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[Federal Register: July 6, 2000 (Volume 65, Number 130)]
[Notices]
[Page 41641-41642]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06jy00-47]

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COMMODITY FUTURES TRADING COMMISSION


Notice of Statement of Commission Policy Regarding the Listing of
New Futures and Option Contracts by Foreign Boards of Trade That Have
Received Staff No-Action Relief To Place Electronic Trading Devices in
the United States

AGENCY: Commodity Futures Trading Commission.

ACTION: Statement of policy.

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SUMMARY: The Commodity Futures Trading Commission ("Commission") has
issued a Statement of Policy in which it expresses the view that
foreign boards of trade that have placed automated trading systems in
the U.S. pursuant to a Commission staff no-action letter shall be
permitted to list certain additional futures and option contracts
without obtaining supplemental no-action relief, subject to specified
filing and certification requirements.

EFFECTIVE DATE: This Statement of Policy is effective immediately.

FOR FURTHER INFORMATION CONTACT: Jocelyn B. Brone, Attorney-Advisor,
Division of Trading and Markets, Commodity Futures Trading Commission,
Three Lafayette Center, 1155 21st Street, NW, Washington, DC 20581.
Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION: On June 2, 1999, the Commodity Futures
Trading Commission ("Commission") issued an order which, among other
things, withdrew proposed rules that would have governed automated
access to foreign boards of trade ("June 2 Order").\1\ The June 2
Order also instructed the Commission staff to "begin immediately
processing no-action requests from foreign boards of trade seeking to
place trading terminals in the United States, and to issue responses
where appropriate, pursuant to the general guidelines included in the
Eurex (DTB) no-action process, \2\ or other guidelines established by
the Commission. * * * " \3\ In accordance with these instructions,
Commission staff has issued seven no-action letters that permit foreign
boards of trade to place in the U.S. electronic trading devices that
provide access to those boards of trade, without obtaining contract
market designation ("Foreign Trading System No-Action Letters"). \4\
The relief is subject to the terms and conditions set forth in each no-
action letter and applies exclusively to the futures and option
contracts delineated therein. Foreign boards of trade that wish to list
additional futures and option contracts for trading through their U.S.-
located trading systems are require to request and receive supplemental
no-action relief ("Supplemental Relief") from Commission staff prior
to doing so. To date, Commission staff has granted two requests for
Supplemental Relief. \5\
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    \1\ Access to Automated Boards of Trade, 64 FR 32829 (June 18,
1999).
    \2\ In February 1996, Commission staff issued no-action relief
to Deutsche Termibourse ("DTB"), an automated international
futures and options exchange headquartered in Frankfurt, German,
that permitted DTB, subject to certain terms and conditions, to
place computer terminals in the U.S. offices of its members for
principal trading. See CFTC Interpretative Letter No. 96-28 (1996-
1997 Transfer Binder) Comm. Fut. L. Rep. (CCH) para. 26,669 (Feb.
20. 1996.) In June 1998, DTB changed its name to Eurex Deutschland.
    \3\ Access to Automated Boards of Trade, 64 FR 32829 (June 18,
1999).
    \4\ Commission staff has issued Foreign Trading System No-Action
Letters to Eurex Deutschland; the Hong Kong Futures Exchange Ltd.;
the International Petroleum Exchange of London Limited; LIFFE
Administration and Management ("LIFFE"); Parisbourse
SBF SA; the Singapore Exchange Ltd. (formerly known as
the Singapore International Monetary Exchange); and, collectively,
the Sydney Futures Exchange Limited and the New Zealand Futures and
Options Exchange Limited. The text of these letters may be accessed
through the Commission's website, located at www.cftc.gov. See
