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. 05-24 

December 16, 2005 

No-Action 

Division of Market Oversight

Michael M. Philipp, Esq. 

Winston & Strawn LLP 

35 W. Wacker Drive 

Chicago, IL 60601-9703 

 Re: Sections 5 and 5a – NYMEX Europe Limited; Request for No-Action Relief from 

Contract Market Designation and Derivatives Transaction Execution Facility 

Registration Requirements

Dear Mr. Philipp: 

 This is in response to your letter dated November 3, 2005 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 NYMEX Europe Limited (NEL or Exchange) 

that the Division confirm that it will not recommend enforcement action to the Commission 

against NEL or its members2 in connection with the installation and use in the United States3 of 

the NEL electronic trading and order matching systems known as NYMEX ACCESS® and 

NYMEX ClearPort(sm) Trading (each, an ETS and, collectively, the ETSs) 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 Michael M. Philipp, Esq., Winston & Strawn LLP, to Richard Shilts, Acting Director, Division of 

Market Oversight, Commodity Futures Trading Commission (November 3, 2005). 

2

 For purposes of the No-action request and the relief provided herein, references to the NEL members shall 

include Floor Traders, Floor Brokers, Non-Floor Members, Electronic Traders, and Electronic Brokers who are NEL 

members. Furthermore, references herein to NEL members shall include any affiliate of any NEL member that has 

been granted access by the NEL member to the NYMEX ACCESS® or NYMEX ClearPort(sm) Trading systems. An 

“affiliate” of a NEL member means any person that: (1) owns 50% or more of the member; (2) is owned 50% or 

more by the member; or (3) is owned 50% or more by a third person that also owns 50% or more of the member. 

NEL represents that, to the extent a member permits an affiliate to use the NYMEX ACCESS® or NYMEX 

ClearPort(sm) Trading systems, such affiliate will be required to comply with all of NEL's Rules relating to trading on 

the NYMEX ACCESS® or NYMEX ClearPort(sm) Trading systems and the member shall ultimately be responsible 

to NEL 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. 
Michael M. Philipp, Esq. 

Page 2 

 Specifically, NEL wishes to make NYMEX ACCESS® and NYMEX ClearPort(sm)

Trading, both of which are owned and maintained by the New York Mercantile Exchange, Inc. 

(NYMEX), a DCM, available to: (1) NEL members who wish to trade for their own accounts 

through the ETSs in the United States; (2) NEL members who are registered with the 

Commission as futures commission merchants (FCMs) or who are exempt from such registration 

pursuant to Commission Regulation 30.10 (Rule 30.10 Firms)4 and who wish to submit orders 

from or on behalf of United States customers5

 for transmission to the ETSs; (3) NEL members 

who are registered with the Commission as Commodity Pool Operators (CPO) or Commodity 

Trading Advisors (CTA), or who are exempt from such CPO or CTA registration pursuant to 

Commission Regulation 4.13 or 4.14, and who wish to submit orders on behalf of United States 

pools they operate or United States customer accounts for which they have discretionary 

authority, respectively, for transmission to the ETSs, provided that a NYMEX clearing member 

that is registered with the Commission as an FCM acts as clearing firm with respect to all 

activity conducted by such CPOs and CTAs through the submission of orders on the ETSs; 

and/or (4) NEL Members who are registered with the Commission as FCMs or who are Rule 

30.10 Firms and who wish to accept orders for United States customers transmitted via 

automated order routing systems (AORS)6

 for submission to the ETSs. 

 NEL represents that NYMEX ACCESS® currently is available for electronic trading of 

its Brent Crude Oil Futures and Options and Northwest Europe Gasoil Futures contracts.7 NEL 

currently intends to eventually migrate the electronic trading of its contracts from NYMEX 

 

4

 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 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: (1) 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; (2) minimum financial requirements for those persons that accept customer funds; (3) minimum sales 

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

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

and reporting requirements; (5) standards for the protection of customer funds from misapplication; and (6) 

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). 

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

 For the purposes of this letter, the term "AORS" shall mean any system of computers, software or other devices 

that allows entry of orders through another party for transmission to a NYMEX ACCESS® or NYMEX 

ClearPort(sm) Trading computer or other automated device where, without substantial human intervention, trade 

matching or execution takes place. 

7

 NEL desires to make its contracts available to members, including those located in the United States, through 

the ETSs to supplement NEL's physical trading floor in London. 
Michael M. Philipp, Esq. 

Page 3 

ACCESS® to NYMEX ClearPort(sm) Trading, at which time NYMEX ACCESS® would no 

longer be utilized by NEL. In addition, NEL represents that in the near future it may make a 

smaller-sized electronic version of the Brent Crude Oil Futures contract available on NYMEX 

ClearPort(sm) Trading. Thus, for a period of time, NEL indicates that it may operate both ETSs 

concurrently. 

 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 (June 2 Order).9

 In accordance with this instruction, the Division 

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

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

to the Division: 

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

• NEL Rules; 

• New York Mercantile Exchange (NYMEX) Clearing Rules, Chapter 9; 

• Technology Services Agreement, NEL – NYMEX, dated September 9, 2005; 

• Clearing Services Agreement with respect to NEL including monitoring of clearing 

members, NEL – NYMEX, dated September 9, 2005; 

• General Services Agreement, NEL – NYMEX, dated September 9, 2005; 

• Cooperation Agreement, NEL – NYMEX, dated September 9, 2005; 

• External Memorandum, Michael M. Philipp, Esq., dated October 14, 2005; 

• Certification of authorized representative of NEL as to the truth and completeness of the 

material facts set forth in the request for no-action relief; and 

• Undertaking of authorized representative of NEL Administration and Management to 

notify Commission staff if, prior to the issuance of no-action relief requested in letter dated 

November 3, 2005, any material representation made in such request for no-action relief ceases 

 

8

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

9

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

4274-99 (June 2, 1999). 
Michael M. Philipp, Esq. 

Page 4 

to be true and complete. 

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

United States, NEL's membership criteria, the electronic trading and order matching systems 

known as NYMEX ACCESS® and NYMEX ClearPort(sm) Trading, the relevant regulatory 

regime in the United Kingdom, and the information-sharing arrangements applicable to NEL and 

its regulator are summarized in Sections I - V below. For purposes of its response to the Noaction request, the Division has relied upon NEL's representations and information provided by 

NEL and has not conducted an independent review to confirm their accuracy.10

I. GENERAL INFORMATION REGARDING NEL 

 NEL is an indirect wholly-owned subsidiary of NYMEX Holdings, Inc. (NYMEX 

Holdings)11 and is a sister affiliate of NYMEX. NEL was incorporated in England and Wales on 

March 24, 2005 as a private limited company under the Companies Act 1985 (as amended). 

Initially, NEL was incorporated as NYMEX UK Holdings Limited, and the name was 

subsequently changed to NYMEX Europe Limited on April 5, 2005. Since its establishment, 

NEL has operated in London and has its registered office in that city. NEL represents that it 

does not maintain a representative office in the United States, nor does it provide investment 

advice, solicit orders or direct trading from the United States. 

 NEL is recognized by the UK Financial Services Authority (FSA) as a Recognized 

Investment Exchange (RIE) for the purpose of trading futures contracts on certain commodities 

(primarily energy products). Initially, NEL has listed the following contracts: Brent Crude Oil 

Futures, Northwest Europe Gasoil Futures, and Brent Crude Oil Options. The Brent Crude Oil 

contracts are cash settled. The Northwest Europe Gasoil Futures contract is a physically settled 

contract with all delivery points in Northwest Europe. The contracts are traded primarily on 

NEL's open-outcry trading facilities on its trading floor, supplemented by electronic trading 

through the ETSs. 

NEL is overseen by the Board of Directors of NEL (Board) comprised of eleven 

Directors. The Board includes four Directors appointed from members/customers of the 

Exchange and two independent Directors. The Board has overall responsibility for ensuring that 

NEL satisfies the recognition requirements and complies with its obligations under the UK’s 

Financial Services and Markets Act 2000 (FSMA), including with respect to its activities as a 

UK recognized body. In addition, the Board is responsible for approving strategic decisions. 

The day-to-day management of the Exchange is the responsibility of the Chief Executive Officer 

(CEO) and the executive management team. The CEO is, in particular, responsible for helping 

 

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

made by NEL 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 NEL is 100% directly owned by NYMEX Europe Exchange Holdings Limited, an English company that is 

100% owned by NYMEX Holdings. NYMEX, the DCM, is also 100% owned by NYMEX Holdings. 
Michael M. Philipp, Esq. 

Page 5 

to develop Exchange strategy and business plans and for implementing the Board's strategy. He 

is assisted by a full-time staff, including a compliance function. 

Certain of the Exchange's operations are outsourced to its sister affiliate, NYMEX, under 

arms-length commercial agreements covering technology hosting and other services pursuant to 

a Technology Services Agreement (TSA), and a range of management support and compliance 

services and regulatory cooperation pursuant to a General Services Agreement (GSA).12 In 

addition, the clearing department of NYMEX (NYMEX Clearing), a Commission-registered 

derivatives clearing organization (DCO), provides clearance and settlement services to NEL 

pursuant to a Clearing Services Agreement (CSA). 

