Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Proposed Rules 65607

1See Securities Exchange Act Release Nos. 20708

(‘‘Original Adopting Release’’) (March 2, 1984), 49

FR 8595 (March 8, 1984) and 19811 (‘‘Original

Proposing Release’’) (May 25, 1983), 48 FR 24725

(June 2, 1983).

2 In approving the Futures Trading Act of 1982,

Congress expressed its understanding that neither

the SEC nor the Commodity Futures Trading

Commission (‘‘CFTC’’) had intended to bar the sale

of futures on debt obligations of the United

Kingdom of Great Britain and Northern Ireland to

U.S. persons, and its expectation that

administrative action would be taken to allow the

sale of such futures contracts in the United States.

See Original Proposing Release, supra note 1, 48 FR

at 24725 (citing 128 Cong. Rec. H7492 (daily ed.

September 23, 1982) (statements of Representatives

Daschle and Wirth)).

3As originally adopted, the Rule required that the

board of trade be located in the country that issued

the underlying securities. This requirement was

eliminated in 1987. See Securities Exchange Act

Release No. 24209 (March 12, 1987), 52 FR 8875

(March 20, 1987).

4As originally adopted, the Rule applied only to

British and Canadian government securities. See

Original Adopting Release, supra note 1. In 1986,

the Rule was amended to include Japanese

government securities. See Securities Exchange Act

Release No. 23423 (July 11, 1986), 51 FR 25996

(July 18, 1986). In 1987, the Rule was amended to

include debt securities issued by Australia, France

and New Zealand. See Securities Exchange Act

Release No. 25072 (October 29, 1987), 52 FR 42277

(November 4, 1987). In 1988, the Rule was amended

to include debt securities issued by Austria,

Denmark, Finland, the Netherlands, Switzerland,

and West Germany. See Securities Exchange Act

Release No. 26217 (October 26, 1988), 53 FR 43860

(October 31, 1988). In 1992 the Rule was again

amended to (1) include debt securities offered by

the Republic of Ireland and Italy, (2) change the

country designation of ‘‘West Germany’’ to the

Continued

Issued in Burlington, MA, on December 13,

1995.

John J. Boyce, Jr.,

Acting Manager, Air Traffic Division, New

England Region.

[FR Doc. 95–30917 Filed 12–19–95; 8:45 am]

BILLING CODE 4910–13–M

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 240

[Release No. 34–36580, International Series

Release No. 900, File No. S7–34–95]

RIN 3235–AG68

Exemption of the Securities of the

Federative Republic of Brazil, the

Republic of Argentina, and the

Republic of Venezuela Under the

Securities Exchange Act of 1934 for

Purposes of Trading Futures Contracts

on Those Securities

AGENCY: Securities and Exchange

Commission.

ACTION: Proposed rule amendment and

solicitation of public comments.

SUMMARY: The Commission proposes for

comment an amendment to Rule 3a12–

8 (‘‘Rule’’) that would designate debt

obligations issued by the Federative

Republic of Brazil (‘‘Brazil’’), the

Republic of Argentina (‘‘Argentina’’),

and the Republic of Venezuela

(‘‘Venezuela’’) (collectively the

‘‘Proposed Countries’’) as ‘‘exempted

securities’’ for the purpose of marketing

and trading of futures contracts on those

securities in the United States. The

amendment is intended to permit

futures trading on the sovereign debt of

the Proposed Countries. This change is

not intended to have any substantive

effect on the operation of the Rule.

DATES: Comments should be submitted

by January 19, 1996.

ADDRESSES: All comments should be

submitted in triplicate and addressed to

Jonathan G. Katz, Secretary, Securities

and Exchange Commission, 450 Fifth

Street, N.W., Washington, D.C. 20549.

All comments should refer to File No.

S7–34–95, and will be available for

public inspection and copying at the

Commission’s Public Reference Room,

450 Fifth Street, N.W., Washington, D.C.

FOR FURTHER INFORMATION CONTACT:

James T. McHale, Attorney, Office of

Market Supervision (‘‘OMS’’), Division

of Market Regulation (‘‘Division’’),

Securities and Exchange Commission

(Mail Stop 5–1), 450 Fifth Street, N.W.,

Washington, D.C. 20549, at 202/942–

0190.

