32200 Federal Register / Vol. 74, No. 128 / Tuesday, July 7, 2009 / Notices 

1Public Law 106–554, 114 Stat. 2763 (2000). 

2A security future is defined in Section 

3(a)(55)(A) of the Securities Exchange Act of 1934 

(‘‘Exchange Act’’), 15 U.S.C. 78c(a)(55)(A), and 

Section 1a(31) of the Commodity Exchange Act 

(‘‘CEA’’), 7 U.S.C. 1a(31). 

3A security futures product is defined as a 

security future or any put, call, straddle, option, or 

privilege on any security future. See Section 

3(a)(56) of the Exchange Act, 15 U.S.C. 78c(a)(56), 

and Section 1a(32) of the CEA, 7 U.S.C. 1a(32). 

4Section 3(a)(10) of the Exchange Act, 15 U.S.C. 

78c(a)(10). 

5Section 2(a)(1) of the Securities Act of 1933 

(‘‘Securities Act’’), 15 U.S.C. 77b(a)(1). 

6Section 2(a)(36) of the Investment Company Act 

of 1940, 15 U.S.C. 80a–2(a)(36). 

7Section 202(a)(18) of the Investment Advisers 

Act of 1940, 15 U.S.C. 80b–2(a)(18). 

8Section 1a(31) of the CEA, 7 U.S.C. 1a(31). 

9See Section 1a(25) of the CEA, 7 U.S.C. 1a(25), 

and Section 3(a)(55)(B) and (C) of the Exchange Act, 

15 U.S.C. 78c(a)(55)(B) and (C). See also Rules 

3a55–1 and 3a55–2 under the Exchange Act, 17 CFR 

240.3a55–1 and 240.3a55–2; Rules 41.11, 41.12, and 

41.13 under the CEA, 17 CFR 41.11, 41.12, and 

41.13; and Securities Exchange Act Release No. 

44724 (August 20, 2001), 66 FR 44490 (August 23, 

2001). 

10See Rule 3a55–3 under the Exchange Act, 17 

CFR 240.3a55–3; Rule 41.13 under the CEA, 17 CFR 

41.13; and Securities Exchange Act Release No. 

44724, supra note 9. 

11 15 U.S.C. 78f(h)(1). 

12 15 U.S.C. 78o–3(a). The Exchange Act and the 

CEA also require that any security underlying a 

security future listed on a national securities 

exchange or national securities association, 

including each component security of a narrowbased security index, be registered under Section 12 

of the Exchange Act. See Section 6(h)(3)(A) of the 

Exchange Act, 15 U.S.C. 78f(h)(3)(A), and Section 

2(a)(1)(D)(i)(I) of the CEA, 7 U.S.C. 2(a)(1)(D)(i)(I). 

Accordingly, if the securities that compose foreign 

security indexes listed on or subject to the rules of 

a foreign board of trade are not registered under 

Section 12 of the Exchange Act, absent relief, a 

national securities exchange or national securities 

association would not be able to list and trade a 

security future based on such an index. The 

Exchange Act and CEA also require that securities 

underlying security futures be equity securities. 

Section 6(h)(3)(D) of the Exchange Act, 15 U.S.C. 

78f(h)(3)(D), and Section 2(a)(1)(D)(i)(III) of the 

CEA, 7 U.S.C. 2(a)(1)(D)(i)(III). The Commission and 

the CFTC have exercised their authority pursuant 

to Sections 1a(25)(B)(vi) and 2(a)(1)(D) of the CEA 

and Sections 3(a)(55)(C)(vi), 3(b), 6(h), 23(a), and 36 

of the Exchange Act, to adopt rules to allow security 

futures on debt securities and debt securities 

indexes under certain conditions. 7 U.S.C. 

1a(25)(B)(vi) and 2(a)(1)(D) and 15 U.S.C. 

78c(a)(55)(C)(vi), 78c(b), 78f(h), 78w(a), and 78mm. 

See Securities Exchange Act Release No. 54106 

(July 6, 2006), 71 FR 39534 (July 13, 2006). 

13Public Law 110–246, Sec. 13, 106, 122 Stat. 

1651, 2197 (2008), reprinted in Notes to 7 U.S.C.A. 

Sec. 2. 

14See Securities Exchange Act Release Nos. 

44288 (May 9, 2001), 66 FR 27560 (May 17, 2001), 

and 44724, supra note 9. 

15See e.g., Comment Letters from Barclay’s 

Global Investors, N.A., dated July 17, 2001; Futures 

Industry Association, dated July 18, 2001; General 

Motors Investment Management Corporation, dated 

June 11, 2001; The Goldman Sachs Group and its 

subsidiaries, dated July 18, 2001; and The Montreal 

Exchange, dated June 14, 2001 (cited in Securities 

Exchange Act Release No. 44724, supra note 9). 

The General Counsel of the 

Commission, or his designee, has 

certified that, in his opinion, one or 

more of the exemptions set forth in 5 

U.S.C. 552b(c)(3), (5), (7), (8), 9(B) and 

(10) and 17 CFR 200.402(a)(3), (5), (7), 

(8), 9(ii) and (10), permit consideration 

of the scheduled matters at the Closed 

Meeting. 

Commissioner Casey, as duty officer, 

voted to consider the items listed for the 

Closed Meeting in a closed session. 

The subject matter of the Closed 

Meeting scheduled for Thursday, July 9, 

2009 will be: 

institution and settlement of injunctive 

actions; institution and settlement of 

administrative proceedings; adjudicatory 

matters; regulatory matter regarding financial 

institutions; and other matters related to 

enforcement proceedings. 

At times, changes in Commission 

priorities require alterations in the 

scheduling of meeting items. 

For further information and to 

ascertain what, if any, matters have 

been added, deleted or postponed, 

please contact: The Office of the 

Secretary at (202) 551–5400. 

Dated: July 2, 2009. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–16035 Filed 7–2–09; 11:15 am] 

BILLING CODE P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60194; International Series 

Release No. 1311] 

Order Under Section 36 of the 

Securities Exchange Act of 1934 

Granting an Exemption From 

Exchange Act Section 6(h)(1) for 

Certain Persons Effecting 

Transactions in Foreign Security 

Futures and Under Exchange Act 

Section 15(a)(2) and Section 36 

Granting Exemptions From Exchange 

Act Section 15(a)(1) and Certain Other 

Requirements 

June 30, 2009. 

I. Introduction and Background 

The Commodity Futures 

Modernization Act of 2000 (‘‘CFMA’’) 1

authorized the trading of futures on 

individual stocks and narrow-based 

stock indexes, i.e., security futures.2 The 

CFMA defined security futures 

products 3 as ‘‘securities’’ under the 

Exchange Act,4 the Securities Act of 

1933 (‘‘Securities Act’’),5 the Investment 

Company Act of 1940,6 and the 

Investment Advisers Act of 1940,7 and 

as contracts of sale for future delivery 

under the CEA.8 Accordingly, the 

regulatory framework established by the 

CFMA provides the Securities and 

Exchange Commission (‘‘Commission’’) 

and the Commodity Futures Trading 

Commission (‘‘CFTC’’) with joint 

jurisdiction over security futures 

products. Futures on broad-based 

security indexes (security indexes that 

are not narrow-based), and options on 

such futures, remain under the 

exclusive jurisdiction of the CFTC. To 

distinguish between futures on narrowbased security indexes and futures on 

broad-based security indexes, the CFMA 

also amended the CEA and the 

Exchange Act to add an objective 

definition of a narrow-based security 

index.9 This definition applies both to 

security indexes that underlie futures 

contracts listed and traded in the United 

States and those that underlie futures 

contracts traded on or subject to the 

rules of a foreign board of trade.10

The CFMA also added Section 6(h)(1) 

to the Exchange Act,11 which makes it 

unlawful for any person to effect 

transactions in security futures products 

that are not listed on a national 

securities exchange or a national 

securities association registered 

pursuant to Section 15A(a) of the 

Exchange Act.12 Because of this 

prohibition, U.S. persons are currently 

unable to enter into contracts for 

narrow-based index or single stock 

futures traded on or subject to the rules 

of a foreign board of trade. 

The Food, Conservation and Energy 

Act of 2008 requires the Commission, 

the CFTC, or both, as appropriate, to 

take action under their existing 

authorities to permit, by June 30, 2009, 

the trading of futures on certain security 

indexes by resolving issues related to 

foreign security indexes.13 The 

exemption the Commission is issuing 

today fulfills this statutory directive on 

the part of the Commission. 

