[Federal Register Volume 64, Number 6 (Monday, January 11, 1999)]
[Proposed Rules]
[Pages 1566-1571]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-375]
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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: Proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is
proposing to adopt certain amendments to Commission Rules 30.5 and
30.6.\1\ The proposed amendments will revise the procedure by which
persons may obtain an exemption from registration under Rule 30.5 and
will require CPOs and CTAs to provide U.S. customers with certain
disclosures, regardless of whether they are trading on United States
markets or foreign markets.
\1\ Commission rules referred to herein are found at 17 CFR Ch.
I 1998).
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DATES: Comments must be received by March 12, 1999.
ADDRESSES: Interested person should submit their views and comments to
Jean A. Webb, Secretary of the Commission, Commodity Futures Trading
Commission, 1155 21st Street, NW., Washington, DC 20481. In addition,
comments may be sent by facsimile transmission to facsimile number
(202) 418-552, or by electronic mail to [email protected]. Reference
should be made to ``Commission Rules 30.5 and 30.6.
FOR FURTHER INFORMATION CONTACT: Laurie Plessala Duperier, Special
Counsel, or Leanna L. Morris, Staff Attorney, Division of Trading and
Markets, Commodity Futures Trading Commission, 1155 21st Street, NW,
Washington, DC 20581. Telephone: (202) 418-5430.
SUPPLEMENTARY INFORMATION:
I. Background--Current State of the Rules
In 1987, the Commission adopted a new part 30 to its regulations to
govern the offer and sale to U.S. persons of futures and option
contracts entered
[[Page 1567]]
into or on subject to the rules of a foreign board of trade.\2\ These
rules were promulgated pursuant to sections 2(a)(1)(A), 4(b) and 4c of
the Commodity Exchange Act (``Act''), which vest the Commission with
exclusive jurisdiction over the offer and sale, in the United States,
of options and futures contracts traded on or subject to the rules of a
board of trade, exchange or market located outside of the United
States.
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\2\ 52 FR 28980 (August 5, 1987).
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Part 30 sets forth regulations governing foreign futures \3\ and
foreign option \4\ transactions executed on behalf of foreign futures
or foreign options customers.\5\ For example, Rule 30.4 requires any
person engaged in the activities of a futures commission merchant
(``FCM''), introducting broker (``IB''), commodity pool operator
(``CPO'') and commodity trading advisor (``CTA''), as those activities
are defined within the rule, to register with the Commission unless
such persons claims relief from registration under part 30. The
transactions which are subject to regulation and require registration
under part 30 include the solicitation or acceptance of orders for
trading any foreign futures or foreign option contract; acceptance of
money, securities or property to margin, guarantee or secure any
foreign futures of foreign option trades or contracts; and any
agreement to direct or to guide U.S. customer accounts.\6\
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\3\ ``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).
\4\ ``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 it commonly known to the trade as, an `option',
`privilege', `indemnity', `bid,' `offer', `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 Rule
30.1(b).
\5\ Pursuant to Commission Rules 30.1(c), ``Foreign futures or
foreign options customer'' 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 of foreign
options customer within the meaning of Secs. 30.6 and 30.7 of this
part.''
\6\ See Commission Rule 30.4.
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The part 30 rules allow certain persons located outside the United
States to obtain as exemption from registration and certain other
requirements. Commission Rule 30.5 provide that any person located
outside of the United States, its territories or possessions who is
required to be registered with the Commission, other than a person
required to be registered as an FCM--i.e., an IB, CPO or CTA--will be
exempt from such registration requirement, provided he or she appoints
an agent for service for process in accordance with paragraph (a) of
the rule. Rule 30.5(a) provides that any person claiming an exemption
under the rule must enter into a written agency agreement with the FCM
through which business is done in accordance with the provisions of
Rule 3.3(b), with any registered futures association or any other
person located in the United States in the business of providing agency
services. The agency agreement authorizes such FCM or other person to
serve as the agent for the Rule 30.5 exempt firm 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.\7\
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\7\ ``Communications'' includes ``any summons, complaint, order,
subpoena, request for information, or notice, as well as any other
written document for correspondence relating to any activities of
such person subject to regulation under this part.'' Commission Rule
30.5(a).
