CFTC Letter 04-31

CFTC letter No. 04-31 

October 25, 2004 

No-Action 

Division of Market Oversight 

Mr. Daniel R. Waldman 

Arnold & Porter 

555 Twelfth Street, NW 

Washington, DC 20004-1206 

Re: Request for Amendment of No-Action Letter to Eurex Deutschland 

Dear Mr. Waldman: 

On August 10, 1999, the Division of Trading and Markets of the Commodity Futures Trading 

Commission (Commission) [1] issued a no-action letter[2] and confirmed that it would not recommend 

that the Commission institute enforcement action against Eurex Deutschland (Eurex) or its members if 

current and future Eurex members installed additional Eurex electronic trading terminals in members’

offices located in the United States or if Eurex made available for trading certain additional contracts 

under the terms of the no-action letter issued to its predecessor, Deutsche Terminborse (DTB).[3]

Specifically, the Division of Trading and Markets stated that it would not recommend that the 

Commission institute enforcement action against Eurex or its members solely based upon Eurex’s failure 

to obtain contract market designation pursuant to Sections 5 and 5a of the Commodity Exchange Act 

(Act) if: (i) Eurex members use Eurex terminals located in the U.S. to trade for their proprietary 

accounts through the Eurex Trading System (System); (ii) Eurex members who are registered with the 

Commission as futures commission merchants (FCM) use Eurex terminals located in the U.S. to submit 

orders from U.S. customers for submission to the System; (iii) Eurex members who are registered with 

the Commission as FCMs or who are exempt from such registration pursuant to Rule 30.10 (Rule 30.10 

firms) accept orders through U.S. automated order routing systems (AORS) from U.S. customers for 

submission to the System; and/or (iv) the additional contracts listed in the Eurex no-action letter were 

made available for trading through the System in the manner set forth in clauses (i), (ii), or (iii) above. 

The Eurex no-action letter summarized various representations made by Eurex in its request for noaction relief, including representations concerning the structure of Eurex, its membership criteria, the 

architecture of its trading system, the activities conducted by its representative office in the U.S., the 

regulatory regime in Germany, and the relevant information-sharing arrangements. The representations 

included a description of the settlement and clearing functions performed by Eurex Clearing AG (Eurex 

Clearing) for Eurex, concluding that Eurex Clearing “now manages the clearing, margining, and 

settlement of all transactions executed on Eurex.” Eurex also represented that no clearing activities were 

performed from its Chicago office. The Division of Trading and Markets analyzed the membership 

requirements for clearing members, the level of regulatory equity capital required for membership, the 

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amount of the Clearing Guarantee Fund, the priority order of sources used for covering losses in case of 

a clearing member default and, relying upon the representations made by Eurex, concluded, among other 

things, that “Eurex does not maintain order matching or clearing facilities in the U.S.”

By letter dated July 9, 2004, you requested an amendment to the above no-action relief to reflect 

additional circumstances and arrangements relating to clearing on Eurex that were not applicable at the 

time that the Eurex no-action letter was issued. Specifically, you indicate that The Clearing Corporation 

(CCorp), a registered derivatives clearing organization (DCO), and Eurex Clearing are entering into an 

agreement to link clearing houses. Under this link arrangement, CCorp and Eurex Clearing each would 

become a Special Clearing Member of the other clearing house, and CCorp would act as counterparty to 

its clearing participants in specified Eurex products. This arrangement is known as the Euro-link.[4] In 

essence, subject to Commission approval, the Euro-link would enable CCorp participants to carry 

positions in Eurex products through their existing CCorp clearing infrastructure. Only those Eurex 

products permitted to be traded on Eurex under Commission staff no-action letters would be eligible for 

clearing by CCorp participants under the Euro-link.[5]

Under the Euro-link arrangement, Eurex Clearing, as an agent for CCorp, would facilitate CCorp’s role 

as counterparty to its participants for such contracts by providing the system and the settlement 

infrastructure to clear Euro products. Specifically, the Eurex Clearing system would be used for trade 

management; give-up, take-up and position transfers; position management; variation margin payment; 

and delivery management. However, CCorp would calculate and collect original margin using SPAN®

methodology.[6]

You represent that operation of the Euro-link would modify the factual statements and representations of 

Eurex’s request for no-action insofar as a clearing link was not part of the clearing arrangements for 

Eurex products at the time of Eurex’s no-action request. However, nothing about the agreement between 

Eurex Clearing and CCorp to link clearing houses would undermine the validity of the Division of 

Trading and Markets’ conclusion in the Eurex no-action letter that “Eurex does not maintain order 

matching or clearing facilities in the U.S.” Insofar as CCorp participants may carry positions in Euro 

products under the Euro-link, they would do so through their existing relationship to CCorp, a Chicagobased DCO. Moreover, this conclusion is consistent with a recent Commission Order concerning the 

treatment of customer funds that characterized a similar clearing arrangement as applying to “trades 

executed on or through a board of trade located outside the U.S. but cleared by a derivatives clearing 

organization located in the U.S.”

