```
[Federal Register Volume 62, Number 63 (Wednesday, April 2, 1997)]
[Notices]
[Pages 15659-15666]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8365]

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COMMODITY FUTURES TRADING COMMISSION

Petition of the Philadelphia Stock Exchange, Inc. for Exemptive 
Relief To Permit United States Customers To Establish or Offset 
Positions in Certain Foreign Currency Options on the Hong Kong Futures 
Exchange Ltd. Through Registered Broker-Dealers

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of final order.

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SUMMARY: In response to a petition by the Philadelphia Stock Exchange, 
Inc. (``PHLX''), the Commodity Futures Trading Commission 
(``Commission'' or ``CFTC'') has issued an Order (the ``Order'') 
exempting from regulation under the Commodity Exchange Act (``Act'' or 
``CEA'') \1\ transactions in which United States (``U.S.'') customers 
establish or offset positions in Philadelphia Stock Exchange, Inc. 
(``PHLX'') foreign currency options on the Hong Kong Futures Exchange 
Ltd. (``HKFE'') through registered broker-dealers pursuant to 
regulation by the Securities and Exchange Commission (``SEC'') under 
the federal securities laws and subject to specified conditions as set 
forth herein. The Order grants the requested relief pursuant to section 
4c(b) of the Act.
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    \1\ 7 U.S.C. 1 et seq.

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EFFECTIVE DATE: March 28, 1997.

FOR FURTHER INFORMATION CONTACT: Susan C. Ervin, Deputy Director/Chief 
Counsel or Christopher W. Cummings, Attorney/Advisor, Division of 
Trading and Markets, Commodity Futures Trading Commission, 1155 21st 
Street, NW., Washington, DC. 20581. Telephone number: (202) 418-5450. 
Facsimile number: (202) 418-5536. Electronic mail: [email protected].

[[Page 15660]]

SUPPLEMENTARY INFORMATION: On October 9, 1996, the Commission published 
a Notice of Proposed Order and Request for Comment (the ``Proposing 
Release'') \2\ in connection with the petition of PHLX (the ``PHLX 
Petition'') for exemptive relief under sections 4(c) and 4c(b) of the 
Act.\3\ In its Petition, PHLX requested that, to the extent pertinent, 
the Commission exempt from its regulatory framework certain 
transactions by U.S. customers in PHLX foreign currency options 
(``FCOs'') effected on HKFE pursuant to a cross-listing and clearing 
linkage arrangement between PHLX and HKFE.
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    \2\ 61 FR 52921 (October 9, 1996).
    \3\ 7 U.S.C. 6(c) and 6c(b) (1994), respectively. The intial 
thirty-day period specified in the Proposing Release for public 
comment on the PHLX Petition would have expired on November 8, 1996 
but was extended to December 11, 1996. 61 FR 59089 (November 20, 
1996). The PHLX Petition (dated August 15, 1996) is described in 
detail in the Proposing Release.
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I. Background

    PHLX and HKFE have entered into a licensing agreement pursuant to 
which FCOs traded on PHLX may also be traded and offset on HKFE (the 
``Linkage''). The Linkage is intended to permit U.S. customers, acting 
through U.S.-registered broker-dealers, to establish FCO positions on 
PHLX and offset such positions on HKFE or to establish FCO positions on 
HKFE and offset the positions on PHLX.\4\ PHLX petitioned the 
Commission for exemptive relief in order to assure that: (1) PHLX FCOs 
may be cross-listed on HKFE, treated as fungible with PHLX-traded FCOs 
and cleared through a securities-regulated clearing organization 
pursuant to the federal securities laws and SEC oversight; and (2) the 
PHLX and HKFE cross-listed FCOs would not be dually regulated under the 
securities laws and the CEA, taking cognizance of the policies inherent 
in Section 4c(f) of the Act, which provides that within the U.S. 
options on foreign currencies may be traded on both futures and 
securities exchanges.\5\
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    \4\ Non-U.S. customers will also be able to use the Linkage to 
trade PHLX FCOs. Although a non-U.S. customer will be able to 
establish a position on HKFE through an HKFE broker that need not be 
a clearing member of PHLX, if that customer wishes to offset or add 
to that position on PHLX, the customer (or his HKFE broker) must 
ultimately do so through a broker that is a PHLX member clearing 
through The Options Clearing Corporation (``OCC'').
    \5\ 7 U.S.C. 6c(f) (1994) provides that nothing in the CEA 
``shall be deemed to govern or in any way be applicable to any 
transaction in an option on foreign currency traded on a national 
securities exchange.'' The parallel securities law provision is 
Section 9(g) of the Securities Exchange Act of 1934 (the ``Exchange 
Act''), 15 U.S.C. 78i(g) (1994), which provides, in relevant part, 
that:
    Notwithstanding any other provision of law, the [Securities and 
Exchange] Commission shall have the authority to regulate the 
trading of * * * any put, call, straddle, option, or privilege 
entered into on a national securities exchange relating to foreign 
currency * * *.
    An option on foreign currency is within the securities law 
definition of a ``security'' when it is ``entered into on a national 
securities exchange.'' Exchange Act section 2(a)(1), 15 U.S.C. 
77b(a)(1) (1994).
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A. PHLX Foreign Currency Options Trading

    PHLX is a national securities exchange which has been registered 
with the SEC since 1934. Equity securities, equity and index options, 
and FCOs are listed for trading on the PHLX. PHLX commenced trading 
FCOs on December 10, 1982. FCOs currently listed on PHLX include 
dollar-denominated options on foreign currencies, cross-rate currency 
options, cash/spot FCOs (which permit the holder to receive the 
difference between the current foreign exchange spot price and the 
exercise price of the particular contract) and customized currency 
options.\6\
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    \6\ The Proposing Release more fully describes the FCOs listed 
for trading on PHLX and cross-references the relevant SEC releases 
approving PHLX's proposed listing and trading of such FCOs. See 61 
FR 52921 at 52922 (October 9, 1996).
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    As discussed in the PHLX Petition,\7\ trading of options on PHLX is 
governed by PHLX rules that require, inter alia, that a customer's 
account be specifically approved for options trading before any option 
transactions may be effected by a PHLX member for that customer. Such 
approval must be in writing, may be made only by a person registered 
with (and approved by) PHLX as a ``Registered Options Principal,'' \8\ 
and may occur only after the PHLX member ``exercise[s] due diligence to 
learn the essential facts as to the customer and his investment 
objectives and financial situation.'' \9\ PHLX rules additionally 
require that a customer's account be specifically approved, in writing, 
for transactions in foreign currency options by a ``Foreign Currency 
Options Principal,'' \10\ before transactions in foreign currency 
options are effected.
