Proposed Rule2026-17939
Exemption of Debt Obligations Issued by the European Union Under the Securities Exchange Act of 1934 for Purposes of Trading Futures Contracts on Those Securities
Primary source
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Published
September 2, 2026
Effective
September 2, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission (the "Commission" or the "SEC") is proposing an amendment to designate debt obligations issued by the European Union as "exempted securities" for the purposes of marketing and trading futures contracts on those securities in the United States or to U.S. persons. The amendment is designed to permit futures trading on debt obligations issued by the European Union to be regulated as futures on "exempted securities," subject to the Commodity Exchange Act. The proposal is intended to increase U.S. persons' access to the market for these products, which may improve opportunities for hedging; lower transaction costs; contribute to greater market depth; reduce operational friction; and increase competition.
Full Text
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<title>Federal Register, Volume 91 Issue 169 (Wednesday, September 2, 2026)</title>
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[Federal Register Volume 91, Number 169 (Wednesday, September 2, 2026)]
[Proposed Rules]
[Pages 56387-56408]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-17939]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-106225; File No. S7-2026-29]
RIN 3235-AN82
Exemption of Debt Obligations Issued by the European Union Under
the Securities Exchange Act of 1934 for Purposes of Trading Futures
Contracts on Those Securities
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (the ``Commission'' or
the ``SEC'') is proposing an amendment to designate debt obligations
issued by the European Union as ``exempted securities'' for the
purposes of marketing and trading futures contracts on those securities
in the United States or to U.S. persons. The amendment is designed to
permit futures trading on debt obligations issued by the European Union
to be regulated as futures on ``exempted securities,'' subject to the
Commodity Exchange Act. The proposal is intended to increase U.S.
persons' access to the market for these products, which may improve
opportunities for hedging; lower transaction costs; contribute to
greater market depth; reduce operational friction; and increase
competition.
DATES: This release was published in the Federal Register on September
2, 2026. Comments should be received on or before November 2, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/comments/s7-2026-29/exemption-debt-obligations-issued-european-union-under-securities-exchange-act-1934-purposes-trading">https://www.sec.gov/comments/s7-2026-29/exemption-debt-obligations-issued-european-union-under-securities-exchange-act-1934-purposes-trading</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#fc8e899099d19f9391919992888fbc8f999fd29b938a"><span class="__cf_email__" data-cfemail="6012150c054d030f0d0d050e1413201305034e070f16">[email protected]</span></a>. Please include
File Number S7-2026-29 on the subject line.
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-29. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's website (<a href="https://www.sec.gov/rules-regulations/public-comments/s7-2026-29">https://www.sec.gov/rules-regulations/public-comments/s7-2026-29</a>). All comments received will be posted without
change. Do not include personally identifiable information in
submissions; you should submit only information that you wish to make
available publicly. The Commission may redact in part or withhold
entirely from publication submitted material that is obscene or subject
to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
A summary of the proposal of not more than 100 words is posted on
the Commission's website (<a href="https://www.sec.gov/rules-regulations/2026/08/s7-2026-29">https://www.sec.gov/rules-regulations/2026/08/s7-2026-29</a>).
FOR FURTHER INFORMATION CONTACT: Alexandra Oprea, Special Counsel, John
Guidroz, Assistant Director, Office of Derivatives Policy, or Carol
McGee, Associate Director, Office of Derivatives Policy and Trading
Practices, at (202) 551-5870, Division of Trading and Markets, U.S.
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to 17
CFR 240.3a12-8 (``Rule 3a12-8'' or the ``Rule'') under the Securities
Exchange Act of 1934 (``Exchange Act'').\1\
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\1\ 15 U.S.C. 78a et seq.
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I. Introduction
The Commission is proposing to amend Rule 3a12-8 to designate the
debt obligations of the European Union (``EU'') as ``exempted
securities'' for purposes only of the offer, sale or confirmation of
futures contracts on the EU's debt obligations. As discussed throughout
this release, the proposed amendment would harmonize the regulatory
treatment of the debt obligations of the EU with the regulatory
treatment of the debt obligations of 11 EU member states that are
currently listed in Rule 3a12-8, which would subject futures contracts
on the EU's debt obligations to the exclusive jurisdiction of the
Commodity Futures
[[Page 56388]]
Trading Commission (``CFTC''), consistent with the CFTC's exclusive
jurisdiction over future contracts on debt obligations of the 11 EU
member states.
Prior to the Commodity Futures Modernization Act of 2000
(``CFMA''),\2\ it was unlawful under the Commodity Exchange Act
(``CEA'') to trade a futures contract on any individual security unless
the security in question was an exempted security (other than a
municipal security) under the Securities Act of 1933 (the ``Securities
Act'') or the Exchange Act.\3\ Debt obligations of foreign governments
are not exempted securities under the Securities Act nor the Exchange
Act.\4\ The Commission, however, adopted Rule 3a12-8 \5\ under the
Exchange Act to designate debt obligations issued by certain foreign
governments (the ``Designated Foreign Governments'') as exempted
securities under the Exchange Act solely for the purposes of the offer,
sale or confirmation of sale (herein also referred to as ``trading'')
of futures contracts on debt obligations of those governments
(``Qualifying Foreign Futures Contracts'') in the U.S. or to U.S.
persons.\6\ The foreign governments currently designated in the Rule
include twenty-one countries.\7\
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\2\ Commodity Futures Modernization Act of 2000, Public Law 106-
554, 114 Stat. 2763 (2000), available at <a href="https://www.govinfo.gov/content/pkg/PLAW-106publ554/pdf/PLAW-106publ554.pdf">https://www.govinfo.gov/content/pkg/PLAW-106publ554/pdf/PLAW-106publ554.pdf</a>.
\3\ See Futures Trading Act of 1982, Public Law 97-444, 96 Stat.
2294 (1983), available at <a href="https://www.congress.gov/bill/97th-congress/house-bill/5447/text">https://www.congress.gov/bill/97th-congress/house-bill/5447/text</a> (``Futures Trading Act of 1982'' or
``1982 Act'') sec. 101(a) adding section 2(a)(l)(B](v) of the CEA,
which provided that '' (n]o person shall offer to enter into, enter
into, or confirm the execution of any contract of sale (or option on
such contract) for future delivery of any security, or interest
therein or based on the value thereof, except an exempted security
under section 3 of the Securities Act . . . or section 3(a)(12) of
the . . . Exchange Act. . .''
\4\ See 15 U.S.C. 77c; and 15 U.S.C. 78c(a)(12)(A).
\5\ 17 CFR 240.3a12-8.
\6\ See 17 CFR 240.3a12-8(b). See also Exemption of Certain
Foreign Government Securities for Purposes of Futures Trading,
Exchange Act Release No. 20708 (Mar. 2, 1984), 49 FR 8595 (Mar. 8,
1984) (``UK and Canada Release'').
\7\ 17 CFR 240.3a12-8(a)(1)(i) through (xxi). The Designated
Foreign Governments are the United Kingdom of Great Britain and
Northern Ireland (``UK''), Canada, Japan, the Commonwealth of
Australia (``Australia''), the Republic of France (``France''), New
Zealand, the Republic of Austria (``Austria''), the Kingdom of
Denmark (``Denmark''), the Republic of Finland (``Finland''), the
Kingdom of the Netherlands (``Netherlands''), Switzerland, the
Federal Republic of Germany (``Germany''), the Republic of Ireland
(``Ireland''), the Republic of Italy (``Italy''), the Kingdom of
Spain (``Spain''), the United Mexican States (``Mexico''), the
Federative Republic of Brazil (``Brazil''), the Republic of
Argentina (``Argentina''), the Republic of Venezuela
(``Venezuela''), the Kingdom of Belgium (``Belgium'') and the
Kingdom of Sweden (``Sweden'').
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In 2000, Congress enacted the CFMA,\8\ which lifted the ban on
single security futures and granted joint jurisdiction to the
Commission and the CFTC with regards to security futures.\9\ Security
futures \10\ based on individual securities and narrow-based indexes of
securities, or any interest therein or based on the value thereof, are
subject to the joint jurisdiction of the Commission and the CFTC,
whereas commodity futures are subject to the exclusive jurisdiction of
the CFTC. The definition of ``security future'' excludes a contract of
sale for future delivery of an exempted security (other than a
municipal security) under the Exchange Act.\11\
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\8\ See supra note 2.
\9\ This regime applies to a ``security futures product,'' which
is a security future or any put, call, straddle, option, or
privilege on any security future. See Exchange Act section 3(a)(56),
15 U.S.C. 78c(a)(56); CEA section 1a(45), 7 U.S.C. 1a(45).
\10\ The term ``security future'' is defined in Exchange Act
Section 3(a)(55) and in CEA section 1a(44) as ``a contract of sale
for future delivery of a single security or of a narrow-based
security index, including any interest therein or based on the value
thereof, except an exempted security under [section 3(a)(12) of the
Exchange Act as in effect on January 11, 1983] (other than any
municipal security as defined in [section 3(a)(29) of the Exchange
Act as in effect on January 11, 1983]).'' The term ``security
future'' does not include any agreement, contract, or transaction
excluded from the CEA, 7 U.S.C. 1 et seq., under section 2(c), 2(d),
2(f), or 2(g) of the CEA, 7 U.S.C. 2(c), (d), (f), (g), (as in
effect on December 21, 2000) or Title IV of the CFMA. 15 U.S.C.
78c(a)(55); 7 U.S.C. 1a(44). The Securities Act provides that the
term ``security future'' has the same meaning as in the Exchange
Act. See 15 U.S.C. 77b(a)(16).
\11\ 15 U.S.C. 78c(a)(55)(A).
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For the purposes of the Rule, the debt obligations of Designated
Foreign Governments (``Designated Foreign Government Securities'') are
exempted securities for purposes only of the trading of Qualifying
Foreign Futures Contracts and therefore are excluded from the
definition of security futures. As a result, futures contracts on the
debt obligations of the governments listed in the Rule may be sold in
the U.S. or to U.S. persons subject to the applicable futures
regulations under the CEA and in a manner consistent with the
definitions in the Rule.
The Commission is proposing to amend Rule 3a12-8 to designate the
debt obligations of the EU as exempted securities solely for the
purposes of the offer, sale or confirmation of sale of Qualifying
Foreign Futures Contracts on those securities, thereby applying the
same regulatory treatment (e.g., board-of-trade execution, non-
registration of the underlying securities, and foreign delivery) to
futures on EU debt obligations as is applicable to futures on the debt
obligations of Designated Foreign Governments that are EU member
states. By deeming EU debt obligations to be exempted securities for
this purpose, the amendment would remove futures on EU debt from the
security futures regime and place them under the CFTC's futures
framework, which would permit them to be traded on U.S. futures
exchanges and accessed by a broader population of U.S. market
participants. The increased access, in turn, may improve opportunities
for hedging, lower transaction costs, contribute to greater market
depth, reduce operational friction, and increase competition.
In March 2026, the CFTC and the SEC entered into a Memorandum of
Understanding.\12\ The SEC and CFTC have committed to coordinate, as
appropriate, in areas of common regulatory interest where collaboration
can enhance regulatory effectiveness and market integrity.\13\ In
matters involving common jurisdiction, the SEC and CFTC seek to
coordinate to reduce regulatory gaps and provide greater certainty
regarding regulatory responsibility in support of efficient markets and
lawful innovation.\14\ The revisions proposed herein to Rule 3a12-8
further these harmonization goals by eliminating asymmetric treatment
and split jurisdictional oversight of futures on EU debt obligations
and futures on debt obligations of Designated Foreign Governments that
are EU member states, when the disparate treatment is not grounded in
meaningful legal or economic distinction.
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\12\ See SEC & CFTC, Memorandum of Understanding between the
U.S. Securities and Exchange Commission and the U.S. Commodity
Futures Trading Commission regarding Harmonization in Areas of
Common Regulatory Interest (Mar. 11, 2026), available at <a href="https://www.sec.gov/files/mou-sec-cftc-2026.pdf">https://www.sec.gov/files/mou-sec-cftc-2026.pdf</a>.
\13\ See id at 1.
\14\ See id.
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II. Background
Prior to the passage of the CFMA, it was unlawful to trade a
futures contract on any individual security other than exempted
securities under section 3 of the Securities Act or section 3(a)(12) of
the Exchange Act.\15\ Debt obligations of foreign governments are not
exempted securities under either of these statutes, and thus the
trading of futures contracts (and options thereon) in the U.S. or to
U.S. persons on single (non-exempt) securities and narrow-based indexes
of such securities was prohibited.\16\
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\15\ See supra note 3.
\16\ Id.
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In 1984, the Commission adopted Rule 3a12-8 to designate debt
obligations issued by the UK or Canadian government as exempted
[[Page 56389]]
securities under the Exchange Act solely for the purposes of trading
futures contracts on those securities in the U.S. or to U.S.
persons.\17\ As a result, futures contracts on the debt obligations of
the UK and Canada were permitted to be sold in the United States, as
long as the other terms of the Rule were satisfied. In proposing Rule
3a12-8, the Commission explained that the Rule was designed to address
the Commission's understanding that, in adopting the Futures Trading
Act of 1982, Congress did not intend to bar futures trading on certain
foreign government debt obligations in the U.S., so long as the futures
were not settled in the U.S. and the underlying securities were not
traded in the U.S.\18\ Over time, the Commission broadened the Rule's
coverage beyond the debt obligations issued by the UK and Canadian
governments to include the debt obligations of additional government
issuers.\19\ The most recent modification (adding Sweden in 1999)
occurred prior to the passage of the CFMA, while the trading of futures
on individual securities was still banned.
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\17\ See UK and Canada Release, supra note 6 (``[Rule 3a12-8]
would designate [UK and Canadian government bonds] as `exempted'
securities under section 3(a)(12) for the purpose of permitting
futures trading in this country.'').
\18\ See Exemption for Certain Foreign Government Securities for
Purposes of Futures Trading, Exchange Act Release No. 19811 (May 25,
1983), 48 FR 24725 (June 2, 1983) (citing 128 Cong. Rec. H7492
(daily ed. Sept. 23, 1982) (statements of Representatives Daschle
and Wirth)). See also 128 Cong. Rec. H24925 (daily ed. Sept. 23,
1982), available at <a href="https://www.govinfo.gov/content/pkg/GPO-CRECB-1982-pt18/pdf/GPO-CRECB-1982-pt18-6-2.pdf">https://www.govinfo.gov/content/pkg/GPO-CRECB-1982-pt18/pdf/GPO-CRECB-1982-pt18-6-2.pdf</a> (statement of
Representative Wirth) (``I understand from the SEC that it intends
promptly to take the necessary administrative action to [exempt
futures contracts based on the long gilt from the ban] so long as
actual trading of the underlying gilt-edged securities does not
occur in this country. The SEC may also in the future wish to take
administrative action for the purpose of permitting transactions in
foreign futures contracts on other securities issued by foreign
governments.'').
\19\ See Exemption of Japanese Government Securities Under the
Securities Exchange Act of 1934 for Purposes of Futures Trading,
Exchange Act Release No. 23423 (July 11, 1986), 51 FR 25996 (July
18, 1986) (``Japan Release''); Exemption of Certain Foreign
Government Securities for Purposes of Futures Trading, Exchange Act
Release No. 25072 (Oct. 29, 1987), 52 FR 42277 (Nov. 4, 1987)
(Australia, France and New Zealand) (``Australia, France and New
Zealand Release''); Exemption of Certain Foreign Government
Securities for Purposes of Futures Trading, Exchange Act Release No.
26217 (Oct. 26, 1988), 53 FR 43860 (Oct. 31, 1988) (Austria,
Denmark, Finland, the Netherlands, Switzerland, and Germany);
Designation of the Securities of Certain Foreign Governments as
Exempted Securities Under the Securities Exchange Act of 1934 Solely
for Purposes of Trading Futures Contracts on Those Securities,
Exchange Act Release No. 30166 (Jan. 8, 1992), 57 FR 1375 (Jan. 14,
1992) (Ireland and Italy) (``Ireland and Italy Release''); Exemption
of the Securities of the Kingdom of Spain Under the Securities
Exchange Act of 1934 for Purposes of Trading Futures Contracts on
Those Securities, Exchange Act Release No. 34908 (Oct. 27, 1994), 59
FR 54812 (Nov. 2, 1994) (``Spain Release''); Exemption of the
Securities of the United Mexican States Under the Securities
Exchange Act of 1934 for Purposes of Trading Futures Contracts on
Those Securities, Exchange Act Release No. 36530 (Nov. 30, 1995), 60
FR 62323 (Dec. 6, 1995) (Mexico) (``Mexico Release''); Exemption of
the Securities of the Federative Republic of Brazil, the Republic of
Argentina, and the Republic of Venezuela Under the Securities
Exchange Act of 1934 for Purposes of Trading Futures Contracts on
those Securities, Exchange Act Release No. 36940 (Mar. 7, 1996), 61
FR 10271 (Mar. 13, 1996) (``Brazil, Argentina, and Venezuela
Release''); Exemption of the Securities of the Kingdom of Belgium
Under the Securities Exchange Act of 1934 for Purposes of Trading
Futures Contracts on Those Securities, Exchange Act Release No.
41116 (Feb. 26, 1999), 64 FR 10564 (Mar. 5, 1999) (``Belgium
Release''); Exemption of the Securities of the Kingdom of Sweden
Under the Securities Exchange Act of 1934 for Purposes of Trading
Futures Contracts on those Securities, Exchange Act Release No.
41453 (May 26, 1999), 64 FR 29550 (June 2, 1999) (``Sweden
Release'').
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The Rule includes definitions that are intended to facilitate the
trading of futures contracts on Designated Foreign Government
Securities in the U.S. or by U.S. persons while requiring offerings of
the underlying securities to comply with the Federal securities laws.
Specifically, for the exemption to apply, the definition of Qualifying
Foreign Futures Contracts requires that: (1) the futures contract be
traded on or through a board of trade as defined in 7 U.S.C. 2 and (2)
the futures contracts require delivery outside the United States,
including any of its possessions or territories.\20\ Furthermore, the
definition of Designated Foreign Government Security requires that the
underlying securities not be registered under the Securities Act nor be
the subject of any registered American depositary receipts.\21\
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\20\ 17 CFR 240.3a12-8(a)(2).
\21\ 17 CFR 240.3a12-8(a)(1).
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In 2000, the CFMA lifted the ban on single security futures and
created a new regime for security futures products, granting joint
jurisdiction to the Commission and the CFTC.\22\ Under the CFMA,
trading facilities offering security futures products to U.S. persons
must be dually registered with the Commission and the CFTC \23\ and
must ensure that the security futures products comply with the listing
requirements filed with both agencies.\24\
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\22\ This regime applies to a ``security futures product,''
which is a security future or any put, call, straddle, option, or
privilege on any security future. See Exchange Act section 3(a)(56),
15 U.S.C. 78c(a)(56); CEA section 1a(45), 7 U.S.C. 1a(45).
\23\ Section 6(h)(1) of the Exchange Act prohibits any person
from effecting transactions in security futures products that are
not listed on a national securities exchange or a national
securities association. Exchange Act section 6(h)(1), 15 U.S.C.
78f(h)(1). A CFTC-registered designated contract market may notice-
register with the Commission. See Exchange Act section 6(g), 15
U.S.C. 78f(g). See also Registration of National Securities
Exchanges Pursuant to section 6(g) of the Securities Exchange Act of
1934 and Proposed Rule Changes of Certain National Securities
Exchanges and Limited Purpose National Securities Associations,
Exchange Act Release No. 44692 (Aug. 13, 2001), 66 FR 43721 (Aug.
20, 2001). A board of trade offering security futures must also be
registered with the CFTC. See CEA 2(a)(1)(D)(i), 7 U.S.C.
2(a)(1)(D)(i). Intermediaries must also be dually registered. See
Registration of Broker-Dealers Pursuant to section 15(b)(11) of the
Securities Exchange Act of 1934, Exchange Act Release No. 44730
(Aug. 21, 2001), 66 FR 45138 (Aug. 27, 2001).
\24\ Security futures must conform with listing standards filed
with the Commission and must meet the criteria specified in section
2(a)(1)(D)(i) of the CEA. See Exchange Act section 6(h)(2) through
(3), 15 U.S.C. 78f(h)(2) through (3). Notably, under Exchange Act
section 6(h)(3), the underlying security of a security future must
itself be registered under section 12 of the Exchange Act. Exchange
Act section 6(h)(3), 15 U.S.C. 78f(h)(3). Additionally, section 5 of
the Securities Act requires the registration of any offer or sale of
a security in the U.S. unless it is exempt. See Securities Act
section 5, 15 U.S.C. 77e(a). A security future that is traded on a
registered national securities exchange and cleared at a registered
clearing agency is exempted from the section 5 registration
requirement. Securities Act section 3(a)(14), 15 U.S.C. 77c(a)(14).
