CFTC

Section 4 of the Commodity Exchange Act (CEA) requires that all futures and certain option contracts traded in the United States must be effected on boards of trade that have been designated as contract markets through such contract markets unless exempted by the Commission. The Commission was granted exemptive authority in the Futures Trading Practice Act of 1992 (FTPA of 1992). On January 14, 1993, the CFTC adopted rules under its exemptive authority to exempt certain "hybrid instruments" and swap transactions from certain sections of the CEA. See 58 Fed. Reg. 5580 and 5587 (January 22, 1993). To date, fourteen boards of trade have been designated as contract markets and all of the contract markets are incorporated in the U.S. The CEA does not require separate designation of clearing houses. However, for regulatory purposes, the clearing house is deemed to be subject to the same regulatory treatment as the exchange for which it clears. See Board of Trade Clearing Corp. v. Commodity Futures Trading Commission, No. 78-1263 (D.C. Cir. March 29, 1979).

Through the Globex computerized trading system of the Chicago Mercantile Exchange (CME) and Chicago Board of Trade (CBOT), it is possible for a foreign exchange to "list" its products on the Globex system. The CFTC staff has expressed its opinion that the mere presence of Globex terminals in the U.S. should not cause the CFTC to deem any exchange for which products are listed through that system to be a domestic exchange. However, in so stating, the CFTC staff stated that it would have to review the particulars of any proposal for foreign exchange products to be listed on the Globex trading system and that it is committed to maintaining the integrity of the U.S. markets and protecting U.S. customers. Moreover, the staff would expect the CFTC to review such proposals to determine whether access to information necessary to meet its own responsibilities under the CEA would be adequate.

SEC

Section 5 of the Securities Exchange Act of 1934 ("34 Act") provides that it is unlawful

for any broker-dealer, or exchange . . . to make use of the mails or any means or instrumentality of interstate commerce for the purpose of using any facility of an exchange . . . to effect any transaction in a security . . . unless such exchange (1) is registered as a national securities exchange under Section 6 of [the 34 Act], or (2) is exempted from such registration . . . .

Interstate commerce is defined in Section 3(a)(17) of the 34 Act. In general, interstate commerce includes trade, commerce, transportation or communication, through the use of any interstate instrumentality, among the several states or between any U.S. state and a foreign country. Section 17A of the 34 Act also requires clearing agencies making use of the mails or any means or instrumentality of interstate commerce to register with the Securities and Exchange Commission ("SEC" or "Commission"). The terms "exchange," "clearing agency," and "security" are defined in the 34 Act. See Sections 3(a)(1), 3(a)(23), and 3(a)(10), respectively. The term "security" includes, among other things, stock; corporate, municipal and U.S. government bonds and other debt securities; options on equity and debt securities; stock index options; and foreign currency options traded on a securities exchange.

U.S. securities markets are comprised of: (1) eight registered national securities exchanges (including five options exchanges); (2) one exempt exchange; (3) sixteen registered clearing agencies (including one clearing agency for all standardized options, and one for over-the-counter (OTC) options on government securities); (4) an OTC market regulated by a national registered securities association, subject to SEC oversight; and (5) several screen-based proprietary trading systems, one of which trades options on U.S. treasury securities. Numerous products trade on these markets, including, but not limited to: (1) individual stock; (2) corporate and government bonds; (3) individual stock and stock index options; (4) foreign currency options; (5) stock index warrants; and options on government securities.

SIB

For the purposes of this paper, the term "exchange" (rather than "market") is used.

The Financial Services Act of 1986 (FSA) does not require differentiation between "domestic" or "foreign" products. The comments in this section are, therefore, restricted to exchanges and clearing houses only.

An exchange will be regarded as "domestic" if the head office is located in the UK and it is carrying on investment business, that is making arrangements for persons to deal in investments, in the UK (FSA, Schedule 1, paragraph 13(b)). Such an exchange will be subject to direct and primary UK regulatory oversight.

Similarly, a clearing house will be regarded as "domestic" if the head office is located in the UK and it is carrying on investment business, that is making arrangements for persons to deal in investments, in the UK (FSA, Schedule 1, paragraph 13(b)). Such a clearing house will be subject to direct and primary UK regulatory oversight.

COB

The notion of a domestic futures market does not exist in France. The law of the 28 of March 1885 on futures markets, as amended, provides that every futures market, on public and other bills, securities, commodities and interest rates is deemed to be legal.

MOF

At present, markets operated by stock exchanges established and licensed in our jurisdiction are regarded as domestic markets. (It is prohibited to operate a market or a quasi-market in Japan without a license.)

