Federal Register / Vol. 62, No. 45 / Friday, March 7, 1997 / Rules and Regulations 10447

9Any Australian laws or regulations or SFE rules

which permit an SFE member firm to obtain from

its customers a waiver, acknowledgement or similar

document in which such customer effectively

waives the right to segregation protection would be

inconsistent with compliance with paragraphs a, b,

and c.

1 See 54 FR 21604 (May 19, 1989) (granting rule

30.10 relief to firms designated by the AFBD) and

54 FR 21609 (May 19, 1989) (granting rule 30.10

relief to firms designated by the TSA). 2 Following the April 1, 1991 merger of the AFBD

and TSA to form the SFA, the Commission issued

an Order, which, among other things, confirmed

that the earlier Orders granting rule 30.10 relief to

the AFBD and TSA and their respective members

continued to be effective as to the successor SFA

and its designated members. See 56 FR 14017,

14018 (April 5, 1991) (the ‘‘SFA Order’’). 3 An exchange carrying on investment business

in the United Kingdom must be authorized by the

SIB as a Recognized Investment Exchange (‘‘RIE’’).

See United Kingdom Financial Services Act

(‘‘FSA’’) Sections 3, 36, and 37. DIE’s are certain

non-U.K. exchanges determined by the SIB to meet

adequate standards of investor protection. See

Financial Services (Glossary and Interpretation)

Rules and Regulations 1990. Under the terms of the

Original Orders, an SFA member firm may only

handle transactions on behalf of U.S. customers on

an RIE or DIE. See 54 FR 21604, 21605 and 54 FR

21609, 21610.

The Commission also notes that although a rule

30.10 Order was issued to the SIB concurrently

with the Original Orders (54 FR 21599 (May 19,

1989)), there are no firms currently designated by

the SIB for rule 30.10 relief. Under the current

United Kingdom regulatory structure the SIB no

longer has direct supervisory responsibility for any

firm engaged in investment business involving

derivatives under the FSA. See, e.g., Andrew Large,

Financial Services Regulation—Making the Two

Tier System Work at 21 (SIB, 1993).

4 The term ‘‘non-U.S. exchange’’ refers to a

foreign board of trade which is defined in

Commission rule 1.3 (ss), 17 C.F.R. 1.3(ss) (1996) as:

Any board of trade, exchange or market located

outside the United States, its territories or

possessions, whether incorporated or

unincorporated, where foreign futures or foreign

options transactions are entered into.

Thus, contracts that are traded on a market that

has been designated as a contract market pursuant

to section 5 of the CEA are not within the scope

of the Original Orders and this Supplemental Order.

5 With respect to transactions on an RIE,

applicable U.K. laws and regulations and the

Original Orders require segregation of all money,

securities and property deposited on behalf of U.S.

customers in respect of such transactions and the

accruals thereon. See paragraphs 2(c) and (h) of the

Original Orders, 54 FR 21604, 21606, and 54 FR

21609, 21611.

6The Commission notes that substantially similar

conditions were imposed in its Order authorizing

Continued

and Australian laws may be substituted for

the secured amount requirement as set forth

in such paragraphs.9

The expanded rule 30.10 relief

already granted to the SFE also is

contingent upon the SFE’s and SFE

members’ continued compliance with

the Original Order and the 1993 Order,

and the enumerated conditions above.

Further, if experience demonstrates

that the continued effectiveness of this

Order in general, or with respect to a

particular member, would be contrary to

public policy or the public interest, or

that the systems in place for the

exchange of information or other

circumstances do not warrant

continuation of the exemptive relief

granted herein, the Commission may

condition, modify, suspend, terminate,

withhold as to a specific member, or

otherwise restrict the exemptive relief

granted in this Order, as appropriate, on

its own motion. If necessary, provisions

will be made for servicing existing

client positions.

List of Subjects in 17 CFR Part 30

Commodity Futures, Commodity

Options, Foreign Futures.