The security futures products are also subject to statutorily set
minimum margin requirements. See Customer Margin Rules Relating to
Security Futures, Exchange Act Release No. 90244 (Oct. 22, 2020), 85
FR 75112 (Nov. 24, 2020). These requirements are intended to prevent
systemic risk and preserve the financial integrity of markets
trading security futures products. See Exchange Act section
7(c)(2)(B)(i) through (ii); 15 U.S.C. 78g(c)(2)(B)(i) through (ii).
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The Food, Conservation and Energy Act of 2008 required the
Commission, the CFTC, or both, as appropriate, to take action under
their existing authorities to permit, by June 30, 2009, the trading of
futures on certain security indexes by resolving issues related to
foreign security indexes.\25\ In response, in 2009, the Commission
granted conditional exemptive relief via an exemptive order (the ``2009
Exemptive Order''),\26\ allowing specified U.S. investors conditional
access to foreign security futures products traded on certain foreign
boards of trade.\27\ Under
[[Page 56390]]
the 2009 Exemptive Order, although foreign boards of trade that are not
otherwise required to register with the Commission under section 5 of
the Exchange Act cannot offer direct electronic access to persons
located in the U.S., they can offer security futures to other U.S.
persons who are qualified institutional buyers (``QIBs'') \28\ and to
certain intermediaries effecting transactions on behalf of a QIB or
non-U.S. person.\29\ By contrast, a foreign board of trade registered
with the CFTC as an ``FBOT'' may permit persons located in the United
States to trade its listed futures contracts via ``direct access'' \30\
to its electronic trading system or access other foreign boards of
trade through certain types of brokers.\31\
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\25\ Public Law 110-246, Sec. 13, 106, 122 Stat. 1651, 2197
(2008), reprinted U.S.C.A. Sec. 2.
\26\ See Order Under section 36 of the Securities Exchange Act
of 1934 Granting an Exemption From Exchange Act section 6(h)(1) for
Certain Persons Effecting Transactions in Foreign Security Futures
and Under Exchange Act section 15(a)(2) and section 36 Granting
Exemptions From Exchange Act section 15(a)(1) and Certain Other
Requirements, Exchange Act Release No. 60194 (June 30, 2009), 74 FR
32200 (July 7, 2009) (``Because of this prohibition [imposed by
Section 6(h)(1)], U.S. persons are currently unable to enter into
contracts for narrow-based index or single stock futures traded on
or subject to the rules of a foreign board of trade'').
\27\ The term ``foreign boards of trade'' is used here in the
same manner as it is used in the 2009 Exemptive Order: to refer to
foreign exchanges or contract markets. See 2009 Exemptive Order, 74
FR 32200 (``U.S. persons are currently unable to enter into
contracts for [security futures] traded on or subject to the rules
of a foreign board of trade'') & 32202 (``Foreign Exchange: The
transaction must be effected on, or be subject to the rules of, an
exchange or contract market that is not required to register with
the Commission under section 5 of the Exchange Act.'').
\28\ 17 CFR 230.144A(a)(1).
\29\ See 2009 Exemptive Order, 74 FR 32201.
\30\ An ``FBOT'' is a specific type of board of trade that is
registered with the CFTC. While generally foreign boards of trade
may provide access to U.S. customers to trade commodity futures
through a Part 30 intermediary, a subset of foreign boards of trade
that are registered with the CFTC under Part 48 and that meet
certain eligibility criteria are permitted to provide ``direct
access'' to customers located in the U.S. seeking to trade commodity
futures under the CFTC's ``FBOT'' framework. See generally 17 CFR
part 48 (regulations establishing the FBOT framework) & 17 CFR part
30 (regulations governing the offer and sale of foreign futures to
U.S. investors). Throughout this release, ``FBOT'' is used to refer
to a foreign board of trade that is registered with the CFTC and
permitted to provide direct access to customers located in the U.S.
seeking to trade commodity futures. See 17 CFR 48.2-48.4. For the
avoidance of doubt, under the 2009 Exemptive Order, neither
traditional foreign boards of trade nor registered FBOTs may offer
direct access to persons located in the U.S. (QIBs or otherwise) to
trade security futures; the FBOT framework is only applicable to
commodity futures and futures on exempted securities.
\31\ See sections 4(a) and 4(b) of the CEA; 17 CFR 48.4(b)
(permitting registered FBOTs to grant direct access to the
following: any member or other participant entering orders for their
proprietary accounts; futures commission merchants (``FCMs'')
submitting orders on behalf of their customers; and commodity pool
operators, commodity trading advisors, or introducing brokers
(``IBs'') submitting orders for or on behalf of U.S. customers,
provided that a registered FCM or firm exempt from registration as
an FCM acts a clearing firm and guarantees all transactions). See
also 17 CFR part 30 (describing the brokers that can intermediate
foreign futures and options transactions to U.S. customers).
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In addition to the above access-related requirements, the
conditional pathway established by the 2009 Exemptive Order also
imposes requirements with respect to the lifecycle of the transactions
and types of underliers that qualify under the 2009 Exemptive Order.
With respect to the lifecycle-related requirements, it conditions
applicability on several of the relevant activities occurring abroad;
for instance, the foreign security futures must be issued, cleared, and
settled outside of the U.S., in addition to satisfying other
requirements.\32\ With respect to the underlier, the pathway
established by the 2009 Exemptive Order is available for security
futures that are based on debt that is issued or guaranteed by a
foreign government that is eligible to be registered with the
Commission under Schedule B of the Securities Act or that is based on a
security that is issued by a ``foreign private issuer'' \33\ and has a
primary trading market outside of the U.S.\34\ The conditional pathway
established by the 2009 Exemptive Order is one of the only currently-
available pathways for U.S. persons to trade futures on debt issued by
the EU.
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\32\ See 2009 Exemptive Order, 74 FR 32204 (noting the
additional requirements of foreign physical delivery and foreign
offsetting transactions).
\33\ A ``foreign private issuer'' is a foreign issuer other than
a foreign government, except for an issuer that as of the last
business day of its most recently completed second fiscal quarter
has more than 50% of its outstanding voting securities directly or
indirectly held of record by U.S. residents and meets any of the
following: a majority of its executive officers or directors are
citizens or residents of the United States, more than 50% of its
assets are located in the United States, or its business is
principally administered in the United States. 17 CFR 230.405; 17
CFR 240.3b-4.
\34\ The underlying security must be (1) issued by a foreign
private issuer and have its primary trading market outside the U.S.
or (2) a debt security issued or guaranteed by a foreign government
that is eligible to be registered with the Commission under Schedule
B of the Securities Act of 1933. See 2009 Exemptive Order, 74 FR
32202. The Commission has not addressed the status of the EU under
either condition.
---------------------------------------------------------------------------
Although the 2009 Exemptive Order allows for the trading of futures
on EU debt obligations under certain conditions,\35\ because the debt
obligations of the EU are not exempted securities, futures on EU debt
are subject to different U.S. regulatory treatment \36\ than futures on
the debt of the eleven EU member states that are Designated Foreign
Governments.\37\
---------------------------------------------------------------------------
\35\ For example, if the issuer of EU debt obligations is a
foreign private issuer or the debt security is issued or guaranteed
by a foreign government and is eligible to be registered with the
Commission under Schedule B of the Securities Act of 1933 and the
other conditions of the Exemptive Order are met, the 2009 Exemptive
Order would be available. See 2009 Exemptive Order, 79 FR 32202
(explaining the requirements for the underlying security). Apart
from underlier-related requirements, the 2009 Exemptive Order also
imposes lifecycle-related requirements, including foreign settlement
and clearing; foreign physical delivery; and foreign offsetting
transaction requirements. See 2009 Exemptive Order, 74 FR 32207. In
addition, as the foreign underliers would not be registered in the
U.S., the 2009 Exemptive Order only permits access to the products
by QIBs, who were determined to be ``in the category of persons able
to fend for themselves and ha[ve] access to the same kind of
information that would be disclosed in registration.'' 2009
Exemptive Order, 74 FR 32202 n.39. Lastly, the 2009 Exemptive Order
requires the transactions to ``be effected on, or subject to the
rules of, an exchange or contract market that has its principal
place of business outside the U.S. and that is regulated as an
exchange or contract market in a country other than the U.S.'' 2009
Exemptive Order, 79 FR 32204.
\36\ See infra section IV.B.1.
\37\ Eleven of the twenty-one countries listed in the Rule are
member states of the EU. These include France, Austria, Denmark,
Finland, the Netherlands, Germany, Ireland, Italy, Spain, Belgium
and Sweden. See 17 CFR 240.3a12-8(a)(1)(v), (vii) through (x), (xii)
through (xv), (xx), and (xxi).
---------------------------------------------------------------------------
As such, the Commission is proposing to amend Rule 3a12-8 to expand
the definition of ``Designated Foreign Government Securities'' to
include ``a debt obligation of the EU,'' which would render such debt
obligations ``exempted securities'' under the terms of the Rule for
purposes only of the trading of Qualifying Foreign Futures
Contracts.\38\ As discussed in section III.E, below, the Commission is
proposing that the existing definitions in the Rule apply to futures on
EU debt obligations.
---------------------------------------------------------------------------
\38\ Under section 3(a)(12) of the Exchange Act, the term
``exempted security'' includes ``such other securities . . . as the
Commission may [exempt], by such rules and regulations as it deems
consistent with the public interest and the protection of investors
. . .'' Exchange Act section 3(a)(12), 15 U.S.C. 78c(a)(12).
---------------------------------------------------------------------------
III. Discussion
For the reasons discussed throughout, the Commission is proposing
to allow the debt obligations of the EU to be considered exempted
securities for the purposes only of the offer, sale or confirmation of
sale of Qualifying Foreign Futures Contracts in the U.S. or to U.S.
persons and to expand the definition of Designated Foreign Government
Securities to include debt obligations of the EU.\39\ The trading of
futures contracts on the debt of the EU is consistent with the public
interest and the protection of investors because it would provide U.S.
investors and dealers with a vehicle for hedging the risks involved in
holding debt instruments of the EU; to facilitate this,
[[Page 56391]]
futures on the debt of the EU should be subject to the same regulatory
treatment under the Rule as futures on the debt of eleven of its member
states, which are included in the Rule as Designated Foreign
Governments. The proposed amendment would address the regulatory
treatment of EU debt obligations by: (i) adding the debt obligations of
the EU to the Rule's definition of Designated Foreign Government
Securities, which would designate such debt as exempted securities
solely for purposes of the offer, sale, or confirmation of sale of
Qualifying Foreign Futures Contracts on those obligations; and (ii)
adding a definition of ``debt obligation of the European Union'' to
identify the instruments within the Rule's scope.
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\39\ Rule 3a12-8 applies solely to the futures contracts on the
debt and does not affect the regulatory treatment of the underlying
debt securities. See 17 CFR 240.3a12-8. The underlying debt
securities remain subject to the registration requirements of the
Securities Act, unless an exemption from registration is available.
See Schedule B, 15 U.S.C. 77aa and 15 U.S.C. 77g(1)(a) (permitting
foreign governments and political subdivisions to register
securities). See also 15 U.S.C. 77d(a)(2) (exempting transactions
not involving a public offering from section 5 registration
requirements of the Securities Act); 17 CFR 230.144A (providing a
safe-harbor exemption from the registration requirements for resales
of restricted securities to QIBs); Resale of Restricted Securities;
Changes to Method of Determining Holding Period of Restricted
Securities under Rules 144 and 145, Securities Act Release No. 6862
(Apr. 23, 1990), 55 FR 17933 (Apr. 30, 1990).
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A. The Status of the EU Under the Rule Relative to Other Designated
Foreign Governments
As a general matter, the regime established by the CFMA for
security futures, as well as the Commission's 2009 Exemptive Order,
address the regulation of security futures under the Federal securities
laws. Since the passage of the CFMA, the Rule has remained unchanged,
and as a result, market participants have continued to rely upon the
Rule for transactions in Qualifying Foreign Futures Contracts. U.S.
investors, however, currently experience differing access to hedging,
asset allocation and risk management opportunities via futures
referencing debt obligations of the eleven member states of the EU that
are Designated Foreign Governments than they do for futures referencing
EU debt obligations, as the latter are not currently included in Rule
3a12-8. Their inclusion would create additional avenues, outside of the
CFMA regulatory framework and apart from the 2009 Exemptive Order, for
investors to trade futures on EU debt obligations: as futures on
exempted securities, futures on EU debt obligations would be accessible
to investors on FBOTs providing direct access.\40\
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\40\ See supra notes 30 through 32 and accompanying text.
---------------------------------------------------------------------------
The EU and its debt obligations present distinctive economic and
institutional characteristics.\41\ Accordingly, and as discussed
further below, the Commission is proposing to include the debt
obligations of the EU in the list of Designated Foreign Government
Securities in Rule 3a12-8.
---------------------------------------------------------------------------
\41\ See European Commission, Facts and Figures on the European
Union, available at <a href="https://european-union.europa.eu/principles-countries-history/facts-and-figures-european-union_en">https://european-union.europa.eu/principles-countries-history/facts-and-figures-european-union_en</a> (describing
the EU's shared market, integrated economic area, regulatory
alignment, and partial monetary integration (21 out of 27 countries
use the Euro as official currency)). Elsewhere, Commission staff has
noted the ``integration of the capital markets within the European
Union as a result of application of EU-wide laws and regulations
relating to prospectuses, transparency, trading and other matters.''
See, SEC, Staff Guidance, Corporate Finance Interpretations:
Securities Act Rules (Dec. 8, 2016), available at <a href="https://www.sec.gov/rules-regulations/staff-guidance/corporation-finance-interpretations/securities-act-rules#277.03">https://www.sec.gov/rules-regulations/staff-guidance/corporation-finance-interpretations/securities-act-rules#277.03</a> (stating that for
purposes of Rule 903(b)(1)(ii) eligibility, offerings directed into
the EU may satisfy the single country requirement). Commission staff
statements represent the views of the staff. They are not a rule,
regulation, or statement of the Commission. Furthermore, the
Commission has neither approved nor disapproved their content. These
staff statements, like all staff statements, have no legal force or
effect: they do not alter or amend applicable law; and they create
no new or additional obligations for any person.
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The Commission has considered the classification of the EU,
particularly in the context of bond issuance.\42\ While it is not a
nation-state (as the sovereigns included in the Rule), the EU is a
unique issuer \43\ that appears to be increasingly viewed by market
participants as a sovereign issuer in capital markets.\44\
Correspondingly, EU bonds are often viewed as comparable to those of
sovereign member states of the EU.\45\ In terms of classification, the
European Central Bank ``ECB'') assigns EU bonds to the same haircut
category as sovereign bonds.\46\
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\42\ Bonds are the EU's main funding instrument. See European
Commission, Funding Instruments, available at <a href="https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/funding-instruments_en">https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/funding-instruments_en</a>. As such, discussions
regarding the EU's debt obligations revolve primarily around bonds.
This release uses the umbrella term ``debt obligations'' to refer to
both bonds and bills issued by the EU. References to ``bonds'' (and
``EU bonds'') are limited to instances in which the relevant source
contains data that is specific to EU bonds.
\43\ As the European Commission is the agent executing issuances
on behalf of the EU and the EU is the obligor directly responsible
for repayment, this release refers to the EU as the issuer,
consistent with the approach used in European Commission investor
documents and in various reports. See, e.g., European Commission, EU
Investor Presentation: Investing in EU-Bonds & EU-Bills (Oct. 1,
2022), available at <a href="https://commission.europa.eu/document/download/671431d2-89d7-4655-83d6-9bf5a09611df_en?filename=eu_investor_presentation_01oct2022.pdf">https://commission.europa.eu/document/download/671431d2-89d7-4655-83d6-9bf5a09611df_en?filename=eu_investor_presentation_01oct2022.pdf</a>
(describing the role of ``the EU as an issuer'' throughout);
European Commission, EU Global Investor Call (Dec. 12, 2025),
available at <a href="https://commission.europa.eu/document/download/29385658-c97e-46b2-a089-b01e3b70d6bc_en?filename=EU%20Global%20Investor%20Call%20Presentation_vf2.pdf">https://commission.europa.eu/document/download/29385658-c97e-46b2-a089-b01e3b70d6bc_en?filename=EU%20Global%20Investor%20Call%20Presentation_vf2.pdf</a> (referring to ``EU issuances'').
\44\ As of 2025, the International Capital Market Association
(``ICMA'') includes bonds issued by the EU in its European Sovereign
Bond Data report, a step which is ``intended to reflect the growing
scale of issuance and turnover in EU bonds and a wider market shift
toward the classification of the EU as a sovereign borrower.'' See
International Capital Market Association, ICMA Publishes its Semi-
annual Report that Provides Detailed Data on EU and UK Sovereign
Bond Market Trading Activity (Aug. 27, 2025), available at <a href="https://www.icmagroup.org/News/news-in-brief/icma-publishes-its-semi-annual-report-that-provides-detailed-data-on-eu-and-uk-sovereign-bond-market-trading-activity-2/">https://www.icmagroup.org/News/news-in-brief/icma-publishes-its-semi-annual-report-that-provides-detailed-data-on-eu-and-uk-sovereign-bond-market-trading-activity-2/</a>. See also International Capital Market
Association, Secondary Market Practices Committee, European
Secondary Market Data Report--H2 2025--Sovereign Edition (Apr. 28,
2026) at 4, available at <a href="https://www.icmagroup.org/assets/documents/Regulatory/Secondary-markets/ICMA-Secondary-Market-Practices-Committee-European-Secondary-Market-Data-Report-H2-2025-Sovereign-Edition-April-2026-280426.pdf">https://www.icmagroup.org/assets/documents/Regulatory/Secondary-markets/ICMA-Secondary-Market-Practices-Committee-European-Secondary-Market-Data-Report-H2-2025-Sovereign-Edition-April-2026-280426.pdf</a> (analyzing sovereign bond trading
activity for the full year of 2025 and noting ``the relative size
and importance of EU bonds from a primary and secondary
perspective'' and ``the increasing market recognition of the EU's
sovereign status as an issuer'') (``ICMA H2 2025 Report''). See also
Official Monetary and Financial Institutions Forum, Commissioner
Hahn: EU Bonds Moving Closer to Sovereign Status (May 1, 2024),
available at <a href="https://www.omfif.org/2024/05/commissioner-hahn-eu-bonds-moving-into-the-market-for-sovereign-">https://www.omfif.org/2024/05/commissioner-hahn-eu-bonds-moving-into-the-market-for-sovereign-</a> bonds/. See also
European Commission, EU Global Investor Call (Dec. 17, 2025),
available at <a href="https://commission.europa.eu/document/download/29385658-c97e-46b2-a089-b01e3b70d6bc_en?filename=EU%20Global%20Investor%20Call%20Presentation_vf2.pdf">https://commission.europa.eu/document/download/29385658-c97e-46b2-a089-b01e3b70d6bc_en?filename=EU%20Global%20Investor%20Call%20Presentation_vf2.pdf</a> (stating that in 2024, ``ICE created the ICE European Union
Index (EG00EU) by adding EU-bonds to the ICE Euro Government Index
(EG00)'').
\45\ See European Commission, Deepening the Market for EU-Bonds:
EU-Bond Investor Survey: Summary of Responses (Sept. 2023),
available at <a href="https://commission.europa.eu/document/download/1bcb556f-8942-488d-b54f-d4c6bc129aa4_en?filename=EU%20Investor%20Survey%20results.pdf">https://commission.europa.eu/document/download/1bcb556f-8942-488d-b54f-d4c6bc129aa4_en?filename=EU%20Investor%20Survey%20results.pdf</a>
(noting that 80% of investors saw EU bonds as substitutes for core
area government bonds). But see Alexandra Born et al., European
Central Bank, Do EU SURE and NGEU bonds contribute to financial
integration? (June 6, 2024), available at <a href="https://www.ecb.europa.eu/press/fie/box/html/ecb.fiebox202406_06.en.html">https://www.ecb.europa.eu/press/fie/box/html/ecb.fiebox202406_06.en.html</a> (``While EU bonds
fulfil[l] most of the criteria to be a safe asset, market
participants still consider them to be more like those of other
supranational issuers than the highest quality bonds of euro area
sovereign issuers'').
\46\ Under the ECB's collateral framework, bonds issued by the
EU are assigned to Haircut Category I, alongside sovereigns. See
European Central Bank, Deriving the Haircut Category, available at
<a href="https://www.ecb.europa.eu/mopo/coll/risk/liquidity/html/index.en.html">https://www.ecb.europa.eu/mopo/coll/risk/liquidity/html/index.en.html</a> (noting that bonds issued by the European Union are
included in Haircut Category I, rather than in Category II, which
consists of supranational issuers). With respect to the U.S., while
the EU is not explicitly treated as a sovereign under the U.S.