SUPPLEMENTARY INFORMATION:

I. Introduction

Under the Commodity Exchange Act

(‘‘CEA’’), it is unlawful to trade a futures

contract on any individual security

unless the security in question is an

exempted security (other than a

municipal security) under the Securities

Act of 1933 (‘‘Securities Act’’) or the

Securities Exchange Act of 1934

(‘‘Exchange Act’’). Debt obligations of

foreign governments are not exempted

securities under either of these statutes.

The Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’),

however, has adopted Rule 3a12–8

under the Exchange Act to designate

debt obligations issued by certain

foreign governments as exempted

securities under the Exchange Act solely

for the purpose of marketing and trading

futures contracts on those securities in

the United States. As amended, the

foreign governments currently

designated in the Rule are Great Britain,

Canada, Japan, Australia, France, New

Zealand, Austria, Denmark, Finland,

The Netherlands, Switzerland,

Germany, the Republic of Ireland, Italy,

Spain, and Mexico (the ‘‘Designated

Foreign Governments’’). As a result,

futures contracts on the debt obligations

of these countries may be sold in the

United States, as long as the other terms

of the Rule are satisfied.

The Commission today is soliciting

comments on a proposal to amend Rule

3a12–8 (17 CFR 240.3a12–8) to add the

debt obligations of Brazil, Argentina,

and Venezuela to the list of Designated

Foreign Government securities that are

exempted by Rule 3a12–8. To qualify for

the exemption, futures contracts on debt

obligations of the Proposed Countries

would have to meet all the other

existing requirements of the Rule.

II. Background

Rule 3a12–8 was adopted in 1984 1

pursuant to the exemptive authority in

Section 3(a)(12) of the Exchange Act in

order to provide a limited exception

from the CEA’s prohibition on futures

overlying individual securities.2 As

originally adopted, the Rule provided

that the debt obligations of Great Britain

and Canada would be deemed to be

exempted securities, solely for the

purpose of permitting the offer, sale,

and confirmation of ‘‘qualifying foreign

futures contracts’’ on such securities.

The securities in question were not

eligible for the exemption if they were

registered under the Securities Act or

were the subject of any American

depositary receipt so registered. A

futures contract on such a debt

obligation is deemed under the Rule to

be a ‘‘qualifying foreign futures

contract’’ if the contract is deliverable

outside the United States and is traded

on a board of trade.3

The conditions imposed by the Rule

were intended to facilitate the trading of

futures contracts on foreign government

securities in the United States while

requiring offerings of foreign

government securities to comply with

the federal securities laws. Accordingly,

the conditions set forth in the Rule were

designed to ensure that, absent

registration, a domestic market in

unregistered foreign government

securities would not develop, and that

markets for futures on these instruments

would not be used to avoid the

securities law registration requirements.

In particular, the Rule was intended to

ensure that futures on exempted

sovereign debt did not operate as a

surrogate means of trading the

unregistered debt.

Subsequently, the Commission

amended the Rule to include the debt

securities issued by Japan, Australia,

France, New Zealand, Austria,

Denmark, Finland, the Netherlands,

Switzerland, Germany, Ireland, Italy,

Spain, and, most recently, Mexico.4
65608 Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Proposed Rules

‘‘Federal Republic of Germany,’’ and (3) replace all

references to the informal names of the countries

listed in the Rule with references to their official

names. See Securities Exchange Act Release No.

30166 (January 6, 1992), 57 FR 1375 (January 14,

1992). In 1994, the Rule was amended to include

debt securities issued by the Kingdom of Spain. See

Securities Exchange Act Release No. 34908 (October

27, 1994), 59 FR 54812 (November 2, 1994). Finally,

the Rule was amended to include the debt securities

of Mexico. See Securities Exchange Act Release No.

36530 (November 30, 1995), 60 FR 62323

(December 6, 1995) (‘‘Mexico Adopting Release’’).

5See Letter from William J. Brodsky, President

and Chief Executive Officer, CME, to Arthur Levitt,

Jr., Chairman, Commission, dated November 10,

1995 (‘‘CME petition’’).

6The marketing and trading of foreign futures

contracts is subject to regulation by the CFTC. In

particular, Section 4b of the CEA authorizes the

CFTC to regulate the offer and sale of foreign

futures contracts to U.S. residents, and Rule 9 (17

CFR 30.9), promulgated under Section 2(a)(1)(A) of

the CEA, is intended to prohibit fraud in connection

with the offer and sale of futures contracts executed

on foreign exchanges. Additional rules promulgated

under 2(a)(1)(A) of the CEA govern the domestic

offer and sale of futures and options contracts

traded on foreign boards of trade. These rules

require, among other things, that the domestic offer

and sale of foreign futures be effected through the

CFTC registrants or through entities subject to a

foreign regulatory framework comparable to that

governing domestic futures trading. See 17 CFR

30.3, 30.4, and 30.5 (1991).

