Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Proposed Rules 65607

Issued in Burlington, MA, on December 13, SUPPLEMENTARY INFORMATION: originally adopted, the Rule provided 1995. I. Introduction that the debt obligations of Great Britain John J. Boyce, Jr., and Canada would be deemed to be Acting Manager, Air Traffic Division, New Under the Commodity Exchange Act exempted securities, solely for the England Region. (‘‘CEA’’), it is unlawful to trade a futures purpose of permitting the offer, sale, [FR Doc. 95–30917 Filed 12–19–95; 8:45 am] contract on any individual security and confirmation of ‘‘qualifying foreign unless the security in question is an BILLING CODE 4910±13±M futures contracts’’ on such securities. exempted security (other than a The securities in question were not municipal security) under the Securities eligible for the exemption if they were Act of 1933 (‘‘Securities Act’’) or the registered under the Securities Act or SECURITIES AND EXCHANGE Securities Exchange Act of 1934 COMMISSION were the subject of any American (‘‘Exchange Act’’). Debt obligations of depositary receipt so registered. A foreign governments are not exempted 17 CFR Part 240 futures contract on such a debt securities under either of these statutes. obligation is deemed under the Rule to [Release No. 34±36580, International Series The Securities and Exchange be a ‘‘qualifying foreign futures Release No. 900, File No. S7±34±95] Commission (‘‘SEC’’ or ‘‘Commission’’), contract’’ if the contract is deliverable however, has adopted Rule 3a12–8 RIN 3235±AG68 outside the United States and is traded under the Exchange Act to designate on a board of trade.3 debt obligations issued by certain Exemption of the Securities of the The conditions imposed by the Rule foreign governments as exempted Federative Republic of Brazil, the were intended to facilitate the trading of securities under the Exchange Act solely Republic of Argentina, and the futures contracts on foreign government for the purpose of marketing and trading Republic of Venezuela Under the securities in the United States while futures contracts on those securities in Securities Exchange Act of 1934 for requiring offerings of foreign the United States. As amended, the Purposes of Trading Futures Contracts government securities to comply with foreign governments currently on Those Securities the federal securities laws. Accordingly, designated in the Rule are Great Britain, the conditions set forth in the Rule were AGENCY: Securities and Exchange Canada, Japan, Australia, France, New designed to ensure that, absent Commission. Zealand, Austria, Denmark, Finland, registration, a domestic market in ACTION: Proposed rule amendment and The Netherlands, Switzerland, unregistered foreign government solicitation of public comments. Germany, the Republic of Ireland, Italy, securities would not develop, and that Spain, and Mexico (the ‘‘Designated markets for futures on these instruments SUMMARY: The Commission proposes for Foreign Governments’’). As a result, would not be used to avoid the comment an amendment to Rule 3a12– futures contracts on the debt obligations securities law registration requirements. 8 (‘‘Rule’’) that would designate debt of these countries may be sold in the In particular, the Rule was intended to obligations issued by the Federative United States, as long as the other terms ensure that futures on exempted Republic of Brazil (‘‘Brazil’’), the of the Rule are satisfied. sovereign debt did not operate as a Republic of Argentina (‘‘Argentina’’), The Commission today is soliciting surrogate means of trading the and the Republic of Venezuela comments on a proposal to amend Rule unregistered debt. (‘‘Venezuela’’) (collectively the 3a12–8 (17 CFR 240.3a12–8) to add the Subsequently, the Commission ‘‘Proposed Countries’’) as ‘‘exempted debt obligations of Brazil, Argentina, amended the Rule to include the debt securities’’ for the purpose of marketing and Venezuela to the list of Designated securities issued by Japan, Australia, and trading of futures contracts on those Foreign Government securities that are France, New Zealand, Austria, securities in the United States. The exempted by Rule 3a12–8. To qualify for Denmark, Finland, the Netherlands, amendment is intended to permit the exemption, futures contracts on debt Switzerland, Germany, Ireland, Italy, futures trading on the sovereign debt of obligations of the Proposed Countries Spain, and, most recently, Mexico.4 the Proposed Countries. This change is would have to meet all the other not intended to