions in the 

linked contract that is comparable to the 

large trader position information 

collected by the Commission for the 

contract to which it is linked; and (6) 

providing the Commission such 

information as is necessary to publish 

reports on aggregate trader positions for 

the linked contract that are comparable 

to such reports on aggregate trader 

positions for the contract to which it is 

linked. 

Congress mandated these linkedcontract conditions on FBOTs. To the 

extent that these new rules reflect the 

statutory provisions of the Dodd-Frank 

Act, such rules will not create costs and 

benefits in addition to the costs and 

benefits that already will result from the 

action of Congress in passing the DoddFrank Act. However, such rules may 

generate costs and benefits that are 

attributable to the determinations made 

by the Commission regarding the 

manner in which statutory provisions in 

the Dodd-Frank Act should be 

implemented. The costs and benefits of 

these Commission determinations are 

considered in light of the five factors set 

forth in CEA section 15(a). 

(d) Purpose of the Final Rules 

As described in the preamble, the 

purpose of these final rules is to 

formalize and standardize the process 

by which an FBOT may provide traders 

located in the U.S. with direct access to 

its trading system. By implementing 

uniform application procedures and 

registration requirements and 

conditions, the process will become 

more standardized and more transparent 

to both registration applicants and the 

general public and will promote fair and 

consistent treatment of all applicants. 

Further, generally applicable regulations 

will provide greater legal certainty for 

FBOTs providing direct access than the 

no-action relief process because noaction letters are issued by the staff and 

are not binding on the Commission. 

In determining to adopt formal 

registration rules for FBOTs, the 

Commission has considered that the noaction process is generally better suited 

for discrete, unique factual 

circumstances and for situations where 

neither the CEA nor the Commission’s 

regulations directly address the issue 

presented. The Commission has 

determined that, where the same type of 

relief is being granted on a regular and 

recurring basis, as it has been with 

respect to permitting FBOTs to provide 

direct access to their trading systems to 

specified members and other 

participants that are located in the U.S., 

it is no longer appropriate to handle 

requests for the relief through the noaction process. Rather, such matters 

should be addressed in generally 

applicable regulations. The Commission 

also notes that a statutory-based 

regulatory FBOT registration regime will 

be more consistent with the statutorybased framework under which other 

countries, including the UK, Australia, 

Singapore, Japan and Germany, among 

others, permit DCMs to provide direct 

access internationally. 

(e) Public Comment 

As described in detail in the 

preamble, the Commission, in preparing 

these final rules, sought and 

incorporated comment from the public. 

In the NPRM, the Commission 

specifically requested comment on the 

cost benefit section and invited 

commenters to provide data quantifying 

the costs and benefits of the proposed 

regulations. The Commission received 

14 comments discussing the costs and 

benefits of the proposed rules, but none 

that provided quantitative data. These 

comments included 10 letters from 

entities representing thirteen FBOTs 

operating under existing no-action 

relief,68 one letter from another 

exchange,69 and one letter each from 

FOA, CME Group, and ESMA. Those 

comments are specifically addressed in 

the context of the extended cost benefit 

consideration discussion below. 

2. Summary of the Final Rules 

As described in detail in section III of 

the preamble, new part 48 provides the 

procedures, requirements, and 

conditions to be met by FBOTs that seek 

to provide their members and other 

participants in the U.S. with direct 

access to the FBOT’s order entry and 

trade matching system. The final rules 

set forth, among other things, 

procedures an FBOT must follow in 

applying for registration, requirements 

that an FBOT must meet in order to 

obtain registration, conditions that an 

FBOT must satisfy on a continuing basis 

upon obtaining registration, and 

provisions for the termination of 

registration. 

Specifically, § 48.1 sets forth the 

scope of the rules and § 48.2 provides 

definitions applicable to the registration 

provisions. Section 48.3 makes it clear 

that registration is required if an FBOT 

wishes to provide for direct access. 

Section 48.4 establishes registration 

eligibility and identifies the entities to 

which an FBOT can permit direct access 

once it is registered. Pursuant to § 48.5, 

FBOTs wishing to provide direct access 

to their trading systems to members and 

other participants located in the U.S. 

will be required to file an application 

for registration with the Commission 

that contains all of the information and 

documentation necessary to 

successfully demonstrate that the FBOT 

satisfies the registration requirements 

contained in § 48.7. In addition, § 48.5 

describes the procedures for applying 

for registration, notices the applicant 

that the Commission will be considering 

the two statutorily-mandated guidelines, 

among other things, in its review of the 

application, and describes the 

Commission response following 

approval or disapproval of the 

application. Section 48.6 provides a 

limited application procedure for 

FBOTs currently operating under 

existing no-action relief and FBOTs that 

have submitted a complete application 

for no-action relief that is pending as of 

the effective date of this regulation. 

Section 48.7, previously mentioned, 

includes the requirements that must be 

met before an FBOT can be registered. 

Once registered, all FBOTs will have to 

maintain continuing compliance with 

the conditions listed in § 48.8 of the 

final rules, including the statutorilymandated conditions on linked 

contracts. Section 48.9 provides the 

rules for the revocation of registration. 

Finally, § 48.10 establishes the process 

for an FBOT to make additional 

contracts available for direct access 

following an initial registration. 

3. Factors Affecting the Scope of the 

Final Rules 

The costs that the rules impose on 

FBOTs seeking registration will vary 

depending on various factors including 

the size of the FBOT and whether the 

FBOT’s clearing organization is a DCO. 

Larger FBOTs are more likely to have 

the means to hire U.S. counsel or 

sufficient staff expertise to submit a 

complete registration application in an 


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80694 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

70As noted on page six of the Paperwork 

Reduction Act Supporting Statement (PRA 

Supporting Statement) for the final FBOT 

registration rules, this number is derived from 

SIFMA’s ‘‘Report on Management & Professional 

Earnings in the Securities Industry—2010’’ and 

represents the estimated average wage of a 

compliance attorney and a compliance staffer in the 

U.S. While wages in the home countries of FBOTs 

may differ, the Commission does not have access 

to data on the compensation of compliance staffers 

in other countries and is using the information in 

the SIFMA report as a best available estimate. The 

PRA Supporting Statement can be accessed at 

http://www.reginfo.gov/public/do/PRAView

Document?ref_nbr=201011-3038-003. 

71This increase in costs reflects the registration 

requirements that were not required in the noaction process, including additional submission 

requirements related to the FBOTs regulatory 

authority and clearing and settlement policies and 

procedures. 

efficient manner than smaller FBOTs. It 

may be less costly to demonstrate that 

a clearing organization is a DCO than 

that it complies with the RCCPs. 

Another factor that could affect costs is 

demonstrating the comparability of the 

supervision by the FBOT’s home 

regulator, since regulatory structures in 

different countries vary. Moreover, the 

cost of filing a limited application for 

FBOTs operating under the no-action 

regime will vary, depending on whether 

or not the FBOT’s original request was 

filed electronically and remains on file 

with the Commission. 

The Commission’s consideration of 

costs and benefits contains discussions 

of three general aspects of the 

rulemaking: the requirements for filing 

a new registration application; the 

limited application requirement for 

FBOTs operating under the current noaction regime; and compliance costs. 

The Commission is only considering the 

marginal costs and benefits of the 

proposed regulations that are in 

addition to, or in lieu of, the costs and 

benefits associated with the current noaction regime. 

4. Filing a New Application for 

Registration 

Costs: The Commission estimates that 

it will cost approximately $46,310 for an 

FBOT to submit a new registration 

application. This is based on an average 

wage for a compliance staffer and a 

compliance attorney of $46.31 per 

hour 70 and a total burden of 1,000 

hours. The Commission recognizes that 

some FBOTs hire outside counsel based 

in the U.S. with expertise in the FBOT 

registration process. While the 

Commission is uncertain about the 

billing rates that FBOTs pay for U.S. 

counsel, the Commission believes that 

such counsel may bill at a rate of several 

hundred dollars per hour. U.S. counsel 

may be able to leverage its expertise to 

substantially reduce the number of 

hours needed to fill out an application, 

but an FBOT that utilizes outside 

counsel may incur higher costs than an 

FBOT that does not use outside counsel. 

The Commission notes that any 

determination to use outside counsel is 

at the discretion of the FBOT. 

The Commission notes that the 

proposed registration process is an 

outgrowth of the existing policy of 

allowing FBOTs to provide U.S.-based 

traders with direct access to their 

trading systems through staff no-action 

letters and that most of the costs 

associated with this rule also are 

associated with applying for no-action 

relief. The costs that will be incurred by 

an FBOT as a result of the registration 

requirements and the conditions 

contained in the proposed regulations, 

with certain exceptions (e.g., additional 

submission requirements related to the 

FBOTs regulatory authority and clearing 

and settlement policies and procedures), 

substantially replicate the costs that 

would otherwise be incurred by an 

FBOT applying for no-action relief 

under the existing process. For example, 

FBOTs requesting no-action relief under 

existing procedures are required to 

provide the Commission staff with 

similar information and documentation 

to that which would be required for 

registration under the proposed 

regulations (e.g., information regarding 

the FBOT’s trading system, terms and 

conditions of contracts to be made 

available by direct access in the U.S., 

and the regulatory regime governing the 

FBOT in its home country). The 

Commission believes that these costs, 

for the most part, do not represent a 

substantial increased burden, but rather 

reflect the continuation of an existing 

process—which is now proposed to be 

formalized. The Commission estimates 

that the increase in costs for new FBOTs 

to register rather than obtain a no-action 

letter is within a range between 100 

hours or $4,631 per FBOT and 200 

hours or $9,262 per FBOT.71

There may be some costs for certain 

FBOTs if they need to upgrade their 

systems or procedures to meet the 

registration requirements. For example, 

an FBOT electing to offer linked 

contracts that did not previously impose 

position limits may need to establish a 

procedure for enforcing position limits. 

The Commission is unable to quantify 

these costs since it does not know what 

particular changes future FBOTs may 

need to make in their systems or 

procedures to comply with the 

registration requirements. However, the 

Commission anticipates that FBOTs 

applying for registration in the future, 

like FBOTs that applied for no-action 

relief in the past, generally will be 

compliant with the requirements before 

submitting their applications, so the 

cost of upgrading their systems and 

procedures should be minimal for most 

FBOTs. As discussed in the preamble, 

the FBOT requirements generally reflect 

existing industry practice and FBOTs 

are required to be subject to a 

comparable regulatory regime. 

Therefore, the Commission expects that 

FBOTs that meet the requirements of 

their home regulator and follow 

industry practice will meet the 

registration requirements and that most 

FBOTs will not need to make any 

upgrades to their systems or procedures. 

As noted above, the Commission has 

determined to amend its proposal to 

substantially reduce the information 

collection requirements for the six 

FBOTs with pending requests for noaction relief. Specifically, the final rules 

provide that an FBOT with a pending 

no-action request as of the effective date 

of the rule could, as part of its 

application for registration, identify 

information or documentation provided 

in its original no-action submission that 

would satisfy particular registration 

requirements. As noted in the PRA 

section, the Commission estimates that 

each of these FBOTs will have to devote 

250 hours to converting the no-action 

request to a registration application at a 

cost of about $11,578 per FBOT for a 

cumulative cost of $69,468. 

Benefits: The Commission notes that 

the no-action process has been effective 

in permitting FBOTs to provide for 

direct access while protecting U.S. 

persons trading by direct access by 

seeking to ensure that the FBOT’s rules 

and procedures are adequate and that 

the regulatory regime of its home 

regulatory authority supports regulatory 

objectives that are substantially similar 

to those supported by the CFTC. The 

Commission believes that formalizing 

the registration process will provide the 

additional benefits of increased 

standardization for filing requirements 

and greater levels of legal certainty for 

operating FBOTs. In addition, 

formalized registration rules, including 

the application form, will create an 

efficient application process with 

enhanced visibility to ensure fair and 

consistent treatment of applicants. In 

particular, the registration procedure 

and application form will also assist 

applicants in determining what 

information needs to be provided to 

obtain registration, which may reduce 

costs by making it more likely that the 

application will be complete upon 

initial submission. These benefits, 

which are not readily quantifiable, are 


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72OMX, NYX, FOA, ESMA, and CME. 

not, for the most part, currently 

available under the no-action process. 

Public Comments: The Commission 

received comments about the 

registration system in general as well as 

about specific aspects, including the 

regulatory comparability and clearing 

requirements. 

Registration System: Five 

commenters 72 stated that the proposed 

registration system was overly 

burdensome, overly prescriptive, or that 

it unnecessarily subjected FBOTs to 

duplicative regulation without 

corresponding benefit. OMX stated: 

‘‘Our main concern related to the 

proposed rules is that they will involve 

a quite extensive process in order to 

obtain and maintain registration. 

[* * *] [E]xtensive and detailed 

requirements * * * may be deemed to 

impose an unreasonable burden on the 

applicants.’’ ESMA said, ‘‘[T]he new 

registration procedure and the 

mandatory application of very 

comprehensive, ongoing requirements 

to all FBOTs would be burdensome and 

costly without any apparent 

improvements for the safeguard of 

public interests such as the maintenance 

of fair and orderly markets, investor 

protection and the resilience of the 

market.’’ 

As discussed above, the Commission 

notes that the proposed registration 

process is an outgrowth of the existing 

policy of issuing no-action letters and 

that it entails costs that are similar to 

that of the existing no-action process. 

In connection with commenters 

criticizing the ‘‘overly prescriptive’’ 

nature of the proposed rules, the 

Commission has identified, based upon 

its experience with its regulation of 

DCMs and the Commission staff 

experience in reviewing and evaluating 

FBOTs for purposes of no-action relief, 

several areas which it considers critical 

in determining if the FBOT has 

established its ability to provide on an 

ongoing basis, adequate protection to 

U.S. participants who trade and clear on 

the FBOT. These areas include, among 

others, compliance of the trading system 

with the IOSCO Principles, adequate 

trade practice and market surveillance 

programs, and a clearing and settlement 

organization that meets universally 

recognized standards. Moreover, 

amended CEA section 4(b) requires the 

Commission to consider whether the 

relevant FBOT is subject to comparable, 

comprehensive supervision and 

regulation by appropriate governmental 

authorities in the FBOT’s home country. 

The Commission believes that, in these 

instances, rules are necessary in order to 

ensure that the Commission receives 

sufficient information and 

documentation to make these 

assessments and to ensure that 

registration applicants are subject to 

standardized and transparent 

obligations. The Commission also notes 

that the proposed regulations were 

drafted to provide flexibility where 

possible and warranted. For example, 

the final rules require the FBOT’s 

clearing organization to successfully 

demonstrate that it satisfies the RCCPs, 

but do not mandate the manner in 

which the clearing organization must 

fulfill those principles. 

Nonetheless, the Commission has 

identified specific areas in which it is 

able to set forth the FBOT registration 

requirements in a less-prescriptive 

manner. For example, the Commission 

is modifying the proposed regulations to 

clarify that an FBOT whose clearing 

organization is registered with the 

Commission as a DCO would not be 

required to separately establish that it 

satisfies the requirements contained in 

proposed § 48.7 (e.g., a clearing 

organization that is registered as a DCO 

would not be required to demonstrate 

that its participants are fit and proper 

and meet appropriate financial and 

professional standards). 

Finally, in an effort to avoid 

unnecessary duplication in the text of 

the rule, the Commission has removed 

the appendix from the rules and is 

replacing it with a standardized 

application form. 

Regulatory Comparability: Two 

comment letters stated that the 

comparability analysis in conjunction 

with the broad set of requirements and 

conditions described in the proposed 

rules was overly burdensome. LME 

suggested that it would be better if the 

Commission made a single 

comparability determination for FBOTs 

residing in the same jurisdiction. CME 

suggested that the proposed 

comparability evaluation by the 

Commission was too burdensome on 

both FBOTs and the Commission. As an 

alternative, CME suggested that the 

Commission should limit its assessment 

to whether an FBOT is subject to a 

comparable regulatory regime by its 

home country regulator. This 

commenter said, ‘‘[W]e have a 

significant concern that the proposed 

rules are too prescriptive and would 

impose significant burdens without 

corresponding benefit.’’ 