Accordingly, 17 CFR Part 30 is

amended as set forth below:

PART 30—FOREIGN FUTURES AND

OPTIONS TRANSACTIONS

1. The authority citation for Part 30

continues to read as follows:

Authority: secs. 2(a)(1)(A), 4, 4c and 8a of

the Commodity Exchange Act, 7 U.S.C. 2, 6,

6c and 12a.

2. Appendix C to Part 30 is amended

by adding the following citation to the

existing entry for the Sydney Futures

Exchange to read as follows:

Appendix C—Foreign Petitioners

Granted Relief From the Application of

Certain Part 30 Rules Pursuant to Rule

30.10

* * * * *

FR date and citation, March 7, 1997,

62 FR.

Issued in Washington, D.C. on March

3, 1997.

Jean Webb,

Secretary of the Commission.

[FR Doc. 97–5658 Filed 3–6–97; 8:45 am]

BILLING CODE 6351–01–P

17 CFR Part 30

Foreign Futures and Option

Transactions

AGENCY: Commodity Futures Trading

Commission.

ACTION: Order.

SUMMARY: The Commodity Futures

Trading Commission (‘‘Commission’’ or

‘‘CFTC’’), is clarifying the procedures

applicable in its prior Orders issued on

May 15, 1989 (the ‘‘Original Orders’’),

authorizing designated members of The

Securities Association (‘‘TSA’’) and the

Association of Futures Brokers and

Dealers (‘‘AFBD’’),1 which subsequently

merged to form the Securities and

Futures Association (‘‘SFA’’) 2 to solicit

and to accept orders from U.S.

customers for otherwise permitted

transactions on all non-U.S. exchanges

which have been designated as a

Designated Investment Exchange

(‘‘DIE’’) by the United Kingdom

Securities and Investments Board

(‘‘SIB’’).3

This Supplemental Order is issued

pursuant to (1) Commission rule 30.10,

which permits the Commission to grant

an exemption from certain provisions of

Part 30 of the Commission’s regulations,

(2) the Commission’s Original Orders,

granting relief under rule 30.10 to

designated members of the AFBD and

TSA, and (3) the Commission’s SFA

Order.

EFFECTIVE DATE: March 7, 1997.

FOR FURTHER INFORMATION CONTACT:Jane

C. Kang, Esq., or Warren Gorlick, Esq.,

Division of Trading and Markets,

Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street, N.W., Washington,

D.C. 20581. Telephone: (202) 418–5430.

SUPPLEMENTARY INFORMATION: The

Commission has issued the following

Supplemental Order:

Supplemental Order Clarifying

Conditions under which Certain

Members of the Securities and Futures

Authority Designated for Relief Under

Commission Rule 30.10 May Solicit and

Accept Orders from U.S. Customers for

Otherwise Permitted Transactions on

All Non-U.S. Markets Where Such

Members Are Authorized by United

Kingdom Law to Conduct Futures

Business for Customers.

In Orders issued on May 15, 1989, the

Commission authorized designated

members of the TSA and AFBD to offer

or sell certain futures and option

contracts on or subject to the rules of an

RIE in the United Kingdom, or any other

non-U.S. exchange 4 which is a DIE.

The Commission now seeks to clarify

the procedures with which SFA

members should comply in order to

operate pursuant to the Original Orders

and the SFA Order authorizing SFA

member firms to engage in foreign

futures and options transactions for U.S.

customers on a DIE other than a U.S.

exchange designated as a contract

market pursuant to section 5 of the

Commodity Exchange Act (‘‘CEA’’ or

‘‘Act’’). This Order clarifies that the

funds of U.S. foreign futures and

options customers must be subject to

consistent protection irrespective of

whether the SFA member firm effects

trades directly on an RIE 5 or effects

trades on a DIE directly or through the

intermediation of a foreign exchange

member.6 Accordingly, the Commission
10448 Federal Register / Vol. 62, No. 45 / Friday, March 7, 1997 / Rules and Regulations

members of the New Zealand Futures and Options

Exchanges (NZFOE) that are designated for relief

under Commission rule 30.10 to solicit and to

accept orders from U.S. customers for otherwise

permitted transactions on all non-U.S. exchanges

where such members are authorized by the rules of

the NZFOE to conduct futures business for

customers. See 61 FR 64985 (December 10, 1996).