have any substantive existing requirements of the Rule. September 23, 1982) (statements of Representatives effect on the operation of the Rule. Daschle and Wirth)). II. Background 3 As originally adopted, the Rule required that the DATES: Comments should be submitted Rule 3a12–8 was adopted in 1984 1 board of trade be located in the country that issued by January 19, 1996. the underlying securities. This requirement was pursuant to the exemptive authority in eliminated in 1987. See Securities Exchange Act ADDRESSES: All comments should be Section 3(a)(12) of the Exchange Act in Release No. 24209 (March 12, 1987), 52 FR 8875 submitted in triplicate and addressed to order to provide a limited exception (March 20, 1987). Jonathan G. Katz, Secretary, Securities from the CEA’s prohibition on futures 4 As originally adopted, the Rule applied only to and Exchange Commission, 450 Fifth 2 British and Canadian government securities. See overlying individual securities. As Original Adopting Release, supra note 1. In 1986, Street, N.W., Washington, D.C. 20549. the Rule was amended to include Japanese All comments should refer to File No. 1 See Securities Exchange Act Release Nos. 20708 government securities. See Securities Exchange Act S7–34–95, and will be available for (‘‘Original Adopting Release’’) (March 2, 1984), 49 Release No. 23423 (July 11, 1986), 51 FR 25996 public inspection and copying at the FR 8595 (March 8, 1984) and 19811 (‘‘Original (July 18, 1986). In 1987, the Rule was amended to Proposing Release’’) (May 25, 1983), 48 FR 24725 include debt securities issued by Australia, France Commission’s Public Reference Room, (June 2, 1983). and New Zealand. See Securities Exchange Act 450 Fifth Street, N.W., Washington, D.C. 2 In approving the Futures Trading Act of 1982, Release No. 25072 (October 29, 1987), 52 FR 42277 FOR FURTHER INFORMATION CONTACT: Congress expressed its understanding that neither (November 4, 1987). In 1988, the Rule was amended the SEC nor the Commodity Futures Trading to include debt securities issued by Austria, James T. McHale, Attorney, Office of Commission (‘‘CFTC’’) had intended to bar the sale Denmark, Finland, the Netherlands, Switzerland, Market Supervision (‘‘OMS’’), Division of futures on debt obligations of the United and West Germany. See Securities Exchange Act of Market Regulation (‘‘Division’’), Kingdom of Great Britain and Northern Ireland to Release No. 26217 (October 26, 1988), 53 FR 43860 Securities and Exchange Commission U.S. persons, and its expectation that (October 31, 1988). In 1992 the Rule was again administrative action would be taken to allow the amended to (1) include debt securities offered by (Mail Stop 5–1), 450 Fifth Street, N.W., sale of such futures contracts in the United States. the Republic of Ireland and Italy, (2) change the Washington, D.C. 20549, at 202/942– See Original Proposing Release, supra note 1, 48 FR country designation of ‘‘West Germany’’ to the 0190. at 24725 (citing 128 Cong. Rec. H7492 (daily ed. Continued 65608 Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Proposed Rules

III. Discussion outside the United States,9 and the of futures contracts on foreign The Chicago Mercantile Exchange contracts be traded on a board of trade) government debt obligations. The (‘‘CME’’) has proposed that the would continue to apply. Commission does not anticipate that the In determining whether to amend the Commission amend Rule 3a12–8 to proposed amendment would result in Rule to add new countries, the include the sovereign debt of the any direct cost for U.S. investors or Commission has considered whether others. The proposed amendment would Proposed Countries.5 The CME intends there is an active and liquid secondary impose no recordkeeping or compliance to develop a futures contract market in trading market in the particular burdens, and merely would provide a Brady bonds issued by the Proposed sovereign debt. There appears to be an limited purpose exemption under the Countries.6 Brady bonds are issued active and liquid market in the debt federal securities laws. The restrictions pursuant to the Brady plan which instruments of the Proposed Countries. imposed under the proposed allows developing countries to According to the CME, as of December amendment are identical to the restructure their commercial bank debt 31, 1993, the total public and publicly restrictions currently imposed under the by issuing long-term dollar guaranteed debt 10 of Brazil, Argentina, terms of the Rule and are designed to denominated bonds.7 The Commission and