The Commission reiterates that the 

statute requires that if the Commission 

implements a formal registration 

system, it must review whether any 

applicant ‘‘is subject to comparable, 

comprehensive supervision and 

regulation by the appropriate 

governmental authorities in the foreign 

board of trade’s home country.’’ The 

Commission does have discretion on 

how to implement this requirement and 

is using that discretion to revise the 

final rule to provide an option for 

evaluation of the regulatory authority 

when multiple FBOTs that are subject to 

the same regulatory regime are applying 

for registration at the same time. In 

other words, the rule, as adopted, would 

permit multiple FBOTs that are subject 

to the same regulatory regime that are 

applying for registration at the same 

time to collectively provide information 

regarding their regulatory regime and 

would permit a foreign regulator (rather 

than the FBOT) to provide the required 

information regarding the regulatory 

regime to which those multiple FBOTs 

may be subject. This should 

significantly reduce the cost burden to 

FBOTs when there are multiple FBOTs 

under the same regulatory regime. 

However, the Commission notes that 

any evaluation will not begin and end 

with a review of the FBOT’s regulatory 

authority. The nature of the FBOT’s 

trading and clearing systems, rule 

enforcement, surveillance practices, and 

information-sharing ability, among other 

things, are critical to any preregistration review. 

Clearing: As discussed in section 

II.B.2.d. above, Eurex stated that 

extending the Commission’s review to 

FBOT clearing would impose increased 

burdens on the Commission’s limited 

resources. This commenter suggested 

that the Commission should rather 

require than an FBOT simply 

demonstrate that, if its clearing 

organization is not a DCO, the clearing 

organization complies with the RCCPs. 

The Commission notes that 

consideration of a foreign board of 

trade’s clearing and settlement function, 

to a certain extent, is already 

incorporated into the existing no-action 

process and, accordingly, is not itself a 

totally new requirement. In this respect, 

the final rules seek to provide 

transparency and standardization with 

respect to the necessary clearing 

organization attributes by requiring that 

the clearing firm either satisfy an 

internationally recognized standard for 

central counterparties or be registered as 

a DCO. This will benefit U.S. persons 

trading on the FBOT by providing an 

added level of security in knowing that 

the FBOT’s clearing organization has 

represented that it meets internationally 

recognized standards or is a DCO. The 

Commission, however, has streamlined 

the regulation in the final rule to 

eliminate the requirements contained in 

§ 48.7 if the clearing firm is registered 


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80696 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

73BM&F, OMX, NYX, DME, CME, and MX. 

with the Commission as a DCO. The 

cost of demonstrating that a clearing 

organization is a DCO is de minimus. 

Because the manner of satisfying the 

RCCPs or their successor standards is at 

the discretion of the FBOT’s clearing 

organization, the Commission is unable 

to quantify the costs of demonstrating 

that the clearing organization observes 

the RCCPs or their successor standards. 

ICE stated that ‘‘the CFTC should not 

place a greater burden on FBOTs than 

it does on U.S. regulated markets,’’ in 

particular by imposing mandatory 

clearing requirements on swaps 

executed on FBOTs. ICE noted that SEFs 

are not subject to mandatory clearing 

requirements. However, the 

Commission notes that under the DoddFrank Act, swaps traded on DCMs will 

be subject to mandatory clearing 

requirements. The Commission believes 

that the treatment of swaps registered 

FBOTs will make available for trading to 

members and other participants located 

in the U.S. through direct access should 

parallel the treatment afforded to swaps 

transactions that may be traded on 

DCMs and, thus, they must be cleared. 

It is not clear whether a foreign SEFequivalent would meet the FBOT 

eligibility requirements outlined in Rule 

48.2(b) or be eligible for FBOT 

registration, but it is unlikely that such 

an entity would be eligible unless the 

entity could demonstrate that it is 

operated and regulated in a manner that 

is comparable and comprehensive to the 

manner in which DCMs (not U.S. SEFs), 

are regulated by the Commission. An 

FBOT could still offer non-cleared 

swaps to its market participants, but 

would be unable to offer such contracts 

via direct access in the U.S. The 

Commission is unable to quantify the 

costs of mandatory clearing of swaps on 

FBOT market participants, but such 

costs would approximate the costs of 

clearing futures since any listed swap 

contracts would have standardized 

terms and would resemble futures 

contracts. The Commission also cannot 

predict, at this time, whether FBOTs 

will elect to list swap contracts for 

direct access and, if so, how many 

FBOTs will make available how many 

swaps contracts. 

5. Filing a Limited Application 

Costs: As noted, the Commission is 

requiring the 20 FBOTs currently 

operating under no-action relief to 

register, but is permitting them to file a 

limited application for registration. This 

is an additional cost being imposed on 

these FBOTs as a consequence of this 

rule. The ten FBOTs that filed their noaction requests electronically will be 

able to simply refer to each portion of 

their original submissions that satisfies 

each particular registration requirement 

and certify that the information or 

documentation originally provided 

remains current and true. The 

Commission estimates that the cost of 

filing a limited application for each of 

these FBOTs will be approximately 

$2,316 (50 hours at $46.31 per hour) for 

a cumulative cost of $23,160. The 

remaining 10 FBOTs that did not file 

electronically will have to resubmit 

much of the material and therefore will 

each incur higher costs of 

approximately $11,578 (250 hours at 

$46.31 per hour) for a cumulative cost 

of $115,780. The cumulative cost across 

20 FBOTs will be $138,940. 

Benefits: FBOTs using the limited 

application process will receive the 

benefits noted above of receiving a 

formal Commission registration order 

rather than a staff no-action letter 

(which provided for less legal certainty). 

These FBOTs will be operating on 

firmer legal ground and the 

Commission, market participants, and 

the public will benefit from the 

knowledge that all FBOTs offering 

direct access in the U.S. meet the 

registration requirements. There are also 

benefits that accrue to registering all 

FBOTs under the same transparent 

requirements, thus ensuring a ‘‘level 

playing field’’ going forward and 

ensuring that the Commission has the 

same set of information on file regarding 

each registered FBOT. 

Public Comments: As discussed 

above, several commenters 73 addressed 

the proposed ‘‘limited application’’ 

scheme, suggesting that the limited 

application was overly burdensome, of 

limited value, or even unnecessary— 

preferring a grandfather provision for 

FBOTs operating under existing noaction relief. They commented in the 

context of the cost benefit section that 

the limited application process was too 

burdensome in its entirety for an FBOT 

that had previously obtained no-action 

relief. And at least two of the 

commenters, DME and CME, noted that, 

in the context of evaluating the burdens 

imposed by the proposed registration 

process, providing grandfather 

registration for FBOTs with existing noaction relief would be the better course. 

Finally, as addressed above, multiple 

commenters requested that the timeframe within which a limited 

application must be filed should be 

extended to at least 180 days following 

the effective date of final registration 

rules in order to ease the administrative 

burden of preparing and filing the 

proper documentation. Specifically, 

NYX stated: 

Under the [p]roposal, an FBOT with an 

existing no-action relief letter is required to 

submit a completed limited application for 

registration within 120 days of the effective 

date of the Proposal. The Proposal, however, 

would create a burdensome process requiring 

re-submission of voluminous materials, 

information and data that was previously 

provided to the Commission—a timeconsuming and expensive exercise for FBOTs 

that previously have invested considerable 

resources to receive and maintain no-action 

relief letters. 

In the context of the burdens of 

preparing documentation for the limited 

application, MX argues that, ‘‘Placing 

greater reliance on [the Commission’s] 

past findings [of comparability] under 

the no-action process will not only 

lessen the burden on FBOTs, but it will 

conserve constrained Commission 

resources with no diminution of 

protections to the public or any increase 

in systemic risk.’’ NGX stated that an 

FBOT with a pending no-action request 

should be considered to be eligible to 

file a limited application rather than a 

complete application. 

As discussed above, the Commission 

is extending the time for filing a limited 

application to 180 days from 120 after 

the effective date of this final rule. This 

change will address comments that the 

120 day timeline placed an excessive 

burden on applicants. The Commission 

also is revising the rule to permit an 

FBOT with a pending no-action request 

to file a limited application rather than 

a complete application. 

The limited application procedure 

will, as noted, benefit market 

participants, and the public by ensuring 

that all FBOTs offering direct access in 

the U.S. meet the current registration 

requirements. This benefit would be 

foregone if the Commission were to 

grandfather FBOTs that are operating 

under existing no-action relief without 

any further review. FBOT requests for 

no-action relief were assessed based 

upon the information and 

documentation presented at the 

particular time of the request (as early 

as 1999) and the assessments were 

based upon a comparison of the 

regulatory regimes in the U.S. and the 

applicable foreign jurisdiction that 

existed at the time. In addition, early 

no-action letters included only a limited 

analysis of the FBOT’s clearing system 

because the current regulatory structure 

applicable to U.S. clearing organizations 

did not exist at that time of issuance. 

The Commission also does not believe 

that it would be either feasible or 

appropriate for the Commission staff to 

ascertain for each FBOT operating under 


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74See 75 FR 70984–85 (Nov. 19, 2010) and PRA 

Supporting Statement at 12 (Nov. 23, 2010). 75See CFTC Letter No. 09–37 (August 20, 2009). 

existing no-action relief the precise 

information in its individual no-action 

request that would need to be updated 

or revised to satisfy registration 

requirements. The FBOTs are in a better 

position to recognize their own 

particular circumstances and to identify 

the additional information and 

documentation that may require 

updating in light of those changes. The 

FBOT should be afforded the 

opportunity to provide materials 

demonstrating that the foreign regime is 

comparable and comprehensive to the 

regulatory regime in the U.S. 

6. Complying With Conditions 

Applicable to Registration 

Once registered, an FBOT will be 

required to file a number of reports with 

the Commission. Most of these reports 

are required under the current no-action 

regime and therefore requiring these 

reports of registrants will not impose 

additional costs on FBOTs that are 

currently providing direct access 

pursuant to no-action letters. Specific 

reporting requirements that are 

currently required under the no-action 

regime include § 48.8(b)(1)(i)(A) and (B) 

regarding trading volume information, 

§ 48.8(b)(1)(ii)(A)–(F) regarding material 

changes to registration information 

(except where requirements specifically 

address the FBOT’s clearing 

organization), and § 48.10 regarding the 

listing of additional futures and options 

contracts. New requirements include 

§ 48.8(b)(1)(iii)(B)–(G) regarding annual 

submission of information and § 48.9 

regarding demonstration of compliance 

with conditions for registration, as well 

as the requirement regarding material 

changes to the clearing organization. In 

the PRA section of the NPRM, it was 

estimated that the total annual burden 

of all reporting requirements for all 

registered FBOTs combined was 972 

hours.74 The Commission estimates that 

approximately 150 of these 972 hours 

represent the new reporting 

requirements that were not required 

under the no-action regime and the 

cumulative annual cost of complying 

with these new requirements will be 

$6,947 (150 hours at $46.31 per hour). 

There are also a number of provisions 

that apply to contracts that are linked to 

U.S. futures contracts. These provisions, 

set forth in § 48.8(c)(1) and described 

above, and their associated costs 

generally are required under the CEA as 

amended by Dodd-Frank and the 

Commission lacks discretion regarding 

their implementation. Other provisions, 

set forth in § 48.8(c)(2), are also 

currently imposed on FBOTs with 

linked contracts operating under noaction relief.75 Therefore, the costs 

associated with the linked contract 

provisions required by § 48.8(c)(2) are 

not increased relative to those incurred 

by FBOTs currently. 

Benefits: The new recordkeeping 

requirements in Regulation 

48.8(b)(1)(iii)(B)–(G) regarding annual 

submission of information and 

Regulation 48.9 regarding 

demonstration of compliance with 

conditions for registration will provide 

the Commission, market participants 

and the public with the benefit of 

knowing that registered FBOTs are 

continuing to meet the requirements for 

registration, including providing fair 

and equitable trading platforms, and 

that the contracts available for direct 

access are not readily susceptible to 

manipulation. 

Public comments: The Commission 

received cost-benefit related comments 

regarding the linked contract provisions. 

Linked contract provisions: In 

connection with the burdens imposed 

by the proposed linked contract 

provisions, OSE stated that extra 

conditions were only necessary for 

FBOTs offering linked contracts in 

which there is more than a de minimis 

amount of trading. OSE specifically 

highlighted the imposition of 

speculative position limits on linked 

contracts as an example of a condition 

which would create an excessive 

burden. OSE also objected to the 

requirement that trade execution and 

audit trail data for linked contracts be 

submitted to the Commission on a daily 

basis. They suggested that the benefit of 

such a condition, in comparison to the 

costs, may be more useful if FBOTs 

were only required to submit trade 

execution and audit trail data for linked 

contracts on an ‘‘as necessary’’ basis— 

rather than on a daily basis. 

The Commission notes that some of 

the linked contract conditions/ 

requirements in the final rule are 

mandated by the Dodd-Frank Act, 

including the position limit 

requirements. Other provisions, such as 

the requirement that trade execution 

and audit trail data for linked contracts 

be submitted to the Commission on a 

daily basis, have been imposed by 

Commission staff on FBOTs that list 

linked contracts and have been found to 

be useful in accomplishing the 

Commission’s market surveillance 

responsibilities. Commission staff 

conducts surveillance and reviews the 

trading data on a daily basis, and the 

trade data submitted daily from the 

FBOT’s linked contract are a critical 

component of this surveillance. The 

Commission is of the opinion that the 

linked contract provisions serve to 

enhance the Commission’s market 

surveillance capabilities because such 

linkages create a single market for the 

subject contracts and, in the absence of 

certain preventive measures at the 

FBOT, could compromise the 

Commission’s ability to carry out its 

market surveillance responsibilities. 

Because of the linkage, the trading of the 

linked contracts on an FBOT potentially 

affects the pricing of contracts traded on 

U.S.-registered entities. 

Section 15(a) Factors 

1. Protection of Market Participants and 

the Public 

The final rules will further the 

protection of market participants and 

the public in numerous ways, including 

ensuring that FBOTs’ automated trading 

systems comply with the IOSCO 

principles, match trades fairly and 

timely with a proper audit trail, and 

meet other requirements as described in 

Rule 48.7(b) and that the clearing 

organizations are DCOs or observe the 

RCCPs or their successor standards. The 

rules requiring that contracts offered by 

FBOTs are not readily susceptible to 

manipulation and the rules regarding 

linked contracts, including the 

requirement that linked contracts have 

appropriate position limits, will also 

further the protection of market 

participants and the public. Further 

protection is provided by the 

requirement that FBOTs offering direct 

access to U.S. participants and their 

clearing organizations have proper rule 

enforcement procedures and are subject 

to comprehensive supervision and 

regulation by the appropriate 

government authorities in their home 

country that is comparable to the 

Commission’s comprehensive 

supervision and regulation and that 

information sharing agreements are in 

place. Finally, the examination of FBOT 

and clearing organization membership 

standards will also further the 

protection of market participants and 

the public. 

2. Efficiency, Competitiveness, and 

Financial Integrity of the Markets 

The requirements that the FBOTs’ 

automated trading systems contain a 

trade matching algorithm that matches 

trades in a fair and timely manner and 

that trading data be made available to 

users and the public will further the 

efficiency and competitiveness of the 

markets. The financial integrity of the 

markets will be furthered by the rules 


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80698 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

76 5 U.S.C. 601 et seq. 

77 5 U.S.C. 601(2), 603, 604 and 605. 

78See 75 FR 70987 (Nov. 19, 2010). 

79See 47 FR 18618, 18619, Apr. 30, 1982. 

80See Coalition at 29. 

requiring that clearing organizations be 

DCOs and meet DCO requirements or 

specifically represent that they observe 

each of the RCCPs (or their successor 

standards) and by the examination of 

FBOT and clearing organization 

membership standards. The rules 

requiring that contracts offered by 

FBOTs not be readily susceptible to 

manipulation will also further these 

considerations. The linked contract 

rules, including the position limit 

requirement, will also further the 

efficiency, competitiveness, and 

financial integrity of markets. 