II. MEMBERSHIP

A. Members

A person may not trade directly on NEL, including through the ETSs, unless that person 

becomes a member of the Exchange. Membership is open to any individual, corporate body, 

partnership or unincorporated association, and each member will have one seat. Applicants may 

apply for any one of the following categories of membership: (1) floor traders, who may trade 

their own account or the account of any of their affiliates and any other member; (2) floor 

brokers, who may trade their own account, the account of any customer, or the account of other 

affiliates and other members.; (3) locals, who are floor traders who are individuals or companies 

of which at least ninety per cent of the issued share capital is beneficially held by a single 

individual, or entities with no share capital and at least ninety per cent of the votes exercisable at 

its general meetings are exercisable by a single individual; (4) non-floor members, who are not 

floor members and who do not have floor trading privileges but have the right to trade with or 

through a floor member for their own account or for customers; (5) electronic traders, who are 

electronic members who have been authorized by the Exchange to have access to the ETSs to 

trade their own account or the account of any of their affiliates and any other member; and (6) 

electronic brokers, who have been authorized by the Exchange to have access to the ETSs to 

trade their own account, the account of any customer, or the account of other affiliates and other 

members.13

In order to become a member of NEL, an applicant must satisfy certain specific criteria, 

including a requirement that the applicant: (1) if a sole trader, be the greater of 18 years old or 

the minimum age of majority required to be responsible for his/her contracts in each jurisdiction 

in which the applicant conducts business and consent to the designation of the General Manager 

as his or her agent for service of process concerning and limited to the activities and business 

 

12 The outsourcing arrangements also provide for NYMEX to assist NEL with respect to its trading floor 

operations, including technology and compliance assistance, on an on-going basis. 

13 Floor and electronic categories of membership are grouped as follows: (1) floor members includes floor 

traders, floor brokers, and locals; and (2) electronic members includes electronic traders and electronic brokers 

(electronic members on NYMEX ClearPort(sm) Trading, referred to as “Users”, are included in the term electronic 

members as that term is used in this document). Floor members and non-floor members may also apply for 

electronic membership. 
Michael M. Philipp, Esq. 

Page 6 

he/she conducts on NEL; (2) be resident or established and carrying on its business in the UK or 

in another jurisdiction acceptable to NEL; (3) have, in the opinion of the Board, good character, 

commercial standing and business experience; (4) provide satisfactory evidence of its identity 

and the identity of its controllers as the Board may prescribe to enable NEL to comply with its 

obligations under the Money Laundering Regulations 2003; (5) if not a sole trader, provide such 

evidence as required as to its legal status and organization and as to its capacity to become a 

member of NEL without breaching applicable laws, regulations and rules; (6) submit an 

application, in the prescribed form, together with such supplementary materials as may be 

required; (7) pay the non-refundable application fee of such amount fixed by the Board from 

time to time; (8) execute an agreement in the prescribed form undertaking to be bound by the 

rules of NEL; (9) designate (in the prescribed form) an officer, employee or partner as the 

Exchange liaison, whom the Exchange may contact in order to obtain additional information or 

documentation in connection with any matter whatsoever provided in the rules of NEL; and (10) 

satisfy such other criteria and take such other steps as NEL may stipulate from time to time.14

 Different additional criteria apply for the different categories of membership. To qualify 

as an electronic member, an applicant (whether an individual or a legal entity) must: (1) either 

be a clearing member or be guaranteed to trade on the ETSs by a clearing member that agrees to 

act as its primary clearing member (PCM), under the NYMEX Clearing Rules, with respect to 

trading on the Exchange;15 and (2) if an electronic broker, be authorized by the FSA to execute 

customer orders16 and comply with all applicable FSA or other regulatory capital requirements. 

In addition, an electronic member must: (1) be appropriately licensed or authorized to enable it 

to lawfully carry on its activities in any relevant jurisdictions outside the UK and provide 

evidence to the Exchange of its regulatory status in such jurisdictions; (2) provide evidence of its 

experience and competence; and (3) provide satisfactory evidence to enable NEL to comply with 

its obligations under the applicable anti-money laundering requirements. 

Each electronic member must have at least one electronic trading privilege, which is the 

right attaching to an individual who is, or is employed by, an electronic member, to trade on the 

ETSs. An applicant may apply for as many electronic trading privileges as it needs to conduct its 

business in an orderly fashion by submitting the names of the individuals who will be exercising 

that electronic trading privilege on its behalf with the application. The Board may impose limits 

 

14 Members of NEL are subject to minimum financial requirements established by NEL and, with respect to 

clearing members, established by NYMEX. 

15 All members must clear through a clearing member of NYMEX who will clear through NYMEX Clearing. All 

current NYMEX clearing members are US-incorporated FCMs with their main businesses in the U.S. No 

guaranteed member may open a commodity account without the prior written consent of the member's PCM. In 

addition, each guaranteed member shall, among other things, notify, in writing, the PCM of each commodity 

account of the member, including every omnibus account and, unless otherwise requested, cause to be delivered to 

its PCM all statements and confirmations with respect to each commodity account in which the member has a direct 

or indirect interest or over which the member exercises direct or indirect control. 

16 Unless the electronic member can benefit from a safe harbor, i.e., an exemption under the FSMA to enable it to 

carry on activities on the Exchange without becoming FSA-authorized, or an exclusion from the authorization 

requirement under the RAO to enable it to carry on activities on the Exchange without requiring FSA authorization. 
Michael M. Philipp, Esq. 

Page 7 

on the number of electronic trading privileges that each electronic member can hold based on 

constraints of the ETSs. 

B. Clearing Members

As previously stated, NYMEX Clearing, a CFTC-registered DCO, provides clearance 

and settlement services to NEL pursuant to a CSA. Each clearing member clearing trades at 

NEL must be a NYMEX clearing member and must satisfy the clearing member requirements of 

NYMEX Clearing.17 As such, each successful applicant must, among other things, (1) have such 

business integrity and financial responsibility as to justify NYMEX Clearing in assuming the risk 

involved in the clearing of the applicant's trades; (2) sign a statement that if approved, the 

applicant will observe and be bound by the NYMEX Clearing Rules and all subsequent 

amendments thereto; and (3) provide a balance sheet prepared and certified to by a certified 

public accountant, and sworn to as to the substantial accuracy by the applicant, that shows 

working capital of not less than $5,000,000. 

 Each electronic member must be guaranteed to use the ETSs by a PCM or be a clearing 

member itself.18 To guarantee a member, the PCM must execute such guarantees and other 

documents as required by NEL and NYMEX Clearing and all PCM guarantees must be approved 

by the NYMEX Clearing Board of Directors. In order to guarantee an electronic member, the 

PCM must: (1) agree to accept and clear all trades executed as a result of orders entered by 

authorized terminal users (ATU)19 through use of the passwords issued to that electronic member 

and all trades executed as a result of any order entered by an ATU that do not clear, provided 

however that such PCM is not be required to accept any trade that is submitted to it for clearance 

after the close of that business day's session of regular trading hours; (2) agree to accept financial 

responsibility for all trades determined through the Exchange adjudication or arbitration process 

to have been executed as a result of orders entered through use of the passwords issued to that 

electronic member; (3) file with the NYMEX Clearing Board of Directors such guarantees and 

other documents as NEL and NYMEX Clearing require in connection with the PCM's guarantee 

 

17 NYMEX clearing members need not be members of NEL merely because they clear for a NEL member. In 

fact, NYMEX members never automatically become members of NEL and must apply separately for membership. 

18 The guarantee by a PCM is subject to a number of qualifications, including the following: (1) no floor member 

that is guaranteed by a PCM for trades executed on the floor during regular trading hours may be guaranteed by a 

different PCM for trades executed during an Electronic Trading Session; (2) no member may be guaranteed by two 

PCMs at the same time; and (3) for each qualification in excess of 24 members, a clearing member is required to 

maintain working capital of $50,000 above that otherwise required by NYMEX Clearing Rules. 

19 Persons performing the equivalent responsibilities of ATUs on NYMEX ClearPort(sm) Trading are referred to as 

“User Agents” but are included in the term ATU as that term is used in this document. If access to the ETSs is 

provided by NYMEX on behalf of the Exchange, ATU means those employees and agents of the electronic member 

that an electronic member has designated to serve as terminal operators and has properly notified the Exchange and 

the NYMEX Customer Services Call Center (NCSCC). If access to the ETSs is via a front end trading application 

that is proprietary to the electronic member or provided by a third party and that is certified by NYMEX on behalf of 

the Exchange, ATU means those individuals or entities (including, without limitation, the electronic member’s 

customers, employees, agents and independent contractors) that the electronic member has authorized to access the 

ETSs via a certified application and has properly notified the Exchange and the NCSCC. 
Michael M. Philipp, Esq. 

Page 8 

of an electronic member; and (4) comply with the financial requirements for guarantors as set 

forth in the NYMEX Clearing Rules. 