The Commission understands that 

institutional investors could use futures 

on foreign securities and foreign 

security indexes for, among other 

things, risk management and asset 

allocation. In particular, in connection 

with the Commission’s rulemaking in 

2001 relating to the definition of 

narrow-based security index and 

exclusions from that definition,14

commenters expressed strong views that 

U.S. investors, particularly institutional 

investors, need to be able to trade in 

futures on foreign security indexes for 

risk management, asset allocation, and 

other purposes, and would suffer 

substantial adverse impact and 

competitive disadvantage with respect 

to non-U.S. investors if they could not 

trade such products.15

Federal Register / Vol. 74, No. 128 / Tuesday, July 7, 2009 / Notices 32201 

16For example, under the ‘‘territorial approach’’ 

to Section 5 of the Securities Act, the registration 

of securities under the Securities Act is intended to 

provide that protection to U.S. markets and U.S. 

investors. Further, in order to ‘‘protect investors 

and securities markets,’’ under the Commission’s 

territorial approach to Section 15 of the Exchange 

Act, absent an exemption, broker-dealer registration 

is generally required by ‘‘foreign broker-dealers 

that, from outside the United States, induce or 

attempt to induce trades by any person in the 

United States.’’ See Registration Requirements for 

Foreign Broker-Dealers, Securities Exchange Act 

Release No. 27017 (July 11, 1989), 54 FR 30013 

(July 18, 1989) at 30017. 

17The Exchange Act rules require public issuers 

to make periodic disclosures at annual and 

quarterly intervals, with other important 

information reported on a more current basis. 

Because of the enactment of the Sarbanes-Oxley 

Act, 15 U.S.C. 7201 et seq., and the Commission’s 

subsequent rulemaking and interpretive actions, the 

disclosure included in issuers’ Exchange Act filings 

has been enhanced significantly. See, e.g., 

Securities Act Release Nos. 8124 (August 28, 2002), 

67 FR 57276 (September 9, 2002); 8220 (April 9, 

2003), 68 FR 18788 (April 16, 2003); 8238 (June 5, 

2003), 68 FR 36636 (June 18, 2003); and 8400 

(March 16, 2004), 69 FR 15594 (March 25, 2004). 

See also Foreign Issuer Reporting Enhancements, 

Securities Exchange Act Release No. 58620 

(September 23, 2008), 73 FR 58300 (October 6, 

2008). 

18Because an issuer’s Exchange Act reports and 

other publicly available information form the basis 

for the market’s evaluation of the issuer and the 

pricing of its securities, investors in the secondary 

market use that information in making their 

investment decisions. 

19See Securities Act Release No. 6863 (April 24, 

1990), 55 FR 18306 (May 2, 1990) (‘‘Regulation S 

Adopting Release’’). This territorial approach to the 

application of the registration provisions, however, 

does not affect the broad reach of the antifraud 

provisions of the federal securities laws. As the 

Commission noted in the Regulation S Adopting 

Release, ‘‘[t]he antifraud provisions have been 

broadly applied by the courts to protect U.S. 

investors and investors in U.S. markets where either 

significant conduct occurs within the United States 

* * * or the conduct occurs outside the United 

States but has a significant effect within the United 

States or on the interests of U.S. investors. * * *’’ 

Id. at 18308–18309. 

20 15 U.S.C. 78mm. 

21 15 U.S.C. 78j(b). 

22 17 CFR 240.10b–5. 

23See Rule 144A(a)(1), 17 CFR 230.144A(a)(1). 

24See Rule 902(k) of Regulation S, 17 CFR 

230.902(k). 

25 15 U.S.C. 78c(a)(6). 

26 15 U.S.C. 78c(a)(4)(B), 15 U.S.C. 78c(a)(4)(E), or 

15 U.S.C. 78c(a)(5)(C). 

Under the federal securities laws, a 

primary mandate of the Commission is 

investor protection. In the Commission’s 

view, the federal securities laws are 

intended to protect U.S. investors and 

capital markets (including purchasers in 

those markets, whether U.S. or 

foreign).16 For instance, in protecting 

the U.S. capital markets and investors 

purchasing in those markets, Congress 

and the Commission have recognized 

that the ongoing dissemination of 

accurate information by issuers about 

themselves and their securities is 

essential to the effective operation of the 

trading markets. The Exchange Act and 

underlying rules have established a 

system of ongoing disclosure about 

issuers that have offered securities to 

the public, or that have securities that 

are listed on a national securities 

exchange or are broadly held by the 

public.17 A public issuer’s Exchange Act 

record provides the basic source of 

information to the market and to 

potential purchasers regarding the 

issuer and its management, business, 

financial condition, and prospects.18

In many circumstances, however, the 

reasonable expectation of participants in 

the global markets justifies reliance on 

laws applicable in jurisdictions outside 

the U.S. to establish requirements for 

transactions effected offshore. In this 

context, this ‘‘territorial approach’’ 

generally recognizes the primacy of the 

laws in which a market is located.19

Thus, the Exchange Act periodic 

reporting requirements for issuers, 

including foreign issuers, with 

securities traded in U.S. markets, do not 

extend to securities of foreign issuers 

traded only in foreign markets if such 

issuers are not otherwise subject to 

Exchange Act reporting requirements. 

The Commission historically has sought 

to balance the information needs of 

investors with the public interest served 

by opportunities to invest in a variety of 

securities, including foreign securities, 

and believes that such an approach is 

appropriate in the context of permitting 

certain persons to engage in security 

futures transactions involving foreign 

securities. 

Generally, Section 36 of the Exchange 

Act 20 authorizes the Commission—by 

rule, regulation, or order—to 

conditionally or unconditionally 

exempt any person, security, transaction 

(or any class or classes of persons, 

securities, or transactions) from any 

provision or provisions of the Exchange 

Act or any rule or regulation thereunder, 

to the extent such exemption is 

necessary or appropriate in the public 

interest and is consistent with the 

protection of investors. As discussed 

more fully below, pursuant to Section 

36 the Commission is exempting, under 

certain conditions, from Section 6(h)(1) 

of the Exchange Act certain persons that 

effect transactions in security futures 

overlying foreign securities traded on or 

subject to the rules of a foreign board of 

trade. All other applicable provisions of 

the federal securities laws, including the 

antifraud provisions, will continue to 

apply to such transactions. 

In addition, as discussed more fully 

below, the Commission is exempting 

certain foreign brokers or dealers from 

the registration requirements of Section 

15(a)(1) of the Exchange Act and certain 

other requirements. Such foreign 

brokers or dealers remain subject to all 

other applicable provisions of the 

federal securities laws, including, 

without limitation, Section 10(b) of the 

Exchange Act 21 and Rule 10b–5 

thereunder.22 The Commission is 

granting the exemption pursuant to 

Section 15(a)(2) of the Exchange Act 

(which authorizes the Commission, by 

rule or order, as it deems consistent 

with the public interest and the 

protection of investors, to conditionally 

or unconditionally exempt from Section 

15(a)(1) of the Exchange Act any broker 

or dealer or class of brokers or dealers 

specified in such rule or order) and 

Section 36 of the Exchange Act, in order 

to facilitate transactions contemplated 

by the exemption from Section 6(h)(1) of 

the Exchange Act. 

II. Exemption From Section 6(h)(1) of 

the Exchange Act 

The Commission finds that it is 

appropriate in the public interest and 

consistent with the protection of 

investors to grant an exemption from 

Section 6(h)(1) of the Exchange Act to 

permit certain persons to effect 

transactions in certain foreign security 

futures on foreign boards of trade. 

Specifically, the exemption permits, 

under certain conditions specified 

below, the following persons to effect 

transactions in security futures that are 

traded on or subject to the rules of a 

foreign board of trade: (1) Qualified 

institutional buyers (‘‘QIBs’’) as defined 

in Rule 144A under the Securities 

Act; 23 (2) persons that are not U.S. 

persons under Rule 902 of Regulation S 

of the Securities Act (‘‘non-U.S. 

persons’’); 24 (3) registered brokers or 

dealers that effect transactions on behalf 

of QIBs or non-U.S. persons; and (4) 

banks, as defined in Section 3(a)(6) of 

the Exchange Act,25 acting pursuant to 

an exception or exemption from the 

definition of ‘‘broker’’ or ‘‘dealer’’ in 

Sections 3(a)(4)(B), 3(a)(4)(E), or 

3(a)(5)(C) of the Exchange Act or the 

rules thereunder (‘‘Eligible Bank’’),26 to 

effect transactions on behalf of QIBs or 

non-U.S. persons. 