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    \7\ PHLX Petition at 7-11.
    \8\ A ``Registered Options Principal'' must pass a proficiency 
examination demonstrating knowledge of the self-regulatory 
organization requirements applicable to options transactions, 
including the rules of PHLX and OCC, and also must demonstrate an 
understanding of options trading. PHLX Rule 1024(a). Both the 
National Association of Securities Dealers (``NASD'') and PHLX 
require that persons selling FCOs pass a proficiency examination.
    \9\ PHLX Petition at 7, quoting from PHLX Rule 1024(b)(ii). As 
used herein, ``PHLX member'' means a broker-dealer that is either a 
full member of PHLX or a non-member that has been admitted to PHLX 
as a ``Foreign Currency Options Participant.'' A Foreign Currency 
Options Participant must meet the same financial and fitness 
requirements as a full member of PHLX (including registration with 
the SEC and compliance with SEC net capital requirements), but 
avoids paying the full price of a PHLX seat.
    \10\ A ``Foreign Currency Options Principal'' of a PHLX member 
must be a general partner, officer or person or appropriate 
supervisory or managerial rank who has successfully completed a 
registered options principal examination, allied member's 
examination or other principal's examination (or equivalent 
demonstration of knowledge) and who has also successfully completed 
an examination prescribed by PHLX to demonstrate adequate knowledge 
of foreign currency options and foreign currency markets. PHLX Rule 
1025(c).
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    PHLX also has a customer suitability rule, which prohibits a member 
firm from recommending any option transaction to a customer unless the 
firm ``has reasonable grounds to believe that the entire recommended 
transaction is not unsuitable'' for the customer.\11\ Before a broker 
may permit a customer to begin trading options, SEC and PHLX rules 
require the broker to provide to the customer an SEC-mandated 
disclosure document specific to the particular type of option order the 
customer seeks to enter.\12\ PHLX and NASD rules also regulate the 
content and presentation of advertisements, sales literature, and other 
options-related communications in connection with sales of PHLX-offered 
options to the public. Each foreign currency option contract on PHLX is 
issued and marketed by prospectus pursuant to a registration statement 
filed with the SEC under the Securities Act of 1933 (the ``Securities 
Act'').\13\
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    \11\ PHLX Petition at 8, quoting from PHLX Rule 1026(a).
    \12\ Exchange Act Rule 9b-1 provides that an options disclosure 
document must include information delineating the mechanics of 
options trading, options trading risks, the uses of options, 
transaction costs, margin requirements, and relevant tax issues. 17 
CFR 240.9b-1(1996). PHLX Rule 1029 also requires delivery of the 
Rule 9b-1 options disclosure document.
    \13\ The prospectus prepared and delivered pursuant to the 
Securities Act is a separate document from the options disclosure 
document required to be furnished to customers under Exchange Act 
Rule 9b-1.
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    PHLX rules require member firms to establish written procedures 
concerning supervision of customer option accounts and of all option 
orders in such accounts and to maintain a special supervisory structure 
for foreign currency options.\14\ Consistent with SEC regulations, PHLX 
requires that all order tickets be time-stamped immediately upon 
execution, and floor brokers and traders are required to report 
relevant information regarding each option transaction. With the 
exception of specialists, PHLX floor traders are prohibited from dual 
trading, that is, trading a particular options class for their own 
account on the day of

[[Page 15661]]

execution of a customer order in the same options class.\15\
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    \14\ PHLX Petition at 9.
    \15\ PHLX Petition at 11.
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    PHLX has represented that HKFE has agreed to adopt rules similar to 
certain of PHLX's rules and requirements applicable to cross-listed 
PHLX FCOs in order assure fungibility.\16\ HKFE has further agreed not 
to adopt any rules that conflict with PHLX's options rules.\17\
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    \16\ Such rules include those regarding margin levels and 
changes thereof, position and exercise limits, reporting and 
liquidation of positions, quote spread parameters, minimum 
fractional changes, allocation of exercise notices, series of 
options open for trading, customized FCOs and settlement of dollar-
denominated FCOs.
    \17\ PHLX Petition at 11.
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B. Proposed PHLX-HKFE Linkage

    Incorporated in 1976, HKFE is licensed as an exchange company by 
the Governor in Council of Hong Kong and is governed by a board of 
directors consisting of both HKFE members and non-members from the Hong 
Kong financial and business community. In addition, the operations of 
the HKFE and the HKFE Clearing Corporation Limited (``HCC''), HKFE's 
subsidiary, are under the jurisdiction of and are regulated by Hong 
Kong's independent financial regulatory body, the Securities and 
Futures Commission (``SFC'') pursuant to the Commodities Trading 
Ordinance, which treats options on foreign currencies similarly to 
securities options for such purposes, and which regulates fitness and 
qualifications of persons involved in customer order solicitation and 
acceptance, imposes minimum financial requirements upon persons 
accepting customer funds, and establishes requirements for the 
protection of customer funds from misapplication, recordkeeping and 
reporting, sales practices and risk disclosure, and procedures to 
ensure compliance with such regulatory requirements. It currently is 
expected that the existing regulatory structure will continue beyond 
July 1997, notwithstanding the changeover to mainland Chinese rule.
    Currently, no FCOs are listed for trading on HKFE. The Linkage 
provides for cross-listing of PHLX FCOs, permitting U.S. customers and 
non-U.S. customers to establish positions in PHLX FCOs on HKFE and 
offset them on PHLX or to establish PHLX FCO positions on PHLX and 
offset them on HKFE. Only registered broker-dealers would be permitted 
to carry the account of FCOs traded through the Linkage on behalf of 
U.S. persons (and to clear FCOs on the PHLX side of the Linkage for 
non-U.S. customers). The Linkage will be applicable to all foreign 
currency option contracts for which PHLX has received SEC approval. 
Pursuant to the Linkage, trading in PHLX FCOs will be permitted on HKFE 
during Asian business hours in the same manner as such FCOs are 
currently traded on PHLX.\18\ In general, auction trading of PHLX's 
FCOs occurs between 2:30 a.m. and 2:30 p.m. Eastern Time each business 
day. The Linkage thus effectively extends the trading hours for PHLX 
foreign currency option contracts. FCOs, regardless of where 
originated, will be marketed by means of the same prospectus and 
subject to the same securities margin requirements.
