Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 34429 

exercises was below the Navy’s 

proposed 2009 operations. 

Planned Activities for 2010 

In 2010, the Navy expects to conduct 

the same type and amount of training 

identified in the final rules and 2009 

LOAs. No modification is proposed by 

the Navy for its planned 2010 activities. 

Estimated Take for 2010 

The estimated takes for the Navy’s 

proposed 2010 training exercises are the 

same as those in authorized in 2009. No 

change has been made in the estimated 

takes from the 2009 LOAs. 

Summary of Monitoring, Reporting, 

and other requirements under the 2009 

LOA 

Annual Exercise Reports 

The Navy submitted their 2009 

exercise report within the required 

timeframes and it is posted on NMFS 

website: http://www.nmfs.noaa.gov/pr/ 

permits/incidental.htm. NMFS has 

reviewed the report and it contains the 

information required by the 2009 LOAs. 

The report lists the amount of training 

exercises conducted between June 2009 

and January 2010. For training exercises 

conducted at the VACAPES Range 

Complex, the Navy conducted 26 

exercises out of the total of 176 

proposed. For training exercises at the 

JAX Range Complex, the Navy 

conducted 4 out of 175 exercises 

proposed. No training exercise was 

conducted at the Cherry Point Range 

Complex, though a total of 38 exercises 

were proposed. 

Monitoring and Annual Monitoring 

Reports 

The Navy conducted the monitoring 

required by the 2009 LOA and described 

in the Monitoring Plan, which included 

aerial and vessel surveys of training 

exercises by marine mammal observers. 

The Navy submitted their 2009 

Monitoring Report, which is posted on 

NMFS’ website (http:// 

www.nmfs.noaa.gov/pr/permits/ 

incidental.htm), within the required 

timeframe. The Navy included a 

summary of their 2009 monitoring effort 

and results (beginning on page 3 of the 

monitoring report). 

Integrated Comprehensive Management 

Program (ICMP) Plan 

The ICMP will be used both as: (1) a 

planning tool to focus Navy monitoring 

priorities (pursuant to ESA/MMPA 

requirements) across Navy Range 

Complexes and Exercises; and (2) an 

adaptive management tool, through the 

consolidation and analysis of the Navy’s 

monitoring and watchstander data, as 

well as new information from other 

Navy programs (e.g., research and 

development), and other appropriate 

newly published information. The Navy 

finalized a 2009 ICMP Plan outlining 

the program on December 22, 2009, as 

required by the 2009 LOA. The ICMP 

may be viewed at: http:// 

www.nmfs.noaa.gov/pr/permits/ 

incidental.htm. 

The ICMP is a program that will be in 

place for years and NMFS and Navy 

anticipate the ICMP may need to be 

updated yearly in order to keep pace 

with new advances in science and 

technology and the collection of new 

data.. In the 2009 ICMP Plan, the Navy 

outlines three areas of targeted 

development for 2010, including: 

• Identifying more specific 

monitoring sub-goals under the major 

goals that have been identified 

• Characterizing Navy Range 

Complexes and Study Areas within the 

context of the prioritization guidelines 

described here 

• Continuing to Develop Data 

Management, Organization and Access 

Procedures 

Adaptive Management and 2010 

Monitoring Plan 

NMFS and the Navy conducted an 

adaptive management meeting in 

October 2009 wherein we reviewed the 

Navy monitoring results through August 

1, 2009, discussed other Navy research 

and development efforts, and discussed 

other new information that could 

potentially inform decisions regarding 

Navy mitigation and monitoring. 

Because this is the first year of the 

regulation’s period of effectiveness, the 

review only covered about 7 months of 

monitoring, which limited NMFS and 

the Navy’s ability to undertake a robust 

review of the Navy’s exercises and their 

effects on marine mammals. Based on 

the implementation of the 2009 

monitoring, the Navy proposed some 

minor modifications to their monitoring 

plan for 2010 for VACAPES and JAX 

Range Complex training exercises, 

which NMFS agreed were appropriate. 

Beyond those changes, none of the 

information discussed led NMFS to 

recommend any modifications to the 

existing mitigation or monitoring 

measures. The final modifications to the 

monitoring plan and justifications are 

described in Section 7(b)(i)(A) of the 

2010 LOAs for VACAPES and JAX 

Range Complexes, which may be 

viewed at: http://www.nmfs.noaa.gov/ 

pr/permits/incidental.htm. As 

additional data is obtained in 

subsequent years, NMFS and Navy will 

be better positioned to conduct more 

extensive reviews and modify existing 

mitigation and monitoring measures, if 

appropriate. 

Authorization 

The Navy complied with the 

requirements of the 2009 LOAs. Based 

on our review of the record, NMFS has 

determined that the marine mammal 

take resulting from the 2009 military 

readiness training and research 

activities falls within the levels 

previously anticipated, analyzed, and 

authorized, and was likely lower given 

the fact that Navy conducted fewer 

operations in 2009 than originally 

planned. Further, the level of taking 

authorized in 2010 for the Navy’s 

training exercises at VACAPES, JAX, 

and Cherry Point Range Complexes is 

consistent with our previous findings 

made for the total taking allowed under 

these Range Complexes regulations. 

Finally, the record supports NMFS’ 

conclusion that the total number of 

marine mammals taken by the 2010 

training exercises at VACAPES, JAX, 

and Cherry Point Range Complexes will 

have no more than a negligible impact 

on the affected species or stock of 

marine mammals and will not have an 

unmitigable adverse impact on the 

availability of these species or stocks for 

taking for subsistence uses. 

Accordingly, NMFS has issued three 

one-year LOAs for Navy training 

exercises conducted at these East Coast 

Range Complexes from June 5, 2010, 

through Juan 4, 2011. 