Uncleared Margin Rules, it does receive favorable treatment on par
with central governments. See note 75 infra and accompanying text.
It also receives favorable treatment under U.S. regulatory capital
requirements, with exposure to the European Commission, the entity
empowered to borrow on behalf of the EU, assigned a zero percent
risk weight, the same percentage of risk weight assigned to an
exposure that is directly and unconditionally guaranteed by the U.S.
government. See 12 CFR 217.32(b) (placing the European Commission in
the category of ``certain supranational entities and multilateral
development banks'' that receive zero percent risk weight).
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Rule 3a12-8 applies to the debt obligations of 21 sovereign
nations,\47\ over half of which are EU member states.\48\ Thus, as
detailed below, the EU
[[Page 56392]]
is substantially represented and functionally captured in the Rule
according to various measures, including Gross Domestic Product
(``GDP'') and bond market activity.
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\47\ See text accompanying supra note 7.
\48\ See supra note 37.
---------------------------------------------------------------------------
First, the eleven member states included in the Rule collectively
account for more than 80% of the aggregate GDP of the EU.\49\ The EU is
thus substantially represented in economic terms, as the bulk of its
economic base is captured by the sovereigns already designated by the
Rule; its inclusion in the Rule would formalize this representation.
---------------------------------------------------------------------------
\49\ In 2025, the eleven member states that are included in the
Rule accounted for 83.24% of the EU's GDP, according to staff
estimates. To arrive at this figure, staff aggregated the GDP of the
eleven member states and divided the resulting figure by the total
GDP of the EU ($21,243,212.57). The figures, stated in millions,
used for the calculation are as follows: Germany ($5,050,922.93),
France ($3,366,315.93), Italy ($2,551,556.95), Spain
($1,906,453.31), Netherlands ($1,332,767.65), Belgium ($725,466.46),
Ireland ($721,701.36), Sweden ($668,998.66), Austria ($579,470.02),
Denmark ($462,526.66) and Finland ($317,039.37). See World Bank
Group, GDP (current US$--European Union), available at <a href="https://data.worldbank.org/indicator/ny.gdp.mktp.cd?locations=eu">https://data.worldbank.org/indicator/ny.gdp.mktp.cd?locations=eu</a> (showing
2025 GDP and relying upon figures from National Statistical
Organizations and/or Central Banks, Organization for Economic Co-
operation and Development (OECD), and World Bank staff estimates).
---------------------------------------------------------------------------
Second, the EU is substantially represented within the Rule in
terms of sovereign bond market activity as reflected in both total
notional traded and transaction frequency. Close to 70% of the actively
traded sovereign bonds within the EU are reflected in the Rule via
Italy, Germany, France and Spain.\50\ The Rule's scope thus already
overlaps with the EU's core sovereign issuers. The same four EU member
states also account for more than half of all sovereign bond trades
within the EU.\51\ Across multiple dimensions, including number of
transactions, notional traded, and economic size (GDP), the Designated
Foreign Governments included in the Rule represent a substantial share
of the EU market.
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\50\ International Capital Market Association, Secondary Market
Practices Committee, European Secondary Market Data Report--H1
2025--Sovereign Edition (Aug. 27, 2025) at 17, available at <a href="https://www.icmagroup.org/assets/documents/Regulatory/Secondary-markets/ICMA-Secondary-Market-Practices-Committee-European-Secondary-Market-Data-Report-H1-2025-Sovereign-Edition.pdf">https://www.icmagroup.org/assets/documents/Regulatory/Secondary-markets/ICMA-Secondary-Market-Practices-Committee-European-Secondary-Market-Data-Report-H1-2025-Sovereign-Edition.pdf</a> (providing 42 months of
aggregated bond market data, covering the period of January 2022
through to June 2025) (``ICMA H1 2025 Report''). In terms of the
total notional traded in the first half of 2025 within the EU, the
top issuer countries are Italy (40% of total notional ([euro]6,730
billion)), Germany (11% of total notional ([euro]1,897 billion)),
France (11% of total notional ([euro]1,862 billion), and Spain (5%
of total notional ([euro]843 billion)). U.S. treasuries constituted
19% ([euro]3,261 billion) of total notional volume and other issuers
totaled 8% ([euro]1,410) of the market share. See ICMA H1 2025
Report, 17.
\51\ Four EU member states are among the top six issuers and
account for close to 60% of the sovereign bond trades within the EU:
Italy: 39% (1,379,795 trades); Germany: 8% (283,586); France: 6%
(218,936 trades); Spain: 5% (175,809). The other two issuer
jurisdictions are the U.S. (26% (947,654 trades)) and ``other''
European issuers (12% (423,249 trades)). See ICMA H1 2025 Report,
23.
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B. Rule 3a12-8 Inclusion Considerations
The Commission may expand the list of Designated Foreign
Governments if it finds that it is consistent with the public interest
and the protection of investors.\52\ To this end, and as discussed in
greater detail below, the Commission has considered credit
worthiness,\53\ trading data \54\ and the availability of investor
information \55\ in expanding the list of Designated Foreign
Governments in Rule 3a12-8. Credit worthiness underpins the safety
(ability of the issuer to satisfy the payment obligations) of the
underlying debt.\56\ Trading data evidencing high liquidity reduces the
risk of market manipulation, as more participants and larger volumes
render it more difficult for individual actors to engage in
manipulative strategies.\57\ The availability of investor information
allows investors to make informed choices and appropriately judge risks
before investing in the futures markets.\58\ In addition, the
Qualifying Foreign Futures Contracts are not unregulated, but rather
are regulated under the CFTC's futures regulatory regime.\59\
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\52\ See 15 U.S.C. 78c(a)(12)(A)(vii).
\53\ See infra note 60 (noting that credit ratings were
considered in the addition of Sweden and Belgium).
\54\ See infra notes 63 (Belgium's and Sweden's respective total
trading volumes), 64 (Belgium's and Sweden's respective average
trading volumes), and 65 (Belgium's and Sweden's respective number
of transactions).
\55\ See infra note 70 (noting that the availability of investor
information was considered in the addition of Japan, Australia,
France and New Zealand).
\56\ See Ireland and Italy Release, 57 FR 1377 n.22 (noting that
credit assessments reflect ``capacity to pay interest and repay
principal'').
\57\ See infra note 166 (discussing the relationship between
liquidity and manipulation risks).
\58\ See infra note 93.
\59\ The CFTC regulates both domestic and foreign exchanges.
First, futures are generally traded on Designated Contract Markets
(``DCMs''), which are governed by the CFTC rules set out in 17 CFR
part 38. See e.g., 17 CFR 38.651 (requiring DCMs to establish rules
``designed to promote fair and equitable trading and to protect the
market and market participants''). Second, the CFTC has established
a customer protection regime that is applicable to Futures
Commission Merchants (FCMs) holding customer assets. See e.g., 17
CFR 1.10 through 1.18 (reporting requirements); 17 CFR 1.20
(segregation of customer assets); 17 CFR 1.22 (restrictions on use
of customer funds); 17 CFR 1.31 through 1.39 (recordkeeping
requirements); 17 CFR 1.44 (margin adequacy requirements); 17 CFR
1.55 (risk disclosure statements). Customer protections also extend
to transactions on foreign boards of trade. Foreign boards of trade
that seek to provide direct access to persons in the U.S. must be
registered with the CFTC under its ``FBOT'' framework. See 17 CFR
48.3. To be eligible for registration, an FBOT must satisfy certain
investor protection-related requirements. See 17 CFR 48.2(b)(1)
through (5) (requiring that an FBOT possess the attributes of an
established exchange, adhere to rules prohibiting abusive practices,
enforce rules to maintain market and financial integrity, be
authorized by a regulatory process that examines customer and market
protections, and be subject to continued oversight by a regulator
that has power to intervene in the market and the authority to share
information with the CFTC). FCM protections extend to U.S. customers
who transact on registered FBOTs. See 17 CFR 48.4(b)(2) (listing
FCMs as one of the types of intermediaries that may apply to an FBOT
for direct access to enter orders on behalf of U.S. customers).
Other registered intermediaries, such as commodity pool operators
(CPOs), commodity trading advisors (CTAs), and introducing brokers
(IBs), also may have direct access to transact on behalf of U.S.
customers, provided that the transactions are cleared by an FCM or a
foreign clearing firm that is exempt from FCM registration and
located in a jurisdiction that the CFTC has determined to have a
comparable framework pursuant to 17 CFR 30.10. See 17 CFR 48.4(b)(3)
and (4). The CFTC, through the aforementioned comparability
assessment (of the regulatory regime in the jurisdiction of the
foreign clearing firm) analyzes whether customers engaging with non-
FCM intermediaries are afforded protections similar to those
afforded to customers engaging with FCMs. See 17 CFR 48.4(b)(3) and
(4) (``provided that a futures commission merchant registered with
the Commission as such or a firm exempt from such registration
pursuant to [17 CFR 30.10] acts as a clearing firm and guarantees,
without limitation, all trades''); 17 CFR part 30, Appendix A
(setting forth elements used to assess comparability). In addition
to the protections of the FCM regime, further protections specific
to U.S. customers transacting in foreign futures are provided in
Part 30. See e.g., 17 CFR 30.6 (risk disclosure requirements), 30.7
(secured amount requirements) & 30.9 (anti-fraud provisions).
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In the most recent determinations to amend the Rule to include
Sweden and Belgium, the Commission considered credit ratings \60\ and
trading data \61\ as evidence of an active and liquid secondary trading
market for the security. The types of trading data evidencing an active
and liquid market that were considered by the Commission included
public debt
[[Page 56393]]
outstanding,\62\ total trading volume,\63\ average trading volume \64\
and the number of transactions.\65\ For Sweden, in addition to the
market for bonds, the Commission also considered the market for
bills,\66\ including total and average trading volume, as well as the
number of transactions.\67\ Earlier, when amending the Rule to include
Mexico, Brazil, Argentina, and Venezuela, the Commission considered
primarily whether market evidence indicated that an active and liquid
secondary trading market existed.\68\ Prior to the addition of those
countries, the Commission principally considered whether the particular
sovereign debt had been rated in one of the two highest rating
categories by at least two nationally recognized statistical rating
organizations.\69\ When adding Japan, as well as when adding Australia,
France and New Zealand, the Commission noted that the availability of
investor material in the English language was relevant to a U.S.
investor's ability to make an informed decision.\70\ All three
criteria, credit worthiness, trading data, and the availability of
investor information, support the inclusion of EU debt obligations in
the definition of Designated Foreign Government Security.
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\60\ The Commission previously considered credit ratings as
indirect evidence of liquidity. See, e.g., Sweden Release, 64 FR
29552 (considering whether ``the particular sovereign debt had been
rated in one of the two highest rating categories by at least two
nationally recognized statistical rating organizations''); Belgium
Release, 64 FR 10565 n.15 (citing Moody's and S&P ratings).
\61\ See infra notes 63-67.
\62\ See Sweden Release, 64 FR 29552 (``total Swedish public
debt outstanding was equivalent to approximately $173 billion'');
Belgium Release, 64 FR 10564 (noting that Belgium had an outstanding
public debt equal to approximately $264 billion at the end of 1997).
In adding the four countries prior to Belgium (Mexico, Brazil,
Argentina and Venezuela), the Commission similarly considered public
debt outstanding. See Mexico Release, 60 FR 62323 (outstanding
Mexican government debt amounted to approximately $87.5 billion face
value as of March 31, 1995); Brazil, Argentina, and Venezuela
Release, 61 FR 10271 (public and publicly guaranteed debt of Brazil,
Argentina and Venezuela amounted to approximately $86 billion, $55
billion and $74 billion, respectively, as of Dec. 31, 1993).
\63\ See Sweden Release, 64 FR 29552 (noting that secondary
market trading in Treasury bonds amounted to approximately $1.2
trillion in 1996, approximately $1.3 trillion in 1997, and
approximately $1.2 trillion in 1998); Belgium Release, 64 FR 10566
(noting that the total value of bonds traded on an annual basis of
approximately $1.89 trillion in 1997, $1.86 trillion in 1996, $1.70
trillion in 1995, and $1.30 trillion in 1994).
\64\ For Sweden, the Commission was provided the monthly average
daily trading volume, while for Belgium it was provided the average
daily trading volume across the entire year. See Sweden Release, 64
FR 29552 (noting that the average daily trading volume ranged from
approximately $2.1 billion for the month of July 1998 to
approximately $8.3 billion for the month of October 1997); Belgium
Release, 64 FR 10566 (stating that the average value traded on a
daily basis was equivalent to approximately $7.60 billion in 1997,
$7.44 billion in 1996, $6.79 billion in 1995, and $5.23 billion in
1994).
\65\ For Sweden, the Commission considered the total number of
transactions in a given year, while for Belgium, the Commission
considered the average number of transactions per day in a given
year. See Sweden Release, 64 FR 29552 (noting approximately 109,100
transactions in benchmark Swedish treasury bonds in 1997 and 274,000
in 1998; 27,500 transactions in non-benchmark Swedish treasury bonds
in 1997 and 7,900 in 1998; and 2,000 transactions in inflation-
linked Swedish treasury bonds in 1997 and 10,800 in 1998); Belgium
Release, 64 FR 10566 (noting that the average number of Belgian bond
trades on a daily basis was approximately 472 in 1997, 571 in 1996,
614 in 1995, and 636 in 1994).
\66\ It appears that the Commission analyzed total trading
volume, average trading volume, and total number of transactions for
Belgian bonds, but it did not do so for Belgian bills.
\67\ Sweden Release, 64 FR 29552 (noting that secondary market
trading in Swedish treasury bills amounted to approximately $440
billion in 1996, approximately $488 billion in 1997, and
approximately $447 billion in 1998); 64 FR 29552 (noting that the
average daily trading volume from 1996-1998 ranged from
approximately $1.2 billion for the month of May 1996 to
approximately $2.6 billion for the month of March 1997); 64 FR 29552
(noting approximately 38,600 transactions in Treasury bills in 1997
and 76,800 transactions in 1998).
\68\ See, e.g., Mexico Release, 60 FR 62323 (amending the Rule
to add Mexico because the Commission believed that as a whole, the
market for Mexican sovereign debt was sufficiently liquid and deep
for the purposes of the Rule); Brazil, Argentina, and Venezuela
Release, 61 FR 10271 (amending the Rule to add Brazil, Argentina and
Venezuela because the Commission believed that the market for the
sovereign debt of those countries was sufficiently liquid and deep
for the purposes of the Rule).
\69\ See, e.g., Ireland and Italy Release, 57 FR 1375 (amending
the Rule to include debt securities issued by Ireland and Italy
where Ireland's long-term sovereign debt was rated Aa3 by Moody's
and AA- by S&P, and Italy's long-term sovereign debt was rated Aaa
by Moody's and AA+ by S&P); and Spain Release, 59 FR 54812 (amending
the Rule to include Spain, which had long-term debt ratings of Aa2
from Moody's and AA from S&P).
\70\ See Japan Release, 51 FR 25997 (noting access to
information in English). See also Australia, France and New Zealand
Release, 52 FR 42278 (noting the relevance of investor information
regarding futures markets and the underlying securities markets).
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1. Credit Worthiness of the EU
For purposes of including EU debt obligations in the Rule, the
Commission is considering the credit worthiness of the EU; however, the
Commission is not considering credit ratings as a means of measuring
credit worthiness.\71\ The Commission is taking into consideration
other means of measuring credit worthiness, such as the risk weight
assigned by the Office of the Comptroller of the Currency (``OCC''),
Board of Governors of the Federal Reserve System (``Federal Reserve''),
and the Federal Deposit Insurance Corporation (``FDIC,'' together with
the OCC and Federal Reserve, the ``Prudential Regulators'') under the
regulatory capital requirements.
---------------------------------------------------------------------------
\71\ The Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (``Dodd-Frank Act'') instructed the Commission to remove
from its regulations any references to credit ratings and replace
them with alternative standards of creditworthiness. See Public Law
111-203, sec. 939A(b), 124 Stat. 1376, 1872-90 (2010).
---------------------------------------------------------------------------
Regulatory capital rules and requirements promulgated by the
Prudential Regulators, which assign a zero percent risk weight to
exposures to the European Commission (the EU's issuance agent), serve
as an indicator of credit quality and as indirect evidence of
liquidity.\72\ Debt obligations of the EU constitute a type of exposure
to the European Commission. The zero percent risk weight--the same
percentage of risk weight assigned to an exposure that is directly and
unconditionally guaranteed by the U.S. government \73\--assigned by the
Prudential Regulators to exposures to the European Commission reflects
their treatment as high quality and low credit risk obligations, which
enhances their liquidity profile. The risk weights assigned by the
Prudential Regulators support the inclusion of the EU debt obligations
in the Rule.
---------------------------------------------------------------------------
\72\ Exposure to the European Commission, the entity empowered
to borrow on behalf of the EU, is assigned a zero percent risk
weight under rules promulgated by the Prudential Regulators: ``[Each
respective institution] must assign a zero percent risk weight to an
exposure to the Bank for International Settlements, the European
Central Bank, the European Commission, the International Monetary
Fund, the European Stability Mechanism, the European Financial
Stability Facility, or an MDB.'' 12 CFR 217.32(b) (Federal Reserve);
12 CFR 3.32(b) (OCC); 12 CFR 324.32(b) (FDIC). Each of the rules
places the European Commission in the category of ``certain
supranational entities and multilateral development banks.'' See 12
CFR 3.32(b); 12 CFR 217.32(b); 12 CFR 324.32(b). Although risk
weight applies to an investor's exposure rather than to the debt
obligation itself, a lower risk weight renders it more palatable for
regulated investors (e.g., banks) to hold and trade the instrument
(because the amount of capital that it must hold to guard against
default is lower); an increased likelihood of holding and trading
the instruments may, in turn, translate into increased engagement by
market participants, thus indirectly increasing liquidity in the
secondary market.
\73\ Exposure to the European Commission, the entity empowered
to borrow on behalf of the EU, is assigned a zero percent risk
weight under rules promulgated by the Prudential Regulators. See
note 72, supra. Exposures to the U.S. government, its central bank
or a U.S. government agency are also assigned a zero percent risk
weight. See 12 CFR 3.32(a)(1); 12 CFR 217.32(a)(i); 12 CFR
324.32.(a)(1).
---------------------------------------------------------------------------
Furthermore, for the purposes of the U.S. Uncleared Margin
Rules,\74\ EU debt is treated similar to how other central government,
multilateral development bank and government-sponsored enterprise
(``GSE'') debt is treated, with haircuts assigned based on asset type
[[Page 56394]]
and tenor buckets.\75\ It is in the same category as U.S. government
debt, a tier below cash collateral.\76\ Finally, as discussed in the
Economic Analysis, the EU debt market has also developed secondary-
market infrastructure typically associated with an established
sovereign-style curve, a reliable bid-offer quoting system, and a EU
Repo Facility.\77\ Market infrastructure developments and the
regulatory treatment of EU Bonds, including the zero percent risk
weighting by the Prudential Regulators, both support the addition of EU
debt obligations to the list of Designated Foreign Government
Securities because these factors are indicative of the credit
worthiness of the EU.
---------------------------------------------------------------------------
\74\ See Staff of the CFTC Office of the Chief Economist, The
Effect of Last Two Phases of the Uncleared Margin Rule on
Participant Swap Decisions (Jan. 2023) at 1, available at <a href="https://www.cftc.gov/sites/default/files/2023-02/j_of_soc_ada.pdf">https://www.cftc.gov/sites/default/files/2023-02/j_of_soc_ada.pdf</a>
(describing the term ``Uncleared Margin Rule'' as referring to the
regulatory requirements regarding the exchange of collateral that
were adopted after the 2008 financial crisis in order to mitigate
systemic risk posed by over-the-counter swaps that are not centrally
cleared).
\75\ See 17 CFR 23.156(a)(1)(iv) (establishing collateral
eligibility for ``the European Central Bank or a sovereign entity
that is assigned no higher than a 20 percent risk weight under the
capital rules applicable to swap dealers subject to regulation by a
prudential regulator''); 17 CFR 23.151 (defining ``sovereign
entity'' to mean ``a central government (including the U.S.
government) or an agency, department, ministry, or central bank of a
central government''); 17 CFR 23.156(a)(3)(i)(B) (standardized
haircut schedule where ``eligible government and related debt (e.g.,
central bank, multilateral development bank, GSE securities
identified in paragraph (a)(1)(iv) of this section)'' with a
residual maturity of less than one year, between one and five years,
and greater than five years receive a 0.5%, 2% and 4% haircut,
respectively). See also CFTC, Margin Requirements for Uncleared
Swaps for Swap Dealers and Major Swap Participants, 81 FR 636, 665
(Jan. 6, 2016) (stating that one of the fundamental characteristics
of margin assets is that they ``be liquid and, with haircuts, hold
their value in times of financial stress'').