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    \18\ The licensing agreement between PHLX and HKFE provides that 
PHLX FCOs may not be traded on HKFE between the hours of 2:00 a.m. 
and 3:00 p.m. Eastern Time, Monday through Friday.
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    The Commission has permitted appropriately designed linkages 
between exchanges in different time zones as a means of lengthening 
trading hours, broadening distribution of products, enhancing trading 
volume and open interest, and increasing the capacity to offset risk or 
adjust portfolios in a timely manner without incurring excessive 
transaction costs.\19\ In its Petition, PHLX states that it expects 
that the proposed Linkage will stimulate trading interest in PHLX's 
FCOs in the Far East. The PHLX agreement with HKFE does not preclude 
similar agreements between HKFE and U.S. futures exchanges with respect 
to foreign currency options. Consequently, a similar linkage agreement 
between HKFE and a futures exchange potentially could permit such an 
exchange to extend its hours and allow registered futures commission 
merchants (``FCMs'') to offset currency options undertaken there on 
HKFE.
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    \19\ The Commission has approved linkage arrangements between 
the Singapore International Monetary Exchange, Ltd. (``SIMEX'') and 
CME (approved August 28, 1984); between the Commodity Exchange, Inc. 
(``COMEX'') and the Sydney Futures Exchange, Ltd. (``SFE'') 
(approved August 1, 1986); between Marche a Terme International de 
France (``MATIF'') and the CME (approved September 24, 1992); and 
between the New York Merchantile Exchange and SFE (approved 
September 1, 1995).
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    OCC, owned equally by the five national securities exchanges that 
list options, functions as the issuer and clearing organization for all 
options traded on national securities exchanges, including the FCOs 
traded on PHLX. OCC is regulated as a clearing agency by the SEC under 
section 17A of the Exchange Act \20\ and the Standards for the 
Registration of Clearing Agencies issued thereunder.\21\ OCC will 
issue, clear and settle PHLX FCOs that are cross-listed on HKFE.\22\ 
Subject to SEC approval, PHLX, HKFE, and OCC expect to enter into an 
International Market Agreement (the ``IMA''), which will govern the 
trading and clearance of transactions in FCOs cross-listed on HKFE. The 
IMA will address issues relevant to the trading and clearance of the 
PHLX contracts, including issuance, disclosure, expiration months, 
exercise prices, units of trading, margin, trade information 
comparison, clearing and settlement of PHLX FCOs traded on HKFE, and 
the respective rights and obligations of the parties with respect to 
such options.
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    \20\ 15 U.S.C. 78q-1 (1994).
    \21\ Exchange Act Release No. 34-16900 (June 17, 1980) 45 FR 
41920.
    \22\ PHLX Petition at 5. However, as noted below, OCC expects 
that FCO transactions for HKFE members that are not clearing members 
of OCC will be cleared through HKFE or an affiliate of HKFE.
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    Subject to SEC approval, OCC expects to execute an ``Associate 
Clearinghouse Agreement'' with HCC (or another affiliate of HKFE) 
organized for the purpose of acting as a clearing organization for the 
PHLX foreign currency option contracts traded on HKFE, under which HCC 
(or such affiliate) will act as an ``associate clearinghouse'' of OCC. 
The Associate Clearinghouse Agreement will provide that HCC (or other 
HKFE affiliate) will be treated in all material respects as an OCC 
clearing member for purposes of clearing trades in PHLX foreign 
currency options for HKFE members that are not clearing members of OCC, 
whether such trades are effected on HKFE or (through PHLX members) on 
PHLX.\23\ As such, HCC (or other HKFE affiliate) will be subject to SEC 
oversight, albeit indirectly through the SEC's oversight of OCC.
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    \23\ Provision will be made, however, for matters such as 
reconciling non-U.S. accounting principles.
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C. Request for Comments

    In the Proposing Release, the Commission sought comments on any 
aspect of the Petition that commenters believed might raise issues 
under the CEA or Commission regulations. In particular, the Commission 
invited comments regarding: (1) The appropriateness of addressing the 
transactions specified in the Proposing Release pursuant to the 
Commission's exemptive authority under section 4(c) and/or pursuant to 
the Commission's plenary authority under section 4c(b); (2) whether the 
proposed exemption is consistent with the standards set forth in 
section 4(c) of the CEA; (3) whether there is sufficient authority 
under existing law for the SEC to exercise its regulatory and 
supervisory authority over transactions effected pursuant to the 
Linkage; (4) any material adverse

[[Page 15662]]

effects that granting the PHLX petition would have upon other 
securities exchanges, futures exchanges, or Commission registrants, 
such as FCMs, from a competitive or other perspective; (5) the type of 
risk assessment information that should be available to the Commission 
regarding FCO transactions by FCM affiliates; (6) whether the 
Commission should attach any conditions to any exemptive relief that 
may be granted; and (7) any other issues relevant to the PHLX Petition.
    Five comment letters were received: one from OCC, one each from the 
Chicago Board of Trade (``CBOT'') and the Chicago Mercantile Exchange 
(``CME''), both designated contract markets, one from the SEC, and one 
from the Futures Industry Association Inc. (``FIA''), a futures 
industry trade organization. The comments of the SEC, FIA and OCC 
generally supported granting the relief sought by the PHLX Petition; 
the CBOT and CME comment letters offered conditional or qualified 
support and identified various concerns for future consideration by the 
Commission.

II. The Order

    Based upon its consideration of the PHLX Petition and the comments 
received, and subject to SEC approval of the relevant rules and 
agreements establishing and governing operation of the Linkage, the 
Commission has determined to issue an order, pursuant to its authority 
under Section 4c(b) of the Act, granting an exemption from Commission 
regulation consistent with certain conditions more particularly set 
forth herein, for Linkage transactions. As discussed below, the 
Commission has considered the public comments received in response to 
the Proposing Release in connection with issuing this Order.

