Eurex Deutschlands Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contracts Based on the SLI Swiss Leader Index, the Swiss Market Index Midcap, the Dow Jones Eur...

Summary: Eurex Deutschlands Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contracts Based on the SLI Swiss Leader Index, the Swiss Market Index Midcap, the Dow Jones Euro STOXX Select Dividend 30 Stock Index and the TecDAX Index.

U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-5120

Facsimile: (202) 418-5524

Office of General Counsel

CFTC Letter No. 08-13

August 18, 2008

No-Action

Office of General Counsel

Paul M. Architzel, Esq.

Alston & Bird LLP

The Atlantic Building

950 F Street, NW

Washington, DC 20004-1404

Re:

Eurex Deutschland’s Request for No-Action Relief in Connection with the Offer

and Sale in the United States of its Futures Contracts Based on the SLI Swiss

Leader Index, the Swiss Market Index Midcap, the Dow Jones Euro STOXX

Select Dividend 30 Stock Index and the TecDAX Index

Dear Mr. Architzel:

This is in response to your letters, attachments, facsimiles and electronic mail dated from

November 7, 2007 to March 7, 2008, requesting on behalf of Eurex Deutschland (“Eurex”), that

the Office of General Counsel (“Office”) of the Commodity Futures Trading Commission

(“Commission” or "CFTC") issue a “no-action” letter concerning the offer and sale in the United

States of Eurex’s futures contracts based on the SLI Swiss Leader Index (“SLI”), the Swiss

Market Index Midcap (“SMIM”), the Dow Jones Euro STOXX Select Dividend 30 Stock Index

(“Select Dividend 30”) and the TecDAX Index (“TecDAX”)(collectively, “Indices”).

We understand the facts to be as follows

Commission” or "CFTC") issue a “no-action” letter concerning the offer and sale in the United

States of Eurex’s futures contracts based on the SLI Swiss Leader Index (“SLI”), the Swiss

Market Index Midcap (“SMIM”), the Dow Jones Euro STOXX Select Dividend 30 Stock Index

(“Select Dividend 30”) and the TecDAX Index (“TecDAX”)(collectively, “Indices”).

We understand the facts to be as follows. Eurex is a futures and options exchange

located in Frankfurt, Germany and operated by Eurex Frankfurt AG.1 Eurex is regulated by and

subject to active market surveillance by German regulatory agencies, including the Exchange

Supervisory Authority in the State of Hesse, where Eurex is located, and by the German Federal

Financial Supervisory Agency (Bundesanstalt für Finanzdienstleistungsaufsicht) (the “BaFin”).

Pursuant to the German Securities Trading Act, the BaFin has responsibility for the supervision

of German securities and derivatives trading and has the authority to cooperate with competent

authorities of other countries in connection with the supervision of securities and derivatives

1 This Office previously has granted no-action relief to Eurex in connection with the offer and

sale in the U.S. of a number of Eurex’s futures contracts based on non-narrow-based security

indices, most recently see CFTC Staff Letter No. 08-05, [Current Transfer Binder] Comm. Fut.

L. Rep. (CCH) ¶ 30,801 (Mar. 6, 2008).

tries in connection with the supervision of securities and derivatives

1 This Office previously has granted no-action relief to Eurex in connection with the offer and

sale in the U.S. of a number of Eurex’s futures contracts based on non-narrow-based security

indices, most recently see CFTC Staff Letter No. 08-05, [Current Transfer Binder] Comm. Fut.

L. Rep. (CCH) ¶ 30,801 (Mar. 6, 2008).

markets and trading activity thereon, including by sharing non-public market surveillance

information.2

The SLI and SMIM, the Select Dividend 30 and the TecDAX, together with their

respective Eurex futures contracts based thereon, are described below.

SLI and SMIM

The SLI and SMIM are subsets of the SPI Index (“SPI”), which is a broad-based, free-

float market-capitalization-weighted index comprised of approximately 230 stocks of Swiss-

domiciled companies traded on the SWX Swiss Exchange (“SWX”), and its subsidiary, SWX

Europe Limited (“SWX Europe”),3 a Recognized Investment Exchange located in the United

Kingdom. The SLI includes the 30 largest (by market capitalization) and most liquid stocks

traded in the Swiss equity market represented in the SPI. The SMIM includes 30 of the largest

and most liquid mid-cap stocks of the SPI.4 Component weights of stocks in the SLI are

“capped,” so that each of the top four shares make up at most 9%, and each of the other shares

make up at most 4.5%, of the SLI. A capping formula is not applied to the SMIM.5

Based on data supplied by Eurex, the capped and free-float adjusted market capitalization

of the SLI was approximately U.S.$ 376 billion as of August 31, 2007. The free-float adjusted

market capitalization of the SMIM was approximately U.S.$ 103 billion on that date.6 The

largest single security by weight represented 10.44% of the SLI and 7.03% of the SMIM.7 The

five most heavily-weighted securities represented 41.23% of the SLI and 30.82% of the SMIM.8