3. Price Discovery 

The rules regarding the automated 

trading systems, including the trade 

matching rule, will further the price 

discovery process in FBOT contracts. 

The linked contract provisions will 

protect the price discovery process for 

linked contracts and the U.S. contracts 

that they are linked to by ensuring that 

the linked contracts have position limits 

and accountability provisions 

comparable to the corresponding U.S.- 

based contracts and that the price and 

volume data for linked contracts are 

disseminated in a comparable manner to 

their U.S. counterparts. The rules 

requiring that contracts offered by 

FBOTs for direct access not be readily 

susceptible to manipulation will also 

help protect the price discovery process. 

4. Sound Risk Management Procedures 

The requirement that FBOTs’ clearing 

organizations be DCOs or demonstrate 

observance of the RCCPs or their 

successor standards will further sound 

risk management procedures by 

ensuring that clearing organizations 

represent that they use risk management 

procedures that are consistent either 

with Commission regulations or 

internationally recognized standards. 

5. Other Public Interest Considerations 

The Commission believes that 

adopting formal registration provisions 

will further other public interest 

considerations by replacing the noaction procedure with a standardized 

and transparent application process and 

providing enhanced legal certainty to 

registered FBOTs and their clearing 

organizations. 

C. The Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) requires Federal agencies to 

consider the impact of its rules on 

‘‘small entities.’’ 76 A regulatory 

flexibility analysis or certification 

typically is required for ‘‘any rule for 

which the agency publishes a general 

notice of proposed rulemaking pursuant 

to’’ the notice-and-comment provisions 

of the Administrative Procedure Act, 5 

U.S.C. 553(b).77 The Commission noted 

in the proposing release that although it 

has established certain definitions of 

‘‘small entity’’ to be used in evaluating 

the impact of its rules under the RFA, 

it had not previously addressed the 

question of whether FBOTs are small 

entities for purposes of the RFA.78 The 

Commission previously determined that 

DCMs are not small entities for purposes 

of the RFA.79 In the proposing release, 

the Commission determined that 

because FBOTs and DCMs are 

functionally equivalent entities, FBOTs 

like DCMs are not ‘‘small entities’’ for 

purposes of the RFA. 

In response to the Proposed Rules, the 

Not-For-Profit Electric End User 

Coalition (Coalition) submitted a 

comment generally criticizing the 

Commission’s ‘‘rule-makings [as] an 

accumulation of interrelated regulatory 

burdens and costs on non-financial 

small entities like the NFP Electric End 

Users, who seek to transact in Energy 

Commodity Swaps and ‘‘referenced 

contracts’’ only to hedge the commercial 

risks of their not-for-profit public 

service activities.’’ 80 In addition, the 

Coalition requested ‘‘that the 

Commission streamline the use of the 

bona fide hedging exemption for nonfinancial entities, especially for those 

that engage in CFTC-regulated 

transactions as ‘end user only/bona fide 

hedger only’ market participants.’’ 

After further consideration in light of 

this comment, the Commission has 

determined that this final rulemaking, 

which is applicable only to FBOTs, will 

not have a substantial economic effect 

on a substantial number of small 

businesses. Accordingly, for the reasons 

stated in the proposal and the fact that 

the Coalition does not represent bodies 

that will be registering with the 

Commission as FBOTs, the Chairman, 

on behalf of the Commission, hereby 

certifies pursuant to 5 U.S.C. 605(b) that 

these rules will not have a significant 

economic impact on a substantial 

number of small entities. The Chairman 

made the same certification in the 

NPRM, and the Commission did not 

receive any comments on the RFA in 

relation to the proposed rulemaking. 

List of Subjects in 17 CFR Part 48 

Foreign Boards of Trade, Commodity 

futures, Options, Swaps, Direct Access, 

Linked Contract, Registration, Existing 

No-action Relief, Conditions of 

Registration. 

In consideration of the foregoing, and 

pursuant to the authority contained in 

the Act, and, in particular, sections 3, 4 

and 8a of the Act, the Commission 

hereby amends Chapter I of Title 17 of 

the Code of Federal Regulations by 

adding part 48 to read as follows: 

PART 48—REGISTRATION OF 

FOREIGN BOARDS OF TRADE 

Sec. 

48.1 Scope. 

48.2 Definitions. 

48.3 Registration required. 

48.4 Registration eligibility and scope. 

48.5 Registration procedures. 

48.6 Foreign boards of trade providing 

direct access pursuant to existing noaction relief. 

48.7 Requirements for registration. 

48.8 Conditions of registration. 

48.9 Revocation of registration. 

48.10 Additional contracts. 

Appendix—Part 48—Form FBOT 

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

otherwise noted. 

§ 48.1 Scope. 

The provisions of this part apply to 

any foreign board of trade that is 

registered, required to be registered, or 

applying to become registered with the 

Commission in order to provide its 

identified members or other participants 

located in the United States with direct 

access to its electronic trading and order 

matching system. 

§ 48.2 Definitions. 

For purposes of this part: 

(a) Foreign board of trade. Foreign 

board of trade means any board of trade, 

exchange or market located outside the 

United States, its territories or 

possessions, whether incorporated or 

unincorporated. 

(b) Foreign board of trade eligible to 

be registered. A foreign board of trade 

eligible to be registered means a foreign 

board of trade that satisfies the 

requirements for registration specified 

in § 48.7 and: 

(1) Possesses the attributes of an 

established, organized exchange, 

(2) Adheres to appropriate rules 

prohibiting abusive trading practices, 

(3) Enforces appropriate rules to 

maintain market and financial integrity, 

(4) Has been authorized by a 

regulatory process that examines 

customer and market protections, and 

(5) Is subject to continued oversight 

by a regulator that has power to 

intervene in the market and the 

authority to share information with the 

Commission. 


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(c) Direct access. Direct access means 

an explicit grant of authority by a 

foreign board of trade to an identified 

member or other participant located in 

the United States to enter trades directly 

into the trade matching system of the 

foreign board of trade. 

(d) Linked contract. Linked contract 

means a futures, option or swap contract 

that is made available for trading by 

direct access by a registered foreign 

board of trade that settles against any 

price (including the daily or final 

settlement price) of one or more 

contracts listed for trading on a 

registered entity as defined in section 

1a(40) of the Act. 

(e) Communications. 

Communications means any written or 

electronic documentation or 

correspondence issued by or on behalf 

of the Commission, the United States 

Department of Justice, or the National 

Futures Association. 

(f) Material change. Material change 

means a material change in the 

information provided to the 

Commission in support of an 

application for registration under this 

part. Subsequent to registration, 

material change also includes a material 

change in the operations of the foreign 

board of trade or its clearing 

organization and, without limitation, a 

change in any of the following: The 

membership or participant criteria of 

the foreign board of trade or its clearing 

organization; the location of the 

management, personnel or operations of 

the foreign board of trade or its clearing 

organization; the structure, nature, or 

operation of the trading or clearing 

systems; the regulatory or self-regulatory 

regime applicable to the foreign board of 

trade, its clearing organization, or their 

respective members and other 

participants; the authorization, 

licensure, registration or recognition of 

the foreign board of trade or clearing 

organization; and the ability of the 

clearing organization to observe the 

Recommendations for Central 

Counterparties. 

(g) Clearing organization. Clearing 

organization means the foreign board of 

trade, affiliate of the foreign board of 

trade or any third party clearing house, 

clearing association, clearing 

corporation or similar entity, facility or 

organization that, with respect to any 

agreement, contract or transaction 

executed on or through the foreign 

board of trade, would be: 

(1) Defined as a derivatives clearing 

organization under section 1a(15) of the 

Act; or 

(2) Defined as a central counterparty 

by the Recommendations for Central 

Counterparties. 

(h) Existing no-action relief. Existing 

no-action relief means a no-action letter 

issued by a division of the Commission 

to the foreign board of trade in which 

the division informs the foreign board of 

trade that it will not recommend that 

the Commission institute enforcement 

action against the foreign board of trade 

if the foreign board of trade does not 

seek designation as either a designated 

contract market pursuant to section 5 of 

the Act or a derivatives transaction 

execution facility pursuant to section 5a 

of the Act in connection with the 

granting of direct access. 

(i) Swap. Swap means a swap as 

defined in section 1a(47) of the Act and 

any Commission regulation further 

defining the term adopted thereunder. 

(j) Recommendations for Central 

Counterparties. Recommendations for 

Central Counterparties means: 

(1) The current Recommendations for 

Central Counterparties issued jointly by 

the Committee on Payment and 

Settlement Systems and the Technical 

Committee of the International 

Organization of Securities Commissions 

as updated, revised or otherwise 

amended; or 

(2) Successor standards, principles 

and guidance for central counterparties 

or financial market infrastructures 

adopted jointly by the Technical 

Committee of the International 

Organization of Securities Commissions 

and the Committee on Payment and 

Settlement Systems. 

(k) Affiliate. An affiliate of a 

registered foreign board of trade member 

or other participant means any person, 

as that term is defined in section 1a(38) 

of the Act, that: 

(1) Owns 50% or more of the member 

or other participant; 

(2) Is owned 50% or more by the 

member or other participant; or 

(3) Is owned 50% or more by a third 

person that also owns 50% or more of 

the member or other participant. 

(l) Member or other participant. 

Member or other participant means a 

member or other participant of a foreign 

board of trade that is registered under 

this part and any affiliate thereof that 

has been granted direct access by the 

foreign board of trade. 

§ 48.3 Registration required. 

(a) Except as specified in this part, it 

shall be unlawful for a foreign board of 

trade to permit direct access to its 

electronic trading and order matching 

system unless and until the Commission 

has issued a valid and current Order of 

Registration to the foreign board of trade 

pursuant to the provisions of this part. 

(b) It shall be unlawful for a foreign 

board of trade or the clearing 

organization to make false or misleading 

statements in or in connection with any 

application for registration under this 

part. 

§ 48.4 Registration eligibility and scope. 

(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) A foreign board of trade may apply 

for registration under this part in order 

to permit the members and other 

participants of the foreign board of trade 

that are located in the United States to 

enter trades directly into the trading and 

order matching system of the foreign 

board of trade, to the extent that such 

members or other participants are: 

(1) Entering orders for the member’s 

or other participant’s proprietary 

accounts; 

(2) Registered with the Commission as 

futures commission merchants and are 

submitting customer orders to the 

trading system for execution; or 

(3) Registered with the Commission as 

a commodity pool operator or 

commodity trading advisor, or are 

exempt from such registration pursuant 

to § 4.13 or § 4.14 of this chapter, and 

are submitting orders for execution on 

behalf of a United States pool that the 

member or other participant operates or 

an account of a United States customer 

for which the member or other 

participant has discretionary authority, 

respectively, provided that a futures 

commission merchant or a firm exempt 

from such registration pursuant to 

§ 30.10 of this chapter acts as clearing 

firm and guarantees, without limitation, 

all such trades of the commodity pool 

operator or commodity trading advisor 

effected through submission of orders to 

the trading system. 

§ 48.5 Registration procedures. 

(a) A foreign board of trade seeking 

registration with the Commission 

pursuant to this part must electronically 

file an application for registration with 

the Secretary of the Commission at its 

Washington DC headquarters at 

FBOTapplications@cftc.gov. 

(b) A complete application for 

registration must include: 

(1) A completed Form FBOT and 

Form Supplement S–1, as set forth in 

the Appendix to this part, or any 

successor forms, and all information 

and documentation described in such 

forms; and 

(2) Any additional information and 

documentation necessary, in the 

discretion of the Commission, to 

supplement the application including, 

but not limited to, documentation and 


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information provided during the course 

of an on-site visit, as applicable, to the 

foreign board of trade, the clearing 

organization and the regulatory 

authority or authorities, to effectively 

demonstrate that the foreign board of 

trade and its clearing organization 

satisfy the registration requirements set 

forth in § 48.7. 

(c) An applicant for registration must 

identify with particularity any 

information in the application that will 

be subject to a request for confidential 

treatment and must provide support for 

any request for confidential treatment 

pursuant to the procedures set forth in 

§ 145.9 of this chapter. 

(d) If, upon review, the Commission 

finds the application for registration to 

be complete, the Commission may 

approve or deny the application. In 

reviewing the application, the 

Commission will consider, among other 

things: 

(1) Whether the foreign board of trade 

is eligible to be registered as defined in 

§ 48.2(b) and; 

(2) Whether the foreign board of trade 

and its clearing organization are subject 

to comprehensive supervision and 

regulation by the appropriate 

governmental authorities in their home 

country or countries that is comparable 

to the comprehensive supervision and 

regulation to which designated contract 

markets and derivatives clearing 

organizations are respectively subject 

under the Act, Commission regulations, 

and other applicable United States laws 

and regulations, if any, and; 

(3) Any previous Commission 

findings that the foreign board of trade 

and its clearing organization are subject 

to comprehensive supervision and 

regulation by the appropriate 

government authorities in their home 

country or countries that is comparable 

to the comprehensive supervision and 

regulation to which designated contract 

markets and derivatives clearing 

organizations are subject under the Act, 

Commission regulations, and other 

applicable United States laws and 

regulations, if any; and 

(4) Whether the foreign board of trade 

and its clearing organization have 

adequately demonstrated that they meet 

the requirements for registration 

specified in § 48.7. 

(5) The Commission’s determination 

that the foreign board of trade and its 

clearing organization are subject to 

comprehensive supervision and 

regulation by the appropriate 

government authorities in their home 

country or countries that is comparable 

to the comprehensive supervision and 

regulation to which designated contract 

markets and derivatives clearing 

organizations are subject will be based 

upon a principles-based review 

conducted in a manner consistent with 

this part 48 pursuant to which the 

Commission will look to determine if 

the government authorities support and 

enforce regulatory objectives in the 

oversight of the foreign board of trade 

and the clearing organization that are 

substantially equivalent to the 

regulatory objectives supported and 

enforced by the Commission in its 

oversight of designated contract markets 

and derivatives clearing organizations. 

(e) If the Commission approves the 

application, the Commission will issue 

an Order of Registration. If the 

Commission does not approve the 

application, the Commission will, after 

appropriate notice and an opportunity 

to respond, issue a Notice of Action 

specifying that the application was not 

approved and setting forth the reasons 

therefor. The Commission, in its 

discretion, may impose conditions in 

the Order of Registration and may, after 

appropriate notice and an opportunity 

to respond, amend, suspend, or 

otherwise restrict the terms of an issued 

Order of Registration or issue an Order 

revoking registration. 

(f) A foreign board of trade whose 

application is not approved may reapply 

for registration 360 days after the 

issuance of the Notice of Action if the 

foreign board of trade has addressed any 

deficiencies in its original application or 

facts and circumstances relevant to the 

Commission’s review of the application 

have changed. 

§ 48.6 Foreign boards of trade providing 

direct access pursuant to existing no-action 

relief. 

(a) A foreign board of trade operating 

pursuant to existing no-action relief as 

of the effective date of this Part 48 must 

register with the Commission pursuant 

to this part in order to continue to 

provide direct access to its electronic 

trading and order matching system from 

the United States. 

(b)(1) The application of a foreign 

board of trade operating pursuant to 

existing no-action relief must include a 

complete Form FBOT and Supplement 

S–1, as set forth in the Appendix to this 

part. If the foreign board of trade, as part 

of its application for registration, wishes 

to rely on information and 

documentation previously submitted 

electronically in connection with its 

request for no-action relief in order to 

demonstrate that it satisfies the 

registration requirements set forth in 

§ 48.7, (limited application) the foreign 

board of trade must: 

(i) Specifically identify the 

information or documentation 

previously submitted; 

(ii) Identify the specific registration 

requirements set forth in § 48.7 that are 

satisfied by such information or 

documentation; and 

(iii) Certify that the information 

remains accurate and current. 