As described more fully below, the 

exemption permits such persons to 

effect transactions in security futures 

that are not listed on a national 

securities exchange or a national 

securities association registered 

pursuant to Section 15A(a) of the 

Exchange Act, under the following 

conditions: 

Types of Security Futures. 

• If the security future is on a single 

security: 

32202 Federal Register / Vol. 74, No. 128 / Tuesday, July 7, 2009 / Notices 

27See Schedule B, 15 U.S.C. 77aa. 

28 Id. See also infra notes 46–51 and 

accompanying text. 

29 15 U.S.C. 78m and 78o(d). 

30See infra notes 52–53 and accompanying text. 

31A broker or dealer registered with the 

Commission pursuant to Section 15(b)(11) of the 

Exchange Act may rely on this exemption to engage 

in transactions in foreign security futures to the 

same extent as a broker or dealer registered with the 

Commission pursuant to Section 15(b)(1) of the 

Exchange Act. See infra notes 57–68 and 

accompanying text. 

32See supra note 26 and accompanying text. 

33A broker or dealer or Eligible Bank acting for 

its own account would not be able to rely on the 

exemption in this order unless such broker, dealer, 

or Eligible Bank is a QIB in its own right. 

34See Rule 144A under the Securities Act, 17 

CFR 230.144A, for certain non-exclusive means to 

satisfy this condition for QIBs. 

35See supra notes 16–19 and accompanying text. 

36For certain purposes, QIBs have been deemed 

to be within the classes of persons that have such 

knowledge and experience that they are capable of 

fending for themselves and thus do not need the 

full protections of the registration provisions of the 

Securities Act nor the benefits of the full issuer 

reporting provisions of the Exchange Act. See 

Resale of Restricted Securities; Changes to Method 

of Determining Holding Period of Restricted 

Securities under Rules 144 and 145, Securities Act 

Release No. 6862 (April 23, 1990), 55 FR 17933 

(April 30, 1990) (‘‘Rule 144A Adopting Release’’). 

See also infra note 39. 37 In addition, if the offer or sale of a security 

future is by or on behalf of the issuer of the 

underlying security, an affiliate of the issuer of the 

underlying security, or an underwriter, the offer or 

sale of the security future would be an offer or sale 

of the underlying security as well, as to which the 

registration provisions of the Securities Act would 

apply, unless an available exemption existed. See 

Section 2(a)(3) and Section 5 of the Securities Act, 

15 U.S.C. 77b(a)(3) and 77e. See also Commission 

Guidance on the Application of Certain Provisions 

of the Securities Act of 1933, the Securities 

Exchange Act of 1934, and Rules thereunder to 

Trading in Security Futures Products, Securities 

Act Release No. 8107 (June 21, 2002), 67 FR 43234 

(June 27, 2002). 

38 15 U.S.C. 77c(a)(14). 

39Transactions that do not involve any public 

offering are exempt from federal registration under 

Section 4(2) of the Securities Act. The Securities 

Act does not define these transactions. The U.S. 

Supreme Court, however, set the basic criteria for 

the Section 4(2) exemption in SEC v. Ralston Purina 

Co., 346 U.S. 119 (1953). The Court indicated that 

the application of the non-public offering 

exemption depended on whether the offerees were 

able to fend for themselves and had access to the 

same kind of information that would be disclosed 

in registration. The Court noted that such persons, 

by virtue of their knowledge, would not need to rely 

on the protections afforded by registration. See 

Securities Act Release No. 8041 (December 19, 

2001), 66 FR 66839 (December 29, 2001) at text 

accompanying note 22. In adopting Rule 144A 

(which is a resale exemption from registration) in 

1990, the Commission determined that QIBs were 

in the category of persons able to fend for 

themselves and had access to the same kind of 

information that would be disclosed in registration. 

See Rule 144A Adopting Release, supra note 36. 

• The underlying security must be (1) 

issued by a foreign private issuer and 

have its primary trading market outside 

the U.S., or (2) a note, bond, debenture, 

or evidence of indebtedness (‘‘debt’’) 

security issued or guaranteed by a 

foreign government that is eligible to be 

registered with the Commission under 

Schedule B of the Securities Act.27

• If the security future is on a narrowbased security index: 

• At least 90 percent of the 

underlying securities in the index, at the 

time of the transaction, both in terms of 

the number of underlying securities and 

their weighting in the index, must be (1) 

issued by foreign private issuers where 

the primary trading market of each such 

underlying security is outside the U.S., 

or (2) debt securities issued or 

guaranteed by a foreign government that 

are eligible to be registered with the 

Commission under Schedule B of the 

Securities Act; 28 and 

• No more than 10 percent of the 

number and weighting of securities in 

the index at the time of the transaction 

can fail to meet the above criteria, and 

the issuers of such securities must be 

required to file reports with the 

Commission pursuant to Section 13 or 

Section 15(d) of the Exchange Act.29

Foreign Exchange. 

• The transaction must be effected on, 

or be subject to the rules of, an exchange 

or contract market that is not required 

to register with the Commission under 

Section 5 of the Exchange Act.30

Clearance and Settlement Outside the 

U.S. 

• The security future must not result 

in physical delivery in the U.S. of the 

securities underlying the contract and 

must be cleared and settled outside the 

U.S.; and 

• A position in the security future 

must not be able to be closed or 

liquidated by effecting an offsetting 

transaction on or through the facility of 

any exchange or association registered 

in the U.S. under Section 6 or 15A of 

the Exchange Act, respectively. 

A. Types of Persons Covered by the 

Exemption 

The Commission believes that it is 

necessary and appropriate in the public 

interest and for the protection of 

investors to limit the persons who may 

rely on this exemption because it is 

possible that the securities underlying a 

foreign security future may not be 

registered under Section 12 of the 

Exchange Act. For this reason, only the 

following persons are exempt from 

Section 6(h)(1) of the Exchange Act: 

• QIBs; 

• Non-U.S. persons; 

• Brokers or dealers registered under 

Section 15(b) of the Exchange Act 31 to 

the extent that they effect transactions 

on behalf of QIBs or non-U.S. persons; 

and 

• Eligible Banks 32 to the extent that 

they effect transactions on behalf of 

QIBs or non-U.S. persons.33

For purposes of this exemption, a broker 

or dealer or Eligible Bank that effects 

transactions on behalf of a QIB or a nonU.S. person engaged in trading security 

futures must reasonably believe that 

such person is a QIB or a non-U.S. 

person.34

As discussed above,35 the registration 

requirements under Section 12 of the 

Exchange Act, together with the 

reporting requirements under Section 13 

of the Exchange Act, underlie the full 

disclosure regime administered by the 

Commission. These registration and 

reporting requirements are intended to 

benefit and protect all investors, both 

institutions and individual investors. 

The Commission nevertheless 

believes that subject to certain 

conditions, it is appropriate to permit 

certain sophisticated investors to trade 

security futures based on securities of 

foreign private issuers that are not 

subject to the reporting requirements of 

the Exchange Act. In particular, the 

Commission believes that, with regard 

to transactions in security futures based 

on foreign security indexes that may 

include unregistered securities of 

foreign private issuers, some of which 

may be non-reporting issuers, QIBs are 

sufficiently sophisticated and have 

enough resources to identify the 

information that they require to make 

their investment decisions and to obtain 

that information, and to engage in 

transactions not subject to the 

registration requirements of the U.S. 

securities laws.36 The Commission also 

believes it is appropriate to exempt nonU.S. persons from Section 6(h)(1) of the 

Exchange Act because such persons do 

not have the expectation that the U.S. 

securities laws would apply to their 

transactions in such security futures 

traded on non-U.S. boards of trade. 

