[Federal Register Volume 65, Number 130 (Thursday, July 6, 2000)]
[Notices]
[Pages 41641-41642]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17040]


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COMMODITY FUTURES TRADING COMMISSION


Notice of Statement 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 Place Electronic Trading Devices in 
the United States

AGENCY: Commodity Futures Trading Commission.

ACTION: Statement of policy.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') has 
issued a Statement of Policy in which it expresses the view that 
foreign boards of trade that have placed automated trading systems in 
the U.S. pursuant to a Commission staff no-action letter shall be 
permitted to list certain additional futures and option contracts 
without obtaining supplemental no-action relief, subject to specified 
filing and certification requirements.

EFFECTIVE DATE: This Statement of Policy is effective immediately.

FOR FURTHER INFORMATION CONTACT: Jocelyn B. Brone, Attorney-Advisor, 
Division of Trading and Markets, Commodity Futures Trading Commission, 
Three Lafayette Center, 1155 21st Street, NW, Washington, DC 20581. 
Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION: On June 2, 1999, the Commodity Futures 
Trading Commission (``Commission'') issued an order which, among other 
things, withdrew proposed rules that would have governed automated 
access to foreign boards of trade (``June 2 Order'').\1\ The June 2 
Order also instructed the Commission staff to ``begin immediately 
processing no-action requests from foreign boards of trade seeking to 
place trading terminals in the United States, and to issue responses 
where appropriate, pursuant to the general guidelines included in the 
Eurex (DTB) no-action process, \2\ or other guidelines established by 
the Commission. * * * '' \3\ In accordance with these instructions, 
Commission staff has issued seven no-action letters that permit foreign 
boards of trade to place in the U.S. electronic trading devices that 
provide access to those boards of trade, without obtaining contract 
market designation (``Foreign Trading System No-Action Letters''). \4\ 
The relief is subject to the terms and conditions set forth in each no-
action letter and applies exclusively to the futures and option 
contracts delineated therein. Foreign boards of trade that wish to list 
additional futures and option contracts for trading through their U.S.-
located trading systems are require to request and receive supplemental 
no-action relief (``Supplemental Relief'') from Commission staff prior 
to doing so. To date, Commission staff has granted two requests for 
Supplemental Relief. \5\
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    \1\ Access to Automated Boards of Trade, 64 FR 32829 (June 18, 
1999).
    \2\ In February 1996, Commission staff issued no-action relief 
to Deutsche Termibourse (``DTB''), an automated international 
futures and options exchange headquartered in Frankfurt, German, 
that permitted DTB, subject to certain terms and conditions, to 
place computer terminals in the U.S. offices of its members for 
principal trading. See CFTC Interpretative Letter No. 96-28 (1996-
1997 Transfer Binder) Comm. Fut. L. Rep. (CCH) para. 26,669 (Feb. 
20. 1996.) In June 1998, DTB changed its name to Eurex Deutschland.
    \3\ Access to Automated Boards of Trade, 64 FR 32829 (June 18, 
1999).
    \4\ Commission staff has issued Foreign Trading System No-Action 
Letters to Eurex Deutschland; the Hong Kong Futures Exchange Ltd.; 
the International Petroleum Exchange of London Limited; LIFFE 
Administration and Management (``LIFFE''); Parisbourse 
<SUP>SBF</SUP> SA; the Singapore Exchange Ltd. (formerly known as 
the Singapore International Monetary Exchange); and, collectively, 
the Sydney Futures Exchange Limited and the New Zealand Futures and 
Options Exchange Limited. The text of these letters may be accessed 
through the Commission's website, located at www.cftc.gov. See 
Letter from I. Michael Greenberger, Director, Division of Trading 
