99-13573. Representations and Disclosures Required by Certain IBs, CPOs and CTAs  

  • [Federal Register Volume 64, Number 103 (Friday, May 28, 1999)]
    [Rules and Regulations]
    [Pages 28910-28915]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 99-13573]
    
    
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    COMMODITY FUTURES TRADING COMMISSION
    
    17 CFR Part 30
    
    
    Representations and Disclosures Required by Certain IBs, CPOs and 
    CTAs
    
    AGENCY: Commodity Futures Trading Commission.
    
    ACTION: Final rules.
    
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    SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
    adopting amendments to Commission Rules 30.5 and 30.6. The amendments 
    will revise the procedure by which foreign persons may obtain an 
    exemption from registration under Rule 30.5 and will require foreign 
    and domestic commodity pool operators and commodity trading advisors to 
    provide U.S. retail customers with certain disclosures, regardless of 
    whether they are trading on U.S. or foreign markets.
    
    EFFECTIVE DATE: June 28, 1999.
    
    FOR FURTHER INFORMATION CONTACT: Laurie Plessala Duperier, Special 
    Counsel, or Andrew Chapin, Staff Attorney, Division of Trading and 
    Markets, Commodity Futures Trading Commission, 1155 21st Street, N.W., 
    Washington, D.C. 20581. Telephone: (202) 418-5430.
    
    
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    SUPPLEMENTARY INFORMATION: 
    
    I. Proposed Rules
    
        On January 11, 1999, the Commission published amendments to Part 30 
    of its regulations. Part 30 governs the solicitation and sale of 
    foreign futures \1\ and foreign option \2\ contracts to foreign futures 
    or foreign options customers.\3\ The activities which are subject to 
    regulation and require registration under Part 30 include the 
    solicitation or acceptance of funds, or the sale of stock or other 
    forms of securities, for the purpose of trading any foreign futures or 
    foreign option contract, as well as soliciting or entering into an 
    agreement to direct a U.S. customer account or to guide a U.S. customer 
    account by means of a systematic program that recommends specific 
    transactions in foreign futures or options.\4\
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        \1\ ``Foreign futures'' as defined in Part 30 means ``any 
    contract for the purchase or sale of any commodity for future 
    delivery made, or to be made, on or subject to the rules of any 
    foreign board of trade.'' Commission Rule 30.1(a) Commission rules 
    referred to herein are found at 17 CFR Ch. I (1998).
        \2\ ``Foreign option'' as defined in Part 30 means ``any 
    transaction or agreement which is or is held out to be of the 
    character of, or is commonly known to the trade, an `option', 
    `privilege', `indemnity', `bid', `put', `call', `advance guaranty', 
    or `decline guaranty', made or to be made on or subject to the rules 
    of any foreign board of trade.'' Commission Rules 30.1(b).
        \3\ Pursuant to Commission Rule 30.1(c), ``Foreign futures or 
    foreign options customers'' means ``any person located in the United 
    States, its territories or possessions who trades in foreign futures 
    or foreign options: Provided, That an owner or holder of a 
    proprietary account as defined in paragraph (y) of Sec. 1.3 of this 
    chapter shall not be deemed to be a foreign futures or foreign 
    options customer within the meaning of Secs. 30.6 and 307 of this 
    part.
        \4\ See Commission Rule 30.4.
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        Commission Rule 30.5 provides an exemption from the registration 
    requirement for any person located outside of the United States, its 
    territories or possessions who is required to be registered with the 
    Commission under Part 30 of the regulations, other than a person 
    required to be registered as a futures commission merchant (``FCM'')--
    i.e., an introducing broker (``IB''), commodity pool operator (``CPO'') 
    or commodity trading advisor (``CTA''). All persons who are registered 
    or required to be registered under Rule 30.4, including persons who are 
    exempt pursuant to Rule 30.5, must comply with the disclosure 
    requirements of Rule 30.6.\5\
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        \5\ Persons claiming exemption pursuant to Rule 30.5 must also 
    comply with Commission Rules 1.37 and 1.57. Rule 30.5(c).
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    A. Rule 30.5
    