(2) If the foreign board of trade wishes 

to rely on information and 

documentation previously submitted in 

hard copy in connection with its 

application for no-action relief, the 

foreign board of trade must also 

resubmit the identified information or 

documentation. A foreign board of trade 

that has submitted a complete 

application for no-action relief that is 

pending as of February 21, 2012 may 

also apply for registration pursuant to 

these limited application procedures. 

(c) A foreign board of trade operating 

pursuant to existing no-action relief 

must submit a limited application for 

registration, determined in good faith by 

the applicant to be complete, within 180 

days of February 21, 2012. If, at any 

time after August 20, 2012 but before a 

limited application is approved or 

disapproved, the Commission 

determines that the application is 

materially incomplete, the Commission 

may, after providing the foreign board of 

trade with notice and an opportunity to 

respond to the determination of 

incompleteness, withdraw the existing 

no-action relief if the Commission 

determines that the application cannot 

be made complete in a timely manner. 

The foreign board of trade may continue 

to operate pursuant to the existing noaction relief, subject to the terms and 

conditions contained therein, August 

20, 2012, while the Commission is 

reviewing its application, and until the 

Commission approves or disapproves 

the application or otherwise withdraws 

the existing no-action relief. The noaction relief is automatically withdrawn 

upon issuance of an Order of 

Registration or upon disapproval. 

§ 48.7 Requirements for registration. 

An applicant for registration must 

demonstrate that it and, where 

applicable, its clearing organization 

meet the following requirements. The 

registration requirements applicable to 

clearing organizations may alternatively 

be met by demonstrating that the 

clearing organization is registered and 

in good standing with the Commission 

as a derivatives clearing organization. 

The Commission, in its discretion, may 

request additional information and 

documentation in connection with an 

application for registration and an 

applicant for registration must provide 


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promptly any such additional 

information or documentation. The 

Commission, in its discretion, also may 

impose additional registration 

requirements that the Commission 

deems necessary after appropriate 

notice and opportunity to respond. 

(a) Foreign Board of Trade and 

Clearing Membership: 

(1) The members and other 

participants of the foreign board of trade 

and its clearing organization are fit and 

proper and meet appropriate financial 

and professional standards; 

(2) The foreign board of trade and its 

clearing organization have and enforce 

provisions to minimize and resolve 

conflicts of interest; and 

(3) The foreign board of trade and its 

clearing organization have and enforce 

rules prohibiting the disclosure, both 

during and subsequent to service on a 

board or committee, of material nonpublic information obtained as a result 

of a member’s or other participant’s 

performance of duties as a member of 

their respective governing boards and 

significant committees. 

(b) The Automated Trading System: 

(1) The trading system complies with 

Principles for the Oversight of 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) Adequate and appropriate trade 

data is made available to users and the 

public, 

(5) The trading system has 

demonstrated reliability, 

(6) Access to the trading system is 

secure and protected, 

(7) There are adequate provisions for 

emergency operations and disaster 

recovery, 

(8) Trading data is backed up to 

prevent loss of data, and 

(9) Only those futures, option or swap 

contracts that have been identified to 

the Commission in the foreign board of 

trade’s application for registration or 

permitted to be made available for 

trading by direct access pursuant to the 

procedures set forth in § 48.10 of this 

part are made available for trading by 

direct access. 

(c) Terms and Conditions of Contracts 

to Be Made Available in the United 

States. 

(1) Contracts must meet the following 

standards: 

(i) Contracts must be futures, option 

or swap contracts that would be eligible 

to be traded on a designated contract 

market; 

(ii) Contracts must be cleared; 

(iii) Contracts must not be prohibited 

from being traded by United States 

persons; and 

(iv) Contracts must not be readily 

susceptible to manipulation. 

(2) Foreign futures and option 

contracts on non-narrow-based security 

indexes must have been certified by the 

Commission pursuant to the procedures 

set forth in § 30.13 of this chapter. 

(3) Contracts that have the following 

characteristics must be specifically 

identified as having such 

characteristics: 

(i) Contracts that are linked to a 

contract listed for trading on a registered 

entity as defined in section 1a(40) of the 

Act, and 

(ii) Contracts that have any other 

relationship with a contract listed for 

trading on a registered entity (for 

example, if both the foreign board of 

trade’s and the registered entity’s 

contract settle to the price of the same 

third party-constructed index). 

(d) Settlement and Clearing: 

(1) The clearing organization observes 

the Recommendations for Central 

Counterparties or is registered with the 

Commission as a derivatives clearing 

organization, and 

(2) The clearing organization is in 

good regulatory standing in its home 

country jurisdiction. 

(e) The Regulatory Regimes Governing 

the Foreign Board of Trade and the 

Clearing Organization: 

(1) The regulatory authorities provide 

comprehensive supervision and 

regulation of the foreign board of trade, 

the clearing organization, and the type 

of contracts to be made available 

through direct access that is comparable 

to the comprehensive supervision and 

regulation provided by the Commission 

to designated contract markets, 

derivatives clearing organizations and 

such contracts. That is, the regulatory 

authorities support and enforce 

regulatory objectives in the oversight of 

the foreign board of trade, clearing 

organization and the type of contracts 

that the foreign board of trade wishes to 

make available through direct access 

that are substantially equivalent to the 

regulatory objectives supported and 

enforced by the Commission in its 

oversight of designated contract 

markets, derivatives clearing 

organizations, and such products. 

(2) The regulatory authorities engage 

in ongoing regulatory supervision and 

oversight of the foreign board of trade 

and its trading system, the clearing 

organization and its clearing system, 

and the members, intermediaries and 

other participants of the foreign board of 

trade and clearing organization, with 

respect to, among other things, market 

integrity, customer protection, clearing 

and settlement and the enforcement of 

the rules of the foreign board of trade 

and the clearing organization. 

(3) The regulatory authorities have the 

power to share information directly 

with the Commission, upon request, 

including information necessary to 

evaluate the continued eligibility of the 

foreign board of trade for registration 

and to audit for compliance with the 

terms and conditions of the registration. 

(4) The regulatory authorities have the 

power to intervene in the market. 

(f) The Rules of the Foreign Board of 

Trade and the Clearing Organization 

and Enforcement Thereof: 

(1) The foreign board of trade and its 

clearing organization have implemented 

and enforce rules to ensure compliance 

with the requirements of registration 

contained in this part; 

(2) The foreign board of trade and its 

clearing organization have the capacity 

to detect, investigate, and sanction 

persons who violate their respective 

rules; 

(3) The foreign board of trade and the 

clearing organization (or their respective 

regulatory authorities) have 

implemented and enforce disciplinary 

procedures that empower them to 

recommend and prosecute disciplinary 

actions for suspected rule violations, 

impose adequate sanctions for such 

violations, and provide adequate 

protections to charged parties pursuant 

to fair and clear standards; 

(4) The foreign board of trade and its 

clearing organization are authorized by 

rule or by contractual agreement to 

obtain, from members and other 

participants, any information and 

cooperation necessary to conduct 

investigations, to effectively enforce 

their respective rules, and to ensure 

compliance with the conditions of 

registration; 

(5) The foreign board of trade and its 

clearing organization have sufficient 

compliance staff and resources, 

including by delegation and/or 

outsourcing to a third party, to fulfill 

their respective regulatory 

responsibilities, including appropriate 

trade practice surveillance, real time 

market monitoring, market surveillance, 

financial surveillance, protection of 

customer funds, enforcement of clearing 

and settlement provisions and other 

compliance and regulatory 

responsibilities; 

(6) The foreign board of trade has 

implemented and enforces rules with 

respect to access to the trading system 


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and the means by which the connection 

thereto is accomplished; 

(7) The foreign board of trade’s audit 

trail captures and retains sufficient 

order and trade-related data to allow its 

compliance staff to detect trading and 

market abuses and to reconstruct all 

transactions within a reasonable period 

of time; 

(8) The foreign board of trade has 

implemented and enforces rules 

prohibiting fraud and abusive trading 

practices including, but not limited to, 

wash sales and trading ahead; 

(9) The foreign board of trade has the 

capacity to detect and deter, and has 

implemented and enforces rules relating 

to, market manipulation, attempted 

manipulation, price distortion, and 

other disruptions of the market; and 

(10) The foreign board of trade has 

and enforces rules and procedures that 

ensure a competitive, open and efficient 

market and mechanism for executing 

transactions. 

(g) Information Sharing: 

(1) The regulatory authorities 

governing the activities of the foreign 

board of trade and the clearing 

organization are signatories to the 

International Organization of Securities 

Commissions Multilateral Memorandum 

of Understanding, or otherwise ensure 

that substitute information sharing 

arrangements that are satisfactory to the 

Commission are in place; 

(2) The regulatory authorities 

governing the activities of the foreign 

board of trade and the clearing 

organization are signatories to the 

Declaration on Cooperation and 

Supervision of International Futures 

Exchanges and Clearing Organizations 

or otherwise commit, in writing, to 

share the types of information 

contemplated by the International 

Information Sharing Memorandum of 

Understanding and Agreement with the 

Commission; 

(3) The foreign board of trade has 

executed the International Information 

Sharing Memorandum of Understanding 

and Agreement; and 

(4) Pursuant to the conditions 

described in § 48.8(a)(6), the foreign 

board of trade and clearing organization 

agree to provide directly to the 

Commission, upon request, any 

information necessary, in the discretion 

of the Commission, to evaluate the 

continued eligibility and 

appropriateness of the foreign board of 

trade and the clearing organization, or 

their respective members or other 

participants for registration, to audit for 

and enforce compliance with the 

requirements and conditions of the 

registration, or to enable the 

Commission to carry out its duties 

under the Act and Commission 

regulations. 

§ 48.8 Conditions of registration. 

Upon registration under this part, and 

on an ongoing basis thereafter, the 

foreign board of trade and the clearing 

organization shall comply with the 

applicable conditions of registration set 

forth in this section and any additional 

conditions that the Commission deems 

necessary and may impose, in its 

discretion, and after appropriate notice 

and opportunity to respond. Such 

conditions could include, but are not 

limited to, additional conditions 

applicable to the listing of swap 

contracts. Continued registration is 

expressly conditioned upon satisfaction 

of these conditions. 

(a) Specified Conditions for 

Maintaining Registration 

(1) Registration Requirements: The 

foreign board of trade and its clearing 

organization shall continue to satisfy all 

of the requirements for registration set 

forth in § 48.7. 

(2) Regulatory Regime: 

(i) The foreign board of trade will 

continue to satisfy the criteria for a 

regulated market or licensed exchange 

pursuant to the regulatory regime 

described in its application and will 

continue to be subject to oversight by 

the regulatory authorities described in 

its application. 

(ii) The clearing organization will 

continue to satisfy the criteria for a 

regulated clearing organization pursuant 

to the regulatory regime described in the 

application for registration and will 

continue to be in good standing with the 

relevant regulatory authority. 

(iii) The laws, systems, rules, and 

compliance mechanisms of the 

regulatory regime applicable to the 

foreign board of trade will continue to 

require the foreign board of trade to 

maintain fair and orderly markets; 

prohibit fraud, abuse, and market 

manipulation and other disruptions of 

the market; and provide that such 

requirements are subject to the oversight 

of appropriate regulatory authorities. 

(3) Satisfaction of International 

Standards: 

(i) The foreign board of trade will 

continue to comply with the Principles 

for the Oversight of Screen-Based 

Trading Systems for Derivative Products 

developed by the Technical Committee 

of the International Organization of 

Securities Commissions, as updated, 

revised, or otherwise amended, to the 

extent such principles do not 

contravene United States law. 

(ii) The clearing organization will 

continue to: 

(A) Be registered with the 

Commission as a derivatives clearing 

organization and be in compliance with 

the laws and regulations related thereto; 

or 

(B) Observe the Recommendations for 

Central Counterparties. 

(4) Restrictions on Direct Access: 

(i) Only the foreign board of trade’s 

identified members or other participants 

will have direct access to the foreign 

board of trade’s trading system from the 

United States and the foreign board of 

trade will not provide, and will take 

reasonable steps to prevent, third parties 

from providing direct access to persons 

other than the identified members or 

other participants. 

(ii) All orders that are transmitted to 

the foreign board of trade’s trading 

system by a foreign board of trade’s 

identified member or other participant 

that is operating pursuant to the foreign 

board of trade’s registration will be 

solely for the member’s or trading 

participant’s own account unless such 

member or other participant is 

registered with the Commission as a 

futures commission merchant or such 

member or other participant is 

registered with the Commission as a 

commodity pool operator or commodity 

trading advisor, or is exempt from such 

registration pursuant to § 4.13 or § 4.14 

of this chapter, provided that a futures 

commission merchant or a firm exempt 

from such registration pursuant to 

§ 30.10 of this chapter acts as clearing 

firm and guarantees, without limitation, 

all such trades of the commodity pool 

operator or commodity trading advisor 

effected through submission of orders 

on the trading system. 

(5) Submission to Commission 

Jurisdiction: 

(i) Prior to operating pursuant to 

registration under this part and on a 

continuing basis thereafter, a registered 

foreign board of trade will require that 

each current and prospective member or 

other participant that is granted direct 

access to the foreign board of trade’s 

trading system and that is not registered 

with the Commission as a futures 

commission merchant, a commodity 

trading advisor or a commodity pool 

operator, file with the foreign board of 

trade a written representation, executed 

by a person with the authority to bind 

the member or other participant, stating 

that as long as the member or other 

participant is authorized to enter orders 

directly into the trade matching system 

of the foreign board of trade, the 

member or other participant agrees to 

and submits to the jurisdiction of the 

Commission with respect to activities 

conducted pursuant to the registration. 


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(ii) The foreign board of trade and its 

clearing organization will file with the 

Commission a valid and binding 

appointment of an agent for service of 

process in the United States pursuant to 

which the agent is authorized to accept 

delivery and service of communications, 

as defined in § 48.2(e) issued by or on 

behalf of the Commission, the United 

States Department of Justice, or the 

National Futures Association. 

(iii) The foreign board of trade, 

clearing organization, and each current 

and prospective member or other 

participant that is granted direct access 

to the foreign board of trade’s trading 

system and that is not registered with 

the Commission as a futures 

commission merchant, a commodity 

trading advisor, or a commodity pool 

operator will maintain with the foreign 

board of trade written representations, 

executed by persons with the authority 

to bind the entity making them, stating 

that as long as the foreign board of trade 

is registered under this regulation, the 

foreign board of trade, the clearing 

organization or member of either or 

other participant granted direct access 

pursuant to this regulation will provide, 

upon the request of the Commission, the 

United States Department of Justice and, 

if appropriate, the National Futures 

Association, prompt access to the 

entity’s, member’s, or other participant’s 

original books and records or, at the 

election of the requesting agency, a copy 

of specified information containing such 

books and records, as well as access to 

the premises where the trading system 

is available in the United States. 

(iv) The foreign board of trade will 

maintain all representations required 

pursuant to § 48.8(a)(5) as part of its 

books and records and make them 

available to the Commission upon 

request. 

(6) Information Sharing: 

(i) Information-sharing arrangements 

satisfactory to the Commission, 

including but not limited to those set 

forth in § 48.7(g), are in effect between 

the Commission and the regulatory 

authorities that govern the activities of 

both the foreign board of trade and the 

clearing organization. 

(ii) The Commission is, in fact, able to 

obtain sufficient information regarding 

the foreign board of trade, the clearing 

organization, their respective members 

and participants and the activities 

related to the foreign board of trade’s 

registration. 

(iii) The foreign board of trade and its 

clearing organization, as applicable, will 

provide directly to the Commission any 

information necessary to evaluate the 

continued eligibility and 

appropriateness of the foreign board of 

trade for registration, the capability and 

determination to enforce compliance 

with the requirements and conditions of 

the registration, or to enable the 

Commission to carry out its duties 

under the Act and Commission 

regulations and to provide adequate 

protection to the public or United States 

registered entities. 

(iv) In the event that the foreign board 

of trade and the clearing organization 

are separate entities, the foreign board of 

trade will require the clearing 

organization to enter into a written 

agreement in which the clearing 

organization is contractually obligated 

to promptly provide any and all 

information and documentation that 

may be required of the clearing 

organization under this regulation and 

such agreement shall be made available 

to the Commission, upon request. 