\76\ See 17 CFR 23.156(a)(3)(i)(B) (standardized haircut
schedule assigning haircut by asset and tenor buckets where only
cash collateral receives a more favorable haircut (zero percent)
than the category that would encompass EU bonds).
\77\ See infra IV.B.3.
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2. Trading Data
An analysis of trading data for the EU indicates that it is
comparable to the sovereign issuers listed in Rule 3a12-8, as discussed
below. Bonds are the EU's main funding instrument.\78\ Table 1 provides
an overview of the outstanding EU bonds and bond/bill issuance in 2025.
---------------------------------------------------------------------------
\78\ European Commission, Funding Instruments, available at
<a href="https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/funding-instruments_en">https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/funding-instruments_en</a>. Auctions and
syndicated transactions of the bonds are facilitated by the EU
Primary Dealer Network, which ensures the placement of EU debt with
the widest possible investor base. European Commission, The Role of
the EU Primary Dealer Network, available at <a href="https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/primary-dealer-network_en">https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/primary-dealer-network_en</a>.
Table 1--EU Debt Obligation Metrics: 2025 Issuance and Comparative
Amounts Outstanding
------------------------------------------------------------------------
------------------------------------------------------------------------
EU Debt Obligations Overview
------------------------------------------------------------------------
EU Bonds Outstanding in 2025......... [euro]702 billion.
2025 Long-term Bond Issuance......... 153 billion.
2025 EU Bills Outstanding............ 37 billion.
2024 EU Bills Outstanding............ 23 billion.
2025 4th Quarter Issuance in EU Bonds 32 billion.
2025 4th Quarter Issuance in EU Bills 13 billion.
------------------------------------------------------------------------
As shown in Table 1, the European Commission indicates that in
2025, the EU had [euro]702 billion of bonds outstanding and had a
record high number of bond issuances, raising [euro]153 billion via
long-term issuance.\79\ It had close to [euro]37 billion of EU-bills
outstanding in mid-December 2025, up from [euro]23 billion at year-end
2024.\80\ Recent fourth-quarter 2025 reports state that during this
period alone, the EU issued [euro]32 billion in EU-bonds and [euro]13
billion in EU-bills, representing 4.9% of total ``European sovereign
issuance.'' \81\ The amount in EU bonds outstanding and the number of
bond and bill issuances support the inclusion of EU debt obligations in
the list of Designated Foreign Government Securities in Rule 3a12-8
because it demonstrates a strong interest in trading and investing in
such bills and bonds, which supports a liquid market.
---------------------------------------------------------------------------
\79\ European Commission, EU Global Investor Call (Dec. 12,
2025), available at <a href="https://commission.europa.eu/document/download/29385658-c97e-46b2-a089-b01e3b70d6bc_en?filename=EU%20Global%20Investor%20Call%20Presentation_vf2.pdf">https://commission.europa.eu/document/download/29385658-c97e-46b2-a089-b01e3b70d6bc_en?filename=EU%20Global%20Investor%20Call%20Presentation_vf2.pdf</a>.
\80\ Id.
\81\ Association for Financial Markets in Europe (AFME),
Government Bond Data Report (March 23, 2026) at 3, available at
<a href="https://www.afme.eu/media/cfgke0pl/government-bond-data-report-q4-2025-2025fy.pdf">https://www.afme.eu/media/cfgke0pl/government-bond-data-report-q4-2025-2025fy.pdf</a> (utilizing European Central Bank data to illustrate
that ``total (bond and bill) issuance in 4Q25 continued at
historically high levels with volumes (including EU Commission
issuance) representing the highest fourth quarter total on record'')
(``AFME Report''). Despite record levels, the share represented by
EU bonds and bills dropped from 5.3% in the fourth-quarter of 2024
to 4.9% in 2025. See AFME Report, 3.
---------------------------------------------------------------------------
Table 2 demonstrates that there is a liquid market for EU bonds in
the EU and UK markets in relation to other government bonds, including
those of the U.S. government and of governments that are currently
included in the Rule as Designated Foreign Governments.
Table 2--EU and Sovereign Bond Volume in the First Half 2025
------------------------------------------------------------------------
EU and Sovereign Bond Volume
-------------------------------------------------------------------------
Notional value
Issuer country ([euro]bn) %
------------------------------------------------------------------------
US....................................... [euro]12,767.90 34.9
Italy.................................... 8,419.70 23
Germany.................................. 3,737.80 10.20
UK....................................... 3,643.60 10
France................................... 3,272.60 8.90
Spain.................................... 1,355.10 3.70
EU....................................... 1,145.80 3.10
Other Sovereign Bonds Traded in EU and UK 2,230 6.10
Markets.................................
------------------------------
Total................................ 36,572.50 100.00
------------------------------------------------------------------------
[[Page 56395]]
As indicated in Table 2, EU bonds ranked seventh in terms of
notional value of trades across the EU and UK markets, with a turnover
of [euro]1,145.8 billion and a 3.1% market share, during the first half
of 2025.\82\ The six issuers ranking above the EU were the U.S., Italy,
Germany, UK, France and Spain, which together accounted for 91% of the
traded volume across the EU and UK markets.\83\ Notably, although
constituting only 3.1% of the market share, the total volume of EU
bonds traded was four times higher in the first half of 2025 than in
the first half of 2022, signaling a positive trend.\84\ By the end of
2025, the volume of EU bonds traded increased more than five-fold since
2022.\85\ Accordingly, the EU bond market has a liquidity profile based
on the volume of trading that is comparable to the bonds of other
Designated Foreign Governments that are EU member states, which
supports the inclusion of EU debt obligations in the definition of
Designated Foreign Government Security in Rule 3a12-8.
---------------------------------------------------------------------------
\82\ ICMA H1 2025 Report, 10.
\83\ ICMA H1 2025 Report, 10.
\84\ See ICMA H1 2025 Report, 15.
\85\ ICMA H2 2025 Report, 8.
Table 3--Top 10 EU and Sovereign Bonds by Trade Size in the First Half 2025
----------------------------------------------------------------------------------------------------------------
Average trade Median trade
Country size size 25th Percentile 75th Percentile
----------------------------------------------------------------------------------------------------------------
EU.......................................... 12,111,253 2,500,000 71,000 15,042,307
France...................................... 9,895,689 824,833 60,000 7,213,443
Germany..................................... 7,158,445 1,150,000 116,100 5,571,992
Sweden...................................... 6,848,674 831,369 69,190 5,128,428
Greece...................................... 6,661,479 500,000 16,000 5,208,333
United States............................... 6,523,034 2,773,348 883,284 6,469,412
United Kingdom.............................. 6,163,187 351,181 44,117 3,409,221
Spain....................................... 5,640,625 404,000 40,000 4,878,352
Netherlands................................. 5,410,896 580,000 45,000 5,075,000
Italy....................................... 5,201,927 2,500,000 190,000 5,349,214
----------------------------------------------------------------------------------------------------------------
As Table 3 demonstrates, in the first half of 2025, the average
trade size for EU bonds stood at [euro]12,111,253 and the median at
[euro]2,500,000.\86\ By comparison, larger sovereign issuers such as
France and Germany had average trade sizes of [euro]9,895,689 and
[euro]7,158,445 and median trade sizes of [euro]824,833 and
[euro]1,150,000, respectively, while Swedish-issued bonds had an
average trade size of [euro]6,848,674 and a median of
[euro]831,369.\87\ In addition to outperforming peer issuers in terms
of average trade size, in the second quarter of 2025, the EU posted a
7% increase in average trade size relative to the first quarter of
2022, underscoring its positive momentum.\88\ Accordingly, the trade
size of EU bonds, which demonstrates that there is sufficient liquidity
in the market to handle larger order sizes, in relation to other bonds
issued by Designated Foreign Governments, supports the inclusion of EU
debt obligations in the definition of Designated Foreign Government
Security.
---------------------------------------------------------------------------
\86\ The data covers trades across EU and UK markets in the
first half of 2025. See ICMA H1 2025 Report, 24. In the UK, EU bonds
traded at an average size of [euro]16,875,432, 73% higher than in
the EU, where the average stood at [euro]9,773,231; Spanish Bonos
traded an average trade size of [euro]7,950,096 in the UK, 66% above
their average in the EU at [euro]4,794,177. ICMA H1 2025 Report, 29.
\87\ See ICMA H1 2025 Report, 24.
\88\ See ICMA H1 2025 Report, 26 (``EU bonds have surpassed
their previous benchmark and are trading at an average size 7%
higher than in Q1 2022 . . . [w]hile all other countries in the peer
group continue to trade below their 2022 averages [but are showing
signs of recovery]'').
---------------------------------------------------------------------------
Spain, a government that is included in Rule 3a12-8, provides a
useful comparison, given the similarity in trading volume of its bonds
(``Spanish Bonos''), with which to analyze the trading data of EU
bonds. EU bonds and Spanish Bonos share similar volumes and represent
comparable shares in EU and UK markets.\89\ During the first half of
2025, in the EU market, Spanish Bonos record a total notional value of
[euro]843 billion and a market share of 5%, while EU bonds record a
total notional value of [euro]620 billion and a market share of 4%.\90\
Similarly, in the UK market, the traded notional value of Spanish Bonos
is [euro]512 billion and for EU bonds it is [euro]526 billion, with
each constituting 3% of the market share.\91\ By the end of 2025,
across the EU and the UK, each constituted 4% of the total traded
volume.\92\
---------------------------------------------------------------------------
\89\ ICMA H1 2025 Report, 17.
\90\ ICMA H1 2025 Report, 17. These are higher than UK Gilts,
which stand at [euro]342 and a 2% market share. See ICMA H1 2025
Report, 17.
\91\ ICMA H1 2025 Report, 17.
\92\ See ICMA H2 2025 Report, 8.
---------------------------------------------------------------------------
3. Investor Information
In addition to the market-based criteria discussed above, the
Commission considers the availability of investor information to be a
relevant factor in the inclusion determination because it enhances
investor protection. For example, the Commission has historically
considered the availability of information in the English language to
weigh in favor of inclusion.\93\ U.S. market participants have
sufficient access to reliable information (in the English language)
about EU debt obligations. The European Commission has a platform
dedicated to investor relations, providing various types of information
and resources including key details related to the debt instruments,
various aspects of the issuance process, as well as transaction
data.\94\
---------------------------------------------------------------------------
\93\ See, e.g., Japan Release, 51 FR 25997 (``satisfied that
United States citizens have sufficiently ready access to information
in English in which to make informed trading decisions''). See also
Australia, France and New Zealand Release, 52 FR 42278 (``all
petitioners that requested that Rule 3al2-8 be expanded to cover the
debt securities of Australia, France and New Zealand noted in their
petitions that United States investors should have sufficient access
to information in English concerning the relevant futures markets
and underlying debt instruments''). But see UK and Canada Release,
49 FR 8597. When adding the UK and Canada, the Commission declined
to incorporate a disclosure requirement into the Rule, but it noted
that investors had access to information about the governments, as
both countries had government debt issues registered in the U.S. The
Commission did not address the availability of investor information
when adding Sweden and Belgium.
\94\ See generally, European Commission, The EU as Borrower--
Investor Relations, available at <a href="https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations_en">https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations_en</a>.
---------------------------------------------------------------------------
In summary, the Commission's consideration of the above-described
factors suggests that futures on the debt obligations of the EU should
be subject to the same regulatory treatment under the Rule as futures
on the debt obligations of the Designated Foreign Governments.
Accordingly, consistent with the public interest and for the protection
of investors, the Commission is proposing to amend Rule 3a12-8 to
include the EU as a Designated Foreign Government.
[[Page 56396]]
C. Request for Comment
The Commission generally requests comment from the public on the
proposed amendment to Rule 3a12-8 to designate the debt obligations of
the EU as exempted securities solely for the purposes of the offer,
sale or confirmation of sale of Qualifying Foreign Futures Contracts on
those debt obligations. More specific requests for comment are set
forth below. Responses supported by empirical data are particularly
helpful.
Q1. Are the factors used by the Commission to determine whether the
list of Designated Foreign Governments should be expanded sufficiently
broad? Should the Commission revise its approach or consider additional
criteria or factors?
Q2. Are the measures of what constitutes a liquid and active
secondary market in EU debt obligations described in this release
appropriate? If not, what other measures of liquidity should the
Commission consider?
Q3. What are the commenters' views regarding the sufficiency or
robustness of the factors and data used by the Commission in section
III.B. to support its views of the EU and its debt obligations? Should
other factors or evidence be considered by the Commission in deciding
whether to add the EU to the Rule? If so, what additional evidence
should the Commission consider in deciding whether to add the EU to the
Rule?
Q4. As discussed above, the Dodd-Frank Act instructed the
Commission to remove from its regulations any references to credit
ratings and replace them with alternative standards of
creditworthiness. As a result, the Commission is taking into
consideration other means of measuring credit worthiness for the
purposes of including EU debt obligations in the Rule. Is the
Commission's consideration of risk weight in the context of this
proposal appropriate? Should other alternatives be considered and if
so, which?
Q5. Is the Commission's consideration of collateral eligibility as
an indicator of liquidity appropriate in the context of this proposal?
Should other indicators of liquidity be considered? Please explain.
Q6. Do commenters believe that the Commission's assessment of the
EU as a ``unique'' issuer akin to a sovereign issuer in capital markets
is accurate? Is the assessment that EU debt obligations are comparable
to those of sovereign members of the EU appropriate? Are there other
metrics that the Commission should have considered in analyzing the
EU's status relative to other sovereigns or supranationals?
Q7. Is the fact that eleven EU member states already qualify as
Designated Foreign Governments under the Rule a relevant factor
weighing in favor of adding the EU to Rule 3a12-8? Given that more than
half of the Designated Foreign Governments included in Rule 3a12-8 are
EU member states, do commenters believe that the EU is already
functionally captured in the Rule insofar as its core issuers \95\ are
already included in the Rule?
---------------------------------------------------------------------------
\95\ See supra notes 49 through 51 and accompanying text.
---------------------------------------------------------------------------
Q8. Do market participants agree that there is sufficient investor
information regarding EU debt obligations that is publicly available to
allow them to make an informed decision?
Q9. To what extent do market participants currently rely on Rule
3a12-8? Given the CFMA, as well as the 2009 Exemptive Order, should the
Commission repeal the Rule? If the Commission were to repeal the Rule,
what, if any, additional costs or burdens would be borne by market
participants? For example, if the Commission were to repeal Rule 3a12-
8, to the extent that FBOTs would be unwilling or unable to register
with the Commission to offer futures on debt obligations of the
Designated Foreign Governments, U.S. investors could be harmed by the
loss of these hedging and risk management opportunities. Alternatively,
given that the 2009 Exemptive Order also addresses futures on foreign
debt,\96\ do market participants view Rule 3a12-8 as obsolete,
redundant or possibly a source of confusion?
---------------------------------------------------------------------------
\96\ The 2009 Exemptive Order applies to security futures based
on debt that is issued or guaranteed by a foreign government that is
eligible to be registered with the Commission under Schedule B of
the Securities Act or based on a security that is issued by a
``foreign private issuer'' with a primary trading market outside of
the U.S. See supra note 34.
---------------------------------------------------------------------------
Q10. Should the Commission consider amending the Rule to include
the debt obligations of additional governments and/or entities in the
Rule or excluding any governments from the Rule? For example, should
the Commission include the debt obligations of other member states of
the EU in the definition of Designated Foreign Government Securities
(Bulgaria, Croatia, Cyprus, Czechia, Estonia, Greece, Hungary, Latvia,
Lithuania, Luxembourg, Malta, Poland, Portugal, Romania, Slovakia, and
Slovenia)? If so, taking into account the considerations used by the
Commission to add Designated Foreign Governments to the list of
governments in the Rule, as described in section III.B. above, please
explain why such additional governments and/or entities should be
included in the Rule.
Q11. Should Rule 3a12-8 apply to cash-settled perpetual contracts
to the extent they are structured as security futures (as opposed to
security-based swaps) or should Rule 3a12-8 exclude such contracts?
What potential impact would each approach have on markets for the
underlier and for the futures markets?
D. Definitions in the Rule
1. Proposed Definition of ``Debt Obligation of the European Union''
Although there is a generally understood meaning of ``EU debt
obligations'' in common and market parlance, there is not a defined
term for debt obligations of the European Union in the Exchange Act,
the Securities Act or the rules thereunder. Accordingly, the Commission
is proposing to add the following definition: ``The term debt
obligation of the European Union shall mean debt that is issued by the
European Commission on behalf of the European Union where the
borrowings are direct and unconditional obligations of the European
Union.'' \97\ This proposed definition is designed to be consistent
with the approach used in official European Commission documents, where
the EU is typically identified as both issuer and obligor, with the
understanding that the EU issuances are executed by the European
Commission.\98\
---------------------------------------------------------------------------
\97\ Proposed Rule 3a12-8(a)(3).
\98\ The EU is the issuer of the debt, while the European
Commission, its executive body, is the representative, as the
European Commission is empowered by treaty to borrow on behalf of
the EU. See European Commission, The EU as a Borrower--Investor
Relations, available at <a href="https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations_en">https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations_en</a>. The EU itself is
the obligor. See European Commission, EU Investor Presentation:
Investing in EU-Bonds & EU-Bills (Oct. 1, 2022), available at
<a href="https://commission.europa.eu/document/download/671431d2-89d7-4655-83d6-9bf5a09611df_en?filename=eu_investor_presentation_01oct2022.pdf">https://commission.europa.eu/document/download/671431d2-89d7-4655-83d6-9bf5a09611df_en?filename=eu_investor_presentation_01oct2022.pdf</a>
(``All EU borrowings are direct and unconditional obligations of the
EU, and the EU is legally bound by the Treaty on the Functioning of
the EU (Article 323) to service EU debt'').
---------------------------------------------------------------------------
2. Limitations in the Current Definitions in Rule 3a12-8
As discussed above in section II, Rule 3a12-8 includes definitions
that are intended to ensure that the exemption facilitates the trading
of futures contracts on Designated Foreign Government Securities in the
U.S. or to U.S. persons while requiring that offerings of the
underlying securities comply with applicable Federal
[[Page 56397]]
securities laws. Specifically, the definition of Designated Foreign
Government Security provides that such securities are neither
registered under the Securities Act nor the subject of any registered
American depositary receipts.\99\ Additionally, the definition of
Qualifying Foreign Futures Contract provides that futures contracts on
a Designated Foreign Government Security must (1) require delivery
outside the U.S., which includes any of its possessions or territories
and (2) be traded on or through a board of trade as defined in 7 U.S.C.
2.\100\
---------------------------------------------------------------------------
\99\ 17 CFR 240.3a12-8(a)(1).
\100\ 17 CFR 240.3a12-8(a)(2).
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The limitations in the Rule's definitions ensure that (i)
transactions remain subject to oversight, namely that the transactions
would fall under the CFTC's futures regulatory regime applicable to
(both foreign and domestic) boards of trade; \101\ (ii) a domestic
market in foreign government securities would not develop absent
registration; \102\ (iii) the futures markets would not be used to
avoid the registration requirements and other provisions of the Federal
securities laws; \103\ and (iv) the development of a domestic market in
the unregistered securities is deterred by the foreign delivery
requirement.\104\ The limitations contained in these definitions will
apply to EU debt obligations to the extent that the EU debt obligations
are included in the definition of Designated Foreign Government
Security.
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\101\ See Exemption of Certain Foreign Government Securities
Under the Securities Exchange Act of 1934 for Purposes of Futures
Trading, Exchange Act Release No. 24209 (March 12, 1987), 52 FR 8875
(March 20, 1987) (finding that elimination of the location
requirement to allow trading on domestic boards of trade to be
consistent with providing hedging opportunities and promoting
competition among boards of trade) (``Location Restriction
Release''). The Commission believed that the CFTC's ``oversight of
domestic boards of trade would provide effective safeguards against
abuse'' and that its antifraud authority would perform a similar
function with respect to futures trading on foreign boards of trade.
See Location Restriction Release, 52 FR 8877.
\102\ See UK and Canada Release, 49 FR 8598 (explaining that
``[t]he exclusion of registered securities from the exemption was
proposed to prevent futures trading from disrupting regulated
markets for registered underlying securities'').
\103\ See UK and Canada Release, 49 FR 8598 n.23 (citing
concerns regarding the ``[c]ircumvention of disclosure policies''
and ``inconsistency with the Commission's general policy requiring
registration prior to the distribution'' in the context of the
unregistered securities requirement).
