U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5260 

Facsimile: (202) 418-5527 

www.cftc.gov

Division of 

Market Oversight

CFTC letter No. 04-33 

October 25, 2004 

No-Action 

Division of Market Oversight 

Edward H. Fleischman 

Senior Counsel 

Linklaters 

1345 Avenue of the Americas 

19th Floor 

New York, NY 10105 

 Re: Sections 5 and 5a – European Energy Exchange; Request for No-Action Relief 

from Contract Market Designation and Derivatives Transaction Execution Facility 

Registration Requirements

Dear Mr. Fleischman: 

 This is in response to your letter dated April 28, 2004 to the Division of Market 

Oversight (Division) of the Commodity Futures Trading Commission (CFTC or Commission).1 

By this correspondence, you request, on behalf of the European Energy Exchange (EEX or 

Exchange) and its operator, European Energy Exchange AG (EEX AG), that the Division 

confirm that it will not recommend enforcement action to the Commission against EEX, EEX 

AG or the trading participants of EEX2

, in connection with the installation and use in the United 

States3 of the EEX electronic trading terminals and/or the EEX electronic order routing system, 

without seeking designation as a contract market (DCM) or registration as a derivatives 

transaction execution facility (DTEF) pursuant to Sections 5 and 5a, respectively, of the 

Commodity Exchange Act (CEA or Act) and without compliance with the Commission 

regulations relating specifically to DCMs or DTEFs. (No-action request). 

 

1

 Letter from Edward H. Fleischman, Senior Counsel, Linklaters, to Dr. Michael Gorham, Director, Division of 

Market Oversight, Commodity Futures Trading Commission (April 28, 2004). 

2

 For purposes of the No-action request and the relief provided herein, references to the trading participants of 

EEX shall include any “affiliate” of any EEX trading participant that has been granted access by the EEX trading 

participant to the EEX electronic trading and order system. An “affiliate” of an EEX trading participant shall mean 

any person that: (i) owns 50% or more of the trading participant; (ii) is owned 50% or more by the trading 

participant; or (iii) is owned 50% or more by a third person that also owns 50% or more of the trading participant. 

EEX represents that, as a condition of access to the EEX electronic trading system, such affiliates would be required 

to comply with all EEX Rules and that EEX trading participants remain responsible to EEX for ensuring their 

affiliates' compliance. 

3

 For purposes of this letter and the relief provided herein, the term “United States” shall include the United 

States, its territories and possessions. 
Mr. Edward H. Fleischman 

Page 2 

 Specifically, EEX wishes to make its electronic system for trading and clearing energy 

forwards and energy derivative contracts (the System), which is identical to the Eurex electronic 

trading system, available to: (i) EEX trading participants in the United States who wish to trade 

for their proprietary accounts4 through the System; (ii) EEX trading participants who are 

registered with the Commission as futures commission merchants (FCMs) and wish to submit 

orders and trade for United States customers5 through the System; and (iii) EEX trading 

participants who are registered with the Commission as FCMs or are exempt from registration as 

FCMs pursuant to Commission Rule 30.10 (Rule 30.10 Firms)6

 and who wish to accept orders 

from United States customers through the EEX automated order routing system7 for submission 

to the System. 

 As you know, on March 24, 1999, the Commission published proposed rules that would 

have governed the circumstances under which foreign futures exchanges could be accessed from 

electronic trading devices in the United States.8 On June 2, 1999, the Commission issued an 

order that withdrew those proposed rules and directed the Commission staff to begin considering 

requests from foreign exchanges for interim no-action relief to allow them to place trading 

systems in the United States on a temporary basis until the Commission itself promulgated rules 

 

4

 For purposes of this letter and the relief provided herein, the term “proprietary account” shall have the meaning 

set forth in Rule 1.3 (y). 17 C.F.R. § 1.3(y) (2004). Commission rules referred to herein are found at 17 C.F.R. Ch. 

1 (2004). 

5

 For purposes of this letter and the relief provided herein, the term “United States customers” shall have the 

same meaning as the term “foreign futures or foreign options customers” as it is defined in Rule 30.1 (c). 

6

 Rule 30.10 permits a person affected by the requirements contained in Part 30 of the Commission's rules to 

petition the Commission for an exemption from such requirements. Appendix A to the Part 30 rules provides an 

interpretative statement that clarifies that a foreign regulator or self-regulatory organization (SRO) can petition the 

Commission under Rule 30.10 for an order to permit firms that are members of the SRO and subject to regulation by 

the foreign regulator to conduct business from locations outside of the United States for United States persons on 

non-United States boards of trade without registering under the Commodity Exchange Act, based upon the person's 

substituted compliance with a foreign regulatory structure found comparable to that administered by the 

Commission under the Act. 

Among the issues considered by the Commission in determining whether to grant Rule 30.10 relief to a foreign 

regulatory or self-regulatory authority are the authority's: (i) requirements relating to the registration, authorization, 

or other form of licensing, fitness review, or qualification of persons through whom customer orders are solicited 

and accepted; (ii) minimum financial requirements for those persons that accept customer funds; (iii) minimum sales 

practice standards, including risk disclosures, and the risk of transactions undertaken outside of the United States; 

(iv) procedures for auditing compliance with the requirements of the regulatory program, including recordkeeping 

and reporting requirements; (v) standards for the protection of customer funds from misapplication; and (vi) 

arrangements for the sharing of information with the United States. Interpretative Statement with Respect to the 

Commission's Exemptive Authority Under § 30.10 of its Rules, 17 C.F.R. Part 30, Appendix A (2004). 

7

 For purposes of this letter and the relief provided herein, the term “AORS” shall be defined to include any 

system of computers, software or other devices that allows entry of orders through another party for transmission to 

a board of trade's computer or other automated device where, without substantial intervention, trade matching or 

execution takes place. 

8

 Access to Automated Boards of Trade, 64 Fed. Reg. 14159 (proposed March 24, 1999). 
Mr. Edward H. Fleischman 

Page 3 

or guidelines in this area (June 2 Order).9 In accordance with this instruction, the Division has 

reviewed EEX's No-action request and the materials submitted in support thereof. 

 In connection with its No-action request, EEX has forwarded the following information 

to the Division: 

• General information regarding EEX (e.g., its location and organization); 

• Banking Act (non binding translation); 

• German Securities Trading Act; 

• German Exchange Act; 

• EEX Exchange Rules; 

• Implementation Regulation pertaining to § 17 subsection 1 of the Exchange Rules of 

EEX (Technical equipment concerning the Xetra Electronic Trading System); 

• EEX Examination Rules; 

• EEX Clearing Conditions for Trading on the Futures Market; 

• EEX Conditions for Trading; 

• EEX Contract Specifications; 

• EEX Spot Market Concept; 

• EEX OTC Clearing Concept; 

• EEX Derivates Market Concept; 

• Eurex User Manual 6.1 (as of 1 September 2003); 

• EEX Eurex Future Trading System-Market Result Interface Specification; 

• EEX System Access Alternatives; and 

• Confirmation from the German Federal Financial Supervisory Authority (BaFin) with 

respect to information sharing. 

 

9

 Order of the CFTC Withdrawing Proposed Rules Regarding Access to Automated Boards of Trade, Release No. 

