U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5430 

Facsimile: (202) 418-5536

Division of Clearing and 

Intermediary Oversight

DIVISION OF CLEARING AND INTERMEDIARY OVERSIGHT ADVISORY 

CONCERNING THE OFFER AND SALE OF FOREIGN SECURITY FUTURES 

PRODUCTS TO CUSTOMERS LOCATED IN THE UNITED STATES 

Summary: This Advisory clarifies the extent to which certain sophisticated customers located in 

the U.S. may transact in foreign security futures products (“FSFPs”). 

I. Introduction 

The Commodity Futures Modernization Act of 2000 (“CFMA”)1

 eliminated a longstanding 

prohibition against the trading of security futures products by U.S investors. A security future 

generally is defined as a contract of sale for future delivery of a single security or of a narrowbased security index. An FSFP therefore is a security future listed for trading on an exchange 

located outside the U.S. Prior to the passage of the CFMA, U.S. investors could only trade 

foreign securities pursuant to provisions set forth in the federal securities laws, and broad-based 

security-index futures contracts pursuant to no-action relief issued by the Commission staff. The 

CFMA provided for access by U.S. persons to foreign security futures products, which are 

defined as both a “contract of sale for future delivery” subject to the jurisdiction of the 

Commission and a “security” subject to the jurisdiction of the Securities and Exchange 

Commission (“SEC”). 

 

1

 Appendix E of Pub. L. No. 106-554, 114 Stat. 2763 (2000). 
As set forth in Section 2(a)(1)(E) of the Commodity Exchange Act (“CEA”), the 

Commission and the SEC were directed by Congress to jointly issue such rules, regulations or 

orders as are appropriate and necessary to permit the offer and sale of FSFPs to U.S. investors. 

Section 2(a)(1)(F)(ii) of the CEA further states that, notwithstanding the limitation in 

subparagraph (E), eligible contract participants (“ECPs”) would be permitted to trade FSFPs to 

the same extent that they were permitted to trade foreign securities. For example, SEC Rule 15a6 under the Securities Exchange Act of 1934 (“Exchange Act”) generally permits certain 

sophisticated U.S. investors to trade foreign securities on an unsolicited basis. However, the 

CFMA did not add to the Exchange Act a parallel provision to CEA Section 2(a)(1)(F)(ii). 

Moreover, the CFMA also added Section 6(h)(1) to the Exchange Act, which requires security 

futures products to be listed for trading on national securities exchanges or national securities 

associations. Because of this requirement, U.S. investors have been precluded from entering 

into transactions for the purchase or sale of FSFPs on foreign exchanges. 

II. The SEC’s June 30, 2009 Order2

On June 30, 2009, the SEC issued an Order (“SEC Order” or “Order”) granting, among other 

things, an exemption from Exchange Act Section 6(h)(1) to permit certain sophisticated 

customers to effect transactions in certain FSFPs. 3

 In issuing the Order, the SEC noted that U.S. 

investors have expressed strong views since 2001 that U.S. institutional investors need to be able 

to trade in FSFPs for risk management, asset allocation and other purposes, and suffer substantial 

 

2

 The following is only a summary of the SEC Order; for the full Order, please refer to the following webpage: 

http://sec.gov/rules/exorders/2009/34-60194.pdf. 

3

 74 Fed. Reg. 32200. 

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adverse impact and competitive disadvantage with respect to non-U.S. investors by not being 

permitted to trade FSFPs. 

The SEC Order limits the relief to only certain FSFPs and transactions undertaken by certain 

sophisticated U.S. investors. Specifically, the Order specifies that only the following FSFPs are 

covered by the relief: (1) a security future on a single security, the underlying security of which 

must be issued by a foreign private issuer and has its primary trading market outside the U.S., 4

or a debt security issued or guaranteed by a foreign government that is eligible for registration 

with the SEC; and (2) a narrow-based security index, comprised of at least 90 percent securities 

issued by foreign private issuers where the primary trading market of each underlying security is 

outside the U.S., or debt securities issued or guaranteed by a foreign government and eligible for 

registration with the SEC. The FSFP transaction must be effected on a foreign exchange along 

with the clearance and settlement. For more precise details regarding the class of products 

covered under these provisions, please refer to the Order. 

