CFTC Once the determination is made that a financial intermediary is subject to regulation in the U.S., the applicable principle of regulation is that of national treatment. That is, under U.S. laws, the foreign firms are treated no less advantageously than U.S. firms in terms of the regulations which may be applicable to their activities. However, depending on the degree of nexus with the U.S., the CFTC's regulatory interest may vary.

"Foreign brokers" are defined as entities located outside the U.S. that carry an account in futures or options for or on behalf of non-U.S. persons on U.S. markets through a carrying FCM. Under CFTC regulations, foreign brokers are not required to register with the CFTC as FCMs, however, they remain subject to, among other things, the reporting requirements in Parts 15-21 of the CFTC regulations.

The CFTC's Part 30 rules govern the offer or sale of any foreign futures or option contract to a person resident in the U.S. Although the rules apply to any person, U.S. or non-U.S., who engages in the above-referenced activities with respect to a customer resident in the U.S., the rules contain an exemptive provision pursuant to which the CFTC may exempt a financial intermediary located outside the U.S. from the application of certain of the CFTC's rules and regulations based upon substituted compliance by the financial intermediary with the comparable regulatory requirements imposed by the foreign jurisdiction. See rule 30.10. To be eligible for rule 30.10 exemptive relief, a firm must also be doing business with customers in the foreign jurisdiction in which it is located and to whose regulation it is subject. In considering an exemption request, the CFTC may take into account, among other things, the extent to which U.S. persons are permitted to engage in futures-related activities, or U.S. contracts are permitted to be offered, in the jurisdiction from which an exemption is sought.

Clarifying the applicability of the rule 30.10 exemption to firms located outside the United States, on October 28, 1992, the CFTC issued an order permitting firms that have rule 30.10 relief to engage in limited marketing of foreign futures and option contracts to qualified eligible participant (QEP) type customers from locations within the United States through their employees or other representatives. The release presumes that up to 30 days of direct activity can be permitted as to 30.10 qualified firms without implicating the U.S. registration requirement. 57 Fed. Reg. 49644 (November 3, 1992).

See also section I.B.2.(a) above.

SEC

As discussed in I.B.1. above, the Commission exempts certain foreign broker-dealers from U.S. registration based on the location of the broker-dealer and on the limitation of their customers to institutional investors. The Commission does not differentiate its regulation of registered broker-dealers based on the location of the broker-dealer or on the location or type of its clients. Non-resident broker-dealers are required, however, to provide their books and records in the U.S. upon request.

SIB

It is the activity of carrying on investment business in the UK (e.g., soliciting business or advising UK customers) in the absence of an exemption that triggers the application of the FSA. (Solicitation is defined in neither the FSA nor the Conduct of Business Rules (CBRs)).

The principle of "national treatment", briefly stated, means that foreign firms are treated no less advantageously than domestic firms in terms of the regulations which may be applicable to their activities. Once it is determined that a financial intermediary is subject to regulation in the UK and, if not otherwise exempt, requires authorisation to carry on investment business, the principle of "national treatment" applies and foreign firms are treated in the same way as domestic firms.

The UK has entered into lead regulation agreements regarding the sharing of financial information, with the regulators or relevant authorities of 31 foreign countries. The foreign regulator takes the lead in relation to financial supervision and provides financial information, on the basis agreed, concerning the overseas entity which could be relevant to the UK entity. The UK regulator continues to monitor for its purposes compliance with CBRs and Client Money Regulations.

Any arrangements which are developed between UK and foreign regulators and/or supervisors for purposes of the financial regulation of intermediaries operating from overseas through a branch in the UK will not displace or otherwise overcome the need for the overseas entity to acquire authorisation where it is undertaking investment business in the UK and an exemption is not available.

In relation to the authorisation of firms undertaking investment business in the UK, where authorisation is required, there is no alternative to membership in an SRO or direct authorisation from SIB.

A certain overlap of SRO scope minimizes the need for a firm to obtain multiple SRO memberships, however, in circumstances where a firm is compelled to obtain authorisation through membership in more than one SRO, arrangements will be made for one of those SROs to adopt a lead in the regulation of the activities of the firm in question.

COB

MOF

No differences exist in the regulations applied to Japanese securities companies and foreign securities companies with branch offices in Japan.

ASC

A non-Australian financial intermediary operating in Australia is subject to the same requirements to which an Australian financial intermediary is subject.

OSC

All dealers carrying on business with Ontario residents are regulated the same way.

CVMQ

The Commission may, on such conditions as it may determine, exempt a person or a group of persons from certain requirements where it considers the exemption not to be detrimental to the protection of investors.

Exemption from registration:

- A person who trades in futures contracts solely for the account of hedgers is exempted from registration as a dealer with the Commission to carry on business as an intermediary in the trading of futures contracts, under the following conditions:

-- the person is an associate member of the ME;

-- the person is subject to the by-laws and rules of the ME concerning futures contracts; and

-- the person responsible for the trading of the contracts meets the qualification requirements of the ME.