Dated: June 3, 2010. 

James H. Lecky, 

Director, Office of Protected Resources, 

National Marine Fisheries Service. 

[FR Doc. 2010–14662 Filed 6–16–10; 8:45 am] 

BILLING CODE 3510–22–S 

COMMODITY FUTURES TRADING 

COMMISSION 

Petition of Hard Eight Futures, LLC for 

Exemptive Relief, Pursuant to Section 

4(c) of the Commodity Exchange Act, 

From Section 2(a)(1)(C)(iv) of the 

Commodity Exchange Act and 

Appendix D to Part 30 of the Rules of 

the Commodity Futures Trading 

Commission 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of petition and request 

for comment. 

SUMMARY: Hard Eight Futures, LLC 

(‘‘HEF’’) has petitioned the Commodity 

Futures Trading Commission 

(‘‘Commission’’ or ‘‘CFTC’’) for 

exemptive relief, pursuant to Section 

4(c) of the Commodity Exchange Act 

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34430 Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 

1 7 U.S.C. 6(c). 

2The term ‘‘eligible contract participant’’ is 

defined in Section 1a(12) of the Act, 7 U.S.C. 1a(12). 

3A foreign exchange seeking to offer foreign 

security index futures to the general public in the 

U.S. would still need staff no-action relief, and if 

it sought to do so through terminals located in the 

U.S., it would still need a second ‘‘direct access noaction letter’’ from the staff. 

4See Foreign Commodity Options, 61 FR 10891 

(Mar. 18, 1996). 

5The CEA, as amended by the Commodity 

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

Appendix E of Public Law No. 106–554, 114 Stat. 

2763 (2000), provides that the offer or sale in the 

U.S. of futures contracts based on a security index, 

including those contracts traded on or subject to the 

rules of a foreign board of trade, is subject to the 

Commission’s exclusive jurisdiction, with the 

exception of security futures products, over which 

the Commission shares jurisdiction with the 

Securities and Exchange Commission (‘‘SEC’’). A 

security future, in turn, is defined in CEA Section 

1a(31) as a futures contract on a single security or 

a ‘‘narrow-based security index.’’ 7 U.S.C. 1a(31). 

Thus, the Commission’s jurisdiction remains 

exclusive with regard to futures contracts on a 

security index that is broad-based, i.e., that does not 

meet the definition of a ‘‘narrow-based security 

index’’ in CEA Section 1a(25), 7 U.S.C. 1a(25). 

6 7 U.S.C. 2(a)(1)(C)(iv). 

7CEA Section 2(a)(1)(D), 7 U.S.C. § 2(a)(1)(D), 

governs the offer and sale of security futures 

products. 

8 7 U.S.C. 2(a)(1)(C)(ii). 

9With regard to the third criterion, the CFTC and 

SEC have jointly promulgated Commission Rule 

41.13 under the CEA and Rule 3a55–3 under the 

Securities Exchange Act of 1934, governing security 

index futures contracts traded on foreign boards of 

trade. These rules provide that ‘‘[w]hen a contract 

of sale for future delivery on a security index is 

traded on or subject to the rules of a foreign board 

of trade, such index shall not be a narrow-based 

security index if it would not be a narrow-based 

security index if a futures contract on such index 

were traded on a designated contract market or 

registered derivatives transaction execution 

facility.’’ Commission Rule 41.13, 17 CFR 41.13; 

SEC Rule 3a55–3, 17 CFR 240.3a55–3. 

10See generally Appendix D to Part 30 of the 

Commission’s regulations. 

11 In general, staff has requested that the foreign 

board of trade provide a copy of the surveillance 

agreements between the board of trade and the 

exchange(s) on which the underlying securities are 

traded; assurances that the board of trade will share 

information with the Commission, directly or 

indirectly; and when applicable, information 

regarding foreign blocking statutes and their impact 

on the ability of U.S. government agencies to obtain 

information concerning the trading of futures 

contracts on security indexes. The staff reviews this 

(‘‘Act’’ or ‘‘CEA’’),1 to permit U.S. eligible 

contract participants (‘‘ECPs’’),2 subject 

to certain conditions, to trade foreign 

non-narrow-based security index futures 

contracts where the foreign exchange 

has not obtained a staff no-action letter 

with respect to the offer and sale of such 

futures contracts to U.S. persons. The 

conditions proposed in HEF’s petition 

are: (i) Relief is only available for 

futures on broad-based security indexes; 

(ii) the securities comprising such an 

index are principally traded on, by, or 

through any exchange or market located 

outside the U.S.; (iii) the Commission 

must have a Memorandum of 

Understanding with the foreign 

exchange’s regulator with respect to 

information sharing and cooperation; 3

and (iv) an ECP seeking to claim the 

exemption would file notice with the 

Commission, which would be effective 

with respect to that person and index, 

unless the Commission notifies the 

person within ten (10) business days 

that the claimant does not meet the 

requirements of the exclusion, or that 

the index does not qualify as broad 

based. 

The Commission seeks comment on 

HEF’s petition and related questions. 

Copies of the petition are available for 

inspection at the Office of the 

Secretariat by mail at the address listed 

below, by telephoning (202) 418–5100, 

or on the Commission’s Web site 

(http://www.cftc.gov). 

DATES: Comments must be received on 

or before July 19, 2010. Comments must 

be in English or, if not, accompanied by 

an English translation. 