The SEC Order further states that only specific sophisticated U.S. investors may transact in 

FSFPs, primarily qualified institutional buyers (“QIBs”) as defined in Rule 144A issued pursuant 

to the Securities Act of 1933 (“Securities Act”). Under Rule 144A, QIBs are persons who “in 

the aggregate own and invest on a discretionary basis at least $100 million in securities of 

issuers.” In comparison, a U.S. investor is considered to be an ECP under Section 1a(12) of the 

CEA if they act for their own account and are a financial institution, a state-regulated insurance 

 

4

 The SEC Order defines a security’s primary trading market outside the U.S., 

if at least 55 percent of the worldwide trading volume in the security took place in, on, or through the 

facilities of a securities market or markets located either (i) in a single foreign jurisdiction, or (ii) in no 

more than two foreign jurisdictions during the issuer’s most recently completed fiscal year. If the trading in 

the foreign private issuer’s security is in two foreign jurisdictions, the trading for the issuer’s security in at 

least one of the two foreign jurisdictions must be greater than the trading in the U.S. for the same class of 

the issuer’s securities in order for such security’s primary trading market to be considered outside the U.S. 

74 Fed. Reg. 32203-4. For additional information on the definition of a security’s primary trading market, 

please see the SEC Order. 

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company, a federally-regulated investment company, a commodity pool whose total assets 

exceed $5 million, or a business organization whose total assets exceed $10 million. 

With respect to intermediaries, the SEC Order provides that registered broker-dealers 

would be permitted to offer and sell these products to qualifying U.S. investors. Due to the 

shared jurisdiction over security futures products, any intermediary is required to register with 

either the SEC or the Commission and may be notice-registered with the other agency. The 

Order provided further that unregistered foreign brokers may intermediate qualifying FSFP 

transactions pursuant to two registration exemption alternatives: (1) the exemptions provided in 

Rule 15a-6 issued pursuant to the provisions of the Exchange Act; or (2) the new conditional 

exemption specified in the SEC Order limiting the foreign broker’s actions solely to inducing or 

attempting to induce the purchase or sale of any FSFP by a QIB, and routing the transaction 

through a registered broker or a notice-registered broker for execution. 

III. The Offer and Sale of FSFPs under the CEA 

In consideration of the foregoing information, the Division of Clearing and Intermediary 

Oversight (“DCIO”) is clarifying that the provisions of the CEA applicable to the offer and sale 

of FSFPs to eligible U.S. investors remain unchanged since the enactment of the CFMA and the 

issuance of the SEC Order. Accordingly, for QIBs trading pursuant to the exemption specified 

in the SEC Order, pursuant to Commission Regulation 30.4(a)5 governing the offer and sale of 

foreign futures and options to U.S. investors, these transactions may be intermediated by any 

registered FCM who is also a notice-registered broker-dealer or conversely by any registered 

broker-dealer who is also a notice-registered FCM. Additionally, any foreign broker exempt 

 

5

 Commission Regulation 30.4(a) requires foreign futures brokers who seek to engage in the business of transacting 

in foreign futures and options with customers located in the U.S. to register with the Commission. Alternatively, 

under Commission Regulation 30.10, foreign futures brokers may petition for an exemption from registration if they 

prove to the satisfaction of the Commission that their home regulatory structure is comparable to that of the U.S.’ 

17 C.F.R. §§ 30.4(a), 30.10 (2009). 

4
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from FCM registration pursuant to Commission Regulation 30.10 also may intermediate FSFP 

transactions on behalf of QIBs subject to provisions of the SEC Order that are applicable to 

foreign brokers. 

In summary, it is the position of DCIO that the SEC Order does not modify the existing 

regulatory program set forth in the CEA governing the offer and sale of FSFPs to U.S. investors 

who are ECPs. Any U.S. investor seeking to transact in FSFPs (and particularly ECPs that do 

not qualify as QIBs), and any firm seeking to intermediate such a transaction, should consult an 

attorney to determine whether such activities would be inconsistent with the federal securities 

laws. For any questions regarding the requirements set forth in the CEA or Commission 

regulations, please contact DCIO at dcio@cftc.gov.