Source: https://www.global-regulation.com/law/united-states/31614/foreign-futures-and-options-transactions.html
Timestamp: 2018-05-23 14:31:35
Document Index: 732660983

Matched Legal Cases: ['art 30', 'art 30', 'art 30', 'art 30', '§ 30', 'art 30', 'art 1', 'art 30', 'art 1', 'art 30', 'art 30']

Foreign Futures and Options Transactions (United States)
Link to law: https://www.federalregister.gov/articles/text/raw_text/201/506/687.txt
The Commodity Futures Trading Commission (Commission or CFTC) is granting an exemption to certain firms designated by the Hong Kong Securities and Futures Commission (HKSFC) from the application of certain of the Commission's foreign futures and option regulations based upon substituted compliance with certain comparable regulatory and self-regulatory requirements of a foreign regulatory authority consistent with conditions specified by the Commission, as set forth herein. This Order is issued pursuant to Commission Regulation 30.10, which permits persons to file a petition with the Commission for exemption from the application of certain of the Regulations set forth in Part 30 and authorizes the Commission to grant such an exemption if such action would not be otherwise contrary to the public interest or to the purposes of the provision from which exemption is sought. The Commission notes that the relief granted by this Order is not applicable to any licensed corporation subject to joint oversight by the Hong Kong Monetary Authority (HKMA) and the HKSFC, or to any registered institution subject to oversight solely by the HKMA. Further, this Order does not pertain to any transaction in swaps, as defined in Section 1a(47) of the Commodity Exchange Act.
Commission Regulations governing the offer and sale of commodity futures and option contracts traded on or subject to the regulations of a foreign board of trade to customers located in the U.S. are contained in Part 30 of the Commission's regulations. 1
These regulations include requirements for intermediaries with respect to registration, disclosure, capital adequacy, protection of customer funds, recordkeeping and reporting, and sales practice and compliance procedures that are generally comparable to those applicable to transactions on U.S. markets.
In formulating a regulatory program to govern the offer and sale of foreign futures and option products to customers located in the U.S., the Commission, among other things, considered the desirability of ameliorating the potential impact of such a program. Based upon these considerations, the Commission determined to permit persons located outside the U.S. and subject to a comparable regulatory structure in the jurisdiction in which they were located to seek an exemption from certain of the requirements under Part 30 of the Commission's regulations based upon substituted compliance with the regulatory requirements of the foreign jurisdiction. 2
Appendix A to Part 30, “Interpretative Statement With Respect to the Commission's Exemptive Authority Under § 30.10 of Its Rules” (Appendix A), generally sets forth the elements the Commission will evaluate in determining whether a particular regulatory program may be found to be comparable for purposes of exemptive relief pursuant to Regulation 30.10. 3
These elements include: (1) Registration, authorization or other form of licensing, fitness review or qualification of persons that solicit and accept customer orders; (2) minimum financial requirements for those persons who accept customer funds; (3) protection of customer funds from misapplication; (4) recordkeeping and reporting requirements; (5) sales practice standards; (6) procedures to audit for compliance with, and to take action against those persons who violate, the requirements of the program; and (7) information sharing arrangements between the Commission and the appropriate governmental and/or self-regulatory organization (SRO) to ensure Commission access on an “as needed” basis to information essential to maintaining standards of customer and market protection within the U.S.
Moreover, the Commission specifically stated in adopting Regulation 30.10 that no exemption of a general nature would be granted unless the persons to whom the exemption is to be applied: (1) Submit to jurisdiction in the U.S. by designating an agent for service of process in the U.S. with respect to transactions subject to Part 30 and filing a copy of the agency agreement with the National Futures Association (NFA); (2) agree to provide access to their books and records in the U.S. to the Commission and Department of Justice representatives; and (3) notify NFA of the commencement of business in the U.S. 4
• Registration with the Commission for firms and for firm representatives;
• The requirement in Commission Regulation 30.6(a) and (d), 17 CFR 30.6(a) and (d), that firms provide customers located in the U.S. with the risk disclosure statements in Commission Regulation 1.55(b), 17 CFR 1.55(b), and Commission Regulation 33.7, 17 CFR 33.7, or as otherwise approved under Commission Regulation 1.55(c), 17 CFR 1.55(c);
• The separate account requirement contained in Commission Regulation 30.7, 17 CFR 30.7;
• Those sections of Part 1 of the Commission's financial regulations that apply to foreign futures and options sold in the U.S. as set forth in Part 30; and
• Those sections of Part 1 of the Commission's regulations relating to books and records which apply to transactions subject to Part 30, based upon substituted compliance by such persons with the applicable statutes and regulations in effect in Hong Kong.
(2) Financial requirements for firms including, without limitation, a requirement for a minimum level of working capital and daily mark-to- market settlement and/or accounting procedures;
This Order does not provide an exemption from any provision of the Act or regulations thereunder not specified herein, such as the antifraud provision in Regulation 30.9. Moreover, the relief granted is limited to brokerage activities undertaken by certain licensed corporations on behalf of customers located in the U.S. with respect to transactions on a foreign futures and options exchange located in Hong Kong subject to exclusive regulatory oversight by the HKSFC for products that customers located in the U.S. may trade. 5
The relief does not extend to regulations relating to trading, directly or indirectly, on U.S. exchanges, and does not pertain to any transaction in swaps, as defined in Section 1a(47) of the Act. For example, a licensed corporation trading in U.S. markets for its own account would be subject to the Commission's large trader reporting requirements. 6
Similarly, if such a licensed corporation were carrying positions on a U.S. exchange on behalf of foreign clients and submitted such transactions for clearing on an omnibus basis through a firm registered as a futures commission merchant under the Act, it would be subject to the reporting requirements applicable to foreign brokers. 7
The relief herein is not applicable where the licensed corporation solicits or accepts orders from customers located in the U.S. for transactions on U.S. exchanges. In that case, the firm must comply with all applicable U.S. laws and regulations, including the requirement to register in the appropriate capacity. The Commission further notes that the relief granted by this Order is not applicable to any licensed corporation subject to joint oversight by the Hong Kong Monetary Authority (HKMA) and the HKSFC. 8
(a) Is located outside the U.S., its territories and possessions and, where applicable, has subsidiaries or affiliates domiciled in the U.S. with a related business ( e.g., banks and broker/dealer affiliates) along with a brief description of each subsidiary's or affiliate's identity and principal business in the U.S.;
(e) Consents to participate in any NFA arbitration program that offers a procedure for resolving customer disputes on the papers where such disputes involve representations or activities with respect to transactions under Part 30, and consents to notify customers located in the U.S. of the availability of such a program; provided, however, that the firm may require its customers located in the U.S. to execute a consent concerning the exhaustion of certain mediation or conciliation procedures made available by the HKSFC prior to bringing an NFA arbitration proceeding;
As set forth in the Commission's September 11, 1997 Order delegating to NFA certain responsibilities, the written representations set forth in paragraph (2) shall be filed with NFA. 9
Each firm seeking relief hereunder has an ongoing obligation to notify NFA should there be a material change to any of the representations required in the firm's application for relief.