ADDRESSES: Comments should be sent to 

David A. Stawick, Secretary, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Comments may be sent by 

facsimile transmission to (202) 418– 

5521, or by e-mail to 

hardeightfutures@cftc.gov. Reference 

should be made to ‘‘Hard Eight Futures 

Petition for Exemption from Section 

2(a)(1)(C)(iv) of the Act and Appendix D 

to Part 30 of the Rules of the 

Commission.’’ Comments may also be 

submitted by connecting to the Federal 

eRulemaking Portal at http:// 

www.regulations.gov and following the 

comment submission instructions. 

Comments will be published on the 

Commission’s Web site. 

FOR FURTHER INFORMATION CONTACT: 

Julian E. Hammar, Assistant General 

Counsel, Office of General Counsel, 

Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. Telephone: (202) 418–5118. Email: jhammar@cftc.gov or Edwin J. 

Yoshimura, Counsel, Office of General 

Counsel, Commodity Futures Trading 

Commission, 525 W. Monroe Street, 

Suite 1100, Chicago, IL 60661. 

Telephone: (312) 596–0562. E-mail: 

eyoshimura@cftc.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

In general, foreign exchange-traded 

futures and commodity option products 

may be offered or sold by properly 

registered or exempt intermediaries to 

persons located in the U.S., without 

prior product approval.4 Special review 

procedures apply, however, to the offer 

or sale of futures contracts based on a 

group or index of securities (‘‘security 

index’’).5 Specifically, Section 

2(a)(1)(C)(iv) of the CEA 6 generally 

prohibits any person from offering or 

selling a futures contract based on a 

security index in the U.S., except as 

otherwise permitted under Section 

2(a)(1)(C)(ii) or Section 2(a)(1)(D).7 By 

its terms, Section 2(a)(1)(C)(iv) applies 

to futures contracts on security indexes 

traded on both domestic and foreign 

boards of trade. 

Section 2(a)(1)(C)(ii) of the CEA 8 sets 

forth three criteria to govern the trading 

of futures contracts on a security index 

to be traded on contract markets and 

derivatives transaction execution 

facilities designated or registered by the 

Commission: 

(a) The contract must provide for cash 

settlement; 

(b) The contract must not be readily 

susceptible to manipulation or to being 

used to manipulate any underlying 

security; and 

(c) The security index must not 

constitute a narrow-based security 

index.9

The CEA does not explicitly address 

the standards to be applied to a security 

index futures contract traded on a 

foreign board of trade. Historically, 

though, Commission staff has applied 

the aforementioned three criteria in 

evaluating requests by foreign boards of 

trade seeking to offer and sell their 

foreign security index futures contracts 

in the U.S. (without becoming 

designated as a contract market, or 

registered as a derivatives transaction 

execution facility). 

In reviewing such requests, 

Commission staff evaluates the foreign 

security index futures contract to ensure 

that it complies with the three criteria 

of Section 2(a)(1)(C)(ii) of the CEA. In 

making its determination, the staff 

considers the design and maintenance 

of the index, the method of index 

calculation, the nature of the component 

security prices used to calculate the 

index, the breadth and frequency of 

index dissemination, and other relevant 

factors.10 With respect to whether a 

foreign futures contract based on a 

foreign security index is not readily 

susceptible to manipulation or being 

used to manipulate any underlying 

security, one preliminary consideration 

is the requesting board of trade’s ability 

to access information regarding the 

securities underlying the index.11

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Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 34431 

information to ensure that the requesting foreign 

board of trade (and/or its regulator) has the ability 

and willingness to access adequate surveillance 

data necessary to detect and deter manipulation in 

the futures contracts and underlying securities, as 

well as share such data with the Commission. 

12A no-action letter generally is a written 

statement issued by the staff of a Division or Office 

of the Commission 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 by the requestor. 

See Commission Rule 140.99(a)(2), 17 CFR 

140.99(a)(2). A no-action letter to a foreign board of 

trade does not affect or alter the application of Part 

30 of the Commission’s Rules, which governs the 

offer and sale by financial intermediaries of foreign 

futures and foreign option contracts to persons 

located in the U.S. 

13Appendix D to Part 30 sets forth the process by 

which Commission staff evaluates requests for noaction relief from foreign boards of trade seeking to 

offer and sell their futures contracts on non-narrowbased security indexes in the U.S., and sets forth 

the information that such a foreign board of trade 

should submit when seeking no-action relief. 17 

CFR Part 30, Appendix D. 

14The CEA provides that the Commission may 

only issue exemptive relief to ‘‘appropriate persons’’ 

as described in CEA Section 4(c)(3), 7 U.S.C. 6(c)(3). 

For purposes of its Petition, HEF requests that the 

Commission define ‘‘appropriate persons’’ as 

including all ECPs. 

15 17 CFR 30.10. 16 7 U.S.C. 2(a)(1)(E); 15 U.S.C. 78f(k). 17See Order Under Section 36 of the Securities 

Exchange Act of 1934 Granting an Exemption From 

Exchange Act Section 6(h)(1) for Certain Persons 

Effecting Transactions in Foreign Security Futures 

and Under Exchange Act Section 15(a)(2) and 

Section 36 Granting Exemptions From Exchange 

Act Section 15(a)(1) and Certain Other 

Requirements, 74 FR 32200 (July 7, 2009). 

18 15 U.S.C. 78f(h). 

19 In light of questions received following the 

issuance of the SEC Order, the Commission’s 

Division of Clearing & Intermediary Oversight has 

recently issued an ‘‘Advisory Concerning the Offer 

and Sale of Foreign Security Futures Products to 

Customers Located in the United States.’’ 

20 15 U.S.C. 77a et seq. 

21 17 CFR 230.144A (a QIB is one of the 

enumerated entities, ‘‘acting for its own account or 

the accounts of other qualified institutional buyers, 

that in the aggregate owns and invests on a 

discretionary basis at least $100 million in 

securities of issuers that are not affiliated with the 

entity’’). 