- Section 157 of the Securities Act also specifies that a dealer or adviser who deals only with persons likely to be sophisticated purchasers within the meaning of Section 44 is exempt from registration. Pursuant to Section 44 the following persons are sophisticated purchasers to the extent that they subscribe for or purchase securities for their own account:

-- a company of which all of the voting securities belong to the Gouvernment du Quebec, the Government of Canada or the government of the Canadian province, or to one of their departments or agencies;

-- a bank governed by the Act respecting banks and banking (S.C., 1980-81-82, chapter 40) or by the Quebec Savings Banks Act (R.S.C., 1970, chapter B-4);

-- a loan and investment society incorporated under an Act of Quebec or registered in accordance with the Loan and Investment Societies Act (R.S.Q., chapter S-30);

-- a federation of savings and credit unions within the meaning of the Savings and Credit Unions Act (R.S.Q., chapter C-4);

-- the Caisse centrale Desjardins du Quebec established under the Act respecting the Confederation des caisses pupulaires et d'economie Desjardins du Quebec (1971, chapter 80);

-- a trust company registered under the Trust Companies Act (R.S.Q., chapter C-41);

-- an insurance company licensed under the Act respecting insurance (R.S.Q., chapter A-32);

-- a municipal corporation, an urban community or regional community, a school corporation, the Conseil scolaire de l'ile de Montreal, an intermunicipal management board or a public agency or body established pursuant to an Act of the Government of Canada or of the government of a Canadian province;

-- a dealer or an adviser registered in conformity with section 148;

-- a pension fund with assets of over $100 000 000 and governed by the Act respecting supplemental pension plans (R.S.Q., chapter R-17) or the Pension Benefits Standards Act (R.S.C., 1970, chapter P-8);

-- the subsidiary of a person mentioned in paragraph 2, 6 or 7, to the extent that such person holds all the voting securities;

-- a person designated in an order of the Commission on such conditions as it may determine.

ME - Criteria of admission

To be admitted as a member of the ME, the applicant must obtain a membership vacancy from the exchange or a membership transfer from a member or former member.

Among other criteria, a member corporation:

- shall be a corporate entity having as its principal business that of a broker or dealer in securities or commodity futures and it shall be active in such business to an extent acceptable to the ME;

- shall be incorporated under the laws of Canada or one of the provinces thereof, unless it is a member corporation that does not deal with the public in Canada and is registered with a securities commission or another regulatory organization recognized by the ME;

- at least 40 percent of the members of the board of directors of a member corporation shall be industry members.

The ME rules specify also certain requirements to become an Associate Member for TCO Options or to become a correspondent member for International Options Clearing House (IOCC) options.

SFC

Corporate members of HKFE must be incorporated in Hong Kong.

SVS

In consideration of the answer in I.B.1, it doesn't matter whether the intermediary's capital is foreign or local since it is only necessary that they be legally constituted in Chile in order to operate.

FSA

Formally there are differences in the regulation to a certain extent due to separate legislation for banks, securities firms etc. Practically, FSA executes its surveillance in roughly spoken the same way towards the different kinds of companies under supervision, i.e., reporting, spot investigation, management contacts etc. On the other hand, there are no differences in this relationship between Swedish and foreign intermediaries.

NZSC

All dealers carrying on business with New Zealand residents are regulated the same way.

(b) Are there differences in the regulations applied based on the type or location of clients with which the intermediary does business?

CFTC

The CFTC rules and regulations generally do not distinguish intermediaries based on the type of clients. (But see definition of proprietary accounts and rules 4.7 and 4.8 discussed below.) The location of the client is relevant because of the need to establish a nexus with the U.S.

In order to trade for U.S. customers on domestic or foreign markets, firms must either register or be exempt from registration. But see discussion of staff relief in section I.B.2.(a) above.

On July 30, 1992, the CFTC approved new rules exempting CPOs who offer pool participation interests to certain highly qualified investors defined for purposes of the rules as QEPs and CTAs who direct or guide the accounts of highly qualified investors defined for purposes of the rule as "qualified eligible clients" (QEC) from certain disclosure, reporting, and recordkeeping requirements. See rule 4.7, 57 Fed. Reg. 34853 (August 7, 1992). See section II.B.3.(c).

In order to trade for non-U.S. customers on U.S. markets, whether the full panoply of customer protections is applicable or not is a function of the location of the financial intermediary.

[Transactions on non-U.S. markets for non-U.S. customers are deemed to be nonregulated transactions under the CFTC's regulatory system.]

SEC

The SEC does not differentiate its regulation of registered broker-dealers based on the type or location of the broker-dealer's customers.

SIB

In January 1991, SIB made 40 Core of Conduct of Business Rules which are designated as applying to members of all SROs. These Core CBRs only come into effect for members of an SRO when that SRO has in place adequate rules supporting the Core Rules and SIB has commenced the Core CBRs for members of that SRO. The Core CBRs have simplified the categories of investors but given that they have not yet been commenced for firms directly regulated by SIB, we consider the categories of investors in SIB's current CBRs.

