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[Federal Register Volume 76, Number 186 (Monday, September 26, 2011)]
[Rules and Regulations]
[Pages 59241-59247]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24609]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 30

RIN 3038-AC54

Foreign Futures and Options Contracts on a Non-Narrow-Based 
Security Index; Commission Certification Procedures

AGENCY: Commodity Futures Trading Commission.

[[Page 59242]]

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
adopting a new rule, which establishes a Commission certification 
procedure applicable to the offer or sale, to persons in the U.S., of a 
non-narrow-based security index futures contract traded on a foreign 
board of trade; the new certification procedure will replace the 
existing staff no-action process. Additionally, the new rule 
establishes a procedure for a foreign board of trade to request and 
receive a Commission certification on an expedited basis. Under this 
expedited procedure, a non-narrow-based security index futures contract 
of qualifying foreign boards of trade could be offered or sold in the 
U.S. forty-five (45) days after submission of such request, absent a 
notification by the Commission.

DATES: Effective Date: October 26, 2011.

FOR FURTHER INFORMATION CONTACT: Harold L. Hardman, Deputy General 
Counsel (Regulation), (202) 418-5120, hhardman@cftc.gov; Carlene S. 
Kim, Assistant General Counsel, (202) 418-5613, ckim@cftc.gov, Office 
of the General Counsel, Commodity Futures Trading Commission, Three 
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

I. Introduction

A. Background

    Currently, a non-narrow-based security index futures contract 
(``foreign security index futures contract'') traded on, or subject to 
the rules of, a foreign board of trade may be offered or sold to 
persons located within the United States pursuant to a staff no-action 
letter confirming that the contract satisfies the requirements 
enumerated in section 2(a)(1)(C)(ii) of the Commodity Exchange Act (the 
``CEA'' or ``Act'') (such letter hereinafter referred to as a ``Foreign 
Security Index No-Action Letter'').\1\ On December 13, 2010, the 
Commission published in the Federal Register a proposal to adopt new 
rule 30.13, which would establish Commission certification procedures 
for confirming that a security index futures contract traded on a 
foreign board of trade meets the requirements of the Act and therefore, 
may lawfully be offered or sold within the U.S.\2\ The Commission 
received six comment letters in response to the Proposal.\3\ Three 
commenters, two foreign boards of trade and a proprietary capital 
management firm, expressed strong support for proposed rule 30.13.\4\
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    \1\ 7 U.S.C. 2(a)(1)(C)(ii). Such a contract also is referred to 
herein as ``non-narrow-based security index futures contract'' or 
``broad-based security index futures contract.''
    \2\ See 75 FR 77588, Dec. 13, 2010 (the ``Proposal'').
    \3\ Comments were submitted by Eurex Deutschland (``Eurex''); 
BM&FBovespa; INFINIUM Capital Management; and three private 
citizens.
    \4\ The private individuals' comments related to speculation in 
the futures markets and did not address the proposed rule.
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    Eurex also recommended that the new rule provide for a foreign 
board of trade to list a new contract with prior notification, in lieu 
of filing a request for certification, in certain limited 
circumstances.\5\ To address such comment, the Commission is providing 
in rule 30.13 that a foreign board of trade may make available for 
offer or sale to U.S. customers a new contract in reliance upon a 
previously-issued Foreign Security Index No-Action Letter or Commission 
certification where the new contract is: (i) Based on an index that was 
the subject of such prior no-action relief or certification issued to 
that board; and (ii) ``substantially identical'' to the contract 
overlying such index.
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    \5\ Eurex's comment is discussed in section I.D., infra.
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B. Proposed Rule 30.13: Commission Certification Procedure