A. Statutory and Regulatory Basis of the Order

1. The Commission's Authority To Grant the Requested Relief
    Section 4c(b) of the Act prohibits persons from entering into any 
transaction involving any commodity regulated under the CEA which is of 
the character of or is commonly known ``as an option * * * contrary to 
any rule, regulation or order of the Commission * * *.'' Section 4c(b) 
vests the Commission with the authority to adopt orders, rules or 
regulations to prohibit or allow commodity option transactions, upon 
notice and opportunity for hearing. Section 4c(b) of the Act, 
therefore, affords the Commission plenary authority to permit the 
trading of commodity options outside of designated futures 
exchanges.\24\
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    \24\ Section 4c(b) provides, in relevant part:
    No person shall offer to enter into, enter into or confirm the 
execution of, any transaction involving any commodity regulated 
under this Act which is of the character of, or is commonly known to 
the trade as, an ``option'' [or] ``privilege'', * * * contrary to 
any rule, regulation, or order of the commission prohibiting any 
such transaction or allowing any such transaction under such terms 
and conditions as the Commission shall prescribe. Any such order, 
rule, or regulation may be made only after notice and opportunity 
for hearing, and the Commission may set different terms and 
conditions for different markets.
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    CME and OCC commented that in order to permit the Linkage the 
Commission would be required to grant particularized relief and that a 
new rule, order or regulation must be adopted under section 4c(b) for 
this purpose. The commenters generally concurred that the appropriate 
basis for granting the relief requested would be pursuant to an order 
issued under section 4c(b). Several commenters nonetheless urged the 
Commission to apply the standards required for exercising its exemptive 
authority under section 4(c) of the Act in determining whether to grant 
relief under section 4c(b). The SEC stated that the CFTC could 
appropriately address Linkage transactions under either section 4(c) or 
section 4c(b), as both sections provide the CFTC with broad flexibility 
to address the transactions encompassed by the PHLX Petition. FIA and 
the CBOT, however, commented that basing an exemptive order solely on 
section 4c(b) would be more consistent with the CEA than an order based 
upon sections 4c(b) and 4(c).
2. Consistency with Section 4c(f)
    The Commission believes that while section 4c(f) may not itself 
confer authority to grant the requested relief to the Linkage, such 
relief would be consistent with the policy of section 4c(f) of the CEA, 
which provides that nothing in the CEA ``shall be deemed to govern or 
in any way be applicable to any transaction in an option on foreign 
currency traded on a national securities exchange.'' \25\ In its 
petition, PHLX contended that a PHLX FCO would remain ``an option on 
foreign currency traded on a national securities exchange,'' despite 
being cross-listed on HKFE, which is not so registered.\26\ PHLX urged 
that ``[f]or this purpose, cross-listing of PHLX foreign currency 
options on the HKFE may be viewed as adding another PHLX trading floor, 
or as lengthening the trading day for PHLX foreign currency options.'' 
\27\ Thus, PHLX contended that section 4c(f) should remove the Linkage 
from CFTC jurisdiction, while requesting exemptive relief under 
sections 4(c) and 4c(b) ``to eliminate any potential uncertainty as to 
the status of these transactions.'' \28\
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    \25\ Section 4c(f) is part of the jurisdictional accord between 
the SEC and the CFTC that was codified in the Futures Trading Act of 
1982. Public Law 97-444, Act of January 11, 1983, effective January 
11, 1983, sec. 102, 96 Stat. 2294, 2296. The effect of the provision 
was that the SEC would have jurisdiction over FCOs that trade on 
national securities exchanges, while the CFTC continued to have 
jurisdiction to regulate other trading of FCOs. H.R. Rep. No. 97-
565, 97th Cong., 2d Sess. 82 (1982).
    \26\ The SEC and OCC comments agreed with this characterization. 
The SEC stated that it would treat the Linkage as an operating 
extension of the trading of FCOs on PHLX and therefore as being 
subject to the full scope of the federal securities laws (noting 
that the FCOs traded on PHLX and HKFE would be identical, would be 
cleared and settled through OCC, and would be traded pursuant to an 
agreement between PHLX and HKFE, as are other linked securities 
contracts). The CBOT and the CME, however, disputed that the Linkage 
should be treated as an extension of the PHLX trading floor and 
questioned the validity of any assertion of SEC jurisdiction over 
the establishment or offsetting of FCO positions on HKFE.
    \27\ PHLX Petition at 2.
    \28\ Id. In its comment letter, OCC supported PHLX's request 
that the CFTC issue an exemption to eliminate potential uncertainty. 
CME and CBOT disputed PHLX's assertion that transactions in the 
cross-listed FCOs are excluded from the CFTC's jurisdiction, 
contending that HKFE is not a national securities exchange and 
should not be characterized as an additional PHLX trading floor.
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3. Consistency with Section 4(c)
    Section 4(c) provides, in relevant part, that the Commission may 
exempt, ``by rule, regulation, or order, after notice and opportunity 
for hearing, * * * any agreement, contract, or transaction * * * that 
is otherwise subject to'' the exchange-trading requirement of section 
4(a) from all provisions of the CEA except section 2(a)(1)(B).\29\ Such 
exemption may be granted upon a determination by the Commission that: 
(1) The exemption is in the public interest;\30\ (2) the requirements 
from

[[Page 15663]]

which exemption is sought should not be applied to the agreement, 
contract, or transaction at issue and the exemption would be consistent 
with the purposes of the CEA; (3) the agreement, contract or 
transaction will be entered into solely between ``appropriate 
persons;'' \31\ and (4) the agreement, contract or transaction will not 
have a material adverse effect upon the ability of the Commission or 
any contract market to discharge its regulatory or self-regulatory 
duties under the CEA.
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    \29\ 7 U.S.C. 6(c)(1) (1994). In particular, section 4(c)(1) 
provides:
    In order to promote responsible economic or financial innovation 
and fair competition, the Commission by rule, regulation, or order, 
after notice and opportunity for hearing, may (on its own initiative 
or on application of any person, including any board of trade 
designated as a contract market for transactions for future delivery 
in any commodity under section 5 of this Act) exempt any agreement, 
contract or transaction (or class thereof) that is otherwise subject 
to subsection (a) (the exchange-trading requirement) (including any 
person or class of persons offering, entering into, rendering advice 
or rendering other services with respect to, the agreement, 
contract, or transaction), either unconditionally or on stated terms 
or conditions or for stated periods and either retroactively or 
prospectively, or both, from any of the requirements of subsection 
(a), or from any other provision of this Act (except section 
2(a)(1)(B)), if the Commission determines that the exemption would 
be consistent with the public interest.
    \30\ As the Commission noted in the Proposing Release, the 
Conference Committee Report on the legislation enacting section 4(c) 
indicated that the ``public interest'' includes ``the national 
public interests noted in the (CEA), the prevention of fraud and the 
preservation of the financial integrity of markets, as well as the 
promotion of responsible economic or financial innovation and fair 
competition,'' and that the Commission should ``assess the impact of 
a proposed exemption on the maintenance of the integrity and 
soundness of markets and market participants'' and that an exemption 
should not be denied ``solely on grounds that it may compete with or 
draw market share away from the existing market.'' H.R. Rep. No. 