4274-99 (June 2, 1999). 
Mr. Edward H. Fleischman 

Page 4 

 Representations made by EEX regarding the structure of EEX, EEX's activities in the 

United States, EEX's trading participant criteria, the EEX Trading System, the relevant 

regulatory regime in the Federal State of Saxony and the Federal Republic of Germany 

(Germany), and the information-sharing arrangements applicable to EEX are summarized in 

Sections I - V below. For purposes of its response to the No-action request, the Division has 

relied upon EEX's representations and has not conducted an independent review to confirm their 

accuracy.10

I. GENERAL INFORMATION REGARDING EEX 

 Similar to other exchanges in the Federal Republic of Germany, EEX, located in the city 

of Leipzig, in the Federal State of Saxony, Germany, is an entity under public law.11 The 

operator of EEX, EEX AG, is a company incorporated under German law and its registered 

office is located in Leipzig. EEX AG provides financial, personnel and material resources for 

EEX. Legal predecessors of the Exchange were LPX Leipzig Power Exchange in Leipzig and 

the European Energy Exchange in Frankfurt (Main), Germany. The shareholders of these two 

exchanges merged in 2002 to form EEX AG. Currently, EEX AG’s largest shareholders are 

Eurex Zurich AG, located in Zurich, Switzerland (23.22%), Landesbank Sachsen Girozentrale, 

located in Leipzig (17.39%), and Nord Pool ASA, located in Oslo, Norway (17.39%). The 

remaining shares are distributed among 53 other entities from different stakeholder groups, none 

of which holds more than 3.5 percent. 

EEX is a service provider offering comprehensive services in all areas of electricity 

trading to all participants. These services include trading and clearing services, as well as the 

transmission of information to electric utilities, municipal utilities, industrial customers, brokers, 

banks, trading firms and financial service providers. EEX acts as the central counterparty for 

each transaction in the two market segments it offers, the spot market and the futures market. As 

the central counterparty, EEX assumes the counterparty risk as well as the risk of financial 

performance. Furthermore, it provides financial settlements in spot and futures markets as well 

as current information regarding the electricity market on its website. On its spot market, power 

is traded on a day ahead basis. Thus, all trades from a given day must be physically settled on 

the next day (or, if traded on a Friday, for example, on the next three days). 

 

10 As stated below, the no-action relief provided herein is contingent upon the accuracy of the representations 

made by EEX in support of its No-action request. Any materially different, changed, or omitted facts or 

circumstances may render the no-action relief void or cause the Division, in its discretion, to condition further, 

modify, suspend, terminate, or otherwise restrict the relief. 

11 Exchanges such as EEX are organized under the German Exchange Act (Exchange Act), which enables 

exchanges to be formed and provides a framework for exchange rules, serving a purpose similar to a private 

corporation's charter and articles of association. As a public entity, the exchange is owned by the state. The 

Exchange Act contemplates that the exchange will be operated by an operator (in the case of EEX, EEX AG, which 

is a private corporation), in accordance with the statutory obligations and pursuant to agreement(s) entered into with 

the exchange in accordance with the Exchange Act. Under German law, public entities, such as exchanges, are 

limited in their ability to pursue or comply with private law rights and obligations, which are assumed by the 

operator of the exchange. Thus, it is only through the combination of both the exchange and its operator that EEX 

and EEX AG can carry out all necessary activities and fulfill their duties under public and private civil law. 
Mr. Edward H. Fleischman 

Page 5 

The other market segment is the futures market, on which standardized power futures are 

tradable. The products available include monthly, quarterly and yearly futures. The underlying 

price is determined by the so-called Physical Electricity Index (Phelix®). Phelix Base is the 

hourly weighted average price per day for all 24 hours at the spot market. Phelix Peak is the 

hourly weighted average price for the hours from 8:00 a.m. to 8:00 p.m. It is determined and 

published daily. As previously stated, the System for trading and clearing electricity futures is 

identical to the Eurex electronic trading system. As of January 30, 2004, there were 44 trading 

participants on the futures market. All transactions executed on the futures market are subject to 

German law. 

 EEX represents that it does not have a subsidiary, affiliate, or partner in the United States. 

It has not participated in any market fair as an exhibitor nor carried out any mailing or 

merchandising campaigns in the United States. However, addressees located in the United States 

may read information distributed by EEX via email. Information in English published on EEX’s 

website is accessible to, but is not designed specifically for, potential market participants in the 

United States. EEX represents further that the Exchange performs no trade processing or 

clearing functions in the United States. 

II. MEMBERSHIP

Only trading participants admitted to the Exchange may trade at EEX. The admission of 

participants pertains either to the spot or futures market or comprises both market segments. 

Companies admitted to the spot and/or futures market purchase and sell EEX’s products either (i) 

in their own name and for their own account, (ii) in their own name but for the account of a third 

party or (iii) they act as intermediaries. 

A. Trading Participants

The requirements for being admitted as a trading participant are set out in the Exchange 

Act and the EEX Exchange Rules.12 In order to be admitted, a company must file a written 

application with EEX. The company must name authorized representatives who are responsible 

for business management and provide information concerning their personal reliability and 

professional qualifications. The company must ensure that transactions are carried out in an 

orderly manner. Furthermore, applicants must prove, in principle, that they have minimum 

equity capital resources of Euro 50,00013 as required under the Exchange Act.14 There may not 

be any indication that could raise doubts as to the applicant’s financial reliability and ability to 

participate in Exchange trading in an orderly manner.

 

12 A list of the trading participants is published on the EEX website. 

13 As of the date of this letter, Euro 50,000=$63,420. 

14 The paid-in capital and the reserves are considered to be part of the equity capital after deduction of (i) 

withdrawals by the proprietor or personally liable shareholders, (ii) credit granted to such individuals and (iii) any 

excess debt related to the proprietor’s free assets. 
Mr. Edward H. Fleischman 

Page 6 

The applicant must obtain all state approvals, permits, licenses, admissions or similar 

agreements that are required for trade and execution of respective transactions on the EEX. For 

example, companies conducting business that requires a license under the German Banking Act 

must file the respective documents with the EEX. In addition, EEX’s Board of Management, 

after due assessment of the circumstances, may conduct examinations at the expense of the 

applicant and require the applicant to submit statements and documentation as it deems 

appropriate. It is also allowed to request information from third parties, provided the applicant 

has received prior notice of the request. 

Foreign companies applying for admission must prove that their intended business 

activities comply with the legal and regulatory requirements of their country of origin, i.e., 

companies can only be admitted if their business activities are allowed under the laws of their 

country of origin. Foreign companies must provide that competent foreign authorities can 

exchange relevant information with the German authorities in order to supervise the trading 

participant. Moreover, companies located outside of Germany must appoint an authorized 

service agent with a registered office in Germany. 

Trading participants may also apply for admission as market makers for one or several 

types of futures contracts, provided market making is applicable to such types of contracts. 

Admitted market makers must enter limited bids for the offer and the demand side (Quotes) into 

the System during trading hours. Transactions may then be concluded on the basis of the 

Quotes.15

Exchange traders appointed by the trading participant execute trading participants’ 

transactions on the futures market. The trader places bids or offers on the EEX futures market 

for one participant. EEX admits traders who have proven their reliability and professional 

qualifications by passing the obligatory spot and/or futures market trading test. Exchange traders 

are subject to approval by the competent supervisory authority that, for EEX, is the Ministry of 

Commerce and Labor of the Federal State of Saxony (Exchange Supervisory Authority). 