\104\ See UK and Canada Release, 49 FR 8596-97 (``the conditions
are designed to minimize the impact of the exemption on securities
distribution and trading in the United States'').
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3. Request for Comment
Q12. Should a definition of ``debt obligations of the EU'' be
included within the Rule? If so, does the proposed definition of ``debt
obligations of the EU'' adequately identify which EU debt obligations
would be eligible under the Rule or are additional descriptors and/or
definitions necessary to specify which debt obligations would qualify
under the Rule? If additional descriptors are necessary, please
identify and explain them.
Q13. The proposed definition of ``debt obligations of the EU'' is
consistent with the approach used in official European Commission
documents and is limited to borrowings that are direct and
unconditional obligations of the European Union. Should the limitation
to borrowings that are direct and unconditional obligations of the
European Union be included in the definition of ``debt obligations of
the EU'' or should it be removed? Should the definition be changed to
include indirect obligations, conduit financing, or other financing
structures? Alternatively, should such a limitation be added to
paragraph (a)(1) of Rule 3a12-8, which would limit the term Designated
Foreign Government Security to only include direct and unconditional
debt obligations of the Designated Foreign Governments and the EU?
Q14. Should the debt obligations of the EU be subject to the
requirements in the existing definition that the futures contract be
traded on or through a board of trade? Please explain.
Q15. Should the exemption for futures on EU securities require that
the underlying EU securities have been neither registered under the
Securities Act nor been the subject of any American depositary receipt
so registered, as required by the Rule's current definition of
``Designated Foreign Government Security''? Is the definition
appropriately tailored to ensure that a market for the underlying
securities does not develop in the U.S. absent compliance with the
Federal securities laws?
Q16. The Rule's existing definition of a ``Designated Foreign
Government Security'' requires that it be neither registered under the
Securities Act nor the subject of any American depositary receipt so
registered.\105\ This aspect of Rule 3a12-8 was intended to ensure that
a market for the underlying securities not develop in the U.S. The
Commission adopted Rule 144A under the Securities Act in 1990,\106\ and
it has since become a typical means of offering sovereign debt to QIBs
in the U.S. or offshore via a private placement allowing for subsequent
resale among QIBs.\107\ Should the Commission incorporate this
development into the Rule by amending the definition of ``Designated
Foreign Government Security'' to mean (1) a security not registered
under the Securities Act of 1933 nor (2) the subject of (a) an offering
under Rule 144A under the Securities Act or (b) any American depositary
receipt so registered, and (3) representing a debt obligation of the
issuers listed in the Rule? Please explain.
---------------------------------------------------------------------------
\105\ 17 CFR 240.3a12-8(a)(1).
\106\ See Resale of Restricted Securities; Changes to Method of
Determining Holding Period of Restricted Securities under Rules 144
and 145, Securities Act Release No. 6862 (Apr. 23, 1990), 55 FR
17933 (Apr. 30, 1990).
\107\ See Accredited Investor Definition, Securities Act Release
No. 10823 (Aug. 26, 2020), 85 FR 64234, 64257 (Oct. 9, 2020) (noting
commenters' support for expanding the QIB definition in light of the
growth of the Rule 144A market).
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Q17. Should the Rule require that the futures contract not allow
for delivery of the underlying EU securities in the U.S. or in any of
its possessions or territories? Are the definitions for Designated
Foreign Government Security and Qualifying Foreign Futures Contracts
appropriately tailored to ensure that a market for the underlying EU
securities does not develop in the U.S. absent compliance with the
Federal securities laws? Please explain.
IV. Economic Analysis
A. Introduction
The Commission is mindful of the economic effects that may result
from the proposed amendment to Rule 3a12-8, including the benefits,
costs, and the effects on efficiency, competition, and capital
formation.\108\ This Economic Analysis discusses the expected economic
consequences of the proposed amendment relative to the baseline, which
consists of the current market and regulatory environment in the
absence of the proposed amendment.
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\108\ Exchange Act section 3(f) requires the Commission, when it
is engaged in rulemaking pursuant to the Exchange Act, and is
required to consider or determine whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation. See 15 U.S.C.78c(f). In
addition, Exchange Act section 23(a)(2) requires the Commission,
when making rules pursuant to the Exchange Act, to consider among
other matters, the impact that any such rule would have on
competition, and not to adopt any rule that would impose a burden on
competition that is not necessary or appropriate in furtherance of
the purposes of the Exchange Act. See 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------
Under the current framework, futures on the debt of the twenty-one
Designated Foreign Governments (11 of which are EU member states) are
treated as futures on exempted securities, are subject to the exclusive
jurisdiction of
[[Page 56398]]
the CFTC, and may be traded by U.S. persons on CFTC-registered FBOTs
via ``direct access'' or through certain CFTC-regulated intermediaries.
Rule 3a12-8 requires that futures contracts on Designated Foreign
Government Securities be traded on or through a board of trade as
defined in 7 U.S.C. 2., which would include both domestic futures
exchanges registered as DCMs, as well as FBOTs.\109\ By contrast,
futures on debt issued by the EU are treated as security futures,
subject to the joint jurisdiction of the Commission and the CFTC, and
U.S. persons may access those security futures through the conditional
pathway established by the Commission's 2009 Exemptive Order, which is
generally limited to QIBs and certain intermediaries acting on their
behalf. Under that pathway, transactions must be executed on, or
subject to the rules of, an exchange or contract market that has its
principal place of business outside the U.S. with clearing and
settlement occurring outside the U.S.
---------------------------------------------------------------------------
\109\ See 17 CFR 240.3a12-8(a)(2). However, the Rule also
requires that the futures contracts require delivery outside the
United States, including any of its possessions or territories.
---------------------------------------------------------------------------
This asymmetric treatment is not grounded in a meaningful economic
distinction between EU debt obligations and the debt obligations of the
Designated Foreign Governments that are EU member states; it reflects
the fact that the Rule's list of Designated Foreign Governments was
last expanded before the EU developed into a significant debt issuer.
As discussed in the baseline below, EU debt obligations have achieved a
scale, liquidity profile, and credit quality increasingly comparable to
those of sovereign issuers already designated under the Rule. The U.S.
Prudential Regulators assign a zero percent risk weight to exposures to
the European Commission, which is the same risk weight assigned to
exposures directly and unconditionally guaranteed by the U.S.
government. The ECB assigns EU bonds to the same haircut category as
sovereign bonds.\110\ A growing share of market participants treat EU
debt obligations as a substitute for the debt of core euro-area
sovereign issuers.\111\ However, the current regulatory treatment of
futures on EU debt obligations does not reflect these economic
characteristics.
---------------------------------------------------------------------------
\110\ See supra note 46 and accompanying text.
\111\ See supra note 44 and accompanying text.
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The consequences of this disparity impact two categories of U.S.
market participants. First, U.S. investors that do not qualify as QIBs
currently do not have access to futures on EU bonds, because the
application of the 2009 Exemptive Order (i.e., the only currently
available pathway for U.S. persons to trade these instruments) is
limited to QIBs and certain intermediaries. Thus, non-QIB investors
cannot transact in futures on EU bonds to hedge exposures to EU debt
obligations, even though they may trade futures on the debt of the 11
designated member states. Second, U.S. QIB investors that treat EU debt
obligations and the debt obligations of Designated Foreign Governments
that are EU member states as substitutable instruments for euro
interest-rate hedging face more restrictive access conditions for
futures on EU bonds than for futures on the debt of Designated Foreign
Governments. These differences may lead to less efficient hedging and
operational differences in cross-margining and collateral management
for participants who treat the two as economically equivalent. Some
participants may rely on imperfect proxy hedges in place of direct
positions.
The proposed amendment is designed to address this disparity by
applying the same regulatory treatment to futures on EU debt as futures
on the debt of Designated Foreign Governments that are EU member
states. It does so through two elements: (i) adding the EU to the
Rule's list of issuers whose debt is designated as exempted securities
solely for purposes of the offer, sale, or confirmation of sale of
Qualifying Foreign Futures Contracts on those obligations; and (ii)
adding a definition of ``debt obligation of the European Union'' to
identify the instruments within the Rule's scope. This means that the
Rule's conditions (i.e., board-of-trade execution, non-registration of
the underlying securities, and foreign delivery) would apply to futures
on EU debt obligations in the same manner as they currently apply to
futures on the debt obligations of the currently Designated Foreign
Governments. By deeming EU debt obligations to be exempted securities
for this purpose, the amendment would remove futures on EU debt from
the security futures regime and place them under the CFTC's futures
framework, which would permit them to be traded on U.S. futures
exchanges and accessed by a broader population of U.S. market
participants.
The proposed amendment to Rule 3a12-8 could have several economic
effects. The proposed amendment could create benefits such as the
expansion of the number of venues through which U.S. market
participants may trade futures on EU bonds and could broaden access to
those markets for certain categories of U.S. traders who currently face
restrictions (e.g., non-QIB investors). The amendment could also
produce benefits that do not depend on trading migrating to U.S.
exchanges: (i) non-QIB investors that currently hedge EU debt exposures
with proxy instruments could hedge them directly, and (ii) participants
holding positions in both futures on EU bonds and futures on the debt
obligations of Designated Foreign Governments that are EU member states
could manage those positions under a single regulatory framework.
At the same time, if U.S. futures exchanges start trading futures
on EU bonds, the proposed amendment to Rule 3a12-8 could make it more
difficult for regulators to surveil trading activity across
jurisdictions, which in turn may make it more difficult to detect some
forms of market manipulation in the markets for EU bonds and futures on
EU bonds. However, existing data sharing agreements the CFTC has with
FBOTs and MOUs it maintains with foreign regulators are likely to limit
this effect.\112\ There is also the risk that liquidity could decrease
for futures on EU bonds if new trading venues increase fragmentation
without a corresponding increase in trading volume. In addition,
liquidity could decrease for futures on the debt obligations of
Designated Foreign Governments that are EU member states if market
participants substitute futures on EU bonds for their use of futures on
the debt obligations of EU member states, although any such effect
would depend on the degree to which participants regard the two
instruments as substitutes.\113\ The proposed amendment is not expected
to impose direct compliance costs on exchanges or market participants,
because it permits, rather than requires, the activity to which it
applies.
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\112\ See infra section IV.B.4 for further discussion of
surveillance between futures markets.
\113\ See infra section IV.C.2 for a discussion of the effects
of cross product substitutions between futures on the debt
obligations of the EU and futures on the debt of Designated Foreign
Governments that are EU member states.
---------------------------------------------------------------------------
The Commission has considered these and other economic effects
discussed below. The Commission is providing a qualitative assessment
of them, supplemented by quantitative information where available. The
Commission is unable to quantify many of these effects for two reasons.
First, the Commission cannot reasonably obtain certain data that may
inform its analysis of those effects. Second, even where the Commission
has some data, quantification is not practicable due to the number and
type of assumptions necessary to quantify certain economic
[[Page 56399]]
effects, which render any such quantification unreliable. Where
feasible, the Commission has incorporated available quantitative
information, such as measures of the size and activity of the relevant
markets, to inform its analysis. The Commission's inability to quantify
certain benefits, costs, and effects does not imply that the Commission
believes such benefits, costs, or effects are less significant, and the
Commission requests that commenters provide relevant data and
information to assist the Commission in quantifying the economic
consequences of the proposed amendment to Rule 3a12-8.
B. Baseline
1. Current State of Market Access for U.S. Investors
U.S. investors can currently trade futures contracts on EU debt
obligations through the conditional pathway established by the 2009
Exemptive Order.\114\ Under Rule 3a12-8, the Commission designates the
debt \115\ of specific foreign governments as ``exempted securities''
for purposes only of the offer, sale or confirmation of sale of a
Qualifying Foreign Futures Contract. As such, futures on the debt of
these Designated Foreign Governments, 11 of which are EU member
states,\116\ are subject to the exclusive jurisdiction of the CFTC. By
contrast, futures on EU debt are subject to the separate regulatory
framework that applies to security futures, subject to the joint
jurisdiction of the Commission and the CFTC.
---------------------------------------------------------------------------
\114\ See supra section II. Background and supra note 59 and
accompanying text; see also Eurex, Eurex to launch futures on EU
bonds (Apr. 23, 2025), available at <a href="https://www.eurex.com/ex-en/find/news-center/news/Eurex-to-launch-futures-on-EU-bonds--4411966">https://www.eurex.com/ex-en/find/news-center/news/Eurex-to-launch-futures-on-EU-bonds--4411966</a>.
\115\ See supra note 39.
\116\ The 11 EU member states are France, Austria, Denmark,
Finland, the Netherlands, Germany, Ireland, Italy, Spain, Belgium
and Sweden. See supra note 37.
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The 2009 Exemptive Order grants conditional exemptive relief
permitting U.S. QIBs,\117\ and certain intermediaries acting on their
behalf, to trade foreign security futures on a non-U.S. exchange,
provided that the security futures are issued, cleared, and settled
outside the U.S.\118\
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\117\ A QIB is generally an institutional investor that, in the
aggregate, owns and invests on a discretionary basis at least $100
million in securities of issuers not affiliated with it. See 17 CFR
230.144A(a)(1); see supra note 28 and accompanying text. The
Commission granted the 2009 Exemptive Order as an exemption from
Exchange Act section 6(h)(1). See Order Granting an Exemption from
Exchange Act section 6(h)(1) for Certain Persons Effecting
Transactions in Foreign Security Futures, Exchange Act Release No.
34-60194, 74 FR 32200 (July 7, 2009). Additionally, as of 2025, one
study estimated that 4,000-5,000 institutions in the United States
qualified as QIBs. See The Vanderbilt Terminal for Securities
Tokenization Regulation, available at <a href="https://sectokenization.com/offering-exemptions/rule-144a-institutional-token-resales">https://sectokenization.com/offering-exemptions/rule-144a-institutional-token-resales</a>.
\118\ See supra note 26. The 2009 Exemptive Order further
conditions relief on the security futures being issued, cleared, and
settled outside the United States, without physical delivery in the
United States. Both Eurex Deutschland and ICE Futures Europe hold
current Orders of Registration as FBOTs under 17 CFR part 48,
permitting eligible U.S. members and participants to access their
electronic trading platforms (CFTC, List of Foreign Boards of Trade
Registered with the Commission, <a href="https://www.cftc.gov/IndustryOversight/IndustryFilings/ForeignBoardsofTrade">https://www.cftc.gov/IndustryOversight/IndustryFilings/ForeignBoardsofTrade</a>). Eurex lists
futures on the debt of Designated Foreign Governments that are EU
member states--including Euro-Bund (Bund), Euro-OAT (OAT), Euro-BTP
(BTP), and Euro-Bono (Bono) futures--as well as futures on EU bonds;
ICE Futures Europe lists Long EU Bond Index futures. Bund, OAT, BTP,
and Bono are the debt securities of the Federal Republic of Germany,
the French Republic, the Republic of Italy, and the Kingdom of
Spain, respectively. See Eurex, Eurex to launch futures on EU bonds
(Apr. 23, 2025), <a href="https://www.eurex.com/ex-en/find/news-center/news/Eurex-to-launch-futures-on-EU-bonds--4411966">https://www.eurex.com/ex-en/find/news-center/news/Eurex-to-launch-futures-on-EU-bonds--4411966</a>; ICE Futures Europe
Circular 24/143, <a href="https://www.ice.com/publicdocs/circulars/24143.pdf">https://www.ice.com/publicdocs/circulars/24143.pdf</a>
---------------------------------------------------------------------------
In contrast, under Rule 3a12-8, futures on the debt of Designated
Foreign Governments fall under the CFTC's foreign-futures regime as
``exempted securities'' and are accessible by a broader set of U.S.
investors (i.e., they can be traded by both QIBs and non-QIBs).\119\ An
FCM carrying such positions for U.S. customers must register with the
CFTC (or, if a foreign firm, qualify for exemptive relief under 17 CFR
30.10), hold customer margin as the ``secured amount'' under 17 CFR
30.7, furnish the risk disclosure statement required by 17 CFR 30.6,
and file the required reports.\120\ An IB soliciting or accepting such
orders must likewise register (or qualify for relief) and provide the
required disclosures, with its business carried and guaranteed by a
registered FCM (or a Sec. 30.10-exempt firm).\121\ As of September 16,
2024, following CFTC rule changes, U.S.-registered IBs may become
direct members of Eurex,\122\ and obtain full electronic access to
trade Bund futures, BTP futures,\123\ and futures on the debt of other
Designated Foreign Governments during U.S. market hours.\124\
---------------------------------------------------------------------------
\119\ See 17 CFR part 30 (Foreign Futures and Foreign Options
Transactions); see also 17 CFR 30.1(a).
\120\ See 17 CFR 30.4 (registration); 17 CFR 30.7 (secured
amount); 17 CFR 30.6 (risk disclosure statement); 17 CFR 30.10
(exemptive relief for foreign firms); see also CFTC, Foreign Markets
and Products--Sales of Foreign Products, <a href="https://www.cftc.gov/International/ForeignMarketsandProducts/foreignprodsales.html">https://www.cftc.gov/International/ForeignMarketsandProducts/foreignprodsales.html</a>. As of
May 31, 2026, the intermediary market comprised of 71 FCMs, 883 IBs,
1,068 CPOs, and 1,172 CTAs registered with the CFTC and Members of
the National Futures Association. The Commission is unaware,
however, of the number or identity of those intermediaries with
access to FBOTs. See National Futures Association, Membership and
Directories, <a href="https://www.nfa.futures.org/registration-membership/membership-and-directories.html">https://www.nfa.futures.org/registration-membership/membership-and-directories.html</a>.
\121\ See 17 CFR 30.4; 17 CFR 30.6; 17 CFR 30.10.
\122\ An FBOT registered with the CFTC may grant ``direct
access''--the ability to enter orders directly into the FBOT's
trade-matching system--to U.S.-located participants specified by
CFTC rule, including proprietary traders, registered FCMs and IBs
submitting customer orders (with a registered FCM, or a firm exempt
under 17 CFR 30.10, guaranteeing the trades), and registered or
exempt CPOs and CTAs. See 17 CFR part 48. The IB category was added
by the CFTC's 2024 amendments to part 48. See Registration of
Foreign Boards of Trade, 89 FR 66201 (Aug. 15, 2024); CFTC Press
Release No. 8935-24 (July 29, 2024); Eurex, U.S. Introducing Broker
Direct Eurex Access, <a href="https://www.eurex.com/ex-en/rules-regs/eurex-derivatives-us/us-introducing-broker-direct-eurex-access">https://www.eurex.com/ex-en/rules-regs/eurex-derivatives-us/us-introducing-broker-direct-eurex-access</a>.
\123\ ``Bund futures'' means exchange-traded futures contracts
on the notional long-term debt obligations of the Federal Republic
of Germany (Bundesanleihen), and ``BTP futures'' means exchange-
traded futures contracts on the notional long-term debt obligations
of the Republic of Italy (Buoni del Tesoro Poliennali, or ``BTPs'').
See German Finance Agency (Bundesrepublik Deutschland--Finanzagentur
GmbH), Federal Bonds (Bund), <a href="https://www.deutsche-finanzagentur.de/en/federal-securities/types-of-federal-securities/federal-bonds">https://www.deutsche-finanzagentur.de/en/federal-securities/types-of-federal-securities/federal-bonds</a>
(last visited Jul. 25, 2026); Italian Ministry of Economy and
Finance, Department of the Treasury, Treasury Bonds--BTP (Buoni del
Tesoro Poliennali), <a href="https://www.dt.mef.gov.it/en/debito_pubblico/titoli_di_stato/quali_sono_titoli/btp/">https://www.dt.mef.gov.it/en/debito_pubblico/titoli_di_stato/quali_sono_titoli/btp/</a> (last visited Jul. 25, 2026).
For a discussion of EU bond futures, see supra section III.B.
\124\ See supra note 118 for discussions on which exchanges list
futures on the debt obligations of Designated Foreign Governments
that are EU member states.
---------------------------------------------------------------------------
2. Differentiated Regulatory Treatments for Futures on EU Member State-
and EU Debt Obligations
Differentiated regulatory treatment exists between futures on the
debt obligations of EU member states that are Designated Foreign
Governments and futures on debt obligations of the EU, even though the
characteristics of EU debt obligations have grown increasingly
comparable to those of the designated EU sovereigns. More specifically,
the EU's credit quality resembles that of designated EU sovereigns, its
issuance has grown to approximate an established sovereign's scale and
structure, and its market liquidity is consistent with a sovereign-
style curve.\125\ As a result, a growing
[[Page 56400]]
EU-level cash and repurchase agreement (repo) transaction market
coexists with a futures market that remains more complete \126\ for the
debt obligations of EU member states that are Designated Foreign
Governments than for EU debt obligations.
