[Federal Register Volume 73, Number 182 (Thursday, September 18, 2008)]
[Rules and Regulations]
[Pages 54069-54072]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-21857]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 3 and 30

RIN 3038-AC26


Exemption From Registration for Certain Firms With Regulation 
30.10 Relief

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Commodity Futures Trading Commission (``Commission'') has 
amended the regulation concerning the registration of firms located 
outside the U.S. that are engaged in commodity interest activities with 
respect to trading on U.S. designated contract markets (``DCMs'') and 
U.S. derivatives transaction execution facilities (``DTEFs'').\1\ The 
amended regulation

[[Page 54070]]

codifies past actions of the Commission's staff to permit certain 
foreign firms that have confirmed relief from registration as futures 
commission merchants (``FCMs'') in accordance with the regulations to 
introduce to registered FCMs certain U.S. customers in connection with 
trading futures and commodity options listed on, or subject to the 
rules of, a U.S. DCM or DTEF without having to register as an 
introducing broker (``IB'') pursuant to Section 4d of the Commodity 
Exchange Act (``Act''). The Commission also has revoked the regulation 
regarding quarterly reporting requirements for foreign futures and 
foreign options transactions.
---------------------------------------------------------------------------

    \1\ Commission regulations referred to herein are found at 17 
CFR Ch. I (2007) and may be accessed through the Commission's Web 
site, http://www.cftc.gov/lawandregulation/index.htm.

---------------------------------------------------------------------------
DATES: Effective Date: October 20, 2008.

FOR FURTHER INFORMATION CONTACT: Andrew V. Chapin, Associate Director, 
at (202) 418-5430, Division of Clearing and Intermediary Oversight, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. Electronic mail: <a href="/cdn-cgi/l/email-protection#ef8e8c878e9f8681af8c899b8cc1888099"><span class="__cf_email__" data-cfemail="5435373c35243d3a14373220377a333b22">[email protected]</span></a>.

SUPPLEMENTARY INFORMATION: 

I. The Proposal

    Part 3 of the Commission's regulations governs the registration of 
intermediaries engaged in the offer and sale of, and providing advice 
concerning, futures and commodity options traded on U.S. markets, 
including both DCMs and DTEFs. Regulation 3.10 sets forth the manner in 
which FCMs, IBs, commodity pool operators (``CPOs''), commodity trading 
advisors (``CTAs''), and leverage transaction merchants must apply for 
registration with the Commission. Regulation 3.10(c) also provides an 
exemption from registration for certain persons. For example, 
Regulation 3.10(c)(3) provides an exemption from registration to any 
foreign person engaged in the activity of an IB, CPO or CTA solely on 
behalf of customers located outside the U.S., provided that all 
commodity interest transactions are submitted for clearing to a 
registered FCM.\2\ Part 30 of the Commission's regulations governs the 
offer and sale to U.S. persons of futures and option contracts entered 
into on or subject to the rules of a foreign board of trade.
---------------------------------------------------------------------------

    \2\ See 72 FR 63976 (Nov. 14, 2007).
---------------------------------------------------------------------------

    On January 25, 2008, the Commission published for comment proposed 
amendments to Regulations 3.10 and 30.8 (the ``Proposal'').\3\ 
Specifically, the Commission proposed new Regulation 3.10(c)(4) to 
exempt from registration as an IB the foreign affiliate of a registered 
FCM that introduces eligible contract participants (``ECPs'') to a 
registered FCM for the purpose of trading U.S. exchange-traded futures 
and options. Among other conditions, the registration relief described 
in the Proposal was predicated upon the foreign affiliate obtaining an 
exemption from FCM registration pursuant to Regulation 30.10 
(``Regulation 30.10 firm'') and the affiliated FCM's acknowledgment 
that it would be jointly and severally liable for any violations of the 
Act or the Commission's regulations by the foreign affiliate in 
connection with those activities, even if the FCM did not submit the 
trade for clearing.
---------------------------------------------------------------------------

    \3\ 73 FR 4499 (Jan. 25, 2008).
---------------------------------------------------------------------------

    As explained in the Proposal, the Commission sought to codify past 
no-action positions taken by Commission staff that provided a limited-
purpose exemption from IB registration only to those foreign affiliates 
of registered FCMs engaged in global futures brokerage activities on 
behalf of institutional customers located in the U.S. In doing so, the 
Commission recognized that institutional U.S. customers who trade 
globally throughout the 24-hour trading day may achieve greater 
operational and economic efficiencies by eliminating the need to use 
multiple order entry systems to execute transactions both domestically 
and abroad.
    The Commission also proposed to revoke Regulation 30.8 requiring 
each FCM to provide the National Futures Association (``NFA'') with a 
quarterly report containing data for the total volume of foreign 
futures and options contracts effected on foreign boards of trade. In 
the Proposal, the Commission stated that the Regulation 30.8 reporting 
requirement was overly burdensome in lieu of other extensive reporting 
and recordkeeping requirements applicable to FCMs as set forth in Part 
1 of its regulations.