III. OVERVIEW OF THE NEL TRADING SYSTEM

 At the outset, the Division notes that the description of the ETSs set forth herein is based 

upon representations made by NEL or its representatives. Nonetheless, it should also be noted 

that the electronic trading and order matching systems known as NYMEX ACCESS® and 

NYMEX ClearPort(sm) Trading have previously been reviewed by the Commission staff. On 

December 17, 1992, the Commission, following a thorough review by its staff, approved 

NYMEX’s proposed new and amended rules which implemented the NYMEX ACCESS® 

Trading System. The Division has since reviewed the operation of NYMEX ACCESS® during, 

among other things, the course of rule enforcement reviews of NYMEX and reviews of 

electronic trading systems generally. On January 16, 2003, the Division acknowledged the selfcertified submission by NYMEX of proposed new and amended rules in support of the launch of 

NYMEX ClearPort(sm) Trading. The Division has not, to date, recommended any alteration in its 

trading procedures. 

 A. Introduction

NEL's contracts are traded both by open outcry on the trading floor facilities in London 

and electronically through the ETSs. NEL has entered into the TSA with NYMEX pursuant to 

which NYMEX has granted NEL a non-exclusive, fully-paid, royalty-free, perpetual and nonterminable license to use certain proprietary NYMEX computer software and programs required 

for NEL's operations. The license includes customizations, upgrades and updates relating to the 

licensed software. The licensed software and programs include the electronic trading platforms 

for trading NEL products. NYMEX, through the NCSCC, provides back-up services which 

include, among other things, the processing of applications for electronic membership, 

processing of new ATUs, and suspension of access to the ETSs. 

NYMEX ACCESS® was launched in June 1993, and uses a browser-based interface. 

Currently, NYMEX ACCESS® provides market participants the ability to conduct after-hours 

electronic trading for NYMEX's floor-based products. NYMEX ClearPort(sm) Trading was 

launched in January 2003, as an intended successor to NYMEX ACCESS®. NYMEX 

ClearPort(sm) Trading provides a trade execution system for 130 energy futures products which 

are based on commonly-traded over-the-counter (OTC) instruments. The system offers 

competitive trading in a product slate of energy futures contracts which is separate from the 

product slate offered on NYMEX ACCESS®. 

The ETSs permit the trading of futures contracts via the Internet during the electronic 

trading hours of NEL. Traders using the ETSs can log on from any Internet-enabled computer 

and enter, modify and cancel orders. The ETSs provide a broad range of information and 

features not readily available during open outcry regular trading hours, including: (1) depth of 

market views and spread bid/offer views for specified commodities; (2) generation of implied 

prices (NYMEX ACCESS® only); (3) ability to perform market sweeps (entry of several 
Michael M. Philipp, Esq. 

Page 9 

different orders with different prices via the market depth window) in a single order transaction; 

(4) inter-commodity spreads and outrights links (NYMEX ACCESS® only); and (5) strip trading 

(i.e., trading a series of two or more consecutive months) (NYMEX ClearPort(sm) Trading only). 

The systems supporting NEL's electronic trading operations are hosted by servers located 

in the United States and operated and maintained by NYMEX. The systems to be hosted by 

NYMEX in New York (the Hosted Systems) initially include, among others: (1) Trade 

Management System (TMS), used for capturing NEL Trades; (2) Price Reporting System (PRS), 

used for the dissemination of price information from the market; (3) NEON, a trade order 

processing system; (4) TXN, a computerized surveillance system; and (5) the NEL Corporate 

Website. 

B. The Order System

Customer orders submitted for execution on the ETSs must be entered into the ETSs’ 

programs and database that accept, match and report executions of orders in the ETSs (Matching 

System)20 via the Order Entry dialogue window in the ETSs within one minute of receipt.21 

Electronic members have a choice as to whether to place an order, hit an existing bid or offer or 

ask for a quote in the market. NEL Rules provide that trades in the ETSs are formed at the point 

of matching in the Matching System.22

NEL Rules prohibit electronic brokers and their ATUs from: (1) withholding or 

withdrawing from the market any customer order or any part of a customer order for personal 

benefit or for the convenience of another; (2) entering orders into the ETSs for their own 

accounts (including accounts of associates) ahead of customer orders; and (3) entering a 

proprietary or associated account order which is the opposite side of a customer order already 

resting in the Matching System, unless the customer order has rested in the Matching System for 

at least 10 seconds. NEL Rules also require each electronic broker and ATU to disclose the fact 

that it has a proprietary or associated account resting order in the Matching System, before 

accepting from any customer an order for the opposite purchase or sale of the same contract. In 

addition, NEL Rules prohibit electronic members and their ATUs who are employees or agents 

of the electronic member from entering orders for different principals as a cross trade into the 

ETS Matching System. Instead, an electronic member or ATU must enter orders into the 

Matching System strictly on the basis of the time of receipt of the orders. Each order has to rest 

in the Matching System for at least 10 seconds before an opposite order may be entered into the 

system. 

 

20 Under the TSA, this system will, as with the systems supporting NYMEX's operations in New York, be hosted 

by servers located in the United States and operated and maintained by NYMEX. 

21 If such orders cannot be timely entered into the Matching System, they must be recorded within one minute of 

receipt on a memorandum of the order, in non-erasable ink, and be time-stamped in accordance with NEL Rules and 

be entered into the Matching System as soon as practicable. The memorandum must also be timestamped when a 

report of execution is made. 

22 When a trader enters an order that exceeds the predefined system or user level limits, a system generated 

warning message will display. The trader then has the option of either confirming the order (despite the warning) or 

canceling the order. 
Michael M. Philipp, Esq. 

Page 10 

NYMEX ACCESS® orders are executed on the basis of strict price and time priority 

with the first order in at the best price being the first order executed and with total anonymity and 

fairness. Each order submitted to the ETSs must be matched to its corresponding buy or sell 

counterpart in order to be considered a valid trade for updating into TMS and eventual transfer to 

C21®, a clearing system developed jointly with the Chicago Mercantile Exchange (CME) and 

used in connection with the clearing of trades. Once an order is matched in the Matching 

System, the relevant ETS transmits the trade records electronically to the clearing members of 

the customers or to the members on both sides of the trade. 

At the point of matching of the trades within the ETSs: (1) where the electronic member 

trades as principal, a contract is formed between the electronic member and the clearing member 

carrying the account for which the order was submitted by that electronic member; (2) where the 

electronic member trades as agent, a contract is formed between the relevant customer, affiliate 

or other member on behalf of whom the electronic member was trading and the clearing member 

carrying the account for which the order was submitted by that electronic member; and (3) in 

either case, a contract is formed between the clearing member carrying the account designated by 

the electronic member and the clearing member carrying the account for the matching trade; and 

(4) no bilateral trade is formed between the electronic members inputting the data in the 

Matching System. 

Orders designated as "day orders" that are not filled by the end of the trading day will 

generally be dropped from the system when the next trading day is established within the ETSs. 

However, within NYMEX ACCESS®, when an order is entered, the ATU can specify that the 

order is to carry forward to the next trading day. Such orders will appear marked “inactive” the 

next trading day and the ATU will have to activate them if they are to be matched on that day. If 

left inactive, the orders will be dropped from the system when the next trading day is established. 

For NYMEX ClearPort(sm) Trading, the unfilled portion of the orders entered with a Good Till 

Date (GTD) or a Good Till Cancel (GTC) designation will be retained in the system until the 

designated date, in the case of a GTD order, or until the contract expires, in the case of a GTC 

order. These orders will be carried from one trading session to the next and will be marked 

“inactive” requiring the electronic member to activate the orders if they are to be matched on that 

day. 

C. The Trading Day

NEL's Trading Day currently includes up to three trading sessions: (1) an Electronic 

Trading Session (for the Brent Crude contracts, 12:00 a.m. - 9:30 a.m. UK time on Sunday and 

8:15 p.m. - 9:30 a.m. UK time on Monday through Thursday; for the Gasoil contract, 12:00 a.m. 

- 8:45 a.m. UK time on Sunday and 8:15 p.m. - 8:45 a.m. UK time on Monday through 

Thursday); (2) a regular trading hours (RTH) Trading Session (for the Brent Crude contracts, 

10:00 a.m. - 7:30 p.m. UK time on Monday through Friday; for the Gasoil contract, 9:15 a.m. - 

4:30 p.m. UK time on Monday through Friday); and (3) a Post-Close Trading Session or an End 

of Week Trading Session. 
Michael M. Philipp, Esq. 

Page 11 

NEL's Trading Day commences with the opening of the Electronic Trading Session, 

which may for certain products extend into RTH. The Trading Day ends at the close of the RTH 

Trading Session or at the end of the Electronic Trading Session, whichever is later. No business 

is conducted on Saturdays or Sundays with the exception of an Electronic Trading Session on 

Sunday evening for the purpose of commencing Monday's Trading Day. NEL's Board reserves 

the right to change its trading hours at any time. For example, as previously noted, NEL 

represents that it may determine to list smaller sized electronic versions of certain of its floortraded contracts that would trade after regular trading hours or side-by-side with the full-sized 

floor contracts. 