Venezuela was approximately protect U.S. investors. understands that Brady bonds issued by US$86 billion, US$55 billion, and Section 23(a)(2) of the Exchange Act the Proposed Countries are currently US$74 billion, respectively.11 Moreover, requires the Commission in amending traded primarily in the over-the-counter the cash market for Brady bonds issued rules to consider potential impact on market in the United States. by the Proposed Countries evidences competition. Because the proposal is Under the proposed amendment, the relatively active trading. Based on data intended to expand the range of existing conditions set forth in the Rule provided by the CME, the total 1994 financial products available in the (i.e., that the underlying securities not trading volume in the Brady bonds of United States, the Commission 8 be registered in the United States, the Brazil, Argentina, and Venezuela was preliminarily believes that the proposed futures contracts require delivery approximately US$371 billion, US$360 amendment to the Rule will not impose billion, and US$320 billion, any burden on competition not ‘‘Federal Republic of Germany,’’ and (3) replace all respectively.12 necessary or appropriate in furtherance references to the informal names of the countries listed in the Rule with references to their official In light of the above data, the of the purposes of the Exchange Act. Commission believes preliminarily that names. See Securities Exchange Act Release No. IV. Request for Comments 30166 (January 6, 1992), 57 FR 1375 (January 14, the debt obligations of the Proposed 1992). In 1994, the Rule was amended to include Countries should be subject to the same The Commission seeks comments on debt securities issued by the Kingdom of Spain. See regulatory treatment under the Rule as the desirability of designating the debt Securities Exchange Act Release No. 34908 (October 27, 1994), 59 FR 54812 (November 2, 1994). Finally, the debt obligations of the Designated securities of the Proposed Countries as the Rule was amended to include the debt securities Foreign Governments. Moreover, the exempted securities under Rule 3a12–8. of Mexico. See Securities Exchange Act Release No. trading of futures on the sovereign debt Comments should address whether the 36530 (November 30, 1995), 60 FR 62323 of Brazil, Argentina, and Venezuela trading or other characteristics of the (December 6, 1995) (‘‘Mexico Adopting Release’’). Proposed Countries’ debt warrant an 5 See Letter from William J. Brodsky, President should provide U.S. investors with a and Chief Executive Officer, CME, to Arthur Levitt, vehicle for hedging the risks involved in exemption for purposes of futures Jr., Chairman, Commission, dated November 10, the trading of the underlying sovereign trading. Commentators may wish to 1995 (‘‘CME petition’’). debt of the Proposed Countries. discuss whether there are any legal or 6 The marketing and trading of foreign futures In addition, the Commission policy reasons for distinguishing contracts is subject to regulation by the CFTC. In preliminarily believes that the proposed particular, Section 4b of the CEA authorizes the between the Proposed Countries and the CFTC to regulate the offer and sale of foreign amendment offers potential benefits for Designated Foreign Governments for futures contracts to U.S. residents, and Rule 9 (17 U.S. investors. If adopted, the proposed purposes of the Rule. The Commission CFR 30.9), promulgated under Section 2(a)(1)(A) of amendment would allow U.S. boards of also solicits comments on the costs and the CEA, is intended to prohibit fraud in connection trade to offer in the United States, and with the offer and sale of futures contracts executed benefits of the proposed amendment to on foreign exchanges. Additional rules promulgated U.S. investors to trade, a greater range Rule 3a12–8. Specifically, the under 2(a)(1)(A) of the CEA govern the domestic Commission requests commentators to offer and sale of futures and options contracts 9 The CME’s proposed futures contracts will be address whether the proposed traded on foreign boards of trade. These rules cash-settled (i.e., settlement of the futures contracts amendment would generate the require, among other things, that the domestic offer will not entail delivery of the underlying and sale of foreign futures be effected through the securities). The Commission has recognized that a anticipated benefits, or impose any costs CFTC registrants or through entities subject to a cash-settled futures contract is consistent with the on U.S. investors or