        An exemption from registration pursuant to Rule 30.5 currently is 
    effective when a foreign IB, CPO or CTA enters into a written agency 
    agreement with any of the persons or entities provided for by the rule 
    and files the agreement with the National Futures Association 
    (``NFA''). CPOs and CTAs who have obtained a Rule 30.5 exemption were 
    requested by Commission staff to make certain representations, 
    including the representation that they would solicit only qualified 
    eligible participants (``QEPs'') and qualified eligible clients 
    (``QECs''), as those terms are defined in Rule 4.7. Pursuant to the 
    Commission's September 11, 1997 delegation order to the NFA,\6\ NFA has 
    continued to request these representations from Rule 30.5 exempt 
    persons. Thus, most Rule 30.5 exempt persons have solicited only QEPs 
    and QECs, not U.S. ``retail customers,'' defined for the purpose of 
    this Federal Register Release as U.S. customers who do not meet the 
    definition of a QEP or QEC.
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        \6\ 62 FR 47792 (September 11, 1997).
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        As described below, amended Rule 30.5 will change the procedure by 
    which foreign IBs, CPOs and CTAs can obtain a Rule 30.5 exemption to 
    ensure that exempt persons meet basic fitness requirements and consent 
    to the jurisdiction of the Commission and United States federal and 
    state courts with respect to activities governed by Part 30 of the 
    regulations.
    
    B. Rule 30.6
    
        Rule 30.6 sets forth the disclosure requirements that apply to 
    domestic and foreign IBs, CPOs and CTAs who are registered or required 
    to be registered under Part 30 or who have a Rule 30.5 exemption. As 
    currently written, Rule 30.6 does not distinguish between QEPs and 
    QECs, who are sophisticated customers, and U.S. retail customers. To 
    ensure that adequate risk disclosures are provided in U.S. retail 
    customers and pool participants trading in foreign futures and option 
    contracts, the Commission proposed to amend Rule 30.6(b)(2) to provide 
    that CPOs and CTAs registered or required to be registered under Rule 
    30.4 or exempt from registration under Rule 30.5 must provide each 
    prospective participant or prospective client with the Disclosure 
    Document required by Rule 4.21 for CPOs and Rule 4.31 for CTAs, 
    including the disclosure statement required by Rules 4.24 and 4.34, 
    respectively, prior to engaging in the activities described in Rule 
    30.4. The proposed rule therefore provides that U.S. retail customers 
    shall receive similar disclosures whether they trade on domestic or 
    foreign markets.
        As discussed below, the Commission also proposed that the required 
    disclosures by CPOs and CTAs to QEPs and QECs be decreased to recognize 
    the sophistication of these persons. The Commission proposed to retain 
    the disclosure language contained in Rule 4.24(b) and Rule 4.34(b)(2), 
    however, to ensure that QEPs and QECs were apprised that there are 
    different risks of trading foreign futures or foreign options as 
    compared with U.S. futures and options.
    
    II. Final Rules
    
        The Commission received three comment letters on the proposed 
    rulemaking: one from a U.S. commodity exchange; one from NFA; and one 
    from a bar association. The commenters all supported the Commission's 
    proposing the rule amendments. They commended the Commission for 
    expanding Rule 30.5 to allow foreign exempt persons to solicit U.S. 
    retail customers, not just QEPs and QECs. In addition, commenters were 
    supportive of the requirement that all CPOs and CTAs, both foreign and 
    domestic, provide certain disclosures to U.S. retail customers, 
    regardless of whether those customers are trading on domestic or 
    foreign markets. As one commenter stated, ``[t]his requirement will 
    level the playing field for foreign and domestic markets with respect 
    to the amount of disclosure that must be provided to U.S. retail 
    customers.''
    
