11.20.2009 The SEC and the Commodity Futures Trading Commission (CFTC) issued two joint orders related to security-based futures contracts to clarify each agency’s respective jurisdiction and allow additional products to underlie security futures.
The first joint order excludes certain foreign and domestic volatility indexes that are based on broad-based security indexes from the definition of “narrow-based security index.” As a result of the joint order, futures on foreign and domestic volatility indexes that meet the criteria contained in the joint order are treated as “broad-based security indexes” and subject to the exclusive jurisdiction of the CFTC. Options on such volatility indexes are subject to the federal securities laws and the jurisdiction of the SEC. The joint order became effective on November 17.
The second joint order allows security futures products to be based on any security that is eligible to underlie an exchange-listed security option, including certain unregistered debt securities if the following conditions are met:
- Each such security is a note, bond, debenture, or evidence of indebtedness that is not an equity security as defined in § 3(a)(11) of the Securities Exchange Act of 1934 (Exchange Act);
- The issuer of each such security has registered the offer and sale of the security under the Securities Act of 1933;
- The issuer of each such security, or the issuer’s parent if the issuer is a wholly owned subsidiary (as such terms are defined in Rule 1-02 of SEC Regulation S-X), has at least one class of common or preferred equity security registered under § 12(b) of the Exchange Act and listed on a national securities exchange;
- The transfer agent of each such security is registered under § 17A of the Exchange Act; and
- The trust indenture for each such security has been qualified under the Trust Indenture Act of 1939.
Click http://www.sec.gov/news/press/2009/2009-252.htm to access the release. Click http://www.sec.gov/rules/other/2009/34-61020.pdf to access the first joint order. Click http://www.sec.gov/rules/other/2009/34-61027.pdf to access the second joint order.