ASC

The Australian Securities Commission ("ASC") is responsible for the administration of the Corporations Law ("CL") on a national basis.

The regulation of the Australian futures market is based on a scheme of coregulation. However, the ASC, through the CL, is the overriding statutory authority monitoring and regulating futures markets in Australia.

Sections 1126, 1131 and 1132 of the CL provide that a body corporate may apply to the ASC for approval by the Minister as a futures exchange, clearing house or futures association respectively. Section 1123 prohibits the conduct of an unauthorised futures market and section 1128 prohibits a corporation from providing clearing house facilities for a futures market unless approved.

If the facility being used/activity is within Australia or the business is established within Australia then the conduct of the business is regulated. Products are indirectly regulated. Exchange Members are regulated whilst dealing on the domestic exchange. Australian non-residents are regulated if they deal in Australia. Australian residents dealing on an overseas recognised exchange. The futures broker is regulated to the point of transmission of orders to the overseas recognised exchange.

All futures trading for clients must occur either on a local approved futures exchange or an overseas recognised futures exchange as specified in Schedule 11 of the CL Regulations.

There are two approved local futures exchanges in Australia: the Sydney Futures Exchange (the "SFE") and the Australian Financial Futures Market (the "AFFM"). The SFE is a company limited by guarantee and is a futures exchange and is a futures association under the CL. The AFFM is a company and is a wholly owned subsidiary of the Australian Stock Exchange Limited.

The SFE, whilst based in Sydney, has an Australia-wide and international membership. The AFFM, based in Melbourne, also has an Australia-wide membership.

There are two approved clearing houses in Australia: the Sydney Futures Exchange Clearing House Pty Limited ("SFECH") which became fully operational on 1 December 1991 and the International Commodities Clearing House ("ICCH"). The SFECH clears the SFE and the ICCH clears futures contracts on the AFFM.

Products approved to be traded on the SFE are 90-day Bank Accepted Bills futures and options, All Ordinaries Share Price Index futures and options, 3-year Australian Treasury bond futures and options, Live Cattle futures, Wool futures, Fifty Leaders Share Price Index and the facility to Exchange for Physicals. Products on the AFFM are based on specific ordinary listed shares for settlement in cash at a predetermined future date. In addition, the AFFM has a Twenty Leaders Index contract and the Australian Gold Share Price Index.

OSC

An exchange is a domestic exchange if it carries on business in Ontario, i.e. is located in Ontario. A product is a domestic product if it is traded on an Ontario exchange. There is only one exchange in Ontario which trades "derivatives", as defined by the survey, the Toronto Futures Exchange (the "TFE"). The contracts traded on the TFE are the TSE 35 Stock Index Futures Contract and the TSE 300 Spot Index Contract.

CVMQ

The Montreal Exchange (ME) cooperates with Trans Canada Options Inc. ("TCO") to designate contracts on the following qualified underlying values as exchange-traded options:

Equity securities, provided that the issue is:

- posted for trading on a Canadian TCO participating exchange (Montreal, Toronto, Vancouver);

- not subject to any of the deficiency criteria set out below:

-- there is a failure to have a minimum of 3,600,000 outstanding publicly held shares;

-- there is a failure to have a minimum of 1,000 beneficial and actual shareholders;

-- the combined trading volume on TCO Participating Exchanges, on the New York Stock Exchange and on the American Stock Exchange has been less than 400,000 shares in the preceding twelve months;

-- it is no longer listed on a Canadian TCO participating exchange;

-- the market price per share closed below $5 on a majority of the business days of the preceding nine-month period as measured by the highest closing price recorded in its most active market in Canada;

-- the issuer of its significant subsidiaries have defaulted in the payment of any dividend or sinking fund installment on preferred shares, or in the payment of any principal, interest or sinking fund installment on any indebtedness for borrowed money, or in the payment of rentals under long-term leases, and such default has not been rectified within six months;

-- the issuer has failed to make timely reports as required by the ME rules; or

-- the market capitalization of the issuer, including all common and preferred shares, has been less than $100,000,000 on a majority of the business days in the preceding nine month period.

The underlying interest of an option issued by TCO and the unit of trading of that underlying interest have to be approved by the Board of TCO following the recommendation of the ME. The options issued by TCO are designated by reference to the underlying interest, the month of expiration, the exercise price and the type and style of options.

Options - Approval of underlying bonds

Qualified Underlying Values as Exchange-Traded Options: Canadian government bonds, provided that:

- the outstanding amount of the issue is at least $500 million face value at maturity.