The Commission reminds market 

participants that, absent registration 

under the Securities Act, when a QIB or 

non-U.S. person engages in a transaction 

pursuant to this exemption, the offer 

and sale of the security future must be 

exempt from such registration.37 The 

statutory exemption from registration in 

Section 3(a)(14) of the Securities Act is 

unavailable for offers and sales of 

security futures that are not cleared by 

a registered clearing agency or listed on 

a registered national securities 

exchange.38 The offer and sale of the 

security future must, therefore, be made 

in reliance on another exemption from 

registration, such as the exemption in 

Section 4(2) of the Securities Act for 

offerings not involving public 

offerings 39 or the safe harbor provisions 

Federal Register / Vol. 74, No. 128 / Tuesday, July 7, 2009 / Notices 32203 

40See Regulation D, 17 CFR 230.501 et seq., and 

Regulation S, 17 CFR 230.901 et seq. While the 

exemption in this order applies to transactions in 

foreign security futures by QIBs, as defined in Rule 

144A, as well as non-U.S. persons, as defined in 

Regulation S, the exemption or safe harbor relied 

on in offering or selling a foreign security future to 

such persons may, but need not, be Regulation S. 

Rule 144A would not apply to the offer and sale of 

a security future because Rule 144A only applies to 

resale transactions (see 17 CFR 230.144A), whereas, 

the offer or sale of a security future is an offering 

by the clearing agency on or through the facilities 

of the exchange, not a resale transaction. 

In analyzing the availability of an exemption or 

safe harbor from such registration requirements, the 

Commission provided some guidance in the 

General Statement in Regulation S by providing that 

any offer, offer to sell, sale, or offer to buy that 

occurs within the United States is subject to Section 

5 of the Securities Act, while any such offer or sale 

that occurs outside the United States is not subject 

to Section 5. The determination as to whether a 

transaction is outside the United States will be 

based on the facts and circumstances of each case. 

As the Commission stated in adopting Regulation 

S, ‘‘[i]f it can be demonstrated that an offer or sale 

of securities occurs ‘outside the United States,’ the 

registration provisions of the Securities Act will not 

apply, regardless of whether the conditions of 

[Regulation S] are met. For a transaction to qualify 

* * * both the sale and the offer pursuant to which 

it was made must be outside the United States.’’ See 

Regulation S Adopting Release, supra note 19. 

Regulation S also contains restrictions on, among 

other matters, directed selling efforts into the U.S.— 

those activities that could reasonably be expected, 

or are intended, to condition the market with 

respect to the securities being offered in reliance on 

Regulation S. Id. 

41See supra notes 37–40 and accompanying text. 

42See Securities Act Rule 405, 17 CFR 230.405, 

and Exchange Act Rule 3b-4, 17 CFR 240.3b-4. 

43See infra notes 50–51 and accompanying text. 

44Rule 405 under the Securities Act defines 

‘‘foreign government’’ as the government of a 

foreign country or political subdivision of a foreign 

country. 17 CFR 230.405. 

45See Schedule B, 15 U.S.C. 77aa. Existing 

exemptions for futures on foreign government debt 

do not cover all foreign governments. See Rule 

3a12–8, 17 CFR 240.3a12–8. Under Section 7 of the 

Securities Act, Schedule B may be used by foreign 

governments and political subdivisions to register 

securities under the Securities Act. Certain entities 

that are closely associated with foreign governments 

may also be eligible to use Schedule B. The 

Commission intends that the exemption be 

available for all security futures on foreign 

government debt. As a result, for foreign 

government debt securities, the Commission has 

included the condition that the security be eligible 

to be registered pursuant to Schedule B so that 

security futures on foreign government debt that 

may be acquired pursuant to this exemption 

include all foreign government securities that are 

eligible to be registered with the Commission 

pursuant to Schedule B. 

46See infra notes 50–51 and accompanying text 

for a discussion of ‘‘primary trading market.’’ 

47 15 U.S.C. 77aa. 

48For other contexts in which a 10 percent 

threshold exists under the federal securities laws 

see, e.g., Exchange Act Section 16(a)(1), 15 U.S.C. 

78p(a)(1), and Regulation AB (Rule 1101(k), 17 CFR 

229.1101(k)). 

49 15 U.S.C. 78m and 78o(d). 

50For example, if the foreign index contains 30 

securities, up to three securities could be the 

securities of an issuer that is not a foreign private 

issuer or that does not meet the primary market 

trading test (as discussed below), as long as the 

aggregate weighting of those securities also is no 

more than 10 percent of the index. 

of Regulation D or Regulation S, 

provided the conditions of those safe 

harbors, including the restrictions on 

general solicitation and general 

advertising, are satisfied.40

B. Types of Security Futures in Which 

Transactions May Be Effected 

The exemption is conditioned on the 

type of security or securities underlying 

the security futures. In particular, the 

security future must overlie a single 

security of, or security index 

predominantly composed of securities 

of, foreign private issuers where the 

securities’ primary trading market is 

outside the U.S., or debt securities of a 

government or political subdivision of a 

foreign country. This condition is 

intended to exclude from the exemption 

security futures based on unregistered 

securities that are more appropriately 

considered under the federal securities 

laws as securities of U.S. companies that 

should be registered under the federal 

securities laws. Moreover, the 

Commission intends this condition, 

which requires the security or securities 

underlying the security future to be 

foreign securities, to prevent this 

exemption from being used to avoid 

U.S. federal securities laws or 

facilitating a secondary market in the 

U.S. in securities that may not have 

been registered under the Securities Act 

or the Exchange Act.41

1. Futures on Single Securities 

There are two types of foreign 

securities that may underlie a future on 

a single security within the terms of this 

exemption. First, a security future may 

overlie a security of a ‘‘foreign private 

issuer,’’ as defined under the 

Commission’s rules,42 where such 

security’s primary trading market is 

outside the U.S.43 These security futures 

are based on the securities of companies 

that are not considered under the 

federal securities laws as U.S. 

companies and that may not be 

reporting under the Exchange Act. 

Second, a security future may overlie a 

debt security issued or guaranteed by a 

foreign government 44 that is eligible to 

be registered with the Commission 

under Schedule B of the Securities 

Act.45

2. Futures on Indexes 

If a foreign security future is based on 

a security index, the exemption is 

conditioned on at least 90 percent of the 

securities in the index, at the time of the 

transaction, both in terms of the number 

of underlying securities and their 

weighting in the index, being (1) 

securities issued by foreign private 

issuers, where each such security’s 

primary trading market is outside the 

U.S.,46 or (2) debt securities issued or 

guaranteed by a foreign government that 

are eligible to be registered with the 

Commission under Schedule B of the 

Securities Act.47 The exemption permits 

up to 10 percent of the number and 

weighting of securities in the index to 

be securities of issuers that do not meet 

the above conditions 48—i.e., the issuers 

either are not foreign private issuers or 

are foreign private issuers but the 

securities’ primary trading market is in 

the U.S.—if such securities are issued 

by companies that are required to file 

reports pursuant to Section 13 or 15(d) 

of the Exchange Act.49 The Commission 

believes that 10 percent is an 

appropriate portion of an index that will 

allow an index to be considered 

‘‘foreign’’ notwithstanding that a small 

proportion of securities of issuers in the 

index do not satisfy the criteria to be 

considered foreign under this 

exemption.50

The Commission’s intent is for the 

exemption to permit transactions in 

security futures trading on foreign 

markets that overlie securities of foreign 

issuers that, in many cases, are not 

subject to the Exchange Act reporting 

provisions. The exemption, however, 

does allow transactions in foreign 

security futures on foreign security 

indexes that contain a limited number 

and weighting of securities of issuers 

that either are not foreign private issuers 

or that do not have their primary trading 

market outside the U.S, provided such 

issuers are subject to the reporting 

requirements of the Exchange Act. 

Allowing a limited number and 

weighting of securities that do not 

satisfy the foreign private issuer or 

primary trading market condition will 

not result in a distribution of 

unregistered securities in the U.S. of 

non-reporting issuers. 