978, 102d Cong., 2d Sess. 78-79 (1992).
    \31\ ``Appropriate person'' is defined in section 4(c)(3) (A)-
(K) of the Act to include, generally, a bank or trust company, a 
savings association, an insurance company, a registered investment 
company, a commodity pool operated by a Commission registrant, 
certain business entities and employee benefit plans, governmental 
entities, registered broker-dealers, registered futures commission 
merchants, floor brokers and floor traders and ``[s]uch other 
persons that the Commission determines to be appropriate in light of 
their financial or other qualifications or the applicability of 
appropriate regulatory protections.'' 7 U.S.C. 6(c)(3) (A)-
(K)(1994).
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    Several commenters expressed the view that, because section 4(c) 
provides the Commission with authority to exempt from CEA regulation 
transactions in futures contracts on or subject to the rules of a U.S. 
exchange, it is not the appropriate basis for an exemptive order with 
respect to the PHLX/HKFE Linkage. However, although CBOT, CME and OCC 
argued against reliance by the Commission upon section 4(c) as the 
basis for granting an exemption for Linkage transactions, CBOT and FIA 
urged the Commission to consider the merits of the PHLX Petition in 
light of the standards set forth in section 4(c).\32\ The Commission 
concurs that the standards for exemption established by section 4(c) 
are relevant in determining whether an order of relief should be issued 
under section 4c(b). Accordingly, the Commission has considered the 
PHLX Petition in light of the criteria of section 4(c) and believes, 
for the reasons discussed below, that granting the Petition is 
consistent with such criteria.
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    \32\ OCC stated that ``the Commission may of course choose as a 
policy matter to consider the standards of section 4(c).'' CME 
stated that even if the Commission had authority under section 4(c) 
to grant the requested relief, the proposed exemption is not 
consistent with (and does not meet the standards set forth in) 
section 4(c).
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    a. Consistency with the Public Interest and Purposes of the Act. 
With respect to the public interest standard of section 4(c), the CBOT 
commented that ``(w)hen the retail public is involved, it would seem 
that the only way an exemption from CEA regulation could be consistent 
with the public interest is if another comparable regulatory scheme 
also applies.'' The CBOT expressed the view that before deciding to 
grant exemptive relief, the Commission should carefully examine ``the 
nature and reach'' of the SEC's regulation of broker-dealers, including 
the scope of the SEC's authority to regulate ``broker-dealers' 
activities with respect to foreign currency options traded on the HKFE, 
given that such instruments are technically not securities.''
    The Commission believes that based upon the SEC's analysis of its 
regulatory authority with respect to Linkage transactions and the other 
materials of record, the concerns voiced by the CBOT are adequately 
addressed. Under the linkage, FCOs may be traded for U.S. customers on 
a foreign futures exchange. The Commission does not and, indeed, cannot 
directly regulate foreign boards of trade, under section 4(b) of the 
Act.\33\ Under that section, however, the Commission has authority to 
adopt regulations prohibiting fraud, setting financial standards, and 
imposing registration, recordkeeping, reporting and other obligations 
on persons trading futures contracts for U.S. customers on non-U.S. 
exchanges. Pursuant to part 30 of its regulations, the Commission 
regulates the offer and sale to U.S. persons of commodity option 
contracts made on or subject to the rules of foreign boards of trade. 
However, the Commission's rules no longer require prior authorization 
by the Commission before a foreign commodity option may be offered or 
sold to U.S. customers, and therefore, U.S. customers could trade 
foreign currency options on HKFE without further action by the 
Commission.
---------------------------------------------------------------------------

    \33\ 7 U.S.C. 6(b) (1994). Section 4(b) provides that the 
Commission may not adopt any rule that requires Commission approval 
of a foreign board of trade's contracts or rules, or that governs in 
any way any rule or contract term or action of a foreign board of 
trade.
---------------------------------------------------------------------------

    Moreover, irrespective of the characterization of HKFE FCOs cross-
listed with PHLX FCOs, the Commission believes that the SEC has 
authority to exercise regulatory functions comparable to those that the 
CFTC would be able to exercise with respect to transactions to be 
established or offset on HKFE through the Linkage. The CFTC itself 
could not directly regulate the HKFE market and would be limited to 
regulating sales to U.S. persons from locations outside the U.S. in 
accordance with section 4(b) of the Act. The SEC regulates broker-
dealer fitness, capital requirements, sales practices and protection of 
customer funds. In the limited circumstances of the PHLX-HKFE Linkage, 
therefore, based upon the SEC's regulatory authority and program 
applicable to registered broker-dealers, and subject to the conditions 
discussed below, the Commission believes that its deference to SEC 
regulation over the Linkage as a whole to facilitate the Linkage 
arrangement is warranted, especially as such deference is without 
prejudice to a similar arrangement for linking a U.S. futures market to 
HKFE or the regulatory characterization of foreign currency options in 
that context.
    Although it acknowledged that it does not have express authority 
over activities occurring on HKFE, the SEC cited its authority under 
the Exchange Act to condition approval of the PHLX rules necessary to 
implement the Linkage upon establishment of adequate safeguards 
addressing surveillance-sharing between PHLX and HKFE, as well as 
between the SEC and Hong Kong regulators; provisions for trading and 
clearing the FCOs (on PHLX and on HKFE); and the requirement that the 
FCOs be registered under the Securities Act. The SEC has authority over 
OCC (and indirectly over HCC or other HKFE affiliate) and the broker-
dealers who will effect Linkage transactions for U.S. customers and 
offset on PHLX linked transactions undertaken for U.S. customers. It 
therefore can require meaningful safeguards as a condition for approval 
of the implementing PHLX and OCC rule changes for the Linkage.\34\
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    \34\ CBOT urged the Commission to consider carefully the nature 
and scope of SEC and NASD regulation (including whether SEC and NASD 
are willing or prepared to accept this jurisdiction, whether 
safeguards exist equivalent to the Commission's segregation 
requirements, and whether the requested relief amounts to a transfer 
to the SEC of Commission jurisdiction over foreign currency 
options). The SEC has indicated in its comment letter that it is 
prepared to exercise regulatory oversight with respect to 
transactions over the Linkage. Moreover, PHLX FCOs are already 
subject to SEC and PHLX regulation, and broker-dealer practices are 
subject to NASD regulation.