Options - Approval of underlying gold

Each gold option contract is for ten troy ounces of gold. Gold bullion acceptable for delivery in satisfaction of gold options is all gold which can be freely traded on the London Gold Market (and other major gold markets). Gold for good London delivery must have a fineness of purity of at least 995 parts per 1,000.

Canadian bankers' acceptance futures

The futures issued by TCO must satisfy the ME criteria, i.e.:

- 3-month Canadian bankers' acceptance

Each trading unit consists of a face amount of Can $1,000,000 of 3-month major bank bankers' acceptance.

10-year Canada bond futures

The underlying interest is Government of Canada Bonds with 6 1/2 to 10 years to maturity.

Each trading unit consists of Can $100,000 face value of a notional Canadian Government Bond, bearing a coupon of 9%.

Precious metal certificates

Gold. The unit of trading is individual gold certificates having a minimum specified value of five troy ounces of gold or any quantity in troy ounce increments above this amount.

Silver. The unit of trading is individual silver certificates having a minimum specified value of 250 troy ounces of silver or any quantity in troy ounce increments above this amount.

Platinum. The unit of trading is individual platinum certificates having a minimum specified value of ten troy ounces of platinum or any quantity in troy ounce increments above this amount.

The trading currency for Exchange traded certificates listed on the ME is U.S. dollars.

SFC

The Hong Kong Futures Exchange Ltd (HKFE) is currently the only market located in Hong Kong which provides a facility for trading in derivative products. HKFE is incorporated in Hong Kong and maintains a trading floor in Hong Kong. HKFE products currently include futures contracts in the Hang Seng Index (HSI), Three month Hong Kong Interbank Offered Rate (HIBOR) and four Hang Seng Sub-indices (Commerce & Industry, Properties, Utilities and Finance). HKFE also trades commodity futures contracts in gold. HKFE will begin trading European-Style HSI options in March 1993.

The HKFE Clearing Corporation Limited (HKCC) is a wholly-owned subsidiary of HKFE and was established to operate a clearing house for the purpose of clearing all trades effected on the HKFE.

SVS

Clearinghouses, markets and products are considered domestic when these entities are created, mature and are liquidated within Chilean territory.

FSA

If a marketplace, a clearing house or a product (financial instrument) is to be looked upon as domestic or foreign depends on the law of which country that ought to be applied. The choice of applicable law is done in accordance to Swedish regulation.

In the Swedish Companies Act of 1975 a company is formed by one or more founders. A founder shall be resident in Sweden or a Swedish legal person. The founders shall draw up a deed of formation which shall contain a proposal for articles of association. These articles shall specify inter alia the municipality in Sweden where the registered office of the board of directors is to be located. After the registration the company will be a Swedish legal person.

NZSC

The bases for determining regulatory jurisdiction are related to the business of dealing in futures contracts.

An Exchange will be regarded as "domestic" if its dealers are in the business of dealing in futures contracts in New Zealand.

Section 37(5) of the Securities Amendment Act 1988 provides, "...a person deals in futures contracts if that person: -

(a) acquires or disposes of the futures contract on behalf of another person; or

(b) offers to acquire or dispose of the futures contract on behalf of another person; or

(c) on behalf of another person induces, or attempts to induce, a person, to acquire or dispose of the futures contract; or

(d) advises or assists a person in connection with the acquisition or disposition of the futures contract..."

New Zealand Futures & Options Exchange Limited is currently the only authorised futures exchange in New Zealand. Products traded on New Zealand Futures & Options Exchange include three, five and ten Year Government Stock futures and futures options, 90 Day Bank Bill futures and futures options, NZSE-40 Share Index futures and NZSE-40 Share Index options, New Zealand Wool futures and futures options, US Dollar futures, NZ Dollar futures and futures options and Exchange Traded Equity Options including options on the ordinary shares of Telecom Corporation of New Zealand Limited, Fletcher Challenge Limited, Brierley Investments Limited, Robt. Jones Investments Limited, Carter Holt Harvey Limited and Lion Nathan Limited.

New Zealand Futures & Options Exchange Limited is cleared and guaranteed by the London Clearing House Limited (formerly International Commodities Clearing House Limited "ICCH").

(b) Once a determination is made that a clearing house, market and/or product is domestic, must such clearing house, market and/or product be recognized (in the U.S., designated)?

CFTC

Section 4 of the CEA requires that all futures and certain option contracts traded in the United States must be effected on boards of trade that have been designated as contract markets, unless otherwise exempted by the CFTC.

The CEA does not require separate designation of clearing houses. However, as noted above, for regulatory purposes, a clearing house is deemed to be subject to the same regulatory treatment as the exchange for which it clears. Section 5 of the CEA requires that individual contracts also must be designated separately before they may be traded on or subject to the rules of a contract market (See I.A.1.(c)).