7 See Commission rule 30.7, 17 C.F.R. 30.7

(1996). To the extent that a depository is unable to

provide the required acknowledgement (for

example, as in the case of an intermediary firm

which does not segregate customer from house

assets), that foreign depository is not a good secured

amount depository. To use such an intermediary, an

FCM must establish a ‘‘mirror’’ account in the

United States to meet its secured amount

obligations. Thus, the procedures articulated in this

Order are intended to be consistent with the

requirements applicable to the treatment of

customer funds under rule 30.7 by FCMs and to

clarify that these same obligations apply to foreign

firms operating under rule 30.10 orders permitting

the execution of trades on exchanges outside of

their home jurisdiction (see n.6 above).

8This proviso is intended to clarify that the

originating member makes reasonable inquiries and

understands prior to the initiation of a trade the

conditions under which its customers’ funds will be

held at all subsequent depositories, so that it may

determine whether a particular intermediary or

clearing house is a good separate account

depository for purposes of this Order or must

alternatively set aside funds in the manner set forth

in paragraph b. The member would be expected to

discuss with its immediate intermediary broker

whether funds would be transferred to any

subsequent depositories and determine the

conditions under which such funds would be

treated. Compliance with this proviso would be

satisfied by the member obtaining relevant

information or assurances from appropriate sources

such as, for example, the immediate intermediary

broker, exchanges or clearinghouses, exchange

regulators, banks, attorneys or other relevant

references, including regulatory sources.

This Supplemental Order is intended to clarify

that funds provided by U.S. customers for foreign

futures and options transactions, whether held at a

U.S. FCM under rule 30.7(c) or a firm exempted

from registration as an FCM under CFTC rule 30.10,

will receive equivalent protection at all

intermediaries and exchange clearing organizations.

Thus, for example, an exchange that does not

segregate customer from firm obligations and firms

which trade on such exchanges and which do not

arrange to comply otherwise with any of the

procedures described herein would not be deemed

an acceptable separate account. Specifically, such

exchange or firms could not provide a valid and

binding acknowledgement to a rule 30.10 exempted

firm.

This provision is not necessarily intended to

create a duty on a rule 30.10 firm that it audit

intermediaries it uses for continued compliance

with the undertakings it has obtained based on

discussions with those relevant intermediaries. It is

intended to make clear that firms seeking the

benefit of the Commission’s 30.10 relief must

undertake a due diligence inquiry before customer

funds are transferred to another intermediary and

must take appropriate action (i.e., set aside funds)

in the event that such firms become aware of facts

leading them to conclude that customer funds are

not being handled consistent with the requirements

of Commission rules or this Order by any

subsequent intermediary or clearing house.

9Any United Kingdom laws or regulations or SFA

rules which permit an SFA member firm to obtain

from its customers a waiver, acknowledgement or

similar document in which such customer

effectively waives the right to segregation protection

would be inconsistent with compliance with

paragraphs a, b, and c.

has determined to clarify that the relief

authorized in its Original Orders with

respect to transactions on a DIE is

applicable only if an SFA member firm

complies with the following procedures,

which are consistent with the

requirements applicable to Commissionregistered futures commission

merchants (‘‘FCMs’’) concerning the

protection of customer funds under the

provisions of Commission rule 30.7: 7

With respect to transactions effected on

behalf of U.S. customers on any non-U.S.

futures and options exchange which is a DIE,

whether by the SFA member directly as a

clearing member of such other exchange or

through the intermediation of one or more

intermediaries, the SFA member complies

with paragraphs a, b or c below:

a. (1) Maintains in a separate account or

accounts money, securities and property in

an amount denominated as the foreign

futures or foreign options secured amount, at

least sufficient to cover or satisfy all of its

current obligations to U.S. customers;