[7]

The Division has reviewed the requested amendment, additional documentation submitted by CCorp and 

Eurex,[8] and the Eurex no-action letter, and has determined that granting the amendment, subject to 

Commission approval of operation of the Euro-link, should not have a significant impact on the noaction relief as granted and would not be contrary to public policy. Accordingly, the Division confirms 

that it will not recommend that the Commission institute enforcement action against Eurex or its 

members solely based upon Eurex’s failure to seek contract market designation or registration as a 

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derivatives transaction execution facility under Sections 5 and 5a of the Act,[9] if CCorp and Eurex 

Clearing enter into the Euro-link agreement under which each clearing entity would become a Special 

Clearing Member of the other clearing house, and CCorp would act as counterparty to its clearing 

participants in specified Eurex products. 

The Division notes that its no-action position does not relieve Eurex from compliance with the terms and 

conditions set forth in the Eurex no-action letter. As with all no-action letters, the Division retains the 

authority to condition further, modify, suspend, terminate, or otherwise restrict the terms of the noaction relief provided herein, in its discretion. This amendment to the Division’s no-action position 

applies only to the changed circumstances of Eurex Clearing entering into the Euro-link agreement, and 

should not be construed to express any opinion as to the effect of any other change in circumstances that 

may have occurred or may occur in the future. 

The no-action position taken herein is taken by the Division only and does not necessarily reflect the 

views of the Commission or any other unit or member of the Commission’s staff. It is based upon the 

information and representations contained in Eurex’s request for no-action relief and the amendment 

thereto. Any materially different, changed, or omitted facts or circumstances may render this letter void. 

If you have any questions regarding this correspondence, please contact Duane C. Andresen, an attorney 

on my staff, at (202) 418-5492. 

Very truly yours, 

Richard A. Shilts 

Acting Director 

cc: Paul Architzel, EurexUS 

Peter Reitz, Eurex 

Dr. Ekkehard M. Jaskulla, Deutsche Boerse AG 

Gregory C. Prusik, Vice-President, Registration, NFA 

Branch Chief, Audit and Financial Review Unit, Division of Clearing and Intermediary Oversight, 

Chicago Regional Office 

[1] On July 1, 2002, the Commission’s staff was reorganized. Requests for no-action relief from the 

contract market designation requirement or derivatives transaction execution facility registration 

requirement are now reviewed by the Division of Market Oversight (Division). 

[2] CFTC Staff Letter No. 99-48 (August 10, 1999) (Eurex no-action letter). 

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[3] CFTC Staff Letter No. 96-28 (February 29, 1996). 

[4] The Euro-link is a distinguishable part of a larger project to link Eurex Clearing and CCorp, known as 

the Global Clearing Link. However, for a variety of reasons, the clearinghouses are proposing to launch 

the project in two discrete phases. The Euro-link, which enables CCorp participants to clear specified 

Eurex products, is the first phase. 

[5] Those products include: Euro Schatz Futures and Options on Euro Schatz Futures; Euro Bobl Futures 

and Options on Euro Bobl Futures; Euro Bund Futures and Options on Euro Bund Futures; Euro Buxl 

Futures; Three-Month EURIBOR Futures and Options on Three-Month EURIBOR Futures; One-Month 

EONIA Futures; Dow Jones Euro STOXX 50 Futures; Dow Jones STOXX 50 Futures; DAX® Futures; 

Dow Jones Global Titans 50 Futures; Dow Jones STOXX 600-Banks Futures; and Dow Jones Euro 

STOXX Banks Futures. These products as referred to herein as “Euro” products. 

[6] “SPAN®” is a registered trademark of Chicago Mercantile Exchange Inc. (CME). 

[7] CFTC Order, Treatment of Customer Funds, 66 FR 34110 at p. 34110 (June 27, 2001). Subject to the 

terms and conditions set forth in the Order, certain designated members of the CME were permitted to 

commingle in a single account the funds received from customers trading on or through designated 

contract markets or derivatives trading execution facilities with those funds received in connection with 

the CME's clearing of certain products traded on or though the MEFF Sociedad Recotra de Productos 

Financieros Derivados de Renta Variable (MEFF), a board of trade located in Spain, which was 

designated as a Special Clearing Member of the CME. Similar to the structure of the clearing 

arrangement described in the Commission Order, Eurex Clearing would become a Special Clearing 

Member of CCorp under the Euro-link. 

[8] This documentation, posted on the Commission website for comment on April 28 and May 7, 2004, 

includes a description of the Euro-link and the Global Clearing Link (to be implemented at a later date), 

a request that the Commission take steps to permit CCorp and FCMs to establish and maintain combined 

original margin and variation settlement accounts for U.S. Dollar- and Euro-denominated products, 

proposed amendments to CCorp rules, drafts of the Link Clearing and Link Clearing Services 

Agreement between CCorp and Eurex Clearing, a draft Eurex US Bulletin relating to the margin 

treatment of customer positions in Euro-link contracts, and draft amendments to Eurex Clearing rules. 

Division staff also reviewed comments received in response to the posted documentation and CCorp’s 

response to the comments. 

[9] The Eurex no-action letter referred only to contract market designation because at that time there was 

no provision in the Act or rules thereunder governing a derivatives transaction execution facility. 

Because of the creation of that category of board of trade under the Commodity Futures Modernization 

Act, the Division amended its relief accordingly. 

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