SEC

See I.A.1(c) below.

SIB

By virtue of its carrying on investment business within the UK, a domestic exchange must be authorised or acquire the status of "Recognised Investment Exchange" (RIE) (FSA, s.3, 36 and 37). As a practical matter, all current UK domestic exchanges have obtained recognition.

As in the case of an exchange, a domestic clearing house must be authorised or acquire the status of "Recognised Clearing House" (RCH) in order to provide clearing services for the transaction of investment business within the UK (FSA, s.3, 38 and 39). As a practical matter, the only existing UK domestic clearing house, The London Clearing House Ltd, has obtained recognition.

COB

The law of the 28 of March 1885, as amended, instituted the Conseil du Marche a Terme (CMT) in charge of the good running of the market, of the constitution of a general regulation, of the admission of contracts to be traded and of disciplinary powers on intermediaries and their employees. One market is under the authority of the CMT today, Marche a Terme International de France (MATIF) SA. The listed products are:

FINANCIAL INSTRUMENTS

Notional Bond Futures Contract
Traded Option Contract on The Notional Bond

Three-Month Eurodem Futures Contract (suspended contract)
Option Contract on Three-Month Eurodem (suspended contract)

Three-Month PIBOR Futures Contract
Three-Month PIBOR Traded Option Contract

CAC 40 Index Futures Contract

Long-Term ECU Contract (suspended contract)
Long Term ECU Bond Option Contract (suspended contract)

Long Term Italian Bond Futures Contract
Long Term Italian Bond Traded Option Contract

BTAN Contract (suspended contract)
French Treasury Bond Futures Contract (launched January 28, 1993).

COMMODITIES

White Sugar Futures Contract
White Sugar Futures Traded Options Contract

Potato Futures Contract No. 1 (suspended contract)
Potato Futures Contract No. 2

Robusta Coffee Futures Contract

Cocoa Futures Contract (suspended contract)

Moreover, the MONEP, Paris Traded Options Market, is under the authority of the Conseil des Bourses de Valeurs (CBV), the Securities exchange council. The MONEP was created on the 6th of September 1987. The clearing house is the Societe de Compensation des Marches conditionnels (SCMC), which is a subsidiary at 100 percent of the Societe des Bourses Francaises (SBF).

In January 1992, underlying stocks or index were the following: CAC40 index (short term and long term options) Accor, Alcatel-Alsthom, Axa, Bouygues, BSN, Carnaudmetalbox, Carrefour, Cerus, Elf Aquitaine, Eurodisney, Erotunnel, Havas, LVMH, Lafarge-Coppee, Lyonnaise des Eaux-Dumez, Michelin, L'Oreal, Paribas, Pechiney International, Pernod Ricard, Peugeot, Rhone-Poulenc cip, Saint-Gobain, Societe Generale, Suez, Thomson CSF, Total.

The licensed credit firm qualified to be a clearing house on the futures market must be a specialized financial institution (IFS) as defined by the Banking Law. The SBF is also a specialized financial institution (Law of the 22nd of January 1988).

The IFSs are the credit firms which have received from public authorities a mission of public interest. This clearing house is registered with the "comite des Etablissements de credit" and is also permanently controlled by and submitted to the Banking Commission (Commission Bancaire). This Committee is chaired by the governor of the Bank of France.

The application for admission of a product on the official market supposes that the product is standardized and cleared through a qualified clearing house.

Conditions for admission of products are based on general criteria for safety, transparency and perception of the opportunities they offer. Consultations of the COB and the Banque de France are also required.

MOF

Licensed stock exchanges are required to obtain approval of the Finance Minister in order to open securities-related futures and options markets. Each stock exchange has its own clearing facility, therefore, there is no independent licensing of clearing houses. In order to trade securities related futures and option products, securities companies and financial institutions are required to obtain licenses.

ASC

A market, once it has been determined as domestic, must either be recognised or made an exempt market. Products, to be traded on domestic exchanges are set out in the relevant Business Rules (i.e. Rules, Regulations, By-Laws, Memorandum & Articles of Association) of the participating exchange and new products added by way of amendment. Amendments of the Business Rules may be disallowed by the Minister (s.1136 CL).

OSC

Pursuant to section 19 of the Commodity Futures Act (CFA), domestic exchanges must be registered with the Ontario Securities Commission (OSC). The CFA does not currently require separate registration for clearing houses although it provides regulatory oversight for their activities and de facto registration. The Recognized Options Rationalization Order, which provides the regulatory framework for exchange-traded equity options requires recognition of clearing houses. Contracts traded on commodity future exchanges registered pursuant to section 19 must be accepted by the OSC pursuant to section 36 of the CFA.

