CFTC

To date, CFTC has approved the rules of four U.S. exchanges to trade their contracts on screen based systems - CBOT and CME on Globex; CBOT on its "Project A" system for low volume contracts; Amex Commodities Corporation on its Electronic Limit Order System (ELOS) and the New York Mercantile Exchange (NYMEX) on its Access system.

The CFTC has stated that the mere presence of screen-based trading terminals in the U.S. should not cause the CFTC to deem any exchange for which products are listed through the system to be a domestic exchange. However, the relationship or interface between the exchanges or between the exchange and U.S. customers may raise regulatory concerns which the CFTC may wish to consider that are unrelated to the internal operations of the foreign exchange. As a result, the CFTC would review the particulars of any proposal to trade the contracts of a foreign exchange through a screen-based system in light of the CFTC's obligations under the CEA to maintain the integrity of U.S. markets and to provide for the protection of U.S. customers. Systems that allow members of one exchange to trade the contracts of the other exchange ("cross exchange trading") would require appropriate information sharing arrangements between regulators to permit the CFTC to fulfill its regulatory responsibilities.

Domestic Cross Exchange Access: On June 24, 1992, the CFTC permitted rules to go into effect which established a domestic cross exchange access program under which CME members may trade CBOT contracts through Globex and CBOT members may trade CME contracts through Globex.

CME-MATIF Cross Exchange Access: Under the CME-MATIF cross exchange access program, certain products of the CME and MATIF will trade side-by-side on Globex screens located in France and the U.S.; and members of the CME and MATIF with access to Globex screens will have the ability to trade each other's contracts without becoming members of the other exchange. Implementation of the cross exchange access program was made possible by: An exchange of letters in June 1992 between staff of the CFTC and the French COB and CMT pursuant to which they agreed to procedures for the effective surveillance and exchange of information related to CME-MATIF cross exchange access; and the approval by the CFTC on September 25, 1992 of CME rules implementing the program and by the CMT on October 15, 1992 of analogous French rules.

The CFTC adopted on November 15, 1990 a statement of regulatory policy for the oversight of screen-based trading systems for derivative products recommended by IOSCO during its annual meeting in Santiago, Chile. 55 Fed. Reg. 48670 (November 21, 1990).

Pursuant to §5a(a)(12) of the CEA and rule 1.41(b), a U.S. exchange implementing a screen-based trading system must submit its rules regarding the system to the CFTC for its approval. The CFTC has issued an Interpretation which makes clear that the record retention requirements in its regulations apply to any records created by or for an SRO to document the development, implementation, or maintenance of any automated systems supporting or incident to the performance of its self-regulatory responsibilities and functions. 55 Fed. Reg. 17932 (April 30, 1990).

Exchanges that have developed screen-based trading systems have amended or expanded their existing rules, regulations and bylaws to insure consistency with the CEA and CFTC rules (e.g., treatment of non-registered terminal operators should there be any trading violations).

See special relief granted with respect to "Globex Branch Offices" in section I.B.2.(a) above.

SEC

Generally, unless a screen-based proprietary trading system falls within the definition of an exchange or a clearing agency under Sections 3(a)(1) or 3(a)(23) of the 34 Act, respectively, or are otherwise classified as SROs, the system would not be governed by the formal regulatory structure (including registration) applicable to exchanges and clearing agencies. Even if the systems do not fall within these definitions, however, they generally do meet the definition of a broker-dealer under Sections 3(a)(4) and (5) respectively, and are registered as such.

The functions of such a system, however, may be subject to certain regulations under the federal securities laws. For example, if the system issued options, the issuance of those options would be covered by a registration statement subject to the full panoply of disclosure requirements under the federal securities law (e.g., Rule 9b-1 of the 34 Act). In addition, the anti-fraud, recordkeeping, and reporting provisions of the federal securities laws provide the Commission additional regulatory authority over such systems.