2 See letter from Paul M

of August 31, 2007. The free-float adjusted

market capitalization of the SMIM was approximately U.S.$ 103 billion on that date.6 The

largest single security by weight represented 10.44% of the SLI and 7.03% of the SMIM.7 The

five most heavily-weighted securities represented 41.23% of the SLI and 30.82% of the SMIM.8

2 See letter from Paul M. Architzel, Alston & Bird LLP to Terry S. Arbit, General Counsel,

CFTC, dated November 7, 2007, (“SLI/SMIM letter”) at 9.

3 SWX Europe was formerly the Virt-x Exchange.

4 Id. at 1-2. The SMIM is one of three indices in the “SMI Family,” which includes the Swiss

Market Index (“SMI”) and the SMI Expanded. The SMI comprises the 20 largest and most

liquid equities in the SPI. The SMIM Index tracks the next 30 largest and most liquid securities.

The SMI Expanded includes stocks of both the SMI and SMIM.

5 Id. at 5-6 and Attachment A, Rule 4. Changes are made to the SLI and SMIM once a year,

following two months notice of impending changes. Ordinary adjustments to the number of

shares and the free-float are made bi-annually on the third Friday in March and September after

the close of trading. The capping factor is applied to the SLI on a quarterly basis. Extraordinary

adjustments are made in response to a corporate event as necessary to maintain the integrity of

the index. Notice of forthcoming extraordinary corporate events that will result in an adjustment

to the index is provided by electronic mail prior to the adjustment being made.

6 See electronic mail from Paul M. Architzel, Alston & Bird LLP to Julian E. Hammar, Assistant

General Counsel, CFTC, dated November 16, 2007 (attached spreadsheet).

7 Id.

8 Id.

2

maintain the integrity of

the index. Notice of forthcoming extraordinary corporate events that will result in an adjustment

to the index is provided by electronic mail prior to the adjustment being made.

6 See electronic mail from Paul M. Architzel, Alston & Bird LLP to Julian E. Hammar, Assistant

General Counsel, CFTC, dated November 16, 2007 (attached spreadsheet).

7 Id.

8 Id.

2

The securities comprising the lowest 25% of the SLI and SMIM had six-month aggregate dollar

values of average daily trading volume in excess of U.S.$ 30 million: approximately U.S.$ 1.02

billion and U.S.$ 219.8 million, respectively, for the 6-month period ending August 31, 2007.9

The Indices are calculated in real time and are disseminated by electronic means through major

data vendors, including Bloomberg and Reuters.10

With the exception of the index underlying each contract, the terms and conditions for

Eurex’s futures contracts on the SLI and SMIM largely are identical. Both contracts provide for

cash settlement. Prices for each contract are quoted in index points, with each index point equal

to 10 Swiss Francs (“CHF”) per contract.11 Eurex lists for trading the three nearest months of

the March quarterly cycle (March, June, September and December). The final settlement day of

the contracts is the third Friday of the relevant expiration month (or, if such day is not a trading

day, the trading day immediately preceding such Friday). The last trading day is the business

day prior to the final settlement day. Cash settlement occurs on the final settlement day. The

final cash settlement price for each contract is the value of the relevant underlying index

calculated based on opening prices of the component stocks on the final settlement day.12

Select Dividend 30

The Select Dividend 30 is part of the Dow Jones World Index family of indices and is

derived from the constituent stocks of the DJ STOXX 600 Index

occurs on the final settlement day. The

final cash settlement price for each contract is the value of the relevant underlying index

calculated based on opening prices of the component stocks on the final settlement day.12

Select Dividend 30

The Select Dividend 30 is part of the Dow Jones World Index family of indices and is

derived from the constituent stocks of the DJ STOXX 600 Index. The Select Dividend 30 is

calculated by STOXX Limited, a joint venture of Deutsche Boerse AG, Dow Jones & Company

and the SWX Group. The Dow Jones STOXX Select Dividend family of indices tracks the

highest-dividend-yielding companies in the included geographic area. It includes a global index

and various regional indices tracking the highest-dividend-yielding companies in the world’s and

in each region’s markets, respectively.13

The Select Dividend 30, which is the subject of this no-action request, is a broad-based,

dividend and price weighted index that tracks the highest-dividend-yielding companies in the 12

9 Id.

10 See SLI/SMIM letter at 8.

11 The contracts differ with respect to their minimum price movement. For the SLI futures

contract, the minimum price fluctuation is one-half of one index point, equal to CHF 5 per

contract. For the SMIM futures contract, the minimum price fluctuation is one Index point,

equal to CHF 10 per contract. See SLI/SMIM letter, Attachment D.