    A. Rule 30.5  Petitions
    
        Proposed Rule 30.5 is being adopted by the Commission with only 
    minor revisions. It permits a foreign IB, CPO or CTA to solicit any 
    U.S. customer--not just QEPs and QECs--after filing a petition that 
    establishes that it is qualified for the exemption. A petitioner is 
    required to show affirmatively that it qualifies for an exemption by 
    representing that (i) the petitioner is located outside of the United 
    States, its territories or possessions; (ii) the petitioner does not 
    act as a CTA, CPO or IB, respectively, in connection with trading on or 
    subject to the rules of a designated contract market in the United 
    States by, for, on behalf of, or for the benefit of any U.S. customer, 
    client or pool;\7\ and (iii) petitioner irrevocably consents to 
    jurisdiction in the United States with respect to transactions subject 
    to Part 30 of the regulations promulgated under the Commodity
    
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    Exchange Act (``CEA'').\8\ To ensure the fitness of persons who conduct 
    business with U.S. customers, the petitioner also must represent that 
    it would not be statutorily disqualified from registration under 
    Section 8a(2) or 8a(3) of the Act and has not been and would not be 
    disqualified from registration or licensing by the home country 
    regulator. If the petitioner or its activities are regulated by any 
    government entity or self-regulatory organization, it must provide the 
    name and address of such government entity or self-regulatory 
    organization. In addition, the petitioner must specify whether it is 
    applying for an exemption based on activities as an IB, CPO or CTA and 
    provide the name, address and telephone number of its main business 
    location.\9\
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        \7\ This language differs slightly from the language of the 
    proposed rule. The proposed rule required petitioners to represent 
    that they would not ``trade'' on U.S. markets on behalf of U.S. 
    foreign futures and option customers. The revised language makes 
    clear that Rule 30.5 exempt persons may not engage in any of the 
    activities of an IB, CPO or CTA on U.S. contract markets with U.S. 
    customers, clients or pools.
        \8\ These representations are consistent with the 
    representations required of foreign firms claiming exemption from 
    registration pursuant to Commission Rule 30.10. (See Commission Rule 
    30.10, Appendix A--Part 30, Interpretative Statement with Respect to 
    the Commission's Exemptive Authority under Sec. 30.10 of Its Rules).
        \9\ The new rule also clarifies that a Rule 30.5 exempt person 
    must designate either a U.S. futures commission merchant through 
    which business is done, a registered futures association or any 
    other person located in the United States in the business of 
    providing services as an agent for service of process to act as the 
    agent for service of process in accordance with Rule 30.5(a).
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        The amended rule also states that persons exempt under Rule 30.5 
    must use either a U.S. registered FCM or a foreign broker that has 
    received confirmation of Rule 30.10 relief to carry accounts for, on 
    behalf of or for the benefit of foreign futures or foreign options 
    customers, a position previously set forth by Commission staff in 
    1989.\10\ For example, a Rule 30.5 exempt commodity pool operator may 
    not operate a pool with U.S. foreign futures and options customers as 
    participants unless the foreign futures and option trades entered into 
    on behalf of the pool are intermediated on a fully disclosed basis by a 
    U.S. registered FCM or a Rule 30.10 exempt foreign broker.
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        \10\ This rule codifies the position stated in CFTC 
    Interpretative Letter No. 89-3 [1987-1990 Transfer Binder] Comm. 
    Fut. L. Rep. (CCH) para. 24,416 (April 4, 1989). The text of the 
    introductory language in final Rule 30.5 was modified from the 
    language in the proposed rule to more closely parallel the language 
    of the interpretative letter.
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        Two commenters questioned why a Rule 30.5 petition would not 
    continue to be self-effectuating, but rather must be approved by NFA. 
    One of these commenters also requested clarification regarding what 
    type of review NFA would make, the time frame in which the review would 
    be conducted, and whether NFA would notify the petitioner of the 
    disposition of its application.
        NFA currently reviews all petitions for confirmation of Rule 30.10 
    relief for compeleteness and conformity with the requisite 
    representations and then notifies the foreign firm whether its petition 
    is approved, denied, or is deficient in any way. The NFA review 
    performs a vital function by ensuring that the petitioner firm has 
    consented to U.S. jurisdiction and made other required representations 
    prior to the firm's soliciting U.S. customers for trading on foreign 
    markets. Since September 1997 when the Commission delegated this 
    responsibility to NFA, NFA has carried out its functions in this regard 
    thoroughly and expeditiously. In those cases where a Rule 30.10 firm 
    has made all of the appropriate representations, NFA usually confirms 
    relief to the firm within 30 days.
        Proposed Rule 30.5 sets forth a parallel procedure for Rule 30.5 
    exemptions. NFA will review the Rule 30.5 petition to ensure that all 
    of the representations required by the rule have been made and to 
    verify that a proper agreement with a U.S. agent for service of process 
    is on file with NFA. NFA's role will be solely to verify that the 
    petitioner has complied with all aspects of the rule. If the petition 
    is deficient, NFA will notify the petition of the deficiency. If the 
    petition is complete, NFA will confirm to the petitioner that it has a 
    Rule 30.5 exemption. As is the case with Rule 30.10 exemptions, the 
    Commission believes that it is important for NFA to verify that a Rule 
    30.5 petitioner has made all of the necessary representations and 
    consents prior to engaging in any of the activities described in Rule 
    30.4. Accordingly, the Commission does not believe that the Rule 30.5 
    petition should be self-effectuating and has retained in the final rule 
    the requirement that NFA review Rule 30.5 petitions.
        The Commission requested comment regarding who should sign a Rule 
    30.5 petition on behalf of foreign entities that may not fit within 
    traditional U.S. legal structures. One commenter proposed that the rule 
    allow ``a natural person involved in the management of the petitioner 
    who is legally authorized under local law to make binding agreements 
    and representations for the applicant'' to sign the petition. The 
    Commission has incorporated similar language into Rule 30.5(e)(7).
    