(7) Monitoring for Compliance: The 

foreign board of trade and the clearing 

organization will employ reasonable 

procedures for monitoring and enforcing 

compliance with the specified 

conditions of its registration. 

(8) On-Site Visits: The foreign board 

of trade and the clearing organization 

will permit and will cooperate with 

Commission staff with respect to on-site 

visits for the purpose of overseeing 

ongoing compliance of the foreign board 

of trade and the clearing organization 

with registration requirements and 

conditions of registration. 

(9) Conditions Applicable to Swap 

Trading: 

(i) The foreign board of trade will 

ensure that all transaction data relating 

to each swap transaction, including 

price and volume, are reported as soon 

as technologically practicable after 

execution of the swap transaction to a 

swap data repository that is either 

registered with the Commission or has 

an information sharing arrangement 

with the Commission. 

(ii) The foreign board of trade will 

agree to coordinate with the 

Commission with respect to 

arrangements established to address 

cross market oversight issues involving 

swap trading, including surveillance, 

emergency actions and the monitoring 

of trading. 

(b) Other Continuing Obligations. 

(1) Registered foreign boards of trade 

and their clearing organizations will 

continue to comply with the following 

obligations on an ongoing basis: 

(i) The foreign board of trade will 

maintain the following updated 

information and submit such 

information to the Commission on at 

least a quarterly basis, not later than 30 

days following the end of the quarter, 

and at any time promptly upon the 

request of a Commission representative, 

computed based upon separating buy 

sides and sell sides, in a format as 

determined by the Commission: 

(A) For each contract available to be 

traded through the foreign board of 

trade’s trading system; 

(1) The total trade volume originating 

from electronic trading devices 

providing direct access; 

(2) The total trade volume for such 

contracts traded through the trading 

system worldwide; 

(3) The total trade volume for such 

contracts traded on the foreign board of 

trade generally; and 

(B) A listing of the names, National 

Futures Association identification 

numbers (if applicable), and main 

business addresses in the United States 

of all members and other participants 

that have direct access. 

(ii) The foreign board of trade will 

promptly provide to the Commission 

written notice of the following: 

(A) Any material change to the 

information provided in the foreign 

board of trade’s registration application. 

(B) Any material change in the rules 

of the foreign board of trade or clearing 

organization or the laws, rules, or 

regulations in the home country 

jurisdictions of the foreign board of 

trade or clearing organization relevant to 

futures, option or swap contracts made 

available by direct access. 

(C) Any matter known to the foreign 

board of trade, the clearing organization 

or its representatives that, in the 

judgment of the foreign board of trade 

or clearing organization, may affect the 

financial or operational viability of the 

foreign board of trade or its clearing 

organization with respect to contracts 

traded by direct access, including, but 

not limited to, any significant system 

failure or interruption. 

(D) Any default, insolvency, or 

bankruptcy of any foreign board of trade 

member or other participant that is or 

should be known to the foreign board of 

trade or its representatives or the 

clearing organization or its 

representatives that may have a 

material, adverse impact upon the 

condition of the foreign board of trade 

as it relates to trading by direct access, 

its clearing organization or upon any 

United States customer or firm or any 

default, insolvency or bankruptcy of any 

member of the foreign board of trade’s 

clearing organization. 

(E) Any violation of any specified 

conditions of the foreign board of trade’s 

registration or failure to satisfy the 

requirements for registration under this 

part that is known or should be known 

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clearing organization or any of their 

respective members or participants. 

(F) Any disciplinary action by the 

foreign board of trade or its clearing 

organization, or any regulatory authority 

that governs their respective activities, 

taken against any of their respective 

members or participants with respect to 

any contract available to be traded by 

direct access that involves any market 

manipulation, abuse, fraud, deceit, or 

conversion or that results in suspension 

or expulsion. 

(iii) The foreign board of trade and the 

clearing organization, or their respective 

regulatory authorities, as applicable, 

will provide the following to the 

Commission annually as of June 30 and 

not later than July 31. 

(A) A certification from the foreign 

board of trade’s regulatory authority 

confirming that the foreign board of 

trade retains its authorization, licensure 

or registration, as applicable, as a 

regulated market and/or exchange under 

the authorization, licensing, recognition 

or other registration methodology used 

by the foreign board of trade’s regulatory 

authority and that the foreign board of 

trade is in continued good standing. 

(B) If the clearing organization is not 

a derivatives clearing organization 

registered with the Commission, a 

certification from the clearing 

organization’s regulatory authority 

confirming that the clearing 

organization retains its authorization, 

licensure or registration, as applicable, 

as a clearing organization under the 

authorization, licensing or other 

registration methodology used by the 

clearing organization’s regulatory 

authority and is in continued good 

standing. 

(C) If the clearing organization is not 

a derivatives clearing organization 

registered with the Commission, a 

recertification of the clearing 

organization’s observance of the 

Recommendations for Central 

Counterparties. 

(D) A certification that affiliates, as 

defined in § 48.2(k), continue to be 

required to comply with the rules of the 

foreign board of trade and clearing 

organization and that the members or 

other participants to which they are 

affiliated remain responsible to the 

foreign board of trade for ensuring their 

affiliates’ compliance. 

(E) A description of any material 

changes regarding the foreign board of 

trade or clearing organization that have 

not been previously disclosed, in 

writing, to the Commission, or a 

certification that no such material 

changes have occurred. 

(F) A description of any significant 

disciplinary or enforcement actions that 

have been instituted by or against the 

foreign board of trade or the clearing 

organization or the senior officers of 

either during the prior year. 

(G) A written description of any 

material changes to the regulatory 

regime to which the foreign board of 

trade or the clearing organization are 

subject that have not been previously 

disclosed, in writing, to the 

Commission, or a certification that no 

material changes have occurred. 

(2) The above-referenced annual 

reports must be signed by an officer of 

the foreign board of trade or the clearing 

organization who maintains the 

authority to bind the foreign board of 

trade or clearing organization, as 

applicable, and must be based on the 

officer’s personal knowledge. 

(c) Additional Specified Conditions 

for Foreign Boards of Trade with Linked 

Contacts. If a registered foreign board of 

trade grants members or other 

participants direct access and makes 

available for trading a linked contract, 

the following additional conditions 

apply: 

(1) Statutory Conditions. 

(i) The foreign board of trade will 

make public daily trading information 

regarding the linked contract that is 

comparable to the daily trading 

information published by the registered 

entity for the contract to which the 

foreign board of trade’s contract is 

linked, and 

(ii) The foreign board of trade (or its 

regulatory authority) will: 

(A) Adopt position limits (including 

related hedge exemption provisions) 

applicable to all market participants for 

the linked contract that are comparable 

to the position limits (including related 

hedge exemption provisions) adopted 

by the registered entity for the contract 

to which it is linked; 

(B) Have the authority to require or 

direct any market participant to limit, 

reduce, or liquidate any position the 

foreign board of trade (or its regulatory 

authority) determines to be necessary to 

prevent or reduce the threat of price 

manipulation, excessive speculation as 

described in section 4a of the Act, price 

distortion, or disruption of delivery on 

the cash settlement process; 

(C) Agree to promptly notify the 

Commission, with regard to the linked 

contract, of any change regarding— 

(1) The information that the foreign 

board of trade will make publicly 

available, 

(2) The position limits that foreign 

board of trade or its regulatory authority 

will adopt and enforce, 

(3) The position reductions required 

to prevent manipulation, excessive 

speculation as described in section 4a of 

the Act, price distortion, or disruption 

of delivery or the cash settlement 

process, and 

(4) Any other area of interest 

expressed by the Commission to the 

foreign board of trade or its regulatory 

authority; 

(D) Provide information to the 

Commission regarding large trader 

positions in the linked contract that is 

comparable to the large trader position 

information collected by the 

Commission for the contract to which it 

is linked; and 

(E) Provide the Commission such 

information as is necessary to publish 

reports on aggregate trader positions for 

the linked contract that are comparable 

to such reports on aggregate trader 

positions for the contract to which it is 

linked. 

(2) Other Conditions on Linked 

Contracts. 

(i) The foreign board of trade will 

inform the Commission in a quarterly 

report of any member that had positions 

in a linked contract above the applicable 

foreign board of trade position limit, 

whether a hedge exemption was 

granted, and if not, whether a 

disciplinary action was taken. 

(ii) The foreign board of trade will 

provide the Commission, either directly 

or through its agent, with trade 

execution and audit trail data for the 

Commission’s Trade Surveillance 

System on a trade-date plus one basis 

and in a form, content and manner 

acceptable to the Commission for all 

linked contracts. 

(iii) The foreign board of trade will 

provide to the Commission, at least one 

day prior to the effective date thereof, 

except in the event of an emergency 

market situation, copies of, or 

hyperlinks to, all rules, rule 

amendments, circulars and other notices 

published by the foreign board of trade 

with respect to all linked contracts. 

(iv) The foreign board of trade will 

provide to the Commission copies of all 

reports of disciplinary action involving 

the foreign board of trade’s linked 

contracts upon closure of the action. 

Such reports should include the reason 

the action was undertaken, the results of 

the investigation that led to the 

disciplinary action, and any sanctions 

imposed. 

(v) In the event that the Commission, 

pursuant to its emergency powers 

authority, directs that the registered 

entity which lists the contract to which 

the foreign board of trade’s contract is 

linked to take emergency action with 

respect to a linked contract (for 

example, to cease trading in the 

contract), the foreign board of trade, 

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arrangements between the Commission 

and its regulatory authority, will 

promptly take similar action with 

respect to the its linked contract. 

§ 48.9 Revocation of registration. 

(a) Failure to Satisfy Registration 

Requirements or Conditions: 

(1) If the Commission determines that 

a registered foreign board of trade or the 

clearing organization has failed to 

satisfy any registration requirements or 

conditions for registration, the 

Commission shall notify the foreign 

board of trade of such determination, 

including the particular requirements or 

conditions that are not being satisfied, 

and shall afford the foreign board of 

trade or clearing organization an 

opportunity to make appropriate 

changes to bring it into compliance. 

(2) If, not later than 30 days after 

receiving a notification under paragraph 

(a)(1) of this section, the foreign board 

of trade or clearing organization fails to 

make changes that, in the opinion of the 

Commission, are necessary to comply 

with the registration requirements or 

conditions of registration, the 

Commission may revoke the foreign 

board of trade’s registration, after 

appropriate notice and an opportunity 

to respond, by issuing an Order 

Revoking Registration which sets forth 

the reasons therefor. 

(3) A foreign board of trade whose 

registration has been revoked for failure 

to satisfy a registration requirement or 

condition of registration may apply for 

re-registration 360 days after the 

issuance of the Order Revoking 

Registration if the deficiency causing 

the revocation has been cured or 

relevant facts and circumstances have 

changed. 

(b) Other Events that Could Result in 

Revocation. Notwithstanding § 48.9(a), 

revocation under these circumstances 

will be handled by the Commission as 

relevant facts or circumstances warrant. 

(1) The Commission may revoke a 

foreign board of trade’s registration, 

after appropriate notice and an 

opportunity to respond, if the 

Commission determines that a 

representation made in the foreign 

board of trade’s application for 

registration is found to be untrue or 

materially misleading or if the foreign 

board of trade failed to include 

information in the application that 

would have been material to the 

Commission’s determination as to 

whether to issue an Order of 

Registration. 

(2) The Commission may revoke a 

foreign board of trade’s registration, 

after appropriate notice and an 

opportunity to respond, if there is a 

material change in the regulatory regime 

applicable to the foreign board of trade 

or clearing organization such that the 

regulatory regime no longer satisfies any 

registration requirement or condition for 

registration applicable to the regulatory 

regime. 

(3) The Commission may revoke a 

foreign board of trade’s registration in 

the event of an emergency or in a 

circumstance where the Commission 

determines that revocation would be 

necessary or appropriate in the public 

interest. Following revocation, the 

Commission will provide notice and an 

opportunity to respond. 

(4) The Commission may revoke a 

foreign board of trade’s registration in 

the event the foreign board of trade or 

the clearing organization is no longer 

authorized, licensed or registered, as 

applicable, as a regulated market and/or 

exchange or clearing organization or 

ceases to operate as a foreign board of 

trade or clearing organization, subject to 

notice and an opportunity to respond. 

(c) Upon request by the Commission, 

a registered foreign board of trade must 

file with the Commission a written 

demonstration, containing such 

supporting data, information, and 

documents, in such form and manner 

and within such timeframe as the 

Commission may specify, that the 

foreign board of trade or clearing 

organization is in compliance with the 

registration requirements and/or 

conditions for registration. 

§ 48.10 Additional contracts. 

(a) Generally. A registered foreign 

board of trade that wishes to make an 

additional futures, option or swap 

contract available for trading by 

identified members or other participants 

located in the United States with direct 

access to its electronic trading and order 

matching system must submit a written 

request prior to offering the contracts 

from within the United States. Such a 

written request must include the terms 

and conditions of the additional futures, 

option or swap contracts and a 

certification that the additional 

contracts meet the requirements of 

§ 48.8(c), if applicable, and that the 

foreign board of trade and the clearing 

organization continue to satisfy the 

requirements and conditions of 

registration. The foreign board of trade 

can make available for trading by direct 

access the additional contracts ten 

business days after the date of receipt by 

the Commission of the written request, 

unless the Commission notifies the 

foreign board of trade that additional 

time is needed to complete its review of 

policy or other issues pertinent to the 

additional contracts. A registered 

foreign board of trade may list for 

trading by direct access an additional 

futures or option contract on a nonnarrow-based security index pursuant to 

the Commission certification procedures 

set forth in § 30.13(d) and Appendix D 

to Part 30 of this chapter. 

(b) Option contracts on previously 

approved futures contracts. (1) If the 

option is on a futures contract that is not 

a linked contract, the option contract 

may be made available for trading by 

direct access by filing with the 

Commission no later than the business 

day preceding the initial listing of the 

contract: 

(i) A copy of the terms and conditions 

of the additional contract and 

(ii) A certification that the foreign 

board of trade and the clearing 

organization continue to satisfy the 

conditions of its registration. 

(2) If the option is on a futures 

contract that is a linked contract, the 

option contract may be made available 

for trading by direct access by filing 

with the Commission no later than the 

business day preceding the initial listing 

of the contract: 

(i) A copy of the terms and conditions 

of the additional contract; and 

(ii) A certification that the foreign 

board of trade and the clearing 

organization continue to satisfy the 

conditions of its registration, including 

the conditions specifically applicable to 

linked contracts set forth in § 48.8(c). 

(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 Commission 

certification issued pursuant to § 30.13 

of this chapter, the option contract may 

be listed for trading by direct access 

without further action by either the 

registered foreign board of trade or the 

Commission. 

Appendix to Part 48—Form FBOT 

COMMODITY FUTURES TRADING 

COMMISSION 

FORM FBOT 

FOREIGN BOARD OF TRADE 

APPLICATION FOR REGISTRATION 

(IN ORDER TO PERMIT DIRECT 

ACCESS TO MEMBERS AND OTHER 

PARTICIPANTS) 

APPLICATION INSTRUCTIONS 

DEFINITIONS 

1. Unless the context requires 

otherwise, all terms used in this 

application have the same meaning as in 

the Commodity Exchange Act, as 


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1 7 U.S.C. 1 et seq. 

2 17 CFR chapter I. 

3 17 CFR 145.9. 