12 Id.

13 See letter from Paul M. Architzel, Alston & Bird LLP to Terry Arbit, General Counsel, CFTC,

(“Select Dividend 30 letter”), at 4.

3

ct, the minimum price fluctuation is one-half of one index point, equal to CHF 5 per

contract. For the SMIM futures contract, the minimum price fluctuation is one Index point,

equal to CHF 10 per contract. See SLI/SMIM letter, Attachment D.

12 Id.

13 See letter from Paul M. Architzel, Alston & Bird LLP to Terry Arbit, General Counsel, CFTC,

(“Select Dividend 30 letter”), at 4.

3

Euro Zone countries.14 By definition, there are 30 stocks comprising the Select Dividend 30,

which are selected annually. The universe of eligible stocks are those companies included in the

DJ STOXX 600 Index that pay a dividend, have a non-negative historical five-year dividend

growth rate, and a non-negative payout ratio of less than or equal to 60%. An out-performance

factor is then calculated for every stock.15

Based on data supplied by Eurex, the total free-float market capitalization of the stocks in

the Select Dividend 30 was approximately U.S.$ 1.326 trillion as of October 22, 2007.16 Also as

of that date, the largest single security by weight represented about 6.05%, and the five largest

securities by weight represented about 26%, of the Select Dividend 30.17 The securities

comprising the lowest 25% of the Select Dividend 30 had aggregate values of average daily

trading volume of about U.S.$ 2.42 billion over the six-month period ending October 22, 2007.18

The Select Dividend 30 is calculated in real time and disseminated by electronic means through

major data vendors, including Bloomberg and Reuters.19

Eurex’s futures contract on the Select Dividend 30 provides for cash settlement. Prices

are quoted in index points, with each index point equal to € 10 per contract. The minimum price

movement is one-half of one index point, equal to € 5 per contract. Eurex lists for trading the

three nearest months of the March quarterly cycle (March, June, September and December)

omberg and Reuters.19

Eurex’s futures contract on the Select Dividend 30 provides for cash settlement. Prices

are quoted in index points, with each index point equal to € 10 per contract. The minimum price

movement is one-half of one index point, equal to € 5 per contract. Eurex lists for trading the

three nearest months of the March quarterly cycle (March, June, September and December). The

14 Those countries are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,

Luxembourg, the Netherlands, Portugal and Spain.

15 Id. at 4-5. The out-performance factor is calculated by taking the company’s net dividend

yield and dividing it by the net yield of the respective Dow Jones Total Market Index for the

home country of the particular stock, minus 1. The stocks are then ranked by this out-

performance factor. The current constituents of the Select Dividend 30 ranked 60 or above are

retained in the index and new components are added until a total of 30 stocks is reached. The

cap on the weighting of any individual component stock of the index, which is currently 15%, is

also reviewed during the annual review. The component announcement is generally made four

weeks before implementation.

The composition of the Select Dividend 30 is reviewed quarterly. Selection lists are produced

quarterly in order to indicate possible changes in the composition of the index at the time of the

next annual review and to determine replacements for stocks that may be deleted during the

interim period. The Select Dividend 30 also may be adjusted at times other than during the

annual review to respond to extraordinary corporate events, including spin-offs, mergers,

delistings and bankruptcies. Where possible, notification of such adjustments is made at least

two trading days prior to implementation. Id. at 5.

16 Id. at 4.

17 Id.

18 Id. and Attachment B.

19 Id. at 6.

4

period. The Select Dividend 30 also may be adjusted at times other than during the

annual review to respond to extraordinary corporate events, including spin-offs, mergers,

delistings and bankruptcies. Where possible, notification of such adjustments is made at least

two trading days prior to implementation. Id. at 5.

16 Id. at 4.

17 Id.

18 Id. and Attachment B.

19 Id. at 6.

4

last trading day is the third Friday of the delivery month. Cash settlement occurs on the first

business day after the last trading day. The final cash settlement price is calculated on the last

trading day and is the arithmetic mean of the index levels that are calculated and disseminated

every fifteen seconds between 11:50 a.m. and 12:00 noon Central European Time (CET) (41

values).20

TecDAX

The TecDAX is a broad-based, free-float-market-capitalization-weighted, total-return

index of 30 technology company stocks that are the largest and most liquid issues from the

various technology sectors of the Prime Standard Segment of the Deutsche Boerse beneath the

issues included in the DAX Index.21 The TecDAX is comprised of companies that either have

their legal or operational headquarters in Germany or are European Union or European Free

Trade Association based companies that have the major share of their stock exchange turnover

on the Frankfurt Stock Exchange. Only share prices derived from trading on the Frankfurt Stock

Exchange, and its electronic trading platform, Xetra®, are included in calculating the TecDAX.