II. Comments Regarding the Proposal

A. The Comments

    The Commission received four comment letters. All of the commenters 
supported the adoption of Regulation 3.10(c)(4). The two commenters on 
the proposal to revoke Regulation 30.8 similarly supported that action.
    One commenter, a registered FCM, requested the Commission to 
preserve the position taken in Staff Letter 07-16, applicable to one of 
the FCM's foreign affiliates.\4\ In contrast to other recipients of 
prior no-action relief, the FCM's foreign affiliate was exempt from IB 
registration pursuant to Regulation 30.5 and not Regulation 30.10. As 
such, the FCM's foreign affiliate would not be eligible for the IB 
registration exemption under the Proposal until such time that either 
its foreign regulator or self-regulatory organization filed a petition 
with the Commission in accordance with Regulation 30.10. Another 
commenter, a membership organization comprised of FCMs and other 
futures industry participants, commented that FCMs' foreign affiliates 
in non-30.10 jurisdictions may be interested in obtaining exemptive 
relief consistent with Regulation 3.10(c)(4) and, accordingly, it 
requested that the Commission consider addressing those foreign 
affiliates in the final rulemaking.
---------------------------------------------------------------------------

    \4\ CFTC Staff Letter 07-16, [Current Transfer Binder] Comm. 
Fut. L. Rep. (CCH) ] -------- (Aug. 21, 2007). CFTC Staff Letters 
issued since 1995 may be accessed through http://www.cftc.gov/lawandregulation/exemptivenoactionandinterpretativeletters/index.htm.
---------------------------------------------------------------------------

B. The Commission's Response

    The Commission does not believe it is appropriate at this time to 
extend the proposed IB registration exemption for trading on domestic 
markets as set forth in Regulation 3.10(c)(4) to those foreign 
affiliates exempt from IB registration pursuant to Regulation 30.5. 
This is because, while the limited-purpose exemption from IB 
registration set forth in Regulation 3.10(c)(4) is predicated on the 
existence of a comparable regulatory program in the jurisdiction in 
which the Regulation 30.10 firm is located, the exemption available in 
Regulation 30.5 is not. The Commission's determination to limit the 
relief set forth in Regulation 3.10(c)(4) to Regulation 30.10 firms 
will benefit U.S. customers by requiring any firm not registered with 
the Commission as an IB to be subject to a comparable regulatory 
program in lieu of compliance with the provisions of the Act and 
Commission regulations applicable to IBs. As set forth in Appendix A to 
Part 30, the Commission's review of each Regulation 30.10 firm's 
regulatory program, among other requirements, addresses the foreign 
laws and regulations applicable to registration and fitness, 
recordkeeping and reporting, and minimum sales practice standards.

III. Final Rulemaking

    Accordingly, the Commission has determined to adopt Regulation 
3.10(c)(4) as proposed. As the Commission indicated would be the case 
in the Proposal, the adoption of Regulation 3.10(c)(4) will supersede 
the following Staff Letters: 03-28, 04-09, 04-14, 05-06, 07-05, 07-08, 
07-16, 07-

[[Page 54071]]

17, 07-20, and 07-23 (the ``Prior Staff Letters'').
    Regulation 3.10(c)(4)(iii) requires that the FCM affiliated with 
the Regulation 30.10 firm seeking relief thereunder file with NFA an 
acknowledgment of joint and several liability with the 30.10 Firm. 
Notwithstanding that the Prior Staff Letters have been superseded by 
the adoption of Regulation 3.10(c)(4), by this Federal Register release 
the Commission confirms that any FCM that previously filed an 
acknowledgment of joint and several liability pursuant to the 
conditions of a Prior Staff Letter is not required to file a new 
acknowledgment with NFA--provided that the previously filed 
acknowledgment complies with Regulation 3.10(c)(4)(iii).
    For the reasons provided in the Proposal, and in the absence of any 
comments to the contrary, the Commission similarly has determined to 
revoke and reserve Regulation 30.8.

IV. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611, 
requires that agencies, in proposing regulations, consider the impact 
of those regulations on small businesses. The Commission has previously 
established certain definitions of ``small entities'' to be used by the 
Commission in evaluating the impact of its regulations on such entities 
in accordance with the RFA.\5\ The Commission previously has determined 
that registered FCMs are not small entities for the purpose of the RFA 
because each FCM has an underlying fiduciary relationship with its 
customers, regardless of the size of the FCM.\6\ The Commission notes 
that certain foreign persons affected by the changes to the 
Commission's regulations would be registered as FCMs if not for the 
exemption provided therein and, as such, would maintain a fiduciary 
relationship with customers similar to the relationship maintained by 
each registered FCM.
---------------------------------------------------------------------------

    \5\ 47 FR 18618-18621 (Apr. 30, 1982).
    \6\ 47 FR 18619-18620.
---------------------------------------------------------------------------

    With respect to IBs, the Commission has stated that it would 
evaluate within the context of a particular rule whether all or some 
affected IBs would be considered to be small entities and, if so, the 
economic impact on them of any rule.\7\ The Commission does not believe 
that any affected global IBs would be considered to be small entities. 
Moreover, the Commission invited public comment on the impact these 
proposed rules may have on small entities and received no comments.
---------------------------------------------------------------------------

    \7\ 47 FR 18618; see also 48 FR 35276 (Aug. 3, 1983).
---------------------------------------------------------------------------

    Therefore, the Acting Chairman, on behalf of the Commission, hereby 
certifies, pursuant to 5 U.S.C. 605(b), that these regulations will not 
have a significant economic impact on a substantial number of small 
entities. No comment was received regarding the impact of these 
amendments on small businesses.