7There are several types of Brady bonds, but ‘‘Par

Bradys’’ and ‘‘Discount Bradys’’ represent the great

majority of issues in the Brady bond market. In

general, both Par Bradys and Discount Bradys are

secured as to principal at maturity by U.S. Treasury

zero-coupon bonds. Additionally, usually 12 to 18

months of interest payments are also secured in the

form of a cash collateral account, which is

maintained to pay interest in the event that the

sovereign debtor misses an interest payment.

8The Commission notes that while no Brady

bonds of Proposed Countries have been registered

in the United States, certain sovereign debt issues

of Argentina and Venezuela have been so registered.

The trading of futures on U.S-registered debt

securities of Argentina and Venezuela would not be

exempted under Rule 3a12–8 from the CEA’s

general prohibition on futures overlying individual

securities.

9The CME’s proposed futures contracts will be

cash-settled (i.e., settlement of the futures contracts

will not entail delivery of the underlying

securities). The Commission has recognized that a

cash-settled futures contract is consistent with the

requirement of the Rule that delivery must be made

outside the United States. See Securities Exchange

Act Release No. 25072 (October 29, 1987), 52 FR

42277 (November 4, 1987).

10Public debt is an external obligation of a public

debtor, including the national government, a

political subdivision (or any agency of either) and

autonomous public bodies. Publicly guaranteed

debt is an external obligation of a private debtor

that is guaranteed for repayment by a public entity.

11See Letter from Carl A. Royal, Senior Vice

President and Special Counsel, CME, to James T.

McHale, Attorney, OMS, Division, Commission,

dated November 30, 1995 (citing the World Bank’s

1995 World Debt Tables as the source for this

information) (‘‘November 30 letter’’).

12See November 30 letter, supra note 11. As

mentioned earlier, the Commission recently

amended the Rule to include the debt securities of

Mexico. The total 1994 trading volume in Mexican

Brady bonds was approximately US$282.3 billion.

See Mexico Adopting Release, supra note 4.

III. Discussion

The Chicago Mercantile Exchange

(‘‘CME’’) has proposed that the

Commission amend Rule 3a12–8 to

include the sovereign debt of the

Proposed Countries.5 The CME intends

to develop a futures contract market in

Brady bonds issued by the Proposed

Countries.6 Brady bonds are issued

pursuant to the Brady plan which

allows developing countries to

restructure their commercial bank debt

by issuing long-term dollar

denominated bonds.7 The Commission

understands that Brady bonds issued by

the Proposed Countries are currently

traded primarily in the over-the-counter

market in the United States.

Under the proposed amendment, the

existing conditions set forth in the Rule

(i.e., that the underlying securities not

be registered in the United States,8 the

futures contracts require delivery

outside the United States,9 and the

contracts be traded on a board of trade)

would continue to apply.

In determining whether to amend the

Rule to add new countries, the

Commission has considered whether

there is an active and liquid secondary

trading market in the particular

sovereign debt. There appears to be an

active and liquid market in the debt

instruments of the Proposed Countries.

According to the CME, as of December

31, 1993, the total public and publicly

guaranteed debt 10 of Brazil, Argentina,

and Venezuela was approximately

US$86 billion, US$55 billion, and

US$74 billion, respectively.11 Moreover,

the cash market for Brady bonds issued

by the Proposed Countries evidences

relatively active trading. Based on data

provided by the CME, the total 1994

trading volume in the Brady bonds of

Brazil, Argentina, and Venezuela was

approximately US$371 billion, US$360

billion, and US$320 billion,

respectively.12

In light of the above data, the

Commission believes preliminarily that

the debt obligations of the Proposed

Countries should be subject to the same

regulatory treatment under the Rule as

the debt obligations of the Designated

Foreign Governments. Moreover, the

trading of futures on the sovereign debt

of Brazil, Argentina, and Venezuela

should provide U.S. investors with a

vehicle for hedging the risks involved in

the trading of the underlying sovereign

debt of the Proposed Countries.