4Applicants and their clearing organizations are 

encouraged to correspond with the Commission’s 

Division of Market Oversight regarding any content, 

procedural, or formatting questions encountered in 

connection with the preparation of a Form FBOT, 

or any exhibits or supplements thereto, prior to 

formally submitting those documents to the 

Commission. When appropriate, potential 

applicants and clearing organizations, as applicable, 

may provide a complete draft Form FBOT 

(including exhibits and any required supplement) 

to the Division of Market Oversight for early review 

to minimize the risk of having a submission 

returned or otherwise denied as not acceptable for 

filing. Review of draft submissions by any division 

of the Commission and any comments provided by 

a division of the Commission are for consultation 

purposes only and do not bind the Commission. To 

obtain instructions for submitting drafts, please 

contact the Division of Market Oversight. 

amended (CEA or Act),1 and in the 

regulations of the Commodity Futures 

Trading Commission (Commission or 

CFTC).2

2. For the purposes of this Form 

FBOT, the term ‘‘applicant’’ refers to the 

foreign board of trade applying for 

registration pursuant to CEA section 

4(b) and part 48 of the Commission’s 

regulations. The term ‘‘clearing 

organization’’ refers to the clearing 

organization that will be clearing trades 

executed on the trading system of such 

foreign board of trade. 

GENERAL INSTRUCTIONS 

1. A Form FBOT (including exhibits) 

shall be completed by any foreign board 

of trade applying for registration with 

the Commission pursuant to CEA 

section 4(b) and part 48 of the 

Commission’s regulations. 

2. Form FBOT (including exhibits and 

any supplement thereto) (collectively, 

the ‘‘application’’ or ‘‘application for 

registration’’) must be filed 

electronically with the Secretary of the 

Commission at FBOTapplications@

cftc.gov. Applicants may prepare their 

own Form FBOT, but must follow the 

format prescribed herein. 

3. The name of any individual listed 

in Form FBOT shall be provided in full 

(Last Name, First Name and Middle 

Name or Initial). 

4. Form FBOT must be signed by the 

Chief Executive Officer (or the 

functional equivalent) of the foreign 

board of trade who must possess the 

authority to bind the foreign board of 

trade. 

5. If this Form FBOT is being filed as 

a new application for registration, all 

applicable items on the Form FBOT 

must be answered in full. Nonapplicable items should be indicated by 

marking ‘‘none’’ or ‘‘N/A.’’ 

6. Submission of a complete Form 

FBOT (including all information, 

documentation and exhibits requested 

therein, and any required supplement) 

is mandatory and must be received by 

the Commission before it will begin to 

process a foreign board of trade’s 

application for registration. The 

information provided with a Form 

FBOT (including exhibits and any 

supplement thereto) will be used to 

determine whether the Commission 

should approve or deny registration to 

an applicant. Pursuant to its regulations, 

the Commission may determine that 

information and/or documentation in 

addition to that requested in the Form 

FBOT is required from the applicant in 

order to process the application for 

registration or to determine whether 

registration is appropriate. 

7. Pursuant to Commission 

regulations, an applicant or its clearing 

organization must identify with 

particularity any information in the 

application (including, but not limited 

to, any information contained in this 

Form FBOT) that will be the subject of 

a request for confidential treatment and 

must provide support for any request for 

confidential treatment pursuant to the 

procedures set forth in Commission 

regulation 145.9.3 Except in cases where 

confidential treatment is granted by the 

Commission pursuant to the Freedom of 

Information Act and Commission 

regulations, information supplied in the 

Form FBOT (including exhibits and any 

supplement thereto) will be included 

routinely in the public files of the 

Commission and will be available for 

inspection and comment by any 

interested person. 

8. A Form FBOT that is not prepared 

and executed in compliance with 

applicable requirements and 

instructions may be returned as not 

acceptable for filing.4 Acceptance of a 

Form FBOT by the Commission, 

however, shall not constitute a finding 

that the Form FBOT has been filed as 

required or that the information 

submitted is verified to be true, current, 

or complete. The Commission may 

revoke a foreign board of trade’s 

registration, after appropriate notice and 

an opportunity to respond, if the 

Commission determines that a 

representation made in this Form FBOT 

is found to be untrue or materially 

misleading or if the foreign board of 

trade failed to include information in 

this Form FBOT that would have been 

material to the Commission’s 

determination as to whether to issue an 

Order of Registration. 

9. In addition to this Form FBOT, the 

clearing organization associated with 

the foreign board of trade must complete 

and submit Supplement S–1 to this 

Form FBOT in accordance with the 

instructions thereto. To the extent a 

single document or description is 

responsive to more than one request for 

the same information in either the Form 

FBOT or the Supplement S–1, the 

document or description need only be 

provided once and may be crossreferenced elsewhere. 

10. All documents submitted as part 

of this Form FBOT (or exhibits thereto) 

must be written in English or 

accompanied by a certified English 

translation. 

UPDATING INFORMATION ON THE 

FORM FBOT 

Pursuant to the Commission’s 

regulations, if any information or 

documentation contained in this Form 

FBOT (including exhibits or any 

supplement or amendment thereto) is or 

becomes inaccurate for any reason prior 

to the issuance of an Order of 

Registration, an amendment correcting 

such information must be filed 

promptly with the Commission. A 

registered foreign board of trade also 

may submit an amendment to this Form 

FBOT to correct information that has 

become inaccurate subsequent to the 

receipt of an Order of Registration. 

BILLING CODE 6351–01–P 


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BILLING CODE 6351–01–C INSTRUCTIONS FOR EXHIBITS TO 

FORM FBOT 

1. The following exhibits must be 

filed with the Commission by any 

foreign board of trade (1) seeking 

registration for purposes of granting 

direct access to its members and other 

participants or (2) amending a 


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previously submitted application, 

pursuant to CEA section 4(b) and part 

48 of the Commission’s regulations. The 

information and documentation 

requested relates to the activities of the 

foreign board of trade, unless otherwise 

stated. 

2. The exhibits should be filed in 

accordance with the General 

Instructions to this Form FBOT and 

labeled as specified herein. If any 

exhibit is not applicable, please specify 

the exhibit letter and number and 

indicate by marking ‘‘none’’ or ‘‘N/A.’’ 

If any exhibit may be satisfied by 

documentation or information 

submitted in a different exhibit, the 

documentation or information need not 

be submitted more than once—please 

use internal cross-references where 

appropriate. 

GENERAL REQUIREMENTS 

A foreign board of trade applying for 

registration must submit sufficient 

information and documentation to 

successfully demonstrate to 

Commission staff that the foreign board 

of trade and its clearing organization 

satisfy all of the requirements of 

Commission regulation 48.7. With 

respect to its review of the foreign board 

of trade, the Commission anticipates 

that such information and 

documentation would necessarily 

include, but not be limited to, the 

following: 

EXHIBIT A—GENERAL 

INFORMATION AND 

DOCUMENTATION 

Attach, as Exhibit A–1, a description 

of the following for the foreign board of 

trade: Location, history, size, ownership 

and corporate structure, governance and 

committee structure, current or 

anticipated presence of offices or staff in 

the United States, and anticipated 

volume of business emanating from 

members and other participants that 

will be provided direct access to the 

foreign board of trade’s trading system. 

Attach, as Exhibit A–2, the following: 

Articles of association, constitution, 

or other similar organizational 

documents. 

Attach, as Exhibit A–3, the following: 

(1) Membership and trading 

participant agreements. 

(2) Clearing agreements. 

Attach, as Exhibit A–4, the following: 

Terms and conditions of contracts to 

be available through direct access (as 

specified in Exhibit E). 

Attach, as Exhibit A–5, the following: 

The national statutes, laws and 

regulations governing the activities of 

the foreign board of trade and its 

respective participants. 

Attach, as Exhibit A–6, the following: 

The current rules, regulations, 

guidelines and bylaws of the foreign 

board of trade. 

Attach, as Exhibit A–7, the following: 

Evidence of the authorization, 

licensure or registration of the foreign 

board of trade pursuant to the regulatory 

regime in its home country jurisdiction 

and a representation by its regulator(s) 

that it is in good regulatory standing in 

the capacity in which it is authorized, 

licensed or registered. 

Attach, as Exhibit A–8, the following 

document: 

A summary of any disciplinary or 

enforcement actions or proceedings that 

have been brought against the foreign 

board of trade, or any of the senior 

officers thereof, in the past five years 

and the resolution of those actions or 

proceedings. 

Attach, as Exhibit A–9, the following 

document: 

An undertaking by the chief executive 

officer(s) (or functional equivalent[s]) of 

the foreign board of trade to notify 

Commission staff promptly if any of the 

representations made in connection 

with or related to the foreign board of 

trade’s application for registration cease 

to be true or correct, or become 

incomplete or misleading. 

EXHIBIT B—MEMBERSHIP CRITERIA 

Attach, as Exhibit B, the following, 

separately labeling each description: 

(1) A description of the categories of 

membership and participation in the 

foreign board of trade and the access 

and trading privileges provided by the 

foreign board of trade. The description 

should include any restrictions 

applicable to members and other 

participants to which the foreign board 

of trade intends to grant direct access to 

its trading system. 

(2) A description of all requirements 

for each category of membership and 

participation on the trading system and 

the manner in which members and 

other participants are required to 

demonstrate their compliance with 

these requirements. The description 

should include, but not be limited to, 

the following: 

(i) Professional Qualification. A 

description of the specific professional 

requirements, qualifications, and/or 

competencies required of members or 

other participants and/or their staff and 

a description of the process by which 

the foreign board of trade confirms 

compliance with such requirements. 

(ii) Authorization, Licensure and 

Registration. A description of any 

regulatory and self-regulatory 

authorization, licensure or registration 

requirements that the foreign board of 

trade imposes upon, or enforces against, 

its members and other participants 

including, but not limited to any 

authorization, licensure or registration 

requirements imposed by the regulatory 

regime/authority in the home country 

jurisdiction(s) of the foreign board of 

trade. Please also include a description 

of the process by which the foreign 

board of trade confirms compliance 

with such requirements. 

(iii) Financial Integrity. A description 

of the following: 

(A) The financial resource 

requirements, standards, guides or 

thresholds required of members and 

other participants. 

(B) The manner in which the foreign 

board of trade evaluates the financial 

resources/holdings of its members or 

participants. 

(C) The process by which applicants 

demonstrate compliance with financial 

requirements for membership or 

participation including, as applicable: 

(i) Working capital and collateral 

requirements, and 

(ii) Risk management mechanisms for 

members allowing customers to place 

orders. 

(iv) Fit and Proper Standards. A 

description of how the foreign board of 

trade ensures that potential members/ 

other participants meet fit and proper 

standards. 

EXHIBIT C—BOARD AND/OR 

COMMITTEE MEMBERSHIP 

Attach, as Exhibit C, the following: 

(1) A description of the requirements 

applicable to membership on the 

governing board and significant 

committees of the foreign board of trade. 

(2) A description of the process by 

which the foreign board of trade ensures 

that potential governing board and 

committee members/other participants 

meet these standards. 

(3) A description of the provisions to 

minimize and resolve conflicts of 

interest with respect to membership on 

the governing board and significant 

committees of the foreign board of trade. 

(4) A description of the rules with 

respect to the disclosure of material 

non-public information obtained as a 

result of a member’s or other 

participant’s performance on the 

governing board or significant 

committee. 

EXHIBIT D—THE AUTOMATED 

TRADING SYSTEM 

Attach, as Exhibit D–1, a description 

of (or where appropriate, documentation 

addressing) the following, separately 

labeling each description: 

(1) The order matching/trade 

execution system, including a complete 


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5Where multiple foreign boards of trade subject 

to the same regulatory regime/authority and are 

similarly regulated are applying for registration at 

the same time, a single Exhibit E–1 may be 

submitted as part of the application for all such 

foreign boards of trade either by one of the 

applicant foreign boards of trade or by the 

regulatory regime/authority with responsibility to 

oversee each of the multiple foreign boards of trade 

applying for registration. Where an FBOT applying 

for registration is located in the same jurisdiction 

and subject to the same regulatory regime as a 

registered FBOT, the FBOT applying for registration 

may include by reference, as part of its application, 

information about the regulatory regime that is 

posted on the Commission’s Web site. The FBOT 

applying for registration must certify that the 

information thus included in the application is 

directly applicable to it and remains current and 

valid. 

6To the extent that any such laws, rules, 

regulations or policies were provided as part of 

Exhibit A–5, they need not be duplicated. They may 

be cross-referenced. 

description of all permitted ways in 

which members or other participants (or 

their customers) may connect to the 

trade matching/execution system and 

the related requirements (for example, 

authorization agreements). 

(2) The architecture of the systems, 

including hardware and distribution 

network, as well as any pre- and posttrade risk-management controls that are 

made available to system users. 

(3) The security features of the 

systems. 

(4) The length of time such systems 

have been operating. 

(5) Any significant system failures or 

interruptions. 

(6) The nature of any technical review 

of the order matching/trade execution 

system performed by the foreign board 

of trade, the home country regulator, or 

a third party. 

(7) Trading hours. 

(8) Types and duration of orders 

accepted. 

(9) Information that must be included 

on orders. 

(10) Trade confirmation and error 

trade procedures. 

(11) Anonymity of participants. 

(12) Trading system connectivity with 

clearing system. 

(13) Response time. 

(14) Ability to determine depth of 

market. 

(15) Market continuity provisions. 

(16) Reporting and recordkeeping 

requirements. 

Attach, as Exhibit D–2, a description 

of the manner in which the foreign 

board of trade assures the following 

with respect to the trading system, 

separately labeling each description: 

(1) Algorithm. The trade matching 

algorithm matches trades fairly and 

timely. 

(2) IOSCO Principles. The trading 

system complies with the Principles for 

the Oversight of Screen-Based Trading 

Systems for Derivative Products 

developed by the Technical Committee 

of the International Organization of 

Securities Commissions (IOSCO 

Principles). Provide a copy of any 

independent certification received or 

self-certification performed and identify 

any system deficiencies with respect to 

the IOSCO Principles. 

(3) Audit Trail. 

(i) The audit trail timely captures all 

relevant data, including changes to 

orders. 

(ii) Audit trail data is securely 

maintained and available for an 

adequate time period. 

(4) Public Data. Adequate and 

appropriate trade data is available to 

users and the public. 

(5) Reliability. The trading system has 

demonstrated reliability. 

(6) Secure Access. Access to the 

trading system is secure and protected. 

(7) Emergency Provisions. There are 

adequate provisions for emergency 

operations and disaster recovery. 

(8) Data Loss Prevention. Trading data 

is backed up to prevent loss of data. 

(9) Contracts Available. Mechanisms 

are available to ensure that only those 

futures, option or swap contracts that 

have been identified to the Commission 

as part of the application or permitted 

to be made available for trading by 

direct access pursuant to the procedures 

set forth in § 48.10 are made available 

for trading by direct access. 

(10) Predominance of the Centralized 

Market. Mechanisms are available that 

ensure a competitive, open, and 

efficient market and mechanism for 

executing transactions. 

EXHIBIT E—THE TERMS AND 

CONDITIONS OF CONTRACTS 

PROPOSED TO BE MADE AVAILABLE 

IN THE UNITED STATES 

Attach, as Exhibit E–1, a description 

of the terms and conditions of futures, 

option or swap contracts intended to be 

made available for direct access. With 

respect to each contract, indicate 

whether the contract is regulated or 

otherwise treated as a futures, option or 

swap contract in the regulatory 

regime(s) of the foreign board of trade’s 

home country. 

As Exhibit E–2, demonstrate that the 

contracts are not prohibited from being 

traded by United States persons, i.e., the 

contracts are not prohibited security 

futures or single stock contracts or 

narrow-based index contracts. For nonnarrow based stock index futures 

contracts, demonstrate that the contracts 

have received Commission certification 

pursuant to the procedures set forth in 

§ 30.13 and Appendix D to part 30 of 

this chapter. 

As Exhibit E–3, demonstrate that the 

contracts are required to be cleared. 

As Exhibit E–4, identify any contracts 

that are linked to a contract listed for 

trading on a United States-registered 

entity, as defined in section 1a(40) of 

the Act. A linked contract is a contract 

that settles against any price (including 

the daily or final settlement price) of 

one or more contracts listed for trading 

on such registered entity. 

As Exhibit E–5, identify any contracts 

that have any other relationship with a 

contract listed for trading on a registered 

entity, i.e., both the foreign board of 

trade’s and the registered entity’s 

contract settle to the price of the same 

third party-constructed index. 