    B. Rule 30.6  Disclosures
    
        As an initial matter, the Commission wishes to reiterate that the 
    disclosure requirements in Rule 30.6(b), both currently and as 
    amended,\11\ apply to both domestic and foreign CPOs and CTAs, whether 
    registered with the Commission or exempt pursuant to Rule 30.5, that 
    operate pools or advise clients that trade in foreign futures and 
    options. Thus, CPOs and CTAs located in the United States with foreign 
    futures and options customers must comply with the requirements of Part 
    4 and the requirements of Part 30.
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        \11\ The text of Rule 30.6(b)(1) and (b)(2) was modified in the 
    final rule to refer back to Rule 30.4 in describing to whom the 
    disclosure requirements apply, rather than reiterating the 
    registration requirements again in the text of Rule 30.6. The change 
    is technical and non-substantive.
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        Amended Rule 30.6(b)(2) requires domestic and foreign CPOs and CTAs 
    to provide U.S. foreign futures and options customers that are not QEPs 
    or QECs with a disclosure document in accordance with Rule 4.21 for 
    CPOs and 4.24 for CTAs.\12\ These Disclosure Documents should be filed 
    with NFA in accordance with Rules 4.26 and 4.36 and in compliance with 
    the order issued by the Commission in conjunction with this Federal 
    Register release, which delegates to NFA the authority to review 
    disclosures documents filed pursuant to Rule 30.6.
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        \12\ The disclosure requirements for IBs that solicit or accept 
    orders from U.S. foreign futures and option customers are set forth 
    in Rule 30.6(a), which is not being amended in this rulemaking.
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        With regard to QEPs and QECs, CPOs and CTAs registered or required 
    to be registered or exempt pursuant to Rule 30.5 must provide to QEPs 
    and QECs that trade on domestic markets the statements set forth in 
    Rule 4.7(a)(2)(i)(A) and 4.7(b)(2)(i)(A), respectively, which disclose 
    generally that the materials being provided to the participant or 
    client are not required to be and have not been reviewed by the 
    Commission (``the general statement''). In addition, Rule 30.6 
    currently requires domestic and foreign CPOs and CTAs to provide a 
    lengthy disclosure statement to all U.S. foreign futures and options 
    customers, including QEPs and QECs, in accordance with Rule 4.24(b) and 
    4.34(b). To better harmonize the requirements of Part 4 and Part 30, 
    Rule 30.6(b)(1) will require both registered and Rule 30.5 exempt CPOs 
    and CTAs to provide the general statement to QEPs and QECs trading 
    foreign futures and options. It also will pare down the current 
    disclosure statement requirement by specifying that CPOs and CTAs must 
    provide QEPs and QECs with the specific disclosure regarding the risks 
    of trading in foreign futures and options in Rules 4.24(b)(2) and 
    4.34(b)(2), rather than the entire
    