---------------------------------------------------------------------------
\125\ See infra section IV.B.3. See also Report from the
Commission to the European Parliament and the Council, COM (2025)
588 final, available at <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52025DC0588">https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52025DC0588</a>. See also European Commission, Ninth
half-yearly report on the execution of the EU borrowing and lending
operations (Apr. 14, 2026): <a href="https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/analyses-and-reports_en">https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations/analyses-and-reports_en</a>; European Commission press release, available at <a href="https://ec.europa.eu/commission/presscorner/api/files/document/print/en/ip_25_1597/IP_25_1597_EN.pdf">https://ec.europa.eu/commission/presscorner/api/files/document/print/en/ip_25_1597/IP_25_1597_EN.pdf</a>.
\126\ In the sense of a state-contingent complete market where
contracts are traded for every conceivable future state of the
world.
---------------------------------------------------------------------------
Under the current regulatory framework, U.S. investors seeking to
hedge EU debt obligations face a different set of available instruments
than those seeking to hedge the debt obligations of EU member states
that are Designated Foreign Governments under Rule 3a12-8. Futures on
the debt obligations of those member states are subject to the
exclusive jurisdiction of the CFTC and may be traded on U.S. futures
exchanges by a broader set of U.S. investors (i.e., QIBs and non-QIBs),
while futures on EU debt obligations are currently treated as security
futures and may only be accessed by certain eligible U.S. persons
(i.e., QIBs) through registered FBOTs under the conditions of the 2009
Exemptive Order.\127\ This regulatory asymmetry affects both categories
of U.S. investors, though in different ways: non-QIB investors do not
have access to futures on EU bonds, while QIB investors face more
restrictive access conditions for futures on EU bonds than for futures
on the debt of Designated Foreign Governments. This asymmetry in
available hedging instruments may lead non-QIB investors to rely on
strategies such as proxy hedges when seeking to hedge exposures to EU
debt obligations.\128\
---------------------------------------------------------------------------
\127\ Trades on U.S. futures exchanges under Rule 3a12-8 are
subject to the definitions discussed in supra section III.D.2. See
also supra section IV.B.1 discussing the current state of market
access for different types of U.S. investors.
\128\ For example, US non-QIB investors may use German Bund
futures (or another highly correlated European government bond
future) as a proxy hedge.
---------------------------------------------------------------------------
The asymmetry in the treatment of futures on the debt obligations
of EU member states and futures on the debt obligations of the EU may
be associated with fragmented liquidity and potential differences in
transaction costs. The current framework may also affect operational
considerations such as cross-margining, collateral use, and broker
connectivity for participants who treat EU member state and EU debt
obligations as substitutable instruments for euro rate hedging
purposes.
3. EU Debt Quality and Characteristics
EU debt issuance has grown substantially in scale and turnover and
has developed secondary-market support mechanisms, including dedicated
quoting arrangements and repurchase transaction infrastructure. EU debt
obligations exhibit credit-quality characteristics comparable to the
debt obligations of EU member states that are currently Designated
Foreign Governments under Rule 3a12-8.
In less than a decade, EU debt has reached a scale comparable to
that of EU sovereign issuers currently designated under Rule 3a12-8,
measured by outstanding debt and issuance depth.\129\ The EU issued
[euro]152.3 billion in long-term funding in 2025, reaching a total
outstanding debt of [euro]702 billion; \130\ the EU executed 22 EU bill
auctions throughout 2025,\131\ ending the year with outstanding short-
term EU bills totaling [euro]36.8 billion.\132\ In comparison, at the
end of 2024, general government public debt of Germany, the largest
economy in the European Union, stood at approximately [euro]2.51
trillion; Germany issued [euro]290.5 billion in capital-market
instruments in 2025 (via 77 auctions and two syndicated transactions)
and [euro]134.5 billion in Bubills (short-term German treasury
bills).\133\ Belgium and Sweden were added as Designated Foreign
Governments in the most recent determinations to amend Rule 3a12-
8.\134\ In Sweden, the National Debt Office reported central government
debt of [euro]110.50 billion (SEK 1,221 billion) as of May 2026, of
which [euro]87.02 billion (SEK 961.5 billion) comprised government
bonds.\135\ Belgium's federal government had outstanding debt totaling
[euro]553.1 billion at the end of December 2025.\136\
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\129\ The EU first entered the market as a large-scale issuer in
October 2020 through its first SURE social bond program transaction,
while the first NextGenerationEU program EU-Bond transaction took
place on June 14, 2021. See European Commission Newsroom,
Introduction: Taking Stock and Looking Ahead (Dec. 16, 2025),
available at <a href="https://ec.europa.eu/newsroom/budget/items/914954/en">https://ec.europa.eu/newsroom/budget/items/914954/en</a>;
see also European Commission, NextGenerationEU: European Commission
raises [euro]20 billion in first transaction to support Europe's
recovery (June 14, 2021), available at <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_21_2982">https://ec.europa.eu/commission/presscorner/detail/en/IP_21_2982</a>. For a detailed
description of EU as a borrower, see <a href="https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations_en">https://commission.europa.eu/strategy-and-policy/eu-budget/eu-borrower-investor-relations_en</a>.
\130\ See European Union: EU Transactions in Q4 2025, available
at <a href="https://ec.europa.eu/newsroom/budget/items/914832/en">https://ec.europa.eu/newsroom/budget/items/914832/en</a>. Long-term
issuance in the first half of 2025 carried an average maturity of
roughly 12 years (based on six syndicated transactions and seven
auctions). See Report from the Commission to the European Parliament
and the Council, 1 January 2025 to 30 June 2025, available at
<a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52025DC0588">https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52025DC0588</a>.
\131\ With allocations of [euro]805 million, [euro]798 million,
and [euro]1.185 billion in separate maturities. See EU Transactions
in Q4 2025, available at <a href="https://ec.europa.eu/newsroom/budget/items/914832/en">https://ec.europa.eu/newsroom/budget/items/914832/en</a>.
\132\ See European Commission--``BUDGET-EU Transactions in Q4
2025'' (15 Dec 2025) available at <a href="https://ec.europa.eu/newsroom/budget/items/914832/en">https://ec.europa.eu/newsroom/budget/items/914832/en</a>; European Commission, EU Transactions in Q4
2025 (Dec. 15, 2025), available at <a href="https://ec.europa.eu/newsroom/budget/redirection/item/914832/en/2706">https://ec.europa.eu/newsroom/budget/redirection/item/914832/en/2706</a>. See also <a href="https://commission.europa.eu/news-and-media/news/results-03-12-2025-auction-eu-bills-2025-12-03_en">https://commission.europa.eu/news-and-media/news/results-03-12-2025-auction-eu-bills-2025-12-03_en</a>. See also supra note 124.
\133\ See Bundesrepublik Deutschland--Finanzagentur GmbH,
Investor Presentation Quarterly (July 2026), available at <a href="https://www.deutsche-finanzagentur.de/fileadmin/user_upload/Institutionelle-investoren/praesentation/Investor_Presentation_quarterly.pdf">https://www.deutsche-finanzagentur.de/fileadmin/user_upload/Institutionelle-investoren/praesentation/Investor_Presentation_quarterly.pdf</a>. See
also Issuance Calendar Update Q4/2025 (Sept. 2025), available at
<a href="https://www.deutsche-finanzagentur.de/fileadmin/user_upload/Institutionelle-investoren/praesentation/2025_09_18_Issuance_Outlook_Q4_2025.pdf">https://www.deutsche-finanzagentur.de/fileadmin/user_upload/Institutionelle-investoren/praesentation/2025_09_18_Issuance_Outlook_Q4_2025.pdf</a>.
\134\ See supra section III.B.
\135\ See Swedish National Debt Office, Government debt by
markets, available at <a href="https://www.riksgalden.se/en/statistics/statistics-regarding-swedens-central-government-debt/government-debt-by-markets/">https://www.riksgalden.se/en/statistics/statistics-regarding-swedens-central-government-debt/government-debt-by-markets/</a>. The central government debt of Sweden increased by
[euro]8.42 billion (SEK 93 billion) during 2025, available at
<a href="https://www.riksgalden.se/en/press-and-publications/press-releases-and-news/news/2026/higher-government-debt-but-lower-cost-in-2025/">https://www.riksgalden.se/en/press-and-publications/press-releases-and-news/news/2026/higher-government-debt-but-lower-cost-in-2025/</a>.
Federal debt of the Belgian government rose by around [euro]22.03
billion during the second half of 2025, available at <a href="https://news.belgium.be/sites/default/files/news-items/attachments/2024-12/Borrowing_requirements_2025.pdf">https://news.belgium.be/sites/default/files/news-items/attachments/2024-12/Borrowing_requirements_2025.pdf</a>. All Swedish Krona (SEK) values were
converted to EUR using Bloomberg L.P., SEK-EUR X-RATE (SEKEUR:CUR),
0.0905 EUR, as of 4:31 p.m. EDT, July 24, 2026, available at <a href="https://www.bloomberg.com/quote/SEKEUR:CUR">https://www.bloomberg.com/quote/SEKEUR:CUR</a>. Note that at the same point in
time, 1 EUR was valued at 1.1389 USD.
\136\ See Press Release from Belgian Debt Agency, available at
<a href="https://news.belgium.be/en/federal-government-debt-end-december-2025">https://news.belgium.be/en/federal-government-debt-end-december-2025</a>.
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The composition of EU debt at the end of 2025 reflects an issuance
structure that approximates those of established sovereign issuers:
roughly 95 percent of outstanding debt was issued as bonds and about 5
percent as bills, with EU bonds serving as the dominant funding
instrument and EU bills providing short-term money-market
flexibility.\137\ This structure
[[Page 56401]]
closely mirrors the debt profiles of mature sovereign issuers already
included in Rule 3a12-8, which typically maintain a large, liquid
benchmark bond curve supported by a smaller bill program used for cash
management and short-term funding needs.\138\
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\137\ At the end of June 2025, for example, the EU had
[euro]661.6 billion in EU bonds outstanding and [euro]33.3 billion
in EU bills outstanding, resulting in approximately 95 to 5 percent
shares. See Report from the Commission to the European Parliament
and the Council, 1 January 2025 to 30 June 2025, at 3, available at
<a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52025DC0588">https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52025DC0588</a>. By comparison, France maintained a similar
composition, with approximately [euro]2.66 trillion in outstanding
medium- and long-term securities (Obligations Assimilables du
Tr[eacute]sor, or ``OATs'') and approximately [euro]220 billion in
outstanding short-term securities (Bons du Tr[eacute]sor [agrave]
taux fixe et [agrave] int[eacute]r[ecirc]ts
pr[eacute]compt[eacute]s, or ``BTFs''), resulting in roughly 92 to 8
percent shares. See Agence France Tr[eacute]sor, Negotiable Debt
Outstanding at 31 July 2026 (updated Aug. 7, 2026), available at
<a href="https://www.aft.gouv.fr/en/debt-key-figures">https://www.aft.gouv.fr/en/debt-key-figures</a>; see also Agence France
Tr[eacute]sor, OATs Debt Outstanding, available at <a href="https://www.aft.gouv.fr/en/encours-detaille-oat">https://www.aft.gouv.fr/en/encours-detaille-oat</a> (last visited on Aug. 24,
2026); Agence France Tr[eacute]sor, BTFs Debt Outstanding, available
at <a href="https://www.aft.gouv.fr/en/encours-detaille-btf">https://www.aft.gouv.fr/en/encours-detaille-btf</a> (last visited on
Aug. 24, 2026); Agence France Tr[eacute]sor, Monthly Bulletin,
available at <a href="https://www.aft.gouv.fr/en/bulletins-mensuels">https://www.aft.gouv.fr/en/bulletins-mensuels</a> (last
visited on Aug. 24, 2026).
\138\ See supra section III.B for additional comparisons between
EU bonds and the bonds of EU sovereign nations.
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The trading volume in the secondary market for EU bonds has grown
rapidly, and the supporting market infrastructure is comparable to that
of the bonds of other Designated Foreign Governments that are EU member
states.\139\ In the first half of 2025, EU bond trading volume was on
par with some of the major EU sovereigns, e.g., it was similar in size
to the trading volume on Spain's bonds and about a third of the size of
the trading volume of Germany's.\140\ This represents a more than five-
fold increase in trading volume between the first half of 2022 and the
end of 2025.\141\ Since November 2023, the EU has implemented a quoting
arrangements system that encourages EU primary dealers to post reliable
bid-offer quotes for EU bonds on leading electronic trading platforms
(MTS and BrokerTec); in the first month alone, 24 out of 37 primary
dealers participated, delivering nearly [euro]900 million in daily
average trading volumes, with peak days exceeding [euro]2 billion.\142\
The EU implemented the EU Repo Facility in October 2024, enabling
primary dealers to access eligible EU bond securities from the EU on a
temporary basis via Eurex Repo and cleared through Eurex Clearing.\143\
---------------------------------------------------------------------------
\139\ Many market participants view the EU as a sovereign
issuer. See supra notes 44 (describing ICMA's inclusion of the EU in
its sovereign issuer report) and 45 (noting that in a European
Commission survey, 80% of investors saw EU bonds as substitutes for
core area government bonds) and accompanying text.
\140\ See supra Table 2 for information on EU and sovereign bond
trading volume.
\141\ See supra section III.B.2 for further discussions on EU
bond trading volume.
\142\ See European Commission Newsroom, available at <a href="https://ec.europa.eu/newsroom/budget/items/810218/en">https://ec.europa.eu/newsroom/budget/items/810218/en</a>, <a href="https://ec.europa.eu/newsroom/budget/items/800637/en">https://ec.europa.eu/newsroom/budget/items/800637/en</a>.
\143\ See European Commission Newsroom, available at <a href="https://ec.europa.eu/newsroom/budget/items/849939/en">https://ec.europa.eu/newsroom/budget/items/849939/en</a>. See also <a href="https://www.eurexgroup.com/xetra-en/newsroom/press-releases/list-press-releases/EU-Commission-joins-Eurex-s-repo-market-4138824">https://www.eurexgroup.com/xetra-en/newsroom/press-releases/list-press-releases/EU-Commission-joins-Eurex-s-repo-market-4138824</a>.
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4. Surveillance Across U.S. Futures Exchanges, FBOTs, and Bond Trades
U.S. futures exchanges and FBOTs maintain various surveillance
mechanisms. These mechanisms are both embedded within each exchange,
and facilitated through various agreements, some of which are cross-
border. Some of these mechanisms are enforced by the CFTC through
Memoranda of Understanding (MOUs) with market authorities in other
countries. EU member states have surveillance requirements set by the
European Securities and Markets Authority (ESMA). ESMA rules facilitate
the sharing of information across the market for futures on EU debt
obligations and the market for EU debt obligations.
The CFTC requires U.S. futures exchanges to maintain active
oversight of trades conducted on their exchanges.\144\ FBOTs are
required to maintain similar mechanisms as a condition of providing
direct access to U.S. investors.\145\ Furthermore, as a condition of
registration with the CFTC, an FBOT must agree to share transaction and
clearing data with the CFTC.\146\ In addition, the CFTC maintains MOUs
with foreign authorities to cooperate on registration.\147\
---------------------------------------------------------------------------
\144\ See 17 CFR 242.821(b) and 17 CFR 38.157.
\145\ See 17 CFR 48.7(b) and (g).
\146\ See, e.g., Exhibit H--Information Sharing Agreements Among
the Commission, the Foreign Board of Trade, the Clearing
Organization, and Relevant Regulatory Authorities, available at
<a href="https://www.cftc.gov/sites/default/files/groups/public/@otherif/documents/ifdocs/orgiceeexhibthjun160927.pdf">https://www.cftc.gov/sites/default/files/groups/public/@otherif/documents/ifdocs/orgiceeexhibthjun160927.pdf</a>.
\147\ See, for example, the MOU on the sharing of information on
derivatives clearing organizations that have applied or may apply to
the European Securities Markets Authority (ESMA) to be recognized as
central counterparties, available at <a href="https://www.cftc.gov/sites/default/files/idc/groups/public/@internationalaffairs/documents/file/cftc-esma-clearingmou060216.pdf">https://www.cftc.gov/sites/default/files/idc/groups/public/@internationalaffairs/documents/file/cftc-esma-clearingmou060216.pdf</a>. A more concise summary of the
MOU is available at <a href="https://www.cftc.gov/PressRoom/PressReleases/7384-16">https://www.cftc.gov/PressRoom/PressReleases/7384-16</a>.
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ESMA rules are particularly relevant, to the extent that debt
obligations of the EU trade within the framework of the ESMA. The ESMA
has rules governing surveillance, including the collection of client
IDs and execution data.\148\ European exchanges are also members of the
Intermarket Surveillance Group, a cooperative that facilitates the
sharing of information among self-regulatory organizations (SROs) for
regulatory purposes.\149\ In addition, the EU relies upon sharing of
trade data across member states, along with maintaining repositories
containing over-the-counter (OTC) trade data.\150\ However, there is no
requirement compelling any EU regulatory authority to share with any
U.S. regulatory authority OTC trade data on debt obligations of the EU.
OTC bond trades may be relevant to coordinate surveillance in the
futures market for EU debt obligations and corresponding spot markets.
---------------------------------------------------------------------------
\148\ See European Securities and Market Authority, Final
Report: Guidelines on transaction reporting, order record keeping
and clock synchronisation under MiFID II (Oct. 10, 2016) at 7-9, 26-
and 29, available at <a href="https://www.esma.europa.eu/sites/default/files/library/2016-1451_final_report_on_guidelines_mifid_ii_transaction_reporting.pdf">https://www.esma.europa.eu/sites/default/files/library/2016-1451_final_report_on_guidelines_mifid_ii_transaction_reporting.pdf</a>.
\149\ See Intermarket Surveillance Group, Overview, available at
<a href="https://isgportal.org/page/isg_overview">https://isgportal.org/page/isg_overview</a> (last visited Aug. 19,
2026).
\150\ See European Commission, Derivatives/EMIR (December 4,
2025), available at <a href="https://finance.ec.europa.eu/financial-markets/financial-markets-policy/post-trade-services/derivatives-emir_en">https://finance.ec.europa.eu/financial-markets/financial-markets-policy/post-trade-services/derivatives-emir_en</a> and
European Commission, The implementation of market surveillance in
Europe, available at <a href="https://single-market-economy.ec.europa.eu/single-market/goods/building-blocks/market-surveillance/organisation_en">https://single-market-economy.ec.europa.eu/single-market/goods/building-blocks/market-surveillance/organisation_en</a> (last visited Aug.19, 2026.
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5. Competition in the Market for Trading Services
Exchanges in the futures market compete to supply traders with
execution services. These trading venues, which compete to match
traders with counterparties, provide a framework for trading and for
the dissemination of trading information. Currently, the Commission's
2009 Exemptive Order only allows QIBs or their intermediaries to trade
futures on foreign sovereign bonds not treated as exempted securities
under Rule 3a12-8 (including futures on EU debt obligations) on certain
FBOTs.\151\ The market for trading services in futures on EU debt
obligations currently consists of two exchanges: Eurex Deutschland
\152\ and ICE Futures Europe \153\, which are
[[Page 56402]]
CFTC-registered FBOTs.\154\ In contrast, under Rule 3a12-8, futures on
the debt obligations of Designated Foreign Governments are allowed to
be traded by U.S. investors (including both QIBs and non-QIBs) on U.S.
futures exchanges and FBOTs.\155\ However, futures on the debt
obligations of Designated Foreign Governments that are EU members are
currently traded on FBOTs and not on U.S. futures exchanges.\156\
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\151\ In addition, the 2009 Exemptive Order requires that the
foreign security future be issued, cleared, and settled outside the
U.S. See supra notes 28, 29 and accompanying text.
\152\ Eurex Deutschland began offering clearing services for
Euro-EU bond futures on September 10, 2025. See Eurex, Fixed Income
Derivatives: introduction of Euro-EU Bond-Futures (Apr. 23, 2025) at
1, available at <a href="https://www.cftc.gov/sites/default/files/filings/orgrules/25/04/rules04282519706.pdf">https://www.cftc.gov/sites/default/files/filings/orgrules/25/04/rules04282519706.pdf</a>. These futures were announced as
physically deliverable contracts with maturities ranging from eight
to twelve years. See Lucy Carter, MARKETS MEDIA GROUP, Eurex
launches EU bond futures (Apr. 23, 2025), available at <a href="https://www.fi-desk.com/eurex-launches-eu-bond-futures/">https://www.fi-desk.com/eurex-launches-eu-bond-futures/</a>.