3. Primary Trading Market 

The exemption also is conditioned on 

the primary trading market of any 

foreign private issuer’s security being 

outside the U.S. For purposes of this 

condition, a security’s primary trading 

market will be deemed to be outside the 

U.S. if at least 55 percent of the 

worldwide trading volume in the 

security took place in, on, or through 

the facilities of a securities market or 

markets located either (i) in a single 

foreign jurisdiction, or (ii) in no more 

than two foreign jurisdictions during the 

issuer’s most recently completed fiscal 

32204 Federal Register / Vol. 74, No. 128 / Tuesday, July 7, 2009 / Notices 

51Security futures can be surrogates for the 

underlying security. Thus, for purposes of the 

exemption, the 55-percent test is important to 

ensure that the majority of trading in the foreign 

private issuer’s securities occurs offshore. Under 

this exemption, for purposes of determining 

whether the 55-percent test is met, trading volume 

is measured by the foreign private issuer’s most 

recently completed fiscal year. The Commission 

uses this same test to assess U.S. market interest in 

a foreign private issuer’s securities. See Foreign 

Private Issuer’s Exemption from Registration, 

Securities Exchange Act Release No. 58465 

(September 5, 2008), 73 FR 52752 (September 10, 

2008) (‘‘Release No. 34–58465’’). The Commission 

has previously adopted similar tests to assess U.S. 

market interest in a foreign private issuer’s 

securities in other contexts. See Regulation S, Rule 

902(j)(1)(ii), 17 CFR 230.902(j)(1)(ii), and 

Termination of a Foreign Private Issuer’s 

Registration of a Class of Securities Under Section 

12(g) and Duty to File Reports Under Section 13(a) 

or 15(d), Securities Exchange Act Release No. 55540 

(March 27, 2007), 72 FR 16934 (April 5, 2007). 

52See Release No. 34–58465, supra note 51. 

53 15 U.S.C. 78e. 54Activities of a foreign exchange or contract 

market in the U.S. relating to security futures also 

will be subject to applicable Securities Act 

provisions regarding the offer or sale of securities. 

See supra notes 37–40 and accompanying text. 55A clearing organization interposes itself in each 

transaction and adopts the position of buyer to 

every seller and seller to every buyer. Robert W. 

Kolb, Futures, Options, & Swaps, 16 (3d ed. 2000). 

56 15 U.S.C. 78f and 15 U.S.C. 78o–3. 

57 17 CFR 240.15a-6. By way of background, Rule 

15a-6 provides conditional exemptions from U.S. 

broker-dealer registration requirements for foreign 

brokers or dealers that: (1) Effect unsolicited 

transactions; (2) provide research reports to certain 

institutional investors; (3) effect transactions for 

certain institutional investors through a U.S. 

registered broker or dealer; and (4) execute 

transactions directly with registered brokers or 

dealers and certain specified other persons. Because 

the Commission construes solicitation broadly, it 

would expect few transactions effected in reliance 

on this exemptive order to qualify for the 

unsolicited exemption. See Registration 

Requirements for Foreign Broker-Dealers, Securities 

Exchange Act Release No. 27017 (July 11, 1989), 54 

FR 30013 (July 18, 1989). See also Statement of the 

Commission Regarding Use of Internet Web Sites to 

Offer Securities, Solicit Securities Transactions, or 

Advertise Investment Services Offshore, Securities 

year. If the trading in the foreign private 

issuer’s security is in two foreign 

jurisdictions, the trading for the issuer’s 

security in at least one of the two 

foreign jurisdictions must be greater 

than the trading in the U.S. for the same 

class of the issuer’s securities in order 

for such security’s primary trading 

market to be considered outside the 

U.S.51 Where a security’s primary 

trading market is in the U.S., the 

Commission believes it is more 

appropriate, for these purposes, to 

require that the issuer of such security 

be subject to the reporting requirements 

under the Exchange Act. If 55 percent or 

more of the trading volume in a foreign 

private issuer’s securities occurs 

through the facilities of a securities 

market or markets located outside the 

U.S., there is a greater likelihood that 

the foreign private issuer will be subject 

to a body of reporting and other 

securities regulatory requirements in a 

foreign jurisdiction and that the 

principal pricing determinants for the 

issuer’s securities will be on a market 

within the jurisdiction of such other 

regulator.52

4. Closing Transactions Only 

A security or securities underlying a 

security future may satisfy the 

conditions in this exemption described 

above at the time a transaction is 

effected, but may cease to satisfy such 

conditions while a security future 

position remains open. The exemption 

would allow persons who entered into 

positions in foreign security futures in 

compliance with this exemption to close 

such positions. For example, a person 

that opened a position in a foreign 

security future in compliance with the 

exemption could close such position 

even if the underlying index, because of 

changes in the value of the securities 

that compose the index, is now less than 

90 percent composed of foreign private 

issues. 

C. Exchange Registration 

The Commission is not granting an 

exemption from Section 5 of the 

Exchange Act for transactions pursuant 

to this exemption. To the extent 

exchanges are required to register in the 

U.S., the listing standards in Section 

6(h) of the Exchange Act would apply 

to any security future trading on that 

exchange. This exemption is not 

intended to exempt a U.S. exchange 

from having to satisfy these listing 

standards. As a result, the only 

exchanges that can trade security 

futures that do not meet these listing 

standards are those not registered, or 

required to register, in the U.S. 

Accordingly, this exemption is 

conditioned on any transaction effected 

pursuant to this exemption being on an 

exchange that is not required to register 

with the Commission under Section 5 of 

the Exchange Act.53 Specifically, for 

purposes of this exemption, a 

transaction must be effected on, or 

subject to the rules of, an exchange or 

contract market that has its principal 

place of business outside the U.S. and 

that is regulated as an exchange or 

contract market in a country other than 

the U.S. The Commission believes that 

an exchange or contract market would 

be required to register under Section 5 

of the Exchange Act if it provides direct 

electronic access to persons located in 

the U.S.54

D. Issuance, Clearance and Settlement 

Outside the United States 

A clearing agency is the issuer of the 

security future.55 Any offer or sale by 

the clearing agency would have to be 

registered or exempt under the 

Securities Act. The purpose of the 

exemption from Section 6(h)(1) of the 

Exchange Act is to allow certain persons 

to effect transactions in security futures 

overlying securities traded outside the 

U.S. Therefore, as a condition to this 

exemption, any transaction in a security 

future must be cleared and settled on a 

foreign exchange or contract market 

located outside the U.S., or, if 

transactions on such foreign exchange 

or contract market are cleared and 

settled through a separate clearing 

entity, the transaction must be cleared 

and settled with the clearing entity, 

which must be located outside the U.S. 

In addition, as a condition to the 

exemption, it must not be possible to 

close or liquidate a position in the 

foreign security future entered into on 

an exchange or contract market located 

outside the U.S. by effecting an 

offsetting transaction on or through the 

facility of any exchange or association 

registered in the U.S. under Section 6 or 

15A of the Exchange Act, respectively.56

To limit the potential for an indirect 

distribution and development of a 

secondary market in the U.S. in 

securities that have not been registered 

under the Securities Act or the 

Exchange Act, this exemption is also 

conditioned on persons not taking 

delivery in the U.S. of the security or 

securities underlying the foreign 

security future in connection with 

settlement. Positions in foreign security 

futures cannot be transferred to another 

investor in the same manner as the 

underlying security, but can be disposed 

of only in an offsetting transaction on an 

exchange or contract market outside the 

U.S. This fact, together with the 

restriction on physical delivery in the 

U.S., is intended to help safeguard 

against development of a public market 

in the U.S. with respect to unregistered 

securities as a result of the ability to 

effect transactions in foreign security 

futures pursuant to this exemption. 

III. Exemptions From Section 15(a)(1) of 

the Exchange Act and Certain Other 

Requirements 

A foreign broker or dealer effecting 

transactions in foreign security futures 

with persons exempt from Section 

6(h)(1) of the Exchange Act under this 

order will need to determine whether it 

is required to register as a broker or 

dealer in the U.S. Such foreign broker or 

dealer can rely on any of the exemptions 

from U.S. broker-dealer registration 

provided by Rule 15a-6 under the 

Exchange Act.57 The Commission is 

Federal Register / Vol. 74, No. 128 / Tuesday, July 7, 2009 / Notices 32205 

Exchange Act Release No. 39779 (March 23, 1998), 

63 FR 14806 (March 27, 1998) at 14813 (‘‘Foreign 

broker-dealers that have Internet Web sites and that 

intend to rely on Rule 15a-6’s ‘unsolicited’ 

exemption should ensure that the ‘unsolicited’ 

customer’s transactions are not in fact solicited, 

either directly or indirectly, through customers 

accessing their Web sites.’’). Foreign brokers or 

dealers relying on the other exemptions in Rule 

15a-6 should take care to ensure that they meet all 

of the related conditions. In addition, foreign 

brokers or dealers should be aware of potential 

Securities Act implications arising from the 

distribution of research reports pursuant to Rule 

15a-6(a)(2). Specifically, in connection with the 

distribution of the research report in the U.S., it is 

important to evaluate whether such distribution 

may affect the availability of an exemption from 

registration for the offer or sale of a foreign security 

future to a QIB or non-U.S. person pursuant to the 

terms of this order. For example, the research report 

may be an offer of the securities discussed in the 

report, a general solicitation of investors, or a 

directed selling effort for such securities for 

purposes of the Securities Act. A research report on 

the underlying security of a foreign security future 

can be distributed under the Securities Act without 

being considered a directed selling effort (for 

Regulation S purposes) or a general solicitation (for 

Rule 144A purposes) if the conditions of Rule 138 

or Rule 139 under the Securities Act, 17 CFR 

230.138 and 17 CFR 230.139, are satisfied. 