    Rule 30.13 sets forth a procedure whereby a foreign board of trade 
may apply to the Commission for certification that a security index 
futures contract traded on, or subject to, that board conforms to the 
criteria enumerated in section 2(a)(1)(C)(ii) of the Act. The 
Commission certification procedure will be available to futures 
contracts based on a non-narrow-based index of foreign or U.S. 
securities.\6\ Under this new procedure, the foreign board of trade 
seeking Commission certification must file with the Commission a 
written submission requesting certification with respect to their 
security index futures contract(s). Such submission must include data, 
information, facts, and statements complying with the form and content 
requirements set forth in paragraph (a)(2) of rule 30.13.\7\ In 
addition, the foreign board of trade also must provide a written 
statement that the subject contract conforms to section 2(a)(1)(C)(ii) 
of the Act. Finally, the foreign board of trade must describe the 
manner in which U.S. persons legally may access these products on that 
board of trade (e.g., access through omnibus accounts, through an 
intermediary, which is registered in the U.S. and also is an authorized 
member of the foreign board of trade, or through an entity that has 
relief from registration under part 30).\8\
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    \6\ See, e.g., CFTC Staff Letter No. 06-22 [2005-2007 Transfer 
Binder] Comm. Fut. L. Rep. (CCH) ] 30,366 (Sept. 26, 2006) (no-
action relief granted with respect to futures contracts based on the 
Hang Seng Index and the Hang Seng China Enterprises Index, both of 
which are indices comprised wholly of foreign securities); CFTC 
Staff Letter No. 02-81 [2002-2003 Transfer Binder] Comm. Fut. L. 
Rep. (CCH) ] 29,094 (June 28, 2002) (no-action relief granted with 
respect to futures contracts based on the Dow Jones Global Titan 
Index, which is an index comprised partially of U.S. securities).
    \7\ The data, information, facts, and statements required to be 
submitted will be the same as that specified in current Appendix D 
to part 30. Specifically, the information required to be submitted 
would include: A copy of the contract's terms and conditions; 
relevant rules that may have an effect on trading of the contract 
such as circuit breakers or position limits or other controls on 
trading; information and data relating to the index, including the 
design, computation and maintenance thereof. In addition, the 
foreign board of trade would be required to provide a copy of the 
surveillance agreement(s) between the foreign board of trade and the 
exchange(s) on which the underlying securities are traded and 
provide assurance of its ability and willingness to share 
information with the Commission. The Commission requests that the 
required data relating to the index, including the index components 
and their market capitalizations, index weights, and average daily 
trading volumes (by share and by dollar value) over a six month 
period, be submitted in a Microsoft Excel file with an extension of 
.xls or .xlsx, as appropriate. In this final rulemaking, Appendix D 
will be revised to retain only the information currently set forth 
in paragraph G of Appendix D.
    \8\ While an index product may meet the statutory standard and 
is therefore eligible to be offered or sold in the U.S., U.S. 
customers' access to such product may be restricted due to legal 
restrictions in the subject foreign jurisdiction.
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    The substantive review will remain the same under rule 30.13 as it 
is under the current staff no-action process. Further, consistent with 
the existing staff no-action review process the Commission's review of 
the subject contract will not be subject to any specific time frame, 
except as noted below. If a contract is determined to conform to the 
applicable requirements of the Act, the Commission will so notify the 
foreign board of trade.\9\
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    \9\ Additionally, once the Commission has certified the subject 
futures contracts, no further action is required by the Commission 
or staff in order for options on such futures contract to be offered 
and sold in the United States. See 61 FR 10891, Mar. 18, 1996.
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    Finally, foreign boards of trade that have received Foreign 
Security Index No-Action Letters prior to the effective date of rule 
30.13 will be grandfathered, provided that the board submits a written 
statement representing that it remains fully compliant with the 
underlying conditions of the subject letter.\10\ Accordingly, a foreign 
board of

[[Page 59243]]

trade that has received from Commission staff such no-action letters 
will be able to rely on such relief, in lieu of obtaining new 
Commission certification (for the contract that is the subject of that 
letter).
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    \10\ The Commission staff previously determined that such non-
narrow-based foreign index contracts conformed to section 
2(a)(1)(C)(ii) of the Act. Given that the substance of the review 
under the proposed Commission certification process would remain 
unchanged, the Commission believes it would be appropriate to 
``grandfather'' these contracts.
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C. Expedited Review for Qualifying Foreign Boards of Trade