Letter from I. Michael Greenberger, Director, Division of Trading
and Markets, Commodity Futures Trading Commission, to Edward J.
Rosen, Esq., Cleary, Gottlieb, Steen & Hamilton (Aug. 10, 1999);
Letter from John C. Lawton, Acting Director, Division of Trading and
Markets, Commodity Futures Trading Commission, to Philip McBride
Johnson, Esq., Skadden, Arps, Slate, Meagher & Flom LLP (June 9,
2000); Letter from John C. Lawton, Acting Director, Division of
Trading and Markets, Commodity Futures Trading Commission, to Arthur
W. Han, Esq., Katten Muchin & Zavis (Nov. 12, 1999); Letter from I.
Michael Greenberger, Director, Division of Trading and Markets,
Commodity Futures Trading Commission, to Arthur W. Hahn, Esq.,
Katten Muchin & Zavis (July 23, 1999); Letter from I. Michael
Greenberger, Director, Division of Trading and Markets, Commodity
Futures Trading Commission, to Catherine Langlais, Senior Vice
President, Parisbourse SBF SA (Aug. 10, 1999); Letter
from John C. Lawton, Acting Director, Division Trading and Markets,
Commodity Futures Trading Commission to Jane Kang Thorpe, Esq.,
Brown & Wood LLP (Dec. 17, 1999); Letter from I. Michael
Greenberger, Director, Division of Trading and Markets, Commodity
Futures Trading Commission, to Philip McBride Johnson, Esq.,
Skadden, Arps, Slate, Meagher & Flom (Aug. 10, 1999).
    \5\ Commission staff has granted two separate requests from
LIFFE to list additional futures and option contracts through LIFFE
CONNECT TM, its automated trading and order matching
system. See Letter from John C. Lawton, Acting Director, Division of
Trading and Markets, Commodity Futures Trading Commission, to Arthur
W. Han, Esq., Katten Muchin & Zavis (Dec. 10, 1999) and Letter from
John C. Lawton, Acting Director, Division of Trading and Markets,
Commodity Futures Trading Commission, to Arthur W. Han, Esq. Katten
Muchin & Zavis (Mar. 14, 2000).
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    Almost one year has passed since the first Foreign Trading System
No-Action Letter was issued. \6\ In that time, Commission staff has not
learned of any significant problems or concerns regarding the operation
of U.S.-located foreign trading systems nor has Commission staff
learned that foreign boards of trade are listing impermissible products
through such systems. Also within the past year, the Commission has
promulgated Rule 5.3 which generally permits domestic boards of trade
to list new futures and option contracts for trading without acquiring
Commission approval of such contracts or their respective terms and
conditions. \7\ In light of Commission staff's successful experience
with the relief provided by the Foreign Trading System No-Action
Letters and in consideration of the relief provided to domestic boards
of trade via Rule 5.3, the Commission believes that it is appropriate
to permit foreign boards of trade that are operating electronic trading
devices in the U.S. pursuant to Commission staff no-action relief to be
permitted to list certain new futures and option contracts for trading
through those devices, without requiring additional regulatory action.
Accordingly, it has issued the following Statement of Policy setting
forth this view.
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    \6\ The first Foreign Trading System No-Action Letter was issued
to LIFFE on July 23, 1999. See Letter from I. Michael Greenberger,
Director, Division of Trading and Markets, Commodity Futures Trading
Commission, to Arthur W. Han, Esq., Katten Muchin & Zavis (July 23,
1999).
    \7\ Rule 5.3 allows a domestic board of trade that has been
designated as a contract market in at least one non-dormant
commodity to list new futures and option contracts for trading upon
satisfaction of specified filing and certification requirements. A
domestic board of trade is permitted, but not required, to list new
contracts through this filing and certification procedure in lieu of
compliance with either the regular or fast-track procedure for
contract market designation. Revised Procedures for Listing New
Contracts, 64 FR 66373 (Nov. 26, 1999).