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All persons who are required to be registered under Rule 30.4,
including persons who are exempt under Rule 30.5, must comply with the
disclosure requirements of Rule 30.6.\8\ Rule 30.6(a) states that an IB
claiming exemption under Rule 30.5 must provide foreign futures or
options customers with the Risk Disclosure Statement required by
Commission Rule 1.55. CPOs and CTAs claiming exemption under Rule 30.5
must, pursuant to Rule 30.6(b), provide the Risk Disclosure Statement
set forth in Rule 4.24(b) in the case of CPOs, or Rule 4.34(b) in the
case of CTAs.
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\8\ Person 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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II. Proposed Amendments
The Commission has re-evaluated the provisions of part 30 in light
of the changes in the futures and option industry since 1987 and its
experience with implementing part 30. As the Commission noted in its
adoption of part 30, ``the implementation of a regulatory scheme such
as this is an evolving process, particularly as the issues are numerous
and complex.'' \9\ With the advances in technology and accessibility to
futures and option markets around the world, the Commission believes
that it is appropriate to amend provisions of part 30 at this time to
further the regulatory goals of customer protection and to continue the
Commission's efforts to update and to modernize its regulations.
Specifically, the Commission proposes amendment Rule 30.5 to clarify
which customers Rule 30.5 exempt persons may solicit and from whom they
may accept orders, to specify who may serve as an agent for service of
process, to clarify who may carry the customer accounts of Rule 30.5
firms, and to require that applicants for a Rule 30.5 exemption make
certain representations in order to obtain the exemption. The
Commission also proposes amendment Rule 30.6 to ensure that U.S.
customers receive appropriate disclosures concerning their investments
in foreign futures and foreign option contracts.
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\9\ 52 FR at 28980.
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The proposed amendments will not be retroactive, but will apply to
all regulated activities with all new foreign futures and foreign
options customers as of the effective date of the new rules. Thus, 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, a CPO or CTA
currently exempt under Rule 30.5 will be required to provide all new
prospective pool participants or new prospective customers with a
disclosure document or risk disclosure statement, whichever applies, in
accordance with Rule 30.6. The Commission also invites comment on
whether currently exempt Rule 30.5 CPOs and CTAs should be required to
make the disclosure document available for currently existing
participants and customers.
Further, these proposed rule amendments do not alter any existing
regulatory obligations to the Securities and Exchange Commission or
state securities administrators.
The Commission seeks comments on the following proposed amendments
at this time and invites comment regarding any other amendments to
these rules that may be necessary in light of industry developments
during the past decade.
A. Rule 30.5
As noted above, an exemption from registration pursuant to Rule
30.5 currently is effective when a person enters into a written agency
agreement with any of the enumerated persons or entities provided for
by the rule and files the agreement with National Futures Association
(``NFA''). In practice, few individuals or firms have chosen to obtain
an exemption under Rule 30.5. 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
[[Page 1568]]
September 11, 1997 delegation order to the NFA,\10\ NFA has continued
to request these representations from Rule 30.5 firms. Thus, most Rule
30.5 exempt firms have solicited QEPs and QECs, not U.S. ``retail
customers,'' defined as U.S. customers that do not meet the definition
of a QEP or QEC.
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\10\ 62 FR 47792 (September 11, 1997).
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As business continues to become more global and technology
facilitates international communication, foreign CPOs and CTAs may wish
to do business with not only QEPs and QECs, but U.S. retail customers
as well. While the current disclosure requirements of Rule 30.6 do not
afford enough protection to U.S. retail customers, the amendments to
the disclosure requirements under Rule 30.6 proposed herein eliminate
the need to restrict Rule 30.5 exemptions to QEPs and QECs. The
Commission, therefore, wishes to make clear that exempt IBs, CPOs and
CTAs may solicit U.S. customers who are not QEPs and QECs, so long as
the exempt persons comply with the other provisions of part 30, as
proposed to be amended herein.