The TecDAX, together with the DAX Index and the MDAX Index, are part of the Prime

Standard, which is the segment of companies with the highest listing and reporting standards at

Deutsche Boerse. The constituent issuers that are eligible for inclusion in the TecDAX are

selected according to their sector classification, their rank in market capitalization and trading

volume

ing the TecDAX.

The TecDAX, together with the DAX Index and the MDAX Index, are part of the Prime

Standard, which is the segment of companies with the highest listing and reporting standards at

Deutsche Boerse. The constituent issuers that are eligible for inclusion in the TecDAX are

selected according to their sector classification, their rank in market capitalization and trading

volume. The weighting of each component stock in the TecDAX is capped at 10% of the total

index on a quarterly basis.22

Based on data supplied by Eurex, the TecDAX Index had a free-float market

capitalization of approximately U.S.$ 21 billion, as of February 12, 2008.23 The most highly

weighted stock comprised approximately 11.12%, and the five most heavily weighted stocks

20 Id. at 8-9 and Attachment C.

21 See letter from Paul M. Architzel, Alston & Bird LLP to Terry Arbit, General Counsel, CFTC,

dated December 7, 2007, (“TecDAX letter”) at 4-5. The DAX Index consists of the 30 German

companies with the highest volume and largest free-float market capitalization without regard to

sector classification. Indexes beneath the DAX Index are divided according to their sector

classification. Companies that are classified according to Deutsche Boerse´s classification

system as technological are eligible for the TecDAX.

22 Id. at 5. The composition of the TecDAX is reviewed quarterly in March, June, September

and December. In addition to the quarterly review, the TecDAX may be adjusted at other times

for extraordinary corporate events, including spin-offs, mergers, delistings and bankruptcies.

Where possible, notification of such adjustments is made at least two trading days prior to

implementation by Deutsche Boerse.

23 See letter from Paul M. Architzel, Alston & Bird LLP to Julian E. Hammar, Assistant General

Counsel, CFTC, dated March 6, 2008, Attachment 2.

5

ted at other times

for extraordinary corporate events, including spin-offs, mergers, delistings and bankruptcies.

Where possible, notification of such adjustments is made at least two trading days prior to

implementation by Deutsche Boerse.

23 See letter from Paul M. Architzel, Alston & Bird LLP to Julian E. Hammar, Assistant General

Counsel, CFTC, dated March 6, 2008, Attachment 2.

5

comprised approximately 41.78%, of the TecDAX.24 The securities comprising the lowest 25%

by weight of the TecDAX had an aggregate dollar value of average daily trading volume of

approximately $121 million for the six-month period ending January 31, 2008.25

Eurex’s futures contract on the TecDAX provides for cash settlement. Prices are quoted

in index points with each index point equal to € 10 per contract. The minimum price fluctuation

is one index point. Eurex lists for trading the three nearest months of the March quarterly cycle

(March, June, September and December). The last trading day is the third Friday of the delivery

month (or, if such day is not a trading day, the trading day immediately preceding such Friday).

Cash settlement occurs on the first business day after the last trading day. Trading ceases with

the start of the call phase of the intra-day auctions on Xetra®, which is at 1:00 p.m. CET on the

last trading day. The contract is cash settled based on the value of the underlying index as

calculated using the Xetra® auction prices of the respective index component shares. The

intraday auction starts at 1:00 p.m. CET and ends at 1:02 p.m. CET.

The Commodity Exchange Act (“CEA”),26 as amended by the Commodity Futures

Modernization Act of 2000 (“CFMA”),27 provides that the offer or sale in the U.S

g day. The contract is cash settled based on the value of the underlying index as

calculated using the Xetra® auction prices of the respective index component shares. The

intraday auction starts at 1:00 p.m. CET and ends at 1:02 p.m. CET.

The Commodity Exchange Act (“CEA”),26 as amended by the Commodity Futures

Modernization Act of 2000 (“CFMA”),27 provides that the offer or sale in the U.S. of futures

contracts based on a group or index of securities, including those contracts traded on or subject

to the rules of a foreign board of trade, is subject to the Commission's exclusive jurisdiction,28

with the exception of security futures products,29 over which the Commission shares jurisdiction

with the Securities and Exchange Commission (“SEC”).30 Thus, the Commission’s jurisdiction

remains exclusive with regard to futures contracts on a group or index of securities that are

broad-based pursuant to CEA Section 1a(25).31

24 Id.

25 Id.

26 7 U.S.C. § 1 et seq.

27 Appendix E of Pub. L. No. 106-554, 114 Stat. 2763 (2000).

28 See CEA Section 2(a)(1)(C)(ii).

29 A security futures product is defined as a security future or any put, call, straddle, option, or

privilege on any security future. See CEA Section 1a(32). A security future is defined 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, with certain exceptions. See CEA

Section 1a(31).