As Exhibit E–6, demonstrate that the 

contracts are not readily susceptible to 

manipulation. In addition, for each 

contract to be listed, describe each 

investigation, action, proceeding or case 

involving manipulation and involving 

such contract in the three years 

preceding the application date, whether 

initiated by the foreign board of trade, 

a regulatory or self-regulatory authority 

or agency or other government or 

prosecutorial agency. For each such 

action, proceeding or case, describe the 

alleged manipulative activity and the 

current status or resolution thereof. 

EXHIBIT F—THE REGULATORY 

REGIME GOVERNING THE FOREIGN 

BOARD OF TRADE IN ITS HOME 

COUNTRY 5 OR COUNTRIES 

With respect to each relevant 

regulatory regime or authority governing 

the foreign board of trade, attach, as 

Exhibit F, the following (including, 

where appropriate, an indication as to 

whether the applicable regulatory 

regime is dependent on the home 

country’s classification of the product 

being traded on the foreign board of 

trade as a future, option, swap, or 

otherwise, and a description of any 

difference between the applicable 

regulatory regime for each product 

classification type): 

(1) A description of the regulatory 

regime/authority’s structure, resources, 

staff, and scope of authority; the 

regulatory regime/authority’s 

authorizing statutes, including the 

source of its authority to supervise the 

foreign board of trade; the rules and 

policy statements issued by the 

regulator with respect to the 

authorization and continuing oversight 

of markets, electronic trading systems, 

and clearing organizations; and the 

financial protections afforded customer 

funds. 

(2) A description of and, where 

applicable, copies of the laws, rules, 

regulations and policies applicable to: 6


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(i) The authorization, licensure or 

registration of the foreign board of trade. 

(ii) The regulatory regime/authority’s 

program for the ongoing supervision 

and oversight of the foreign board of 

trade and the enforcement of its trading 

rules. 

(iii) The financial resource 

requirements applicable to the 

authorization, licensure or registration 

of the foreign board of trade and the 

continued operations thereof. 

(iv) The extent to which the IOSCO 

Principles are used or applied by the 

regulatory regime/authority in its 

supervision and oversight of the foreign 

board of trade or are incorporated into 

its rules and regulations and the extent 

to which the regulatory regime/ 

authority reviews the applicable trading 

systems for compliance therewith. 

(v) The extent to which the regulatory 

regime/authority reviews and/or 

approves the trading rules of the foreign 

board of trade prior to their 

implementation. 

(vi) The extent to which the 

regulatory regime/authority reviews 

and/or approves futures, option or swap 

contracts prior to their being listed for 

trading. 

(vii) The regulatory regime/authority’s 

approach to the detection and 

deterrence of abusive trading practices, 

market manipulation, and other unfair 

trading practices or disruptions of the 

market. 

(3) A description of the laws, rules, 

regulations and policies that govern the 

authorization and ongoing supervision 

and oversight of market intermediaries 

who may deal with members and other 

participants located in the United States 

participants, including: 

(i) Recordkeeping requirements. 

(ii) The protection of customer funds. 

(iii) Procedures for dealing with the 

failure of a market intermediary in order 

to minimize damage and loss to 

investors and to contain systemic risk. 

(4) A description of the regulatory 

regime/authority’s inspection, 

investigation and surveillance powers; 

and the program pursuant to which the 

regulatory regime/authority uses those 

powers to inspect, investigate, and 

enforce rules applicable to the foreign 

board of trade. 

(5) For both the foreign board of trade 

and the clearing organization (unless 

addressed in Supplement S–1), a report 

confirming that the foreign board of 

trade and clearing organization are in 

regulatory good standing, which report 

should be prepared subsequent to 

consulting with the regulatory regime/ 

authority governing the activities of the 

foreign board of trade and any 

associated clearing organization. The 

report should include: 

(i) Confirmation of regulatory status 

(including proper authorization, 

licensure and registration) of the foreign 

board of trade and clearing organization. 

(ii) Any recent oversight reports 

generated by the regulatory regime/ 

authority that are, in the judgment of the 

regulatory regime/authority, relevant to 

the foreign board of trade’s status as a 

registered foreign board of trade. 

(iii) Disclosure of any significant 

regulatory concerns, inquiries or 

investigations by the regulatory regime/ 

authority, including any concerns, 

inquiries or investigations with regard 

to the foreign board of trade’s 

arrangements to monitor trading by 

members or other participants located in 

the United States or the adequacy of the 

risk management controls of the trading 

or of the clearing system. 

(iv) A description of any 

investigations (formal or informal) or 

disciplinary actions initiated by the 

regulatory regime/authority or any other 

self-regulatory, regulatory or 

governmental entity against the foreign 

board of trade, the clearing organization 

or any of their respective senior officers 

during the past year. 

(6) For both the foreign board of trade 

and the clearing organization (unless 

addressed in Supplement S–1), a 

confirmation that the regulatory regime/ 

authority governing the activities of the 

foreign board of trade and the clearing 

organization agree to cooperate with a 

Commission staff visit subsequent to 

submission of the application on an ‘‘as 

needed basis,’’ the objectives of which 

will be to, among other things, 

familiarize Commission staff with 

supervisory staff of the regulatory 

regime/authority; discuss the laws, rules 

and regulations that formed the basis of 

the application and any changes thereto; 

discuss the cooperation and 

coordination between the authorities, 

including, without limitation, 

information sharing arrangements; and 

discuss issues of concern as they may 

develop from time to time (for example, 

linked contracts or unusual trading that 

may be of concern to Commission 

surveillance staff). 

EXHIBIT G—THE RULES OF THE 

FOREIGN BOARD OF TRADE AND 

ENFORCEMENT THEREOF 

Attach, as Exhibit G–1, the following: 

A description of the foreign board of 

trade’s regulatory or compliance 

department, including its size, 

experience level, competencies, duties 

and responsibilities. 

Attach, as Exhibit G–2, the following: 

A description of the foreign board of 

trade’s trade practice rules, including 

but not limited to rules that address the 

following— 

(1) Capacity of the foreign board of 

trade to detect, investigate, and sanction 

persons who violate foreign board of 

trade rules. 

(2) Prohibition of fraud and abuse, as 

well as abusive trading practices 

including, but not limited to, wash sales 

and trading ahead, and other market 

abuses. 

(3) A trade surveillance system 

appropriate to the foreign board of trade 

and capable of detecting and 

investigating potential trade practice 

violations. 

(4) An audit trail that captures and 

retains sufficient order and trade-related 

data to allow the compliance staff to 

detect trading and market abuses and to 

reconstruct all transactions within a 

reasonable period of time. 

(5) Appropriate resources to conduct 

real-time supervision of trading. 

(6) Sufficient compliance staff and 

resources, including those outsourced or 

delegated to third parties, to fulfill 

regulatory responsibilities. 

(7) Rules that authorize compliance 

staff to obtain, from market participants, 

information and cooperation necessary 

to conduct effective rule enforcement 

and investigations. 

(8) Staff investigations and 

investigation reports demonstrating that 

the compliance staff investigates 

suspected rule violations and prepares 

reports of their finding and 

recommendations. 

(9) Rules determining access 

requirements with respect to the 

persons that may trade on the foreign 

board of trade, and the means by which 

they connect to it. 

(10) The requirement that market 

participants submit to the foreign board 

of trade’s jurisdiction as a condition of 

access to the market. 

Attach, as Exhibit G–3, the following: 

A description of the foreign board of 

trade’s disciplinary rules, including but 

not limited to rules that address the 

following— 

(1) Disciplinary authority and 

procedures that empower staff to 

recommend and prosecute disciplinary 

actions for suspected rule violations and 

that provide the authority to fine, 

suspend, or expel any market 

participant pursuant to fair and clear 

standards. 

(2) The issuance of warning letters 

and/or summary fines for specified rule 

violations. 

(3) The review of investigation reports 

by a disciplinary panel or other 

authority for issuance of charges or 


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7 7 U.S.C. 1 et seq. 

8 17 CFR chapter I. 

instructions to investigate further, or 

findings that an insufficient basis exists 

to issue charges. 

(4) Disciplinary committees of the 

foreign board of trade that take 

disciplinary action via formal 

disciplinary processes. 

(5) Whether and how the foreign 

board of trade articulates its rationale 

for disciplinary decisions. 

(6) The sanctions for particular 

violations and a discussion of the 

adequacy of sanctions with respect to 

the violations committed and their 

effectiveness as a deterrent to future 

violations. 

Attach, as Exhibit G–4, the following: 

A description of the market 

surveillance program (and any related 

rules), addressing the following— 

The dedicated market surveillance 

department or the delegation or 

outsourcing of that function, including 

a general description of the staff; the 

data collected on traders’ market 

activity; data collected to determine 

whether prices are responding to supply 

and demand; data on the size and 

ownership of deliverable supplies; a 

description of the manner in which the 

foreign board of trade detects and deters 

market manipulation; for cash-settled 

contracts, methods of monitoring the 

settlement price or value; and any 

foreign board of trade position limit, 

position management, large trader or 

other position reporting system. 

EXHIBIT H—INFORMATION 

SHARING AGREEMENTS AMONG 

THE COMMISSION, THE FOREIGN 

BOARD OF TRADE, THE CLEARING 

ORGANIZATION, AND RELEVANT 

REGULATORY AUTHORITIES 

Attach, as Exhibit H, the following: 

(1) A description of the arrangements 

among the Commission, the foreign 

board of trade, the clearing organization, 

and the relevant foreign regulatory 

authorities that govern the sharing of 

information regarding the transactions 

that will be executed pursuant to the 

foreign board of trade’s registration with 

the Commission and the clearing and 

settlement of those transactions. This 

description should address or identify 

whether and how the foreign board of 

trade, clearing organization, and the 

regulatory authorities governing the 

activities of the foreign board of trade 

and clearing organization agree to 

provide directly to the Commission 

information and documentation 

requested by Commission staff that 

Commission staff determines is needed: 

(i) To evaluate the continued 

eligibility of the foreign board of trade 

for registration. 

(ii) To enforce compliance with the 

specified conditions of the registration. 

(iii) To enable the CFTC to carry out 

its duties under the Act and 

Commission regulations and to provide 

adequate protection to the public or 

registered entities. 

(iv) To respond to potential market 

abuse associated with trading by direct 

access on the registered foreign board of 

trade. 

(v) To enable Commission staff to 

effectively accomplish its surveillance 

responsibilities with respect to a 

registered entity where Commission 

staff, in its discretion, determines that a 

contract traded on a registered foreign 

board of trade may affect such ability. 

(2) A statement as to whether and 

how the foreign board of trade has 

executed the International Information 

Sharing Memorandum of Understanding 

and Agreement. 

(3) A statement as to whether the 

regulatory authorities governing the 

activities of the foreign board of trade 

and clearing organization are signatories 

to the International Organization of 

Securities Commissions Multilateral 

Memorandum of Understanding. If not, 

describe any substitute informationsharing arrangements that are in place. 

(4) A statement as to whether the 

regulatory authorities governing the 

activities of the foreign board of trade 

and clearing organization are signatories 

to the Declaration on Cooperation and 

Supervision of International Futures 

Exchanges and Clearing Organizations. 

If not, a statement as to whether and 

how they have committed to share the 

types of information contemplated by 

the International Information Sharing 

Memorandum of Understanding and 

Agreement with the Commission, 

whether pursuant to an existing 

memorandum of understanding or some 

other arrangement. 

EXHIBIT I—ADDITIONAL 

INFORMATION AND 

DOCUMENTATION 

Attach, as Exhibit I, any additional 

information or documentation necessary 

to demonstrate that the requirements for 

registration applicable to the foreign 

board of trade set forth in Commission 

regulation 48.7 are satisfied. 

Continuation of Appendix to Part 48— 

Supplement S–1 to Form FBOT 

COMMODITY FUTURES TRADING 

COMMISSION 

SUPPLEMENT S–1 to FORM FBOT 

CLEARING ORGANIZATION 

SUPPLEMENT TO FOREIGN BOARD 

OF TRADE APPLICATION FOR 

REGISTRATION 

SUPPLEMENT INSTRUCTIONS 

DEFINITIONS 

1. Unless the context requires 

otherwise, all terms used in this 

supplement have the same meaning as 

in the Commodity Exchange Act, as 

amended (CEA or Act),7 and in the 

regulations of the Commodity Futures 

Trading Commission (Commission or 

CFTC).8

2. For the purposes of this 

Supplement S–1, the term ‘‘applicant’’ 

refers to the foreign board of trade 

applying for registration pursuant to 

CEA section 4(b) and part 48 of the 

Commission’s regulations. The term 

‘‘clearing organization’’ refers to the 

clearing organization that will be 

clearing trades executed on the trading 

system of such foreign board of trade. 

GENERAL INSTRUCTIONS 

1. A Supplement S–1 (including 

exhibits) shall be completed by each 

clearing organization that will be 

clearing trades executed on the trading 

system of a foreign board of trade 

applying for registration with the 

Commission pursuant to CEA section 

4(b) and part 48 of the Commission’s 

regulations. Each clearing organization 

shall submit a separate Supplement 

S–1. 

2. In the event that the clearing 

functions of the foreign board of trade 

applying for registration will be 

performed by the foreign board of trade 

itself, the foreign board of trade shall 

complete this Supplement S–1, but need 

not duplicate information provided on 

its Form FBOT. Specific reference to or 

incorporation of information or 

documentation (including exhibits) on 

the associated Form FBOT, where 

appropriate, is acceptable. To the extent 

a singular document or description is 

responsive to more than one request for 

information in this Supplement S–1, the 

document or description need only be 

provided once and may be crossreferenced elsewhere. 

3. Supplement S–1, including 

exhibits, should accompany the foreign 

board of trade’s Form FBOT and must 


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9 17 CFR 145.9. 

10Applicants and their clearing organizations are 

encouraged to correspond with the Commission’s 

Division of Market Oversight regarding any content, 

procedural, or formatting questions encountered in 

connection with the preparation of a Form FBOT, 

Supplement S–1, or exhibits thereto prior to 

formally submitting those documents to the 

Commission. When appropriate, potential 

applicants and clearing organizations, as applicable, 

may provide a complete draft Form FBOT and 

Supplement S–1 to the Division of Market 

Oversight for early review to minimize the risk of 

having a submission returned or otherwise denied 

as not acceptable for filing. Review of draft 

submissions by any division of the Commission and 

any comments provided by a division of the 

Commission are for consultation purposes only and 

do not bind the Commission. To obtain instructions 

for submitting drafts, please contact the Division of 

Market Oversight. 

be filed electronically with the Secretary 

of the Commission at 

FBOTapplications@cftc.gov. Clearing 

organizations may prepare their own 

Supplement S–1, but must follow the 

format prescribed herein. 

4. The name of any individual listed 

in Supplement S–1 shall be provided in 

full (Last Name, First Name and Middle 

Name or Initial). 

5. Supplement S–1 must be signed by 

the Chief Executive Officer (or the 

functional equivalent) of the clearing 

organization who must possess the 

authority to bind the clearing 

organization. 

6. If this Supplement S–1 is being 

filed in connection with a new 

application for registration, all 

applicable items must be answered in 

full. If any item is not applicable, 

indicate by marking ‘‘none’’ or ‘‘N/A.’’ 

7. Submission of a complete Form 

FBOT and Supplement S–1 (including 

all information, documentation and 

exhibits requested therein) is mandatory 

and must be received by the 

Commission before it will begin to 

process a foreign board of trade’s 

application for registration. The 

information provided with a Form 

FBOT and Supplement S–1 will be used 

to determine whether the Commission 

should approve or deny registration to 

an applicant. Pursuant to its regulations, 

the Commission may determine that 

information and/or documentation in 

addition to that requested in the Form 

FBOT and Supplement S–1 is required 

from the applicant and/or its clearing 

organization(s) in order to process the 

application for registration or to 

determine whether registration is 

appropriate. 