(2) Does not commingle such money,

securities and property with the money,

securities or property of the member, or with

any proprietary account of such member and

does not use such money, securities and

property to secure or guarantee the

obligations of, or extend credit to, the

member or any proprietary account of the

member;

(3) Provided that it may deposit together

with the secured amount required to be on

deposit in the separate account or accounts

referred to in paragraph a–1 above money,

securities or property held for or on behalf

of non-U.S. customers of the member for the

purpose of entering into foreign futures and

options transactions. In such a case, the

amount that must be deposited in such

separate account or accounts must be no less

than the greater of (1) the foreign futures and

foreign options secured amount required by

paragraph a–1 above plus the amount that

would be required to be on deposit if all such

customers (including non-U.S. customers)

were subject to such requirement, or (2) the

foreign futures and foreign options secured

amount required by paragraph a–1 above

plus the amount required to be held in a

separate account or accounts for or on behalf

of such non-U.S. customers pursuant to any

applicable law, rule, regulation or order, or

any rule of any self-regulatory organization;

(4) Maintains the separate account or

accounts referred to in paragraph a–1 above

under an account name that clearly identifies

them as such, with any of the following

depositories:

(a) Another person registered with the

Commission as an FCM or a firm exempted

from FCM registration pursuant to CFTC rule

30.10;

(b) The clearing organization of any foreign

board of trade;

(c) Any member and/or clearing member of

such foreign board of trade; or

(d) A bank or trust company which any of

the depositories identified in (a)–(c) above

may use consistent with the applicable laws

and rules of the jurisdiction in which the

depository is located; and

(5) The separate account or accounts

referred to in paragraph a–1 may be deemed

located at a good secured amount depository

only if the member obtains and retains in its

files for the period required by applicable

law and Exchange rules a written

acknowledgement from such separate

account depository that:

(a) It was informed that such money,

securities or property are held for or on

behalf of customers of the member; and

(b) It will ensure that such money,

securities or property will be held and

treated at all times in accordance with the

provisions of this paragraph; and, provided

further, that the member assures itself that

such separate account depository will not

pass on such money, securities or property to

any other depository unless the member has

assured itself that all such other separate

account depositories will treat such funds in

a manner consistent with the procedures

described in paragraph a hereof; 8 or

b. Sets aside funds constituting the entire

secured amount requirement in a separate

account as set forth in Commission rule 30.7,

17 C.F.R. 30.7 (1996), and treats those funds

in the manner described by that rule; or

c. Complies with the terms and procedures

of paragraph a or b, except that the amount

required to be segregated under SFA rules

and United Kingdom laws may be substituted

for the secured amount requirement as set

forth in such paragraphs.9

The rule 30.10 relief already granted

to the SFA also is contingent upon SFA

and SFA members’ continued

compliance with the Original Orders

and the enumerated conditions above.

Further, if experience demonstrates

that the continued effectiveness of this

Order in general, or with respect to a

particular member, would be contrary to

public policy or the public interest, or

that the systems in place for the

exchange of information or other

circumstances do not warrant

continuation of the exemptive relief

granted herein, the Commission may

condition, modify, suspend, terminate,

withhold as to a specific member, or

otherwise restrict the exemptive relief

granted in this Order, as appropriate, on

its own motion. If necessary, provisions

will be made for servicing existing

client positions.

List of Subjects in 17 CFR Part 30

Commodity futures, Commodity

options, Foreign futures.

Accordingly, 17 CFR Part 30 is

amended as set forth below:

PART 30—FOREIGN FUTURES AND

OPTIONS TRANSACTIONS

1. The authority citation for Part 30

continues to read as follows:
Federal Register / Vol. 62, No. 45 / Friday, March 7, 1997 / Rules and Regulations 10449

1See 54 FR 21614 (May 19, 1989).

