Domestic: The collected responses of the reporting jurisdictions suggest that the juridical and factual bases for determining whether a market, product, transaction or clearing house is domestic or foreign differ among jurisdictions:

- most jurisdictions reported that official domestic markets must be "recognized," authorized by statute or otherwise, or created by grant, although many jurisdictions have private, wholesale or other markets for which there exists no governmental or quasi-governmental supervisory authority;
- most jurisdictions reported that domestic products or certain domestic products must also be recognized, authorized, licensed and/or otherwise approved; and
- the majority of the jurisdictions reported that domestic clearing houses must be recognized, authorized, approved or drawn from a specific class of market participant such as a bank.

Very few jurisdictions reported different considerations for electronic markets or singled out regulatory principles uniquely applicable to derivative markets.

In some jurisdictions, derivative products (including futures, futures options and options) are each specifically recognized, and must satisfy a test of economic utility. In other jurisdictions, this enquiry is not undertaken and market forces are relied upon to determine whether a derivative product is offered by an exchange.

Foreign: To the extent that separate criteria exist in some jurisdictions for reviewing, authorizing or recognizing foreign markets, clearing organizations, transactions or products, they involve a different regulatory interest from those related to domestic markets. For example, all reporting jurisdictions appear to share concerns about adequate information sharing; many also consider access to grievance procedures for national customers participating in foreign markets to be important. There may also be concerns regarding the adequacy from a prudential perspective of home regulation.

Where foreign clearing houses are separately recognized or authorized, recognition issues include review of the function of custodianship, transfer of funds capability, and adequacy of home regulation, in conjunction with the function of guaranteeing transactions.

B. The Regulation of Financial Intermediaries Most jurisdictions report differences in applicable regulations based on the type of relationship of the intermediary to and its contact with the jurisdiction.

Some jurisdictions, and different regulators within others, distinguish the regulatory requirements to be applied to commercial and/or sophisticated customers from those applied to non-commercial and/or unsophisticated customers. Similarly, in some cases, regulatory (as opposed to enforcement) jurisdiction is not asserted in relation to customer orders which are "accepted" as opposed to "solicited." No separate regulatory concerns were reported with respect to the authorization, licensing or recognition of financial intermediaries for the execution of transactions on screen-based trading systems or with respect to the effecting of transactions in derivative products.

C. Financial Safety Prudential or financial safety requirements protect markets and funds from credit and systemic risk and also seek to ensure that only those persons who have been deemed to be creditworthy have access to the markets. In relation to derivative markets, these requirements are designed to reflect the special risk attributes of derivatives, for example, the fact that positions in these markets may be highly leveraged or geared. Financial requirements, then, generally are an aspect of all regulatory programs, and the types or combination of types of requirements are fairly similar in form. The degree of reliance on each of capital, credit, margin, guarantee deposits, segregation and surveillance may vary; the information with respect to such matters which is available to regulators will also differ and reflect variations in the relevant regulatory regimes. For example:

Capital-based qualifications for financial intermediaries exist in all jurisdictions, however, none of the jurisdictions reported specified capital requirements for exchanges. There are jurisdictional differences as to whether requirements are imposed on clearing organizations and clearing members. Differences also exist regarding the type of organization which imposes such requirements.

Adequate clearing facilities are an element of universal regulatory concern; while most jurisdictions have some operating requirements, many matters relevant to the clearing process may be determined at the discretion of the clearing house or the exchange.

Margin and credit extension requirements. Margin requirements generally are set by the relevant exchange and, in many jurisdictions, are subject to some form of regulatory oversight (e.g. authority to approve levels established by exchanges, emergency authority). Levels of margin ordinarily are set by reference, in part, to formulae related to volatility. The definition of good collateral varies among jurisdictions. Practice among clearing houses or exchanges varies as to whether letters of credit and equity securities are acceptable as margin. A financial intermediary may accept different types of collateral from that which is accepted by the relevant clearing house or exchange. Most markets settle daily on T+1; different margin models are typical. Some clearing organizations or exchanges collect original margin on a gross basis and some collect net; if collected, variation margin ordinarily is collected on a net basis. Certain jurisdictions restrict the giving of credit for securities-regulated derivative products; in other jurisdictions, the relevant regulatory authorities do not restrict credit.

Financial Compliance. All reporting regulators of derivative markets maintain continuous and/or periodic financial surveillance of markets and financial intermediaries. The components and timing of these programs differ substantially from jurisdiction to jurisdiction.

Customer Funds Protections and Insolvency. There is some diversity in the manner in which protection of customer funds is achieved: Most jurisdictions have requirements relating to insurance or performance guarantees and segregation of customer funds from those of the firm -- the calculation of what must be segregated and for whom differs from jurisdiction to jurisdiction. Therefore, although some jurisdictions rely primarily on segregation to protect customer funds, most require a combination of segregation and other prudential requirements. In circumstances where a trust is implied by segregation, its scope (and hence its impact on clearing organization priority) varies among jurisdictions. Most jurisdictions also have requirements regarding the location of customer funds and how they must be invested. These protections are intended to provide some protection from defalcation, to facilitate the transfer of positions in market disruptions, and to accord special treatment to customer funds when the financial intermediary becomes insolvent. Reporting and Recordkeeping for Financial Safety. All jurisdictions require the creation, maintenance and retention of current financial records, although the form and supervision of records and the periods of retention differ.

o Increased international cooperation among regulators in relation to financial surveillance would enhance efficiency; it may also be necessary to achieve and sustain adequate levels of supervision, especially in circumstances where activities undertaken in one jurisdiction have an impact in another. Additionally, in increasingly internationalized markets, effective financial surveillance may not be feasible without cooperation among relevant authorities.

o Domestically, coordination is achieved within most jurisdictions by joint audit plans and lead regulator arrangements. To the extent that the scope and emphasis of financial audit or surveillance programs can be made more uniform across markets and jurisdictions, surveillance may be made more effective and cost-efficient. A better understanding of the financial regulatory requirements and audit customs and practices in different jurisdictions should facilitate cooperation efforts and enhance the utility of any information obtained. Increased cooperation in relation to international clearing and settlement procedures also may be desirable to reduce systemic risks.