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    disclosure statement contained in Rules 4.24(b) and 4.34(b).
        Even though Rule 30.6(b)(1) as proposed would lessen the current 
    disclosure requirement with regard to QEPs and QECs, two commenters 
    expressed the view that, since QEPs and QECs are sophisticated 
    investors, the Commission should not require any disclosure other than 
    the general statement required by Rules 4.7(a)(2)(i)(A) and 
    4.7(b)(2)(i)(A). While QEPs and QECs may be sophisticated investors for 
    purposes of Rule 4.7, they are not necessarily sophisticated and/or 
    knowledgeable regarding the different types of risks present when 
    trading on foreign boards of trade. As the Commission recently learned 
    in the wake of the collapse of Griffin Trading Company, many Griffin 
    customers, including CTAs and other sophisticated investors, claimed 
    not to be fully aware of the risks that they undertook when trading on 
    foreign markets. In particular, certain ``sophisticated'' clients did 
    not appear to understand that the Commission had no legal ability to 
    compel actions on foreign exchanges or to compel actions by foreign 
    persons who held U.S. foreign futures and options customers' funds.
        Recent Commission experience confirms that it is necessary to 
    require disclosure regarding the risks of trading on foreign boards of 
    trade to QEPs and QECs, as well as to U.S. retail customers. Moreover, 
    the Commission notes that, since the required disclosure is only three 
    sentences long and is less disclosure than that which is currently 
    required, it does not impose a significant burden on CPOs and CTAs. 
    Therefore, after consideration of the comments, the Commission has 
    decided to retain the requirement in Rule 30.6(b)(1) that CPOs and CTAs 
    provide a risk disclosure statement to QEPs and QECs regarding the risk 
    of trading in foreign futures and options.
    
    C. Effect of the Amendments
    
        The amendments to Rules 30.5 and 30.6 will apply to all regulated 
    activities with all new foreign futures and foreign options customers 
    as of the effective date of the new rules. An IB, CPO or CTA currently 
    exempt under Rule 30.5 will not be required to file a new Rule 30.5 
    petition for exemption. However, all CPOs and CTAs will be required to 
    provide all new prospective poll participants or new prospective 
    customers with the disclosures required by Rule 30.6.
    
    III. Related Matters
    
    A. Regulatory Flexibility Act
    
        The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611, 
    requires that agencies, in adopting rules, consider the impact of those 
    rules on small businesses.
        The Commission has previously established certain definitions of 
    ``small entities'' to be used by the Commission in evaluating the 
    impact of its rules on such entities in accordance with the RFA.\13\ 
    The Commission previously has determined that registered CPOs are not 
    small entities for the purpose of the RFA.\14\ And although IBs might 
    be small entities for purposes of the rule, the disclosure required to 
    IBs is not changed with this rulemaking, and thus the new rules will 
    not have any impact on domestic IBs.
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        \13\ 47 FR 18618-18621 (April 30, 1982).
        \14\ 47 FR 18619-18620.
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        With respect to CTAs, the Commission has stated that it would 
    evaluate within the context of a particular rule proposal whether all 
    or some affected CTAs would be considered to be small entities and, if 
    so, the economic impact on them of any rule.\15\ In this regard, the 
    Commission notes that the regulations with respect to CTAs' activities 
    relating to foreign futures and foreign option contracts are 
    essentially the same as those contained in Part 4 governing CTAs in 
    connection with their activities relating to futures contracts and 
    options traded or executed on or subject to the rules of a contract 
    market designated by the Commission. The Commission has previously 
    determined that the disclosure requirements in Part 4 governing CTAs 
    will have a significant economic impact on a substantial number of 
    small entities.\16\ In fact, Rule 4.31, which governs the disclosure 
    requirements for CTAs and to which Rule 30.6(b) refers, was revised in 
    1995 for the purpose of reducing the number of disclosures required and 
    focusing on succinct disclosure of material information. The Commission 
    determined that the revised rule reduced rather than increased the 
    requirements of former Rule 4.31. Therefore, the Chairperson, on behalf 
    of the Commission, hereby certifies, pursuant to 5 U.S.C. 605(b), that 
    these regulations will not have a significant economic impact on a 
    substantial number of small entities.
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        \15 \47 FR 18618-18620.
        \16 \See 60 FR 38146, 38181 (July 25, 1995) and 48 FR 35248 
    (August 3, 1983).
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    B. Paperwork Reduction Act
    