22 If an index becomes narrow-based for more 

than 45 business days over three consecutive 

calendar months, the CEA and the Exchange Act 

provide a grace period of three months during 

which the index is excluded from the definition of 

a ‘‘narrow-based security index.’’ See Section 

1a(25)(D) of the CEA, 7 U.S.C. 1a(25)(D) and Section 

3(a)(55)(E) of the Exchange Act, 15 U.S.C. 

78c(a)(55)(E). Although these provisions apply to 

security index futures contracts traded on certain 

U.S. exchanges, by joint regulation, the Commission 

and the SEC have made these provisions applicable 

to security index futures contracts traded on foreign 

boards of trade. See Commission Rule 41.13, 17 

CFR 41.13 and SEC Rule 3a55–3, 17 CFR 240.3a55– 

3. 

Upon determination by staff that the 

subject futures contract and underlying 

index comport with the criteria set forth 

in Section 2(a)(1)(C)(ii) of the CEA, 

Commission staff issues a no-action 

letter to the foreign board of trade with 

respect to the offer and sale of such 

futures contract in the U.S.12 A foreign 

board of trade that has received prior 

no-action relief with respect to a 

particular foreign security index futures 

contract must file a new submission for 

each foreign security index futures 

contract that it seeks to offer or sell in 

the U.S. 

II. HEF’s Petition 

By letter dated April 21, 2008 

(‘‘Petition’’), HEF, a registered 

commodity trading advisor (‘‘CTA’’), 

applied for exemptive relief, pursuant to 

Section 4(c) of the Act, from Section 

2(a)(1)(C)(iv) of the Act and Appendix D 

to Part 30 of the Rules of the 

Commission.13 According to the 

Petition, this exemption is necessary to 

promote responsible economic 

innovation and fair competition. 

Granting the exemption will enable U.S. 

ECPs 14 to trade a foreign security index 

futures contract even if the foreign 

board of trade that lists the contract has 

not obtained no-action relief relating to 

the offer and sale of that contract to U.S. 

persons. 

Under the exemptive relief requested 

by HEF’s Petition, U.S. ECPs could 

trade, on a foreign board of trade, 

futures contracts on foreign security 

indexes that are not security futures 

products (i.e., the index is not a narrowbased security index) on the same basis 

as they may trade any other futures 

contract on a foreign board of trade. 

Currently, no prior qualifying action by 

the Commission or its staff is required 

in order for U.S. persons to enter into 

non-security-based futures contracts 

traded on a foreign board of trade. 

Rather, U.S. customers are permitted to 

access futures products offered by a 

foreign board of trade through a U.S. 

registered futures commission merchant 

or introducing broker, or through a 

foreign firm pursuant to an exemption 

under Commission Rule 30.10.15 HEF’s 

Petition asks that for U.S. ECPs, the 

same rules apply to foreign security 

index futures contracts as well. 

III. SEC Exemptive Order Regarding 

Foreign Security Futures 

Due to the applicability of the federal 

securities laws, though, security index 

futures are not the same as futures on 

non-security based commodities. In this 

regard, with respect to security futures 

products (i.e., futures on a single 

security or a narrow-based security 

index) traded on foreign boards of trade, 

Section 2(a)(1)(E) of the CEA and 

Section 6(k) of the Securities Exchange 

Act of 1934 (‘‘Exchange Act’’) provide 

that: (i) The CFTC and SEC ‘‘shall jointly 

issue such rules, regulations, or orders 

as are necessary and appropriate to 

permit the offer and sale of a security 

futures product traded on or subject to 

the rules of a foreign board of trade to 

United States persons;’’ and (ii) such 

rules, regulations or orders ‘‘shall take 

into account, as appropriate, the nature 

and size of the markets that the 

securities underlying the security 

futures product reflects.’’ 16

After HEF’s Petition was filed, the 

SEC on June 30, 2009, issued an Order 

(‘‘SEC Order’’) 17 exempting certain 

persons from Section 6(h)(1) of the 

Exchange Act, which makes it unlawful 

for U.S. persons to enter into security 

futures traded on foreign boards of trade 

(‘‘foreign security futures’’).18 The SEC 

Order, among other things, permits 

certain sophisticated investors to access 

foreign security futures and provides 

relief for certain intermediaries in order 

to effect these transactions under certain 

conditions, including that the ‘‘primary 

trading market’’ for the underlying 

securities of foreign private issuers is 

outside the U.S.19 Specifically, the 

sophisticated investors to which the 

SEC Order applies include qualified 

institutional buyers (‘‘QIBs’’) as defined 

in SEC Rule 144A under the Securities 

Act of 1933.20 A QIB is generally an 

entity that owns and invests on a 

discretionary basis at least $100 million 

in securities of unaffiliated issuers; it is, 

therefore, a narrower class of investors 

than the class of ECPs as defined in the 

CEA.21

The relief granted by the SEC Order, 

although not coterminous with the relief 

requested by HEF, is relevant to HEF’s 

Petition. Prior to the SEC Order, if a 

foreign broad-based security index 

underlying a foreign exchange-traded 

futures contract became a narrow-based 

security index for a certain period of 

time, a U.S. person had to exit its 

position in that futures contract during 

a specified grace period, or be in 

violation of the Exchange Act’s 

prohibition on trading foreign security 

futures.22 Since June 30, 2009, though, 

if an ECP is eligible for and the contract 

satisfies the requirements for the 

exemption issued in the SEC Order, the 

ECP could continue to trade such a 

contract as a foreign security future 

pursuant to the terms and conditions of 

the SEC Order. But if an ECP is not 

eligible—that is, if the ECP does not 

meet the high threshold to qualify as a 

QIB—or the contract is not eligible 

under the SEC Order, then the ECP 

would not have relief in trading such a 

contract. 