B. Clearing Members

All trading participants in the EEX futures market must use the clearing facilities of 

EEX AG in accordance with the Clearing Conditions for the Futures Market (Clearing 

Conditions). Admission of clearing members, as well as the organization and settlement of 

clearing, are managed and executed separately from trading on EEX markets. In order to use the 

clearing functions, the Exchange trading participant must submit a written application for a 

clearing license to EEX AG.16 EEX AG issues either a general clearing license or a direct 

clearing license. Trading participants that are general clearing members (GCM) hold the general 

 

15 At present, five trading participants are also market makers. The names of Exchange trading participants, 

including market makers, are published on the EEX website. 

16 A trading participant without a clearing license (non-clearing member) must settle trades via a trading 

participant who has a clearing license (clearing member). This requires an agreement with the clearing member that 

prescribes the duty to provide security in accordance with such an agreement or the Clearing Conditions. 
Mr. Edward H. Fleischman 

Page 7 

license and are authorized to clear their own transactions, their customers’ transactions and the 

transactions of trading participants without clearing licenses.17 Trading participants that are 

direct clearing members (DCM) hold the direct license and are authorized to clear their own 

transactions, their customers’ transactions and transactions of 100% affiliated trading 

participants without clearing licenses. As a prerequisite for a GCM license, the company 

applying must have regulatory equity capital of at least Euro 20 million or the corresponding 

equivalent in the country where the company is located.18 The corresponding minimum amount 

for DCMs is Euro 5 million.19 Deficits may be compensated through bank guarantees and/or 

collateral in the form of cash or securities. 

In general, only institutions based in Germany, another European Union member state, or 

Switzerland can apply for clearing licenses at present. Clearing members must hold a full 

banking license in one of the member states of the European Union or Switzerland. Clearing 

members must prove that they have the appropriate technical equipment (back-office facilities), 

have paid their contribution to the clearing fund, have at least one sufficiently qualified staff 

member in the back-office who is in charge of the orderly fulfillment of clearing obligations, and 

have established specific accounts for clearing.20

III. OVERVIEW OF THE EEX TRADING SYSTEM

 At the outset, the Division notes that the description of the EEX Trading System set forth 

herein is based upon representations made by EEX or its representatives. Nonetheless, it should 

also be noted that the EEX system for trading and clearing energy futures is identical to the 

Eurex electronic trading system. Division staff has previously described the Eurex trading 

system in connection with the granting of foreign terminal no-action relief to the Deutsche 

Terminborse21, Eurex Deutschland22, and Eurex Zurich Ltd.23 Division staff also reviewed the 

Eurex trading system in its iteration as the a/c/e trading system.24 Finally, Division staff, during 

its recent review of the application of the U.S. Futures Exchange, L.L.C. (EurexUS) for 

designation as a contract market, reviewed the enhanced version of the a/c/e trading system used 

by EurexUS.25

 

17 Presently, seven banks act as GCMs. 

18 As of the date of this letter, Euro 20 million=$25,368,000. 

19 As of the date of this letter, Euro 5 million=$6,342,500. 

20 See Section III.H below for a description of settlement and clearing at EEX. 

21 CFTC Staff Letter No. 96-28 (February 29, 1996). 

22 CFTC Staff Letter No. 99-48 (August 10, 1999). 

23 CFTC Staff Letter No. 00-104 (November 16, 2000). 

24 Eurex had operated the a/c/e trading system in the U.S. as part of a joint venture with the Chicago Board of 

Trade since 2000. That joint venture ended December 31, 2003. 

25 EurexUS was designated by the Commission as a contract market on February 4, 2004. 
Mr. Edward H. Fleischman 

Page 8 

 A. Introduction

Trading on the EEX futures market is entirely electronic. EEX makes the Eurex trading 

system available to its participants on the basis of a service agreement with Eurex. Thus, all 

systems used for the EEX futures market segment are identical with those of Eurex, an 

exclusively computer-based, fully electronic trading system for the futures exchange. The EEX 

system is set up as a front-to-back system, whereby the front-end applications used by trading 

participants and clearing members are connected to the Exchange’s back-end applications by 

way of data transmission lines. Each trading participant is responsible for securing access to and 

monitoring authorized access to its entry devices and other electronic data processing equipment 

connected to EEX. 

B. The Order System

Orders that may be introduced into the System include market orders, limit orders, stop 

orders, and combined orders.26 Market orders are those without price restrictions. They are 

immediately executed at the next price within the order matching range.27 Limit orders include a 

price restriction and are executed at this price restriction or better. They may be entered as 

unrestricted (good until cancelled or good until a certain date); restricted (execute immediately or 

cancel); or valid only until the end of the trading period of a given trading day. Stop orders are 

entered into a separate order book and automatically become market orders in the futures 

contract if the price specified for the stop order is reached or exceeded or the price of the futures 

contract falls below the specified price. The stop orders will then be executed along with any 

other incoming market orders in the order of the times of their conversion into market orders. 

Combination orders and combination quotes28 are individual orders and quotes entered 

simultaneously for the purchase and/or sale of an identical number of futures contracts for the 

same product that have different maturity dates (time spread). The execution of one order or 

quote is dependent on the execution of the other respective order or quote. Combination 

orders/quotes must name a specific price corresponding to the range between the bid and ask 

price of the two individual orders. 

C. Trading Periods

Trading hours for futures trading on EEX are divided into four consecutive periods: (i) 

pre-trading period; (ii) opening period; (iii) trading period; and (iv) post-trading period. During 

the pre-trading period, the System generally accepts market orders, limit orders, stop orders and 

 

26 Orders must be identified upon entry as either proprietary or on behalf of customer accounts and as opening or 

closing trades. Cross trades or pre-negotiated trades are not permissible unless the buyer, prior to entering the order 

or quote, enters a cross request. The buyer and seller must enter the order or quote giving rise to the cross trade or 

pre-negotiated trade not earlier than five and not later than 65 seconds after having entered the cross request. 

27 If a market order cannot immediately be matched, it is automatically stored in the electronic order book but is 

not visible to other trading participants. 

28 A quote is the simultaneous entry of a limited bid and a limited ask order with different maturity dates. Quotes 

can only be assigned to market makers. 
Mr. Edward H. Fleischman 

Page 9 

quotes without matching them. Combined orders or combined quotes cannot be entered. The 

opening period is comprised of the “pre-opening period“ and the balancing process. The purpose 

of the pre-opening period is to afford trading participants the opportunity to develop an adequate 

overview of the market and to initially react to the market situation at the commencement of 

trading. To the extent possible, the pre-opening period is concluded by setting an opening price 

for each future. The opening price is determined on the basis of both limit and market orders and 

quotes contained in the System as the price at which the maximum number of orders and quotes 

may be executed. During the balancing process, existing orders and quotes are matched at the 

opening price.29

The trading period begins after the end of the opening period. Futures contracts are 

traded on a continuous basis during the trading period. Orders and quotes are automatically 

allocated to and matched with one another. The System ranks the orders and quotes initially 

according to price. The highest bid price and the lowest ask price are ranked first. Where the 

prices are identical, the ranking is determined by the chronological order of entry. Market orders 

entered during the trading period will only be executed with limit orders or quotes contained in 

the order book, the prices of which are within a certain range, as determined by the Board of 

Management, either above or below the last price at which the futures contract was effected. The 

final futures contract price is the price at which two limit orders or two quotes or one limit order 

and one quote were matched for a specific futures contract. 

