U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5120

Facsimile: (202) 418-5524

Office of General Counsel

CFTC letter No. 04-05

January 22, 2004

No-Action

Office of General Counsel

Mr. Laurence Walton

Head of Market Secretariat

The London International Financial Futures and Options Exchange

Administration and Management

Cannon Bridge House

1 Cousin Lane

London EC4R 3XX

United Kingdom

Re: The London International Financial Futures and Option Exchange

Administration and Management’s Request for No-Action Relief in

Connection with the Offer and Sale of its Futures Contracts Based on the 

FTSEurofirst 80 Index and the FTSEurofirst 100 Index in the United States 

Dear Mr. Walton:

This is in response to letters, attachments, facsimiles and electronic mail dated

from June 23, 2003 to November 17, 2003, requesting that the Office of General

Counsel (“Office”) of the Commodity Futures Trading Commission (“Commission” or

"CFTC") issue to The London International Financial Futures and Option Exchange

Administration and Management (“LIFFE”), which operates the LIFFE market, a “noaction” letter concerning the offer and sale in the United States (“U.S.”) of LIFFE’s

futures contracts based on the FTSEurofirst 80 Index (“FTSEurofirst 80”) and the

FTSEurofirst 100 Index (“FTSEurofirst 100”) (collectively, “Indices”). 

We understand the facts to be as follows. LIFFE operates the LIFFE market, a 

futures and options exchange located in the United Kingdom (“U.K.”) that is regulated

by the Financial Services Authority (“FSA”). The FSA is the single regulator in the U.K. 

responsible for the investment business, including the regulation of commodity futures

and options markets and intermediaries.1 

 

1

 The Commission recently reviewed changes to the regulatory structure in the U.K. in 

conjunction with consolidating and updating the relief set forth in prior orders issued 

pursuant to Commission Rule 30.10 to reflect the substitution of the FSA for various

U.K. regulatory and self-regulatory organizations. See 68 FR 58583 (Oct. 10, 2003).
2

The FTSEurofirst 80 and the FTSEurofirst 100 are broad-based, free-float market 

capitalization-weighted composite indices of highly capitalized and actively traded

securities currently listed on major European stock exchanges.2 The FTSEurofirst 80 is 

designed to consist of 80 securities representing the overall performance of companies 

traded on exchanges in countries that are in the European Monetary Union (“EMU”). 

The FTSEurofirst 100 is designed to consist of 100 securities reflecting the overall

performance of companies traded on exchanges in the EMU plus the U.K. Both Indices 

are owned and managed by FTSE International, Limited.3

Based on data supplied by LIFFE, the total market capitalizations of the

FTSEurofirst 80 and FTSEurofirst 100 were approximately U.S.$ 1,744 billion and U.S.$ 

2,881 billion, respectively, as of June 10, 2003.4 Also as of that date, the largest single 

security by weight represented 6.03% of the FTSEurofirst 80 and 5.53% of the

FTSEurofirst 100.5 The five most heavily weighted securities represented 22.61% of

the FTSEurofirst 80 and 22.88 % of the FTSEurofirst 100.6 The securities comprising 

the lowest 25% of both Indices had six-month aggregate dollar values of average daily 

trading volume in excess of U.S. $30 million: approximately U.S.$ 2.8 billion for the

FTSEurofirst 80 and U.S.$ 4.3 billion for the FTSEurofirst 100 for the 6-month period

ending May 2003.7 Both indices are calculated in real time and are disseminated by

electronic means through major data vendors, such as Bloomberg and Reuters.8

With the exception of the index underlying each futures contract, the terms and

conditions for LIFFE’s contracts on the Indices are identical. Both contracts provide for 

cash settlement. Prices are quoted in index points with each index point equal to 10

euros per contract. The minimum price fluctuation is one index point per contract. The 

 

2

The current constituent securities of the FTSEurofirst 80 are traded on six European 

stock exchanges: the Borsa Italiana (Italy), Deutsche Börse AG (Germany), Euronext 

Amsterdam (The Netherlands), Euronext Paris (France), Helsinki Stock Exchange

(Finland) and the Madrid Stock Exchange (Spain). The FTSEurofirst 100 includes

securities traded on those six exchanges plus the London Stock Exchange (U.K.). See

letter from Laurence Walton, Head of Market Secretariat, LIFFE to Harold L. Hardman, 

Senior Assistant General Counsel (Regulation), CFTC, dated June 23, 2003.