\153\ ICE Futures Europe began offering Long EU Bond Index
futures on December 10, 2024. See Intercontinental Exchange, Inc.,
ICE Launches Long European Union Bond Index Futures (December 10,
2024), available at <a href="https://ir.theice.com/press/news-details/2024/ICE-Launches-Long-European-Union-Bond-Index-Futures/default.aspx">https://ir.theice.com/press/news-details/2024/ICE-Launches-Long-European-Union-Bond-Index-Futures/default.aspx</a>.
The cash-settled futures have as the underlying the ICE 8-13 Year
European Union Index. This index is a subset of the ICE European
Union Index including all securities with a remaining term to final
maturity greater than or equal to 8 years and less than 13 years.
ICE European Union Index tracks the performance of EUR denominated
debt publicly issued by the European Union in the Eurobond or Euro
member domestic markets. Qualifying securities must have a fixed
coupon schedule and a minimum amount outstanding of EUR 1 billion.
See Intercontinental Exchange, Inc., Long EU Bond Future (2024),
available at <a href="https://www.ice.com/publicdocs/Long_EU_Bond_Future.pdf">https://www.ice.com/publicdocs/Long_EU_Bond_Future.pdf</a>.
\154\ Eurex Deutschland and ICE Futures Europe became registered
FBOTs on 10/31/2016. See Commodity Futures Trading Commission,
Foreign Boards of Trade (FBOT), available at <a href="https://www.cftc.gov/IndustryOversight/IndustryFilings/ForeignBoardsofTrade">https://www.cftc.gov/IndustryOversight/IndustryFilings/ForeignBoardsofTrade</a> (last visited
on Aug. 19, 2026).
\155\ See supra section III.D.2.
\156\ As of June 11, 2026, neither CME Group nor ICE Futures
U.S. currently trade products on sovereign futures under Rule 3a12-
8. See CME Group, CME Group All Products--Codes and Slate, available
at <a href="https://www.cmegroup.com/markets/products">https://www.cmegroup.com/markets/products</a> (last visited Aug. 19,
2026); Intercontinental Exchange, Inc., Products--Futures & Options,
available at <a href="https://www.ice.com/products/Futures-Options?filter=IFUS">https://www.ice.com/products/Futures-Options?filter=IFUS</a> (last visited Aug.19, 2026). See supra note 118
for discussions on which exchanges list futures on the debt
obligations of Designated Foreign Governments that are EU member
states.
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C. Benefits and Costs
The benefits that may accrue from the proposed amendment to Rule
3a12-8 would primarily affect U.S. investors who currently trade
futures on EU bonds on FBOTs (i.e., QIB investors), and U.S. investors
who may wish to trade futures on EU bonds but currently cannot do so
under the existing regulatory framework (i.e., non-QIB investors). The
EU may also benefit from the proposed amendment if they spur more
trading in EU bonds. To the extent that futures on EU debt obligations
begin to trade on U.S. futures exchanges, the proposed amendment could
make it more difficult for regulators to coordinate surveillance across
jurisdictions, which may make it more difficult to detect some forms of
market manipulation in the EU bond future and spot markets. However,
these difficulties are likely to be mitigated by existing CFTC MOUs
with foreign regulators. It is also possible that liquidity could
decrease for futures on EU debt obligations and also for futures on the
debt obligations of Designated Foreign Governments that are EU member
states, although any such effects would likely be limited due to
greater competition among futures exchanges and the degree of
substitutability between futures on EU debt obligations and futures on
the debt obligations of EU member states. The proposed amendment is not
expected to impose direct compliance costs on exchanges or market
participants.
1. Benefits
The proposed amendment to Rule 3a12-8 would create benefits for
U.S. investors and the EU. U.S. investors may benefit from access to
additional venues for trading futures on EU debt obligations. U.S. non-
QIB traders may benefit from gaining access to futures on EU bonds. The
EU may also benefit from an expanded market for its debt, which may
lower transaction costs. However, these benefits may be limited to the
extent that trading in futures on EU bonds remains primarily on FBOTs.
For instance, the sovereign debt included in Rule 3a12-8 does not
currently have corresponding futures trading on U.S. futures
exchanges.\157\
---------------------------------------------------------------------------
\157\ See supra note 156 and accompanying text.
---------------------------------------------------------------------------
Under the proposed amendment, U.S. investors would be able to trade
futures on EU debt obligations on U.S. futures exchanges in addition to
FBOTs. In the absence of the proposed amendment, these futures are
currently considered security futures and thus could only be traded on
FBOTs, in accordance with and subject to the conditions specified in
the Commission's 2009 Exemptive Order.\158\ These FBOTs may not be
subject to the jurisdiction of the Commission as securities futures
exchanges, but they would still be subject to CFTC rules applicable to
futures exchanges.\159\
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\158\ The addition of EU debt obligations to Rule 3a12-8 would
allow for the trading of futures on EU debt obligations outside of
the security futures regime. See supra notes 23-32 and accompanying
text (describing the requirements under the 2009 Exemptive Order).
\159\ See Commodity Futures Trading Commission, Foreign Markets,
Products, & Intermediaries: Access to Foreign Markets from the U.S.,
available at <a href="https://www.cftc.gov/International/ForeignMarketsandProducts/foreignmkts.html">https://www.cftc.gov/International/ForeignMarketsandProducts/foreignmkts.html</a> (last visited Aug.19,
2026).
---------------------------------------------------------------------------
Trading on U.S. futures exchanges could spur changes to FBOTs, to
the benefit of QIBs. The entry of U.S. exchanges into the futures
market for EU bonds may increase exchange competition, which could
lower costs for QIBs.\160\ For example, FBOTs could lower access fees
or introduce other incentives for QIBs to attract order flow away from
U.S. futures exchanges.\161\ They could also increase the number of
futures products based on debt obligations of the EU offered on each
exchange. For example, an FBOT could offer EU futures products on 8-
and 10-year EU bonds, whereas before they might have only offered
futures on 8-year EU bonds.\162\
---------------------------------------------------------------------------
\160\ Spreads could also fall due to greater non-QIB
participation. See infra note 165 and accompanying text.
\161\ Greater competition among exchanges could lower access
fees. See, for example, Baldauf, Markus & Mollner, Joshua, Trading
in Fragmented Markets, 56 J. Fin. & Quant. Analysis (2021)
(``Trading'').
\162\ Eurex lists a suite of German Federal government bond
futures spanning the 2-, 5-, 10-, and 30-year maturities--the Euro-
Schatz, Euro-Bobl, Euro-Bund, and Euro-Buxl futures, respectively.
See Bundesrepublik Deutschland--Finanzagentur GmbH, Futures Market,
available at <a href="https://www.deutsche-finanzagentur.de/en/federal-securities/trading/futures-market">https://www.deutsche-finanzagentur.de/en/federal-securities/trading/futures-market</a> (last visited Aug. 19, 2026).
---------------------------------------------------------------------------
U.S. non-QIB traders would also be able to trade EU debt futures on
U.S. futures exchanges or on FBOTs.\163\ The benefits to these traders
would come from gaining access to futures on EU debt obligations.\164\
With the ability to trade these futures, non-QIB traders would have a
hedge against trades involving EU bonds. This could expand trading of
debt obligations of the EU by U.S. non-QIB traders. Futures could also
serve as a substitute for trading directly in debt obligations of the
EU, particularly if OTC trades in EU bonds are scarce in the United
States.
---------------------------------------------------------------------------
\163\ Futures trades are subject to margin requirements. See
supra note 24. Non-QIB traders could engage in futures trades if
they satisfy margin requirements, among other possible requirements.
\164\ Trades are currently limited to QIBs or their
intermediaries, in accordance with the 2009 Exemptive Order. See
supra note 117.
---------------------------------------------------------------------------
Access to futures on EU debt obligations would also allow non-QIB
investors who currently use correlated instruments, such as Bund
futures or other EU member state government bond futures, as proxy
hedges for exposures to EU debt obligations to hedge those positions
directly. Because a proxy hedge of this kind introduces basis risk
(i.e., the risk that the price of the proxy instrument and the price of
the hedged EU debt obligations do not move together), replacing such a
proxy hedge with a direct hedge using futures on EU bonds could reduce
that risk. The magnitude of this benefit would depend on how closely
available proxy instruments track EU debt obligations and on the extent
to which non-QIB investors adopt futures on EU debt obligations.
In addition, greater participation by non-QIB traders could
contribute to greater market depth and narrower bid-ask spreads,
reducing transaction costs
[[Page 56403]]
for QIB and non-QIB traders.\165\ However, this effect depends on
whether the proposed amendment results in a material increase in
trading activity, which is uncertain given that existing sovereign debt
futures designated under Rule 3a12-8 are not currently traded on U.S.
futures exchanges.\166\
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\165\ See, for example, Stoll, Hans R., Inferring the Components
of the Bid-Ask Spread: Theory and Empirical Tests, 44 J. Fin. 115
(1989), available at <a href="https://onlinelibrary.wiley.com/doi/epdf/10.1111/j.1540-6261.1989.tb02407.x">https://onlinelibrary.wiley.com/doi/epdf/10.1111/j.1540-6261.1989.tb02407.x</a>.
\166\ See supra note 156 and accompanying text. If trading
activity does increase, leading to an increase in liquidity, this
could also lower manipulation risk. For example, see Comerton-Forde,
Carole and Putnins, Talis J., Stock Price Manipulation: Prevalence
and Determinants 18 Rev. Fin. 23 (2014), available at <a href="https://academic.oup.com/rof/article/18/1/23/1614377">https://academic.oup.com/rof/article/18/1/23/1614377</a> (``Stocks with high
levels of information asymmetry and mid to low levels of liquidity
are most likely to be manipulated'').
---------------------------------------------------------------------------
More broadly, QIBs that treat debt obligations of the EU and the
debt of Designated Foreign Governments that are EU member states as
substitutable instruments for euro interest-rate hedging, and that
therefore hold positions in both types of futures, currently manage
those positions under two different regulatory regimes. By bringing
futures on EU debt obligations within the same framework that governs
futures on the debt obligations of designated EU member states, the
proposed amendment could reduce the operational friction arising from
managing positions under two different regulatory regimes, for example,
by enabling QIBs to manage both types of positions on U.S. futures
exchanges.\167\ To the extent U.S. futures exchanges and their
associated clearing organizations offer margin offsets between the two
types of positions, QIBs could also reduce total margin requirements
and improve collateral efficiency, though whether such offsets would be
available is uncertain.
---------------------------------------------------------------------------
\167\ Under the Proposed Amendment, non-QIBs could also manage
their positions in futures on EU debt obligations and futures on
debt obligations of Designated Foreign Governments that are EU
member states under the same regulatory regime.
---------------------------------------------------------------------------
The EU could benefit from lower borrowing costs if the proposed
amendment spurs more trading in EU bonds. This could occur if increased
access to the market for futures on EU debt obligations, or reduced
transaction costs, made hedging EU bond exposures more viable. The
increased ability of U.S. non-QIB traders to hedge could cause demand
for EU bonds to increase in the secondary market, which could narrow
bid-ask spreads and reduce the liquidity premium that investors require
to hold EU debt obligations. Lower liquidity premiums may, in turn,
lower borrowing costs in the primary market.
These benefits may be limited if there is no material increase in
the number of market participants.\168\ This could occur for several
reasons. For example, FBOTs may develop competitive incentives to
prevent order flow from migrating to U.S. exchanges, which could also
result in benefits that accrue to all U.S. investors. However, the lack
of uptake on U.S. futures exchanges to sovereign debt futures included
under Rule 3a12-8 may also indicate a lack of interest among U.S. non-
QIB traders. This behavior could repeat for futures on EU debt
obligations. Another reason could be that these contracts require
delivery outside of the U.S., its possessions, or its territories.\169\
---------------------------------------------------------------------------
\168\ See supra note 156 and accompanying text. Sovereign debt
futures included under Rule 3a12-8 seem to lack uptake on U.S.
futures exchanges.
\169\ See supra note 20.
---------------------------------------------------------------------------
2. Costs
The proposed amendment to Rule 3a12-8 could create indirect costs.
If U.S. futures exchanges start trading futures on EU debt obligations,
market surveillance could become more difficult because of coordinating
surveillance across jurisdictions.\170\ However, this is likely to be
mitigated by existing CFTC MOUs with foreign regulators. There is also
the possibility that volatility and spreads could rise. There is a
possibility that liquidity could be reduced in the market for futures
on EU debt obligations and also in the market for futures on the debt
obligations of EU member states, although any such effect would likely
be limited. The proposed amendment is not expected to impose direct
compliance costs on exchanges or market participants because the
proposed amendment grants permissions, but does not impose any
obligations. The indirect costs described below may be limited if
trading of futures on EU debt obligations remains on current FBOTs.
---------------------------------------------------------------------------
\170\ Surveillance frameworks factor into the costs of the
proposed amendment to Rule 3a12-8. The proposed amendment to Rule
3a12-8 would permit the trading of futures on EU debt obligations on
U.S. futures exchanges. Since futures on EU debt obligations could
be traded in the both the U.S. and the EU, surveillance in the
markets for EU debt obligations and their underlying securities
could change. A potential cost of the rule is an increase in
surveillance issues that span different jurisdictions, which would
be mitigated by the surveillance frameworks of the U.S. and EU.
---------------------------------------------------------------------------
There is a possibility that greater speculative trading by U.S.
retail investors could increase volatility in the market on EU debt
obligations and the corresponding futures market.\171\ Academic
research shows that retail participation in other derivatives markets,
such as the options markets,\172\ can lead to increased volatility, and
it is possible that this finding could hold true for the futures market
as well. To the extent such volatility does arise, non-QIB traders may
themselves be more impacted by adverse movements in their futures
positions, particularly if they lack the risk-management tools
available to institutional participants. Non-QIBs' participation in
futures on EU debt obligations could increase if products are
introduced similar to those for futures on the debt of EU member
states.\173\ However, differences between the options and futures
markets, or lack of interest by non-QIBs, may limit speculative retail
trading activity in futures on EU bonds.\174\
---------------------------------------------------------------------------
\171\ Futures for EU debt obligations could increase in
popularity, particularly if new futures products are released for
retail investors. For example, Euronext recently issued mini-sized
government bond futures for retail investors. See Euronext, Euronext
launches an innovative suite of fixed income derivatives on main
European government bonds (September 22, 2025), available at <a href="https://www.euronext.com/en/about/media/euronext-press-releases/euronext-launches-innovative-suite-fixed-income-derivatives">https://www.euronext.com/en/about/media/euronext-press-releases/euronext-launches-innovative-suite-fixed-income-derivatives</a>.
\172\ See Brogaard, Jonathan, Han, Jaehee, and Won, Peter Y.,
Does 0DTE Options Trading Increase Volatility? available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4426358">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4426358</a>. In addition,
greater retail participation in options markets seems to create
greater volatility in the underlying stock. See Lipson, Marc L.,
Tomio, Davide, and Zhang, Jiang, A Real Cost of Free Trades: Retail
Option Trading Increases the Volatility of Underlying Securities,
available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4383463">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4383463</a>.
\173\ See supra note 171.
\174\ One difference between options and futures markets is the
possibility of unlimited losses for both sides of a futures trade.
For options, unlimited losses are possible when selling uncovered
call or uncovered put options.
---------------------------------------------------------------------------
If the number of trading venues for futures on EU debt obligations
increases without a proportional increase in total participation and
trading volume, order flow in those markets could become fragmented.
Fragmentation could reduce liquidity within individual venues,
increasing the adverse selection risk faced by liquidity providers. To
offset that risk, liquidity providers may widen their bid-ask spreads,
raising transaction costs for all participants in the market for
futures on EU debt obligations.\175\ However, as discussed above,
greater competition among exchanges could limit total cost increases if
they also lower exchange access costs.
---------------------------------------------------------------------------
\175\ Exchange fees could fall while spreads could increase in
the market for futures on EU debt obligations. See, for example,
Trading supra note 161.
---------------------------------------------------------------------------
A related but unique effect could arise in a different market:
futures on the debt of Designated Foreign Governments that
[[Page 56404]]
are EU member states. This cost would result from substitution between
instruments. Participants that currently use member-state futures
(e.g., Bund or BTP futures) as proxies for hedging debt obligations of
the EU may shift some of that activity to futures on EU debt
obligations once the latter become available on U.S. futures exchanges,
or to non-QIB traders on FBOTs.\176\ Unlike the fragmentation effect
described above, which disperses existing futures order flow on EU debt
obligations across more venues, this substitution effect would reduce
the total volume of activity in member-state futures markets. To the
extent such migration occurs, liquidity in the affected member-state
futures could be modestly reduced, which could widen spreads in those
markets. Any such effect would likely be limited, and it would depend
on the degree to which participants regard the two instruments as
substitutes and on the extent of any increase in trading in futures on
EU bonds.
---------------------------------------------------------------------------
\176\ See supra section IV.C.1. for a discussion of the benefits
from U.S. traders no longer needing to trade proxies for future on
EU debt obligations.
---------------------------------------------------------------------------
Another potential cost of the rule is that, to the extent that
futures on EU debt obligations start trading on U.S. futures exchanges,
it may be more difficult to conduct cross-market surveillance. However,
these costs associated with the proposed amendment may be limited to
the extent that all trading on futures on EU debt obligations remained
on current FBOTs and the proposed amendment did not result in changes
in trading activity in the market for futures on EU debt
obligations.\177\
---------------------------------------------------------------------------
\177\ See supra section IV.C.1. for a discussion of the
possibility that the proposed amendment to Rule 3a12-8 does not
change behavior or participation in the market for futures on EU
debt obligations.
---------------------------------------------------------------------------
Because futures on EU debt obligations could be traded in both the
U.S. and the EU under the proposed amendments, surveillance in the
market for futures on EU debt obligations and the corresponding
underlying markets could change. It may be more difficult to detect
market manipulation spread across multiple jurisdictions. A trader may
manipulate prices in the futures market in order to affect the
underlying bond market. For example, a trader could engage in wash
sales at a particular price in order to raise futures prices, then sell
bonds in the secondary market at the time that the futures expire. This
manipulation could take place on multiple futures exchanges across
different jurisdictions. However, both the EU and the U.S. have rules
requiring surveillance of futures markets and exchanges and the CFTC
has existing data sharing agreements with FBOTs and MOUs it maintains
with foreign regulators.\178\ This could mitigate any gaps and
coordination issues between the EU and U.S. regulatory regimes and
limit difficulties in detecting manipulation risks which cross
jurisdictions. However, U.S. regulators lack access to data on OTC
trades in EU bonds, making manipulation in the secondary EU bond market
more difficult for U.S. regulators to detect.\179\
---------------------------------------------------------------------------
\178\ See supra section IV.B.4 for a discussion of surveillance
of futures markets.
\179\ See id.
---------------------------------------------------------------------------
D. Effects on Efficiency, Competition, and Capital Formation
1. Efficiency
The proposed amendment could affect market efficiency in three
respects: its effect on the informational efficiency of prices, its
effect on the operational efficiency of managing hedging positions, and
its effect on the allocation of trading activity across substitutable
instruments.
With respect to informational efficiency, to the extent that the
proposed amendment results in additional trading venues and a broader
population of market participants in the markets for futures on EU
bonds, it could contribute to price discovery in those markets.\180\
Futures markets can contribute to price discovery in underlying cash
markets when futures prices reflect information from a broad and
competitive set of market participants. If the proposed amendment were
to increase participation in the market for EU debt obligations, this
could improve the informational content of prices for debt obligations
of the EU, which in turn could improve price discovery and therefore
price efficiency in the cash markets for futures on EU debt obligations
through the arbitrage and hedging activity that links the two
markets.\181\ Furthermore, increased participation could lower
transaction costs, which could also improve price efficiency.\182\
However, these effects are not certain. The relationship between market
participation and price discovery depends on the informational quality
of the additional order flow. If additional participation consists
primarily of less-informed traders, the effect on price discovery could
be limited or could introduce additional noise into prices.
---------------------------------------------------------------------------
\180\ See supra section IV.C.1. for a discussion of the proposed
amendment to Rule 3a12-8 on changes in market participants and
trading venues in the market for futures on EU bonds.
\181\ See id.
\182\ Id.
---------------------------------------------------------------------------
Separately, if the proposed amendment were to fragment order flow
across a larger number of venues without a corresponding increase in
total trading activity, it could reduce rather than improve
liquidity.\183\ A reduction in liquidity could contribute to higher
bid-ask spreads, which could reduce price efficiency.\184\
---------------------------------------------------------------------------
\183\ See supra section IV.C.2. for a discussion of greater
fragmentation of order flow for futures on EU debt obligations
leading to adverse effects.
\184\ See id.
