The CFTC proposed amendments to regulations that concern the conditions under which certain non-U.S. entities acting in the capacity of futures commission merchants ("FCMs"), introducing brokers, commodity trading advisors and commodity pool operators (collectively "Foreign Intermediaries") may qualify for exemptions from registration with the CFTC. In particular, the CFTC proposed amendments to Regulation 3.10(c) that would exempt such persons from registration when they act only on behalf of foreign-located persons or international financial institutions (e.g., the World Bank).
Under current requirements, foreign intermediaries must satisfy the condition that relevant transactions are submitted for clearing through a registered FCM. The CFTC eliminated this requirement in the amendments, noting that many commodity interest transactions are not subject to a clearing requirement and/or are not available for clearing by a CFTC-registered derivatives clearing organization.
The proposal would codify relief that was granted previously in CFTC Letters 15-37 (to international financial institutions) and 16-08 (to foreign intermediaries).
Comments on the proposal must be submitted within 30 days after its publication in the Federal Register.
Commentary / Nihal Patel
The CFTC should consider the policy rationale of this part of its proposal: "[w]here a Foreign Intermediary's customers are located outside the U.S., the [CFTC] believes the jurisdiction where the customer is located has the preeminent interest in protecting such customers." The question is how that same idea might apply in the context of the requirements for swap dealers, where the broad definition of "U.S. person" under the CFTC's cross-border guidance can lead to a registration requirement even where a person's transactions take place entirely outside of the United States.
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