    The new rule establishes a procedure for a foreign board of trade 
to request and receive a Commission certification on an expedited 
basis. This expedited procedure is an alternative to the regular review 
procedure and will be available to a foreign board of trade that has 
received a Foreign Security Index No-Action Letter or Commission 
certification with respect to a non-narrow-based security index futures 
contract traded on that board. Additionally, the expedited review will 
be available to a foreign board of trade that has received, and is 
compliant with the requirements of, the applicable staff no-action 
letter \11\ permitting a foreign board of trade to offer U.S. traders 
with direct access to its trading system.\12\
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    \11\ Since 1996, the Commission staff has issued no-action 
letters to foreign boards of trade stating, subject to compliance 
with certain conditions, that it will not recommend that the 
Commission take enforcement action if the foreign board of trade 
provides its members or participants in the U.S. access to its 
electronic trading system without seeking designation as a 
Designated Contract Market or registration as a Derivatives 
Transaction Execution Facility (``Foreign Board of Trade No-Action 
Letters''). To avail itself of the expedited review process, the 
FBOT must submit a written statement representing that it remains 
fully compliant with the terms and conditions of the applicable 
Foreign Board of Trade No-Action Letter.
    \12\ To avail itself of the expedited review process, the FBOT 
must submit a written statement representing that it remains fully 
compliant with the terms and condition of the applicable Foreign 
Board of Trade No-Action Letter.
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    As the Commission noted in the Proposal, the Dodd-Frank Wall Street 
Reform and Consumer Protection Act authorizes the Commission to 
register foreign boards of trade that provide U.S. persons with 
``direct access'' to their trading systems.\13\ On November 19, 2010, 
the Commission proposed rules to implement the new statutory 
provision.\14\ The Commission anticipates that at such time as the 
Commission may adopt such registration requirements, the expedited 
review procedure would be extended to recipients of an FBOT 
registration license.
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    \13\ Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010).
    \14\ 75 FR 70974, Nov. 19, 2010.
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    Under the expedited review procedure, a qualifying foreign board of 
trade may request that the Commission make its certification as to 
whether a futures contract on a security index that it lists for 
trading, or plans to list for trading, on that board satisfies the 
requirements enumerated in section 2(a)(1)(C)(ii) of the Act within 45 
days after the submission of such request. The review period could be 
extended by the Commission for an additional 45 days if the foreign 
security index futures contract raises novel or complex issues that 
require additional time for review, or if the foreign board of trade 
requests an extension of time.
    If the foreign board of trade's request to the Commission for 
expedited consideration does not comply in form or content with the 
requirements of proposed rule 30.13, the Commission may notify the 
requesting foreign board of trade and treat the request for expedited 
review as withdrawn. However, the foreign board of trade will not be 
precluded from filing a new expedited request, provided that such 
submission satisfies the content and form requirements applicable to 
such process specified in rule 30.13.
    Unless the Commission notifies the foreign board of trade that the 
request has been deemed withdrawn, the subject contract will be deemed 
to be in conformance with the requirements of section 2(a)(1)(C)(ii) 
and, therefore may be offered or sold within the U.S., at the 
expiration of the applicable review period. In contrast to the regular, 
non-expedited review, the Commission will not issue a certification 
letter to the foreign board of trade upon completion of its review.
    If the Commission will not, or is unable to, deem that the foreign 
security index futures contract or the underlying security index 
conforms to the requirements of the Act, it will so notify the foreign 
board of trade within the 45 day time period or such extended time 
frame, with a brief statement of the reasons. Upon such notification, 
the foreign board of trade's request for Commission certification will 
be treated as having been withdrawn. The foreign board of trade, 
however, will not be precluded from filing a new submission, provided 
that such submission sufficiently addresses the deficiencies or issues 
identified in the Commission notification.\15\
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    \15\ Requests for staff no-action letters respecting foreign 
security index futures contracts that are currently pending or 
submitted prior to adoption of a final rule will be considered as a 
request for Commission certification following the adoption of Sec.  
30.13. Any foreign board of trade eligible for expedited review 
under any final rule adopted by the Commission would have to submit 
a request for such treatment.
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D. Eurex Comments

