34110 Federal Register / Vol. 66, No. 124 / Wednesday, June 27, 2001 / Rules and Regulations

1Receipt of a no-action position from

Commission staff is a necessary prerequisite to the

offer and sale of foreign futures and option

contracts on non-narrow foreign stock indices in the

U.S. On June 13, 2001, the Commission’s Office of

General Counsel issued a no-action letter to MEFF

permitting the offer and sale in the U.S. of futures

and options contracts on the S&P Euro and S&P

Europe 350 stock indices. MEFF has not sought

similar relief with respect to any of the Europe 350

sector indices.

2Rule 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 nonUnited States boards of trade without registering

under the Commodity Exchange Act, based upon

the person’s substituted compliance with a foreign

regulatory structure found comparable to that

administered by the Commission under the Act.

Among the issues considered by the Commission

in determining whether to grant Rule 30.10 relief

to a foreign regulatory or self-regulatory authority

are the authority’s: (i) requirements relating to the

registration, authorization, or other form of

licensing, fitness review, or qualification of persons

through whom customer orders are solicited and

accepted; (ii) minimum financial requirements for

those persons that accept customer funds; (iii)

minimum sales practice standards, including risk

disclosures, and the risk of transactions undertaken

outside of the United States; (iv) procedures for

auditing compliance with the requirements of the

regulatory program, including recordkeeping and

reporting requirements; (v) standards for the

protection of customer funds from misapplication;

and (vi) arrangements for the sharing of information

with the United States. Interpretative Statement

with Respect to the Commission’s Exemptive

Authority Under § 30.10 of its Rules, 17 CFR Part

30, Appendix A (2001).

balancing of traffic flow between

Brigham City One arrivals into Salt Lake

City International Airport; and (3) the

addition of this route will improve the

overall management of air traffic

operations and thereby enhance safety.

The FAA has determined that this

regulation only involves an established

body of technical regulations for which

frequent and routine amendments are

necessary to keep them operationally

current. Therefore, this regulation: (1) Is

not a ‘‘significant regulatory action’’

under Executive Order 12866; (2) is not

a ‘‘significant rule’’ under DOT

Regulatory Policies and Procedures (44

FR 11034; February 26, 1979); and (3)

does not warrant preparation of a

regulatory evaluation as the anticipated

impact is so minimal. Since this is a

routine matter that will only affect air

traffic procedures and air navigation, it

is certified that this rule, when

promulgated, will not have a significant

economic impact on a substantial

number of small entities under the

criteria of the Regulatory Flexibility Act.

Jet routes are published in paragraph

2004 of FAA Order 7400.9H dated

September 1, 2000, and effective

September 16, 2000, which is

incorporated by reference in 14 CFR

71.1. The jet route listed in this

document will be published

subsequently in the order.

List of Subjects in 14 CFR Part 71

Airspace, Incorporation by reference,

Navigation (air).

The Amendment

In consideration of the foregoing, the

Federal Aviation Administration

amends 14 CFR part 71 as follows:

PART 71—DESIGNATION OF CLASS A,

CLASS B, CLASS C, CLASS D, AND

CLASS E AIRSPACE AREAS;

AIRWAYS; ROUTES; AND REPORTING

POINTS

1. The authority citation for part 71

continues to read as follows:

Authority: 49 U.S.C. 106(g), 40103, 40113,

40120; E.O. 10854,24 FR 9565, 3 CFR, 1959–

1963 Comp., p.389.

§ 71.1 [Amended]

2. The incorporation by reference in

14 CFR 71.1 of the Federal Aviation

Administration Order 7400.9H,

Airspace Designations and Reporting

Points, dated September 1, 2000, and

effective September 16, 2000, is

amended as follows:

Paragraph 2004 Jet Routes

* * * * *

J–713 [New]

From Billings, MT, via Boysen Reservoir,

WY; Big Piney, WY; to Salt Lake City,

UT.

* * * * *

Issued in Washington, DC, on June 20,

2001.

Reginald C. Matthews,

Manager, Airspace and Rules Division.

[FR Doc. 01–16181 Filed 6–26–01; 8:45 am]

BILLING CODE 4910–13–P

COMMODITY FUTURES TRADING

COMMISSION

17 CFR Parts 1 and 30

Treatment of Customer Funds

AGENCY: Commodity Futures Trading

Commission.

ACTION: Order.

SUMMARY: The Commodity Futures

Trading Commission (‘‘Commission’’) is

issuing an Order regarding the treatment

of customer funds carried by a futures

commission merchant (‘‘FCM’’) for the

purpose of margining, guaranteeing or

securing customers’ trades executed on

or through a board of trade located

outside the U.S. but cleared by a

derivatives clearing organization located

in the U.S. Subject to the terms and

conditions set forth herein, certain

designated members of the Chicago

Mercantile Exchange (‘‘CME’’) may

commingle in a single account the funds

received from customers trading on or

through designated contract markets or

derivatives trading execution facilities

with those funds received in connection

with the CME’s clearing of certain

products traded on or though the MEFF

Sociedad Recotra de Productos

Financieros Derivados de Renta Variable

(‘‘MEFF’’), a board of trade located in

Spain. This Order is issued pursuant to

Sections 4(b) and 4d of the Commodity

Exchange Act and Commission Rule

30.10.