 The trading period is followed by the post-trading period, which is divided into 

unrestricted and restricted periods. During the unrestricted period, which begins at the end of the 

trading period, participants may make inquiry of and enter data into the System. During the 

restricted period, which begins at the end of the unrestricted period, participants may only make 

inquiry of the System. 

Immediately after the orders or quotes have been matched, EEX informs the trading 

participants of all material details of the transaction and enters the transaction into the trading 

participant’s transaction account. As more fully discussed below, executed orders are cleared by 

EEX AG as a clearinghouse. Thus, the contract becomes a trade between EEX AG and the 

clearing member of the Exchange trader (on the buyer’s side) as well as a trade between 

EEX AG and the clearing member (on the seller’s side). The clearing department tracks the 

delivery and payment of all transactions. In order to further ensure market transparency, the 

Board of Management publishes the prices and volume of basic transactions via electronic 

media. The current prices, volumes, and open interest are published on EEX’s website. Final 

settlement prices must be announced and are also available on EEX’s website. The order book, 

including bids and requests, is available to all Exchange participants. Additional information on 

the counterparty is not displayed on users' terminals in order to ensure post-trade anonymity. 

 

29 Immediately before the transition to the balancing process, EEX may, in order to assure an orderly balancing 

process, suspend the entry of additional orders and quotes or changes to or the cancellation of previously entered 

orders and quotes. 
Mr. Edward H. Fleischman 

Page 10 

D. Trade Registration / Audit Trail

The prices of all transactions and the times that such transactions are executed are 

recorded automatically. EEX also creates extensive records of all entries made in the System. 

These records include the following information: (i) the terms and conditions of any order and 

any modification or cancellation of the order; (ii) the member's account to which the order or 

order instruction relates; (iii) the trader's identification number; (iv) the time of order entry and 

execution or cancellation; (v) the price of execution; and (vi) whether the member entered the 

order in its capacity as principal or agent. EEX retains extensive records of all entries made in 

the System for ten years. 

E. System Response Time

Because EEX uses the Eurex trading system for its derivatives market, EEX represents 

that any order originating in the U.S. would be entered into the system within the same negligible 

time delays as specified in the documents that Eurex made available to the CFTC in Eurex’s 

application for no-action relief. Thus, discrepancies in cross-border transmission times result 

from the differences in distance across the network among Exchange members in different 

locations.30 However, the network is configured to provide relative equality of response time 

among all system users, subject to differences that amount to less than human reaction time. 

EEX represents that its service provider, Deutsche Börse Systems AG, constantly 

monitors the network for irregularities in transmission time and has appropriate systems in place 

to correct such irregularities. Should delays in communication occur, Deutsche Börse Systems 

AG can verify whether the delay is a result of the network or of the trading participant’s own 

system. In the event of a network delay or failure, the user is automatically switched over to a 

backup network connection when the problem is detected. Moreover, the System is continuously 

monitored in order to detect delays in confirming messages sent through the System. If a delay 

occurs, the System automatically reroutes the affected flow of information to the backup network 

connection. Should a trading participant continue to have difficulty entering trades due to a 

technical problem, EEX offers “Trading on Behalf” to its participants. This alternative allows 

trading participants to submit their orders by telephone to EEX personnel on a real-time basis 

until System access is restored. All trades using this alternative are confirmed in writing. EEX 

Rules also state that EEX may interrupt or extend trading hours, if necessary, to maintain orderly 

trading conditions. 

F. Reliability and Failure Recovery

Trading participants must inform EEX without delay of any malfunctions with regard to 

EEX’s technical equipment. If such a malfunction occurs, the Board of Management is entitled 

to take all necessary steps, including disconnecting respective trading participants from the 

 

30 Eurex’s network extends from the central host processor to a port in each trading participant’s electronic trading 

device. The transmission distance between a device located in Germany and the central host processor is much less 

than the distance between a device located in the United States and the central host processor. 
Mr. Edward H. Fleischman 

Page 11 

System, in order to ensure that trading and settlement can be carried out in an orderly manner. 

Each trading participant must ensure its availability during Exchange hours. 

EEX represents that, in the event of disruption in the network, the System utilizes an 

immediate back-up mechanism that prevents the loss of transactions. The retransmission facility 

built into the communications structure, coupled with the fact that transactions are connected to 

the central host, ensures that transactions entered by traders are processed and processed only 

once. To avoid failure, the System relies on more than one of each hardware component, i.e., all 

components are doubled while trading participants can choose to use two leased lines connecting 

to two different access points in order to better deal with disturbances in power lines and 

communication server breakdown. Furthermore, Deutsche Börse Systems AG maintains a 

backup central host processor in a different location than the main central host processor. 

G. System Security

EEX represents that the System has several security features. Since the network is 

private, only authorized users have access. Unauthorized access to the central host processor or 

between customers is blocked by corresponding network parameters and security router 

configurations. A user cannot access the communications structure without a password, which is 

assigned by EEX. User passwords are neither visible nor can they be changed by the trading 

participants. Moreover, transaction data are compressed by a bit level data compression 

algorithm before being sent through the network, thus providing a means of encryption and 

reducing the network load. Other data sent to customers through the network, such as files and 

reports, are encrypted using a customer-specific software password. Trading participants are 

obligated to take necessary measures in order to prevent misuse of their entry devices and other 

equipment linked to the System. In addition, they must constantly monitor access to this 

equipment. 

EEX has other structures that can restrict access to the System. EEX will require U.S.-

based EEX terminals to be connected to the System via a link which is separate from the one 

used by its members located outside of the U.S. This structure permits EEX to limit trading from 

U.S.-based EEX terminals to contracts that are permitted to be traded from those terminals. This 

capability helps to ensure that EEX trading participants operating in the U.S. will abide by the 

terms stipulated in any no-action relief granted to EEX and by any restrictions on products that 

can be traded from U.S.-based terminals. 

H. Settlement and Clearing

Clearing is the settlement of daily margins, the final settlement of positions resulting 

from futures market trades and the respective security management. The clearing process is 

carried out separately from trading by EEX AG’s Clearing Department (the clearing house for 

the Exchange), which acts as a counterparty for the cash settlement of EEX futures trades. Once 

a trade has been concluded, EEX AG steps in as the central counterparty between purchaser and 

seller. Thus, futures transactions are only executed between EEX AG and a credit institution that 
Mr. Edward H. Fleischman 

Page 12 

is a clearing member.31 As previously noted, GCMs are authorized to clear their own 

transactions (proprietary trading) as well as those of their clients (agent trading) and non-clearing 

members. DCMs are entitled to clear their own transactions as well as those of their clients and 

non-clearing members that are 100% affiliates of the DCM.32 Trading participants that are nonclearing members execute their transactions through clearing members. Clearing members can 

check the status of individual trades. They can also complete registration by assigning trades to 

the correct account for margining and position-keeping, by adding account references and by 

allocating or claiming trades. 