    Eurex states that the proposed Commission certification procedures 
focus on an index's compliance with the standards for non-narrow 
security index trading. Therefore, Eurex recommends that only prior 
notification be required: (i) For any change in contract terms that do 
not relate to the composition of the index, such as index multiplier; 
or (ii) to list additional products based on an index for which a 
contract has been certified and whose terms differ from the original 
contract by the ``size of the multiplier or other non-index related 
features.'' \16\
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    \16\ Letter from Eurex, to the Commission's Office of the 
Secretariat (January 18, 2011).
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    As a preliminary matter, the Commission notes that under the 
current staff no-action process, the staff reviews the underlying 
index, as well as the terms and conditions of the overlying futures 
contract, and in particular those terms and conditions relating to cash 
settlement. In that regard, the staff examines, among other things, 
whether the cash price series is reliable, acceptable, publicly 
available and timely; that the cash settlement price is reflective of 
the underlying cash market; and that the cash settlement price is not 
readily susceptible to manipulation. In summary, although the staff 
review of foreign security index contracts may be focused primarily on 
the nature of the underlying index, it is not exclusively so. As noted 
above, the substantive review will remain the same under the new rule 
30.13 as it is under the current no-action process.
    The Commission also notes that under the existing staff no-action 
process, a foreign board of trade is required to notify the Commission 
of any material changes in facts or representations submitted in 
connection with the original request for relief; non-material changes 
to contract terms do not trigger any such notification requirement. 
Generally speaking, the Commission considers the following routine and 
non-material changes: (i) Changes in the composition, computation, or 
method of selection of component entities of an index referenced and 
defined in the contract's terms; or (ii) changes that do not affect the 
pricing basis of the index, which are made by an independent third 
party whose business relates to the collection or dissemination of 
price formation and which was not formed solely for the purpose of 
compiling an index for use in connection with a futures or option 
product.
    In response to Eurex's comments and to further remove any 
unnecessary impediments to offerings of foreign

[[Page 59244]]

security index contracts, the Commission is adding paragraph (m) to 
rule 30.13 to provide that a foreign security index futures contract 
may be offered or sold to U.S. customers in reliance on a previously-
issued Foreign Board of Trade No-Action Letter or Commission 
certification, provided that the contract is: (i) Based on an index 
that was the subject of such prior certification or no-action relief; 
(ii) ``substantially identical'' to the contract overlying such index. 
In such case, the foreign board of trade may submit the contract to the 
Commission for an accelerated review of fifteen business days for 
confirmation that such contract is substantially identical to the 
relevant existing contract \17\ and thus may be offered or sold in the 
U.S. upon reliance of a previously-issued Foreign Security Index No-
Action Letter or Commission certification. In making such submission, 
the foreign board of trade must provide an explanation of why the 
subject contract is substantially identical to a contract that was the 
subject of a prior Commission certification or Foreign Security Index 
No-Action Letter, together with information specified in Sec.  
30.13(a)(2)(v) to (vii). Unless the Commission notifies the foreign 
board of trade within the fifteen business days that the contract will 
be reviewed under either the full or expedited procedure, such contract 
may be offered or sold in the U.S. at the end of that 15 day 
period.\18\
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    \17\ For example, a contract that is identical to an existing 
contract except that it has a different contract multiplier would 
generally be able to rely on a previously-issued Foreign Security 
Index No-Action Letter or Commission certification.
    \18\ This authority is delegated to the Director of the Division 
of Market Oversight in consultation with the General Counsel. See 
paragraph (o) of the rule.
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II. Related Matters

A. Cost Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its actions before issuing new regulations under 
the Act. Section 15(a) does not require the Commission to quantify the 
costs and benefits of new regulations or to determine whether the 
benefits of adopted regulations outweigh their costs. Rather, section 
15(a) requires the Commission to consider the cost and benefits of the 
subject regulations. Section 15(a) further specifies that the costs and 
benefits of new regulations shall be evaluated in light of five broad 
areas of market and public concern: (1) Protection of market 
participants and the public; (2) efficiency, competitiveness, and 
financial integrity of the market for listed derivatives; (3) price 
discovery; (4) sound risk management practices; and (5) other public 
interest considerations. The Commission may, in its discretion, give 
greater weight to any one of the five enumerated areas of concern and 
may, in its discretion, determine that, notwithstanding its costs, a 
particular regulation is necessary or appropriate to protect the public 
interest or to effectuate any of the provisions or to accomplish any of 
the purposes of the Act.
    In the proposed rule, the Commission determined that there are no 
apparent new costs associated with proposed Sec.  30.13. The proposed 
rule would codify and streamline the current review process, without 
substantive changes to the review standards and information required to 
be filed with respect to a broad-based security index. Accordingly, the 
Commission believes that the proposed review procedures would not 
compromise customer protection safeguards provided by the Act or in any 
way be contrary to the public interest. Additionally, foreign boards of 
trade and U.S. market participants will benefit from proposed Sec.  
30.13. The certification process being proposed will provide a foreign 
board of trade with greater certainty with respect to the contracts it 
offers in the U.S., which until now have only been subject to staff no-
action relief that is not binding on the Commission. Moreover, the 
proposed expedited review process would enhance market efficiency by 
providing foreign boards of trade with greater certainty concerning the 
time necessary to obtain regulatory clearance in order to market broad-
based security index products within the United States. Finally, 
streamlining the review process would make additional hedging 
instruments available to U.S. persons without unnecessary delay, and in 
turn, may foster price discovery in the futures market.
    The Commission received no comments on the costs associated with 
this rulemaking, and two foreign boards of trade commented that the 
benefits to them would be significant.