3

Id.

4

Id.

5

Id.

6

Id.

7

Id.

8

Id.
3

contracts are listed for trading from 9:00 a.m. to 8:00 p.m. Central European Time on 

LIFFE’s electronic trading system, LIFFE CONNECT®. LIFFE lists for trading the three 

nearest months of the March quarterly cycle. The last trading day is the third Friday of 

the delivery month. Cash settlement occurs on the first business day after the last

trading day. The final cash settlement price for the contracts is calculated on the last

day of trading and is the arithmetic mean of the relevant index’s levels that are

calculated and disseminated every fifteen seconds between 10:50 and 11:00 a.m.,

Central European Time, inclusive (41 values).9

The Commodity Exchange Act (“CEA”),10 as amended by the Commodity Futures 

Modernization Act of 2000 (“CFMA”),11 provides that the offer or sale in the U.S. of

futures contracts based on a group or index of securities, including those contracts

traded on or subject to the rules of a foreign board of trade, is subject to the

Commission's exclusive jurisdiction,12 with the exception of security futures products,13

over which the Commission shares jurisdiction with the Securities and Exchange

Commission (“SEC”).14 Thus, the Commission’s jurisdiction remains exclusive with

regard to futures contracts on a group or index of securities that are broad-based 

pursuant to CEA Section 1a(25).15

CEA Section 2(a)(1)(C)(iv) generally prohibits any person from offering or selling 

a futures contract based on a security index in the U.S., except as permitted under CEA 

Section 2(a)(1)(C)(ii) or CEA Section 2(a)(1)(D).16 By its terms, CEA Section

2(a)(1)(C)(iv) applies to futures contracts on security indices traded on both domestic

and foreign boards of trade. CEA Section 2(a)(1)(C)(ii) sets forth three criteria to govern 

 

9

Id. 

10 7 U.S.C. § 1 et seq.

11 Appendix E of Pub. L. No. 106-554, 114 Stat. 2763 (2000).

12 See CEA Section 2(a)(1)(C)(ii).

13 Security futures products are defined as a security future or any put, call, straddle,

option, or privilege on any security future. See CEA Section 1a(32). A security future is 

defined as a contract of sale for future delivery of a single security or of a narrow-based 

security index, including any interest therein or based on the value thereof, with certain 

exceptions. See CEA Section 1a(31). 

14 See CEA Section 2(a)(1)(D).

15 See CEA Section 2(a)(1)(C)(ii).

16 CEA Section 2(a)(1)(D) governs the offer and sale of security futures products.
4

the trading of futures contracts on a group or index of securities on designated contract 

markets and registered derivatives transaction execution facilities (“DTEFs”):

(1) the contract must provide for cash settlement;

(2) the contract must not be readily susceptible to manipulation nor to being

used to manipulate any underlying security; and

(3) the group or index of securities must not constitute a narrow-based 

security index.17

While Section 2(a)(1)(C)(ii) provides that no board of trade or DTEF may trade a 

security index futures contract unless it meets the three criteria noted above, it does not 

explicitly address the standards to be applied to a foreign security index futures contract 

traded on a foreign board of trade. This Office has applied those same three criteria in 

evaluating requests by foreign boards of trade to allow the offer and sale within the U.S. 

of their foreign security index futures contracts when those foreign boards of trade do

not seek designation as a contract market or registration as a DTEF to trade those

products.18 

 