---------------------------------------------------------------------------
With respect to operational efficiency, the proposed amendment
could reduce the costs that participants incur in executing a given
hedging strategy, independent of any effect on price discovery. QIBs
that hold positions in both futures on EU debt obligations and futures
on the debt of Designated Foreign Governments that are EU member states
currently manage those positions under two different regulatory
regimes; the proposed amendment could reduce the associated operational
friction, including potential issues that might arise in cross-
margining and collateral-management complexity, by bringing both types
of futures within the same regulatory framework.\185\ Relatedly, non-
QIB investors that currently hedge exposures to EU debt obligations
with proxy instruments could hedge those exposures directly, reducing
the basis risk associated with proxy hedging. Unlike the price-
efficiency effects described above, these operational efficiency gains
do not depend on U.S. futures exchanges listing futures on EU debt
obligations or on a material increase in trading activity; they arise
for any affected participant upon the proposed amendment taking effect.
The magnitude of these gains would depend on the number of participants
affected and, in the case of margin efficiencies, on whether the
relevant exchanges and clearing organizations offer margin offsets.
---------------------------------------------------------------------------
\185\ See supra section IV.C.1 for a discussion of the reduction
in cross-margining and collateral-management complexity due to the
proposed amendment.
---------------------------------------------------------------------------
With respect to allocative efficiency, by applying the same
regulatory treatment to futures on EU debt obligations as to futures on
the debt of Designated Foreign Governments that are EU member states,
the proposed amendment would allow market participants to choose
between these instruments on the basis of their economic
characteristics rather than on the basis of differing regulatory
[[Page 56405]]
accessibility. To the extent participants currently select futures on
EU member-state debt obligations over futures on EU debt obligations
because member-state futures are more readily accessible, the proposed
amendment could improve the allocation of activity between the two
instruments. Relatedly, the migration of hedging activity from futures
on EU member-state debt obligations to futures on EU debt obligations
could also reflect an improvement in allocative efficiency, insofar as
it represents activity moving to the instrument that more closely
matches participants' underlying economic exposures.\186\
---------------------------------------------------------------------------
\186\ See supra sections IV.C.1. and IV.C.2. for a discussion of
costs and benefits due to U.S. investors no longer needing to use
the futures on the debt obligations of EU member states as a proxy
for futures on EU debt obligations.
---------------------------------------------------------------------------
2. Competition
The proposed amendment could increase competition among trading
venues and intermediaries in the market for trading services in futures
on EU debt obligations.
To the extent that U.S. futures exchanges elect to list futures on
EU debt obligations, they would compete with existing FBOTs for order
flow in the market for futures on EU debt obligations. This competition
could affect the terms on which trading venues offer access to market
participants, including exchange access fees, margin requirements, and
other conditions of participation. Whether this competitive dynamic
would materially affect venue access conditions is uncertain. If U.S.
exchanges list futures on EU debt obligations, competition could also
arise among clearing organizations, potentially affecting clearing fees
and the availability of margin offsets for participants who clear
multiple products at the same organization.\187\
---------------------------------------------------------------------------
\187\ Some exchanges may utilize independent clearing
organizations, and sometimes for specific products. For example,
CBOE Futures Exchange (CFE) uses the Options Clearing Corporation
for all of its products. In addition, CFE intends to use multiple
clearing houses, with CBOE Clear U.S., LLC as the clearing
organization for financially settled bitcoin and ether futures. See
Securities Exchange Act Release No. 102760 (Apr. 8, 2025), 90 FR
15180. No matter the arrangement by an exchange, clearing would have
to take place overseas. See supra note 32.
---------------------------------------------------------------------------
This competitive dynamic could produce effects even if trading in
futures on EU debt obligations continues to occur primarily on FBOTs.
The prospect of U.S. futures exchanges entering the market for futures
on EU debt obligations could prompt incumbent FBOTs to respond
competitively, for example by lowering access fees, offering other
incentives to retain order flow, or offering a greater variety of
futures products on the debt obligations of the EU.\188\ To the extent
FBOTs respond in this manner, the resulting benefits could accrue to
the U.S. investors that access those venues, including QIBs, regardless
of whether trading migrates to U.S. exchanges in material volume.
---------------------------------------------------------------------------
\188\ See supra section IV.C.1 on how FBOTs may respond to
competition from U.S. futures exchanges for order flow in the
futures market for EU debt obligations.
---------------------------------------------------------------------------
Competition among venues could also affect the cost of
intermediation. If trading venues compete for order flow by adjusting
their access conditions or fee structures, intermediaries may respond
by adjusting their own fee structures or by registering to trade on
additional venues.\189\ This could affect the cost of intermediation
for end users of markets for futures on EU debt obligations. However,
the extent of these effects depends on whether U.S. futures exchanges
list futures on EU debt obligations and whether the proposed amendment
results in a material change in the competitive dynamics of the
market.\190\
---------------------------------------------------------------------------
\189\ See supra section IV.C.1 for a discussion of how trading
venues may adjust their access conditions or fee structures to
compete for order flow due to the proposed amendment to Rule 3a12-8.
See supra section IV.A.1. for a discussion of the current state of
the market for intermediary services.
\190\ See supra section IV.C.1. for a discussion of the
possibility that the proposed amendment to Rule 3a12-8 has no effect
on the market for futures on EU debt obligations.
---------------------------------------------------------------------------
3. Capital Formation
The proposed amendment could improve capital formation, although
there is a limited possibility that it may reduce capital formation if
there is an increase in fragmentation of order flow across multiple
venues without a corresponding increase in trading volume.
To the extent that the proposed amendment reduces transaction costs
and improves liquidity in markets for futures on EU debt obligations,
it could support demand for EU debt in secondary trading markets.\191\
Greater secondary market liquidity can lower the cost of capital for
issuers by reducing the liquidity premium that investors require to
hold EU debt obligations. If the proposed amendment were to have the
effect of reducing the liquidity premium, it could modestly reduce the
EU's cost of raising capital.
---------------------------------------------------------------------------
\191\ See supra section IV.C.1. for a discussion of why demand
for EU bonds could increase in the secondary market due to the
proposed amendment to Rule 3a12-8.
---------------------------------------------------------------------------
However, this transmission mechanism involves several steps, each
of which is uncertain, and the overall effect on EU capital formation
may be limited. The proposed amendment could also affect capital
formation through its effects on U.S. market participants. To the
extent that the amendment reduces the cost of accessing markets for
futures on EU debt obligations for QIBs, it could free up capital that
might otherwise be absorbed by hedging costs, potentially making
additional capital available for deployment in other markets, including
through domestic reinvestment in U.S. capital markets.\192\ However,
the magnitude of this effect is uncertain and depends on the extent to
which the proposed amendment reduces hedging costs.
---------------------------------------------------------------------------
\192\ See supra section IV.C.1. for a discussion of why access
costs could decrease.
---------------------------------------------------------------------------
If the proposed amendment were to fragment order flow across a
larger number of venues without a corresponding increase in total
trading activity, this could reduce liquidity and widen bid-ask spreads
in the markets for futures on EU debt obligations, as discussed
above.\193\ To the extent that occurred, lower secondary market
liquidity could increase the liquidity premium that investors require
to hold EU bonds, which could raise the EU's cost of capital.
---------------------------------------------------------------------------
\193\ See supra section IV.C.1.
---------------------------------------------------------------------------
E. Reasonable Alternatives
1. Restrict Proposed Amendment to QIBs
As an alternative to the proposed amendment to Rule 3a12-8, the
Commission could add the EU to Rule 3a12-8 while restricting futures
trading on U.S. exchanges of the debt obligations of the EU to QIBs,
thereby limiting the expansion of market access to the population
already permitted to trade futures on EU debt obligations under the
2009 Exemptive Order. This would reduce the surveillance difficulties
compared to the proposed amendment.\194\ However, the benefits could
also be reduced. U.S. non-QIB traders would be unable to trade these
futures, which could reduce U.S. investors' incentives to hold debt
obligations of the EU because non-QIB investors would be unable to use
futures to hedge those positions.\195\ As a result, this alternative
could reduce capital
[[Page 56406]]
formation for both the EU and the U.S. relative to the proposed
amendment.\196\
---------------------------------------------------------------------------
\194\ Id.
\195\ See supra section IV.C.1. for a discussion of the benefits
to U.S. non-QIB investors.
\196\ See supra section IV.D.3. for a discussion of the effects
of the proposed amendment on capital formation.
---------------------------------------------------------------------------
2. Rescind Rule 3a12-8
As another alternative to the proposed amendment, the Commission
could rescind Rule 3a12-8 in its entirety. This would remove the
exempted security designation from the debt of all Designated Foreign
Governments currently listed in the Rule, making futures on those
governments' debt subject to the same regulatory treatment as futures
on EU debt obligations, i.e., trading pursuant to the conditions of the
2009 Exemptive Order. Under this alternative, futures on the debt of
all currently Designated Foreign Governments, including the eleven EU
member states currently listed in Rule 3a12-8, would be treated as
security futures and subject to the joint jurisdiction of the
Commission and the CFTC. Compared to the proposed amendments,
coordinating surveillance across jurisdictions would be less difficult,
since futures trades could only be effected through QIBs or their
intermediaries \197\ and the number of venues on which such futures
could be traded would be reduced.\198\
---------------------------------------------------------------------------
\197\ See supra notes 28 and 29 for discussions on why only QIBs
or their intermediaries would be allowed to trade futures on EU debt
obligations.
\198\ See supra section IV.C.2. for a discussion of surveillance
issues.
---------------------------------------------------------------------------
Non-QIB investors would be unable to trade the sovereign debt
futures of those countries currently included under Rule 3a12-8. QIB
investors could trade the futures through FBOTs.\199\ If no FBOT
registered with the Commission offers futures on particular sovereign
debt, access would be further restricted. Non-QIB investors would lack
the ability to use futures as hedges against the sovereign debt of all
currently designated governments, increasing the hedging costs and
risks borne by non-QIB traders who participate in those markets.\200\
---------------------------------------------------------------------------
\199\ See supra notes 28 and 29 for discussions on why QIBs or
their intermediaries are limited to trading futures on EU debt
obligations on FBOTs under the Commission's 2009 Exemptive Order.
\200\ See supra section IV.C.1. for a discussion of the benefits
of using futures on EU debt obligation as a hedge against the
purchase of EU debt.
---------------------------------------------------------------------------
Under the rescission alternative, the efficiency gains associated
with broader investor participation in futures and sovereign debt
markets from the proposed amendment would not be realized. A lack of
non-QIB investor participation in futures markets could create futures
markets with limited depth, leading to higher volatility.\201\ Reduced
non-QIB participation in sovereign debt markets, owing to the absence
of futures hedges, could reduce price discovery in foreign bond
markets.\202\ This could harm U.S. investors who choose to participate
in these markets.
---------------------------------------------------------------------------
\201\ See supra section IV.C.2. for a discussion of changes in
volatility in the futures markets on EU debt obligations.
\202\ See supra section IV.D.1. for a discussion of improved
price discovery as a result of the proposed amendment.
---------------------------------------------------------------------------
Capital formation could be reduced relative to the proposed
amendment. Without access to futures as hedging instruments, non-QIB
investors may also reduce their participation in the corresponding
sovereign debt markets,\203\ which could reduce the capital formation
benefits associated with broader participation in those markets.\204\
---------------------------------------------------------------------------
\203\ See supra section IV.C.1. for the benefits to non-QIB
investors as a result of the proposed amendment.
\204\ See supra section IV.D.3. for a discussion of the possible
changes in capital formation due to the proposed amendment.
---------------------------------------------------------------------------
3. Extend Rule 3a12-8 To Exempt the Debt of All EU Member States
As an alternative to the proposed amendment, the Commission could
amend Rule 3a12-8 to designate the debt obligations of all 27 EU member
states as ``exempted securities.'' Eleven EU member states are already
designated exempted securities under the Rule.\205\ This alternative
would add the remaining sixteen: Bulgaria, Croatia, Cyprus, Czechia,
Estonia, Greece, Hungary, Latvia, Lithuania, Luxembourg, Malta, Poland,
Portugal, Romania, Slovakia, and Slovenia.\206\
---------------------------------------------------------------------------
\205\ See 17 CFR 240.3a12-8(a)(1). See also supra note 37.
\206\ Separately, of the major non-EU European sovereigns, two
are already designated--the United Kingdom and Switzerland--while
others (e.g., Norway) are not. See supra section I (listing the
Designated Foreign Governments); see also 17 CFR 240.3a12-8(a)(1).
---------------------------------------------------------------------------
This alternative could produce broader benefits than the proposed
amendments by extending comparable treatment to the futures on the debt
obligations of all EU member states. Potential benefits include more
uniform regulatory treatment, allowing participants to choose
instruments based on their economic characteristics rather than
regulatory accessibility; simplified compliance and hedging, including
reduced cross-margining, collateral complexity, and proxy-hedging basis
risk; and extended access to hedging instruments for non-QIB investors
under the CFTC's exclusive jurisdiction rather than the QIB-only
security-futures regime.\207\ Because the larger EU sovereign issuers
are already Designated Foreign Governments under Rule 3a12-8, however,
the incremental benefit would likely consist primarily of regulatory
harmonization for the smaller issuers rather than a material expansion
of trading volume.\208\
---------------------------------------------------------------------------
\207\ See supra section IV.D.1 (discussing the effects of the
proposed amendment on operational efficiency); see also supra
section IV.D.3 (discussing the effects of the proposed amendment on
capital formation).
\208\ Four already-designated issuers--Germany, Italy, France,
and Spain--account for nearly 70% of actively traded EU sovereign
bonds. See supra section III.A.
---------------------------------------------------------------------------
The costs could also be greater under this alternative because many
of the additional sovereign-debt markets are relatively small and less
liquid. At the end of 2024, for example, Estonia had approximately
[euro]9.3 billion in general government (Maastricht) debt and Malta
approximately [euro]10.6 billion,\209\ compared with approximately
[euro]2.51 trillion for Germany.\210\ Estonia's total debt stock was
therefore less than 0.5 percent of Germany's, and its debt-to-GDP ratio
of 24.1 percent at the end of 2025 was the lowest in the EU.\211\
Sovereigns of this size may issue infrequently, lack deep benchmark
yield curves, and generate insufficient secondary-market activity to
support liquid exchange-traded futures. Futures based on such debt
could trade at low volume and exhibit wider bid-ask spreads, greater
price volatility, and limited capacity for market participants to
establish or unwind positions without affecting prices. These
conditions could weaken the usefulness of the contracts as hedging
instruments, particularly if access were extended to non-QIB investors.
---------------------------------------------------------------------------
\209\ Eurostat, Euro area government deficit at 3.1% and EU at
3.2% of GDP, Euro Indicators News Release (Apr. 22, 2025), available
at <a href="https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-22042025-ap">https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-22042025-ap</a>.
\210\ See supra section IV.B (Baseline). See also Bundesrepublik
Deutschland--Finanzagentur GmbH, Investor Presentation Quarterly
(July 2026), available at <a href="https://www.deutsche-finanzagentur.de/fileadmin/user_upload/Institutionelle-investoren/praesentation/Investor_Presentation_quarterly.pdf">https://www.deutsche-finanzagentur.de/fileadmin/user_upload/Institutionelle-investoren/praesentation/Investor_Presentation_quarterly.pdf</a>.
\211\ See Eurostat, Government Finance Statistics, Statistics
Explained (Apr. 22, 2026), available at <a href="https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Government_finance_statistics">https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Government_finance_statistics</a>.
---------------------------------------------------------------------------
The alternative would also encompass sovereigns with materially
different credit profiles. The zero-percent risk-weight cited in
support of the proposed amendments does not apply uniformly to all EU
member states that are not currently Designated Foreign
Governments.\212\ Each additional
[[Page 56407]]
sovereign could therefore require a separate creditworthiness
assessment. Some of these sovereigns may have high debt-to-GDP
ratios,\213\ or a history of sovereign distress.\214\ Extending futures
on debt with weaker or more volatile credit characteristics could
expose non-QIB investors to greater liquidity and credit-related risks.
---------------------------------------------------------------------------
\212\ See 12 CFR 217.32(a) (Board of Governors of the Federal
Reserve System); 12 CFR 3.32(a) (OCC); 12 CFR 324.32(a) (FDIC).
\213\ See Eurostat (2026), supra note 211.
\214\ See European Stability Mechanism, Greece (June 2025),
available at <a href="https://www.esm.europa.eu/assistance/greece">https://www.esm.europa.eu/assistance/greece</a>.
---------------------------------------------------------------------------
Credit risk, however, is not unique to the sixteen additional
member states. Some of the sovereigns which are currently Designated
Foreign Governments, required official financial assistance during the
euro-area crisis.\215\ Moreover, some sovereign debt, despite the
sovereign's prior credit history, is comparatively large and actively
traded.\216\ These examples suggest that neither current designation
status nor EU membership alone provides a complete basis for assessing
whether futures on a sovereign's debt would support liquid trading and
effective risk management.
---------------------------------------------------------------------------
\215\ See Ireland: <a href="https://www.esm.europa.eu/assistance/ireland">https://www.esm.europa.eu/assistance/ireland</a>,
and Spain: <a href="https://www.esm.europa.eu/assistance/spain">https://www.esm.europa.eu/assistance/spain</a>.
\216\ See Eurostat, Euro Indicators News Release (Apr. 22,
2025), available at <a href="https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-22042025-ap">https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-22042025-ap</a>.
---------------------------------------------------------------------------
F. Request for Comment
The Commission requests comment on all aspects of this initial
economic analysis, including whether the analysis has: (1) identified
all benefits and costs, including all effects on efficiency,
competition, and capital formation; (2) given due consideration to each
benefit and cost, including each effect on efficiency, competition, and
capital formation; and (3) identified and considered reasonable
alternatives to the proposed new rules and rule amendments. We request
and encourage any interested person to submit comments regarding the
proposed amendment, our analysis of the potential effects of the
proposed amendment, and other matters that may have an effect on the
proposed amendment. We request that commenters identify sources of data
and information as well as provide data and information to assist us in
analyzing the economic consequences of the proposed amendment. We also
are interested in comments on the qualitative benefits and costs we
have identified and any benefits and costs we may have overlooked. In
addition to our general request for comments on the economic analysis
associated with the proposed rules and proposed amendments, we request
specific comment on certain aspects of the proposal:
Q18. What do commenters believe the impact of amending the Rule
would be on U.S. investors? On which FBOTs are EU futures primarily
traded? How much of the volume is by U.S. traders? How much of the
volume is by foreign traders, and what share of these foreign traders
are retail traders?
Q19. What do commenters believe the impact of amending the Rule
would be on the underlying market for debt obligations of the EU? What
volume of EU debt obligations are traded in the U.S.? What volume of EU
debt obligations are held by U.S. institutional investors, and what is
their overall share of the bonds held? How active are U.S.
institutional investors in the primary and secondary EU bond markets?
How active are retail traders in the secondary EU bond market?
Q20. Would any of the alternatives to amending the Rule be more
beneficial to the market and market participants rather than the
proposed amendment? In addition, are there costs that the Commission
has not considered as part of these alternatives?
Q21. Are there any barriers that would prevent FBOTs from competing
to attract order flow from U.S. exchanges due to the proposed
amendment? Would certain FBOTs set rules such that U.S. traders would
need to use an intermediary to trade futures on EU debt obligations?
Q22. Should retail trading in the options market be compared to
retail trading in futures markets? Are there aspects of futures
markets, and in particular the market for futures on EU debt
obligations, that are not comparable to options markets?
Q23. How many intermediaries registered in the U.S. currently have
access to FBOTs? Are there specific incentives that these
intermediaries would offer in order to attract order flow in the market
for futures on EU debt obligations? Are there specific incentives that
FBOTs would offer in order to attract order flow in the market for
futures on EU debt obligations?
Q24. How do introducing brokers and other intermediaries
distinguish between QIBs and non-QIB customers?
Q25. What are the reasons for a lack of uptake on U.S. futures
exchanges in sovereign debt futures exempted under Rule 3a12-8?
Q26. Would non-QIB investors mostly consist of non-QIBs who
currently trade other futures products, such as EU member state futures
products, under Rule 3a12-8? What is the current breakdown of types of
traders by euro volume in EU member state futures under Rule 3a12-8?
V. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the proposed
amendment to the Rule does not impose recordkeeping or information
collection requirements, or other collections of information which
require the approval of the Office of Management and Budget under 44
U.S.C. 3501, et seq.
VI. Regulatory Flexibility Certification
The Regulatory Flexibility Act of 1980 (``RFA'') requires the
Commission, when issuing a rulemaking proposal, to prepare and make
available for public comment an initial regulatory flexibility analysis
that describes the impact of the proposed rule on small entities,\217\
unless the Commission certifies that the rule, if ado
[…truncated; see source link]Indexed from Federal Register on September 2, 2026.
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