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34432 Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 

23Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), 

provides that: 

In order to promote responsible economic or 

financial innovation and fair competition, the 

Commission by * * * order, after notice and 

opportunity for hearing, may (* * * on application 

of any person, including any board of trade 

designated or registered as a contract market * * *) 

exempt any agreement, contract, or transaction (or 

class thereof) that is otherwise subject to subsection 

(a) of this section (including any person or class of 

persons offering, entering into, rendering advice or 

rendering services with respect to, the agreement, 

contract, or transaction), either unconditionally or 

on stated terms or conditions or for stated periods 

* * * from any * * * provision of this Act (except 

subparagraphs (C)(ii) and (D) of section 2(a)(1), 

except that the Commission and Securities and 

Exchange Commission may by rule, regulation, or 

order jointly exclude any agreement, contract, or 

transaction from section 2(a)(1)(D)), if the 

Commission determines that the exemption would 

be consistent with the public interest. 

While Section 4(c)(2) of the Act, 7 U.S.C. 6(c)(2), 

imposes additional requirements with respect to 

any exemption from the requirements of Section 

4(a) of the Act, 7 U.S.C. 6(a), HEF is not seeking 

such relief. 

24This could be either a bilateral MOU between 

the Commission and the applicable foreign 

regulator, or a multilateral MOU such as the 

‘‘Multilateral Memorandum of Understanding 

Concerning Consultation and Cooperation and the 

Exchange of Information’’ created by the 

International Organization of Securities 

Commissions (‘‘IOSCO Multilateral MOU’’). 

25See Policy Statement Regarding Boards of 

Trade Located Outside of the United States and NoAction Relief From the Requirement To Become a 

Designated Contract Market or Derivatives 

Transaction Execution Facility, 71 FR 64443 (Nov. 

2, 2006). 

26H.R. Rep. No. 97–565, Part I, at p. 85 (May 17, 

1982). 

IV. Relief Sought by HEF 

Section 4(c)(1) of the Act empowers 

the Commission to ‘‘promote responsible 

economic or financial innovation and 

fair competition’’ by exempting any 

transaction or class of transactions, 

including any person offering or 

entering into such transaction, from any 

of the provisions of the CEA (subject to 

exceptions not relevant here) where the 

Commission determines that the 

exemption would be consistent with the 

public interest.23 The Petition requests 

relief from the requirement that U.S. 

persons may only enter into a futures 

contract on a foreign security index 

listed on a foreign board of trade if the 

foreign board of trade has first received 

a letter providing no-action relief to 

offer and sell that futures contract to 

U.S. persons. 

The proposed exemptive relief would 

require that a person wishing to trade a 

particular security index futures 

contract listed on a foreign board of 

trade that has not received no-action 

relief notify the Commission of the 

person’s intent to do so. The notice 

would require the claimant to 

demonstrate his or her qualification for 

the exemption (i.e., that he or she is an 

ECP), and that the index is not a narrowbased security index. The exemption 

would be effective with respect to that 

person and index unless the 

Commission notifies the person within 

ten (10) business days that the claimant 

does not meet the requirements of the 

exclusion, or the index does not qualify 

under the Act as a non-narrow based 

index (including an explanation of why 

it considers the person not to be 

qualified or the index to be narrowbased, respectively). 

Further, this exemption would be 

available only for contracts traded on 

foreign boards of trade for which the 

applicable foreign regulator has entered 

into a Memorandum of Understanding 

(‘‘MOU’’) with respect to information 

sharing and cooperation with the 

CFTC.24 Also, the securities comprising 

the index underlying the futures 

contract would have to be principally 

traded on, by, or through an exchange 

or market located outside the U.S. 

The Petition does not seek an 

exemption from the requirement that a 

foreign board of trade be granted noaction relief before offering and selling 

such foreign security index futures 

contracts to the general public. Nor does 

it seek an exemption from the 

requirement that such contracts may be 

traded through direct access from the 

U.S. to a foreign board of trade’s 

electronic trading system only pursuant 

to a Commission staff direct access noaction letter.25

More specifically, HEF is seeking an 

exemption, pursuant to Section 4(c) of 

the Act, from Section 2(a)(1)(C)(iv) of 

the Act and 17 CFR Part 30 Appendix 

D in the following form, with 

conditions: 

(X) Exemption for Eligible Contract 

Participants Trading Non-narrow Based 

Stock Indexes on a Foreign Board of 

Trade. The Commodity Futures Trading 

Commission, pursuant to its authority 

under Section 4(c)(1) of the Commodity 

Exchange Act, hereby determines that 

notwithstanding the provisions of 

Section 2(a)(1)(C)(iv) of the Act and 

Appendix D to Part 30 of its Rules, 

nothing in the Act is intended to 

prohibit any ‘‘eligible contract 

participant,’’ as defined in Section 

1a(12) of the Act, located in the U.S. 

from purchasing or carrying futures 

contracts on a securities index that is 

not a ‘‘narrow-based index’’ as defined in 

Section 1a(25) of the Act, traded on or 

subject to the rules of a foreign board of 

trade to the same extent such person 

may be authorized to purchase or carry 

a futures contract on any other 

commodity so long as the underlying 

securities comprising such index are 

principally traded on, by or through any 

exchange or market located outside the 

United States, and the regulator of such 

foreign board of trade has entered into 

a Memorandum of Understanding with 

respect to information sharing and 

cooperation with the Commission. 