EEX operates a two-tiered clearing system. Customers provide the assessed margin in 

cash or securities or book-entry securities accepted by EEX to their clearing bank/clearing 

member. In addition, the clearing bank provides cash margin or collateral in securities or bookentry securities for the benefit of EEX. The customers’ security is safeguarded by the capital 

market regulations of the state where the respective clearing bank is located. Exchange rules 

stipulate that participants must provide sufficient security to meet at any time the obligations 

arising from transactions concluded on the Exchange and in an electronic trading system 

admitted on the Exchange. The amount of security provided must correspond to the risks 

involved in the respective transactions. Hence, there are various security mechanisms that secure 

the financial integrity of the transactions.33 Trading participants are obligated to provide the 

assessed margin required for futures trading and to effect daily settlement payments when due. 

Clearing members must require margin and daily settlement payments from their respective 

clients and non-clearing members in an amount that at least equals the amount determined using 

EEX’s calculation methods.34 GCMs must immediately report to the Board of Management 

regarding affiliated non-clearing members who fail to provide margins or effect daily settlement 

payments when due. 

Irrespective of other security, clearing members are also obligated to contribute to the 

clearing fund. EEX AG determines the amount of the contribution to be provided. Currently, 

each GCM has to contribute Euro 3 million to the clearing fund.35 In the event a clearing 

 

31 In addition, EEX offers the opportunity to clear bilateral futures transactions through an OTC clearing system. 

EEX AG acts as a central counterparty for all OTC trades that are identical to EEX futures. 

32 As previously noted, a GCM must have regulatory equity capital of at least Euro 20 million or the 

corresponding equivalent in the country where the company is located. The corresponding minimum amount for a 

DCM is Euro 5 million. 

33 With respect to position accounts and position limits, transactions executed by trading participants are recorded 

in the System in separate internal accounts of principals, agents (for customers) and market makers. For each 

participant, EEX keeps a record of two position accounts for principals, two agent position accounts, two give-up 

accounts and two market maker position accounts. The Board of Management is entitled to set limits for individual 

participants and their respective clients with regard to positions. The limit restricts the number of futures contracts 

to which a participant and/or client can be party. Furthermore, a participant may not be engaged in any transaction 

for itself or a customer if there is any indication that the position limit would be exceeded by the number of positions 

of the participant and/or the customer as a result of that transaction (alone or jointly with others). 

34 The calculation method that clearing members apply for non-clearing members must be disclosed at the request 

of the non-clearing members. 

35 As of the date of this letter, Euro 3 million=$3,805,200. 
Mr. Edward H. Fleischman 

Page 13 

member defaults on any of the obligations under the clearing conditions of the futures market, 

EEX AG covers any resulting losses from these sources in the following priority order: (i) the 

security provided by the defaulting clearing member; (ii) the defaulting clearing member’s 

contribution to the clearing fund; (iii) funds from its annual surplus that EEX AG is required to 

set aside as reserves for the clearing fund; and (iv) the clearing fund contributions from other 

clearing members on a pro rata basis. 

I. Adherence to IOSCO Principles

EEX represents that Principles for the Oversight of Screen-Based Trading Systems for 

Derivative Products developed by the Technical Committee of the International Organization of 

Securities Commission (IOSCO-Principles) have been and will continue to be observed.36

IV. OVERVIEW OF THE REGULATORY STRUCTURE IN GERMANY

A. Federal Supervision of Financial Service Activities

In Germany, the supervision of financial services that are provided to third parties with 

respect to German financial instruments, including commodity derivatives, are governed by 

federal and state legislation as well as by the rules and regulations of the exchange. Generally, 

federal law governs the activities of banks and other financial services institutions. Since May 

2002, the responsibility for this regulatory supervision has been vested in the German Federal 

Supervisory Office for Financial Services, the Bundesanstalt für Finanzdienstleistungsaufsicht 

(BaFin). This supervisory authority combines the responsibility of supervision of credit and 

financial services institutions with the supervision of securities trading. Companies intending to 

provide relevant banking or financial services on the German market in relation to commodity 

derivatives must first obtain a license from BaFin pursuant to the German Banking Act. In 

certain cases, companies based outside of Germany also have to acquire a financial services 

license from BaFin. Once licensed, the company must at all times comply with all capital and 

organizational requirements pursuant to the German Banking Act. 

 

36 Germany was one of eight jurisdictions that participated in Working Party 7 of IOSCO (Working Party), whose 

mandate included, among other things, the identification of issues related to screen-based trading systems for 

derivative products. In considering the special concerns for screen-based trading systems, the Working Party 

identified and addressed the following issues: transparency, order execution algorithms, operational issues, security 

and system vulnerability, access, financial integrity, disclosure, and the role of system providers. The Working 

Party considered these issues and articulated for each a broad principle to assist regulatory authorities in overseeing 

screen-based trading systems. The IOSCO Principles were adopted by IOSCO on November 15, 1990 and set out in 

broad terms the international consensus as to the regulatory considerations to be addressed in reviewing mechanisms 

for cross-border screen-based trading. The Commission adopted the IOSCO Principles as a statement of regulatory 

policy for the oversight of screen-based trading systems for derivative products on November 21, 1990. Policy 

Statement Concerning the Oversight of Screen-Based Trading Systems, 55 Fed. Reg. 48670 (Nov. 21, 1990). 
Mr. Edward H. Fleischman 

Page 14 

B. Federal Supervision of Derivatives Trading

Derivatives trading, including the trading of commodity derivatives, is subject to the 

German Securities Trading Act. The German Securities Trading Act, among other things, 

contains extensive regulations against market manipulation and stipulates the conduct and 

organizational requirements for investment service enterprises, which includes companies 

trading commodity derivatives. As mentioned above, BaFin is the competent authority for 

supervision of the German securities and derivatives markets. In addition to other tasks, BaFin is 

responsible for counteracting undesirable developments on the securities trading market that 

could adversely affect its proper operation. BaFin may issue orders necessary for eliminating or 

preventing such undesirable developments. BaFin cooperates on a national and international 

level with the competent authorities or public bodies responsible for supervising stock exchanges 

and other securities, derivatives and foreign exchange markets. Subject to certain exceptions, the 

authority may communicate facts required for such supervision to such other competent 

authorities. Investment service enterprises are, among other things, obligated to keep records of 

the orders and pertinent instructions of their customers as well as to document execution of the 

orders. BaFin monitors compliance with reporting requirements and rules of conduct. In order 

to do so, BaFin may require companies to provide information and submit documents, and may 

conduct examinations at its own discretion. 

C. State Supervision of Exchanges

The organization, regulation, and supervision of exchanges is governed by the Exchange 

Act, which governs the establishment of the bodies of the Exchange and their main 

responsibilities and sets forth the legal framework for participation in trading activities on the 

Exchange. Under the Exchange Act, the supervisory authorities of the respective federal states 

are responsible, within their jurisdictions, for approving the establishment of an exchange and for 

its supervision. In the State of Saxony, where EEX is located, the Exchange Supervisory 

Authority is responsible for supervising EEX.37 The Exchange Supervisory Authority monitors 

EEX’s compliance with the Exchange Act, as well as with other relevant laws and regulations 

governing the proper execution of trading on the Exchange and the settlement of Exchange 

transactions. 

