Foreign Boards of Trade Regulation - Comment Letters

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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

Comment letters regarding the regulation of foreign boards of trade (FBOTs)

CME Group - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

From the comment letter:

"In our view, reducing or limiting barriers to entry in the global futures and options industry has strongly contributed to business growth and increased competition. This is due, at least in part, to the fact that U.S. market participants can directly and electronically trade foreign futures and options contracts from the U.S...CME believes that the commission's analysis should be more narrowly tailored to determining whether an FBOT is subject to "comparable" regulatory regime by its home country regulator. In contrast to that approach, we have a significant concern that the proposed rules are too prescriptive and would impose significant burdens without corresponding benefit."

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NASDAQ OMX - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

From the comment letter:

"Our main concern related to the proposed rules is that they will involve a quite extensive process in order to obtain and maintain registration. Even the limited application process for FBOTs with existing no-action relief letters will involve a considerable amount of work. In our view, the registration requirements seem more detailed and extensive than strictly necessary in order to fulfill the objectives set out in the Dodd-Frank Act...Further, in order to provide more flexibility, it is our opinion that the registration requirements should refer to “recognized international standards”..."

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NYSE Euronext - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

From the comment letter:

"NYX believes that the existing no-action relief regime has served the Commission well...one of the strengths of the regime is to provide the commission with the appropriate flexibility to alter the conditions of the no-action relief letters as circumstances change...we are not convinced that a move from the existing regime to a more formal, rules-based solution is either necessary or desirable."

The letter specifies two areas of concern with the proposal: the documentation burden and the time frame for implementation.

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Eurex - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

In the comment letter, Eurex offers its views on several questions posed by the commission, including:

  • The commission should be careful not to allow FBOT registration requirements to deviate from international standards.
  • Self-regulatory functions are not necessarily as advanced in non-U.S. jurisdictions.
  • FBOTs should be allowed to provide trading access to qualified U.S. persons for trading of swaps without first having been registered as a swap execution facility (SEF)
  • New registration requirements for FBOTs are unnecessary, and are outside the scope of the Dodd-Frank Act.
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Natural Gas Exchange - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

In the comment letter, Natural Gas Exchange (NGX) offers several comments on the proposal, including:

  • Allowing FBOTs with pending no-action relief requests prior to the enactment of the Dodd-Frank Act to be treated the same as those entities who had previously been granted relief would "ease the administrative burden" on the commission.
  • The commission should clarify its intention that swaps contracts may be available for execution on an FBOT through direct market access even if the swap is not cleared.
  • The commission should clarify its definition of a "linked contract," especially as it pertains to "basis contracts," which, although they provide for physical delivery of the commodity, are not cash settled to the price of another market.
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Futures and Options Association - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

From the comment letter:

  • "The FOA believes that the CFTC‟s existing no-action letter process provides tangible and significant benefits to global market participants in enabling the provision of direct access to the trading systems of FBOTs."
  • "The FOA believes that the CFTC‟s existing no-action letter process provides tangible and significant benefits to global market participants in enabling the provision of direct access to the trading systems of FBOTs. However, we believe strongly that in, moving to a registration system for FBOTs, the CFTC should continue to accord full recognition to non-US regulatory regimes that support comparable regulatory outcomes and standards and enforce substantially equivalent regulatory objectives."
  • "The FOA would note that standards set in the US for recognition will impact on the EU approach to, for example, the recognition of US market infrastructures."
  • "A new licensing regime should not impose a regulatory burden on FBOTs that is greater than currently imposed under the existing “no action” procedure."
  • "The timeframes imposed on FBOTs by new rules must be realistic and not create uncertainty and/or disruption of access for market participants."
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Hong Kong Futures Exchange - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

From the comment letter:

  • "HKFE believes the work involved in submitting a “limited” application under the proposed regime would be substantially more than the 50 hours estimated by the CFTC. Accordingly, HKFE strongly recommends that the CFTC grandfather FBOTs which have been granted a Section 5/5a No-action Relief..."
  • "Regulation of foreign exchange market transactions should defer to home country regulation."
  • "It seems to us that the adoption of the Proposed Rules would be a departure from the CFTC’s long-standing policy of mutual recognition and comity. This has the potential of putting the U.S. out of step with the regulatory approach taken in other jurisdictions and could lead to the diminution rather than the expansion of global connectivity."
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Intercontinental Exchange - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

From the comment letter:

ICE believes that the CFTC generally strikes the right balance with the proposed rulemaking. However, ICE requests the CFTC to consider the following points:

  • The CFTC should not supercede foreign regulatory authorities by adopting prescriptive rules for FBOTs.
  • The CFTC should not require FBOTs to clear all swaps from U.S. customers.
  • The CFTC should amend Commission Rule 30.10 to allow firms exempt from registration to clear swaps.
  • The CFTC should consider grandfathering existing FBOTs.
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European Securities and Markets Authority (ESMA) - January 17, 2011[edit]

Registration of Foreign Boards of Trade
January 17, 2011

From the comment letter:

"In the case of foreign SDRs, our concerns stem from the fact that in the proposed rulemakings on SDRs we have not identified any reference to equivalency of regulatory regimes or cooperation with the authorities of the country of establishment of the foreign SDRs. According to our reading, foreign SDRs are actually subject to a stricter regime than the resident ones, as they need to provide a legal opinion certifying that they can provide the CFTC with prompt access to their books and records and that they can be subject to onsite inspections and examinations by the CFTC.

Against this background, we strongly encourage you to consider a different regime than the one described in your proposed rulemakings. Accordingly, you may want to contemplate a regime where foreign SDRs can register with the CFTC if the laws and regulations in a foreign jurisdiction are equivalent to the US ones and if a Memorandum of Understanding (MoU) between the CFTC and the relevant foreign authorities has been signed."

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London Metal Exchange - January 14, 2011[edit]

Registration of Foreign Boards of Trade
January 14, 2011

From the comment letter:

"...the LME believes that the CFTC could achieve the objectives it has identified for the Proposed Rules with a comparability based exemptive approach that would be significantly less burdensome for applicants and Commission staff and that would be more consistent with existing frameworks for the regulation of cross-border market access. Specifically, the LME recommends that the Commission:

  • make jurisdiction-by-jurisdiction comparability analyses with respect to exchange and clearinghouse regulation and delete these elements from the application materials; and
  • adopt an exemptive rather than registration regime, consistent with international practice, and require contract designation (as in the case of US DCMs) only with respect to linked contracts (involving US-centric commodities).
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U.S. Senate Committee on Homeland Security and Governmental Affairs - January 18, 2011[edit]

Registration of Foreign Boards of Trade
January 18, 2011

In the comment letter, Sen. Levin argues that the recent fluctuations in energy and food prices cannot be fully explained by "simple changes in supply and demand," but rather they are linked to "excessive speculation in futures and other commodity markets." Rulemaking authority given to the CFTC regarding foreign boards of trade (FBOTs) is designed to prevent trading abuses related to the "London Loophole," which has allowed traders to avoid position limits by directing trades to foreign exchanges.

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References[edit]

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