others. Finally, the foreign regulatory framework comparable to that requirement of the Rule that delivery must be made Commission seeks comment on the governing domestic futures trading. See 17 CFR outside the United States. See Securities Exchange general application and operation of the 30.3, 30.4, and 30.5 (1991). Act Release No. 25072 (October 29, 1987), 52 FR 7 There are several types of Brady bonds, but ‘‘Par 42277 (November 4, 1987). Rule given the increased globalization of Bradys’’ and ‘‘Discount Bradys’’ represent the great 10 Public debt is an external obligation of a public the securities markets since the Rule majority of issues in the Brady bond market. In debtor, including the national government, a was adopted. general, both Par Bradys and Discount Bradys are political subdivision (or any agency of either) and secured as to principal at maturity by U.S. Treasury autonomous public bodies. Publicly guaranteed V. Regulatory Flexibility Act zero-coupon bonds. Additionally, usually 12 to 18 debt is an external obligation of a private debtor Certification months of interest payments are also secured in the that is guaranteed for repayment by a public entity. form of a cash collateral account, which is 11 See Letter from Carl A. Royal, Senior Vice Pursuant to Section 605(b) of the maintained to pay interest in the event that the President and Special Counsel, CME, to James T. Regulatory Flexibility Act, 5 U.S.C. sovereign debtor misses an interest payment. McHale, Attorney, OMS, Division, Commission, § 605(b), the Chairman of the 8 The Commission notes that while no Brady dated November 30, 1995 (citing the World Bank’s bonds of Proposed Countries have been registered 1995 World Debt Tables as the source for this Commission has certified that the in the United States, certain sovereign debt issues information) (‘‘November 30 letter’’). amendment proposed herein would not, of Argentina and Venezuela have been so registered. 12 See November 30 letter, supra note 11. As if adopted, have a significant economic The trading of futures on U.S-registered debt mentioned earlier, the Commission recently impact on a substantial number of small securities of Argentina and Venezuela would not be amended the Rule to include the debt securities of exempted under Rule 3a12–8 from the CEA’s Mexico. The total 1994 trading volume in Mexican entities. This certification, including the general prohibition on futures overlying individual Brady bonds was approximately US$282.3 billion. reasons therefor, is attached to this securities. See Mexico Adopting Release, supra note 4. release as Appendix A. Federal Register / Vol. 60, No. 244 / Wednesday, December 20, 1995 / Proposed Rules 65609

VI. Statutory Basis for the purpose of trading futures on such Department of State, Washington, D.C. securities, will not have a significant 20520–5816. The amendment to Rule 3a12–8 is economic impact on a substantial number of FOR FURTHER INFORMATION CONTACT: being proposed pursuant to 15 U.S.C. small entities for the following reasons. First, §§ 78a et seq., particularly Sections the proposed amendment imposes no record- Richard T. Miller, Office of Maritime 3(a)(12) and 23(a), 15 U.S.C. keeping or compliance burden in itself and and Land Transport, Department of §§ 78c(a)(12) and 78w(a). merely allows, in effect, the marketing and State, (202) 647–6961. trading in the United States of futures SUPPLEMENTARY INFORMATION: On List of Subjects in 17 CFR Part 240 contracts overlying the government debt November 24, 1995, the Department of Reporting and recordkeeping securities of the Proposed Countries. Second, State issued a proposed rulemaking (60 requirements, Securities. because futures contracts on the sixteen countries whose debt obligations are FR 58026) updating the list of longshore VII. Text of the Proposed Amendment designated as ‘‘exempted securities’’ under work by particular activity, of countries the Rule, which already can be traded and where performance of such a particular For the reasons set forth in the marketed in the U.S., still will be eligible for activity by crewmembers aboard United preamble, the Commission is proposing trading under the proposed amendment, the States vessels is prohibited by law, to amend Part 240 of Chapter II, Title 17 proposal will not affect any entity currently regulation, or in practice in the country. of the Code of Federal Regulations as engaged in trading such futures contracts. The crews of ships registered in or follows: Third, because the level of interest presently owned by nationals