EFFECTIVE DATE: June 20, 2001.

FOR FURTHER INFORMATION CONTACT:

Andrew V. Chapin, Staff Attorney,

Division of Trading and Markets,

Commodity Futures Trading

Commission, 1155 21st Street, NW.,

Washington, DC 20581. Telephone:

(202) 418–5430.

SUPPLEMENTARY INFORMATION: The

Commission has issued the following

Order: Order Regarding the Treatment of

Customer Funds Carried in Connection

with Transactions Entered into on or

through MEFF Sociedad Rectora de

Productos Financieros Derivados de

Renta Variable and Cleared through the

Chicago Mercantile Exchange.

A. The CME–MEFF Arrangement

The CME has entered into a clearing

arrangement with MEFF involving the

trading and clearing of certain stock

index futures products based on the

Standard and Poor’s (‘‘S&P’’) Euro

Index, the S&P Europe 350 Index, and

certain sector indices from the S&P

Europe 350 Index (collectively,

‘‘Designated Future Contracts’’ or

‘‘DFC’’).1 Pursuant to the arrangement,

referred to as the Master Agreement,

MEFF will list these products for

trading on its electronic trading

platform, MEFF S/MART, execute these

trades subject to MEFF rules, and

submit these transactions for clearing to

the CME. In accordance with part 30 of

the Commission’s rules, any DFC

transaction involving a customer located

in the U.S. will be intermediated by an

FCM or a firm exempt from such

registration pursuant to Rule 30.10.2

MEFF has received previously from the

Commission an order issued pursuant to

Federal Register / Vol. 66, No. 124 / Wednesday, June 27, 2001 / Rules and Regulations 34111

3See 62 FR 16687 (April 8, 1997).

4For example, MEFF will be required to: (i)

deposit with CME the initial margin equal to the

account required of other CME clearing members;

(ii) comply with certain CME capital requirements;

(iii) file monthly financially reports; (iv) submit an

annual certified audit; and (v) provide CME with

access to its books and records.

5Letter from Stephen M. Szarmack, Director and

Associate General Counsel, CME, to John C.

Lawton, Acting Director, Division of Trading and

Markets, Commission, dated May 24, 2001.

6 7 U.S.C. § 6d (2001). 7See Rule 30.1. 8See infra, n.3.

Rule 30.10 and certain MEFF members

have received confirmation of such

relief.3

For the purpose of clearing

transactions involving DFCs, MEFF will

be designated as a Special Clearing

Member of the CME and generally will

be required to comply with all CME

rules.4 As such, MEFF will open a

special clearing account with CME. In

the case of a trade intermediated by a

MEFF clearing member, the CME will

post the legs of the trade to the

appropriate sub-account for each MEFF

clearing member in the MEFF’s special

clearing account. In the case of a trade

intermediated by a CME clearing

member, the CME will post the trade

directly into the appropriate clearing

member’s account at the CME. Customer

funds will be held either by MEFF in its

special clearing account or by a CME

clearing member.

B. Request for Relief

By letter dated May 24, 2001, the CME

requested, on behalf of its clearing

members, an exemption from certain

requirements set forth in Section 4d of

the Commodity Exchange Act (‘‘Act’’),

and Commission Rules 1.20 and 30.7.5

Section 4d of the Act provides, inter

alia, that FCMs shall ‘‘treat and deal’’

with funds deposited by a customer to

margin or settle trades or contracts ‘‘as

belonging to such customer.’’ 6 Further,

an FCM must segregate and separately

account for customer funds and

property but may, for purposes of

convenience, deposit such funds and

property in the same account or

accounts with any one of the listed

depositories. Section 4d(a)(2) further

states that it shall be unlawful for any

depository to hold, dispose or use any

money, securities or property deposited

by customers as belonging to the

depository or any person other than the

customers of said depository. Section 4d

also prohibits a depository from

commingling funds attributable to

trading on or through a designated

contract market (‘‘DCM’’) or derivatives

transactions execution facility (‘‘DTF’’)

with those funds on deposit for the

purpose of trading on or through a board

of trade other than a DCM or DTF.

Commission Rules 1.20–1.30, 1.32, 1.35

and 1.36 implement section 4d.