In order to determine whether persons qualify for an exemption
pursuant to Rule 30.5, the Commission proposes revising the rule to
require an applicant to make certain representations to establish that
he or she is qualified for the exemption. Paragraph (a) of the rule
currently states that in order to be eligible for a Rule 30.5
exemption, the applicant must be a non-domestic person soliciting U.S.
customers to trade in foreign futures and foreign option contracts and
must designate an agent for service of process in the United States.
Under proposed Rule 30.5(e), a Rule 30.5 exemption will no longer be
self-effectuating--all petitions will be granted or denied based upon
the information filed by the applicant with NFA, including the agent
for service of process agreement required under Rule 30.5(a). An
applicant would be required to show affirmatively that he or she
qualifies for an exemption by representing that (i) the applicant is
located outside of the United States, its territories or possessions;
(ii) the applicant does not trade contracts on behalf of any U.S.
customer on any market regulated by the Commission; and (iii) the
applicant irrevocably consents to jurisdiction in the United States
with respect to transactions subject to part 30 of the regulations
promulgated under the Commodity Exchange Act.\11\ To ensure the fitness
of applicants who conduct business with U.S. customers, the applicant
also must represent that he or she 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 applicant or its
activities are regulated by any government entity or self-regulatory
organization, the name and address of such government entity or self-
regulatory organization must be provided. In addition, the applicant
must specify whether he or she is applying for an exemption based on
activities as an IB, CPO or CTA and provide the name, address and
telephone number of the main business. Finally, the petition must be in
writing and signed as follows: if the IB, CPO or CTA 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 with legal authority to bind the corporation. The Commission
recognizes that, due to potential differences in business structures in
certain foreign jurisdictions, the above qualified signatories may be
too restrictive. Thus, the Commission seeks comment on how the rule
might otherwise be written to recognize an appropriate signatory for a
Rule 30.5 petition.
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\11\ 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).
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In the proposed amendments, the Commission also wishes to clarify
who may carry foreign futures and foreign options customers' accounts
in connection with solicitation by and acceptance of orders by persons
who have obtained an exemption under Rule 30.5. The Division of Trading
and Markets (``Division'') has interpreted Rule 30.5 to permit an
exempt IB, CPO or CTA to carry customer accounts with a registered
futures commission merchant or with a foreign broker who has received
confirmation of Rule 30.10 relief on a fully-disclosed basis as
required by Rule 30.3(b).\12\ Persons exempt under Rule 30.5 have been
permitted to conduct business through Rule 30.10 exempt firms because
such firms, in order to receive confirmation of Rule 30.10 relief, have
represented to the Commission that they will provide access to the
firm's books and records related to transactions under part 30 and
adequate arrangements exist with these firms and their regulator(s) to
share information, including firm-specific and transaction-specific
information. The Commission wishes to codify the policy set forth in
Interpretative Letter 89-3. Thus, the proposed rule states specifically
that persons exempt under Rule 30.5 must use either U.S. registered
futures commission merchants or foreign brokers who have received
confirmation of Rule 30.10 relief to carry foreign futures or foreign
options customer accounts. Rule 30.5 exempt persons are not permitted
to use foreign brokers who have not received confirmation of Rule 30.10
relief to carry foreign futures or foreign options customer accounts,
nor have they been permitted to do so in the past.
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\12\ CFTC Interpretative Letter No. 89-3 (1989 Transfer Binder)
Comm. Fut. L. Rep. (CCH) para.24,416 (April 4, 1989).