and Markets, Commodity Futures Trading Commission, to Edward J. 
Rosen, Esq., Cleary, Gottlieb, Steen & Hamilton (Aug. 10, 1999); 
Letter from John C. Lawton, Acting Director, Division of Trading and 
Markets, Commodity Futures Trading Commission, to Philip McBride 
Johnson, Esq., Skadden, Arps, Slate, Meagher & Flom LLP (June 9, 
2000); Letter from John C. Lawton, Acting Director, Division of 
Trading and Markets, Commodity Futures Trading Commission, to Arthur 
W. Han, Esq., Katten Muchin & Zavis (Nov. 12, 1999); Letter from I. 
Michael Greenberger, Director, Division of Trading and Markets, 
Commodity Futures Trading Commission, to Arthur W. Hahn, Esq., 
Katten Muchin & Zavis (July 23, 1999); Letter from I. Michael 
Greenberger, Director, Division of Trading and Markets, Commodity 
Futures Trading Commission, to Catherine Langlais, Senior Vice 
President, Parisbourse <SUP>SBF</SUP> SA (Aug. 10, 1999); Letter 
from John C. Lawton, Acting Director, Division Trading and Markets, 
Commodity Futures Trading Commission to Jane Kang Thorpe, Esq., 
Brown & Wood LLP (Dec. 17, 1999); Letter from I. Michael 
Greenberger, Director, Division of Trading and Markets, Commodity 
Futures Trading Commission, to Philip McBride Johnson, Esq., 
Skadden, Arps, Slate, Meagher & Flom (Aug. 10, 1999).
    \5\ Commission staff has granted two separate requests from 
LIFFE to list additional futures and option contracts through LIFFE 
CONNECT <SUP>TM</SUP>, its automated trading and order matching 
system. See Letter from John C. Lawton, Acting Director, Division of 
Trading and Markets, Commodity Futures Trading Commission, to Arthur 
W. Han, Esq., Katten Muchin & Zavis (Dec. 10, 1999) and Letter from 
John C. Lawton, Acting Director, Division of Trading and Markets, 
Commodity Futures Trading Commission, to Arthur W. Han, Esq. Katten 
Muchin & Zavis (Mar. 14, 2000).
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    Almost one year has passed since the first Foreign Trading System 
No-Action Letter was issued. \6\ In that time, Commission staff has not 
learned of any significant problems or concerns regarding the operation 
of U.S.-located foreign trading systems nor has Commission staff 
learned that foreign boards of trade are listing impermissible products 
through such systems. Also within the past year, the Commission has 
promulgated Rule 5.3 which generally permits domestic boards of trade 
to list new futures and option contracts for trading without acquiring 
Commission approval of such contracts or their respective terms and 
conditions. \7\ In light of Commission staff's successful experience 
with the relief provided by the Foreign Trading System No-Action 
Letters and in consideration of the relief provided to domestic boards 
of trade via Rule 5.3, the Commission believes that it is appropriate 
to permit foreign boards of trade that are operating electronic trading 
devices in the U.S. pursuant to Commission staff no-action relief to be 
permitted to list certain new futures and option contracts for trading 
through those devices, without requiring additional regulatory action. 
Accordingly, it has issued the following Statement of Policy setting 
forth this view.
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    \6\ The first Foreign Trading System No-Action Letter was issued 
to LIFFE on July 23, 1999. See Letter from I. Michael Greenberger, 
Director, Division of Trading and Markets, Commodity Futures Trading 
Commission, to Arthur W. Han, Esq., Katten Muchin & Zavis (July 23, 
1999).
    \7\ Rule 5.3 allows a domestic board of trade that has been 
designated as a contract market in at least one non-dormant 
commodity to list new futures and option contracts for trading upon 
satisfaction of specified filing and certification requirements. A 
domestic board of trade is permitted, but not required, to list new 
contracts through this filing and certification procedure in lieu of 
compliance with either the regular or fast-track procedure for 
contract market designation. Revised Procedures for Listing New 
Contracts, 64 FR 66373 (Nov. 26, 1999).