D. Fairness Customer protection generally is addressed by regulatory standards imposed on financial intermediaries; these relate to: the integrity, skill and diligence of those who deal for customers; conflicts of interest; observance by persons who deal for customers with requirements related to the conduct of business, including order execution, restrictions on the misuse of information, the equitable availability of information, prohibitions on misrepresentation, and required disclosure; and the availability of procedures and forums to resolve grievances.

Two of the main differences which exist among reporting jurisdictions in the application of particular regulatory requirements intended to ensure customer protection are the distinctions made between solicited and unsolicited business and sophisticated and unsophisticated customers.

A jurisdiction-by-jurisdiction review indicates the following: Authorization, Qualification and Good Standing. All jurisdictions have fitness requirements for financial intermediaries, which consider previous violative conduct, character and competency. A bar from doing business in one jurisdiction is in all cases considered by other jurisdictions in making fitness determinations.

Order Execution Requirements. The trading rules relating to order execution differ from jurisdiction to jurisdiction but each reporting jurisdiction indicates that its rules are intended to provide fair execution to customers and to prevent fraud. Most jurisdictions report restrictions on the misuse of information; differences exist as to what constitutes misuse. On a world wide basis, dual capacity is in effect precluded for most options trading although no explicit ban exists for derivative trading in most jurisdictions. Generally, however, a "customer first" rule is imposed when dual capacity trading is permitted. Sales Practice Requirements. Sales practice standards related to required disclosures, prohibitions on misrepresentations and improper trading activities such as unauthorized trading or trading ahead of customers exist in most jurisdictions. All jurisdictions with derivative markets require the provision of a risk disclosure statement to customers, however, the form of disclosure and to whom it must be provided differ from market to market. All regulated jurisdictions prohibit provision of false or misleading information but differences exist concerning liability for omissions and the legal standard for finding violations.

The general rules against misrepresentation and fraud apply to advertising in all cases, but some jurisdictions have special supervisory rules or explicit restrictions on the content of promotional material. Many jurisdictions place restrictions on cold-calling.

Compliance Monitoring. In most jurisdictions, the monitoring of compliance with sales practice programs focuses on internal controls (self-policing) and the investigation of customer complaints. The frequency of review of sales practices and the scope of such reviews, however, vary among jurisdictions. Enforcement cases also address abuses in the sales practice area which may not be readily addressed by audit or review programs.

Records and Information Available to Customers. All jurisdictions require the creation and maintenance of records with respect to the execution and financial effect of transactions. Jurisdictions differ as to the records and information which must be made available to customers.

o Information relating to trading and any specific local requirements should be available both to customers and financial intermediaries. It would be helpful if the types of information about markets, trading on those markets and specific local requirements could be in "standard" form. Additionally, transaction and market information should be available to all customers in an equitable manner and, ideally, on a real time basis.

o Risk disclosure statements for derivative products generally cover, at a minimum, "generic" risks and to that extent could potentially be harmonized to reduce duplication. The potential for harmonizing additional risk and other disclosures required in certain jurisdictions, however, is significantly less certain.

o The jurisdiction where the customer resides may have an enforcement interest in using its own law to prevent misrepresentations to such customers independent of any required risk disclosure statement.

E. Market Efficiency Market integrity issues are central to regulatory programs relating to derivative markets and products. Various methods are used by relevant regulatory authorities to address these concerns.

Product Design. Many markets report requirements for product design and restrict products which can be the subject of derivatives, and most have delivery specifications or procedures. Some markets reported volume requirements. These types of requirements appear to be unique to derivative markets.

Market Disruption and Surveillance. Most markets prohibit market manipulation. The precise definition of the term "manipulation" may vary from jurisdiction to jurisdiction. The means of preventing this practice, whether by direct surveillance, product design requirements, position limits or other measures, as well as the extent to which it is subject to regulatory oversight differ among markets. Some markets report special procedures and regulations; for example, position limits, price limits or market halts, settlement price rules, dormancy rules and emergency actions, although the mix of these varies from jurisdiction to jurisdiction. Differences however exist as to the degree of the relevant regulator's responsibility and authority to prevent disruptions.

Trading Rules relating to types of permitted orders, off-exchange trading restrictions, and types of permitted market-making activities differ considerably from jurisdiction to jurisdiction.

Audit Trail. All jurisdictions report that they require some means to permit the reconstruction of trades and transactions (i.e., audit trail). However, the manner in which the audit trail is recorded and made available differs among jurisdictions.

Reporting Requirements, such as large trader reporting, exist in some jurisdictions. These requirements are used for financial as well as market surveillance.

o When activities in one market have an effect on another market (whether or not those markets are in the same jurisdiction), adequate information sharing between relevant regulatory authorities, sufficient to assure effective enforcement, is of common concern. Participants in the markets also have a strong interest in the applicable rules, including those related to preventing manipulative market activities.

o Among regulators, there is agreement that there must be an adequate audit trail of all transactions. Ideally, the types of information constituting the audit trail and the degree of its accessibility, to both the relevant regulatory authorities and the public, should be as similar as possible across jurisdictions. At present, there are substantial differences due to the varying legal and regulatory requirements of different jurisdictions.

THE PARTICIPANTS