The reformation of the US electronic trading regulatory structure post Dodd-Frank Act resulted in US citizens being confined to using FX companies in North America, regulated by US authorities. For the purposes of ensuring customer protection, the Commodity Futures Trading Commission (CFTC) has policed this rigorously, ensuring that no OTC derivatives firm overseas accepts US clients.
As far as exchange-traded FX is concerned, however, the US is beginning to take a different view by allowing direct access for US traders to certain executing venues, mainly in the Asia Pacific region.
Two days ago, the CFTC announced that it was to allow direct access for US traders to the Tokyo Commodities Exchange (TOCOM), via which North American business can be executed via direct access to TOCOM’s electronic order entry and trade matching system to trade futures contracts on metals, fuels, rubber and agricultural commodities and futures and option contracts on gold.
Since then, the CFTC has extended this further, allowing US client trading at Singapore Exchange Derivatives Trading Limited (SGX-DT), a Foreign Board of Trade located in Singapore. Under the CFTC’s order, SGX-DT is permitted to provide its identified members or other participants located in the U.S. with direct access to its electronic order entry and trade matching system to trade equity index, interest rate, commodity and foreign exchange futures and options contracts.
The CFTC issued the Order in accordance with Part 48 of the CFTC’s regulations, which provides that such an Order may be issued to a foreign board of trade that possesses, among other things, the attributes of an established, organized exchange and that is subject to continued oversight by a regulator that provides comprehensive supervision and regulation that is comparable to the supervision and regulation exercised by the Commission.
SGX-DT submitted an application for registration that included, among other things, representations that its regulatory regime under its regulatory authority, the Monetary Authority of Singapore, satisfies the requirements for registration in regulation 48.7. In accordance with CFTC regulation 48.6, the staff no-action relief under which SGX-DT currently permits trading by direct access is withdrawn upon the issuance of the Order.
Upon review of the application, the CFTC has determined that SGX-DT has demonstrated its ability to comply with the requirements of the applicable Commission regulations. Accordingly, the Commission granted SGX-DT an Order of Registration to permit it to provide direct access to its identified members or other participants located in the U.S., subject to the terms and conditions specified in the Order.
The terms and conditions applicable to the Order include, among others, that SGX-DT shall comply with Commission regulation 48.8, Conditions of Registration, and any additional conditions that the Commission deems necessary and may impose, after appropriate notice and opportunity to respond. SGX-DT shall also continue to fulfill each of the representations it made in support of the application for registration.
Additionally, the CFTC has issued an Order of Registration to Bursa Malaysia Derivatives Berhad (BMD), a Foreign Board of Trade located in Kuala Lumpur, Malaysia. Under the Order, BMD is permitted to provide its identified members or other participants located in the U.S. with direct access to its electronic order entry and trade matching system to trade agricultural commodity, interest rate and security index futures and option contracts.
The CFTC issued the Order in accordance with Part 48 of the CFTC’s regulations, which provides that such an Order may be issued to a foreign board of trade that possesses, among other things, the attributes of an established, organized exchange and that is subject to continued oversight by a regulator that provides comprehensive supervision and regulation that is comparable to the supervision and regulation exercised by the Commission.
BMD submitted an application for registration that included, among other things, representations that its regulatory regime under its regulatory authority, the Malaysian Securities Commission, satisfies the requirements for registration in CFTC regulation 48.7.
Upon review of the application, the CFTC has determined that BMD has demonstrated its ability to comply with the requirements of the applicable CFTC regulations. Accordingly, the CFTC granted BMD an Order of Registration to permit it to provide direct access to its identified members or other participants located in the U.S., subject to the terms and conditions specified in the Order. The terms and conditions applicable to the Order include, among others, that BMD shall comply with CFTC regulation 48.8, Conditions of Registration, and any additional conditions that the CFTC deems necessary and may impose, after appropriate notice and opportunity to respond. BMD shall also continue to fulfill each of the representations it made in support of the application for registration.
Indeed, with exchange-traded transactions being easy to track from a regulatory perspective, and global cross-border agreements with many nations, US customers are not exposed by trading on exchanges in the same way that they would be trading OTC derivatives with overseas firms.
For the official announcement from the CFTC relating to SGX-DT, click here, and for the announcement concerning Bursa Malaysia Derivatives, click here.