In addition, the Commission

preliminarily believes that the proposed

amendment offers potential benefits for

U.S. investors. If adopted, the proposed

amendment would allow U.S. boards of

trade to offer in the United States, and

U.S. investors to trade, a greater range

of futures contracts on foreign

government debt obligations. The

Commission does not anticipate that the

proposed amendment would result in

any direct cost for U.S. investors or

others. The proposed amendment would

impose no recordkeeping or compliance

burdens, and merely would provide a

limited purpose exemption under the

federal securities laws. The restrictions

imposed under the proposed

amendment are identical to the

restrictions currently imposed under the

terms of the Rule and are designed to

protect U.S. investors.

Section 23(a)(2) of the Exchange Act

requires the Commission in amending

rules to consider potential impact on

competition. Because the proposal is

intended to expand the range of

financial products available in the

United States, the Commission

preliminarily believes that the proposed

amendment to the Rule will not impose

any burden on competition not

necessary or appropriate in furtherance

of the purposes of the Exchange Act.

IV. Request for Comments

The Commission seeks comments on

the desirability of designating the debt

securities of the Proposed Countries as

exempted securities under Rule 3a12–8.

Comments should address whether the

trading or other characteristics of the

Proposed Countries’ debt warrant an

exemption for purposes of futures

trading. Commentators may wish to

discuss whether there are any legal or

policy reasons for distinguishing

between the Proposed Countries and the

Designated Foreign Governments for

purposes of the Rule. The Commission

also solicits comments on the costs and

benefits of the proposed amendment to

Rule 3a12–8. Specifically, the

Commission requests commentators to

address whether the proposed

amendment would generate the

anticipated benefits, or impose any costs

on U.S. investors or others. Finally, the

Commission seeks comment on the

general application and operation of the

Rule given the increased globalization of

the securities markets since the Rule

was adopted.

V. Regulatory Flexibility Act

Certification

Pursuant to Section 605(b) of the

Regulatory Flexibility Act, 5 U.S.C.

§ 605(b), the Chairman of the

Commission has certified that the

amendment proposed herein would not,

if adopted, have a significant economic

impact on a substantial number of small

entities. This certification, including the

reasons therefor, is attached to this

release as Appendix A.
Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Proposed Rules 65609

1 45 FR 18618 (April 30, 1982).

VI. Statutory Basis

The amendment to Rule 3a12–8 is

being proposed pursuant to 15 U.S.C.

§§ 78a et seq., particularly Sections

3(a)(12) and 23(a), 15 U.S.C.

§§ 78c(a)(12) and 78w(a).

List of Subjects in 17 CFR Part 240

Reporting and recordkeeping

requirements, Securities.

VII. Text of the Proposed Amendment

For the reasons set forth in the

preamble, the Commission is proposing

to amend Part 240 of Chapter II, Title 17

of the Code of Federal Regulations as

follows:

PART 240—GENERAL RULES AND

REGULATIONS, SECURITIES

EXCHANGE ACT OF 1934

1. The authority citation for part 240

continues to read in part as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j,

77s, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c,

78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 78q,

78s, 78w, 78x, 78ll(d), 79q, 79t, 80a–20, 80a–

23, 80a–29, 80a–37, 80b–3, 80b–4 and 80b–

11, unless otherwise noted.

* * * * *

2. Section 240.3a12–8 is amended by

removing the word ‘‘or’’ at the end of

paragraph (a)(1)(xv), removing the

‘‘period’’ at the end of paragraph

(a)(1)(xvi) and adding ‘‘; or’’ in its place,

and adding paragraph (a)(1)(xvii),

paragraph (a)(1)(xviii), and paragraph

(a)(1)(xix) to read as follows:

§ 240.3a12–8 Exemption for designated

foreign government securities for purposes

of futures trading.

(a) * * *

(1) * * *

(xvii) the Federative Republic of

Brazil;

(xviii) the Republic of Argentina; or

(xix) the Republic of Venezuela.

* * * * *

By the Commission.

Dated: December 13, 1995.

Jonathan G. Katz,

Secretary.

Note: Appendix A to the Preamble will not

appear in the Code of Federal Regulations.