30 See CEA Section 2(a)(1)(D).

31 See CEA Section 2(a)(1)(C)(ii).

6

le, option, or

privilege on any security future. See CEA Section 1a(32). A security future is defined 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, with certain exceptions. See CEA

Section 1a(31).

30 See CEA Section 2(a)(1)(D).

31 See CEA Section 2(a)(1)(C)(ii).

6

CEA Section 2(a)(1)(C)(iv) generally prohibits any person from offering or selling a

futures contract based on a security index in the U.S., except as permitted under CEA Section

2(a)(1)(C)(ii) or CEA Section 2(a)(1)(D).32 By its terms, CEA Section 2(a)(1)(C)(iv) applies to

futures contracts on security indices traded on both domestic and foreign boards of trade. CEA

Section 2(a)(1)(C)(ii) sets forth three criteria to govern the trading of futures contracts on a group

or index of securities on designated contract markets and registered derivatives transaction

execution facilities (“DTEFs”):

(1)

the contract must provide for cash settlement;

(2)

the contract must not be readily susceptible to manipulation nor to being used to

manipulate any underlying security; and

(3)

the group or index of securities must not constitute a narrow-based security

index.33

While Section 2(a)(1)(C)(ii) provides that no contract market or DTEF may trade a

security index futures contract unless it meets the three criteria noted above, it does not explicitly

address the standards to be applied to a foreign security index futures contract traded on a foreign

board of trade. This Office has applied those same three criteria in evaluating requests by

foreign boards of trade to allow the offer and sale within the U.S

tract market or DTEF may trade a

security index futures contract unless it meets the three criteria noted above, it does not explicitly

address the standards to be applied to a foreign security index futures contract traded on a foreign

board of trade. This Office has applied those same three criteria in evaluating requests by

foreign boards of trade to allow the offer and sale within the U.S. of their foreign security index

futures contracts when those foreign boards of trade do not seek designation as a contract market

or registration as a DTEF to trade those products.34

32 CEA Section 2(a)(1)(D) governs the offer and sale of security futures products.

33 The first two criteria under CEA Section 2(a)(1)(C)(ii) were unchanged by the CFMA. With

regard to the third criterion, an index is a “narrow-based security index” under both the CEA and

the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78a et seq., if it has any one

of the following four characteristics: (1) it has nine or fewer component securities; (2) any one

of its component securities comprises more than 30% of its weighting; (3) the five highest

weighted component securities in the aggregate comprise more than 60% of the index’s

weighting; or (4) the lowest weighted component securities comprising, in the aggregate, 25% of

the index’s weighting, have an aggregate dollar value of average daily trading volume of less

than $50 million (or in the case of an index with 15 or more component securities, $30 million).

See CEA Section 1a(25)(A)(i)-(iv); Exchange Act Section 3(a)(55)(B)(i)-(iv). Thus, an index

that does not have any of these elements is not a narrow-based security index for purposes of

CEA Section 2(a)(1)(C)(ii). See also CEA Section 1a(25)(B); Exchange Act Section

3(a)(55)(C)

g volume of less

than $50 million (or in the case of an index with 15 or more component securities, $30 million).

See CEA Section 1a(25)(A)(i)-(iv); Exchange Act Section 3(a)(55)(B)(i)-(iv). Thus, an index

that does not have any of these elements is not a narrow-based security index for purposes of

CEA Section 2(a)(1)(C)(ii). See also CEA Section 1a(25)(B); Exchange Act Section

3(a)(55)(C).

34 With regard to the third criterion, the CFTC and SEC jointly promulgated Rule 41.13 under

the CEA and Rule 3a55-3 under the Exchange Act, governing security index futures contracts

traded on foreign boards of trade. These rules provide that “[w]hen a contract of sale for future

delivery on a security index is traded on or subject to the rules of a foreign board of trade, such

index shall not be a narrow-based security index if it would not be a narrow-based security index

if a futures contract on such index were traded on a designated contract market or registered

7

Accordingly, Commission staff has examined the SLI, the SMIM, the Select Dividend 30

and the TecDAX, and Eurex’s respective futures contracts based thereon, to determine whether

the Indices and the futures contracts meet the requirements enumerated in CEA Section

2(a)(1)(C)(ii). Based on the information noted herein and as set forth in the letter, attachments,

facsimiles and electronic mail cited above, we have determined that the Indices, and Eurex’s

respective futures contracts based thereon, conform to these requirements.35

In determining whether a foreign futures contract based on a foreign security index is not

readily susceptible to manipulation or being used to manipulate any underlying security, one

preliminary consideration is the requesting exchange’s ability to access information regarding

the securities underlying the index

respective futures contracts based thereon, conform to these requirements.35

In determining whether a foreign futures contract based on a foreign security index is not

readily susceptible to manipulation or being used to manipulate any underlying security, one

preliminary consideration is the requesting exchange’s ability to access information regarding

the securities underlying the index. With regard to the SLI and SMIM, all of the constituent

shares of the SLI are traded on SWX’s subsidiary SWX Europe which, as noted above, is a

Recognized Investment Exchange and is regulated by the U.K. Financial Services Authority

(“FSA”). The constituent shares of the SMIM are traded on SWX Europe and SWX, the latter of

which is supervised by the Swiss Federal Banking Commission (“SFBC”).