Moreover, although the Commission's Division of Market Regulation ("Division") has informed several systems' operators, that, subject to certain conditions, the Division would not recommend enforcement action if such systems were not registered as exchanges or securities associations under the 34 Act, the Commission has proposed Rule 15c2-10. Proposed Rule 15c2-10 would govern the operation of systems that are not operated as facilities of national securities exchanges or associations. In addition, to date, one screen-based system has been found to be an exchange, but was granted an exemption from registration based on its expected low trading volume. As such, the system is exempt from registration but is subject to certain requirements that the Commission imposed in its order granting the exemption. Included in these requirements were registration of securities traded in the system, provision of information to the Commission about the system, its participants and its activities on a regular basis, procedures for surveillance of trading, cooperation with any investigation of trading, and continued low volume of transactions through the system.

SIB

A screen-based trading system through which deals in derivatives can be arranged may be carrying on investment business in the UK. As a result, it may be a criminal offence under the FSA for such activities to be conducted in the UK unless the system operators have become authorised either by virtue of membership of an SRO or by holding an authorisation granted by SIB.

In certain circumstances, a system operator without a permanent place of business in the UK can be held to be carrying on exempt investment business in the UK if the availability of screens is limited to authorised or exempted persons.

However, it is necessary to consider the facts of each case in order to determine whether or not operators of screen-based systems require authorisation under the FSA.

Authorisation may take a variety of forms and include authorisation as a broker-dealer from an SRO or SIB, recognition as an RIE from SIB, recognition as an ROIE from HMT, where the head office of the exchange is based overseas, or authorisation as a service company from SIB.

COB

There is no specific rule related to screen based trading systems in the general regulation established by the CMT.

However, this general regulation provides that each market has to establish a trading regulation and a clearing regulation.

The MONEP has just implemented a new screen based transaction system (system STAMP: Systeme de transactions automatise du MONEP).

A new rule has been adopted to regulate this system. The STAMP system must be used only for introduction and cancellation of orders. Each recorded order is time-stamped and the responsibility of its execution is transferred to the SCMC.

CME members which intend to trade through GLOBEX screen based terminals allocated by the CME are required to provide the COB with the name and address of the firms in France where those terminals will be installed, prior to their installation. MOF

When a screen-based system is operated by a licensed stock exchange, it is regulated by general rules applied to stock exchange transactions, and there are no specific rules applied only to screen-based trading. However, we have not yet reached a conclusion on the treatment of screen-based trading systems operated by foreign exchanges and other entities.

ASC

There are no special factors affecting the treatment of screen-based systems. However, Chapter 2 of the Trading Etiquette of the SFE sets out specific matters on the trading of futures contracts on the Sydney Computerised Overnight Market (SYCOM).

OCS

There are no special factors affecting the treatment of screen-based trading systems.

CVMQ

There are no special factors affecting the treatment of screen-based trading systems.

SFC

At this time, the law generally prohibits operation of a commodity exchange in Hong Kong other than HKFE. The definition of commodity exchange refers to an exchange trading in specified contracts. Accordingly, a screen-based system trading any other products would not necessarily be prohibited nor explicitly be required to be licensed as an exchange. A screen-based system could be required to register as a dealer if its activities included offers to make an agreement with another person in Hong Kong to enter into a futures contract.

SVS

The same regulations applicable to all transactions carried out in the exchanges also apply to the electronic system of trading. However, it still has not been decided how to treat electronic transactions carried out within foreign exchanges.

FSA

According to the government bill (1992/92:113) the technical systems of both exchanges and clearing houses shall be thoroughly tested before bringing into regular processing. This technical safety test is up to SFSA. That is why SFSA requires a description of organization and safety measures concerning e.g.;

- the configuration - the safety administration and organization - the safety of development and maintenance of applications systems - the access protection - the processing safety and - the disruption and catastrophe routines.

As before there is still required a special license by SFSA concerning trade outside exchange and clearing, e.g., securities firms.

NZSC

There are no special factors affecting the treatment of screen-based trading systems. It should be noted that New Zealand Futures & Options Exchange Limited, the only current authorised futures exchange, is a screen-based Exchange.