8. Pursuant to Commission 

regulations, an applicant or its clearing 

organization must identify with 

particularity any information in the 

application (including, but not limited 

to, any information contained in this 

Supplement S–1), that will be the 

subject of a request for confidential 

treatment and must provide support for 

any request for confidential treatment 

pursuant to the procedures set forth in 

Commission regulation 145.9.9 Except 

in cases where confidential treatment is 

granted by the Commission, pursuant to 

the Freedom of Information Act and 

Commission regulations, information 

supplied in the Supplement S–1 will be 

included routinely in the public files of 

the Commission and will be available 

for inspection by any interested person. 

9. A Supplement S–1 that is not 

prepared and executed in compliance 

with applicable requirements and 

instructions may be returned as not 

acceptable for filing.10 Acceptance of 

either a Form FBOT or Supplement 

S–1 by the Commission, however, shall 

not constitute a finding that the either 

have been filed as required or that the 

information submitted is verified to be 

true, current, or complete. The 

Commission may revoke a foreign board 

of trade’s registration, after appropriate 

notice and an opportunity to respond, if 

the Commission determines that a 

representation made in this Supplement 

S–1 is found to be untrue or materially 

misleading or if the foreign board of 

trade and/or clearing organization failed 

to include information in this 

Supplement S–1 that would have been 

material to the Commission’s 

determination as to whether to issue an 

Order of Registration. 

10. All documents submitted as part 

of this Supplement S–1 (or exhibits 

thereto) must be written in English or 

accompanied by a certified English 

translation. 

UPDATING INFORMATION 

Pursuant to the Commission’s 

regulations, if any information or 

documentation contained in this 

Supplement S–1 (including exhibits) is 

or becomes inaccurate for any reason 

prior to the issuance of an Order of 

Registration, an amendment correcting 

such information must be filed 

promptly with the Commission. A 

clearing organization also may submit 

an amendment to this Supplement S–1 

to correct information that has become 

inaccurate subsequent to the issuance of 

an Order of Registration. 

BILLING CODE 6351–01–P 


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BILLING CODE 6351–01–C 

INSTRUCTIONS FOR EXHIBITS TO 

SUPPLEMENT S–1 

1. The following exhibits must be 

filed with the Commission by the 

clearing organization(s) that will be 

clearing trades executed on the trading 

system of a foreign board of trade 

applying for registration with the 

Commission pursuant to CEA section 

4(b) and part 48 of Commission’s 

regulations. The information and 

documentation requested relates to the 

activities of the clearing organization. 

2. The exhibits should be filed in 

accordance with the General 

Instructions to this Supplement S–1 and 

labeled as specified herein. If any 

exhibit is not applicable, please specify 

the exhibit letter and number and 

indicate by marking ‘‘none’’ or ‘‘N/A.’’ 

If any exhibit may be satisfied by 

documentation or information 

submitted in a different exhibit, the 

documentation or information need not 

be submitted more than once—please 

use internal cross-references where 

appropriate. 


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GENERAL REQUIREMENTS 

A foreign board of trade applying for 

registration must submit sufficient 

information and documentation to 

successfully demonstrate to 

Commission staff that the foreign board 

of trade and its clearing organization 

satisfy all of the requirements of 

Commission regulation 48.7. With 

respect to its review of the foreign board 

of trade’s clearing organization, the 

Commission anticipates that such 

information and documentation would 

necessarily include, but not be limited 

to, the following: 

EXHIBIT A—GENERAL 

INFORMATION AND 

DOCUMENTATION 

Attach, as Exhibit A–1, a description 

of the following for the clearing 

organization: 

Location, history, size, ownership and 

corporate structure, governance and 

committee structure, and current or 

anticipated presence of staff in the 

United States. 

Attach, as Exhibit A–2, the following: 

Articles of association, constitution, 

or other similar organizational 

documents. 

Attach, as Exhibit A–3, the following: 

(1) Membership and participation 

agreements. 

(2) Clearing agreements. 

Attach, as Exhibit A–4, the following: 

The national statutes, laws and 

regulations governing the activities of 

the clearing organization and its 

members. 

Attach, as Exhibit A–5, the following: 

The current rules, regulations, 

guidelines and bylaws of the clearing 

organization. 

Attach, as Exhibit A–6, the following: 

Evidence of the authorization, 

licensure or registration of the clearing 

organization pursuant to the regulatory 

regime in its home country 

jurisdiction(s) and a representation by 

its regulator(s) that it is in good 

regulatory standing in the capacity in 

which it is authorized, licensed or 

registered. 

Attach, as Exhibit A–7, the following 

document: 

A summary of any disciplinary or 

enforcement actions or proceedings that 

have been brought against the clearing 

organization, or any of the senior 

officers thereof, in the past five years 

and the resolution of those actions or 

proceedings. 

Attach, as Exhibit A–8, the following 

document: 

An undertaking by the chief executive 

officer(s) (or functional equivalent[s]) of 

the clearing organization to notify 

Commission staff promptly if any of the 

representations made in connection 

with this supplement cease to be true or 

correct, or become incomplete or 

misleading. 

EXHIBIT B—MEMBERSHIP CRITERIA 

Attach, as Exhibit B, the following, 

separately labeling each description: 

(1) A description of the categories of 

membership and participation in the 

clearing organization and the access and 

clearing privileges provided to each by 

the clearing organization. 

(2) A description of all requirements 

for each category of membership and 

participation and the manner in which 

members and other participants are 

required to demonstrate their 

compliance with these requirements. 

The description should include, but not 

be limited to, the following: 

(i) Professional Qualification. A 

description of the specific professional 

requirements, qualifications, and/or 

competencies required of members or 

other participants and/or their staff and 

a description of the process by which 

the clearing organization confirms 

compliance with such requirements. 

(ii) Authorization, Licensure and 

Registration. A description of any 

regulatory or self-regulatory 

authorization, licensure or registration 

requirements that the clearing 

organization imposes upon, or enforces 

against, its members and other 

participants including, but not limited 

to any authorization, licensure or 

registration requirements imposed by 

the regulatory regime/authority in the 

home country jurisdiction(s) of the 

clearing organization, and a description 

of the process by which the clearing 

organization confirms compliance with 

such requirements. 

(iii) Financial Integrity. A description 

of the following: 

(A) The financial resource 

requirements, standards, guides or 

thresholds required of members and 

other participants. 

(B) The manner in which the clearing 

organization evaluates the financial 

resources/holdings of its members or 

other participants. 

(C) The process by which applicants 

for clearing membership or participation 

demonstrate compliance with financial 

requirements including: 

(1) Working capital and collateral 

requirements, and 

(2) Risk management mechanisms. 

(iv) Fit and Proper Standards. A 

description of any other ways in which 

the clearing organization ensures that 

potential members/other participants 

meet fit and proper standards. 

EXHIBIT C—BOARD AND/OR 

COMMITTEE MEMBERSHIP 

Attach, as Exhibit C, the following: 

(1) A description of the requirements 

applicable to membership on the 

governing board and significant 

committees of the clearing organization. 

(2) A description of how the clearing 

organization ensures that potential 

governing board and committee 

members meet these standards. 

(3) A description of the clearing 

organization’s provisions to minimize 

and resolve conflicts of interest with 

respect to membership on the governing 

board and significant committees of the 

clearing organization. 

(4) A description of the clearing 

organization’s rules with respect to the 

disclosure of material non-public 

information obtained as a result of a 

member’s performance on the governing 

board or on a significant committee. 

EXHIBIT D—SETTLEMENT AND 

CLEARING 

Attach, as Exhibit D–1, the following: 

A description of the clearing and 

settlement systems, including, but not 

limited to, the manner in which such 

systems interface with the foreign board 

of trade’s trading system and its 

members and other participants. 

Attach, as Exhibit D–2, the following: 

A certification, signed by the chief 

executive offer (or functional 

equivalent) of the clearing organization, 

that the clearing system observes (1) the 

current Recommendations for Central 

Counterparties that have been issued 

jointly by the Committee on Payment 

and Settlement Systems and the 

Technical Committee of the 

International Organization of Securities 

Commissions, as updated, revised or 

otherwise amended, or (2) successor 

standards, principles and guidance for 

central counterparties or financial 

market infrastructures adopted jointly 

by the Committee on Payment and 

Settlement Systems or the International 

Organization of Securities Commissions 

(RCCPs). 

Attach, as Exhibit D–3, the following: 

A detailed description of the manner 

in which the clearing organization 

observes each of the RCCPs or successor 

standards and documentation 

supporting the representations made, 

including any relevant rules or written 

policies or procedures of the clearing 

organization. Each RCCP should be 

addressed separately within the exhibit. 


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80722 Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 

11To the extent that any such laws, rules, 

regulations or policies were provided as part of 

Exhibit A–4, they need not be duplicated. They may 

be cross-referenced. 

EXHIBIT E—THE REGULATORY 

REGIME GOVERNING THE CLEARING 

ORGANIZATION IN ITS HOME 

COUNTRY OR COUNTRIES 

With respect to each relevant 

regulatory regime or authority governing 

the clearing organization, attach, as 

Exhibit E, the following: 

(1) A description of the regulatory 

regime/authority’s structure, resources, 

staff and scope of authority. 

(2) The regulatory regime/authority’s 

authorizing statutes, including the 

source of its authority to supervise the 

clearing organization. 

(3) A description of and, where 

applicable, copies of the laws, rules, 

regulations and policies applicable to: 11

(i) The authorization, licensure or 

registration of the clearing organization. 

(ii) The financial resource 

requirements applicable to the 

authorization, licensure or registration 

of the clearing organization and the 

continued operations thereof. 

(iii) The regulatory regime/authority’s 

program for the ongoing supervision 

and oversight of the clearing 

organization and the enforcement of its 

clearing rules. 

(iv) The extent to which the current 

RCCPs are used or applied by the 

regulatory regime/authority in its 

supervision and oversight of the 

clearing organization or are 

incorporated into its rules and 

regulations and the extent to which the 

regulatory regime/authority reviews the 

clearing systems for compliance 

therewith. 

(v) The extent to which the regulatory 

regime/authority reviews and/or 

approves the rules of the clearing 

organization prior to their 

implementation. 

(vi) The regulatory regime/authority’s 

inspection, investigation and 

surveillance powers; and the program 

pursuant to which the regulatory 

regime/authority uses those powers to 

inspect, investigate, sanction, and 

enforce rules applicable to the clearing 

organization. 

(vii) The financial protection afforded 

customer funds. 

EXHIBIT F—THE RULES OF THE 

CLEARING ORGANIZATION AND 

ENFORCEMENT THEREOF 

Attach, as Exhibit F–1, the following: 

A description of the clearing 

organization’s regulatory or compliance 

department, including its size, 

experience level, competencies, duties 

and responsibilities of staff. 

Attach, as Exhibit F–2, the following: 

A description of the clearing 

organization’s rules and how they are 

enforced, with reference to any rules 

provided as part of Exhibit A–5 that 

require the clearing organization to 

comply with one or more of the RCCPs. 

Attach, as Exhibit F–3, the following, 

to the extent not included in Exhibit 

F–2: 

A description of the clearing 

organization’s disciplinary rules, 

including but not limited to rules that 

address the following— 

(1) Disciplinary authority and 

procedures that empower staff to 

recommend and prosecute disciplinary 

actions for suspected rule violations and 

that provide the authority to fine, 

suspend, or expel any clearing 

participant pursuant to fair and clear 

standards. 

(2) The issuance of warning letters 

and/or summary fines for specified rule 

violations. 

(3) The review of investigation reports 

by a disciplinary panel or other 

authority for issuance of charges or 

instructions to investigate further, or 

findings that an insufficient basis exists 

to issue charges. 

(4) Disciplinary committees of the 

clearing organization that take 

disciplinary action via formal 

disciplinary processes. 

(5) Whether and how the clearing 

organization articulates its rationale for 

disciplinary decisions. 

(6) The sanctions for particular 

violations and a discussion of the 

adequacy of sanctions with respect to 

the violations committed and their 

effectiveness as deterrents to future 

violations. 

Attach, as Exhibit F–4, the following, 

to the extent not provided in Exhibit 

F–2: 

A demonstration that the clearing 

organization is authorized by rule or 

contractual agreement to obtain, from 

members and other participants, any 

information and cooperation necessary 

to conduct investigations, to effectively 

enforce its rules, and to ensure 

compliance with the conditions of 

registration. 

EXHIBIT G—INFORMATION 

SHARING AGREEMENTS AMONG 

THE COMMISSION, THE FOREIGN 

BOARD OF TRADE, THE CLEARING 

ORGANIZATION, AND RELEVANT 

REGULATORY AUTHORITIES 

Attach, as Exhibit G, the following: 

(1) A description of the arrangements 

among the Commission, the foreign 

board of trade, the clearing organization, 

and the relevant foreign regulatory 

authorities that govern the sharing of 

information regarding the transactions 

that will be executed pursuant to the 

foreign board of trade’s registration with 

the Commission and the clearing and 

settlement of those transactions. This 

description should address or identify 

whether and how the foreign board of 

trade, clearing organization, and the 

regulatory authorities governing the 

activities of the foreign board of trade 

and clearing organization agree to 

provide directly to the Commission 

information and documentation 

requested by Commission staff that 

Commission staff determines is needed: 

(i) To evaluate the continued 

eligibility of the foreign board of trade 

for registration. 

(ii) To enforce compliance with the 

specified conditions of the registration. 

(iii) To enable the CFTC to carry out 

its duties under the Act and 

Commission regulations and to provide 

adequate protection to the public or 

registered entities. 

(iv) To respond to potential market 

abuse associated with trading by direct 

access on the registered foreign board of 

trade. 

(v) To enable Commission staff to 

effectively accomplish its surveillance 

responsibilities with respect to a 

registered entity where Commission 

staff, in its discretion, determines that a 

contract traded on a registered foreign 

board of trade may affect such ability. 

(2) A statement as to whether the 

regulatory authorities governing the 

activities of the foreign board of trade 

and clearing organization are signatories 

to the International Organization of 

Securities Commissions Multilateral 

Memorandum of Understanding. If not, 

describe any substitute informationsharing arrangements that are in place. 

(3) A statement as to whether the 

regulatory authorities governing the 

activities of the foreign board of trade 

and clearing organization are signatories 

to the Declaration on Cooperation and 

Supervision of International Futures 

Exchanges and Clearing Organizations. 

If not, a statement as to whether and 

how they have committed to share the 

types of information contemplated by 

the International Information Sharing 

Memorandum of Understanding and 

Agreement with the Commission, 

whether pursuant to an existing 

memorandum of understanding or some 

other arrangement. 

EXHIBIT H—ADDITIONAL 

INFORMATION AND 

DOCUMENTATION 

Attach, as EXHIBIT H, any additional 

information or documentation necessary 

to demonstrate that the requirements for 

registration applicable to the clearing 


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Federal Register / Vol. 76, No. 247 / Friday, December 23, 2011 / Rules and Regulations 80723 

organization or clearing system set forth 

in Commission regulation 48.7 are 

satisfied. 

Issued in Washington, DC, December 5, 

2011, by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations 

Appendices to Final Rule—Registration of 

Foreign Boards of Trade—Commission 

Voting Summary and Statements of 

Commissioners 

Appendix 1—Commission Voting Summary 

In this matter, Chairman Gensler and 

Commissioners Sommers, Chilton, O’Malia 

and Wetjen voted in the affirmative; no 

Commissioner noted in the negative. 

Appendix 2—Statement of Chairman Gary 

Gensler 

I support the final rule to implement a 

registration system for Foreign Boards of 

Trade (FBOTs) seeking to make futures and 

swaps contracts directly available to U.S. 

market participants. This registration system 

replaces the Commodity Futures Trading 

Commission’s current practice of staff issuing 

no-action letters to FBOTs to permit them to 

provide such direct access for futures 

contracts. Importantly, the registration 

system will bring consistency, 

standardization and transparency—both for 

applicants and the public—to the process. In 

order to directly access U.S. market 

participants, the FBOTs and their clearing 

organizations must be subject to comparable 

and comprehensive supervision and 

regulation in their home countries and meet 

certain standards in the rule. 

[FR Doc. 2011–31637 Filed 12–22–11; 8:45 am] 

BILLING CODE 6351–01–P 


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