(a) Notification: Persons wishing to 

avail themselves of this exemption shall 

so notify the Commission. This 

notification shall be filed with the 

Secretary of the Commission at its 

Washington, D.C. headquarters, in 

electronic form, shall be labeled as 

‘‘Notification of Trading in a Nonnarrow Based Index Traded on a 

Foreign Board of Trade,’’ and shall 

include: 

(1) The name and address of the 

person and representation that the 

person qualifies as an Eligible Contract 

Participant, and the basis upon which 

the person so qualifies; 

(2) The name of the non-narrow based 

index and of the foreign board of trade 

on which the index is traded; 

(3) A demonstration that the index is 

not a ‘‘narrow-based index’’ under the 

definition of Section 1a(25) of the Act; 

and 

(4) A representation that the regulator 

of the foreign board of trade has entered 

into an information-sharing agreement 

with the Commission or to which the 

Commission is also a signatory. 

(b) Effective Date: The exemption 

shall be effective ten (10) business days 

after filing of the notice with the 

Commission, unless the Commission 

within that period notifies the person 

claiming the exemption that the 

exemption may not be made effective 

with respect to that person and/or that 

index and its reason for so finding. 

According to HEF, the purpose 

behind the no-action process is in 

furtherance of Congress’ expressed 

intent ‘‘to protect the interests of U.S. 

residents against fraudulent or other 

harmful practices.’’ 26 HEF maintains 

that ECPs, due to their size and 

sophistication, are not dependent upon 

the terms and conditions imposed on 

the trading of foreign security index 

futures in the staff’s no-action relief for 

protection from fraud. Further, HEF 

notes that in the U.S., ECPs currently 

are able to trade contracts, agreements, 

or transactions that replicate futures 

contracts on foreign security indexes in 

the over-the-counter (‘‘OTC’’) markets. 

HEF states that granting this exemptive 

relief will enable ECPs to trade futures 

contracts on a foreign board of trade that 

are equivalent to contracts that ECPs are 

able to trade in the OTC markets. 

Because contracts on foreign security 

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Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 34433 

27 Granting the relief requested in HEF’s Petition 

would in no way alter the requirements of Part 30 

of the Commission’s regulations concerning foreign 

futures and options transactions. 

28 7 U.S.C. 2(a)(1)(F)(ii). See text accompanying 

n.31 infra for full text. 

29The SEC Order provides that for U.S. QIBs to 

be able to trade foreign security futures, the 

securities issued by foreign private issuers that 

underlie a foreign security future must have their 

‘‘primary trading market’’ outside the U.S. For 

purposes of this condition, under the SEC Order a 

security’s ‘‘primary trading market’’ is deemed to be 

outside the U.S. if at least 55% of the worldwide 

trading volume in the security took place in, on, or 

through a securities market or markets located in 

either: (i) A single foreign jurisdiction; or (ii) no 

more than two foreign jurisdictions during the most 

recently completed fiscal year. If the trading in the 

foreign private issuer’s security is in two foreign 

jurisdictions, the trading for the issuer’s security in 

at least one of the two foreign jurisdictions must be 

greater than the trading in the U.S. for the same 

class of the issuer’s securities in order for such 

security’s ‘‘primary trading market’’ to be considered 

outside the U.S. 

30 In addition to securities of foreign private 

issuers whose primary trading market is outside the 

Continued 

indexes are already traded in the OTC 

markets by U.S. ECPs, HEF believes that 

it is in the public interest to provide 

U.S. ECPs the choice to trade foreign 

security indexes in a more regulated, 

transparent exchange environment on 

foreign boards of trade. 

V. Request for Comments 

The Commission requests public 

comment on any aspect of the Petition 

that commenters believe may raise 

issues under the CEA or Commission 

regulations. In particular, the 

Commission invites comment regarding 

the following: 

(1) Conditions Proposed by HEF: 

Should an order granting the request for 

relief include any one or more of the 

conditions proposed by HEF in its 

Petition? 

(2) Surveillance: In granting no-action 

relief to a foreign board of trade seeking 

to offer and sell a futures contract on a 

foreign security index to U.S. persons, 

Commission staff generally rely on 

surveillance sharing agreements 

between the securities exchanges on 

which the securities comprising the 

index are traded, and the foreign board 

of trade. See infra n.11. Also, before 

issuing such no-action relief, 

Commission staff often requests a 

representation or commitment from the 

foreign board of trade of its willingness 

and ability to share information with the 

Commission. Id. Similarly, in granting 

no-action relief to a foreign board of 

trade seeking to offer and sell any 

futures contract to U.S. persons through 

direct access to its electronic trading 

system from the U.S., Commission staff 

typically confirm that the market and its 

regulator have the ability to obtain the 

specific types of information that may 

be needed by the Commission, as well 

as the authority to share that 

information with the Commission on an 

‘‘as needed’’ basis. Moreover, 

Commission staff generally obtains 

evidence of the foreign market’s and 

regulator’s willingness to share 

information (e.g., through explicit 

undertakings) with the Commission. 

To ensure that there are similar 

protections in place in the 

circumstances posed by HEF’s Petition, 

should an order granting the request for 

relief require that the foreign board of 

trade that lists the foreign security index 

futures contract to be traded by the ECP 

have: (i) Submitted a pending request 

for no-action relief with respect to that 

futures contract; (ii) received a prior noaction letter for another foreign security 

index futures contract; and/or (iii) 

received a foreign direct access no 

action letter? 

(3) MOUs: The Commission is 

concerned that the condition for an 

MOU included in HEF’s Petition may 

not be workable in practice, given the 

wide spectrum of information sharing 

agreements to which the Commission is 

a party. An MOU may only mean that 

the foreign regulator will share 

information, not that it has access to 

surveillance information to share. 