D. Trade Registration / Audit Trail

Electronic members and their ATUs may not accept any order for execution on the ETSs 

unless it includes the following details: (1) commodity; (2) contract month; (3) purchase or sale; 

(4) customer account number (or certification that the order is for multiple accounts and is to be 

later allocated); (5) quantity; (6) limit price (except for stop, market discretion, market-if-touched 

or market orders); (7) clearing member who holds the account for the relevant customer or for 

the electronic member if trading on own account or for the account of affiliates; (8) strike prices, 

put or call (for options); and (9) any precondition for entry into the Matching System. The ETSs 

automatically record the time of, and retain a record of, each entry into the system. All relevant 

data are retained in a database for a period of five years. 

NEL Rules require that all members keep records of all transactions executed for at least 

five years. Records may be kept either in hard copy or on magnetic disk, but must also be kept 

in any other form if so required by another regulator with jurisdiction over the member and NEL 

transactions. NEL Rules also require that members must keep records for longer than five years 

if (1) they are required to do so by another regulatory body; or (2) the records relate to a 

transaction which is to be settled more that five years from the contract date, in which case the 

relevant records shall be kept until the contract has been settled. 

E. Data Dissemination

NYMEX ACCESS® allows electronic members to view as many windows as they wish, 

including the following: (1) futures trading view, which includes the opening and previous day's 

settlement price, highest bids and lowest offers, last price, high price and low price, ask volume, 

and (covering both NYMEX ACCESS® and open outcry trading) open interest; (2) calendar 

spread view, which includes implied prices derived from the futures market; (3) market depth 

view, which displays the market size; (4) trades view, which shows an electronic member's 

completed trades for the current trading session; (5) order book view, which displays all orders 

entered during the current trading session; (6) volume summary, which displays total volume for 

futures, options, spreads and exchanges of futures for physicals (EFP); (7) a user monitor, which 

displays a list of ATUs within the firm and their connection status; and (8) an audit trail, which 

includes a summary of activity. 
Michael M. Philipp, Esq. 

Page 12 

NYMEX ClearPort(sm) Trading allows electronic members to view a limited number of 

windows, including the following: (1) blotter (or trade blotter), which displays, among other 

things, the symbol, current best bid and offer prices and volumes, last price, user’s own bids and 

offers, last trade price and volume, market state, and settlement price (the blotter contains all of 

the contract months available for the selected product); (2) several custom blotters, in which 

traders can select and group individual contracts of their choosing to view the same information 

available in a blotter view but allowing contracts from different products to appear on the same 

custom blotter; (3) order view, which displays all orders entered during the current trading 

session; (4) trade view, which displays all trades executed by the electronic member for the 

current trading session; (5) spread view, which displays the current best bid and offer price and 

volume information for tradable spread contracts; (6) market depth view, which displays the 

market size; and (7) time and sales for each tradable contract. 

 NEL disseminates its electronic trading data (prices/quotes) to third party vendors such as 

Bloomberg and Reuters. In addition, NEL posts its market quotes on the exchange’s website at 

http://www.nymexeurope.co.uk and on NYMEX's website at http://www.nymex.com on a 30-

minute delayed basis. 

F. Reliability and Failure Recovery

NYMEX monitors and measures the availability and performance of applications and 

host systems on a 24-hour basis. The monitoring system proactively notifies IT personnel via 

alerts generated by custom probe as soon as it detects a problem. IT personnel process and 

correlate the alert data with other information to analyze the potential problem. The monitoring 

system is installed in the Operations Room, where operators observe critical systems via 

dedicated monitors at all times.23

NYMEX represents that it also has in place systems and procedures for maintaining 

business continuity in the event of system or network failure. If a serious system event occurs at 

NYMEX's primary New York site, the systems supporting open outcry and the backup systems 

for the ETSs can be managed remotely in order to continue to provide support to NEL. If the 

NEL trading floor becomes inoperable, the backup will be the ETSs. In the event that NEL 

cannot be supported, a crisis management team will assess the situation and notify NEL of the 

event. If the problem occurs intra-session and results in discontinuation (or the threat of 

discontinuation) of trading, the crisis management team will seek to halt markets, notify the 

FSA, and monitor the event until it is resolved.24

 

23 In addition, for certain applications, such as C21®, NYMEX uses job-scheduling software to create 

system/application logs for monitoring actual batch submissions and processing, including: (1) jobs scheduled for 

execution; (2) actual job start and completion times; (3) any abnormal conditions during the execution; and (4) 

whether jobs were run to normal completion. 

24 In the event that an electronic member is unable to enter an order electronically due to an isolated system 

disruption involving that member’s access to the ETSs, the member can place the order by telephone with either his 

or her clearing member or with another brokerage house, either of which can then enter the order on the member’s 

behalf. 
Michael M. Philipp, Esq. 

Page 13 

With respect to back up, duplication of key components and tape management, NYMEX 

has a predetermined schedule for incremental and full back-ups. NYMEX maintains a back-up 

facility for all its IT systems at a geographically separate location that is on a separate power, 

water, and telecommunication grid from NYMEX's headquarters. The main facility and the 

back-up facility are linked with multiple redundant fiber optics lines, providing completely 

synchronized communications. NYMEX audits its back-up facilities on a quarterly basis. 

NYMEX rotation policy specifies that all previous weekday tapes are off-sited to a vaulting 

facility. Tape retention policy is seven years for all full backups and 60 days for all incremental 

ones. All backup tapes are retained at NYMEX's main business address and at the back up 

location.25

NYMEX represents that it will provide all reasonable assistance to NEL in developing, 

maintaining and implementing an appropriate disaster recovery and business continuity plan to 

ensure that NEL continues to meet the legal, regulatory and accounting requirements and 

standards applicable to it. NYMEX is required to maintain a business continuity plan for the 

equipment, systems and power supply, including backup arrangements for both processing and 

communications resources. 

A redundant communication link between NEL and NYMEX's disaster recovery and 

secondary data center facilities provides back-up communications capability in the event that the 

primary communications link fails. In addition, one connection link terminates at each of the 

facilities to provide, in effect, a redundant high speed triangulated network backbone with 

multiple and distinct points of entry to the data centers. If these redundant communications links 

fail, NEL can communicate with NYMEX using a virtual private network over the Metropolitan 

Area Network or, if this is unavailable, a lower bandwidth internet connection. 

G. System Security

NYMEX represents that it will enforce network security as part of the managed service it 

provides NEL under contract. The NYMEX Technical Operations group is responsible for 

network monitoring, including network routers, devices, and infrastructure. Outside service 

providers provide additional monitoring of internet and dark fiber connectivity as part of their 

paid service offerings. NYMEX also employs a managed and monitored firewall intrusion 

detection service to monitor data flows to and from the internet and alert on suspicious or 

malicious activity. In the event that malformed, malicious, or otherwise suspicious activity is 

detected, the 24/7 intrusion detection service support staff will notify the NYMEX Computer 

Incident Response Team (NCIRT). The NCIRT team assesses the criticality of the received alert 

and works towards its resolution. 

 

25 NCSCC also performs back-up functions. At the end of the Trading Day, trade volume summary screens and 

trade detail screens (Trade Book and Order Book) are accessed by a NCSCC staff member within the ETSs. The 

screen details are copied and pasted into an Excel spreadsheet to create a daily repository on the LAN of trade 

activities for use the next Trading Day so as to address customer inquiries about alleged errant and/or missing trades. 

Access to the LAN directory is restricted to NCSCC staff and management. The LAN is backed up nightly as part 

of the NYMEX nightly LAN back-up process. In essence, every trade record is copied and stored in Excel, by trade 

date, for eventual retrieval by the NCSCC staff should someone wish to review the trade details. 
Michael M. Philipp, Esq. 

Page 14 

Each electronic member receives one or more unique user identification numbers and 

passwords to enable access to the ETS for use by the electronic member and his ATUs. The 

electronic member is responsible for protecting and monitoring the use of its passwords and is 

required to provide the passwords only to persons that the electronic member has authorized to 

use the system and for whom the electronic member has notified NEL in the manner provided by 

NEL Rules. Electronic members are under an obligation to notify NEL through the NCSCC 

immediately of any unauthorized disclosure or use of their passwords, unauthorized access to the 

system or any need to deactivate any passwords. 

The electronic member with whom an ATU is registered is responsible and liable for all 

acts and omissions of that ATU. Further, an electronic member is responsible and liable for all 

trades entered into the system using its passwords, whether it has actually authorized such trades 

or not. The NCSCC, acting on behalf of NEL, has the right, at its sole discretion, to suspend, 

terminate or restrict an electronic member's access to and use of the system at any time in order 

to protect the integrity or operation of the system, to protect NEL, its market or other members. 

H. Demarcation of Responsibilities and Liability

NEL Rules limit the Exchange’s liability to members with respect to the operation of the 

ETSs. For example, in the absence of a finding of willful or wanton misconduct, NEL may not 

be held liable to any person, including a customer, for any losses, damages, costs or expenses 

arising from the following: (1) any failure or malfunction of the electronic trading platform or 

any exchange services or facilities used to support the electronic trading platforms (including 

TMS and C21®); or (2) any fault in delivery, delay, omission, suspension, inaccuracy or 

termination or any other cause, in connection with the furnishing, performance, maintenance, use 

of or liability to use all or any part of the electronic trading systems, data or other information 

made available on the ETSs, or any services or facilities used to support the same. NYMEX and 

NEL are liable (up to stated limited amounts) for certain negligent acts of the NCSCC and other 

employees provided by NYMEX and/or NEL to perform services on behalf of NEL for 

electronic members and ATUs with respect to the electronic trading platform. 