B. The Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires that agencies consider the impact of their regulations on 
small businesses. The Commission has previously determined that 
designated contract markets are not small entities for purposes of the 
RFA.\19\ The Commission's determination was based on considerations 
relating to the central role played by contract markets in the futures 
market, as well as the high volume of transactions conducted on such 
markets.
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    \19\ See 47 FR 18618, Apr. 30, 1982.
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    To the extent that the RFA may apply to the action proposed to be 
taken herein, the Commission does not believe that a foreign board of 
trade falls within the definition of ``small entity'' for purposes of 
the RFA. Rather, the Commission is of the view that the rationale that 
guided its finding with respect to U.S. contract markets apply equally 
to foreign boards of trade. Moreover, with regard to foreign firms, the 
RFA defines a ``small entity'' as a ``business entity organized for 
profit, with a place of business located in the United States, and 
which operates primarily within the United States or which makes a 
significant contribution to the U.S. economy through payment of taxes 
or uses American products, materials or labor.'' \20\ A foreign board 
of trade that may seek Commission certification pursuant to the 
proposed rule is not likely to meet such criteria. In the proposed 
rule, the Commission solicited comments on this matter; no comment 
letter was submitted. Accordingly, pursuant to 5 U.S.C. 605(b), the 
Chairman, on behalf of the Commission, certifies that the final rules 
promulgated herein will not have a significant impact on a substantial 
number of small entities.
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    \20\ See 5 U.S.C. 601(6) (defining ``small entity'' to have the 
same term as the term ``small business'' as used under section 3 of 
the Small Business Act, 13 CFR 121.201).
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C. Paperwork Reduction Act

    When publicizing proposed regulations, the Paperwork Reduction Act 
(``PRA'') of 1995 (44 U.S.C. 3501 et seq.) 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. The information collection requirements associated with the 
proposed regulations are administered under Office of Management and 
Budget control numbers 3038-0022 and 3038-0054. In the proposing 
release, the Commission stated that the proposed regulations would not 
impose any new or additional recordkeeping or information collection 
requirement that would require the approval of the Office of Management 
and Budget under 44 U.S.C. 3501, et seq. No comments were submitted on 
this matter. Accordingly, the PRA is inapplicable.

List of Subjects in 17 CFR Part 30

    Advertising, Designated contract market, Fast-track, Foreign board 
of

[[Page 59245]]

trade, Foreign security index futures, No-action letter, Non-narrow 
foreign security index future, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the Preamble, the Commission hereby 
amends Chapter I of Title 17 of the Code of Federal Regulations as 
follows:

PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

0
1. The authority citation for part 30 continues to read as follows:

    Authority:  17 U.S.C. 1a, 2, 4, 6, 6c and 12a, unless otherwise 
noted.

0
2. Section 30.13 is added to read as follows:

Sec.  30.13  Commission certification.