In its supervision of EEX, the Exchange Supervisory Authority may, without specific 

reason, demand information and documentation from EEX and its market participants and may 

conduct its own inspections. It has the power to issue orders to EEX or EEX trading participants 

that are designed to prevent the violation of regulations or orders, or to eliminate or prevent 

abusive practices that could impair the orderly conduct of exchange trading or the settlement of 

exchange transactions. The bodies of the Exchange, discussed below, are required to support the 

Exchange Supervisory Authority in carrying out its duties. The Exchange Supervisory Authority 

is entitled to participate in discussions held by the Exchange bodies. 

 

37 As previously noted, for EEX the Ministry of Commerce and Labor of the Federal State of Saxony is the 

Exchange Supervisory Authority. 
Mr. Edward H. Fleischman 

Page 15 

D. Internal Oversight

As an SRO, EEX has a comprehensive set of rules. Pursuant to the Exchange Act, the 

rules aim to ensure that the Exchange is capable of fulfilling its duties and must include 

provisions regarding, among others, the scope of business and organization of the Exchange, the 

types of trading, and the publication of prices and quotes. Exchange rules must be approved by 

the Exchange Supervisory Authority, which may require certain provisions to be included in the 

rules to the extent necessary to fulfill the statutory obligations of the Exchange or the Exchange 

Supervisory Authority. 

EEX is governed by a 17- member Exchange Council (Council) which is responsible for, 

among other things, the adoption of Exchange rules, the supervision of the Board of 

Management (Board), and the appointment and removal of members of the Board, in 

consultation with the Exchange Supervisory Authority. The 17 Council members, elected 

pursuant to the Exchange Ordinance enacted by the Exchange Supervisor Authority, represent 

the energy trading industry, including large-scale supply, public municipal supply, energy 

trading companies, other industry companies, credit institutions and associations. In principle, 

managers authorized to represent their companies, proprietors of businesses, executive 

employees and members of other bodies of the companies are eligible for the Council. In 

practice, members of the Council have extensive experience in and profound knowledge of the 

business. 

The Board is responsible for handling the day-to-day management of the Exchange. The 

activities of the Board are supervised by the Council and Board decisions in principal matters are 

subject to the prior consent of the Council. Board members are appointed for a term of up to five 

years and may be re-appointed. Generally, the Board fulfils duties and exercises powers 

assigned to it by the Exchange Act in order to further public interest and is responsible for all 

duties that are not expressly allocated to other governing bodies of the Exchange. The Board and 

its representatives may take all actions necessary for proper trading on EEX and the handling of 

Exchange transactions. Companies and persons permitted to execute transactions on the 

Exchange must comply with the instructions issued by Board members and their representatives. 

Companies and individuals who breach existing regulations or do not observe such instructions 

can be temporarily suspended from trading if and for as long as they disrupt orderly trading 

procedures. The Board has the authority to withdraw, revoke, or suspend admission and to 

exclude from trading. 

If it becomes aware that one or more of the requirements for admission had not actually 

been fulfilled when the admission was granted, the Board may withdraw the admission of a 

trading participant and/or an exchange trader. The Board may revoke admission, if, after it has 

been granted: (i) one or more of the prerequisites is no longer being met; (ii) the respective 

company fails to provide the security required; (iii) the company fails to make daily clearing 

payments; or (iv) fails to make other deliveries or payments or settle other charges in due time 
Mr. Edward H. Fleischman 

Page 16 

according to the EEX Conditions for Trading or Clearing Conditions.38 The Board may also 

suspend admission for the reasons mentioned above. In addition, based upon the founded 

suspicion that one or more of the requirements for admission was not complied with or has not 

been met, the Board may order the suspension of admission for a maximum period of six 

months.39 Should a DCM or GCM fail to pay the margin or daily settlement according to 

requirements or fail to make another due payment or to perform a delivery obligation, the Board 

may exclude the company from trading. This would also result in the exclusion of the respective 

company’s non-clearing members, and would remain in effect for the duration of the respective 

default. The Board is also permitted to take such measures with respect to similar defaults 

committed by a non-clearing member. 

Pursuant to the Exchange Act, EEX operates a Market Surveillance Office (Surveillance 

Office) for continuous and comprehensive monitoring of trading on the Exchange and the 

settlement of Exchange transactions in accordance with the requirements of the Exchange Act. 

The Surveillance Office systematically and thoroughly records and evaluates data regarding 

Exchange trading and the settlement of transactions and also conducts any necessary 

investigations. The Exchange Supervisory Authority may issue instructions to the Surveillance 

Office and take over such investigations. The Board may instruct the Surveillance Office to 

conduct investigations within the scope of the above-mentioned duties. The head of the 

Surveillance Office reports regularly to the Exchange Supervisory Authority. With the consent 

of the Exchange Supervisory Authority, the Board may assign other duties to members of the 

Surveillance Office. 

The Surveillance Office may exercise the authority of the Exchange Supervisory 

Authority in several areas. To the extent necessary to fulfill its duties and without giving any 

specific reason, it may require information and documentation from the Exchange and the 

enterprises and exchange traders admitted to the Exchange for trading, and may conduct 

inspections. If there is evidence justifying the conclusion that Exchange law provisions or orders 

are being violated or that other irregularities exist which may impair orderly Exchange trading or 

the settlement of Exchange transactions, it may require that trading participants disclose the 

identity of their customers and the persons obligated under or benefiting from the transactions 

executed, as well as any changes in the trading participants’ holding of securities or derivatives 

which are traded on the Exchange. If such evidence exists, it may require that the customers and 

individuals obligated under or benefiting from the executed transactions provide information 

concerning such transactions, including the identity of the persons involved in the transactions. 

 

38 In addition, clearing banks and clearing houses may apply for revocation of admission. Once its admission has 

been revoked, the company must close its positions or transfer them to another company. It must cancel any orders 

and quotes entered into the System and is not allowed to open new positions. The company shall ensure that its 

customers can transfer their positions to other companies. The company’s admission expires after these and other 

obligations with respect to EEX AG or the relevant clearing member have been fulfilled. The same rules apply with 

regard to the admission of market makers. 

39 The same applies to an admitted company or trader that defaults on a payment. The suspension continues until 

the defaulted payment has been settled. 
Mr. Edward H. Fleischman 

Page 17 

To the extent that it is necessary to perform the duties of the Exchange Supervisory 

Authority and/or Surveillance Office, the Exchange and the trading participants must permit 

personnel from those entities to enter their property and business premises during normal 

working hours. The Surveillance Office may transmit data with respect to the execution of 

transactions to the Board and Surveillance Office of another exchange to the extent necessary for 

the fulfillment of the duties of the recipients. It may also transmit data with respect to the 

execution of transactions to those authorities responsible for monitoring trading on foreign 

exchanges, and receive data from them, to the extent that this is necessary to ensure orderly 

trading and the settlement of exchange transactions. Such data may only be transmitted to the 

authorities if they and the individuals commissioned by them are bound by an obligation of 

confidentiality and are aware that they may only use the information for its intended purpose. 

The Surveillance Office must inform the Exchange Supervisory Authority, the Board and BaFin 

of what data it intends to exchange with which authorities in other countries. 