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The proposed rule also clarifies that, although Rule 30.5 exempt
persons may use Rule 30.10 firms to carry U.S. customer accounts, they
may not designate such firms as their agent for service of process
under Rule 30.5(a), since such firms are not located in the United
States. The purpose of requiring designations of an agent for service
of process is to make communications with foreign persons or entities
easier by designating a recipient in the United States. Rule 30.5, as
currently written might have caused people to believe that Rule 30.10
firms could act as an agent for service of process because the rule
states that an agency agreement may be entered into with ``the futures
commission merchant through which business is done in accordance with
the provisions of Sec. 30.3(b) of this part * * *'' Rule 30.3(b)
provides that, ``except as otherwise provided in Sec. 30.4 of this part
or pursuant to an exemption granted under Sec. 30.10 of this part,''
the offer and sale of foreign futures and foreign option contract on
behalf of U.S. customers must be by or through a registered FCM. Thus,
Rule 30.5 could be read to mean that a Rule 30.10 exempt firm could act
as an agent for service of process. The intent behind Rule 30.5,
however, was to allow registered FCMs or other appropriate persons
located in the United States to act as an agent for service of process.
Thus, the proposed rule 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).
B. Rule 30.6
The Commission believes that U.S. customers who trade foreign
futures and foreign options should receive disclosures similar to those
provided to
[[Page 1569]]
U.S. customers who trade on domestic markets. Currently, IBs and FCMs,
whether registered or exempt from registration, are required to provide
the same disclosures to U.S. customers, regardless of whether the
customer is trading on domestic or foreign markets.\13\ There are,
however, disparate disclosure requirements for domestic and foreign
trading solicited by CPOs and CTAs, as explained below.
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\13\ Pursuant to Rule 30.5(c), exempt IBs must comply with Rule
30.6. Rule 30.6(a) requires FCMs and IBs to provide foreign futures
and foreign options customers with the Risk Disclosure Statement
prescribed by Rule 1.55(b)--the same disclosure required of
registered FCMs and IBs trading in domestic markets.
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Rules 4.21 and 4.31 require registered CPOs and CTAs trading on
U.S. contract markets to provide prospective customers or participants
with a Disclosure Document containing the information set forth in Rule
4.24 for CPOs and Rule 4.34 for CTAs. The Disclosure Document includes,
among other things, information concerning business background, fees
past performance and material litigation. CPOs and CTAs who solicit
sophisticated and institutional investors who meet the definition of a
QEP or QEC pursuant to Rule 4.7, however, are exempt from the
Disclosure Document requirements of Rules 4.21, 4.24, 4.25, 4.26, 4.31,
4.34, 4.35 and 4.36.\14\ They need only provide QEPs and QECs with the
statement prescribed in Rule 4.7(a)(2)(i)(A) for CPOs and Rule
4.7(b)(2)(i)(A) for CTAs, which explains that an offering memorandum is
not required to be filed with and has not been reviewed by the
Commission pursuant to an exemption.
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\14\ As provided in the final rulemaking of Rule 4.7, QEPs and
QECs are deemed to be sophisticated investors that possess ``either
the investment expertise and experience necessary to understand the
risks involved, * * * or have an investment portfolio of a size
sufficient to indicate that the participant has substantial
investment experience and thus a high degree of sophistication with
regard to investments as well as financial resources to withstand
the risk of their investment'' and, therefore, require fewer
disclosure protections than retail customers. 57 FR 34853, at 34854
(August 7, 1992).
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Part 30, specifically Rule 30.6(b), governs the disclosure
requirements for CPOs and CTAs who invest in foreign futures or foreign
option contracts on behalf of U.S. customers. It does not distinguish
between retail customers and sophisticated customers because the QEP
and QEC categorization was not established until the development of
Rule 4.7 in 1992. Rule 30.6(b) currently requires all CPOs and CTAs
registered or required to be registered under part 30, including those
exempt from registration pursuant to Rule 30.5, to provide prospective
participants or clients with only the Risk Disclosure Statement
prescribed by Rule 4.24(b) for CPOs or Rule 4.34(b) for CTAs. In
contrast, CPOs and CTAs who solicit or accept orders from U.S.
customers for trading on U.S. markets are required to provide the
extensive firm-specific information contained in a Disclosure Document
required by part 4 of the regulations. Thus, U.S. retail customers who
trade on U.S. markets receive more extensive disclosures than do U.S.
retail customers who trade only foreign futures and foreign option
contracts.