[[Page 41642]]


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    Issued in Washington, DC on June 30, 2000, by the Commission.
Jean A. Webb,
Secretary of the Commission.

Statement of Policy of the Commodity Futures Trading Commission 
Regarding the Listing of New Futures and Option Contracts by 
Foreign Boards of Trade That Have Received Staff No-Action Relief 
to Place Electronic Trading Devices in the U.S.

    In light of newly-adopted Commodity Futures Trading Commission 
(``Commission'') Rule 5.3 \8\ and the lack of difficulties that have 
arisen regarding the placement of the automated trading systems of 
foreign boards of trade in the U.S. pursuant to no-action relief issued 
by Commission staff, the Commission believes that foreign boards of 
trade generally should be permitted to list additional futures and 
option contracts through such systems, without obtaining supplemental 
no-action relief from Commission staff (``Supplemental Relief''). 
Specifically, the Commission believes that, subject to the exceptions 
and conditions listed below, a foreign board of trade that has received 
a no-action letter from Commission staff permitting it to place 
electronic trading devices in the U.S. that provide access to that 
board of trade (``Foreign Trading System No-Action Letter'') should be 
permitted to list new futures and option contracts for trading through 
the devices that are the subject of the particular no-action letter, 
without requesting or receiving Supplemental Relief.
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    \8\ Revised Procedures for Listing New Contracts, 64 FR 66373 
(Nov. 26, 1999).
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    In order to list new futures and option contracts without acquiring 
Supplemental Relief, a foreign board of trade should file the following 
with the Commission's Division of Trading and Markets at the 
Commission's Washington, D.C. headquarters no later than the close of 
Commission business on the business day preceding the initial listing 
of such futures and option contracts for trading through electronic 
trading devices located in the U.S.: (1) A copy of the initial terms 
and conditions of the additional futures and option contracts the 
foreign board of trade intends to list for trading through its U.S.-
located electronic devices and (2) a certification from the foreign 
board of trade that it is in compliance with the terms and conditions 
of the Foreign Trading System No-Action Letter that it has received and 
that the additional futures and option contracts will be traded in 
accordance with such terms and conditions. This Statement of Policy 
does not apply to futures and option contracts that are covered by 
section 2(a)(1)(B) of the Commodity Exchange Act.\9\ Foreign boards of 
trade continue to be required to seek and receive written supplemental 
no-action relief from Commission staff prior to offering such contracts 
through U.S.-located trading systems.
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    \9\ 7 USC 2a (1994). For example, this Statement of Policy does 
not alter requirement that a foreign board of trade seeking to offer 
in the U.S. a futures or futures option contract based upon a stock 
index receive a no-action letter from the Commission's Office of 
General Counsel.
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    This Statement of Policy applies only to those foreign boards of 
trade that have received a Foreign Trading System No-Action Letter from 
Commission staff. It is intended exclusively to express the 
Commission's view that foreign boards of trade that have received a 
Foreign Trading System No-Action Letter be permitted to list futures 
and option contracts other than those specifically delineated therein 
without obtaining Supplemental Relief. The trading of all contracts 
through electronic trading devices that provide access to foreign 
boards of trade from within the U.S. continue to be subject to the 
terms and conditions of the Foreign Trading System No-Action Letter 
issued to the particular foreign board of trade. Moreover, this 
Statement of Policy does not alter the analysis that the Commission 
staff uses when considering requests for Foreign Trading System No-
Action Letters, dictate the result of that analysis, or alter the 
authority of Commission staff to condition, modify, suspend, terminate, 
or otherwise restrict the no-action relief that it issues.
    This Statement of Policy is effective immediately. This Statement 
of Policy and the Foreign Trading System No-Action Letters will cease 
to be effective in the event that the Commission adopts generally 
applicable rules or guidelines regarding the issues addressed therein, 
and foreign boards of trade would be subject to those rules or 
guidelines.

Chairman William J. Rainer, June 29, 2000.
Commissioner Barbara P. Holum, June 29, 2000.
Commissioner David D. Spears, June 29, 2000.
Commissioner James E. Newsome, June 28, 2000.
Commissioner Thomas J. Erickson, June 28, 2000.

Dissent of Commissioner Erickson to Statement 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 Place Electronic Trading Devices in the United States

    I respectfully dissent from the Commission's determination to 
expand, by today's policy statement, the no-action relief previously 
granted to certain foreign exchanges listing contracts on terminals 
located in the United States. On June 2, 1999, the Commission issued an 
order that provided for the issuance of staff no-action relief for the 
placement of terminals in the United States by foreign boards of trade. 
Although the June 1999 Order directed staff to ``begin immediately 
processing no-action requests,'' it also committed the agency to 
``proceed[ing] expeditiously toward adoption of rules and/or 
guidelines.'' Since then, the Commission's staff has issued no-action 
relief to seven foreign exchanges, yet the Commission has taken no 
steps to initiate a public rulemaking process. Rather, the Commission 
today validates staff no-action as the appropriate vehicle for granting 
relief.
    The no-action process is typically used to provide limited relief 
on discreet matters for individual petitioners. Today's relief extends 
to numerous exchanges that have not formally petitioned the 
Commission's staff for the expanded relief. While the expanded relief 
ultimately may be appropriate, the public policy issues raised by 
today's Commission action warrant notice to the public and an 
opportunity for comment. Today's policy statement sanctions a closed 
process to address matters of broad public policy. One of the 
fundamental obligations of any federal agency is to ensure that the 
public and interested parties have the opportunity to comment on policy 
actions of broad effect. I believe that today's decision fails to 
uphold that basic tenet of regulation and that the time has come for 
the Commission to propose rules that would foster the public debate and 
provide unified guidance through rules, rather than relief on a case-
by-case basis.


    Dated: June 28, 2000.
Thomas J. Erickson
  
[FR Doc. 00-17040 Filed 7-5-00; 8:45 am]
BILLING CODE 6351-01-M