V. INFORMATION-SHARING

As set forth more fully below, pursuant to the terms and conditions of the no-action relief 

provided herein, the Division will be entitled to receive certain specified information regarding 

the System directly from EEX. Additional information relevant to the System and System 

trading participants will be available to the Commission and its staff under the terms of certain 

information-sharing arrangements to which both the CFTC and the Federal Authority for 

Securities Trading (BAWe), the predecessor of BaFin, were parties. The agreements include, 

without limitation, a Memorandum of Understanding concerning Consultation and Cooperation 

in the Administration and Enforcement of Futures and Options Laws, entered into on 

October 17, 1997, and the Declaration on Cooperation and Supervision of International Futures 

Exchanges and Clearing Organizations, as amended March 1998 (commonly known as the Boca 

Declaration). By letter dated March 18, 2004, the BaFin confirms that the information-sharing 

arrangements would extend to information requested by the Commission in connection with the 

activities conducted pursuant to any no-action relief granted by the Commission, or any Division 

thereof, in connection with the placement in the United States of electronic facilities providing 

access to a BaFin-regulated market or products traded through a BaFin-regulated market.40

VI. CONCLUSION

 Consistent with the Commission's June 2 Order, the Division has reviewed and 

considered EEX's No-action request and the information and documentation forwarded to the 

Division in support thereof. Among other things, the materials furnished by EEX indicate that 

EEX does not maintain any office or staff in the United States, provide investment advice, solicit 

orders, or direct trading from within the United States, or maintain any order-matching or 

clearing facilities in the United States. The materials also indicate that EEX and its members are 

subject to oversight in Germany by a legitimate regulatory authority that is responsible for 

ensuring their compliance with an extensive regulatory regime, EEX adheres to the IOSCO 

 

40 The Division understands that this information would include relevant information provided by EEX, its trading 

participants, or the System to the Exchange Supervisory Authority. 
Mr. Edward H. Fleischman 

Page 18 

Principles, and the CFTC and the BaFin are parties to various information-sharing arrangements 

applicable to the activities of EEX.41

 Based specifically upon these and other representations made by EEX in support of its 

No-action request, the Division has determined that granting no-action relief to EEX and its 

members, pending the adoption by the Commission of rules or guidelines regarding access to 

foreign boards of trade from electronic trading devices in the United States, would not be 

contrary to the public interest. Accordingly, subject to compliance with the terms and conditions 

stated herein, the Division will not recommend that the Commission institute enforcement action 

against EEX or its members solely based upon EEX’s failure to obtain contract market 

designation or DTEF registration pursuant to Section 5 or 5a, respectively, of the CEA if: (i) 

EEX trading participants located in the United States trade for their proprietary accounts through 

the System; (ii) EEX trading participants who are registered with the Commission as FCMs 

submit orders and trade for United States customers through the System; and (iii) EEX trading 

participants who are registered with the Commission as FCMs or who are Rule 30.10 Firms 

accept orders from United States customers through the EEX automated order routing system for 

submission to the System. 

 The Division's no-action position shall become effective immediately with respect to the 

following contracts: 

• Base Load Month Futures, 

• Peak Load Month Futures, 

• Base Load Quarter Futures, 

• Peak Load Quarter Futures, 

• Base Load Year Futures, and 

• Peak Load Year Futures. 

 If additional futures and option contracts become available for trading through the 

System, EEX may make such futures and option contracts available for trading through the 

System in the United States without obtaining written, supplemental no-action relief from 

Commission staff in accordance with the terms, conditions, and exceptions of the Commission's 

Statement of Policy regarding the listing of new futures and option contracts by foreign 

exchanges that are operating electronic trading devices in the United States pursuant to 

Commission staff no-action relief.42

 

41 The Division notes that the foregoing is not intended to be an exhaustive list of the factors relevant to its 

decision to grant the no-action relief requested by EEX nor of the factors that the Division might consider when 

analyzing no-action requests from other exchanges. No-action requests, by their nature, require case-by-case 

evaluation and the Division's conclusion regarding any particular no-action request will be based upon the facts and 

circumstances presented at the time of its review of that request. 

42 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, 65 Fed. Reg. 41641 (July 6, 2000). 
Mr. Edward H. Fleischman 

Page 19 

 The scope of the Division's no-action position is restricted to providing relief from the 

requirement that EEX obtain DCM designation or DTEF registration pursuant to Sections 5 and 

5a of the CEA and regulatory requirements that flow specifically from the DCM designation and 

DTEF registration requirements if the above-referenced contracts are made available in the 

United States for trading through the System, in the manner set forth herein. The Division's noaction position does not extend to any other provision of the CEA, any other Commission 

regulations, or to any registered futures association rules and does not excuse EEX or its 

members from compliance with any applicable requirements thereunder. Nor does the no-action 

position alter, restrict, or expand the coverage of existing Commission exemptions for particular 

products. 

 The Division specifically notes that its no-action position does not alter the general 

requirement that a firm operating pursuant to the no-action relief provided herein must be a 

registered FCM or be operating pursuant to Rule 30.10 relief to engage in the offer or sale of a 

foreign futures contract or a foreign options transaction for or on behalf of a United States 

customer. For example, nothing in this letter is intended to alter current Commission rules that 

require that any foreign firm that clears trades on a fully-disclosed basis on behalf of United 

States persons (including where the United States person is a non-clearing member of a foreign 

board of trade trading solely for its own account) be a registered FCM or a Rule 30.10 Firm. 

However, if a foreign firm solely carries accounts on behalf of United States customers that are 

the foreign firm’s or any registered FCM’s proprietary accounts (as defined in Rule 1.3(y)) or the 

foreign firm is either a member of the relevant foreign board of trade or is a foreign affiliate of a 

registered FCM and its sole contact with a United States customer is that it carries the FCM's 

omnibus account, then the firm need not register under Rule 30.4 nor confirm relief under Rule 

30.10. 

 Moreover, the Division's no-action position does not amend, revise, or negate the 

obligations of FCMs and Rule 30.10 Firms under the CEA, Commission regulations, or Rule 

30.10 orders. For example, Rule 30.10 Firms continue to be prohibited from maintaining a 

presence in the United States. Thus, Rule 30.10 Firms cannot provide direct access to the 

System in the United States (although they would be permitted to accept orders overseas from 

customers located in the United States that submit such orders by telephone or through an AORS 

located in the United States). FCMs or Rule 30.10 Firms who solicit or accept orders from 

United States customers for trading on the System remain responsible for, among other things, 

complying with risk disclosure, the handling and allocating of customer orders, and the 

segregation of customer funds. 

 The Division's no-action position does not affect the Commission's ability to bring 

appropriate action for fraud or manipulation. The Division specifically notes that the use of 

AORSs to transmit orders to the System shall be subject to all existing Commission rules and 

regulations and to any future rules or guidance issued by the Commission or the Division. 

Finally, this letter does not address issues that might arise under the Securities Act of 1933, the 

Securities Exchange Act of 1934, or any other applicable federal securities law or rule 

promulgated thereunder. 
Mr. Edward H. Fleischman 

Page 20 

 The Division's no-action position is subject to compliance with the following conditions: 

• EEX will continue to satisfy the criteria for designation as a regulated market under the 

applicable laws of Germany with respect to transactions effected through the System. 

• The laws, systems, rules, and compliance mechanisms of Germany applicable to EEX 

will continue to require it to maintain fair and orderly markets, prohibit fraud, abuse, and market 

manipulation, and provide that such requirements are subject to the oversight of appropriate 

regulatory authorities. 

• EEX will continue to adhere to the IOSCO Principles, as updated, revised, or otherwise 

amended to the extent consistent with United States and German law. 