Distributing a research report on the foreign 

security future itself in the U.S. would not, 

however, satisfy the conditions of those safe 

harbors. 

58 15 U.S.C. 78o(b)(4) and 78o(b)(6). 

59The Commission has issued a proposing release 

discussing possible amendments to Exchange Act 

Rule 15a-6. See Exchange Act Release No. 58047 

(June 27, 2008), 73 FR 39182 (July 8, 2008). To date, 

the Commission has not taken final action with 

respect to the proposed amendments. Accordingly, 

the Commission is basing the exemption provided 

herein on the current requirements under Exchange 

Act Rule 15a–6. 

60Rule 15a–6(b)(5) under the Exchange Act, 17 

CFR 240.15a–6(b)(5). 

61A ‘‘Notice BD’’ is a futures commission 

merchant or introducing broker that registers with 

the Commission as a broker or dealer pursuant to 

Section 15(b)(11) of the Exchange Act, 15 U.S.C. 

78o(b)(11), and the rules adopted by the 

Commission. See Securities Exchange Act Release 

No. 44730 (August 21, 2001), 66 FR 45138 (August 

27, 2001). 

62 15 U.S.C. 78o(b)(4) and 78o(b)(6). 

63The conditional exemptions in this order from 

the registration requirements in Section 15(a)(1) of 

the Exchange Act and related requirements cover 

foreign brokers’ or dealers’ transactions with QIBs. 

The exemption in this order from Section 6(h)(1) of 

the Exchange Act is applicable to persons that are 

QIBs. The Rule 15a–6(a)(3) exemption applies to a 

foreign broker’s or dealer’s transactions with U.S. 

institutional investors (see Rule 15a–6(b)(7) under 

the Exchange Act, 17 CFR 240.15a–6(b)(7)) and 

major U.S. institutional investors (see Rule 15a– 

6(b)(4) under the Exchange Act, 17 CFR 240.15a– 

6(b)(4)). There is substantial overlap, however, 

between the definitions of major U.S. institutional 

investor and QIB. Therefore, the conditional 

exemptions in this order from the registration 

requirements in Section 15(a)(1) of the Exchange 

Act and related requirements should simplify the 

process for engaging in transactions in foreign 

security futures without substantially altering the 

class of persons with which foreign brokers or 

dealers (intermediated by registered brokers or 

dealers) may transact. 

64For purposes of this exemption, references in 

paragraphs (a)(3)(i) through (iii) and paragraph 

(b)(2) of Rule 15a–6 to major U.S. institutional 

investors shall be deemed to be references to QIBs. 

In addition, for purposes of this exemption, the 

reference in paragraph (a)(3)(iii)(D) to Form BD 

shall be deemed a reference to Form BD–N with 

respect to Notice BDs. 

65 In view of the experience and capabilities QIBs 

are likely to possess, the chaperoning requirement 

under paragraph (a)(3)(ii)(A)(1) may provide only 

limited benefits with respect to QIBs. Therefore, 

notwithstanding paragraph (a)(3)(ii)(A)(1) of the 

rule, in this context, foreign broker-dealers may 

engage in unchaperoned contacts with QIBs to the 

same extent as described in a 1997 staff no-action 

letter. See Letter re: Certain Securities Activities of 

U.S. Affiliated Foreign Dealers, from Giovanni P. 

Prezioso, Cleary, Gottlieb, Steen & Hamilton, to 

Richard R. Lindsey, Director, Division of Market 

Regulation, Securities and Exchange Commission 

(Apr. 9, 1997). Specifically, foreign associated 

persons of the foreign broker or dealer may have inperson contacts (without the participation of an 

associated person of a registered broker or dealer) 

during visits to the United States with QIBs, so long 

as the number of days on which such in-person 

contacts occur does not exceed 30 per year and the 

foreign associated persons engaged in such inperson contacts do not accept orders to effect 

securities transactions while in the United States. 

66A Notice BD intermediating a foreign broker or 

dealer that is relying on the exemption under 

Exchange Act Rule 15a–6(a)(3) would need to 

comply with the requirements in paragraphs 

(a)(3)(iii)(A)(5) and (a)(3)(iii)(A)(6) in a similar 

manner as any other registered broker or dealer 

even if the requirements in such paragraphs would 

not otherwise be applicable. 

67 17 CFR 240.15c3–1. 

today also issuing alternative 

exemptions, on which a foreign broker 

or dealer can rely, from Section 15(a)(1) 

of the Exchange Act and the reporting 

and other requirements of the Exchange 

Act (other than Sections 15(b)(4) and 

15(b)(6)),58 and the rules and regulations 

thereunder, that apply specifically to a 

broker or dealer whether or not 

registered with the Commission, as 

discussed below.59

A. Background 

Paragraph (a)(3) of Rule 15a–6 permits 

a foreign broker or dealer to effect 

certain transactions for institutional 

investors through a registered broker or 

dealer. A ‘‘registered broker or dealer’’ 

is defined in the rule as ‘‘a person that 

is registered with the Commission under 

Sections 15(b), 15B(a)(2), or 15C(a)(2) of 

the [Exchange] Act.’’ 60 This term 

includes a broker or dealer registered 

with the Commission pursuant to 

Section 15(b)(11) of the Exchange Act 

(‘‘Notice BD’’).61 Rule 15a–6(a)(3) sets 

forth conditions that the foreign broker 

or dealer and the registered broker or 

dealer must meet in order for the foreign 

broker or dealer to rely on the rule. 

Because a Notice BD is subject to a 

specialized regulatory scheme, however, 

a foreign broker or dealer may find it 

difficult to rely on the rule if the 

registered broker or dealer through 

which it effects transactions in 

accordance with Rule 15a–6(a)(3) is a 

Notice BD. 

B. The Exemptions 

The Commission finds that it is 

consistent with the public interest, the 

protection of investors, and the 

purposes of the Exchange Act to provide 

a conditional exemption for foreign 

brokers or dealers from the registration 

requirement of Section 15(a)(1) of the 

Exchange Act. The Commission also 

finds that it is necessary and 

appropriate, in the public interest, and 

is consistent with the protection of 

investors to provide conditional 

exemptions for foreign brokers or 

dealers from the reporting and other 

requirements of the Exchange Act (other 

than Sections 15(b)(4) and 15(b)(6)),62

and the rules and regulations 

thereunder, that apply specifically to a 

broker or dealer whether or not 

registered with the Commission. 

The conditional exemptions would be 

available to foreign brokers or dealers 

that induce or attempt to induce the 

purchase or sale of any foreign security 

futures by a QIB63 that is exempt from 

Section 6(h)(1) of the Exchange Act 

under this order. The conditional 

exemptions also would extend 

exemptive relief to transactions that are 

intermediated by Notice BDs, 

recognizing the role that Notice BDs 

play with respect to security futures and 

the specialized regulatory scheme that 

applies to these particular brokers and 

dealers. 

A foreign broker or dealer may rely on 

the conditional exemptions to induce or 

attempt to induce the purchase or sale 

of any foreign security future by a QIB 

exempt from Section 6(h)(1), so long as 

the foreign broker or dealer and the 

registered broker or dealer, through 

which any resulting transactions are 

effected, comply with the requirements 

of paragraphs (a)(3)(i) through (iii) 64 of 

Rule 15a–6 under the Exchange Act, 

except as otherwise provided below.65 If 

the registered broker or dealer through 

which any resulting transactions with 

QIBs are effected is a Notice BD, then 

the Notice BD must comply with the 

alternative requirements, discussed 

below, in lieu of the requirements of 

paragraphs (a)(3)(iii)(A)(5) and 

(a)(3)(iii)(A)(6) of Rule 15a–6.66

Paragraphs (a)(3)(iii)(A)(5) and 

(a)(3)(iii)(A)(6) of Rule 15a–6 require the 

registered broker or dealer to be 

responsible for (1) complying with Rule 

15c3–1 under the Exchange Act 67 with 

respect to the transaction, and (2) 

receiving, delivering, and safeguarding 

funds and securities in connection with 

the transaction in compliance with Rule 

32206 Federal Register / Vol. 74, No. 128 / Tuesday, July 7, 2009 / Notices 

68 17 CFR 240.15c3–3. 