CVMQ

Before issuing a new type of option or futures contract the issuing person must file with the Commission all the complete information regarding the new contract; it can issue the new contract when the Commission agrees thereto or does not raise any objection within 10 days of receiving the information.

The issuing person must also prepare an information document (instead of preparing a prospectus) describing how the market operates and where such is the case, the various types of contracts. The information document has to be approved by the Commission.

SFC

HKFE was granted a license by the "Governor in Council" to operate a commodity exchange under the Commodities Trading Ordinance (CTO). All traded products must be specified in a schedule to the CTO. A separate ordinance, the Commodity Exchanges (Prohibition) Ordinance, prohibits the establishment of any other exchange trading in products specified in that ordinance. HKFE is required to obtain and has obtained the approval of the SFC to use HKCC as its clearing house.

SVS

The clearinghouse must be registered in the Registry of Securities Agents within the Superintendency of Securities and Insurance (SVS), authorizing its ability to function and its procedures. It should be mentioned that the market where said products are traded must also be authorized by the SVS (the market must always be organized as a securities exchange). Lastly, derived products considered individually must be authorized by the SVS and can be traded only within the exchange that develops them.

FSA

Any company doing business in order to establish a regular trade in financial instruments may be authorized as an exchange or a market place according to the new act on exchange and clearing (SFS 1992:543). Clearing must only be done by a company licensed as a clearing house according to this act. Issues of authorization and licensing are to be handled by the Swedish Financial Supervisory Authority, SFSA. By the new act on exchange and clearing registered Swedish companies and cooperations may by authorized and licensed (1 Chapt. 2§).

Financial instruments covering inter alia options and futures are as well regulated by this new act. All kinds of financial instruments may be listed and traded at an exchange.

NZSC

Section 37(8) of the Securities Amendment Act 1988 provides the Securities Commission in New Zealand with the power to declare a body corporate that conducts, or proposes to conduct, a market or exchange in New Zealand for trading in futures contracts to be an authorised futures exchange.

Section 38(l) of the Securities Amendment Act 1988 states that no person shall carry on the business of dealing in futures contracts unless:

(a) that person is a member of an authorised futures exchange; or
(b) that person is authorised by the Commission by notice in the Gazette to carry on the business of dealing in futures contracts.

Practically, all brokers are required to be Members of an authorised futures exchange. Consequently, in order for market to operate successfully in New Zealand it would need to be declared as an authorised futures exchange by the Securities Commission.

(c) Recognition criteria

CFTC

CEA §5 sets forth those criteria which a board of trade must satisfy to acquire contract market designation. In sum, the requirements are as follows:

- the board of trade is located in a terminal market where the underlying commodity is sold in sufficient volume so as to reflect the general value of the commodity;

- the board of trade provides for the making and filing of records with respect to all aspects of the transaction;

- the board of trade prohibits the dissemination of false or misleading information which tends to affect the price of any commodity;

- the board of trade provides for the prevention of manipulation of prices and the cornering of any commodity by the dealers or operators upon such board;

- the board of trade does not exclude any duly authorized representative of a lawful cooperative association having adequate financial responsibility;

- the board of trade provides for the prohibition of price manipulation;

- the board of trade provides for the compliance with the CFTC's orders and other regulatory requirements; and

- the board of trade must demonstrate that the futures transaction in a particular market for which designation is sought will not be contrary to the public interest.

- the board of trade demonstrates that every contract market for which such board of trade is designated complies with the audit trail requirements of Section 5a(b) of the CEA.

The CFTC provides guidance to exchanges on meeting these requirements in its "Guideline on Economic and Public Interest Requirements for Contract Market Designation," 57 Fed. Reg. 3518 (January 30, 1992). See II.C.1.(a) and (c) below.

No separate designation criteria exists in the CEA or regulations thereunder for a clearing house.

With respect to transactions for future delivery of any securities issued or guaranteed by the U.S. or any agency thereof, the CFTC must deliver a copy of the application for designation as a contract market to the Department of the Treasury and to the Board of Governors of the Federal Reserve System. See CEA §2(a)(8)(B)(ii). The CFTC is not allowed to designate a board of trade until 45 days after the application is delivered to the agencies or until after the CFTC has received comments from the agencies, whichever period is shorter. The CFTC shall take into consideration all comments it receives from the Department of the Treasury and the Federal Reserve and "shall consider the effect that any such action may have on the debt financing requirements of the United States Government and the continued efficiency and integrity of the underlying market for government securities."