SIB's CBRs differentiate between several types of investors. Briefly, these are:

i) "Business investor": this category includes government and public authorities, large companies (minimum net assets of £500,000, if it is a body corporate, or £5 million, if it is not a body corporate) and trustees of large trusts (minimum trust assets of £10 million (CBRs, 1.05));
ii) "Experienced investor": this means an individual who, by virtue of the size and frequency of transactions, can be reasonably expected to understand the nature of every transaction within that description of transaction and the risks involved (CBRs, 1.06); and
iii) "Professional investor": this includes a person who carries on business which is investment business or which would be investment business if it were not for the exemptions that might otherwise be available (CBRs, 1.07).

A private customer is an investor who is not identified in (i) through (iii), above.

Business, experienced and professional investors may have margined transactions effected on their behalf by authorised firms whether exchange-traded or off-exchange and, in the former case, regardless of the recognition status of the exchange (CBRs 11.04).

As noted in the response to question I.A.2.(a), there are restrictions with respect to the transactions which may be effected for private investors which are not undertaken in the context of discretionary portfolio management; generally, these transactions must be undertaken on RIEs, ROIEs or DIEs (CBRs 11.04).

In so far as the location of customers is concerned, this is not a factor which imports a differentiation in applicable regulation: once it is established that the authorised firm is undertaking investment business in the UK and is dealing on behalf of a customer, the applicable rules must be respected regardless of that customer's nationality or where he is located.

The CBRs contain specific rules in relation to transactions undertaken for "connected customers". This term is applied to, inter alia: partners; employees; appointed representatives; controllers; and officers of a firm. It includes, as well, spouses and children of those persons identified above and persons acting as trustee of a trust, the beneficiaries of which he knows (or ought to know) include any of the above, including spouses and children. "Connected companies" are also connected customers. A connected company is a company where any of the following arrangements exist: the same person is the controller of each company; where a group of two or more persons are controllers of each company and the group consists of the same persons or could be regarded as consisting of the same persons by treating as a member of either group a member's close relative or a person with whom that member is in partnership or a company of which that member is an officer or controller; or where both companies are members of the same "group" ("group" includes any body corporate which is a related company, within the meaning of paragraph 92 of Schedule 4 to the Companies Act 1985, of any member of the group or would be such a related company if the member of the group were a company within the meaning of that Act) (CBRs, 1.04).

If the firm in question is not a company, a connected company would be a company which is controlled: by the firm; by a partner of the firm; by a close relative of a partner of the firm; or collectively by any of the partners of the firm and their close relatives (CBRs, 1.04).

Generally, a firm shall not, as agent, effect a transaction in relation to an investment of any description, for a customer whom the firm knows or ought reasonably to know to be a connected customer dealing on his own account or a person dealing on the account of a third person who, if the firm dealt with him direct, would be a connected customer of the firm, when it has an instruction from a customer who is not a connected customer or when it has made a decision on behalf of a customer to effect a transaction in relation to an investment of that description and that instruction or decision has not been executed (CBRs, 5.15(2)). For these purposes, a firm may, but need not, treat an employee (including that employee's spouse and children) or the trustee of a trust whose beneficiaries include such persons, as not being a connected customer (CBRs, 5.15(2)).

Part 14 of the CBRs addresses restrictions on dealings by officers and employees (see item II.B.2.(d) below). Generally, an officer or employee of a firm should not effect, on his own account or on that of a person connected with him, any transaction relating to an investment in relation to which the firm carries on investment business unless he does so with the consent of the firm, and he informs the firm forthwith on effecting the transaction (CBRs, 14.03).

For the purposes of these rules, a person is connected with an officer or employee of a firm if he is so connected with that person by reason of any domestic or business relationship that officer or employee can reasonably be expected to have influence over that person's judgement as to his investment or to be consulted before any such judgement is made (CBRs, 14.01).

COB

MOF

No differences exist in the regulations applied to licensed securities companies, according to the type or location of their clients.

ASC

In respect to the type of clients there is a difference. Specific futures markets may be declared exempt by the Minister pursuant to s.1127 of the CL generally upon the application of certain institutions such as Banks or Trading Houses wishing to engage in those markets on behalf of clients who are hedgers.

There are no differences in the application of regulations based upon the location of the financial intermediary's clients.

OSC

There is an exemption from the registration requirement for business done with hedgers.

CVMQ

SFC

There are no differences in the regulations applied based on the type or location of clients with which the intermediary does business.

SVS

In general, there is no difference between national and foreign clients. However, there is a difference with respect to taxes, which is regulated by the Internal Revenue Service of Chile.

FSA

There are differences. For instance: banks are allowed to give in blanco credits to their customers but securities firms are not; banks are entitled to take deposits from the public but securities firms are not. Formally there are no differences based on the type or location of customers.

NZSC

There are no differences in the application of the regulations based upon the location of the financial intermediary's clients.