I. Adherence to IOSCO Principles

NEL represents that it will, in providing the ETSs to its members, adhere to the 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),26

 

26 The United Kingdom 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. 
Michael M. Philipp, Esq. 

Page 15 

adopted by the Commission on November 21, 1990.27 The FSA’s predecessor in interest, the 

Securities Investments Board (SIB), endorsed the IOSCO Principles in April 1991.28

J. Settlement and Clearing

All contracts executed on NEL are submitted for clearing to NYMEX Clearing. The 

NEL-NYMEX CSA sets out a specification for clearing and settlement services and service 

levels. It also includes escalation procedures to enable NEL staff to solve any issues with respect 

to the services on a timely basis. NEL represents that NYMEX Clearing will clear all trades 

initiated on NEL on essentially the same basis as it clears trades initiated on the floor in New 

York. NEL's General Manager and CEO are responsible for ensuring that NYMEX Clearing 

complies with the standards and escalation procedures set out in the CSA, and will be on hand to 

resolve any emergency issue in relation to clearing. 

Each contract transacted on NEL is a contract between the two clearing members to 

whose accounts the matching positions have been allocated, and on acceptance for clearing is 

replaced by two contracts with NYMEX Clearing: (1) one between the buying clearing member 

and NYMEX Clearing as seller, and (2) another between the selling clearing member and 

NYMEX Clearing as buyer.29 Substitution occurs upon NYMEX Clearing’s acceptance of a 

matched trade. As previously noted, all members must have in place guarantees with a clearing 

member whereby the clearing member (the member’s PCM) will clear all trades through 

NYMEX Clearing that are not accepted for clearing by the customer's clearing member.30

Daily settlement prices for all contracts traded on NEL are determined by the Settlement 

Price Committee of NEL in accordance with its rules.31 Daily settlement prices are transmitted 

on PRS and fed to market data vendors. NYMEX monitors changes in settlement prices on 

NEL. This function, which NYMEX Clearing provides to NEL in accordance with the CSA, 

requires NYMEX Clearing, on a daily basis, to: (1) review the change of the settlement prices 

for each month of each active NEL contract so as to determine NYMEX Clearing's exposure to 

volatile markets; (2) analyze settlement prices to determine the extent of its large trader reviews 

and the possible expansion of clearing member margin call submissions; (3) determine price 

 

27 The Commission adopted the IOSCO Principles as a statement of regulatory policy for the oversight of screenbased trading systems for derivative products. Policy Statement Concerning the Oversight of Screen-Based Trading 

Systems, 55 Fed. Reg. 48670 (Nov. 21, 1990). 

28 SIB Endorsement of IOSCO’s Principles for the Oversight of Screen-Based Trading Systems for Derivative 

Products, Guidance Release 2/91 (April 1991). 

29 This structure permits parties to trade with one another without individual credit determinations or counterparty 

credit risk. 

30 NYMEX Clearing does not have any direct contractual relationship with NEL members. Accordingly, 

NYMEX Clearing is not liable for any obligations of (1) a NEL member who is not also a clearing member of 

NYMEX, (2) a clearing member to a NEL member or customer, or (3) a clearing member to another clearing 

member who is acting for the clearing member as broker. Furthermore, NYMEX Clearing is not liable to customers 

of NEL members to make or take deliveries or otherwise. 

31 NYMEX Clearing has, in certain circumstances, the right to substitute its own settlement prices. 
Michael M. Philipp, Esq. 

Page 16 

limit projections, analyzing whether additional exposure might be encountered by select clearing 

members or individual accounts; and (4) discuss volatile market exposure with clearing member 

management, where applicable. 

NYMEX Clearing conducts clearing through its highly flexible C21® system, developed 

jointly with the CME and rolled out in 1999 and expected to support any anticipated growth in 

volume or business expansion for the next five to ten years. The C21® system was upgraded in 

autumn 2001 to permit clearing member access via the Internet, as well as to accommodate an 

enhanced product base, including the clearing of OTC contracts. The system enables NYMEX 

to perform functions relating to banking, settlement, asset management, delivery management, 

position management and margins.32

Through NYMEX Clearing, NYMEX maintains a system of guarantees for financial 

performance of obligations owed to buyers and sellers. This system of guarantees is supported 

by several mechanisms, including margin deposits and guaranty funds posted by clearing 

members with NYMEX Clearing. NYMEX Clearing collects both original margin and variation 

margin from its clearing members on a daily basis. Original margin is collected at least once 

daily and variation margin at least twice daily. The original margin requirement is a function of 

a clearing member's open positions and the margin rate. The margin rate is set by NYMEX 

Clearing using the system known as US Standard Portfolio Analysis of Risk (SPAN), developed 

by the CME and used by commodity clearing houses worldwide. Variation margin is calculated 

as being the difference between the trade price and the settlement price used for the particular 

variation margin call. On a daily basis, NYMEX's Compliance Department – Financial 

Surveillance & Risk Management Division will, in accordance with the standards set out in the 

CSA, conduct a detailed review of each clearing member's variation margin, earmarking stress 

thresholds and making enquiries if needed.33

The Exchange's arrangements for dealing with a defaulting member are based on the 

Default Rules Requirements and complemented by the NYMEX Clearing default arrangements. 

Under the UK’s Default Rules Requirements, NEL must have rules that allow it to declare a 

member to be a defaulter and close out all open positions on that market.34 However, the 

 

32 NYMEX represents that it is in the process of developing upgrades to C21® which will not change the current 

user interfaces, but will improve on the C21® functionality by moving C21® into a Windows environment, which 

will make it more efficient and flexible. The changes will not be noticeable to users or clearing members, and 

processing rules and flows will remain the same. 

33 NYMEX Clearing's rules allow clearing members to post original margin using cash, various securities (subject 

to a haircut) and certain money market mutual funds. All variation margin must be posted in cash. NYMEX 

Clearing acts as a fiscal transfer agent, transferring money from the margin funds of traders who have experienced a 

decline in the value of their open positions to the margin funds of traders who have generated a gain - all via the 

customer or proprietary accounts of its clearing members. As required by the CFTC, NYMEX Clearing segregates 

margin deposited by clearing members for their customer accounts from margin received for their house accounts. 

NYMEX Clearing verifies on a daily basis that the cash it maintains is sufficient to cover its obligations to clearing 

members in accordance with the CFTC's segregation rules. NYMEX Clearing requires its clearing members to 

collect margin from their customers at set percentages in excess of the clearing members' requirement. 

34 NEL is not required to wait for formal insolvency proceedings to commence before such a declaration is made 

if it believes, in good faith, that the member will be unable to meet future obligations under market contracts. All 
Michael M. Philipp, Esq. 

Page 17 

NYMEX default rules take precedence over the NEL default rules with respect to contracts to 

which NYMEX Clearing is party. If, therefore, a clearing member were to default, NYMEX 

Clearing would apply its default rules to the registered contracts, while NEL would deal with the 

back-to-back contracts between the defaulting clearing member and its clients and the nonclearing members for which it clears. If a non-clearing member were to default, only NEL's 

rules would apply as NYMEX would have no contractual nexus over it. 

Pursuant to NYMEX's rules, in the event of the failure of a clearing member to deposit 

any margins as required, the president of NYMEX, with the approval of NYMEX's Board of 

Directors, may close out all or any part of such clearing member's trades in the best interest of 

NYMEX and such defaulting clearing member. In addition, NYMEX Clearing may apply 

against such defaulting clearing member's obligations the clearing member's: (1) margin on 

deposit, (2) deposit in the NYMEX Guaranty Fund, and (3) any other assets under the control of 

NYMEX35. NYMEX Clearing may apply these assets based on the type of default by the 

clearing member, as follows: (1) for defaults in the customer segregated account, NYMEX 

Clearing can use all assets; and (2) for defaults in the clearing member's house account and/or 

customer non-regulated account,36 NYMEX Clearing can use that portion of the assets held in the 

house and/or customer non-regulated accounts. If the above assets are not sufficient, NYMEX 

Clearing rules provide that NYMEX will utilize other substantial financial resources in order to 

meet the obligations of the defaulting clearing member. 

IV. OVERVIEW OF THE REGULATORY STRUCTURE IN THE UNITED 

KINGDOM

A. Introduction

NEL is subject to a comprehensive regulatory regime in the United Kingdom. This 

regulatory structure includes, among other things: (1) financial and other fitness criteria for 

industry participants; (2) reporting and recordkeeping requirements; (3) procedures governing 

the treatment of customer funds and property; (4) sales practice and other conduct of business 

standards; (5) provisions designed to protect the integrity of the markets; and (6) statutory 

prohibitions on fraud, abuse, and market manipulation. Responsibility for financial services 

legislation and broad policy in the United Kingdom lies with Her Majesty's Treasury, while 

responsibility for authorizing persons to conduct investment business, and regulating those 

persons in so doing, rests with the FSA. The FSA fulfills its regulatory responsibilities within 

the framework established by the FSMA and related legislation. 

 actions taken by NEL in good faith under its default rules are protected from the normal working of UK insolvency 

law, and so are not open to challenge by liquidators or other insolvency officials. 