---------------------------------------------------------------------------

    The FIA, OCC and SEC urged that the Commission find that the 
requested exemption would be consistent with the public interest and 
the purposes of the Act. To this end, FIA commented that the requested 
exemption would not be contrary to the essential purposes of the Act 
(customer protection, financial integrity and market integrity) 
because: (1) FCOs executed on HKFE may be offered and sold in the U.S. 
only

[[Page 15664]]

through registered broker-dealers in accordance with sales practice and 
related customer protection rules of PHLX and the NASD;
    (2) the financial integrity of the transactions will be assured 
because they will be settled and cleared by OCC (and trades on HKFE for 
non-OCC clearing members will be carried out pursuant to an agreement 
with OCC); and (3) market integrity is assured by the Intermarket 
Surveillance Group Surveillance Sharing Agreement between PHLX and 
HKFE. The SEC stated that FCOs cross-listed on HKFE ``would be subject 
to full SEC regulation'' and that ``subjecting such trading to a single 
regulatory regime is appropriate and might additionally facilitate 
efficiencies in the trading, clearance and settlement of such 
transactions.''
    OCC expressed the view that the proposed relief would be consistent 
with the public interest because it is an essential precondition to the 
Linkage, and the Linkage itself is in the public interest because it 
would ``contribute to greater depth and liquidity in the market for 
PHLX FX Options'' and ``foster global market efficiency and reduce 
systemic risk by standardizing the currency options traded on PHLX and 
HKFE and centralizing the clearance and settlement process for trades 
in such options.'' The currency cash market is a 24-hour market. 
Establishing an Asia time zone link extends the liquidity and the 
hedging usefulness of the PHLX foreign currency options market and 
renders it more competitive with the larger over-the-counter market, 
subject to significant regulatory safeguards for participants. Pursuant 
to part 30 of its regulations, the Commission routinely evaluates the 
comparability of other regulatory regimes. In this case, without ceding 
authority or characterizing the jurisdictional status of the HKFE FCOs, 
the Commission concludes that sufficient grounds exist for deference to 
the SEC regulatory regime, especially in light of the policies 
underlying section 4c(f), which supports trading in foreign currency 
options in both domestic securities and futures exchanges, subject to 
either securities or futures laws and the attendant regulatory 
frameworks, respectively.
    b. The ``Appropriate Person'' Criterion. Section 4(c) of the Act 
defines the term ``appropriate person'' to include various categories 
of business and corporate entities, including banks and trust 
companies, savings associations; insurance companies, registered 
investment companies, CEA-regulated commodity pools, corporations or 
other business entities with net worth of $1 million or total assets of 
$5 million, and ``[s]uch other persons that the Commission determines 
to be appropriate in light of their financial or other qualifications 
or the applicability of appropriate regulatory protections.'' \35\ In 
its Petition, PHLX urges that because PHLX FCOs ``are subject to the 
full panoply of SEC regulation under the securities laws,'' appropriate 
regulatory protections apply to the Linkage, and the Commission 
therefore should be able to determine that any person eligible to 
purchase or sell such options under the SEC regulatory scheme is an 
``appropriate person'' within the meaning of section 4(c)(3)(K).\36\ In 
its comment letter, the SEC agreed that the class of permissible FCO 
participants proposed by PHLX may not be identical to those designated 
in the enumerated categories of section 4(c)(3) (A)-(J) but concluded 
that ``it is appropriate for the CFTC to determine, pursuant to 
4(c)(3)(K), that such persons are appropriate persons because they meet 
the requirements set forth by PHLX and approved by the SEC for persons 
engaged in exchange-traded options transactions.''
---------------------------------------------------------------------------

    \35\ 7 U.S.C. 6(c)(3) (1994).
    \36\ PHLX Petition at 16.
---------------------------------------------------------------------------

    Section 4(c)(3)(K) permits the Commission to determine that persons 
engaging in transactions that are otherwise regulated by another 
governmental agency qualify as ``appropriate persons.'' In adopting 
rules exempting from CFTC regulation certain hybrid instruments, the 
Commission stated that ``appropriate persons'' eligible for that 
exemption would include ``person[s] permitted by applicable securities 
or banking requirements to purchase or enter into the security 
(component) of the hybrid instrument * * *.'' 58 FR 5580 (January 22, 
1993) (release adopting final rules regarding the regulation of hybrid 
instruments). As discussed above, the SEC, PHLX and NASD requirements 
applicable to U.S. customers in FCO transactions conducted on PHLX will 
apply equally to cross-linked FCO transactions on HKFE. Based upon the 
restrictions imposed by these requirements upon participation in FCOs 
cross-linked on HKFE and the other regulatory safeguards applicable to 
such transactions, the Commission believes that the ``appropriate 
persons'' criterion is satisfied with respect to U.S. persons engaging 
in FCO transactions pursuant to the Linkage.\37\
---------------------------------------------------------------------------

    \37\ However, an ``appropriate person'' for purposes of Linkage 
transactions in accordance with this Order may not be an 
``appropriate person'' in other contexts.
---------------------------------------------------------------------------

    c. No Material Adverse Effect on Regulatory or Self-Regulatory 
Responsibilities. Commenters differed in their assessment as to whether 
granting the PHLX Petition would have a material adverse effect on the 
ability of the Commission or any contract market to discharge its 
regulatory or self-regulatory duties under the CEA. The Commission 
believes that with appropriate risk assessment information sharing, and 
retention of its own ability to terminate relief, granting the 
requested relief will not interfere with the Commission's regulatory 
program or adversely affect the ability of any U.S. contract market to 
discharge its regulatory duties.

B. Risk Assessment

    The Commission requested comments regarding the type of risk 
assessment information that should be available to it concerning FCO 
transactions effected by FCM affiliates. The two commenters who 
addressed this issue. The SEC noted that all PHLX/HKFE cross-listed FCO 
transactions involving U.S. customers must be effected through U.S.-
registered broker-dealers and that the SEC's risk assessment rules 
would thus be applicable and would result in the provision of important 
risk assessment data to the SEC. The SEC has confirmed that it would 
coordinate information-sharing with the CFTC in the event that problems 
developed warranting CFTC review. Similarly, the OCC stated that there 
was no need for risk assessment information in addition to that which 
the Commission currently obtains regarding FCM affiliate transactions 
on PHLX, since PHLX and HKFE FCO transactions pose the same risks. The 
Commission nonetheless has conditioned this relief on its access to 
information on transactions through the Linkage relevant to exercise of 
its and its markets' supervisory duties with respect to FCMs or other 
relevant futures market participants engaged in Linkage transactions.