Should an order granting the relief 

requested in HEF’s Petition be 

conditioned on the existence of an MOU 

that is specifically tailored to obtain the 

information that the Commission needs 

to assess the efficacy of the foreign 

board of trade and its regulator, and to 

obtain surveillance information as it 

deems necessary? Should any such 

relief be limited to foreign security 

index futures contracts listed in 

jurisdictions that are signatories to the 

IOSCO Multilateral MOU? 

(4) Broad vs. Narrow-Based Security 

Indexes: As discussed above, a futures 

contract on a security index that moves 

from broad to narrow-based thereby 

becomes a security future that may no 

longer be traded by U.S. persons subject 

to the exclusive jurisdiction of the 

CFTC. To ensure full compliance with 

the requirements of the CEA and the 

federal securities laws, should an order 

granting the relief requested in HEF’s 

Petition require an undertaking by the 

ECP to: (i) Continually monitor the 

underlying index to ensure that it 

remains broad-based; (ii) notify the 

Commission if the index becomes a 

narrow-based security index; and (iii) if 

the index continues to be narrow-based 

for more than 45 business days during 

3 consecutive calendar months, to cease 

trading the futures contract and 

liquidate existing positions in an 

orderly manner over the next 3 calendar 

months (provided, however, that if the 

ECP and the futures contract are eligible 

for the exemptive relief granted by the 

SEC Order, the ECP may continue to 

trade that contract as a foreign security 

future)? 

(5) Additional Conditions: Should an 

order granting the relief requested in 

HEF’s Petition require that there be no 

solicitation of ECP orders, and/or that 

ECPs be required to trade only for their 

own account? 27

(6) OTC Derivatives Reform 

Legislation: As discussed above, HEF’s 

Petition justifies its request for relief, in 

part, on the proposition that: (i) U.S. 

ECPs currently are able to trade 

contracts that replicate futures on 

foreign security indexes in the 

unregulated OTC markets; and (ii) it is 

in the public interest to enable them to 

do so in a more regulated and 

transparent exchange environment on a 

foreign board of trade. Yet, legislation 

currently pending before the Congress, 

if eventually enacted, could change this 

premise to some degree, as it would 

significantly enhance the transparency 

of OTC derivatives and require that 

certain swaps (subject to an ‘‘end-user 

exception’’) be traded on a contract 

market or a ‘‘swap execution facility’’ as 

provided for in that legislation. What 

are the implications of the OTC 

derivatives reform legislation pending 

in Congress, if any, on HEF’s Petition? 

(7) Foreign Securities: As discussed 

above, HEF’s Petition proposes that an 

order granting its request for relief be 

conditioned upon all the securities in 

the index underlying the foreign futures 

contract being principally traded on, by, 

or through an exchange or market 

located outside the U.S. This 

‘‘principally traded’’ formulation may be 

based on the language of CEA Section 

2(a)(1)(F)(ii), which addresses trading of 

foreign security futures by ECPs in the 

U.S.28 What are the implications, if any, 

of the use of this standard in an order 

granting the relief requested in HEF’s 

Petition in comparison to the ‘‘primary 

trading market’’ test that the SEC created 

for securities of foreign private issuers 

in a narrow-based security index as set 

forth in paragraph (1)(a)(ii) of the SEC 

Order? 29 Should an order granting the 

relief requested in HEF’s Petition treat 

securities in an index as being 

principally traded on, by, or through an 

exchange outside the United States if 

they meet the criteria for securities in a 

narrow-based security index contained 

in paragraph (1)(a)(ii) of the SEC 

Order? 30

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34434 Federal Register / Vol. 75, No. 116 / Thursday, June 17, 2010 / Notices 

U.S. underlying narrow-based security indexes, 

paragraph (1)(a)(ii) of the SEC Order permits debt 

securities issued or guaranteed by a foreign 

government as defined in Rule 405 of the Securities 

Act, 17 CFR 230.405, that are eligible to be 

registered with the SEC under Schedule B of the 

Securities Act, 15 U.S.C. 77aa. Further, paragraph 

(1)(a)(ii) requires that at the time of the transaction, 

at least 90% of the index, both in terms of the 

number of underlying securities and their weight, 

must meet these eligibility requirements. No more 

than 10% of the securities in the index, both in 

terms of their number and their weight, at the time 

of the transaction, that do not meet the 

requirements, must be from issuers that are required 

to file reports with the SEC pursuant to Section 13 

or Section 15(d) of the Exchange Act, 15 U.S.C. 78m 

and 78o. 

31 7 U.S.C. 2(a)(1)(F)(ii). 

32H.R. Rep. No. 110–627 at 983 (2009) 

(Conference Report on the CFTC Reauthorization 

Act of 2008, Title XIII of the 2008 ‘‘Farm Bill,’’ 

Public Law No. 110–246, 122 Stat. 1651 (June 18, 

2008)). 

33See 7 U.S.C. 1a(25)(B)(iv) and 1a(25)(C); 15 

U.S.C. 3(a)(55)(C)(iv) and 3(a)(55)(D). 

34See Method for Determining Market 

Capitalization and Dollar Value of Average Daily 

Trading Volume; Application of the Definition of 

Narrow-Based Security Index, 66 FR 44490, 44501– 

44502 (August 23, 2001). 1 7 U.S.C. 6(c). 