2An exchange carrying on investment business in

the United Kingdom must be authorized by the SIB

as a Recognized Investment Exchange (‘‘RIE’’). See

United Kingdom Financial Services Act (‘‘FSA’’)

§§ 3, 36, and 37. DIE’s are certain non-U.K.

exchanges determined by the SIB to meet adequate

standards of investor protection. See SIB Financial

Services (Glossary and Interpretation) Rules and

Regulations 1990. Under the terms of the Original

Order, an IMRO member firm may only handle

transactions on behalf of U.S. customers on an RIE

or DIE. See 54 FR 21614, 21615.

The Commission also notes that although a rule

30.10 Order was issued to the SIB concurrently

with the Original Order (54 FR 21599 (May 19,

1989)), there are no firms currently designated by

the SIB for rule 30.10 relief. Under the current

United Kingdom regulatory structure the SIB no

longer has direct supervisory responsibility for any

firm engaged in investment business involving

derivatives under the FSA. See, e.g., Andrew Large,

Financial Services Regulation—Making the Two

Tier System Work at 21 (SIB, 1993).

3The term ‘‘non-U.S. exchange’’ refers to a foreign

board of trade which is defined in Commission rule

1.3 (ss), 17 C.F.R. 1.3(ss) (1996) as:

Any board of trade, exchange or market located

outside the United States, its territories or

possessions, whether incorporated or

unincorporated, where foreign futures or foreign

options transactions are entered into.

Thus, contracts that are traded on a market that

has been designated as a contract market pursuant

to section 5 of the Commodity Exchange Act

(‘‘CEA’’ or ‘‘Act’’) are not within the scope of the

Original Order and this Supplemental Order.

4With respect to transactions on an RIE,

applicable U.K. laws and regulations and the

Original Order require segregation of all money,

securities and property deposited on behalf of U.S.

customers in respect of such transactions and the

accruals thereon. See paragraphs 2(c) and (h) of the

Original Order, 54 FR 21614, 21616.

5The Commission notes that substantially similar

conditions were imposed in its Order authorizing

members of the New Zealand Futures and Options

Exchanges (NZFOE) that are designated for relief

under Commission rule 30.10 to solicit and to

accept orders from U.S. customers for otherwise

permitted transactions on all non-U.S. exchanges

where such members are authorized by the rules of

the NZFOE to conduct futures business for

customers. See 61 FR 64985 (December 10, 1996).

6See Commission rule 30.7, 17 C.F.R. § 30.7

(1996). To the extent that a depository is unable to

provide the required acknowledgement (for

example, as in the case of an intermediary firm

which does not segregate customer from house

assets), that foreign depository is not a good secured

amount depository. To use such an intermediary, an

FCM must establish a ‘‘mirror’’ account in the

United States to meet its secured amount

obligations. Thus, the procedures articulated in this

Order are intended to be consistent with the

requirements applicable to the treatment of

customer funds under rule 30.7 by FCMs and to

clarify that these same obligations apply to foreign

firms operating under rule 30.10 orders permitting

the execution of trades on exchanges outside of

their home jurisdiction (see n.5 above).

Authority: Secs. 2(a)(1)(A), 4, 4c and 8a of

the Commodity Exchange Act, 7 U.S.C. 2, 6,

6c and 12a.

2. Appendix C to Part 30 is amended

by adding the following citation to the

existing entry for the Association of

Futures Brokers and Dealers and The

Securities Association to read as

follows:

Appendix C—Foreign Petitioners

Granted Relief from the Application of

Certain Part 30 Rules Pursuant to rule

30.10.

* * * * *

FR date and citation, March 7, 1997,

62 FR.

Issued in Washington, D.C. on March 3,

1997.

Jean Webb,

Secretary of the Commission.

[FR Doc. 97–5668 Filed 3–6–97; 8:45 am]

BILLING CODE 6351–01–P

17 CFR Part 30

Foreign Futures and Option

Transactions

AGENCY: Commodity Futures Trading

Commission.

ACTION: Order.