• Only trading participants of EEX will have direct access (i.e., not through an AORS) to 

the System from the U.S. and EEX will not provide, and will take reasonable steps to prevent 

third parties from providing, such access to EEX to persons other than EEX trading 

participants.43

• All orders that are transmitted through the System by a trading participant of EEX that is 

operating pursuant to the no-action relief provided herein and that is not registered with the 

Commission as an FCM or that is not a Rule 30.10 Firm will be solely for “proprietary 

accounts,” as defined herein, of such EEX trading participant. 

• All orders for United States customers accepted through an AORS and/or and transmitted 

by EEX trading participants through the System will be intermediated by an EEX trading 

participant that is registered with the Commission as an FCM or is a Rule 30.10 Firm, to the 

extent required by Commission regulation. 

• Prior to their operating pursuant to the no-action relief provided herein, EEX will require 

current and future trading participants of EEX who are not registered with the CFTC as FCMs to 

file with EEX a written representation, executed by a person with the authority to bind the 

trading participant, stating that as long as the EEX trading participant operates pursuant to the 

no-action relief provided herein, the trading participant agrees to and submits to the jurisdiction 

of the Commission with respect to activities conducted pursuant to the no-action relief. EEX 

will maintain the foregoing representations as long as the relevant trading participant is operating 

pursuant to the no-action relief and shall make such representations available to the Commission 

upon the request of a Commission representative. 

• Prior to their operating pursuant to the no-action relief provided herein, EEX will require 

current and future trading participant of EEX who are not registered with the CFTC as FCMs to 

file with EEX a valid and binding appointment of a United States agent for service of process in 

 

43 As stated above, “trading participants” includes those persons identified in footnote 2 for the purposes of this 

no-action letter and the conditions imposed upon the relief provided herein. 
Mr. Edward H. Fleischman 

Page 21 

the United States pursuant to which the agent is authorized to accept delivery and service of 

“communications”44 that are issued by or on behalf of the Commission. EEX will maintain the 

foregoing appointments as long as the relevant trading participant is operating pursuant to the noaction relief and shall make such appointments available to the Commission upon the request of 

a Commission representative. 

• Prior to their operating pursuant to the no-action relief provided herein, EEX will require 

current and future trading participants of the Exchange who are not registered with the CFTC as 

FCMs to file with EEX a written representation, executed by a person with the authority to bind 

the trading participant, stating that as long as the trading participant operates pursuant to the noaction relief provided herein, the trading participant will provide, upon the request of the 

Commission, the United States Department of Justice or, if appropriate, the National Futures 

Association (NFA), prompt access to original books and records maintained at their United 

States offices as well as to the premises where EEX is installed or used in the United States. 

EEX will maintain the foregoing representations as long as the relevant trading participant is 

operating pursuant to the no-action relief. EEX will make such representations available to the 

Commission upon the request of a Commission representative. 

• Prior to operating pursuant to the no-action relief provided herein, EEX will file with the 

Division, and maintain thereafter as long as EEX, its trading participants, or the System operate 

pursuant to the no-action relief, a valid and binding appointment of a United States agent for 

service of process in the United States, pursuant to which the agent is authorized to accept 

delivery and service of “communications,” as defined above, that are issued to EEX by or on 

behalf of the Commission. 

• EEX will maintain the following updated information and submit such information to the 

Division on at least a quarterly basis, and at any time promptly upon the request of a 

Commission representative: 

• For each contract available to be traded through the System, the total trade volume 

originating from electronic trading devices providing access to the system in the 

United States compared with the total trade worldwide volume for such products 

traded through the System and the total worldwide trade volume for such products 

traded on EEX generally; and 

• A listing of the names, NFA ID numbers (if applicable), and main business addresses 

in the United States of all EEX trading participant that have access to the System in 

the United States. 

• EEX will promptly provide the Division with written notice of the following: 

 

44 For purposes of these conditions, “communications” is defined to include any summons, complaint, order, 

subpoena, request for information, or notice or any other written or electronic documentation or correspondence 

issued on behalf of the Commission. 
Mr. Edward H. Fleischman 

Page 22 

• Any material change in the information provided in its No-action request, including 

any information contained in the documents submitted in support thereof;45

• Any material change in EEX Rules or the laws, rules, and regulations in Germany 

relevant to futures and options; 

• Any matter known to EEX or its representatives that, in EEX's judgment, may affect 

the financial or operational viability of EEX, including, but not limited to, any 

significant system failure or interruption; 

• Any default, insolvency, or bankruptcy of any EEX trading participant known to EEX 

or its representatives that may have a material, adverse impact upon the condition of 

EEX, EEX AG’s Clearing Department, or upon any United States customer or firm; 

• Any known violation by EEX or any EEX trading participant of the terms or 

conditions of the no-action relief provided herein; and 

• Any disciplinary action taken by EEX against any trading participant of EEX 

operating pursuant to the no-action relief provided herein that involves any market 

manipulation, fraud, deceit, conversion or that results in suspension or expulsion and 

that involves the use of an EEX terminal or of an AORS to submit orders to the 

System. 

• Satisfactory information-sharing arrangements between the Commission and the relevant 

regulatory authorities will remain in effect. 

• The Commission will be able to obtain sufficient information, provided directly by EEX, 

regarding EEX operating pursuant to the no-action relief provided herein necessary to evaluate 

the continued eligibility of EEX or its trading participants for the relief, to enforce compliance 

with the terms and conditions of that relief, or to enable the Commission to carry out its duties 

under the CEA and Commission regulations and to provide adequate protection to the public or 

United States contract markets. 

• EEX will employ reasonable procedures, to be determined by EEX, for monitoring and 

enforcing compliance with the terms and conditions of the no-action relief provided herein. 

 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 EEX's No-action request and the 

 

45 The Division notes that “material” changes in the information provided to it in support of this No-action request 

would include, without limitation, a modification of: EEX's trading participant criteria; the location of EEX's 

management, personnel, or operations (particularly changes that may suggest an increased nexus between EEX's 

activities and the United States); the basic structure, nature, or operation of the System; or the regulatory or selfregulatory structure applicable to EEX trading participants. 
Mr. Edward H. Fleischman 

Page 23 

materials submitted in support thereof. Any materially different, changed, or omitted facts or 

circumstances may render this letter void. The Division specifically notes that it will examine 

the volume information submitted as a condition to the no-action relief provided herein as well 

as any changes in the nature or extent of EEX's activities in the United States to ascertain 

whether EEX's presence in the United States has increased to a level that might warrant 

reconsideration of the no-action relief. 

 As with all no-action letters, the Division retains the authority to condition further, 

modify, suspend, terminate, or otherwise restrict the terms of the no-action relief provided 

herein, in its discretion. Finally, the Division wishes to emphasize that the no-action position set 

forth herein is intended to provide immediate, interim relief to EEX and its trading participants, 

pending any adoption of rules or guidelines by the Commission regarding the use and placement 

in the United States of automated trading systems or AORSs that provide access to the products 

of foreign boards of trade. Thus, this letter will cease to be effective in the event that the 

Commission or its staff adopts generally applicable rules or general guidelines regarding the 

issues addressed herein, and EEX will be subject to those rules or guidelines in that event. 

 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: Gregory C. Prusik, Vice-President Compliance and Registration, NFA 

 Branch Chief, Audit and Financial Review Unit, Division of Trading and Markets, 

 Chicago Regional Office