(8) ECPs vs. QIBs: CEA Section 

2(a)(1)(F)(ii), cited in the preceding 

paragraph, provides in full as follows: 

Nothing in this Act is intended to prohibit 

any eligible contract participant located in 

the United States from purchasing or carrying 

securities futures products traded on or 

subject to the rules of a foreign board of 

trade, exchange, or market to the same extent 

such person may be authorized to purchase 

or carry other securities traded on a foreign 

board of trade, exchange, or market so long 

as any underlying security for such security 

futures products is traded principally on, by, 

or through any exchange or market located 

outside the United States.31

As discussed above, the SEC Order 

generally limits the category of U.S. 

persons that may trade foreign security 

futures to QIBs (who own and invest 

$100 million or more). This is a 

narrower class of investors than ECPs. 

The group of persons that satisfy the 

ECP definition but may not be QIBs 

includes registered investment 

companies, commodity pools, pension 

plans, corporations and high net worth 

individuals. These persons may have a 

real need for risk management based 

upon exposures in foreign financial 

markets or to economic conditions in 

other countries, or they may want to 

gain exposure to those markets as part 

of the asset allocation in their 

investment portfolio. 

If the relief requested in HEF’s 

Petition is granted, an ECP that is a QIB 

and trades a foreign futures contract on 

a foreign security index that moves from 

broad to narrow-based can continue to 

trade that contract as a foreign security 

future, provided the contract otherwise 

meets the requirements of the SEC 

Order. An ECP that is not a QIB, 

however, would have to exit its position 

in the foreign futures contract within 

the applicable grace period or be in 

violation of the Exchange Act. Given 

this difference in legal status, should an 

order issued by the Commission 

granting the relief requested in HEF’s 

Petition be limited to QIBs? 

With respect to access to foreign 

security futures by U.S. persons, are the 

conditions contained in the SEC Order 

consistent with Section 2(a)(1)(F)(ii) of 

the CEA? Should ECPs that are not QIBs 

be permitted to trade foreign security 

futures? What conditions, if any, should 

be imposed on such trading by ECPs 

that are QIBs, and ECPs that are not 

QIBs? How should an order permitting 

ECPs to trade foreign security futures 

take into account, as mandated by 

Section 2(a)(1)(E) of the CEA, ‘‘the 

nature and size of the markets that the 

securities underlying the security 

futures product reflects?’’ 

(9) Nature of Foreign Security 

Indexes: Lying at the core of the 

complex interplay between HEF’s 

Petition on the one hand, and the CEA 

and the federal securities laws on the 

other hand, is the application of the 

statutory definition of a ‘‘narrow-based 

security index’’ to foreign security 

indexes. To the extent that a foreign 

security index falls squarely on the 

broad-based side of the line, distinctions 

between ECPs that are QIBs and those 

that are not, and the prospect of an ECP 

that is relying on the relief requested by 

HEF violating the securities laws, may 

be of less concern. 

Congress has recognized that ‘‘[t]he 

detailed statutory test of a narrow-based 

security index was tailored to fit the 

U.S. equity markets, which are by far 

the largest, deepest and most liquid 

securities markets in the world.’’ 32 In 

the CFMA in 2000, Congress directed 

that the CFTC and the SEC, within one 

year, jointly adopt rules or regulations 

that set forth requirements for broadbased foreign security indexes traded on 

a foreign board of trade.33 And shortly 

thereafter, the CFTC and SEC promised 

to consider amending the rules 

regarding security index futures trading 

on or subject to the rules of a foreign 

board of trade.34

Should the CFTC and the SEC 

establish criteria to exclude appropriate 

foreign security indexes from the 

definition of a ‘‘narrow-based security 

index?’’ If so, on what basis? How 

should it be determined whether a 

foreign security index is appropriately 

treated as a broad-based security index 

so that foreign futures on such an index 

would trade subject to the exclusive 

jurisdiction of the CFTC, or as a narrowbased security index so that foreign 

futures on such an index would trade as 

foreign security futures? The 

Commission encourages commenters to 

submit any quantitative data and 

analysis to support any proposed 

distinctions between broad and narrowbased foreign security indexes. 

(10) CEA Section 4(c) Requirements: 

• Is the exemption requested in HEF’s 

Petition consistent with the 

requirements for relief set forth in 

Section 4(c) of the CEA? 

• Would granting the exemption 

requested in HEF’s Petition be 

consistent with the public interest and 

purposes of the CEA? 

• Would granting the relief requested 

in HEF’s Petition have any material 

adverse effects upon derivatives clearing 

organizations, exchanges, or other 

Commission registrants from a 

competitive or other perspective? 

(11) Other Issues: The Commission 

welcomes comment on any other issues 

relevant to HEF’s Petition for an 

exemption. 

* * * * * 

Issued in Washington, DC, on June 11, 

2010 by the Commission. 

Sauntia S. Warfield, 

Assistant Secretary of the Commission. 

[FR Doc. 2010–14680 Filed 6–16–10; 8:45 am] 

BILLING CODE P 

COMMODITY FUTURES TRADING 

COMMISSION 

Request To Amend an Existing Order 

Under Section 4(c) of the Commodity 

Exchange Act Permitting Eligible Swap 

Participants To Submit for Clearing, 

and ICE Clear U.S., Inc. and Futures 

Commission Merchants To Clear, 

Certain-Over-The-Counter Agricultural 

Swaps 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of Request for Comment 

on an Amendment to an Exemption 

Order. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘CFTC’’ or 

‘‘Commission’’) is requesting comment 

on whether to amend an existing order 

to extend the exemption granted to ICE 

Clear U.S., Inc. (‘‘ICE Clear’’) under 

Section 4(c) of the Commodity Exchange 

Act (‘‘Act’’) 1 to certain over-the-counter 

(‘‘OTC’’) agricultural swaps for which 

there is no corresponding futures 

contract listed for trading on ICE 

mstockstill on DSKH9S0YB1PROD with NOTICES