CFTC Staff Letter 98-45 (No-Action): DTB Terminals in CME Booths

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. . .
U.S. COMMODITY FUTURES TRADING COMMISSION
DMSIONOF·
1RADING & MARKETS
. Throo Lafayatto Contra
11"55 21st Stroot. NW, Washington. DC 20581
Totophono: (202) 418·5430
Facslm11a: (202) 418~6
May9, 1997
Volker Potthoff: Senior Vice President
Dr. Ekkehard Jask:ulla
Deutsche Borse AG ·
Borsenplatz 7-11
60284 FrankfurtJM:ain
Gennany
Re: Placement ofDTB Tenninals in Member Finn Booths at the CME Dear Messrs Potthoff and Jaskulla:
By letter dated March 18, 1997 you requested tha~ the Division ofTrading and Markets ("DiVision") of the Commodity Futures Trading Commission ("Commi~sion") confirm that it would not recommend 'that the Commission initiate an enforcement action against the Deutsche Tenninborse ("DTB") in connection with. the installation ofDTB terminals on the floor of the

• Chicago Mercantile Exchange ("CME") in ·booths ofDTB member-·firms who are also CME
  . members, pursu,ant to a Letter of Intent ("LOY') signed on January 13, 1997 by the Clvffi and the. Deutsche Borse AG, the operat~g company for the DTB.1 ..4 As you note in·your letter, on February 29, 1996 the Division issued a no-action letter (the "DTB Letter") that permitted DTB members ~o install and operate DTB computer terminals in the offices ofD'n3 members in the United States and execute transactions in certain DTB contracts without the·DTB being designated as a contract market pursuant to sectionS of the Commodity . Exchange Act \CEA"). The reliefi~sued.pursuant to the DTB Letter, however, was expressly limited to the placement ofDTB tenninals in the U.S. offices ofDTB members (see DTB Letter,
• condition no. 1 ). You now propose that the r(ilief granted in the DTB Le~er be expanded in order
  to permit the installation ofDTB terminals in DTB member finn booths on the floor of the CME. Based on your March 18th letter, the January 13, 1997 LOI and a March 10, 1997letter submitted by the CME.concerning the Sa.me matter, we understand the following. Only DTB . contracts authorized or permissible for trading by United States persons will be eligible to be traded from the DTB terminals located in booths at the CME. The.terminals will be located in the booths of firms that are members of the DTB. The persons operating the tenninals must qualify
• ' 1 By letter dated May 9, 1997, the Division issued a letter to the CME confirming that the Ctvffi will not be
  required to amend its rules to accommodate the LOI. ·

Volker Potthoff
-·- ---. ~- --. -·- ··~-·--· ------- ····---·-·~- . as ~registered traders" of a DTB member finn under DTB rules. The trading ofthe DTB contracts from these terminals, and the cl~ce and settlement of such contracts, Will be governed by DTB ruleS. No C.ME contracts will be traded on the DTB tenninals. The CME will not apply to be designated as a contract market for trading the DTB contracts. There will be. no open outcty trading of such contracts on the CME floor. Trades in the DTB contracts will not be submitted to . the CME Clearing Hous'e for clearance ·and settlement, and the CME Clearing House guarantee will not apply to such contfru?tS. CME indiVidual members will be able to trade DTB contracts only in the following ways. If the CME individual member is· qualified under DTB rules as a registered trader affiliated with a DTB member firm, then the CME member can act as a terminal operator to enter his own orders from the DTB men:tber finn's terminal. If the CME individual member is not qualified as a registered trader under DTB rules, then he can enter orders as a customer by giving the order-S to an employee of the DTB member finn who is a registered trader under DTB rules and who will

• enter the orders into the system. DTB members soliciting or accepting customer orders must be
  registered with the Commission as a futures commission merchant ("FCM").
  CME Rule 505 provides that only CME cleanng members can have booth space on the CME trading floor, and the CME stated in its March 10, 1997letter that it did not intend to amend that rule. Therefore, in order for a firm to be eligible to install a DTB tenninal in a.booth on the CME floor, the firm. must be both ~ CME clearing member and a DTB member firm . . The Division believes that the regulatory purposes of the CEA and theDTB Letter would not be adversely affected ifDTB. member finns installed DTB terminals on the floor of the CME at booths ofOvffi members who are also members of the DTB as describe:d above and subject to compliance with the tenus and conditions of the DTB Letter as modified herein. For example, no cdstomer trading will be permitted from the DTB tenninals unless the DTB member firm is registered as a FCM We also note that DTB ·teffiunals located in the United States have. a systems capability to electronically "time-stamp" the execution of customer orders so that an electronic "audit trail" can be maint.alned. It is our understanding ·therefore that FCMs. utilii:ing the Telief set forth herein will be able to meet the requirements of Commission rule ~.35(a-l) concerning the receipt and transmittal of orders for execution by FCMs (and introducing brokers '1Bs"))2 and to maintain an electronic record of order execution consistent with the DTB systeni's capabilities. Accordingly, the Division will not recommend any enforcement action against the DTB in connection with the placement ofDTB computer tenninals in the booths ofDTB member firms located 2 Commission rule L.35(a-l)(l) requires each FCM and ID that receives a customer order to prepare a written record of such order immediately upon receipt of the order. The recQrd must contain the account identification, the order number, the date and time (to the nearest minute) that the order was received, and, for option customer order-s, the time (to the nearest minute) that the order was transmitted for execution.

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Volker Potthoff · on the floor of the CME who are also CME members as descnoed above, subject to compliance with all of the terms and conditions set forth in the DTB Letter and as extended hereilt

• The vie\vs expressed ~this letter are based on the representations that you have ~e in your
  . March 18,· 1997 letter and our understanding of the facts as described above. Any different, changed or omitted filets or conditions x,night require the Division to reach a different conclusion and we therefore request that you notify us immediately if the facts change in any way from those as represented in your letter and a5 presented in this letter. You are reminded. that the D1B Letter requires quarterly volume reports with respect to all DTB screens located in U.S.locations. lJl addition. the Commission may reassess the no-action position from time to time in connection with its ev3luation of this and other infoxrn.ation. In all other respects, the terms and conditions of the DTB Letter continue in effect. The DTB must c6ntiflue to comply with all applicable Commission rules, regulations and orders and the tenns and conditions set forth in.the DTB Letter. In addition, DTB members who are also registered FCMs must comply with all the provisions of the CEA and Conunission rules thereunder applicable to FCMs engaged in foreign futures and options transactions. Moreover, the position herein is strictly limited to issues arising· under. the CEA, and in this respect, we note particularly that this letter does not address any issues which might arise under the Sectmties Act of 1933, the Securities Exchange Act of 1934, and other applicable federal securities laws or rules thereunder: · The position adopted herein is solely that of the Division and does not necessa,rily represent the position of the Corlunission or any other office or division of the Commission•s rurlf. If you have further questions, please do not hesitate to contact me, Jane C. Kang or Warren Gorlick of the Division at (202) 418-5430.