Eurex represents that it may request that the German regulator, the BaFin, obtain

surveillance information from the respective regulators of the SWX Europe and SWX pursuant

to BaFin’s information sharing arrangements. With regard to the shares traded on SWX Europe

in the U.K., both the BaFin and the FSA are members of the Committee of European Securities

Regulators (“CESR”). Members of CESR have entered into a Multilateral Memorandum of

Understanding on the Exchange of Information and Surveillance Activities that provides for

sharing of certain market surveillance data among CESR members. FSA and BaFin also are

signatories to the Multilateral Memorandum of Understanding Concerning Consultation and

Cooperation and the Exchange of Information of the International Organization of Securities

Commissions (“IOSCO MOU”)

orandum of

Understanding on the Exchange of Information and Surveillance Activities that provides for

sharing of certain market surveillance data among CESR members. FSA and BaFin also are

signatories to the Multilateral Memorandum of Understanding Concerning Consultation and

Cooperation and the Exchange of Information of the International Organization of Securities

Commissions (“IOSCO MOU”). With respect to the shares traded on SWX in Switzerland, the

BaFin and the SFBC have entered into a bilateral information sharing memorandum of

understanding.36 In addition, Eurex’s Trading Surveillance Office is authorized under the

derivatives transaction execution facility.” CFTC Rule 41.13, 17 C.F.R. § 41.13; Exchange Act

Rule 3a55-3, 17 C.F.R. § 240.3a55-3.

35 In making this determination, Commission staff has concluded that the SLI, the SMIM, the

Select Dividend 30 and the TecDAX do not have any of the elements of a narrow-based security

index as enumerated in CEA Section 1a(25)(A). Accordingly, the Indices would not be narrow-

based security indices if traded on a designated contract market or DTEF.

36 Eurex notes that the SFBC is legally authorized to cooperate with foreign supervisory

authorities, even in the absence of an explicit agreement to do so. If the cooperation involves the

exchange of sensitive data, the SFBC in the absence of a prior agreement requests an ad hoc

declaration of the requesting authority that the information is for the monitoring of supervised

institutions, that the requesting authority is bound by confidentiality provisions, and that the

information will be forwarded to other authorities only with the approval of the SFBC. Eurex

also notes that the CFTC may request assistance from Switzerland under the U.S.-Swiss Treaty

on Mutual Assistance in Criminal Matters. See SLI/SMIM letter at 9.

8

on is for the monitoring of supervised

institutions, that the requesting authority is bound by confidentiality provisions, and that the

information will be forwarded to other authorities only with the approval of the SFBC. Eurex

also notes that the CFTC may request assistance from Switzerland under the U.S.-Swiss Treaty

on Mutual Assistance in Criminal Matters. See SLI/SMIM letter at 9.

8

German Exchange Act to obtain information directly from, and share information directly with,

similar trading surveillance offices of other exchanges or regulators inside and outside of

Germany.37

With regard to the Select Dividend 30, all of the constituent stocks, as noted above, are

contained in the Dow Jones STOXX 600 Index, which was the subject of a no-action letter by

this Office in July 2007. In issuing that letter, this Office concluded that Eurex should have

access to information necessary to detect and deter manipulation with respect to the securities

underlying the Dow Jones STOXX 600 Index.38 We see no reason to alter that conclusion based

on the information submitted with regard to the applications for no-action relief concerning

Eurex’s futures contract on the Select Dividend 30, which is based on the Dow Jones STOXX

600 Index.

Concerning the TecDAX, all of its underlying shares are listed on the Frankfurt Stock

Exchange, and only share prices derived from trading on the Frankfurt Stock Exchange and its

Xetra® trading platform are used in calculating the TecDAX. 39 Accordingly, you represent that