69For a discussion regarding analogous CEA 

provisions, see Applicability of CFTC and SEC 

Customer Protection, Recordkeeping, Reporting, 

and Bankruptcy Rules and the Securities Investor 

Protection Act of 1970 to Accounts Holding 

Security Futures Products, Joint Release by SEC and 

CFTC, Securities Exchange Act Release No. 46473 

(September 9, 2002), 67 FR 58284 (September 13, 

2002) (‘‘Joint September 2002 Release’’) (noting that 

transactions involving a futures account shall be 

subject to the segregation requirements of the CEA 

and that transactions involving a securities account 

shall be subject to Rule 15c3–3 under the Exchange 

Act and Securities Investor Protection Act of 1970). 

70 17 CFR 1.17. 

71 17 CFR 240.15c6–1. 

72See the definition of ‘‘security’’ in Section 

3(a)(10) of the Exchange Act, 15 U.S.C. 78c(a)(10). 

73See Securities Exchange Act Release No. 35750 

(May 22, 1995), 60 FR 27994 (May 26, 1995). 

74 Id. In particular, the Commission stated that if 

a U.S. broker-dealer were to execute a trade on a 

foreign exchange with a U.S. or foreign brokerdealer, the contract would not be subject to the rule. 

This exemption applies, however, only to the 

contract between the U.S. broker-dealer and the 

foreign broker-dealer. If the U.S. broker-dealer is 

executing the trade on a foreign exchange to satisfy 

its obligations to a U.S. customer, the contract with 

the U.S. customer is still subject to T+3 settlement 

unless that contract also is exempted. Id. At n. 9 

and accompanying text. 

75 15 U.S.C. 78f(h)(1). 

76 17 CFR 230.144A. 

77 17 CFR 230.902(k). 

78 15 U.S.C. 78o(b). 

79 15 U.S.C. 78c(a)(6). 

80 15 U.S.C. 78c(a)(4)(B), 15 U.S.C. 78c(a)(4)(E), or 

15 U.S.C. 78c(a)(5)(C). 

81 17 CFR 240.3b–4(c) and 17 CFR 230.405. 

82 17 CFR 230.405. Rule 405 defines ‘‘foreign 

government’’ as the government of a foreign country 

or political subdivision of a foreign country. 

83See Schedule B, 15 U.S.C. 77aa. 

84 17 CFR 230.405. 

85See Schedule B, 15 U.S.C. 77aa. 

15c3–3 under the Exchange Act.68

However, Section 15(b)(11)(B)(iii) of the 

Exchange Act, exempts Notice BDs from 

Section 15(c)(3) of the Exchange Act and 

the rules thereunder. Instead, Notice 

BDs are subject to analogous 

requirements of the CEA. Accordingly, 

for purposes of this exemption, a Notice 

BD, in lieu of compliance with 

paragraphs (a)(3)(iii)(A)(5) and 

(a)(3)(iii)(A)(6) of Rule 15a–6, would 

need to comply with the analogous CEA 

requirements, including being 

responsible for receiving, delivering, 

and safeguarding funds and securities in 

connection with transactions on behalf 

of the QIB in compliance with the CEA 

segregation 69 and net capital 

requirements.70 Consistent with the 

regulatory framework established by the 

CFMA, this relief will permit a foreign 

broker or dealer to be intermediated by 

a Notice BD without subjecting the 

Notice BD to duplicative regulatory 

requirements. 

IV. Rule 15c6–1 Under the Exchange 

Act (Settlement Cycle) 

Rule 15c6–1 under the Exchange 

Act 71 prohibits a broker or dealer from 

effecting or entering into a contract for 

the purchase or sale of a security (other 

than an exempted security, government 

security, municipal security, 

commercial paper, bankers’ 

acceptances, or commercial bills) that 

provides for payment of funds and 

delivery of securities later than the third 

business day after the date of the 

contract, unless otherwise expressly 

agreed to by the parties at the time of 

the transaction. The rule does not 

distinguish between U.S. securities and 

foreign securities. Thus, because 

security futures are considered 

securities under the Exchange Act,72

this rule by its terms would apply to 

transactions in foreign security futures. 

The Commission has, however, 

previously exempted from the scope of 

Rule 15c6–1 under the Exchange Act all 

transactions that do not have transfer or 

delivery facilities in the U.S.73 In 

addition, the Commission has granted 

an exemption to make it clear that Rule 

15c6–1 does not apply to transactions 

that occur outside the U.S.74 Therefore, 

transactions in foreign security futures 

pursuant to the exemption from Section 

6(h)(1) of the Exchange Act in this order 

would fall within the scope of the 

Commission’s prior exemption from 

Rule 15c6–1 under the Exchange Act. 

V. Conditional Exemptions From 

Sections 6(h)(1) and 15(a)(1) of the 

Exchange Act and Certain Other 

Requirements 

A. Conditional Exemption From Section 

6(h)(1) of the Exchange Act 

For these reasons stated in, and by, 

this order, the Commission is exempting 

from Section 6(h)(1) of the Exchange 

Act 75 any qualified institutional buyer 

(as defined in Rule 144A under the 

Securities Act) (‘‘QIB’’); 76 any person 

who is not a ‘‘U.S. person,’’ as the term 

is defined in Rule 902(k) of Regulation 

S under the Securities Act (‘‘non-U.S. 

person’’); 77 any broker or dealer 

registered under Section 15(b) of the 

Exchange Act 78 to the extent such 

broker or dealer effects transactions on 

behalf of a QIB or a non-U.S. person; 

and any bank, as defined in Section 

3(a)(6) of the Exchange Act,79 acting 

pursuant to an exception or exemption 

from the definition of ‘‘broker’’ or 

‘‘dealer’’ in sections 3(a)(4)(B), 

3(a)(4)(E), or 3(a)(5)(C) of the Exchange 

Act 80 or the rules thereunder (‘‘Eligible 

Bank’’) to effect transactions on behalf 

of a QIB or a non-U.S. person; provided 

that any transaction effected: 

(1)(a) Is for a contract of sale for future 

delivery of: 

(i) (A) A security issued by a foreign 

private issuer (as defined in Rule 3b– 

4(c) of the Exchange Act and Rule 405 

under the Securities Act) 81 for which at 

least 55 percent of the worldwide 

trading volume in the security took 

place in, on, or through the facilities of 

a securities market or markets in a 

single foreign jurisdiction or in no more 

than two foreign jurisdictions during the 

issuer’s most recently completed fiscal 

year. If the trading in the foreign private 

issuer’s security is in two foreign 

jurisdictions, the trading for the issuer’s 

securities in at least one of the two 

foreign jurisdictions must be greater 

than the trading in the U.S. for the same 

class of the issuer’s securities in order 

for such security’s primary trading 

market to be considered outside the 

U.S.; or 

(B) A security that is a note, bond, 

debenture or evidence of indebtedness 

(‘‘debt security’’) issued or guaranteed 

by a foreign government as defined in 

Rule 405 of the Securities Act 82 that is 

eligible to be registered with the 

Commission under Schedule B of the 

Securities Act; 83 or 

(ii) A ‘‘narrow-based security index’’ 

of which: 

(A) At least 90 percent of the 

underlying securities in the index, at the 

time of the transaction, both in terms of 

the number of underlying securities and 

their weighting in the index, are: (1) 

Securities issued by a foreign private 

issuer for which at least 55 percent of 

the worldwide trading volume in the 

security took place in, on, or through 

the facilities of a securities market or 

markets located in a single foreign 

jurisdiction, or in no more than two 

foreign jurisdictions during the issuer’s 

most recently completed fiscal year. If 

the trading in the foreign private issuer’s 

security is in two foreign jurisdictions, 

the trading for the issuer’s security in at 

least one of the two foreign jurisdictions 

must be greater than the trading in the 

U.S. for the same class of the issuer’s 

securities in order for such security’s 

primary trading market to be considered 

outside the U.S.; or (2) debt securities 

issued or guaranteed by a foreign 

government as defined in Rule 405 of 

the Securities Act84 that are eligible to 

be registered with the Commission 

under Schedule B of the Securities 

Act; 85 and (B) no more than 10 percent 

of the underlying securities in the 

index, at the time of the transaction, 

both in terms of the number of 

underlying securities and their 

weighting in the index, do not meet the 

criteria in (1)(a)(ii)(A) above and, as to 

any such security, the issuer of such 

Federal Register / Vol. 74, No. 128 / Tuesday, July 7, 2009 / Notices 32207 

86 15 U.S.C. 78m and 78o(d). 