of the countries on evident in this country in the futures trading the list may not perform the activities PART 240ÐGENERAL RULES AND covered by the proposed rule amendment is enumerated on the list. Citing the need REGULATIONS, SECURITIES modest and those primarily interested are for more time to assess the full effects EXCHANGE ACT OF 1934 large, institutional investors, neither the availability nor the unavailability of these of the proposed rule, a number of 1. The authority citation for part 240 futures products will have a significant parties have requested an extension of continues to read in part as follows: economic impact on a substantial number of the comment period. Consequently, the small entities, as that term is defined for Authority: 15 U.S.C. 77c, 77d, 77g, 77j, Department will extend the deadline by broker-dealers in 27 CFR 240.0–10 and to the 77s, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 30 days, from December 26, 1995 to extent that it is defined for futures market 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 78q, January 26, 1996. participants in the Commodity Futures 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a–20, 80a– Trading Commission’s ‘‘Policy Statement and (8 U.S.C. 1288, Pub. L. 010–649, 104 Stat. 23, 80a–29, 80a–37, 80b–3, 80b–4 and 80b– Establishment of Definitions of ‘Small 4878) 11, unless otherwise noted. Entities’ for Purposes of the Regulatory Dated: December 14, 1995. * * * * * Flexibility Act.’’ 1 Daniel K. Tarullo, 2. Section 240.3a12–8 is amended by Dated: December 13, 1995. Assistant Secretary, Economic and Business removing the word ‘‘or’’ at the end of Arthur Levitt, Jr., Affairs, Department of State. paragraph (a)(1)(xv), removing the Chairman. [FR Doc. 95–30879 Filed 12–19–95; 8:45 am] ‘‘period’’ at the end of paragraph [FR Doc. 95–30862 Filed 12–19–95; 8:45 am] (a)(1)(xvi) and adding ‘‘; or’’ in its place, BILLING CODE 4710±07±M BILLING CODE 8010±01±P and adding paragraph (a)(1)(xvii), paragraph (a)(1)(xviii), and paragraph (a)(1)(xix) to read as follows: DEPARTMENT OF LABOR DEPARTMENT OF STATE § 240.3a12±8 Exemption for designated Mine Safety and Health Administration foreign government securities for purposes 22 CFR Part 89 of futures trading. 30 CFR Parts 18 and 75 Bureau of Economic and Business (a) * * * RIN 1219±AA65 (1) * * * Affairs; Foreign Prohibitions on Longshore Work by U.S. Nationals (xvii) the Federative Republic of Requirements for Approval of Flame- Brazil; [Public Notice No. 2314] Resistant Conveyor Belts (xviii) the Republic of Argentina; or (xix) the Republic of Venezuela. AGENCY: Department of State. AGENCY: Mine Safety and Health * * * * * ACTION: Proposed rule; extension of Administration, Labor. By the Commission. Comment Period. ACTION: Proposed Rule; extension of Dated: December 13, 1995. comment period. SUMMARY: On November 24, 1995, the Jonathan G. Katz, Department of State issued a proposed SUMMARY: In response to requests from Secretary. rulemaking regarding longshore work by the mining community for additional Note: Appendix A to the Preamble will not foreign nationals in U.S. ports and time in which to prepare comments, the appear in the Code of Federal Regulations. waters. In response to requests from Mine Safety and Health Administration Appendix A—Regulatory Flexibility several interested parties, the (MSHA) is extending the period for Act Certification Department is extending the deadline public comment on its proposed rule for comments by 30 days, from I, Arthur Levitt, Jr., Chairman of the addressing the requirements for Securities and Exchange Commission, hereby December 26, 1995 to January 26, 1996. approval of flame-resistant conveyor certify, pursuant to 5 U.S.C. 605(b), that the DATES: Interested parties are invited to belts to be used in underground mines. proposed amendment to Rule 3a12–8 submit comments in triplicate no later DATES: Written comments must be (‘‘Rule’’) under the Securities Exchange Act than January 26, 1996. received on or before February 5, 1996. of 1934 (‘‘Exchange Act’’) set forth in ADDRESSES: Comments may be mailed to ADDRESSES: Securities Exchange Act Release No. 36580, Send comments to the which would define government debt the Office of Maritime and Land Office of Standards, Regulations, and securities of Brazil, Argentina and Venezuela Transport (EB/TRA/MA), Room 5828, Variances, MSHA, Room 631, 4015 (collectively the ‘‘Proposed Countries’’) as Wilson Boulevard, Arlington, Virginia exempted securities under the Exchange Act 1 45 FR 18618 (April 30, 1982). 22203.