C. Conditions

    The Commission also invited comment concerning whether conditions 
should be attached to any exemptive relief granted in response to the 
PHLX Petition. Several commenters addressed this subject. The SEC 
recommended that the Commission condition exemptive relief on assured 
availability to the Commission of information exchanged pursuant to the 
terms of the Intermarket Surveillance Group Surveillance Sharing 
Agreement

[[Page 15665]]

between PHLX and HKFE and suggested that the Commission consider 
conditioning relief upon the SEC's approval of a PHLX implementing rule 
submission under section 19(b) of the Exchange Act. The CME urged the 
Commission to ensure that adequate regulatory protections exist with 
respect to any trading activities that take place in Hong Kong, 
suggesting, by way of example, that the Commission consider whether the 
policies underlying Rule 30.7 \38\ require that the foreign futures and 
options secured amount for HKFE positions be separately accounted for 
and segregated from customer funds used to margin PHLX positions. OCC 
commented that it saw no need for any conditions other than that the 
Linkage be operated substantially as described in the PHLX Petition.
---------------------------------------------------------------------------

    \38\ Rule 30.7 sets forth an FCM's duty to maintain in a 
segregated account at an appropriate depository sufficient money or 
other property to cover all of its current obligations to foreign 
futures and options customers and to keep records and make daily 
computations with respect to such obligations.
---------------------------------------------------------------------------

D. Other Issues Raised by Commenters

    The FIA urged the Commission to consider granting relief for 
registered broker-dealers that are also registered as FCMs from the 
restrictions on options transactions applicable to FCMs set forth in 
Commission Rule 1.19 and to consider whether any relief with respect to 
the provisions of subchapter IV of Chapter 7 of the Bankruptcy Code 
\39\ and part 190 of the Commission's rules may be necessary. CME 
commented that granting the requested relief would amount to 
sanctioning the cross-margining of securities options and futures 
positions at the customer level and that if the Commission grants the 
PHLX Petition, CME expects to be permitted to expand its cross-
margining program with OCC to include retail customer accounts. Because 
the PHLX FCOs are functionally identical, whether traded on PHLX or 
HKFE, and because offsetting positions will cancel, rather than hedge 
each other, the Commission believes that cross-margining arrangements 
raise different issues from the cross-listing of FCOs. In any event, 
the Commission will address any such request on its individual merits 
and believes that a response to CME is outside the scope of this 
proceeding.
---------------------------------------------------------------------------

    \39\ 11 U.S.C. 761-766 (1994).
---------------------------------------------------------------------------

E. Conclusion

    Regulatory authority over trading activity in FCOs is divided 
between the SEC and the CFTC, and absent a grant of exemptive relief by 
the CFTC, participation by U.S. customers in the HKFE side of the 
proposed Linkage would be subject to regulation under the CEA. 
Nonetheless, upon consideration of the PHLX Petition and the comments 
received and for the reasons stated above, the Commission has 
determined to exercise its authority under Section 4c(b) of the Act by 
issuing the attached Order granting the Petition, provided that certain 
conditions are met. The Commission believes that under the specific 
circumstances of the Linkage, and subject to certain conditions, 
deference to the SEC to provide regulatory oversight for the Linkage is 
appropriate.
    The Commission believes that the SEC's existing regulation of 
registered broker-dealers and clearing organizations, combined with its 
ability to condition approval of the PHLX and OCC rule changes 
necessary to implement the Linkage upon incorporation of appropriate 
safeguards will enable the SEC to exercise regulatory authority over 
the HKFE side of the Linkage comparable to that which the Commission 
would be able to exercise. Neither agency is empowered directly to 
regulate HKFE, but each has statutory authority to regulate assigned 
classes of market participants, and thereby, activities on HKFE of such 
persons. The Commission believes that the existing regulatory framework 
applicable to HKFE in Hong Kong, combined with the SEC's regulation of 
U.S. broker-dealers effecting transactions over the Linkage and 
regulation of OCC, will be adequate in the absence of direct regulation 
of trading on HKFE by U.S. regulatory agencies. Additionally, the SEC 
has authority over the design of relevant clearing arrangements and the 
rules of PHLX establishing the operating agreement between the markets 
for the Linkage. The Commission further believes that the risk 
assessment information provided to the SEC will be adequate but that it 
should likewise be provided to the Commission upon request or as 
otherwise appropriate in light of market conditions.
    The Commission also believes that the standards set forth in 
section 4(c) will be met by the Linkage, in that: (1) Granting the 
requested relief is in the public interest, because due to the 
applicability of a regulatory scheme comparable to the Commission's, 
the Linkage can operate to expand the availability and usefulness of 
PHLX FCOs, while maintaining regulatory protections for customers and 
markets; (2) granting the requested relief will neither interfere with 
the Commission's ability to carry out its regulatory program nor 
adversely affect the ability of any contract market to carry out its 
self-regulatory duties; and (3) in view of the regulatory and self-
regulatory requirements regarding eligibility of customers to effect 
transactions over the Linkage, it is appropriate to determine pursuant 
to section 4(c)(3)(K) that participation in the Linkage will be limited 
to appropriate persons.
    Several commenters raised related issues which the Commission does 
not believe affect the appropriateness of granting the PHLX Petition. 
In response to concerns that broker-dealers that are also registered as 
FCMs may be considered to be in violation of Rule 1.19 as a result of 
transactions in FCOs on the HKFE, the Commission hereby confirms that 
PHLX FCOs traded on the Linkage may be considered exchange-traded 
``commodity options'' for purposes of Rule 1.19(a) such that an FCM 
would not be precluded from taking a position in such FCOs. With 
respect to FIA's concern as to the applicability of Subchapter IV of 
Chapter 7 of the Bankruptcy Code, the Commission has conditioned its 
exemptive order upon the applicability of the SEC's segregation 
requirements for securities,\40\ and Subchapter III of Chapter 7 of the 
Bankruptcy Code \41\ to securities broker-dealers. Consequently, PHLX 
represents that it will take whatever contractual or regulatory actions 
may be necessary to cause the cross-listed FCOs to be treated as 
securities for purposes of the Bankruptcy Code and for purposes of the 
segregation requirements under Exchange Act Rule 15c3-3.