    With respect to foreign futures and options contracts on a non-
narrow-based security index:
    (a) Request for certification. A foreign board of trade may request 
that the Commission certify that a futures contract on a non-narrow-
based security index that trades, or is proposed to be traded thereon, 
conforms to the requirements of section 2(a)(1)(C)(ii) of the Act and 
therefore, that futures contract may be offered or sold to persons 
located within the United States in accordance with section 
2(a)(1)(C)(iv) of the Act. A submission requesting such certification 
must:
    (1) Be filed electronically with the Secretary of the Commission;
    (2) Include the following information in English:
    (i) The terms and conditions of the contract and all other relevant 
rules of the exchange and, if applicable, of the foreign board of trade 
on which the underlying securities are traded, which have an effect on 
the over-all trading of the contract, including circuit breakers, price 
limits, position limits or other controls on trading;
    (ii) Surveillance agreements between the foreign board of trade and 
the exchange(s) on which the underlying securities are traded;
    (iii) Assurances from the foreign board of trade of its ability and 
willingness to share information with the Commission, either directly 
or indirectly;
    (iv) When applicable, information regarding foreign blocking 
statutes and their impact on the ability of United States government 
agencies to obtain information concerning the trading of such 
contracts;
    (v) Information and data denoted in U.S. dollars where appropriate 
(and the conversion date and rate used) relating to:
    (A) The method of computation, availability, and timeliness of the 
index;
    (B) The total capitalization, number of stocks (including the 
number of unaffiliated issuers if different from the number of stocks), 
and weighting of the stocks by capitalization and, if applicable, by 
price in the index as well as the combined weighting of the five 
highest-weighted stocks in the index;
    (C) Procedures and criteria for selection of individual securities 
for inclusion in, or removal from, the index, how often the index is 
regularly reviewed, and any procedures for changes in the index between 
regularly scheduled reviews;
    (D) Method of calculation of the cash-settlement price and the 
timing of its public release;
    (E) Average daily volume of trading, measured by share turnover and 
dollar value, in each of the underlying securities for a six-month 
period of time and, separately, the dollar value of the average daily 
trading volume of the securities comprising the lowest weighted 25% of 
the index for the past six calendar months, calculated pursuant to 
Sec.  41.11 of this chapter; and
    (vi) A written statement that the contract conforms to the criteria 
enumerated in section 2(a)(1)(C)(ii) of the Act, including:
    (A) A statement that the contract is cash-settled;
    (B) An explanation of why the contract is not readily subject to 
manipulation or to be used to manipulate the underlying security;
    (C) A statement that the index is not a narrow-based security index 
as defined in section 1a(25) of the Act and the analysis supporting 
that statement;
    (vii) A written representation that the foreign board of trade will 
notify the Commission of any material changes in any of the above 
information;
    (viii) When applicable, a request to make the futures contract 
available for trading in accordance with the terms and conditions of, 
and through the electronic trading devices identified in, a Commission 
staff no-action letter stating, subject to compliance with certain 
conditions, that it will not recommend that the Commission take 
enforcement action if the foreign board of trade provides its members 
or participants in the U.S. access to its electronic trading system 
without seeking designation as a designated contract market (``Foreign 
Board of Trade No-Action Letter''), or pursuant to any foreign board of 
trade registration order issued by the Commission (``Foreign Board of 
Trade Registration Order''), and a certification from the foreign board 
of trade that it is in compliance with the terms and conditions of that 
no-action letter or Foreign Board of Trade Registration Order; and
    (ix) An explanation of the means by which U.S. persons may access 
these products on the foreign board of trade.
    (b) Termination of review. The Commission, at any time during its 
review, may notify the requesting foreign board of trade that it is 
terminating its review under this section if it appears to the 
Commission that the submission is materially incomplete or fails in 
form or content to meet the requirements of this section.
    (1) Such termination shall not prejudice the foreign board of trade 
from resubmitting a revised version of the contract, which addresses 
the deficiencies or issues identified by the Commission.
    (2) The Commission shall also terminate review under this section 
if requested in writing to do so by the foreign board of trade.
    (c) Notice of denial of certification. The Commission, at any time 
during its review under paragraph (a) of this section, may notify the 
requesting foreign board of trade that it has determined that the 
security index futures contract or underlying index does not conform 
with the requirements of section 2(a)(1)(C)(ii) of the Act.
    (1) This notification will briefly specify the nature of the issues 
raised and the specific requirement of subsections 2(a)(1)(C)(ii)(I)-
(III) of the Act with which the security index futures contract does 
not conform or to which it appears not to conform or the conformance to 
which cannot be ascertained from the submission.
    (2) Such notification shall not prejudice the foreign board of 
trade from resubmitting a revised version of the contract, which 
addresses the deficiencies or issues identified by the Commission.
    (d) Notice of certification. Upon review, if the Commission 
determines that the futures contract and the underlying index meet the 
requirements enumerated in section 2(a)(1)(C)(ii), the Commission will 
issue a letter to the foreign board of trade certifying that the 
security index contract traded on that board conforms to the 
requirements of section 2(a)(1)(C)(ii) of the Act and therefore, that 
futures contract may be offered or sold to persons located within the 
U.S. in accordance with section 2(a)(1)(C)(iv) of the Act and, if 
applicable, may be made available for trading in accordance with the 
terms and conditions of, and through the electronic trading devices 
identified in, the Foreign Board of Trade No-Action