1. U.S. Retail Investors
To ensure adequate risk disclosures are provided to all U.S.
investors trading in foreign futures and option contracts, the
Commission proposes amending Rule 30.6(b) to provide that CPOs or CTAs
registered or required to be registered under part 30, including those
exempt from registration pursuant to Rule 30.5, may solicit or accept
order from U.S. retail customers for trading in foreign futures or
foreign option contracts only if the CPO or CTA first provides each
prospective participant or prospective client with the Disclosure
Document required by Rule 4.21 for CPOs and Rule 4.31 for CTAs,
containing the disclosures required by Rules 4.24 and 4.34,
respectively. These Disclosure Documents should be filed in compliance
with Rule 4.26 for CPOs and Rule 4.36 for CTAs.\15\ By this amendment,
U.S. retail customers will receive similar disclosures whether they
trade on domestic or foreign markets.
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\15\ If this provision were to be adopted, it would be necessary
for the Commission to issue an order delegating to NFA the function
of reviewing Disclosure Documents filed pursuant to Rule 30.6.
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2. U.S. QEP and QEC Customers
As discussed above, Rule 30.6 currently requires CPOs and CTAs to
provide the entire Risk Disclosure Statement of Rule 4.24(b) for CPOs
and Rule 4.34(b) for CTAs to all customers, including QEPs and QECs. In
contrast, Rule 4.7 does not require CPOs and CTAs to provide QEPs and
QECs who trade in U.S. markets with the Risk Disclosure Statement of
Rules 4.24(b) and 4.34(b). It only requires CPOs and CTAs to give QEPs
and QECs the limited notices in Rules 4.7(a)(2)(i)(A) and
4.7(b)(2)(i)(A), respectively. To make the disclosures to QEPs and QECs
more uniform, whether they invest in U.S. markets or foreign markets,
the Commission proposes amending Rule 30.6 as follows.
As proposed, Rule 30.6 would require CPOs and CTAs to provide QEPs
and QECs with only the risk disclosures contained in Rules 4.24(b)(2)
and 4.34(b)(2), respectively, which are the disclosures that
specifically address the risks of trading in foreign futures and
foreign options. CPOs and CTAs would no longer provide the entire Risk
Disclosure Statement.\16\ In addition, CPOs and CTAs who solicit and
accept orders from QEPs and QECs would be required to provide foreign
futures and foreign options customers with the statements in Rules
4.7(a)(2)(i)(A) and 4.7(b)(2)(i)(A), respectively.
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\16\ CPOs and CTAs who solicit only QEPs and QECs for trading on
domestic markets presently are not required by Part 4 to provide the
Risk Disclosure Statements in Rules 4.24 and 4.34. The Commission
believes that the specific risk disclosure statements in Rules
4.24(b)(2) and 4.34(b)(2) should be provided to all U.S. customers
solicited to trade foreign futures and foreign options, including
QEPs and QECs, due to the difference in regulatory protections
available when trading on foreign exchanges.
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Thus, the net effect of these amendments is that CPOs and CTAs who
solicit foreign futures and options customers who are QEPs and QECs
will be required to provide slightly more disclosure than they do to
QEPs and QECs who trade on domestic markets, but will be allowed to
disclose less than Rule 30.6 currently requires.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611,
requires that agencies, in proposing rules, consider the impact of
those rules on small business. 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.\17\ The Commission previously has determined
that CPOs are not small entities for the purpose of the RFA.\18\ With
respect to CTAs and IBs, the Commission has stated that it would
evaluate within the context of a particular rule proposal whether all
or some affected CTAs and IBs would be considered to be small entities
and, if so, the economic impact on them of any rule.\19\ In this
regard, the Commission notes that the regulations being proposed herein
with respect to CTAs' and IBs' activities relating to foreign futures
and foreign option contracts are essentially the same as those
governing CTAs and IBs 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
[[Page 1570]]
previously determined that the disclosure requirements governing these
categories of registrant will not have a significant economic impact on
a substantial number of small entities.\20\ In fact, Rule 4.31, which
governs the disclosure requirements for CTAs, 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 proposed regulations will not have a significant economic impact
on a substantial number of small entities. Nonetheless, the Commission
specifically requests comment on the impact these proposed rules may
have on small entities.