---------------------------------------------------------------------------

    \40\ Exchange Act Rule 15c3-3, 17 CFR 240.15c3-3 (1996).
    \41\ 11 U.S.C. 741-752 (1994).
---------------------------------------------------------------------------

    The Commission thus has determined that an exemption with respect 
to the Linkage should be conditioned upon implementation of the Linkage 
pursuant to PHLX and OCC rules approved by the SEC, operation of the 
Linkage (including restrictions on participation by U.S. customers) 
substantially as described in the PHLX Petition, availability to the 
Commission of adequate risk assessment information, availability to the 
Commission of surveillance information required to be exchanged 
pursuant to the Surveillance Sharing Agreement between PHLX and HKFE 
and the completion of any necessary contractual or other measures to 
cause FCOs traded over the Linkage to be treated as securities for 
purposes of securities segregation requirements and under the 
Bankruptcy Code.

[[Page 15666]]

Order of the Commodity Futures Trading Commission Exempting From 
Regulation Certain Foreign Currency Option Transactions

    Whereas, it is the Commission's understanding, based upon 
representations made by the Philadelphia Stock Exchange, Inc. 
(``PHLX'') as set forth in a Request for Exemptive Relief from 
regulation under the Commodity Exchange Act (7 U.S.C. 1 et seq.), dated 
August 15, 1996, that PHLX and the Hong Kong Futures Exchange Ltd. 
(``HKFE'') have entered into a licensing agreement (the ``Linkage'') 
pursuant to which foreign currency options (``FCOs'') listed and traded 
on PHLX will be cross-listed and traded on HKFE. The Linkage will 
permit PHLX FCOs to be traded on HKFE during Asian business hours. 
Transactions for U.S. customers will be effected only through brokers 
or dealers registered as such with the Securities and Exchange 
Commission (``SEC'') on behalf of persons meeting the PHLX customer 
options account approval and suitability standards (approved by the 
SEC) for persons engaging in options transactions. Transactions on PHLX 
for non-U.S. customers, whether or not initiated through a non-PHLX 
member, must ultimately be effected through a member of PHLX that is a 
clearing member of The Options Clearing Corporation (``OCC'').
    Whereas, transactions effected through the Linkage will be issued, 
cleared and settled by OCC pursuant to the terms of an International 
Market Agreement (``IMA'') among PHLX, HKFE and OCC. Clearing of trades 
in PHLX FCOs for HKFE members that are not clearing members of OCC 
(whether such trades are effected on PHLX or on HKFE) will be made by 
an OCC clearing member or an affiliate of HKFE (as an ``associate 
clearinghouse'' of OCC) pursuant to an Associate Clearinghouse 
Agreement between OCC and such affiliate of HKFE, and such associate 
clearinghouse will be treated in all material respects as a clearing 
member of OCC for purposes of Linkage transactions.
    Whereas, PHLX and HKFE have entered into an Intermarket 
Surveillance Group Surveillance Sharing Agreement obligating each to 
use its best efforts to obtain and provide information required by the 
other to fulfill its self-regulatory responsibilities.
    Whereas, PHLX will submit for SEC approval an amendment to PHLX's 
rules, permitting the establishment and operation of the Linkage, and 
that OCC will likewise submit a rule amendment to accommodate clearing 
and settlement functions with respect to the Linkage.
    And Whereas, PHLX represents that the licensing agreement and other 
relevant documentation, including the Surveillance Sharing Agreement, 
the IMA and the Associate Clearinghouse Agreement, are consistent with 
the aforesaid understanding of the Linkage arrangement and will be 
submitted to the SEC for its review in conjunction with the SEC's 
review of PHLX and OCC rule changes to implement the Linkage.
    It is therefore ordered, pursuant to section 4c(b) of the Commodity 
Exchange Act (the ``Act'') and based upon the Commission's 
consideration of the representations set forth in the PHLX Petition and 
the comments received pursuant to the Notice of Proposed Order and 
Request for Comments, that transactions in FCOs listed for trading on 
HKFE as described in the PHLX Petition are exempt from all provisions 
of the Act and the Commission's rules promulgated thereunder subject to 
the following conditions:
    1. That the Linkage is operated substantially as described in the 
PHLX Petition;
    2. That FCO transactions effected pursuant to the Linkage on behalf 
of U.S. customers are undertaken through broker-dealers registered as 
such with the SEC, cleared through clearing facilities subject to SEC 
oversight, and restricted to customers who satisfy the customer options 
account approval and suitability standards set forth in PHLX rules 
approved by the SEC;
    3. That the Linkage is implemented pursuant to rules of PHLX and 
OCC approved by the SEC pursuant to section 19(b) of the Securities 
Exchange Act of 1934 (the ``Exchange Act''), 15 U.S.C. 78s;
    4. That HKFE and PHLX will make available to the Commission upon 
request all information required to be exchanged under the terms of the 
Intermarket Surveillance Group Surveillance Sharing Agreement between 
PHLX and HKFE;
    5. That HKFE is subject to rules which establish fitness and 
qualifications of persons through whom customer orders are solicited or 
accepted, minimum financial requirements for persons that accept 
customer funds, measures for protection of customer funds from 
misapplication, recordkeeping and reporting requirements, minimum sales 
practice and risk disclosure standards, and procedures to ensure and to 
audit for compliance with regulatory requirements;
    6. That all risk assessment information pertinent to the Linkage 
provided to the SEC by broker-dealers participating in the Linkage (and 
that is not otherwise available to the CFTC pursuant to its risk 
assessment rules) is made available to the Commission by the SEC and/or 
PHLX upon request and as otherwise appropriate; and
    7. That the FCO positions, regardless of where established, will be 
treated as securities for purposes of required segregation pursuant to 
Exchange Act Rule 15c3-3 and for application of the relevant insolvency 
laws, including the Bankruptcy Code and rules, and Securities Investor 
Protection Act of 1970.
    By issuing this Order, the Commission does not intend to prohibit 
or restrict the ability of any futures exchange to establish a similar 
linkage arrangement with HKFE.
    By issuing this Order, the Commission takes notice of its 
surveillance and enforcement information sharing arrangements with the 
appropriate Hong Kong regulatory authorities.
    The Commission retains the authority to terminate or otherwise to 
modify this relief at such time as it determines that exemption of 
transactions through the Linkage is no longer in the public interest.

    Issued in Washington, DC on March 28, 1997, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-8365 Filed 4-1-97; 8:45 am]
BILLING CODE 6351-01-P
```