35 In addition, NYMEX may obtain funds from any guarantee provided by a parent company of the defaulting 

clearing member (if applicable) and from a sale of the defaulted clearing member's seats on NYMEX. 

36 Customer non-regulated accounts may hold customer funds deposited to support non-futures trading, e.g., 

certain OTC options, for which NYMEX serves as clearing house. 
Michael M. Philipp, Esq. 

Page 18 

The FSMA, and the various statutory instruments (regulations and orders) made under it, 

regulate the carrying on of regulated activities in the UK. In particular, the FSMA (Regulated 

Activities) Order 2001, as amended (RAO), defines the scope of FSA regulation by listing the 

activities which, when carried on in relation to specified investments, constitute regulated 

activities. These include, among other things, dealing in investments as principal or agent, 

arranging deals, establishing or operating a collective investment scheme, and giving investment 

advice. The RAO also stipulates a number of situations in which an activity which would 

normally constitute a regulated activity falls outside the FSA regime (e.g., if the activity is 

carried on in a certain way or by or in relation to certain persons, as specified in the RAO). 

These safe harbors are known as exclusions. 

The carrying on of regulated activities in the UK is prohibited unless those so engaged 

are FSA-authorized or have the benefit of an exemption from the authorization requirement. 

RIEs, such as NEL, are exempted under Part XVIII of the FSMA. However, since dealings on 

NEL by NEL members are likely to constitute the carrying on of one or more regulated 

activities, and it is unlikely that NEL members will be able to benefit from an exemption, most 

UK-based members of NEL will be authorized by the FSA.37 In addition to complying with the 

FSMA and applicable FSA conduct of business and other rules, all those conducting investment 

activities on an RIE, such as NEL, are subject to the rules and trading procedures of the RIE. 

The Division notes that the Commission previously reviewed the regulatory regime 

administered and enforced by the FSA applicable to transactions on exchanges in the UK in 

connection with the relief it granted to the FSA's predecessors. On May 19, 1989, the 

Commission issued a series of orders pursuant to Rule 30.10 that granted exemptive relief to the 

members of the Association of Futures Brokers and Dealers (AFBD), The Securities Association 

(TSA), the Investment Management Regulatory Organization (IMRO), and the Securities 

Investment Board (SIB).38 The orders applied to brokerage activities on or subject to the rules of 

RIEs in the UK, or any non-U.S. exchange designated by the SIB as an investment exchange, 

undertaken by firms authorized to conduct investment business in the UK from a location in the 

UK. In each of these orders, the Commission noted that the standards for relief set forth in Rule 

30.10 generally had been satisfied by each of the petitioning regulatory authorities, and 

compliance by the Rule 30.10 Firms with applicable United Kingdom law and the rules of the 

respective petitioning authority could be substituted for compliance with certain provisions of the 

Act and the Commission's rules set forth in the Commission's orders.39 On October 10, 2003, the 

Commission consolidated and updated the relief set forth in the prior orders regarding the offer 

 

37 Members who intend to trade only for their own accounts (and not for customers or other members) through the 

ETSs do not need authorization from the FSA, since the ETSs are matching systems. 

38 54 Fed. Reg. 21599 (May 19, 1989) (SIB); 54 Fed. Reg. 21604 (May 19, 1989) (AFDB); 54 Fed. Reg. 21609 

(May 19, 1989) (TSA); 54 Fed. Reg. 21614 (May 19, 1989) (IMRO). On April 5, 1991, the Commission issued a 

supplemental order confirming the continued validity of such previous orders following the merger of the AFBD 

and the TSA into the SFA. 56 Fed. Reg. 14017 (April 5, 1991). See note 4 for a summary description of the issues 

considered by the Commission in determining whether to grant Rule 30.10 relief to a foreign regulatory or selfregulatory authority. 

39 On March 7, 1997, the Commission issued an additional order to the SFA clarifying the procedures set forth in 

its prior orders regarding UK exchanges and their members. 62 Fed. Reg. 10447 (March 7, 1997). 
Michael M. Philipp, Esq. 

Page 19 

and sale of foreign futures and options contracts to customers located in the United States by 

firms located in the UK to reflect the substitution of the FSA for the various UK regulatory and 

self-regulatory organizations.40

B. Regulation of NEL as an RIE

NEL is recognized as an RIE under the FSMA. RIEs are exempted persons for the 

purposes of the FSMA and do not require authorization for their activities with respect to the 

operation of their markets. In order to be recognized as an RIE, and to maintain that status once 

it has been achieved, an exchange must satisfy the FSA on an ongoing basis that it meets the 

requirements set out in Parts I and II to the FSMA (Recognition Requirements for Investment 

Exchanges and Clearing Houses) Regulations 2001. The recognition requirements set out in Part 

I require an exchange to ensure that business conducted by means of its facilities is conducted in 

an orderly manner and so as to afford proper protection to investors. Furthermore, the exchange 

is required to have in place adequate systems and controls concerning, in particular, the 

transmission of information, the assessment and management of risks to the performance of the 

exchange’s functions and the effecting and monitoring of on-exchange transactions. The 

exchange is also required to provide, or to make arrangements for a third party to provide, 

clearing and settlement of on-exchange transactions. Under the FSMA, an exchange that wishes 

to outsource the provision of clearing and settlement services may do so either to another RIE or 

to a Recognized Clearing House (RCH). NEL has chosen to outsource the provision of these 

services to NYMEX which, as a Recognized Overseas Investment Exchange (ROIE) is an RIE. 

The recognition requirements set out in Part II require RIEs to have default rules to deal with the 

default of one or more of their members. 

RIEs are subject to oversight by the FSA. The FSA is responsible for ensuring that RIEs 

comply, on an ongoing basis, with the recognition requirements set out above. The FSA 

exercises this responsibility in a number of ways. The central element of the FSA’s oversight is 

an ongoing assessment of whether an RIE's rules, procedures and practices are adequate for the 

protection of investors and the maintenance of an orderly market. To this end, RIEs are required 

by the FSMA to report changes to their rules and procedures to the FSA without delay. In 

practice, NEL notifies the FSA of significant changes to its rules or procedures before they are 

implemented. In this way, the FSMA makes RIEs accountable for their actions to the FSA and 

gives the FSA powers of direction and interest in other RIEs. There is no legal provision 

requiring RIEs to seek FSA approval for changes to their rules or procedures or for introducing 

new contracts or new trading mechanisms. However, as a practical matter, NEL will consult 

with the FSA regarding the introduction of new products and trading mechanisms and FSA will 

expect this as part of the close supervisory relationship which normally exists between the FSA 

and RIEs. The FSA must be notified at least 14 days in advance of changes to default rules and 

the FSA can direct the RIE not to proceed with any proposed change. 

 

40 68 Fed. Reg. 58583 (October 10, 2003). As stated below, the Division notes that nothing in the no-action relief 

provided herein abrogates or otherwise alters the obligations of FCMs or Rule 30.10 Firms under the Act, 

Commission regulations, or relevant Part 30 orders. 
Michael M. Philipp, Esq. 

Page 20 

The FSA carries out an annual risk assessment of RIEs. The assessment identifies any 

regulatory risks that the FSA perceives may exist and communicates them to the RIE’s Board 

following discussions with staff at the RIE. The FSA will expect that the RIE puts into place a 

plan to ensure that the risks are acknowledged and either eliminated or mitigated to the 

satisfaction of the RIE's Board and the FSA. The FSA also has produced formal guidance setting 

out what it considers certain of the recognition requirements to mean in practice. This includes 

guidance on "proper markets" in relation to on-exchange business. 

C. Regulation of NEL Members

Because trading on NEL constitutes the carrying on of one or more regulated activities, 

most UK-based members of NEL that trade through the ETSs,41 including each NEL member 

who trades for a customer, will be required to be authorized by the FSA and will be subject to 

FSA’s rules. To obtain authorization, an applicant must satisfy, and continue to satisfy, certain 

threshold conditions established by the FSMA, including the requirement that it satisfy the FSA 

that it is “a fit and proper person” to carry on investment business and to provide the financial 

services in which it intends to engage. All applicants must demonstrate compliance with the 

applicable FSA financial resource requirements.42 The FSA evaluates applications for 

membership to ensure that applicants are “fit and proper persons” to carry out investment 

business. In evaluating an applicant's fitness, the FSA may consider a variety of factors, 

including the applicant's integrity, honesty, competence, and financial soundness. 