[[Page 59246]]

Letter or the Foreign Board of Trade Registration Order.
    (e) Expedited review. A foreign board of trade may request an 
expedited Commission review and determination of whether a futures 
contract on a security index that trades, or is proposed to be traded 
thereon, conforms to the requirements of section 2(a)(1)(C)(ii) of the 
Act and therefore, may be offered or sold to persons in the U.S. under 
section 2(a)(1)(C)(iv) of the Act. A submission requesting such 
expedited consideration should be filed in English with the Commission 
and should include: Information, statements and data complying with the 
form and content requirements in paragraph (a) of this section.
    (f) Eligibility for expedited review. In order to qualify for 
expedited review under paragraph (e) of this section, the foreign board 
of trade must either:
    (1) Have previously requested, and received, at least one no-action 
letter from the Office of General Counsel (``Foreign Security Index No-
Action Letter'') or Commission certification regarding a non-narrow 
based security index futures contract traded on that foreign board of 
trade and submit a written statement representing that the board 
remains fully compliant with the terms and conditions of such letter or 
certification; or
    (2) Have received a Foreign Board of Trade No-Action Letter or 
Foreign Board of Trade Registration Order and submit a written 
statement representing that the board remains fully compliant with the 
terms and conditions of such letter or order.
    (g) Deemed to be in conformance. Unless notified pursuant to 
paragraph (h), (i), or (j) of this section, any non-narrow-based 
foreign security index futures contract submitted for expedited review 
under paragraph (e) of this section shall be deemed to be in 
conformance with the requirements of section 2(a)(1)(C)(ii) of the Act 
and therefore, such futures contract may be offered or sold to persons 
located in the U.S. in accordance with section 2(a)(1)(C)(iv) forty-
five days after receipt by the Commission, or at the conclusion of such 
extended period as described under paragraph (h) of this section, 
provided that the foreign board of trade does not amend the terms or 
conditions of the contract or supplement the request for expedited 
consideration, except as requested by the Commission or for correction 
of typographical errors. Any voluntary substantive amendment by the 
foreign board of trade will be treated as a new submission under this 
section.
    (h) Extension of review. The Commission may extend the forty-five 
day review period set forth in paragraph (g) of this section for:
    (1) An additional period up to forty-five days, if the request 
raises novel or complex issues that require additional time for review, 
in which case, the Commission will notify the foreign board of trade 
within the initial forty-five day review period and will briefly 
describe the nature of the specific issues for which additional time 
for review will be required; or
    (2) Such extended period as the requesting foreign board of trade 
requests of the Commission in writing.
    (i) Termination of review. The Commission, at any time during its 
review under paragraph (e) of this section or extension thereof as 
described under paragraph (h) of this section, may notify the 
requesting foreign board of trade that it is terminating its review 
under paragraph (e) of this section if it appears to the Commission 
that the submission is materially incomplete or fails in form or 
substance to meet the requirements of this section.
    (1) Such termination shall not prejudice the foreign board of trade 
from resubmitting a revised version of the contract, which addresses 
the deficiencies or issues identified by the Commission.
    (2) The Commission shall also terminate review under this section 
if requested in writing to do so by the foreign board of trade.
    (j) Notice of denial of certification. The Commission, at any time 
during its review pursuant to paragraph (e), may notify the requesting 
foreign board of trade that it has determined that the security index 
futures contracts or underlying index does not conform with the 
requirements of section 2(a)(1)(C)(ii) of the Act.
    (1) This notification will briefly specify the nature of the issues 
raised and the specific requirement of subsections 2(a)(1)(C)(ii)(I)-
(III) of the Act with which the security index futures contract does 
not conform or to which it appears not to conform or the conformance to 
which cannot be ascertained from the submission.
    (2) Such notification shall not prejudice the foreign board of 
trade from resubmitting a revised version of the contract, which 
addresses the deficiencies or issues identified by the Commission.
    (k) Foreign trading systems. A foreign board of trade, who is a 
recipient of a Foreign of Trade No-Action Letter (and is compliant with 
the requirements of such letter) or Foreign Board of Trade Registration 
Order and is requesting Commission certification of its non-narrow-
based security index futures contract, may request that such contract 
submitted under paragraph (e) of this section be made available for 
trading under that letter or pursuant to the registration order, upon 
expiration of the applicable review period provided for under either 
paragraph (g) or (h) of this section. Absent Commission notification to 
the contrary, the foreign board of trade may make that contract 
available for trading on the Foreign Trading System upon expiration of 
the review period provided under paragraph (g) or (h) of this section.
    (l) Changes in facts and circumstances. Any certification of a non-
narrow based security index futures contracts submitted under paragraph 
(a) or (e) of this section shall be considered to be based on the facts 
and representations contained in the foreign board of trade's 
submissions to the Commission. Accordingly, the foreign board of trade 
shall promptly notify the Commission of any changes in material facts 
or representations.
    (m) Additional contracts on previously-reviewed index: A new non-
narrow-based security index futures contract may be offered or sold in 
the U.S. in reliance on a prior Foreign Security Index No-Action Letter 
or Commission certification, provided that the new contract is based on 
an index that was the subject of such Foreign Security Index No-Action 
Letter or Commission certification; and substantially identical to the 
contract overlying such index. In this context, the foreign board of 
trade may submit the contract to the Commission for an accelerated 
review of fifteen business days for confirmation that the subject 
contract is substantially identical to the existing contract. Unless 
the Commission notifies the foreign board of trade within those fifteen 
business days that the review will be conducted pursuant to either the 
full or expedited review procedure, the foreign board of trade may make 
available such contract for offer or sale within the U.S.
    (n) Grandfathered no-action letters. Any non-narrow based security 
index futures contract that is the subject of an existing no-action 
letter issued by the Office of General Counsel, as of the date of the 
adoption of rule 30.13, shall be deemed to be in conformance with the 
criteria of section 2(a)(1)(C)(ii) of the Act, provided that the 
foreign board of trade submits a written statement representing that 
the contract remains fully compliant with the requirements of such 
letter.
    (o) Delegation. The Commission hereby delegates, until such time as 
it

