Euronext Brussels, S.A.’s Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contract Based on the BEL 20 Stock Index.

Summary: Euronext Brussels, S.A.’s Request for No-Action Relief in Connection with the Offer and Sale in the United States of its Futures Contract Based on the BEL 20 Stock 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. 11-06

No-Action

August 31, 2011

Office of General Counsel

Mr. Vincent Van Dessel

CEO and Chairman of the Board

Euronext Brussels, S.A.

Palais de la Bourse Beurspaleis/

Place de la Bourse Beursplein

1000 Bruxelles Brussel

Belgium

Re:

Euronext Brussels, S.A.’s Request for No-Action Relief in Connection with the

Offer and Sale in the United States of its Futures Contract Based on the BEL 20

Stock Index

Dear Mr. Van Dessel:

This is in response to the letter and attachments dated May 9, 2009, from Mr. Bruno

Colmant and your letter dated September 21, 2009, requesting on behalf of Euronext Brussels

(“EB” or “Exchange”) that the Office of General Counsel (“Office”) of the Commodity Futures

Trading Commission (“Commission” or “CFTC”) issue a “no-action” letter in connection with

the offer and sale in the United States of EB’s futures contract based on the BEL 20 Index

(“B20” or “Index”).

We understand the facts to be as follows. EB is a subsidiary of NYSE Euronext (“NE”),

and trading on EB is governed by the rules and procedures that govern trading on all Euronext

markets.1 The EB is governed by the Belgian Act of August 2, 2002 and is subject to regulation

by the Commission Bancaire, Financere et des Assurances/Commissie voor het Bank-, Financie-

en Assurantiewezen (“CBFA”)

We understand the facts to be as follows. EB is a subsidiary of NYSE Euronext (“NE”),

and trading on EB is governed by the rules and procedures that govern trading on all Euronext

markets.1 The EB is governed by the Belgian Act of August 2, 2002 and is subject to regulation

by the Commission Bancaire, Financere et des Assurances/Commissie voor het Bank-, Financie-

en Assurantiewezen (“CBFA”). The B20 is a free-float, market-capitalization weighted index of

the largest and most liquid 20 stocks listed on EB, and it serves as the blue-chip index for the

Belgian equity market.2

1 See letter from Vincent Van Dessel, CEO and Chairman of the Board, Euronext Brussels, to

Julian Hammar, Assistant General Counsel, CFTC, dated September 21, 2009 (“Van Dessel

letter”).

2 See letter from Bruno Colmant, Chairman of the Board, Euronext Brussels, to Julian Hammar,

Counsel, CFTC, dated May 4, 2009 (“Colmant letter”) and attachment.

The B20 futures contract began trading on October 29, 1993.3 The B20 is calculated in

real time by NE and disseminated through electronic media every fifteen seconds from 9:00 a.m.

to 5:40 p.m. Central European time. The B20 is designed and constructed in a standardized

fashion and is reviewed on an annual basis at the end of December.4

To be considered for inclusion in the Index, at least 30 percent of the issued shares of a

company must be available for trading on the EB. To remain in the Index, existing shares must

maintain a free-float ratio of at least 15 percent. Securities must turn over at least 30 percent of

their free-float shares in the twelve months prior to an annual review to be eligible for inclusion in

the B20. Existing stocks in the B20 must maintain an annual free-float turnover rate of at least 25

percent. The maximum weight of a constituent stock may not exceed 12 percent at the time of the

annual adjustment of the Index

st 15 percent. Securities must turn over at least 30 percent of

their free-float shares in the twelve months prior to an annual review to be eligible for inclusion in

the B20. Existing stocks in the B20 must maintain an annual free-float turnover rate of at least 25

percent. The maximum weight of a constituent stock may not exceed 12 percent at the time of the

annual adjustment of the Index.

The selection criteria are specified in the NE “Rules for the BEL 20 Index” at articles 1.3

through 1.5.5 During the annual review, eligible stocks are ranked from highest to lowest based on

free-float market capitalization. If fewer than ten companies comply with the selection criteria, the

largest companies complying with the selection criteria except article 1.4.2, which pertains to

minimum free-float market capitalization, are added to the list until ten companies are included,

and the Index will be composed of these ten companies. If at least ten and a maximum of 20

stocks comply with the basic selection criteria, all companies are included in the Index. If more

than 20 companies comply with the selection criteria, the top 18 companies are selected for

inclusion automatically regardless of whether they are already in the Index. Existing constituents

that no longer comply with the selection criteria or have fallen below the 22nd position are removed

from the Index. The last two companies are selected based on a series of criteria specified in

article 3.5.4.6 of the rules.

As of December 2, 2010, Bloomberg data analyzed by CFTC staff indicated that the total

adjusted market capitalization of the stocks in the Index was US $89 billion. In addition, the

largest stock in the Index accounted for 13.6 percent of the Index and the five most heavily

weighted stocks accounted for 46.5 percent of the Index

ries of criteria specified in

article 3.5.4.6 of the rules.

As of December 2, 2010, Bloomberg data analyzed by CFTC staff indicated that the total

adjusted market capitalization of the stocks in the Index was US $89 billion. In addition, the

largest stock in the Index accounted for 13.6 percent of the Index and the five most heavily

weighted stocks accounted for 46.5 percent of the Index. The stocks comprising the lowest 25

percent of the Index (in terms of weighting) over the 6-month period ending December 2, 2010,

had an aggregate value of average daily trading volume of US $84.9 million.

As noted above, the B20 futures contract began trading on October 29, 1993. The futures

contract provides for cash settlement. Prices are quoted in Index points, with each Index point

3 The contract began trading on the Belgium Futures and Options Exchange (“BELFOX”), which

was acquired by NYSE Euronext in 2003 and became Euronext Brussels.