[[Page 41642]]


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    Issued in Washington, DC on June 30, 2000, by the Commission.
Jean A. Webb,
Secretary of the Commission.

Statement of Policy of the Commodity Futures Trading Commission
Regarding the Listing of New Futures and Option Contracts by
Foreign Boards of Trade That Have Received Staff No-Action Relief
to Place Electronic Trading Devices in the U.S.

    In light of newly-adopted Commodity Futures Trading Commission
("Commission") Rule 5.3 \8\ and the lack of difficulties that have
arisen regarding the placement of the automated trading systems of
foreign boards of trade in the U.S. pursuant to no-action relief issued
by Commission staff, the Commission believes that foreign boards of
trade generally should be permitted to list additional futures and
option contracts through such systems, without obtaining supplemental
no-action relief from Commission staff ("Supplemental Relief").
Specifically, the Commission believes that, subject to the exceptions
and conditions listed below, a foreign board of trade that has received
a no-action letter from Commission staff permitting it to place
electronic trading devices in the U.S. that provide access to that
board of trade ("Foreign Trading System No-Action Letter") should be
permitted to list new futures and option contracts for trading through
the devices that are the subject of the particular no-action letter,
without requesting or receiving Supplemental Relief.
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    \8\ Revised Procedures for Listing New Contracts, 64 FR 66373
(Nov. 26, 1999).
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    In order to list new futures and option contracts without acquiring
Supplemental Relief, a foreign board of trade should file the following
with the Commission's Division of Trading and Markets at the
Commission's Washington, D.C. headquarters no later than the close of
Commission business on the business day preceding the initial listing
of such futures and option contracts for trading through electronic
trading devices located in the U.S.: (1) A copy of the initial terms
and conditions of the additional futures and option contracts the
foreign board of trade intends to list for trading through its U.S.-
located electronic devices and (2) a certification from the foreign
board of trade that it is in compliance with the terms and conditions
of the Foreign Trading System No-Action Letter that it has received and
that the additional futures and option contracts will be traded in
accordance with such terms and conditions. This Statement of Policy
does not apply to futures and option contracts that are covered by
section 2(a)(1)(B) of the Commodity Exchange Act.\9\ Foreign boards of
trade continue to be required to seek and receive written supplemental
no-action relief from Commission staff prior to offering such contracts
through U.S.-located trading systems.
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    \9\ 7 USC 2a (1994). For example, this Statement of Policy does
not alter requirement that a foreign board of trade seeking to offer
in the U.S. a futures or futures option contract based upon a stock
index receive a no-action letter from the Commission's Office of
General Counsel.
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    This Statement of Policy applies only to those foreign boards of
trade that have received a Foreign Trading System No-Action Letter from
Commission staff. It is intended exclusively to express the
Commission's view that foreign boards of trade that have received a
Foreign Trading System No-Action Letter be permitted to list futures
and option contracts other than those specifically delineated therein
without obtaining Supplemental Relief. The trading of all contracts
through electronic trading devices that provide access to foreign
boards of trade from within the U.S. continue to be subject to the
terms and conditions of the Foreign Trading System No-Action Letter
issued to the particular foreign board of trade. Moreover, this
Statement of Policy does not alter the analysis that the Commission
staff uses when considering requests for Foreign Trading System No-
Action Letters, dictate the result of that analysis, or alter the
authority of Commission staff to condition, modify, suspend, terminate,
or otherwise restrict the no-action relief that it issues.
    This Statement of Policy is effective immediately. This Statement
of Policy and the Foreign Trading System No-Action Letters will cease
to be effective in the event that the Commission adopts generally
applicable rules or guidelines regarding the issues addressed therein,
and foreign boards of trade would be subject to those rules or
guidelines.

Chairman William J. Rainer, June 29, 2000.
Commissioner Barbara P. Holum, June 29, 2000.
Commissioner David D. Spears, June 29, 2000.
Commissioner James E. Newsome, June 28, 2000.
Commissioner Thomas J. Erickson, June 28, 2000.

Dissent of Commissioner Erickson to Statement of Commission Policy
Regarding the Listing of New Futures and Option Contracts by
Foreign Boards of Trade that Have Received Staff No Action Relief
to Place Electronic Trading Devices in the United States

    I respectfully dissent from the Commission's determination to
expand, by today's policy statement, the no-action relief previously
granted to certain foreign exchanges listing contracts on terminals
located in the United States. On June 2, 1999, the Commission issued an
order that provided for the issuance of staff no-action relief for the
placement of terminals in the United States by foreign boards of trade.
Although the June 1999 Order directed staff to "begin immediately
processing no-action requests," it also committed the agency to
"proceed[ing] expeditiously toward adoption of rules and/or
guidelines." Since then, the Commission's staff has issued no-action
relief to seven foreign exchanges, yet the Commission has taken no
steps to initiate a public rulemaking process. Rather, the Commission
today validates staff no-action as the appropriate vehicle for granting
relief.
    The no-action process is typically used to provide limited relief
on discreet matters for individual petitioners. Today's relief extends
to numerous exchanges that have not formally petitioned the
Commission's staff for the expanded relief. While the expanded relief
ultimately may be appropriate, the public policy issues raised by
today's Commission action warrant notice to the public and an
opportunity for comment. Today's policy statement sanctions a closed
process to address matters of broad public policy. One of the
fundamental obligations of any federal agency is to ensure that the
public and interested parties have the opportunity to comment on policy
actions of broad effect. I believe that today's decision fails to
uphold that basic tenet of regulation and that the time has come for
the Commission to propose rules that would foster the public debate and
provide unified guidance through rules, rather than relief on a case-
by-case basis.


    Dated: June 28, 2000.
Thomas J. Erickson

[FR Doc. 00-17040 Filed 7-5-00; 8:45 am]
BILLING CODE 6351-01-M
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