Foreign Boards of Trade Regulation

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Gavel.png FINAL RULE: Registration of Foreign Boards of Trade Approved at CFTC Open Meeting, December 5, 2011
Dodd-Frank Timeline, Registration of Foreign Boards of Trade
Final Rule Issue Effective Date Compliance Date
December 23, 2011 February 21, 2012 August 20, 2012


At its December 5, 2011 meeting, the CFTC approved its final rules on the registration of foreign boards of trade ("FBOTs")- non-U.S. based financial entities involved in the listing, clearing, and other activities traditionally associated with exchanges. The rule is designed to replace the current CFTC staff no-action process with a standardized registration process.[1]

Summary of the Rule

The FBOT standardized registration system will streamline the process by which FBOTs are permitted direct access to U.S. markets. FBOT registration requirements under the rule will mirror those of the former staff "no-action" process. Specifically, seven criteria will be considered in a registration review:

  • possession of the attributes of an established, organized exchange;
  • details of the FBOT's trading system;
  • terms and conditions of contracts to be made available
  • settlement and clearing processes
  • the regulatory regime governing the FBOT:
  • the FBOT’s and the clearing organization’s rules and rule enforcement procedures; and
  • information sharing and the protection of such information

The CFTC will compare the criteria with those of boards of trade under its jurisdiction, specifically whether the criteria are "substantially equivalent" to those supported and enforced by the commission. By the discretion of the commission, the registration process may include an on-site inspection.

The rule identifies the types of entities to which a registered FBOT could grant direct access:

Finally, the rule explains the criteria for which an FBOT's registration could be revoked, such as the failure to satisfy a registration requirement or condition of registration. Part 48 of commission regulations will contain CFTC Form FBOT, the application documents for FBOT registration. An example of this form is included in the Federal Registry entry HERE.

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Background

Among the provisions of the Dodd-Frank Act is a mandate that the CFTC create a rule structure for the registration of foreign boards of trade seeking direct access to U.S. markets. Dodd-Frank also grants to the commission the authority to define "direct access" and impose conditions for any link of an FBOT's contract listings to U.S. designated contract markets.

At its November 10, 2010 open meeting, the Commodity Futures Trading Commission (CFTC) approved a rule proposal regarding the registration of foreign boards of trade.[2] Prior to this rulemaking, FBOTs have been allowed to seek relief from registering with the CFTC via a staff-issued "no-action" letter.

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References

  1. Final Rules Regarding the Registration of Foreign Boards of Trade. {{{org}}}. Retrieved on December 6, 2011.
  2. Open Meeting on Fourth Series of Proposed Rules under the Dodd-Frank Act. CFTC. Retrieved on March 7, 2011.

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