37 Id. at 10. In an SEC staff no-action letter to permit, among other things, Eurex and its

participants to familiarize eligible broker-dealers and eligible institutions in the U.S

culating the TecDAX. 39 Accordingly, you represent that

37 Id. at 10. In an SEC staff no-action letter to permit, among other things, Eurex and its

participants to familiarize eligible broker-dealers and eligible institutions in the U.S. with options

traded on Eurex, including Swiss equity, index and exchange-traded fund options, without Eurex

or Eurex participants registering with the SEC, the SEC staff noted that SWX has access to

surveillance information concerning the trading of Swiss equity securities on both its own market

and on SWX Europe (then known as the Virt-x Exchange). SEC staff noted that SWX had

agreed to share with Eurex Zürich AG, the parent company of Eurex Frankfurt AG, relevant

market surveillance information concerning trading activity in Swiss equities underlying Eurex

Swiss equity, index and exchange-traded fund options traded on the SWX and the Virt-x

Exchange. It was further noted that Eurex’s Trading Surveillance Office may, in turn, request

from Eurex Zürich AG market surveillance information that Eurex Zürich AG receives from

SWX for the purposes of fulfilling the Trading Surveillance Office's monitoring, compliance,

and examination responsibilities with respect to Eurex participants, and that Eurex Zürich AG

could provide this information to Eurex’s Trading Surveillance Office. See Eurex, SEC Division

of Market Regulation No-Action Letter, 2005 WL1844502 at *18 n.11 (July 27, 2005).

Eurex has confirmed that this surveillance-sharing arrangement applies to the SLI, the SMIM,

and their underlying component securities. See letter from Paul M. Architzel, Alston & Bird

LLP to Julian E. Hammar, Assistant General Counsel, CFTC, dated March 7, 2008, at 2.

38 See CFTC Staff Letter No. CFTC Staff Letter No. 07-11, [Current Transfer Binder] Comm.

Fut. L. Rep. (CCH) ¶ 30,579 (July 18, 2007)

confirmed that this surveillance-sharing arrangement applies to the SLI, the SMIM,

and their underlying component securities. See letter from Paul M. Architzel, Alston & Bird

LLP to Julian E. Hammar, Assistant General Counsel, CFTC, dated March 7, 2008, at 2.

38 See CFTC Staff Letter No. CFTC Staff Letter No. 07-11, [Current Transfer Binder] Comm.

Fut. L. Rep. (CCH) ¶ 30,579 (July 18, 2007).

39 Six of the TecDAX’s constituent stocks are also listed on other European or U.S. exchanges,

specifically Wiener Borse, SWX Europe, Borsa Italiano, Euronext Amsterdam, and U.S.

NASDAQ. However, the Frankfurt Stock Exchange must be the primary market for trading in

these shares, and share prices from these other exchanges are not used in calculating the

TecDAX. Nonetheless, Eurex represents that it may obtain surveillance information with respect

9

the Frankfurt Stock Exchange would have direct surveillance authority with respect to every

trade that is used in determining the price of the TecDAX with respect to the component stocks

of the TecDAX. You also note that the Exchange Supervisory Authority of the State of Hesse

and BaFin conduct active market surveillance of the Frankfurt Stock Exchange. Moreover,

Eurex’s Trading Surveillance Office may obtain information directly from, and share

information directly with, the Frankfurt Stock Exchange’s Trading Surveillance Office.40

Accordingly, Eurex should have access to information with respect to the securities

underlying the SLI, SMIM, the Select Dividend 30 and the TecDAX, necessary to detect and

deter manipulation

tock Exchange. Moreover,

Eurex’s Trading Surveillance Office may obtain information directly from, and share

information directly with, the Frankfurt Stock Exchange’s Trading Surveillance Office.40

Accordingly, Eurex should have access to information with respect to the securities

underlying the SLI, SMIM, the Select Dividend 30 and the TecDAX, necessary to detect and

deter manipulation. In the event that Eurex is unable to obtain access to adequate surveillance

data in this regard, or is unable, either directly or through the BaFin, to share such data with the

CFTC, this Office reserves the right to reconsider the position we have taken herein.41

In light of the foregoing, this Office will not recommend enforcement action to the

Commission based on Sections 2(a)(1)(C)(iv), 4(a), or 12(e) of the CEA, as amended, if Eurex’s

futures contracts based on the SLI, SMIM, the Select Dividend 30 and the TecDAX, are offered

or sold in the U.S. Because this position is based upon facts and representations contained in the

letters, attachments, facsimiles and electronic mail cited above, it should be noted that any

different, omitted or changed facts or conditions might require a different conclusion. This

position also is contingent on the continued compliance by Eurex with all regulatory

requirements imposed by the BaFin, and the applicable laws and regulations of Germany and the

to trading on SWX Europe through the arrangement described above, and the other exchanges

upon request to the BaFin, which in turn may obtain such information through various bilateral

and multilateral information-sharing arrangements to which the BaFin is a party, including the

CESR Multilateral Memorandum of Understanding and the IOSCO MOU mentioned above

to trading on SWX Europe through the arrangement described above, and the other exchanges

upon request to the BaFin, which in turn may obtain such information through various bilateral

and multilateral information-sharing arrangements to which the BaFin is a party, including the

CESR Multilateral Memorandum of Understanding and the IOSCO MOU mentioned above. In

addition, Eurex’s Trading Surveillance Office is authorized to obtain information directly from

exchanges or regulators outside of Germany. See letter from Paul M. Architzel, Alston & Bird

LLP to Julian E. Hammar, Assistant General Counsel, CFTC, dated March 6, 2008, at 34.