[[Page 59247]]

orders otherwise, to the Director of Market Oversight or his designee, 
in consultation with the General Counsel or his designee, the authority 
reserved to the Commission under paragraph (m) of this section. The 
Director of the Division of Market Oversight may submit to the 
Commission for its consideration any matter which has been delegated 
pursuant to this paragraph (o).

0
3. Appendix D to Part 30 is revised to read as follows:

Appendix D to Part 30--Commission Certification With Respect to Foreign 
Futures and Options Contracts on a Non-Narrow-Based Security Index

    In its analysis of a request for certification by a foreign 
board of trade relating to a security index futures contract traded 
on that foreign board of trade pursuant to Sec.  30.13, the 
Commission will evaluate the contract to ensure that it complies 
with the three criteria of section 2(a)(1)(C)(ii) of the Act.
    (1) Because security index futures contracts are cash settled, 
the Commission also evaluates the contract terms and conditions 
relating to cash settlement. In that regard, the Commission 
examines, among other things, whether the cash price series is 
reliable, acceptable, publicly available and timely; that the cash 
settlement price is reflective of the underlying cash market; and 
that the cash settlement price is not readily susceptible to 
manipulation. In making its determination, the Commission 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 any other relevant factors.
    (2) In considering the susceptibility of an index to 
manipulation, the Commission examines several factors, including the 
structure of the primary and secondary markets for the component 
equities, the liquidity of the component stocks, the method of index 
calculation, the total capitalization of stocks underlying the 
index, the number, weighting and capitalization of individual stocks 
in the index, and the existence of surveillance sharing agreements 
between the board of trade and the securities exchange(s) on which 
the underlying securities are traded.
    (3) To verify that the index is not narrow-based, the Commission 
considers the number and weighting of the component securities and 
the aggregate value of average daily trading volume of the lowest 
weighted quartile of securities. Under the Act, a security index is 
narrow-based if it meets any one of the following criteria:
    (i) The index is composed of fewer than 10 securities;
    (ii) Any single security comprises more than 30% of the total 
index weight;
    (iii) The five largest securities comprise more than 60% of the 
total index weight; or
    (iv) The lowest-weighted securities that together account for 
25% of the total weight of the index have an aggregate dollar value 
of average daily trading volume of less than US$30 million (or US$50 
million if the index includes fewer than 15 securities).

    Issued in Washington, DC, on September 16, 2011 by the 
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2011-24609 Filed 9-23-11; 8:45 am]
BILLING CODE P
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