        When publishing final rules, the Paperwork Reduction Act of 1995 
    \17\ (``Act'') imposes certain requirements on federal agencies 
    (including the Commission) in connection with their conducting or 
    sponsoring any collection of information as defined by the Act. In 
    compliance with the Act, these final rules and/or their associated 
    information collection requirement inform the public of:
    
        \17\ Pub. L. 104-13 (May 13, 1995).
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        (1) The reasons the information is planned to be and/or has been 
    collected: (2) the way such information is planned to be and/or has 
    been used to further the proper performance of the functions of the 
    agency; (3) an estimate, to the extent practicable, of the average 
    burden of the collection (together with a request that the public 
    direct to the agency any comments concerning the accuracy of this 
    burden estimate and any suggestions for reducing this burden); (4) 
    whether responses to the collection of information are voluntary, 
    required to obtain or retain a benefit or mandatory; (5) the nature 
    and extent of confidentiality to be provided, if any; and (6) that 
    fact that an agency may not conduct or sponsor, and a person is not 
    required to respond to, a collection of information unless it 
    displays a current valid OMB control number.
    
        The Commission previously submitted these rules in proposed form 
    and their associated information collection requirement to the Office 
    of Management and Budget. The Office of Management and Budget approved 
    the collection of information associated with these rules and assigned 
    OMB control number 3038-0023 to these rules. The burden associated with 
    this entire collection of which these proposed rules are a part, is as 
    follows:
        Average burden hours per response: 16.13.
        Number of respondents: 73,435.
        Frequency of response: On occasion.
        The burden associated with these specific proposed rules is as 
    follows:
    
    Rule 30.5--
        Average burden hours per response: 100.
        Number of Respondents: 65.
        Frequency of response: On occasion.
    Rule 30.6(b)(1)--
        Average burden hours per response: .5.
        Number of Respondents: 40.
        Frequency of response: On occasion.
    Rule 30.6(b)(2)--
        Average burden hours per response: 3.0.
        Number of Respondents: 5.
        Frequency of response: On occasion.
    
    Persons wishing to comment on the information which is required by 
    these final rules should contact the Desk
    
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    Officer, CFTC, Office of Management and Budget, Room 10202, NEOB, 
    Washington, DC 20503, (202) 395-7340. Copies of the information 
    collection submission to OMB are available from the CFTC Clearance 
    Officer, 1155 21st Street, NW, Washington, DC 20581, (202) 418-5160.
    
    List of Subjects in 17 CFR Part 30
    
        Definitions, Foreign futures, Foreign options, Reporting and 
    recordkeeping requirements, Registration requirements, Risk disclosure 
    statements, Treatment of foreign futures and options secured amount, 
    Customer protection.
    
        In consideration of the foregoing, and pursuant to the authority 
    contained in the Commodity Exchange Act and, in particular, sections 
    2(a)(1), 4(b), 4c and 8a thereof, 7 U.S.C. 2, 6(b), 6c and 12a (1998), 
    and pursuant to the authority contained in 5 U.S.C. 552 (1998), the 
    Commission hereby amends Chapter I of Title 17 of the Code of Federal 
    Regulations as follows:
    
    PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS
    
        1. The authority citation for part 30 continues to read as follows:
    
        Authority: 7 U.S.C. 1a, 2, 4, 6, 6c and 12a, unless otherwise 
    noted.
    