CEA §2(a)(1)(B)(iv)(II) requires the CFTC to provide the SEC with a copy of an exchange's designation as a contract market with respect to any contract of sale (or option on such contract) for future delivery of a group or index of securities. The CFTC may not approve the application if the SEC determines that the contract fails to meet the minimum requirements set forth in §2(a)(1)(B)(ii) of the CEA.

SEC

Markets

Yes, the market must be recognized unless it qualifies for a low volume exception under the 34 Act. Sections 6, 15A, and 17A of the 34 Act provide specific guidelines for the registration of exchanges, securities associations, and clearing agencies (self-regulatory organizations ("SROs")), respectively. In general, the rules of the SROs must be designed to protect investors and the public interest. The rules of the SROs (other than clearing agencies) must be designed, among other things, to prevent fraudulent and mani-pulative acts and practices, promote just and equitable principles of trade, and the rules of the clearing agencies must be designed to promote the prompt and accurate clearance and settlement of securities transactions and the safeguarding of funds and securities for which it has control or responsibility. The rules of the SROs (other than clearing agencies) also must be designed to perfect the mechanism of a free and open market by not imposing any unnecessary or inappropriate burden on competition. In addition, an SRO (other than clearing agencies) must demonstrate the capacity to enforce compliance by its members with the 34 Act, rules and regulations thereunder, and the rules of the SRO. Clearing agencies must comply with their own rules and enforce member compliance with those rules. Section 19 of the 34 Act requires SROs to, among other things, file with the SEC, for review and approval, copies of any proposed rules concerning the administration of the SRO and the regulation of its members and employees. The SROs must also obtain Commission approval for any proposed change in, addition to, or deletion from such rules.

The Commission recently announced its Automation Review Policy ("ARP"), a voluntary program designed to assure that self-regulatory organizations (other than clearing agencies) have the capacity to accommodate current and reasonably anticipated future trading volume levels adequately and to respond to localized emergency conditions. ARP states that each SRO should: (1) establish current and future capacity estimates for their systems; (2) conduct stress tests of their automated systems; and (3) have an independent reviewer critique the capacity and integrity of its automated systems.

Section 5 of the 34 Act also provides the SEC with the authority to exempt an exchange from registration if it finds that, by reason of the limited volume of transactions effected on such exchange, it is not practicable and not necessary or appropriate in the public interest or for the protection of investors to require such registration.

Securities

Pursuant to section 5 of Securities Act of 1933 ("33 Act"), it is unlawful for any person, directly or indirectly, to use any means of interstate commerce to offer to buy (sell) any security unless a registration statement is in effect as to the security or unless the security is exempted from the 33 Act. Securities must be registered in accordance with the guidelines set forth in sections 6 and 7 of the 33 Act. Section 4 of the 33 Act provides exemptions from these registration requirements for certain transactions, e.g., transactions not involving an issuer, underwriter, or dealer, and transactions by an issuer not involving a public offering. The exemption for a transaction by an issuer not involving a public offering has been used to permit private placements of securities to institutional investors. The exemption for transactions not involving an issuer, underwriter or dealer has been used to permit resales of privately offered securities to qualifying institutional investors.

In addition, section 12(a) of the 34 Act makes it unlawful for any member, broker, or dealer to effect any transaction in a security on a national securities exchange unless a registration statement is in effect as to the security. Section 12(g) of the 34 Act imposes a similar registration requirement upon securities traded OTC that are issued by companies with 500 or more shareholders and more than $1 million in assets. Registration under section 12 requires, among other things, periodic, annual, and quarterly reporting to shareholders.

For U.S. standardized options, which are publicly offered to individual as well as institutional investors, the "issuer" is the Options Clearing Corporation ("OCC"), which registers the options listed and traded on the various exchanges. As part of the registration and issuance process OCC prepares and distributes an options disclosure document ("ODD") explaining the risks of options.

In addition to these disclosure requirements, options, as well as other products traded on an exchange or quoted over NASDAQ, must satisfy the "listing criteria" of the exchanges and the National Association of Securities Dealers, Inc. ("NASD"), respectively.