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\17\ 47 FR 18618-18621 (April 30, 1982).
\18\ 47 FR 18619-18620.
\19\ 47 FR 18618-18620.
\20\ 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 proposed rule, the Paperwork Reduction Act of 1995
\21\ imposes certain requirements on federal agencies (including the
Commission) in connection with their conducting or sponsoring any
collection of information as defined by the Paperwork Reduction Act. In
compliance with the Act, the Commission, through this rule proposal,
solicits comments to:
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\21\ Pub. L. 104-13 (May 13, 1995).
(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including the validity of the methodology and assumptions used; (2)
evaluate the accuracy of the agency's estimate of the burden of the
proposed collection of information including the validity of the
methodology and assumptions used; (3) enhance the quality, utility,
and clarity of the information to be collected; and (4) minimize the
burden of the collection of the information on those who are to
respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques
or other forms of information technology, e.g., permitting
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electronic submission of responses.
The Commission has submitted these proposed rules and their
associated information collection requirements to the Office of
Management and Budget. The burden associated with the entire new
collection 3038-0023, 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...... 1.00.
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 would be
required by these proposed rules should contact the Desk 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, Consumer protection, Foreign options,
Registration requirements, Reporting and recordkeeping requirements,
Risk disclosure statements, Treatment of foreign futures and options
secured amount.
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 8 thereof, 7 U.S.C. 2, 6(b), 6c and 12a (1982),
and pursuant to the authority contained in 5 U.S.C. 552 and 552b
(1982), the Commission hereby proposes to amend 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 proposed to be 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 carry any
accounts for or on behalf of any foreign futures or foreign options
customer with a registered futures commission merchant or with a
foreign broker who has received confirmation of an exemption pursuant
to Sec. 30.10 of this part in accordance with the provisions of
Sec. 30.3(b) of this part.
(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 of
this part 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
[[Page 1571]]
``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 file a petition for
exemption, which will be granted or denied based on compliance with
Sec. 30.5(a) and the provisions of this paragraph. The petition must:
(1) Be in writing;
(2) Provide the name, main business address and main business
telephone number of the applicant;
(3) Represent that: (i) The applicant is located outside of the
United States, its territories or possessions;
(ii) The applicant does not trade contracts on behalf of any U.S.
person on any market regulated by the Commission; and
(iii) The applicant irrevocably agrees to 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 applicant would not be statutorily
disqualified from registration under section 8a(2) or 8a(3) of the
Commodity Exchange Act and that the applicant is not disqualified from
registration pursuant to the laws or regulations of its home country;
(5) If the applicant 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 applicant 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 applicant is sole proprietorship,
by the sole proprietor; if a partnership, by a general partner; if a
corporation, by the chief executive officer or other person legally
authorized to bind the corporation; and
(8) 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.
* * * * *
3. Section 30.6 is proposed to be amended by revising paragraph (b)
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 of this part, may not, directly or
indirectly, solicit, accept or receive funds, securities or other
property from a prospective qualified eligible participant in a foreign
commodity pool that it operates or that it intends to operate, 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) and the statement in Sec. 4.7(a)(2)(i)(A). With respect
to 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 of this part, may not solicit or enter into an agreement with
a prospective qualified eligible client to direct or to guide the
client's foreign commodity interest trading by means of a systematic
program that recommends specific transactions, 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) and the statement in
Sec. 4.7(b)(2)(i)(A).
(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 of this part, may not, directly or
indirectly, solicit, accept or receive funds, securities or other
property from a prospective participant in a foreign pool that it
operates or that it intends to operate, 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 solicit or
enter into an agreement with a prospective client to direct or to guide
the client's foreign commodity interest trading by means of a
systematic program that recommends specific transactions, 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: January 4, 1999.
By the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 99-375 Filed 1-8-99; 8:45 am]
BILLING CODE 6351-01-M