        2. Section 30.5 is amended by adding introductory text, revising 
    paragraph (a) and adding paragraph (e) to read as follows:
    
    
    Sec. 30.5  Alternative procedures for non-domestic persons.
    
        Any person not located in the United States, its territories or 
    possessions, who is required in accordance with the provisions of this 
    part to be registered with the Commission, other than a person required 
    to be registered as a futures commission merchant, may apply for an 
    exemption from registration under this part by filing a petition for 
    exemption with the National Futures Association and designating an 
    agent for service of process, as specified below. A person who receives 
    confirmation of an exemption pursuant to this section must engage in 
    all transactions subject to regulation under Part 30 through a 
    registered futures commission merchant or a foreign broker who has 
    received confirmation of an exemption pursuant to Sec. 30.10 in 
    accordance with the provisions of Sec. 30.3(b).
        (a) Agent for service of process. Any person who seeks exemption 
    from registration under this part shall enter into a written agency 
    agreement with the futures commission merchant located in the United 
    States through which business is done, with any registered futures 
    association or any other person located in the United States in the 
    business of providing services as an agent for service of process, 
    pursuant to which agreement such futures commission merchant or other 
    person is authorized to serve as the agent of such person for purposes 
    of accepting delivery and service of communications issued by or on 
    behalf of the Commission, U.S. Department of Justice, any self-
    regulatory organization or any foreign futures or foreign options 
    customer. If the written agency agreement is entered into with any 
    person other than the futures commission merchant through which 
    business is done, the futures commission merchant or foreign broker who 
    has received confirmation of an exemption pursuant to Sec. 30.10 with 
    whom business is conducted must be expressly identified in such agency 
    agreement. Service or delivery of any communication issued by or on 
    behalf of the Commission, U.S. Department of Justice, any self-
    regulatory organization or any foreign futures or foreign options 
    customer, pursuant to such agreement, shall constitute valid and 
    effective service or delivery upon such person. Unless otherwise 
    specified by the Commission, the agreement required by this section 
    shall be filed with the Vice President-Registration, National Futures 
    Association, 200 West Madison Street, Chicago, Illinois 60606, with a 
    copy to the Vice President-Compliance, National Futures Association. 
    For the purposes of this section, the term ``communication'' includes 
    any summons, complaint, order, subpoena, request for information, or 
    notice, as well as any other written document or correspondence 
    relating to any activities of such person subject to regulation under 
    this part.
    * * * * *
        (e) Petition for exemption. Any person seeking an exemption from 
    registration as an introducing broker, commodity pool operator or 
    commodity trading advisor under this section must file a petition for 
    exemption, which will be granted or denied based on compliance with 
    Sec. 30.5(a) and the provision of this paragraph. The petition must:
        (1) Be in writing;
        (2) Provide the name, main business address and main business 
    telephone number of the petitioner;
        (3) Represent that:
        (i) The petitioner is located outside of the United States, its 
    territories or possessions;
        (ii) The petitioner does not act as an introducing broker, 
    commodity pool operator or commodity trading advisor, respectively, in 
    connection with trading on or subject to the rules of a designated 
    contract market in the United States by, for, on behalf of, or for the 
    benefit of any U.S. customer, client or pool; and
        (iii) The petitioner irrevocably agrees to the jurisdiction of the 
    Commission and state and federal courts in the United States with 
    respect to activities and transactions subject to this part;
        (4) Represent that the petitioner would not be statutorily 
    disqualified from registration under Section 8a(2) or 8a(3) of the 
    Commodity Exchange Act and that the petitioner is not disqualified from 
    registration pursuant to the laws or regulations of its home country;
        (5) If the petitioner or its activities are regulated by any 
    government entity or self-regulatory organization, state the name and 
    address of such government entity or self-regulatory organization;
        (6) State whether the petitioner is applying for a Sec. 30.5 
    exemption from registration as an introducing broker, commodity pool 
    operator or commodity trading advisor;
        (7) Be signed as follows: If the petitioner is a sole 
    proprietorship, by the sole proprietor; if a partnership, by a general 
    partner; if a corporation, by the chief executive officer or other 
    person(s) legally authorized to bind the corporation; if any other 
    business structure, by such person or persons involved in the 
    management of the petitioner and legally authorized to bind the 
    petitioner; and
        (8) Be filed with the Vice President-Registration, National Futures 
    Association, 200 West Madison Street, Chicago, Illinois 60606.
        3. Section 30.6 is amended by revising paragraph to read as 
    follows:
    
    
    Sec. 30.6  Disclosure.
    