87 15 U.S.C. 78e. 

88 15 U.S.C. 78e and 78q–1. 

89 15 U.S.C. 78f and 15 U.S.C. 78o–3. 

90 17 CFR 240.15a–6(b)(3). 

91 15 U.S.C. 78o(a)(1). 

92 15 U.S.C. 78o(b)(4) and 78o(b)(6). 

93For purposes of this exemption, references in 

paragraphs (a)(3)(i) through (iii) and paragraph 

(b)(2) of Rule 15a–6 to major U.S. institutional 

investors shall be deemed to be references to QIBs. 

In addition, for purposes of this exemption, the 

reference in paragraph (a)(3)(iii)(D) to Form BD 

shall be deemed a reference to Form BD–N with 

respect to Notice BDs. 

94Notwithstanding paragraph (a)(3)(ii)(A)(1) of 

the rule, foreign associated persons of the foreign 

broker or dealer may have in-person contacts 

(without the participation of an associated person 

of a registered broker or dealer) during visits to the 

United States with QIBs, so long as the number of 

days on which such in-person contacts occur does 

not exceed 30 per year and the foreign associated 

persons engaged in such in-person contacts do not 

accept orders to effect securities transactions while 

in the United States. See supra note 65. 

95 15 U.S.C. 78mm. 

96 15 U.S.C. 78f(h)(1). 

97 15 U.S.C. 78o–3(a). 

98 15 U.S.C. 78o(a)(2). 

99 17 CFR 240.15a–6(b)(3). 

100 15 U.S.C. 78o(a)(1). 

101 15 U.S.C. 78mm. 

102 17 CFR 240.15a–6(b)(3). 

103 15 U.S.C. 78o(b)(4) and 78o(b)(6). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 59858 

(May 4, 2009), 74 FR 22191 (‘‘Notice’’). 

4Amendment No. 1 modified the original rule 

proposal to indicate that the Board of Directors of 

NASDAQ OMX approved the proposed rule change 

on May 28, 2009, in addition to December 17, 2008, 

and to revise the proposed rule change with respect 

to ‘‘Extension of Time Period for Commission 

Action.’’ Because these are technical modifications, 

Continued 

security is required to file reports with 

the Commission pursuant to Section 13 

or Section 15(d) of the Exchange Act; 86

(b) Is a closing transaction to offset a 

position in a contract of sale for future 

delivery that satisfied the conditions in 

paragraph (1)(a) of this order at the time 

such position was opened. 

(2) Is executed on, or subject to the 

rules of, an exchange or contract market 

that has its principal place of business 

outside the U.S., that is regulated as an 

exchange or contract market in a 

country other than the U.S., and that is 

not required to register with the 

Commission under Section 5 of the 

Exchange Act; 87

(3) Is cleared and settled on, and with 

respect to such clearance and settlement 

subject to the rules of, an exchange, 

contract market, or clearing entity that 

is regulated as an exchange, contract 

market, or clearing entity in a country 

other than the U.S. and that is not 

required to register with the 

Commission under Section 5 or Section 

17A of the Exchange Act;88

(4) Is for a security future, that cannot 

be closed or liquidated by effecting an 

offsetting transaction on or through the 

facility of any exchange or association 

registered in the U.S. under Section 6 or 

Section 15A of the Exchange Act,89

respectively; and 

(5) Does not result in such person 

taking physical delivery of the 

underlying security in the U.S. in 

connection with settlement; 

B. Conditional Exemptions From 

Section 15(a)(1) of the Exchange Act 

and Certain Other Requirements 

For the reasons stated in, and by, this 

order, the Commission is exempting 

foreign brokers or dealers (as defined in 

Rule 15a–6(b)(3) under the Exchange 

Act) 90 that induce or attempt to induce 

the purchase or sale of any foreign 

security futures by a QIB that is subject 

to the exemption from Section 6(h)(1) of 

the Exchange Act, from the registration 

requirements of Section 15(a)(1) of the 

Exchange Act 91 and the reporting and 

other requirements of the Exchange Act 

(other than Sections 15(b)(4) and 

15(b)(6)),92 and the rules and regulations 

thereunder, that apply specifically to a 

broker or dealer whether or not 

registered with the Commission; 

provided that the foreign broker or 

dealer and the registered broker or 

dealer (as defined in Rule 15a–6(b)(5) 

under the Exchange Act), through which 

any resulting transactions with QIBs are 

effected, comply with the requirements 

of paragraphs (a)(3)(i) through (iii) 93 of 

Rule 15a–6 under the Exchange Act, 

except as otherwise provided below.94 If 

the registered broker or dealer through 

which any resulting transactions with 

QIBs are effected is a broker or dealer 

registered with the Commission 

pursuant to Section 15(b)(11) of the 

Exchange Act (‘‘Notice BD’’), then: 

(1) In lieu of the requirement in 

paragraph (a)(3)(iii)(A)(5) of Rule 15a–6, 

the Notice BD shall be responsible for 

complying with Rule 1.17 under the 

Commodity Exchange Act (‘‘CEA’’) (17 

CFR 1.17) with respect to the 

transactions; and 

(2) In lieu of the requirement in 

paragraph (a)(3)(iii)(A)(6) of Rule 15a–6, 

the Notice BD shall be responsible for 

receiving, delivering, and safeguarding 

funds and securities in connection with 

transactions on behalf of the QIB in 

compliance with the segregation 

requirements of the CEA and the 

regulations thereunder. 

Accordingly, 

It is hereby ordered, pursuant to 

Section 36 of the Exchange Act,95 that 

certain persons are exempt from the 

provisions of Section 6(h)(1) of the 

Exchange Act 96 that prohibit persons 

from effecting transactions in security 

futures products that are not listed on a 

national securities exchange or a 

national securities association registered 

pursuant to Section 15A(a) of the 

Exchange Act,97 subject to the 

conditions set forth above. 

It is hereby further ordered, pursuant 

to Section 15(a)(2) of the Exchange 

Act,98 that a foreign broker or dealer as 

defined in Rule 15a–6(b)(3) 99 is exempt, 

with respect only to the activities 

described above in Section V.B. of this 

order, from the registration 

requirements of Section 15(a)(1) of the 

Exchange Act, subject to the conditions 

set forth above.100

It is hereby further ordered, pursuant 

to Section 36 of the Exchange Act,101

that a foreign broker or dealer as defined 

in Rule 15a-6(b)(3) 102 is exempt, with 

respect only to the activities described 

above in Section V.B. of this order, from 

the reporting and other requirements of 

the Exchange Act (other than Sections 

15(b)(4) and 15(b)(6)),103 and the rules 

and regulations thereunder, that apply 

specifically to a broker or dealer 

whether or not registered with the 

Commission, subject to the conditions 

set forth above. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. E9–15890 Filed 7–6–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–60183; File No. SR– 

NASDAQ–2009–039] 

Self-Regulatory Organizations; The 

NASDAQ Stock Market LLC; Order 

Approving Proposed Rule Change, as 

Modified by Amendment No. 1 Thereto, 

to Amend the By-Laws of The NASDAQ 

OMX Group, Inc. 

June 26, 2009. 

On April 27, 2009, The NASDAQ 

Stock Market LLC (‘‘NASDAQ 

Exchange’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 19b–4 thereunder,2 a 

proposed rule change to amend the ByLaws of The NASDAQ OMX Group, Inc. 

(‘‘NASDAQ OMX’’). The proposed rule 

change was published for comment in 

the Federal Register on May 12, 2009.3

On June 2, 2009, the NASDAQ 

Exchange filed Amendment No. 1 to the 

proposed rule change.4 The Commission