B. Paperwork Reduction Act

    As required by the Paperwork Reduction Act of 1995,\8\ the 
Commission submitted a copy of the proposed rule amendments to the 
Office of Management and Budget for its review. The Commission did not 
receive any public comments relative to its analysis of paperwork 
burdens associated with this rulemaking.
---------------------------------------------------------------------------

    \8\ Pub. L. 104-13 (May 13, 1995).
---------------------------------------------------------------------------

C. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its actions before issuing new regulations under 
the Act. The Commission published an analysis of costs and benefits 
when it proposed the rule amendments that it is now adopting.\9\ It did 
not receive any public comments pertaining to the analysis.
---------------------------------------------------------------------------

    \9\ 73 FR at 4502.
---------------------------------------------------------------------------

List of Subjects

17 CFR Part 3

    Definitions, Foreign futures, Consumer protection, Foreign options, 
Registration requirements.

17 CFR Part 30

    Definitions, Foreign futures, Consumer protection, Foreign options, 
Registration requirements.

0
In consideration of the foregoing, and pursuant to the authority 
contained in the Commodity Exchange Act and, in particular, Sections 
2(a)(1), 4(b), 4c and 8a thereof, 7 U.S.C. 2, 6(b), 6c and 12a (1982), 
and pursuant to the authority contained in 5 U.S.C. 552 and 552b 
(1982), the Commission hereby amends Chapter I of Title 17 of the Code 
of Federal Regulations as follows:

PART 3--REGISTRATION

0
1. The authority citation for part 3 continues to read as follows:

    Authority: 5 U.S.C. 522, 522b; 7 U.S.C. 1a, 2, 4, 6, 6a, 6b, 6c, 
6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 8, 9, 9a, 12, 12a, 13b, 
13c, 16a, 18, 19, 21, 23, unless otherwise noted.


0
2. Section 3.10 is amended by adding paragraph (c)(4) to read as 
follows:


Sec.  3.10  Registration of futures commission merchants, introducing 
brokers, commodity trading advisors, commodity pool operators and 
leverage transaction merchants.

* * * * *
    (c) * * *
    (4) A person located outside the United States, its territories or 
possessions that is exempt from registration as a futures commission 
merchant in accordance with Sec.  30.10 of this chapter is not required 
to register as an introducing broker in accordance with section 4d of 
the Act if:
    (i) Such a person is affiliated with a futures commission merchant 
registered in accordance with section 4d of the Act;
    (ii) Such a person introduces, on a fully-disclosed basis in 
accordance with Sec.  1.57 of this chapter, any institutional customer, 
as defined in Sec.  1.3(g) of this chapter, to a registered futures 
commission merchant for the purpose of trading on a designated contract 
market or derivatives execution facility;
    (iii) Prior to a person located outside the United States, its 
territories or possessions, that is exempt from registration as a 
futures commission merchant pursuant to Sec.  30.10 of this chapter, 
engaging in the introducing activities described in this paragraph, the 
affiliated futures commission merchant has filed with the National 
Futures Association (ATTN: Vice President, Compliance) an 
acknowledgement that it will be jointly and severally liable for any 
violations of the Act or the Commission's regulations committed by such 
person in connection with those introducing activities, whether or not 
the affiliated futures commission merchant submits for clearing any 
trades resulting from those introducing activities; and
    (iv) Such person does not solicit any person located in the United 
States, its territories or possessions for trading on a designated 
contract market or derivatives transaction execution facility, nor does 
such person handle the customer funds of any person located in the 
United States, its territories or possessions for the purpose of 
trading on any designated contract market or derivatives transaction 
execution facility.
    (v) For the purposes of this paragraph, a person shall be 
affiliated with a futures commission merchant if such a person:
    (A) Owns 50 percent or more of the futures commission merchant;
    (B) Is owned 50 percent or more by the futures commission merchant; 
or
    (C) Is owned 50 percent or more by a third person that also owns 50 
percent

[[Page 54072]]

or more of the futures commission merchant.
* * * * *

PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

0
3. The authority citation for part 30 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 4, 6, 6c, and 12a, unless otherwise 
noted.


Sec.  30.8  [Removed and reserved]

0
4. Section 30.8 is removed and reserved.

    Dated: September 12, 2008.

    By the Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. E8-21857 Filed 9-17-08; 8:45 am]
BILLING CODE 6351-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>