SUMMARY: The Commodity Futures

Trading Commission (‘‘Commission’’ or

‘‘CFTC’’), is clarifying the procedures

applicable in its prior Order issued on

May 15, 1989 (the ‘‘Original Order’’) 1

authorizing designated members of the

Investment Management Regulatory

Organisation Limited (‘‘IMRO’’) to

solicit and to accept orders from U.S.

customers for otherwise permitted

transactions on all non-U.S. exchanges

which have been designated as a

Designated Investment Exchange

(‘‘DIE’’) by the United Kingdom

Securities and Investments Board

(‘‘SIB’’).2

This Supplemental Order is issued

pursuant to (1) Commission rule 30.10,

which permits the Commission to grant

an exemption from certain provisions of

Part 30 of the Commission’s regulations,

and (2) the Commission’s Original

Order, granting relief under rule 30.10

to designated members of IMRO.

EFFECTIVE DATE: March 7, 1997.

FOR FURTHER INFORMATION CONTACT: Jane

C. Kang, Esq., or Warren Gorlick, Esq.,

Division of Trading and Markets,

Commodity Futures Trading

Commission, Three Lafayette Centre,

1155 21st Street, N.W., Washington,

D.C. 20581. Telephone: (202) 418–5430.

SUPPLEMENTARY INFORMATION: The

Commission has issued the following

Supplemental Order:

Supplemental Order Clarifying

Conditions Under Which Certain

Members of the Investment

Management Regulatory Organisation

Designated for Relief Under

Commission Rule 30.10 May Solicit and

Accept Orders From U.S. Customers for

Otherwise Permitted Transactions on

All Non-U.S. Markets Where Such

Members Are Authorized by United

Kingdom Law to Conduct Futures

Business for Customers

In an Order issued on May 15, 1989,

the Commission authorized designated

members of IMRO to offer or sell certain

futures and option contracts on or

subject to the rules of an RIE in the

United Kingdom, or any other non-U.S.

exchange 3 which is a DIE.

The Commission now seeks to clarify

the procedures with which IMRO

members should comply in order to

operate pursuant to the Original Order

authorizing certain IMRO member firms

to engage in foreign futures and options

transactions for U.S. customers on a DIE

other than a U.S. exchange designated

as a contract market pursuant to section

5 of the Commodity Exchange Act

(‘‘CEA’’ or ‘‘Act’’). This Order clarifies

that the funds of U.S. foreign futures

and options customers must be subject

to consistent protection irrespective of

whether the IMRO member firm effects

trades directly on an RIE,4 or effects

trades on a DIE directly or through the

intermediation of a foreign exchange

member.5 Accordingly, the Commission

has determined to clarify that the relief

authorized in its Original Order with

respect to transactions on a DIE is

applicable only if an IMRO member firm

complies with the following procedures,

which are consistent with the

requirements applicable to Commission

registered futures commission

merchants (‘‘FCMs’’) concerning the

protection of customer funds under the

provisions of Commission rule 30.7: 6

With respect to transactions effected on

behalf of U.S. customers on any non-U.S.

futures and options exchange which is a DIE,

whether by the IMRO member directly as a

clearing member of such other exchange or

through the intermediation of one or more

intermediaries, the IMRO member complies

with paragraphs a, b or c below:

a. (1) Maintains in a separate account or

accounts money, securities and property in

an amount denominated as the foreign

futures or foreign options secured amount, at

least sufficient to cover or satisfy all of its

current obligations to U.S. customers;

(2) Does not commingle such money,

securities and property with the money,

securities or property of the member, or with

any proprietary account of such member and

does not use such money, securities and

property to secure or guarantee the

obligations of, or extend credit to, the

member or any proprietary account of the

member;

(3) Provided that it may deposit together

with the secured amount required to be on

deposit in the separate account or accounts

referred to in paragraph a–1 above money,

securities or property held for or on behalf

of non-U.S. customers of the member for the

purpose of entering into foreign futures and

options transactions. In such a case, the