Class No-Action Letter Issued by the SEC Staff as to Foreign Options Markets
Commentary by Steven Lofchie
The SEC issued a no-action letter laying out certain conditions that must be met in order to allow Foreign Options Markets to familiarize registered broker-dealers and large financial institutions with their markets and the options traded on those markets without registering under Section 6 of the Exchange Act as a national securities exchange. The required conditions with which the Foreign Options Markets must comply include requirements that the Foreign Options Markets maintain:
- a website updated in English, instead of filing an options disclosure document.
- their most recently published annual report, in English, to respond to requests for the report from Eligible Broker-Dealer/Eligible Institutions.
Commentary
This is a positive regulatory development in that it eliminates the need for individual options exchanges to prepare their own versions of an "options disclosure document" and to obtain their own no-action letters, processes that were relatively expensive and that did not seem to provide any meaningful benefit to investors. It is unlikely that institutional investors read the options disclosure documents or appreciated being protected from investing in certain options markets. All U.S. broker-dealers involved in the sale of foreign options should review their compliance procedures to conform them to the requirements of the new letter.