Appendix A—Regulatory Flexibility

Act Certification

I, Arthur Levitt, Jr., Chairman of the

Securities and Exchange Commission, hereby

certify, pursuant to 5 U.S.C. 605(b), that the

proposed amendment to Rule 3a12–8

(‘‘Rule’’) under the Securities Exchange Act

of 1934 (‘‘Exchange Act’’) set forth in

Securities Exchange Act Release No. 36580,

which would define government debt

securities of Brazil, Argentina and Venezuela

(collectively the ‘‘Proposed Countries’’) as

exempted securities under the Exchange Act

for the purpose of trading futures on such

securities, will not have a significant

economic impact on a substantial number of

small entities for the following reasons. First,

the proposed amendment imposes no recordkeeping or compliance burden in itself and

merely allows, in effect, the marketing and

trading in the United States of futures

contracts overlying the government debt

securities of the Proposed Countries. Second,

because futures contracts on the sixteen

countries whose debt obligations are

designated as ‘‘exempted securities’’ under

the Rule, which already can be traded and

marketed in the U.S., still will be eligible for

trading under the proposed amendment, the

proposal will not affect any entity currently

engaged in trading such futures contracts.

Third, because the level of interest presently

evident in this country in the futures trading

covered by the proposed rule amendment is

modest and those primarily interested are

large, institutional investors, neither the

availability nor the unavailability of these

futures products will have a significant

economic impact on a substantial number of

small entities, as that term is defined for

broker-dealers in 27 CFR 240.0–10 and to the

extent that it is defined for futures market

participants in the Commodity Futures

Trading Commission’s ‘‘Policy Statement and

Establishment of Definitions of ‘Small

Entities’ for Purposes of the Regulatory

Flexibility Act.’’ 1

Dated: December 13, 1995.

Arthur Levitt, Jr.,

Chairman.

[FR Doc. 95–30862 Filed 12–19–95; 8:45 am]

BILLING CODE 8010–01–P

DEPARTMENT OF STATE

22 CFR Part 89

Bureau of Economic and Business

Affairs; Foreign Prohibitions on

Longshore Work by U.S. Nationals

[Public Notice No. 2314]

AGENCY: Department of State.

ACTION: Proposed rule; extension of

Comment Period.

SUMMARY: On November 24, 1995, the

Department of State issued a proposed

rulemaking regarding longshore work by

foreign nationals in U.S. ports and

waters. In response to requests from

several interested parties, the

Department is extending the deadline

for comments by 30 days, from

December 26, 1995 to January 26, 1996.

DATES: Interested parties are invited to

submit comments in triplicate no later

than January 26, 1996.

ADDRESSES: Comments may be mailed to

the Office of Maritime and Land

Transport (EB/TRA/MA), Room 5828,

Department of State, Washington, D.C.

20520–5816.

FOR FURTHER INFORMATION CONTACT:

Richard T. Miller, Office of Maritime

and Land Transport, Department of

State, (202) 647–6961.

SUPPLEMENTARY INFORMATION: On

November 24, 1995, the Department of

State issued a proposed rulemaking (60

FR 58026) updating the list of longshore

work by particular activity, of countries

where performance of such a particular

activity by crewmembers aboard United

States vessels is prohibited by law,

regulation, or in practice in the country.

The crews of ships registered in or

owned by nationals of the countries on

the list may not perform the activities

enumerated on the list. Citing the need

for more time to assess the full effects

of the proposed rule, a number of

parties have requested an extension of

the comment period. Consequently, the

Department will extend the deadline by

30 days, from December 26, 1995 to

January 26, 1996.

(8 U.S.C. 1288, Pub. L. 010–649, 104 Stat.

4878)

Dated: December 14, 1995.

Daniel K. Tarullo,

Assistant Secretary, Economic and Business

Affairs, Department of State.

[FR Doc. 95–30879 Filed 12–19–95; 8:45 am]

BILLING CODE 4710–07–M

DEPARTMENT OF LABOR

Mine Safety and Health Administration

30 CFR Parts 18 and 75

RIN 1219–AA65

Requirements for Approval of FlameResistant Conveyor Belts

AGENCY: Mine Safety and Health

Administration, Labor.

ACTION: Proposed Rule; extension of

comment period.

SUMMARY: In response to requests from

the mining community for additional

time in which to prepare comments, the

Mine Safety and Health Administration

(MSHA) is extending the period for

public comment on its proposed rule

addressing the requirements for

approval of flame-resistant conveyor

belts to be used in underground mines.

DATES: Written comments must be

received on or before February 5, 1996.

ADDRESSES: Send comments to the

Office of Standards, Regulations, and

Variances, MSHA, Room 631, 4015

Wilson Boulevard, Arlington, Virginia

22203.