The Commission has no specific listing criteria for index options traded on an exchange or quoted over NASDAQ. An index option, however, must meet some general guidelines to obtain SEC approval. First, the SEC must find that the introduction of such an option is in the public interest. In other words, the index option must serve some economic purpose. See SEC response to II.C.1.(a). Second, the exchange listing the index option must have a surveillance plan to detect trading abuses. Third, absent very unusual circumstances, the exchange must have a surveillance sharing agreement with the underlying cash market. The options SROs employ different definitions of "narrow-based" and "broad-based" indexes. These definitions dictate the regulatory treatment of the product (e.g., higher margin requirements and lower position and exercise limits for narrow-based index options). These definitions, however, do not represent minimum listing standards for narrow-based index options. As with broad-based indexes, there are no specific listing criteria for narrow-based index options. In sum, the exchanges must comply with Section 6 of the 34 Act, which requires that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, and to promote just and equitable principles of trade.

SIB

The FSA vests Her Majesty's Treasury (HMT) with the powers to authorise and to regulate investment business in the UK. The FSA also provides for HMT to transfer a significant proportion of its powers to a Designated Agency; under the Financial Services Act (Delegation) Order 1987, these were transferred to SIB.

In addition to other powers, such as the recognition of self-regulating organisations, SIB has the authority to recognise domestic exchanges and clearing houses.

Schedule 4 to the FSA identifies the requirements which must be met by an exchange in order to acquire RIE status. Briefly, these include;

i) sufficient financial resources;
ii) adequate safeguards for investors, including inter alia, arrangements for ensuring the performance of transactions effected on the exchange (arrangements being provided either directly or by means of services provided by a Recognised Clearing House (RCH));
iii) arrangements and resources for the effective monitoring and enforcement of compliance with its rules and clearing arrangements;
iv) arrangements for the investigation of complaints;
v) ability to promote high standards of integrity and fair dealing and to cooperate by the sharing of information; and
vi) default rules which enable action to be taken in respect of unsettled market contracts to which a member is party where that member appears to be unable to meet his obligations. (FSA, Schedule 4, Companies Act 1989, Schedule 21).

A clearing house may be recognised if it appears to SIB that it:

i) has sufficient financial resources;
ii) has adequate arrangements and resources for the effective monitoring and enforcement of compliance with its rules or in respect of monitoring, arrangements for that function to be performed on behalf of the clearing house (and without affecting its responsibility) by another body who is able and willing to perform it;
iii) provides or is able to provide clearing services which would enable a recognised investment exchange to make arrangements with it that satisfy the requirements of Schedule 4 to the FSA;
iv) is able and willing to promote and maintain high standards of integrity and fair dealing and to cooperate by the sharing of information; and
v) has default rules which enable action to be taken to close out a member's positions in relation to all unsettled market contracts, to which he is a party, where that member appears to be unable to meet his obligations (FSA, s.39, Companies Act 1989, Schedule 21).

No exchange or clearing house shall be recognised unless HMT (in the case of an RIE or RCH, SIB) is satisfied that the rules and any particulars provided with the application do not have and are not likely to have, to any significant extent, the effect of restricting or preventing competition more than is necessary for the protection of investors (FSA, s.119 and s.120).

Before deciding whether to grant leave to SIB for the making of a recognition order in respect of an RIE or RCH, HMT shall send to the Director General of Fair Trading (DGFT) a copy of, inter alia, rules and regulations of the exchange or clearing house. The DGFT shall report to HMT whether in his opinion the rules and regulations or arrangements have or are likely to have, to any significant extent, the effect of restricting or preventing competition. HMT shall have regard to the DGFT's report before making a decision (FSA, s.122).

COB

MOF

Under Article 83 of the Securities and Exchange Law, the Finance Minister shall grant a license for founding a securities exchange if (1) its articles of incorporation, etc. conform to the law and are adequate to ensure the fairness of trading and the protection of investors, (2) its organization conforms to the law, and (3) its founding is necessary and appropriate in the public interest and for the protection of investors.

ASC

Under Section 1126 CL the Minister may approve a body as a futures exchange if he is satisfied that the following criteria are met:

(a) the business rules of the body corporate make satisfactory provision, inter alia, for licensing, qualifications, conduct, expulsion, suspension and disciplinary procedures;

(b) that there will be enough money in the body corporate's Fidelity Fund to make the payments out of the fund that may reasonably be expected to be necessary for the purposes of the CL, which is to compensate clients who suffer pecuniary loss because of fraudulent misuse of money or other property by a member of the futures exchange or association; and

(c) that the interests of the public will be served by granting the application.

Under Section 1131 of the CL, the Minister may approve a body as a clearing house for a futures exchange if he is satisfied:

- that the business rules of the body are satisfactory, in particular such of those business rules as relate to the registration of futures contracts made on a futures market of the futures exchange;

- that the business rules of the body corporate make satisfactory provision for the expulsion, suspension or discipline of members for a contravention of the business rules of the body corporate or for a contravention of the CL; and

- that the interests of the public will be served by granting the application.