17 The first two criteria under CEA Section 2(a)(1)(C)(ii) were unchanged by the CFMA. 

With regard to the third criterion, an index is a “narrow-based security index” under both 

the CEA and the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78a et 

seq., if it has any one of the following four characteristics: (1) it has nine or fewer

component securities; (2) any one of its component securities comprises more than

30% of its weighting; (3) the five highest weighted component securities in the

aggregate comprise more than 60% of the index’s weighting; or (4) the lowest weighted 

component securities comprising, in the aggregate, 25% of the index’s weighting, have 

an aggregate dollar value of average daily trading volume of less than $50 million (or in 

the case of an index with 15 or more component securities, $30 million). See CEA

Section 1a(25)(A)(i)-(iv); Exchange Act Section 3(a)(55)(B)(i)-(iv). Thus, an index that 

does not have any of these elements is not a narrow-based security index for purposes 

of CEA Section 2(a)(1)(C)(ii). See also CEA Section 1a(25)(B); Exchange Act Section

3(a)(55)(C).

18 With regard to the third criterion, the CFTC and SEC jointly promulgated Rule 41.13 

under the CEA and Rule 3a55-3 under the Exchange Act, governing security index

futures contracts traded on foreign boards of trade. These rules provide that “[w]hen a 

contract of sale for future delivery on a security index is traded on or subject to the rules 

of a foreign board of trade, such index shall not be a narrow-based security index if it

would not be a narrow-based security index if a futures contract on such index were

traded on a designated contract market or registered derivatives transaction execution

facility.” CFTC Rule 41.13, 17 C.F.R. § 41.13; Exchange Act Rule 3a55-3, 17 C.F.R. § 

240.3a55-3.
5

Accordingly, this Office has examined the FTSEurofirst 80 and FTSEurofirst 100, 

and LIFFE’s futures contracts based thereon, to determine whether the Indices and the 

futures contracts meet the requirements enumerated in CEA Section 2(a)(1)(C)(ii). 

Based on the information noted herein and as set forth in the letters, attachments,

facsimiles and electronic mail noted above, we have determined that the Indices and

LIFFE’s futures contracts based thereon conform to these requirements.19

In determining whether a foreign futures contract based on a foreign security

index is not readily susceptible to manipulation or being used to manipulate any

underlying security, one preliminary consideration is the requesting exchange’s ability to 

access information regarding the securities underlying the index. All of the countries

represented in the Indices are Member States of the European Union (“EU”). LIFFE

represents that the Investment Services Directive of the EU (“ISD”), to which all of the

countries represented in the Indices are subject, provides a comprehensive system of 

cooperation and information sharing among authorities that are responsible for

regulating financial services, including futures, options and securities dealing, within the 

EU.20 Article 23.3 of the ISD stipulates that where an investment firm operates in one or 

more Member States of the EU in addition to its home Member State, the regulatory

authorities of the Member States concerned must collaborate closely in order to

discharge their responsibilities. LIFFE represents that Article 23.3 would apply with

respect to firms that deal in the FTSEurofirst 80 and FTSEurofirst 100 futures contracts 

and in the underlying equities.21 Moreover, Article 25.5(b) of the ISD allows a Member 

State’s regulatory authority to pass information to other bodies that are responsible for

the supervision of financial markets. LIFFE represents that such bodies would include

investment exchanges such as LIFFE.22 Thus, LIFFE should have access to

information necessary to detect and deter manipulation. In the event that LIFFE is

unable to obtain access to adequate surveillance data in this regard, or is unable to

share such data with the CFTC, this Office reserves the right to reconsider the position 

we have taken herein.

23

 

19 In making this determination, the Commission staff has concluded that neither the

FTSEurofirst 80 nor the FTSEurofirst 100 have any of the elements of a narrow-based 

security index as enumerated in CEA Section 1a(25)(A), and accordingly the Indices

would not be narrow-based security indices if traded on a designated contract market or 

DTEF.