Rule 30.7 sets forth similar, but not

identical, requirements with respect to

the treatment of funds held on deposit

for foreign futures or foreign options

customers, i.e., customers located in the

U.S. trading on or subject to the rules of

a foreign board of trade 7 Unlike section

4d and Rule 1.20, Rule 30.7 requires an

FCM to maintain in a separate account

only an amount sufficient to cover or

satisfy all of its current obligations to

foreign futures and foreign options

customers, defined in Rule 1.3(rr) as the

foreign futures and foreign options

secured amount, and not an amount

equal to all money, securities or

property on deposit. Like section 4d and

Rule 1.20, however, Rule 30.7 requires

an FCM to separate customer funds from

non-customer funds and permits an

FCM to commingle all customer funds

into one account. In addition, Rule

30.7(d) also states that ‘‘[I]n no event

may money, securities or property

representing the foreign futures or

foreign options secured amount be held

or commingled and deposited with

customer funds in the same account or

accounts required to be separately

accounted for and segregated pursuant

to section 4d of the Act and the

regulations thereunder.’’

Notwithstanding the previously cited

provisions, however, Section 4d

provides further;

in accordance with such terms and

conditions as the Commission may prescribe

by rule, regulation, or order, such money,

securities, and property of the customers of

such FCM may be commingled and deposited

as provided in this section with any other

money, securities, and property received by

such FCM and required by the Commission

to be separately accounted for and treated

and dealt with as belonging to customers of

such FCM.

In addition, Rule 30.10 permits any

party adversely affected by any

requirement under Part 30 of the

Commission’s rules to petition the

Commission for relief from such

requirement.

Absent any relief, CME clearing

members would be required to hold U.S.

customer funds in accordance with the

Rule 30.7 secured amount requirement

and would not be permitted to

commingle customer funds associated

with DFCs in a Section 4d segregated

account along with customer funds

associated with domestically-traded

contracts.

The CME has represented that it

believes that existing protections and

protections afforded by the Master

Agreement are sufficient to protect the

funds of customers trading domestic

products (and held in a Section 4d

segregated account) in the event of a

default by MEFF or a CME clearing

member as a result of trading in DFCs.

The CME notes that MEFF, as a special

clearing member, will be subject to

essentially the same capital

requirements and financial reporting

obligations of other CME clearing

members. In addition, CME notes that

the clearing of DFCs will be subject to

CME oversight and risk management

polices. The CME further notes that the

Commission previously examined the

regulatory structure governing

transactions entered on or subject to the

rules of MEFF and determined that

compliance with applicable Spanish

law and MEFF rules may be substituted

for compliance with certain provisions

of the Act and Commission rules.8

C. Terms and Conditions

Upon due consideration, the

Commission has determined to issue an

Order pursuant to Sections 4(b) and 4d

of the Act and Rule 30.10. Subject to the

following terms and conditions, clearing

members of the CME may commingle

customer funds used to margin, secure,

or guarantee transactions in DFCs with

funds used to margin, secure, or

guarantee transactions in domesticallytraded contracts in a segregated account

or accounts maintained in accordance

with Section 4d of the Act and Rule

1.20. The terms and conditions for relief

are as follows:

1. CME will maintain a clearing

system that will perform the following

functions:

a. mark-to-market the prices of DFCs

on a daily basis;

b. pay settlement variation and option

premium to, and collect settlement

variation and option premium from,

MEFF and CME clearing members on a

daily basis;

c. verify and post matched trades;

d. hold the initial margin deposits of

MEFF and CME clearing members;

e. determine and record MEFF’s gross

open positions;

f. maintain sub-accounts for each

MEFF clearing member on CME’s books;

g. determine and record margin

requirements, exercise and assignment,

and final cash settlement records;

h. determine and report daily price

fluctuations, total open interest and

trading volume for each contract traded

pursuant to the Master Agreement for

each trading session; and

34112 Federal Register / Vol. 66, No. 124 / Wednesday, June 27, 2001 / Rules and Regulations

i. ensure the timely and orderly flow

of funds in settlement of MEFF’s trading

profits and losses.

2. MEFF will become and remain a

special clearing member of CME subject

to all of the rules and policies of CME

that govern the rights and

responsibilities of other clearing

members at the CME including, but not

limited to, meeting required security

deposit requirements and being subject

to CME assessment powers.

3. For each trade executed pursuant to

the Master Agreement, MEFF will

submit to CME a clearing record

submission containing information as

CME may require, including, at a

minimum, the following information:

a. an indication that the trade is being

made pursuant to the Master

Agreement;

b. identification of the executing

clearing member(s);

c. identification of the terms of the

contract being traded, including the

delivery month, put/call indicator,

strike price, underlying futures contract,

if applicable, house or customer origin,

whether the trade was a buy or sell

transaction, and the date the trade was

executed;

d. the number of contracts and the

price at which the contracts traded; and

e. an indication as to whether each

side of a matched trade will clear in the

MEFF special clearing account or in a

CME clearing member’s account.