 The FSA has also established Principles for Business (Principles), which are intended to 

form a universal statement of the standards expected of UK-regulated firms. These cover 

integrity, skill, care and diligence, internal management and controls, financial resources, market 

 

41 Some activities which would normally constitute regulated activity in the UK fall outside the scope of FSA 

regulation if they are carried out in accordance with an “exclusion” in the RAO. One of the exclusions allows an 

"overseas person" to deal in derivatives as principal in the UK without FSA authorization if he or she does so with 

or through a person who is FSA-authorized (or who has been exempted from the requirement to be authorized). An 

"overseas person" is a person who does not carry on regulated activities from a permanent place of business in the 

UK. This enables an overseas person to deal with a regulated firm in the UK, and thus enjoy the regulatory 

protections provided by the FSA, without the overseas person itself being required to be licensed in the UK. NEL 

members dealing remotely (i.e., from outside the UK) on NEL through the ETSs can take advantage of this 

exclusion and therefore would not need to be licensed under the FSMA. 

NEL intends to distribute the ETSs internationally, which means that the ETSs will potentially be accessible by NEL 

members in a large number of jurisdictions in which investment activities are regulated. Members who wish to deal 

on NEL without having a physical presence in the UK are likely to be authorized or regulated by a foreign regulator 

rather than by the FSA. Notwithstanding this, they will be subject to NEL's Rules. NEL will only allow foreign 

entities to transact business directly on NEL where, among other things, the Exchange is satisfied that the relevant 

foreign regulator is willing and able to cooperate with NEL and the FSA through the exchange of regulatory 

information and otherwise. In any event, NEL members transacting business with United States customers are 

required to be registered with the Commission as FCMs, CPOs or CTAs (or exempt from such CPO or CTA 

registration pursuant to Commission Regulation 4.13 or 4.14), or operating pursuant to Rule 30.10 orders whether 

such members are based within or outside of the United Kingdom. 

42 The requirement for a particular member depends on the type of institution. A firm authorized by the FSA must 

at all times maintain financial resources in excess of its financial resources requirement. 
Michael M. Philipp, Esq. 

Page 21 

conduct, customers’ interests, communications with clients, conflicts of interest, clients’ assets 

and relationship with regulators. The FSA has detailed conduct of business rules, and other 

general rules which apply to NEL members who are FSA-authorized, including rules relating to: 

(1) the handling and recording of customer complaints; (2) the responsibility of a firm for its 

employees and agents; (3) solicitation, advertising and publishing, including detailed restrictions 

on cold-calling; (4) risk and product information disclosure; (5) contents of customer 

agreements, including provisions for discretionary accounts; (6) “know your customer” and 

suitability of investment products for private customers; (7) disclosure of material interests; and 

(8) disclosure of charges and other remuneration. Violations of the FSA's requirements may 

result in fines and/or other disciplinary actions imposed by the FSA. 

D. Internal Oversight

In addition to the regulatory requirements described above, all NEL members are 

required to comply with Exchange rules and any guidance that NEL may issue with respect to 

the application or interpretation of such rules. The Exchange is required to enforce its rules and 

to monitor compliance with its rules. With respect to market integrity and investor protection, 

NEL has outsourced financial surveillance and risk management to NYMEX. NYMEX Clearing 

is responsible for the risk management function and for collecting and maintaining margins and 

allocating margins according to the positions of the clearing members. The NEL Compliance 

Department, with assistance from NYMEX Compliance, carries out routine market surveillance 

and ensures that trading is conducted in an orderly manner. NEL represents that, based on a 

combination of its own resources and those of NYMEX, it has in place effective arrangements 

for monitoring compliance with its rules and settlement arrangements. 

NEL represents that NYMEX has extensive surveillance and compliance operations and 

procedures to monitor and enforce compliance with the NYMEX Clearing rules and NEL's Rules 

pertaining to the trading, position sizes and financial condition of members. NYMEX Clearing 

has extended its daily, weekly, monthly and periodic surveillance operations to include trades 

entered into on NEL pursuant to the GSA. In addition to financial surveillance and risk 

management, NEL also has outsourced electronic trade surveillance and market surveillance to 

NYMEX, which uses its existing sophisticated surveillance programs, as adapted for NEL, to 

perform these roles.43 NEL has in place rules, procedures, resources and systems designed to 

reduce the extent to which its facilities can be used for a purpose connected with market abuse 

and financial crime, and to facilitate the detection and monitor the incidence of such abuse and 

crime.44

 

43 As part of the market monitoring and electronic trade surveillance services to be provided by NYMEX under 

the GSA, NYMEX staff will report any transactions that are suspicious for money laundering to NEL's Chief 

Compliance Officer (CCO). NEL has implemented suspicious transaction reporting procedures to provide for 

reporting to the National Criminal Intelligence Service. All NEL employees, including floor staff, are trained in 

recognizing and reporting suspicious transactions. 

44 In addition, NEL Rules contain general prohibitions on a member committing any act or engaging in any 

conduct likely to bring the Exchange into disrepute. 
Michael M. Philipp, Esq. 

Page 22 

NYMEX will use its computerized surveillance program (TXN) to detect possible trading 

violations on NEL and to assist in the investigation of trade practice abuses for the ETSs. TXN 

is a flexible system that permits analysts to select default or customized parameters in order to 

create reports that focus on particular types of trading violations, members, or suspected patterns 

of violations. Specifically, TXN is used to detect the following types of trading abuses: (1) 

trading ahead; (2) pre-arranged trading, such as wash trades; (3) “unfair” fill prices; (4) abusive 

trading at the high or low of any day/time period, including the open and close; (5) fraudulent 

trading activity in day trading accounts; and (6) illegal cross trades. 

Enforcement of compliance with NEL's Rules and settlement arrangements is the 

responsibility of NEL's Compliance Department, in accordance with NEL's disciplinary rules, 

with further support from NYMEX, particularly in relation to information sharing and 

investigative assistance. NEL’s Compliance Department, comprised of the CCO, a senior 

analyst and a floor assistant, generally leads investigations and disciplinary matters.45 As part of 

its arrangements, NEL has in place procedures to deal effectively with complaints about the 

conduct of its members and users. Such complaints and any potential rule violations uncovered 

as a result of its surveillance regime will be investigated promptly and rigorously by the 

Compliance Department. The investigative process is subject to careful review by the Business 

Conduct Committee (BCC), comprised of members of NEL and one non-member. If the 

Compliance Department and BCC are satisfied that there is a reasonable basis to conclude that a 

rule violation has occurred, disciplinary action is taken. Infractions of floor rules and certain 

recordkeeping offences are subject to summary procedures. Potential rule violations may also be 

referred to other regulatory authorities for action as appropriate. 

The disciplinary rules provide for a respondent's case to be heard and decided fairly and 

impartially, within a reasonable time, and for a respondent to be penalized appropriately if found 

to have breached a rule. Sanctions range from censures or fines and orders of restitution to 

suspension of or expulsion from membership or access to NEL's facilities (or some combination 

of these sanctions), and are designed to reflect the seriousness of the offense. Where financial 

penalties are imposed, insofar as these exceed the costs of enforcing the disciplinary rules, 

including the costs of NEL's outsourced facilities, they will be applied for charitable purposes. 

NEL Rules enable penalties to be imposed summarily for floor offences and certain audit trail 

and recordkeeping offences. NEL also has the power to suspend members and to terminate 

access to its facilities on the occurrence of specified events of default.46

 

45 NEL's Disciplinary Rules are largely the same as those that are in place at NYMEX, but they have been 

modified, primarily with a view to making them compliant with the European Convention on Human Rights. 

Furthermore, they have been brought into line with UK practice and requirements. 

46 In all disciplinary cases, NEL's decision may be appealed to an independent and impartial Appeal Committee, 

composed of disinterested members of NEL and an experienced lawyer who is otherwise not affiliated with NEL or 

its members. The procedures for the hearing of such appeals are such as to ensure that an appellant's case is dealt 

with promptly and fairly. Similar appeal procedures are available to those subject to summary action. 
Michael M. Philipp, Esq. 

Page 23 

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 ETSs directly from NEL. Additional information relevant to the ETSs and ETS 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 FSA (or the SIB, its 

predecessor in interest) were parties. The agreements include, without limitation, the IOSCO 

Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the 

Exchange of Information (MMOU) dated May 2002, the Memorandum of Understanding on 

Mutual Assistance and the Exchange of Information between the United States SEC and the 

CFTC and the United Kingdom Department of Trade and Industry and the SIB dated September 

25, 1991, and the Declaration on Cooperation and Supervision of International Futures 

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

Declaration).47 By letter dated December 13, 2005, the FSA confirmed that the informationsharing 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 an FSA-regulated market or products traded through an FSA-regulated 

market.48

VI. CONCLUSION

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

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

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

NEL does not maintain a representative office in the United States, nor does it provide 

investment advice, solicit orders or direct trading from the United States. The materials also 

indicate that NEL and its members are subject to oversight in the UK by a legitimate regulatory 

authority that is responsible for ensuring their compliance with an extensive regulatory regime, 

NEL adheres to the IOSCO Principles, and the CFTC and the FSA are parties to the MMOU and 

 

47 NEL is currently seeking to sign the companion memorandum of understanding to the Boca Declaration, which 

provides for the sharing of information between market authorities upon the occurrence of certain triggering events. 