20 See letter from Mr. Walton to Mr. Hardman, dated June 23, 2003.

21 Id. 

 

22 Id.

23 LIFFE confirms that, once approved, the FTSEurofirst 80 and FTSEurofirst 100

futures contracts would be subject to all terms and conditions contained in the Foreign

Trading System No-Action Letter issued to LIFFE, CFTC Letter No. 99-31 [1998-1999 

Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 27,744 (July 23, 1999), and that therefore 
6

In light of the foregoing, this Office will not recommend any enforcement action to 

the Commission based on Sections 2(a)(1)(C)(iv), 4(a), or 12(e) of the CEA, as

amended, if LIFFE’s futures contracts on the FTSEurofirst 80 and FTSEurofirst 100 are 

offered or sold in the U.S. Because this position is based upon facts and

representations contained in the letters, attachments, facsimiles and electronic mail

cited above, it should be noted that any different, omitted or changed facts or conditions 

might require a different conclusion. This position also is contingent on the continued

compliance by LIFFE with all regulatory requirements imposed by FSA, and the

applicable laws and regulations of the U.K. In addition, this position may be affected by 

any rules that the Commission may adopt regarding futures contracts based on nonnarrow-based security indices.

Separately, by letter dated June 23, 2003, LIFFE requested that the Division of

Market Oversight (“Division”) grant supplemental no-action relief to make the

FTSEurofirst 80 and the FTSEurofirst 100 futures contracts available for trading

pursuant to the Foreign Trading System No-Action Letter issued to LIFFE on July 23,

1999.24 The Division has authorized us to inform you that it has reviewed and

considered your request for supplemental relief and the representations forwarded to

the Division in support of that request. Based specifically upon these representations, 

the Division has determined that granting supplemental relief to LIFFE would not be

 

the existing arrangements whereby LIFFE has agreed to share information with the

CFTC either directly, or indirectly through the FSA, would apply equally to these

contracts. See letter from Laurence Walton, Head of Market Secretariat, LIFFE to

Harold L. Hardman, Senior Assistant General Counsel (Regulation), CFTC, dated

October 20, 2003. LIFFE also is a signatory to the International Information Sharing

Memorandum of Understanding and Agreement signed on March 15, 1996, at Boca

Raton, Florida.

On September 25, 1991, a Memorandum of Understanding was entered into by the U.K. 

Department of Trade and Industry and the Securities Investment Board (“SIB”), the

FSA’s predecessor agency, and the U.S. CFTC and SEC with respect to the sharing of 

confidential information among agencies and mutual assistance in investigation and

enforcement matters (“U.S./U.K. MOU”). LIFFE represents that the U.S./U.K MOU

would also facilitate the sharing of information with respect to LIFFE’s contracts on the 

Indices. In addition, as noted above, the CFTC has granted Regulation 30.10 relief to

the FSA. See Appendix C to Commission Regulation 30.10, 17 C.F.R. § 30.10. The

FSA also is a signatory to the International Organization of Securities Commission’s

Multilateral Memorandum of Understanding Concerning Consultation and Cooperation

and the Exchange of Information (May 2002) (“IOSCO MOU”) and the Declaration on

Cooperation and Supervision of International Futures Exchanges and Clearing

Organizations, as amended, signed on March 15, 1996 at Boca Raton, Florida.

 

24 CFTC Letter No. 99-31 [1998-1999 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶ 

27,744 (July 23, 1999).
7

contrary to the public interest. Accordingly, on behalf of the Division, this Office hereby 

confirms that the no-action relief granted to LIFFE in the July 23, 1999 no-action letter 

extends to the FTSEurofirst 80 and the FTSEurofirst 100 futures contracts.

The offer and sale in the U.S. of LIFFE’s futures contracts on the Indices is, of

course, subject to Part 30 of the Commission’s regulations, which governs the offer and 

sale of foreign futures and foreign option contracts in the U.S.25 

Sincerely,

Patrick J. McCarty

General Counsel

cc: Michael M. Philipp, Esq.

Katten Muchin Zavis Rosenman

 

25 See 17 C.F.R. Part 30.