40 Id. at 3, 33-34.

41 Eurex has confirmed that it is willing and able to cooperate with the Commission through

information sharing and other means in relation to the trading of Eurex’s SLI, SMIM, Select

Dividend 30 and TecDAX futures contracts, respectively. See SLI/SMIM letter at 10; Select

Dividend 30 letter at 8; and TecDAX letter at 8. Eurex also is a signatory to the International

Information Sharing Memorandum of Understanding and Agreement signed on March 15, 1996,

at Boca Raton, Florida. Moreover, the BaFin’s predecessor, the BAWe, and the CFTC entered

into a Memorandum of Understanding concerning Consultation and Cooperation in the

Administration and Enforcement of Futures Laws on October 17, 1997. As noted above, the

BaFin is a signatory to the IOSCO MOU, to which the Commission also is a signatory. In

addition, the BaFin, through its predecessor, is a signatory to the Declaration on Cooperation and

Supervision of International Futures Exchanges and Clearing Organizations for the sharing of

large exposure information, signed on March 15, 1996, at Boca Raton, Florida.

10

17, 1997. As noted above, the

BaFin is a signatory to the IOSCO MOU, to which the Commission also is a signatory. In

addition, the BaFin, through its predecessor, is a signatory to the Declaration on Cooperation and

Supervision of International Futures Exchanges and Clearing Organizations for the sharing of

large exposure information, signed on March 15, 1996, at Boca Raton, Florida.

10

11

State of Hesse. In addition, this position may be affected by any rules that the Commission may

adopt regarding futures contracts based on non-narrow-based security indices.

Eurex also has requested that, upon issuance of the relief granted herein, it be permitted

to make its futures contracts on the Indices available for trading through the electronic trading

terminals of its U.S. members in accordance with the terms of the August 10, 1999 foreign

terminals no-action letter, as amended (“August 10, 1999 letter”), issued by Commission staff to

Eurex.42 In this regard, Eurex has certified that it is in compliance with the terms of the August

10, 1999 letter and that Eurex’s futures contracts on the Indices will be traded in accordance with

the terms and conditions of the August 10, 1999 letter.43 We have consulted with the

Commission’s Division of Market Oversight (“Division”), which is the Division in the

Commission that administers foreign terminal no-action letters. The Division has concluded that

allowing Eurex to make its futures contracts on the Indices available for trading pursuant to the

August 10, 1999 letter would not be contrary to the public interest. Accordingly, on behalf of the

Division, this Office hereby confirms that the no-action relief granted to Eurex in the August 10,

1999 letter extends to Eurex’s futures contracts on the Indices.44

The offer and sale in the U.S

llowing Eurex to make its futures contracts on the Indices available for trading pursuant to the

August 10, 1999 letter would not be contrary to the public interest. Accordingly, on behalf of the

Division, this Office hereby confirms that the no-action relief granted to Eurex in the August 10,

1999 letter extends to Eurex’s futures contracts on the Indices.44

The offer and sale in the U.S. of Eurex’s futures contracts on the Indices is, of course,

subject to Part 30 of the Commission’s regulations, which governs the offer and sale of foreign

futures and foreign option contracts in the U.S.45

Sincerely,

Terry S. Arbit

General Counsel

42 See CFTC Staff Letter No. 99-48 [1999-2000 Transfer Binder] Comm. Fut. L. Rep. (CCH)

¶ 27,572 (Aug. 10, 1999).

43 See SLI/SMIM letter (Attachment D); Select Dividend 30 letter (Attachment D); and TecDAX

letter (Attachment D).

44 Please be advised that if Eurex intends to list options on its futures contracts based on the

Indices, it may offer and sell those options in the U.S. with no further action from this Office, see

61 Fed. Reg. 10891 (March 18, 1996). However, if Eurex intends to make such options

available for trading via direct access from electronic trading terminals in the U.S., Eurex must

notify the Division in accordance with the Notice of Revision of Commission Policy Regarding

the Listing of New Futures and Option Contracts by Foreign Boards of Trade That Have

Received Staff No-Action Relief to Provide Direct Access to Their Automated Trading Systems

From Locations in the United States, issued on April 18, 2006. See 71 Fed. Reg. 19877 (April

18, 2006).

45 See 17 C.F.R. Part 30.