In addition s.1131(3) provides that the Minister may have regard to any business rules of the applicant that relate to the guaranteeing, to members of the applicant, of the performance of futures contracts made on a futures market of the futures exchange.

OSC

Subsection 19(2) of the CFA sets out the factors to be considered in granting registration to a domestic commodity futures exchange. The OSC must be satisfied that registration would not be prejudicial to the public interest and in making such a determination must consider:

(a) clearing arrangements and the financial condition of the exchange, its clearing house and members;

(b) the rules and regulations applicable to exchange members and whether or not they are in the public interest and are actively enforced;
(c) whether or not floor trading practices are fair and properly supervised;

(d) whether adequate measures have been taken to prevent manipulation and excessive speculation; and

(e) whether provisions have been made to record and publish details of trading.

CVMQ

SFC

Pursuant to section 13 of the Commodities Trading Ordinance ("CTO"), the Governor in Council may, on application made to him in writing by the Exchange Company, issue a licence to establish and operate the Commodity Exchange if he is satisfied that the Company complies with, among other things, the following requirements:

i) that the objects contained in the constitution of the Company include a provision for the establishment and operation of a commodity exchange;

ii) that the Company will -

(a) maintain to the satisfaction of the Commission an adequate and properly equipped place of business;
(b) provide and maintain commodity markets at places approved by the Commission;
(c) use one or more clearing houses for the registration and settlement of futures contracts and the day-to-day adjustment of the financial position of such contracts;
(d) use one or more guarantee corporations to guarantee fulfillment of futures contracts; and
(e) use only clearing houses or guarantee corporations which have been approved by the Commission for use by the Company in relation to particular commodity markets;

iii) that the authorized share capital of the Company is not less than $25,000,000 divided into shares and the issued capital of the Company is not less than $3,000,000;

iv) that the constitution of the Company provides for the exclusion from membership of the Company of any person who would be disqualified from being a shareholder;

v) that at least 20 shareholders of the Company will carry on the business of trading in commodity futures contracts independently and in competition with one another in any commodity market;

vi) that the constitution of the Company provides for the making of rules applicable to the Company in its capacity of Exchange Company and of rules of commodity markets;

vii) that the constitution of the Company provides that no rules of the Exchange Company, and amendments thereto, will be effective unless approved in writing by the Commission;

viii) that the constitution of the Company provides that no amendment of the constitution of the Company will be effective unless approved in writing by the Commission;

The licence was granted to HKFE in 1977.

There are no specific statutory criteria for regulatory approval of HKCC as a clearing house. In considering approval of HKCC in 1989, the SFC considered a broad range of factors, in particular operational capacity and the HKCC risk management systems.

SVS

Law No. 18.045 (1981), the Law of Securities Market, in Chapters II, V, VI and VII, determines the requisites and obligations that the securities, secondary markets, exchange brokers and securities exchanges must comply with.

FSA

A Swedish company or a Swedish cooperative must be authorized as an exchange only if

- the articles of association or the statutes do not deviate from this act or any other regulation,
- the planned activities may be assumed to fulfill the requirements of fairness, and
- the company will fulfill the remaining conditions of this act.

The articles of association or the statutes of an exchange shall be approved by the SFSA in connection with the authorization. Any decision of changing of the articles or the statutes must not be registered before the approval by the SFSA.

SFSA has regulated by advisory provisions (FFFS 1992:21) how to apply for authorization as an exchange or a market place or for license as a clearing house according to the new exchange and clearing act.

In this new act (4 chapt. 1§) listing and trade in a certain financial instrument must not be begun until the exchange or the market place has approved this product.

Options and futures may be approved for listing and trading only if there is a widespread trade at reliable pricing of the asset(s) underlying the option or futures contracts. Regarding to the two forms of regulated markets that the new act accepts there is no difference concerning options and futures, nor anyone concerning domestic versus foreign contracts.

In its advisory provisions concerning options and futures SFSA has according to the government bill (1991/92:113) stipulated initial and current information about listing requirements of options, futures and other financial products by the exchange or the market place.

NZSC

There are no specific recognition criteria laid down in the Securities Amendment Act 1988 with regard to declaration as an authorised futures exchange. The Securities Commission may, by notice in the Gazette, declare a body corporate to be an authorised futures exchange. New Zealand Futures & Options Exchange Limited is required to maintain a programme of self-regulation for all categories of futures dealers in New Zealand in respect of all futures contracts, whether placed on any market of New Zealand Futures & Options Exchange Limited or on any other market, whether in New Zealand or elsewhere.