As part of the NEL-NYMEX Cooperation Agreement, NYMEX has agreed to share all information relevant to NEL 

trades with NEL. NEL may, for the purposes of prevention or detection of financial crime, pass on any information 

it deems appropriate to the relevant authorities. The recognition requirements require an RIE to be able and willing 

to co-operate by the sharing of information or otherwise, with any authority, body or person having a responsibility 

in the United Kingdom for the supervision or regulation of any regulated activity or other financial service, or with 

an overseas regulator. FSA guidance states that in assessing this the FSA may have regard to the extent to which the 

constitution and rules of the RIE enable it to obtain information from members and to disclose otherwise 

confidential information to the FSA and other appropriate bodies and whether the RIE participates in appropriate 

international forums. 

48 Letter from E. A. Morris, Manager, Derivatives Team, FSA, to Duane Andresen, Division of Market Oversight, 

Commodity Futures Trading Commission (December 13, 2005). 
Michael M. Philipp, Esq. 

Page 24 

other information-sharing arrangements applicable to the activities of NEL.49

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

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

members 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 NEL or its members solely based upon NEL’s failure to 

obtain contract market designation or DTEF registration pursuant to Sections 5 or 5a, 

respectively, of the CEA if: (1) NEL members trade for their own accounts through the ETSs in 

the United States; (2) NEL members who are registered with the CFTC as FCMs or who are 

Rule 30.10 Firms submit orders from or on behalf of United States customers for transmission to 

the ETSs; (3) NEL members who are registered with the CFTC as CPOs or CTAs, or who are 

exempt from such CPO or CTA registration pursuant to Commission Regulation 4.13 or 4.14, 

submit orders on behalf of United States pools they operate or United States customer accounts 

for which they have discretionary authority, respectively, for transmission to the ETSs, provided 

that a NYMEX clearing member that is registered with the Commission as an FCM acts as 

clearing firm with respect to all activity conducted by such CPOs and CTAs through the 

submission of orders on the ETSs; and/or (4) NEL members who are registered with the CFTC 

as FCMs or who are Rule 30.10 Firms accept orders for United States customers transmitted via 

AORS for submission to the ETSs. 

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

following NEL contracts: 

• Brent Crude Oil Futures, 

• Brent Crude Oil Options, and 

• Northwest Europe Gasoil Futures 

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

NEL may make such futures and option contracts available for trading through the ETSs 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.50

 

49 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 NEL 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. 

50 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). 
Michael M. Philipp, Esq. 

Page 25 

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

requirement that NEL 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 ETSs, 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 NEL 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 

appropriately registered or exempt from such registration to engage in the offer or sale of a 

foreign futures contract or a foreign option 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 CPOs, CTAs, 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 ETSs 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 ETSs 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 ETSs 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. 
Michael M. Philipp, Esq. 

Page 26 

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

1. NEL will continue to satisfy the criteria for recognition as an RIE under the applicable 

laws of the United Kingdom with respect to transactions effected through the ETSs. 

2. The laws, systems, rules, and compliance mechanisms of the United Kingdom applicable 

to NEL will continue to require NEL to maintain fair and orderly markets; prohibit fraud, abuse, 

and market manipulation; and provide that such requirements are subject to the oversight of the 

FSA. 

3. NEL will continue to adhere to the IOSCO Principles, as updated, revised, or otherwise 

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

4. Only members of NEL will have direct access (i.e., not through an AORS) to the ETSs 

from the United States and NEL will not provide, and will take reasonable steps to prevent, third 

parties from providing such access to NEL to persons other than NEL members.51

5. All orders that are transmitted through the ETSs by a member of NEL that is operating 

pursuant to the no-action relief provided herein will be solely for the member’s own account 

unless (i) such member is registered with the CFTC as an FCM or is a Rule 30.10 Firm, or (ii) 

such member is registered with the CFTC as a CPO or CTA, or is exempt from such registration 

pursuant to Commission Regulation 4.13 or 4.14, provided that a NYMEX clearing member that 

is registered with the Commission as an FCM acts as clearing firm with respect to all activity 

conducted by such CPO or CTA through the submission of orders on the ETSs. 

6. All orders for United States customers accepted through an AORS and transmitted by 

NEL members through the ETSs will be intermediated by a NEL member that is either registered 

with the CFTC as an FCM or is a Rule 30.10 Firm. 

7. Prior to operating pursuant to the no-action relief requested herein, NEL will require each 

current and prospective member that is not registered with the Commission as an FCM, a CTA 

or a CPO to execute and file with NEL a written representation, executed by a person with the 

authority to bind the member, stating that as long as the NEL member operates pursuant to the 

no-action relief provided herein, the member agrees to and submits to the jurisdiction of the 

CFTC with respect to activities conducted pursuant to the no-action relief. NEL will maintain 

the foregoing representations as long as the relevant member is operating pursuant to the noaction relief and shall make such representation available to the Commission upon the request of 

a CFTC representative. 

8. Prior to their operating pursuant to the no-action relief provided herein, NEL will require 

each current and prospective member that is not registered with the CFTC as an FCM, a CTA or 

a CPO to execute and file with NEL a valid and binding appointment of a United States agent for 

 

51 As stated above, “members” includes those persons identified in footnote 2 for the purposes of this no-action 

letter and the conditions imposed upon the relief provided herein. 
Michael M. Philipp, Esq. 

Page 27 

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

delivery and service of “communications” issued by or on behalf of the CFTC.52 NEL will 

maintain the foregoing appointments as long as the relevant member is operating pursuant to the 

no-action relief and shall make such appointments available to the CFTC upon the request of a 

Commission representative. 

9. Prior to operating pursuant to the no-action relief provided herein, NEL will file with the 

Division of Market Oversight, and maintain thereafter as long as NEL operates 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 or service of 

“communications”, as defined above, that are issued by or on behalf of the CFTC. 

10. Prior to their operating pursuant to the no-action relief provided herein, NEL will require 

each current and prospective member of the Exchange that is not registered with the CFTC as an 

FCM, a CTA or a CPO to file with NEL a written representation, executed by a person with the 

authority to bind the member, stating that as long as the member operates pursuant to the noaction relief provided herein, the member will provide, upon the request of the Commission, the 

United States Department of Justice and, 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 the ETSs is installed or used in the United States. NEL will maintain the 

foregoing representations as long as the relevant member is operating pursuant to the no-action 

relief. NEL will make such representations available to the CFTC upon the request of a 

Commission representative. 

11. NEL 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: 

 a. For each contract available to be traded on the ETSs, (1) the total trade volume 

originating from electronic trading devices providing access to the ETSs in the United 

States, (2) the total trade volume for such products traded through the ETSs worldwide, 

and (3) the total trade volume for such products traded on NEL generally; and 

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

addresses in the United States of all NEL members that have access to the ETSs in the 

United States. 

12. NEL will promptly provide the Division with written notice of the following: 

 

52 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 by or on behalf of the Commission. 
Michael M. Philipp, Esq. 

Page 28 

 a.. Any material change in the information provided in its No-action request, 

including any information contained in the documents submitted in support thereof;53

 b. Any material change in NEL’s Rules or the laws, rules, and regulations in the 

United Kingdom relevant to futures and options; 

 c. Any matter known to NEL or its representatives that, in NEL's judgment, may 

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

significant system failure or interruption; 

 d. Any default, insolvency, or bankruptcy of any NEL member known to NEL or its 

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

NYMEX Clearing, or upon any United States customer or firm; 

 e. Any known violation by NEL or any NEL member of the terms or conditions of 

the no-action relief provided herein; and 

 f. Any disciplinary action taken by NEL against any NEL member 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 the ETSs or an AORS to submit orders to NEL and either (1) the NEL member 

against whom the disciplinary action is taken is located or based in the United States or 

(2) the disciplinary action results, in whole or in part, from conduct that: (i) involves the 

use of a terminal or an AORS that is located in the United States to accept or submit an 

order for trading through the ETSs; (ii) involves a United States customer or firm or 

registered FCM; or (iii) might have a material, adverse impact upon any United States 

customer or firm. 

13. Satisfactory information-sharing arrangements between the Commission and the FSA 

will remain in effect. 

14. The Commission will be able to obtain sufficient information regarding NEL and its 

members operating pursuant to the no-action relief provided herein, and NEL will provide 

directly to the Commission information necessary to evaluate the continued eligibility of NEL or 

its members for the relief, to enforce compliance with the terms and conditions of the 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 and DTEFs. 

 

53 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: NEL's membership criteria; the location of NEL's 

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

activities and the United States); the basic structure, nature, or operation of the ETSs; or the regulatory or selfregulatory structure applicable to NEL members. 
Michael M. Philipp, Esq. 

Page 29 

15. NEL will employ reasonable procedures, to be determined by NEL, 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 NEL's No-action request and the 

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 NEL's activities in the United States to ascertain 

whether NEL'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 NEL and its members, 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 NEL will be subject to those rules or guidelines in that event. 

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

Andresen, Special Counsel, at dandresen@cftc.gov or by phone at (202) 418-5492. 

 Very truly yours, 

 Richard A. Shilts 

 Director 

cc: Samuel Gaer, Chief Executive Officer, NYMEX Europe Limited 

 Christopher Bowen, General Counsel and Chief Administrative Officer, NYMEX 

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

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

Oversight, Chicago Regional Office