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Recognition of Multilateral Clearing Organizations

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Commodity Futures Trading Commission.


Notice and order.


The Commodity Futures Trading Commission (“Commission”) is issuing an Order pursuant to Section 409(b)(3) of the Federal Deposit Insurance Corporation Improvement Act (“FDICIA”). Section 409 provides that the Commission (or one of several other authorized U.S. financial regulators) may determine that the supervision by a foreign financial regulator of a multilateral clearing organization for over-the-counter derivative instruments satisfies appropriate standards. The Commission is issuing this Order pursuant to Section 409(b)(3) of FDICIA with respect to the Alberta Securities Commission and its supervision of NetThruPut, Inc., a recognized clearing agency in Alberta, Canada.


Effective Date: February 27, 2006.

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Andrew V. Chapin, Special Counsel, Division of Clearing and Intermediary Oversight, Commodity Futures Trading Commission, 1155 21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5430. Email:

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The Commission has issued the following Order: Order Issued Pursuant to Section 409 of the Federal Deposit Insurance Corporation Improvement Act Regarding the Multilateral Clearing Activities of NetThruPut, Inc., in Connection with Transactions Entered into on NTP's Online Trading Platform.

The Commodity Futures Modernization Act (“CFMA”) substantially revised the Commodity Exchange Act (“CEA”) and other Federal statutes, including FDICIA.[1] In particular, new Section 409 of FDICIA provides that a clearing organization may operate a multilateral clearing Start Printed Page 10959organization (“MCO”) [2] for over-the-counter derivatives instruments (“OTC derivatives”) [3] if, among other alternatives, it is supervised by a foreign financial regulator that the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission, or the Commission, as applicable, has determined satisfies appropriate standards.

NetThruPut, Inc. (“NTP”) has requested that the Commission determine that the oversight of its activities by the Alberta Securities Commission satisfies the criteria for operating as an MCO set forth in Section 409(b)(3) of FDICIA.[4] NTP intends to operate as an MCO with respect to OTC derivatives transactions to be executed on its online trading platform. NTP's online trading platform provides anonymous trading of crude oil, condensate and other energy contracts.

In its request, NTP provided the Commission with a detailed description of the regulatory program applicable to clearing organizations in Alberta, Canada. NTP also provided the Commission with information comparing the regulatory requirements applicable to NTP and the regulatory requirements applicable to derivatives clearing organizations (“DCOs”) in the U.S.,[5] as set forth in Section 5b of the CEA and Part 39 of the Commission's regulations.[6] The Commission evaluated the regulatory program of the ASC in the context of the Principles and Objectives of Securities Regulation issued by the International Organization of Securities Commissions.

In support of NTP's request for relief, the ASC confirmed that:

  • The ASC is authorized under the Alberta Securities Act to supervise the clearing of financial instruments by persons located in Alberta, Canada, and has the ability to enforce compliance with the applicable laws, rules and regulations;
  • Clearing in Alberta, Canada, of exchange contracts, as defined in the Alberta Securities Act, may be conducted only by a clearing agency recognized by the ASC;[7]
  • The clearing of contracts entered into on NTP's online trading platform is subject to regulatory oversight by the ASC;
  • The ASC is an associate member of IOSCO, has adopted IOSCO's Principles and Objectives of Securities Regulation, and has established systems consistent with those Principles and Objectives; and
  • The ASC has the ability and undertakes to share with the Commission, upon request, information in its possession regarding NTP's activities as a recognized clearing agency and to otherwise cooperate with the CFTC, subject to Alberta law.[8]

Based upon the information and materials submitted by NTP, and the representations made by the ASC, the Commission has determined that the supervision by ASC of an MCO for OTC derivatives operated by NTP satisfies the criteria set forth in Section 409(b)(3) of FDICIA. Any material changes or omissions in the facts and circumstances pursuant to which this Order is issued might require the Commission to reconsider this matter.

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Issued in Washington, DC on February 27, 2006.

Jean A. Webb,

Secretary of the Commission.

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1.  See Appendix E of Pub. L. 106-554, 114 Stat. 2763 (2000).

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2.  Section 408(1) of FDICIA defines MCO to mean “a system utilized by more than [two] participants in which the bilateral credit exposures of participants arising from the transactions cleared are effectively eliminated and replaced by a system of guarantees, insurance, or mutualized risk of loss.”

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3.  Section 408(2) of FDICIA defines OTC derivative instrument to include any agreement, contract, or transaction exempt under Section 2(h) of the CEA.

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4.  Letter from Kenneth M. Raisler, Esq., Sullivan & Cromwell, counsel to NTP, to Jean Webb, Secretary, Commodity Futures Trading Commission, dated November 7, 2005, with exhibits.

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5.  As a matter of first impression, the ASC determined to direct NTP to address in its application for recognition compliance with the fourteen Core Principles set forth under Section 5b(c)(2) of the CEA for registration as a DCO and to provide supporting documentation manifesting its compliance with the Core Principles. See Letter from Allan R. Twa, counsel for NTP, to the ASC, dated November 10, 2004 (“Recognized Clearing Agency Application—NetThruPut Inc.”).

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6.  See 66 FR 45604 (August 29, 2001). Part 39 of the Commission's regulations stipulates the form and provides guidance for what should be included in applications for DCO registration. Part 39 also addresses ongoing compliance by DCOs with the Core Principles and other provisions of the CEA and regulations thereunder. The guidance set forth in Part 39 merely illustrates the manner in which a clearing organization may meet a Core Principle and is not intended to be a mandatory checklist.

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7.  See Alberta Securities Act Section 67.

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8.  See Securities Act, Sections 46 and 46.1; see also the Freedom of Information and Protection of Privacy Act.

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[FR Doc. 06-1940 Filed 3-2-06; 8:45 am]