4 See attachment to Colmant letter.

5 The rules are publicly-available. A PDF file containing the rules can be found at:

http://www.euronext.com/editorial/documentation/wide/documents-1908-EN.html

2

equal to EURO10 per contract (about US $12.75 per contract).6 The minimum price fluctuation

is 0.1 Index point (about US $1.275 per contract). EB lists for trading in the spot month, the next

month, and the three nearest months in the March quarterly cycle. The last trading day is the

third Friday of the expiration month, and the settlement day is the first business day following

the last trading day.7 The final settlement price is the simple average of the B20 taken every 15

seconds from 3:40 p.m. to 4:00 p.m. on the last trading day.8

The rules of the Exchange specify no daily price limit

e three nearest months in the March quarterly cycle. The last trading day is the

third Friday of the expiration month, and the settlement day is the first business day following

the last trading day.7 The final settlement price is the simple average of the B20 taken every 15

seconds from 3:40 p.m. to 4:00 p.m. on the last trading day.8

The rules of the Exchange specify no daily price limit. EB will suspend trading of the

B20 futures contract when there is a halt or suspension of trading in the underlying stock market,

or upon the discretion of EB. In addition, the EB trading system checks each incoming order

against the prevailing reference price of the contract. Any incoming buy order that is priced

above the “value range” of the contract is rejected by the trading system, as is any incoming sell

order that is below the value range. The contract has no position limits.

The Commodity Exchange Act (“CEA” or “Act”)9 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,10 with the exception of security futures products,11 over which the Commission

shares jurisdiction with the Securities and Exchange Commission (“SEC”).12 Thus, the

Commission’s jurisdiction remains exclusive with regard to a futures contract on a group or

index of securities that is broad-based pursuant to CEA Section 1a(25).13

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

6 The exchange rate on December 2, 2010 was 1.325 Euros per U.S. dollar. See

http://www.bloomberg.com/invest/calculators/currency.html

7 See attachment to Colmant letter.

8 Id.

9 7 U.S.C. § 1 et seq.

10 See CEA Section 2(a)(1)(C)(ii)

ng a

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

6 The exchange rate on December 2, 2010 was 1.325 Euros per U.S. dollar. See

http://www.bloomberg.com/invest/calculators/currency.html

7 See attachment to Colmant letter.

8 Id.

9 7 U.S.C. § 1 et seq.

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

11 Security futures products are 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).

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

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

3

2(a)(1)(C)(ii) or CEA Section 2(a)(1)(D).14 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

(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.15

While CEA Section 2(a)(1)(C)(ii) provides that no designated 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. 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.16

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

15 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) 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)

ing; (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).

16 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 a futures contract on such index were traded

on a designated contract market or registered 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.

4

Accordingly, Commission staff has examined the B20 and EB’s futures contract based

thereon, to determine whether the Index and the futures contract meet the requirements

enumerated in CEA Section 2(a)(1)(C)(ii)

n a designated contract market or registered 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.

4

Accordingly, Commission staff has examined the B20 and EB’s futures contract based

thereon, to determine whether the Index and the futures contract meet the requirements

enumerated in CEA Section 2(a)(1)(C)(ii). Based on the information noted herein and as set

forth in the letters and attachments cited above, we have determined that the B20, and EB’s

futures contract based thereon, conform to these requirements.17

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. As noted above, all of the component securities in the B20 are listed and

traded on the EB, and the EB has access to information necessary to detect and deter manipulation.

The EB conducts inter-market surveillance to monitor market movements and trades in both the

futures market and in the underlying securities. In the event the EB is unable, either directly or

through its regulator, the CBFA, to share such information with the CFTC, this Office reserves the

right to reconsider the positions taken herein.18

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

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

futures contract based on the B20 is offered or sold in the U.S. Because this position is based

upon facts and representations contained in the requesting letters and attachments cited above, it

should be noted that any different, omitted or changed facts or conditions might require a

different conclusion

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

futures contract based on the B20 is offered or sold in the U.S. Because this position is based

upon facts and representations contained in the requesting letters and attachments 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 the EB

with all regulatory requirements imposed by its regulator, the CBFA, and the applicable laws and

regulations of Belgium. 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.

17 In making this determination, Commission staff has concluded that the B20 does not have any

of the elements of a narrow-based security index as enumerated in CEA Section 1a(25)(A).

Accordingly, the Index would not be a narrow-based security index if traded on a designated

contract market or DTEF.

18 Regarding information sharing, Belgium has no statutes that would prevent the sharing of

information concerning trading in the B20 futures contract with the Commission or the SEC.

The Chairman of the EB has stated that EB is willing and able to share information with the

Commission. See Colmant letter at 2. Information that is not confidential will be provided

directly to the CFTC by EB, and confidential information will be provided via the CBFA

utilizing the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and

Cooperation and the Exchange of Information (the “MMOU”). The CBFA is also a signatory to

the Declaration on the Cooperation and Supervision of International Futures Exchanges and

Clearing Organizations (the “Boca Declaration”).

5

C by EB, and confidential information will be provided via the CBFA

utilizing the IOSCO Multilateral Memorandum of Understanding Concerning Consultation and

Cooperation and the Exchange of Information (the “MMOU”). The CBFA is also a signatory to

the Declaration on the Cooperation and Supervision of International Futures Exchanges and

Clearing Organizations (the “Boca Declaration”).

5

6

The offer and sale in the U.S. of EB’s futures contract based on the B20 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.19

Sincerely,

Dan M. Berkovitz

General Counsel

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