    * * * * *
        (b) Commodity pool operators and commodity trading advisors. (1) 
    With respect to qualified eligible participants, as defined in 
    Sec. 4.7(a)(1)(ii) of this chapter, a commodity pool operator 
    registered or required to be registered under this part, or exempt from 
    registration pursuant to Sec. 30.5, may not, directly or indirectly, 
    engage in any of the activities described in Sec. 30.4(c) unless the 
    commodity pool operator, at or before the time it engages in such 
    activities, first provides each prospective qualified eligible 
    participant with the Risk Disclosure Statement set forth in 
    Sec. 4.24.(b)(2) of this chapter and the statement in 
    Sec. 4.7(a)(2)(i)(A) of this chapter. With respect to qualified 
    eligible clients, as defined in Sec. 4.7(b)(1)(ii) of this chapter,
    
    [[Page 28915]]
    
    a commodity trading advisor registered or required to be registered 
    under this part, or exempt from registration pursuant to Sec. 30.5, may 
    not, directly or indirectly, engage in any of the activities described 
    in Sec. 30.4(d) unless the commodity trading advisor, at or before the 
    time it engages in such activities, first provides each qualified 
    eligible client with the Risk Disclosure Statement set forth in 
    Sec. 4.34(b)(2) of this chapter and the statement in Sec. 4.7(b)(2 
    (i)(A) of this chapter.
        (2) With respect to participants who do not satisfy the 
    requirements of qualified eligible participants, as defined in 
    Sec. 4.7(a)(1)(ii) of this chapter, a commodity pool operator 
    registered or required to be registered under this part, or exempt from 
    registration pursuant to Sec. 30.5, may not, directly or indirectly, 
    engage in any of the activities described in Sec. 30.4(c) unless the 
    commodity pool operator, at or before the time it engages in such 
    activities, first provides each prospective participant with the 
    Disclosure Document required to be furnished to customers or potential 
    customers pursuant to Sec. 4.21 of this chapter and files the 
    Disclosure Document in accordance with Sec. 4.26 of this chapter. With 
    respect to clients who do not satisfy the requirements of qualified 
    eligible clients, as defined in Sec. 4.7(b)(1)(ii) of this chapter, a 
    commodity trading advisor registered or required to be registered under 
    this part, or exempt from registration pursuant to Sec. 30.5, may not, 
    directly or indirectly, engage in any of the activities described in 
    Sec. 30.4(d) unless the commodity trading advisor, at or before the 
    time it engages in such activities, first provides each prospective 
    client with the Disclosure Document required to be furnished customers 
    or potential customers pursuant to Sec. 4.31 of this chapter and files 
    the Disclosure Document in accordance with Sec. 4.36 of this chapter.
    * * * * *
        Dated: May 21, 1999.
    
        By the Commission.
    Jean A. Webb,
    Seretary of the Commission.
    [FR Doc. 99-13573 Filed 5-27-99; 8:45 am]
    BILLING CODE 6351-01-M
    
    
    

Document Information

Effective Date:
6/28/1999
Published:
05/28/1999
Department:
Commodity Futures Trading Commission
Entry Type:
Rule
Action:
Final rules.
Document Number:
99-13573
Dates:
June 28, 1999.
Pages:
28910-28915 (6 pages)
PDF File:
99-13573.pdf
CFR: (8)
17 CFR 30.5(a)
17 CFR 4.7(a)(1)(ii)
17 CFR 4.24.(b)(2)
17 CFR 4.34(b)(2)
17 CFR 30.4(d)
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