4. Upon receipt of each clearing

record submission, CME will validate

the transaction to ensure the trades are

for DFCs and for the existence of two

offsetting legs with a trade price that is

within a reasonable price range for the

contract, and, where necessary, inform

MEFF as soon as practicable of any

reason validation failed and return the

trade to MEFF for correction or

nullification.

5. Upon acceptance of a trade for

clearing and guarantee, the CME will

post the legs of the trade to the

appropriate clearing member subaccount of the MEFF special clearing

account or to the appropriate CME

clearing member’s account.

6. CME will retain the right to adjust

the marking price for clearing purposes

to be different from the settlement price

in cases where the settlement prices

vary significantly form the theoretical

market value of the instruments as

determined by the CME.

7. For the purpose of making and

receiving margin and daily settlement

payments in connection with the

clearing of DCFs, CME and MEFF will

establish separate accounts at a

mutually-agreed upon bank located

outside the U.S. authorized to effectuate

transfers between accounts.

8. CME will determine the initial and

variation margin levels for each DFC

required to be maintained by MEFF and

calculate MEFF’s margin requirements

based upon MEFF’s net positions with

respect to each delivery month, taking

into account any applicable spread

margin reductions.

9. In the event of a MEFF default, as

defined by the Master Agreement, CME

may, in addition to all other rights and

remedies contained therein, or

otherwise permitted by applicable law:

a. apply margin deposits to the

obligations of MEFF to make payments

to the CME when and as they become

due;

b. liquidate the positions and

collateral of MEFF, including but not

limited to its security and seat

assignment deposits and apply other

assets of MEFF available to the CME to

discharge the obligations of MEFF to

make payments to the CME when and

as they become due;

c. by notice to MEFF, suspend the

operation of the MEFF special clearing

account as to all subsequent trades;

d. establish an alternative market for

DFCs through electronic means or

otherwise; and

e. allow MEFF clearing members to

transfer their positions to a CME

clearing member.

Notwithstanding the above, if a MEFF

default exists because of a failure by

MEFF to make a payment required by

the Master Agreement, the CME may

liquidate the positions in the MEFF

special clearing account.

10. CME will receive from MEFF the

following information on an ongoing

basis:

a. upon written request and within

three business days, all information

relating to the markets in DFCs that may

assist the CME in its efforts to maintain

the integrity of the marketplace;

b. periodic reports listing all large

trade positions setting forth positions

equal to or exceeding a threshold to be

determined jointly by CME and MEFF;

and

c. upon a special call and within 24

hours, a report that contains, at a

minimum, information required to be

included in large trader reports and

account identification information.

11. All money, securities, and

property received by a participating

FCM to margin, guarantee, or secure

DCFs, or accruing as a result of DCFs,

and held subject to the terms of this

Order, shall be deemed to have been

received by the participating FCM and

shall be accounted for and treated and

dealt with as belonging to the customers

of the participating FCM consistently

with Section 4d of the Act.

12. Subject to the terms and

conditions of this Order,

notwithstanding any provision to the

contrary in the Commission’s rules

(including, but not limited to, Rules

1.20(a), 1.22 and 1.24), the money,

securities, and property described in the

preceding paragraph of this Order may

be commingled with money, securities,

and property received by a participating

FCM to margin, guarantee, or secure

trades or positions in commodity

futures or commodity option contracts

on a DCM or DTEF, or accruing as a

result of such trades or contracts, and

otherwise required by the Commission

to be segregated under the Act.

This Order does not provide an

exemption from any provision of the

Act or rules thereunder not specified

herein, for example, the registration

provision of Rule 30.4 applicable to the

offer and sale of foreign futures and

foreign options to customers located in

the U.S. Moreover, the relief granted is

limited to the contracts and activities

described in the Master Agreement and

does not extend to the clearing of

transactions entered into on or subject

to the rules of any other board of trade

located outside the U.S. The relief also

does not extend to the use of electronic

devices by persons located in the U.S.

to access MEFF directly.

This Order is issued pursuant to

Sections 4(b) and 4d of the Act and Rule

30.10 based upon the representations

made and supporting material provided

to the Commission by the CME. Any

material changes or omissions in the

facts and circumstances pursuant to

which this Order is granted might

require the Commission to reconsider its

finding that the relief set forth herein is

appropriate. Further, if experience

demonstrates that the continued

effectiveness of this Order in general, or

with respect to a particular firm, would

be contrary to or the public interest, the

Commission may condition, modify,

suspend, terminate, withhold as to a

specific firm, or otherwise restrict the

exemptive relief granted in this Order,

as appropriate, on its own motion.

Issued in Washington, DC on June 20,

2001.

Jean A. Webb,

Secretary of the Commission.

[FR Doc. 01–16018 Filed 6–26–01; 8:45 am]

BILLING CODE 6351–01–M