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]

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 ( printed 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]

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]

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.

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]

In 1984, the Commission adopted Rule 3a12-8 to designate debt obligations issued by the UK or Canadian government as exempted ( printed 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.

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]

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]

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 ( printed 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]

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.

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]

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.

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, ( printed 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.

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]

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.

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]

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 ( printed page 56392) is substantially represented and functionally captured in the Rule according to various measures, including Gross Domestic Product (“GDP”) and bond market activity.

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.

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.

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]

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 ( printed 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.

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.

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.

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 ( printed 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.

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.

As shown in Table 1, the European Commission indicates that in 2025, the EU had €702 billion of bonds outstanding and had a record high number of bond issuances, raising €153 billion via long-term issuance.^[79] It had close to €37 billion of EU-bills outstanding in mid-December 2025, up from €23 billion at year-end 2024.^[80] Recent fourth-quarter 2025 reports state that during this period alone, the EU issued €32 billion in EU-bonds and €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.

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.

( printed 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 €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.

As Table 3 demonstrates, in the first half of 2025, the average trade size for EU bonds stood at €12,111,253 and the median at €2,500,000.^[86] By comparison, larger sovereign issuers such as France and Germany had average trade sizes of €9,895,689 and €7,158,445 and median trade sizes of €824,833 and €1,150,000, respectively, while Swedish-issued bonds had an average trade size of €6,848,674 and a median of €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.

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 €843 billion and a market share of 5%, while EU bonds record a total notional value of €620 billion and a market share of 4%.^[90] Similarly, in the UK market, the traded notional value of Spanish Bonos is €512 billion and for EU bonds it is €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]

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]

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. ( printed 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?

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?

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]

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 ( printed 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]

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.

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.

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.

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 ( printed 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.

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.

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.

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 ( printed 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.

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]

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 § 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]

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 ( printed 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.

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]

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 €152.3 billion in long-term funding in 2025, reaching a total outstanding debt of €702 billion; ^[130] the EU executed 22 EU bill auctions throughout 2025,^[131] ending the year with outstanding short-term EU bills totaling €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 €2.51 trillion; Germany issued €290.5 billion in capital-market instruments in 2025 (via 77 auctions and two syndicated transactions) and €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 €110.50 billion (SEK 1,221 billion) as of May 2026, of which €87.02 billion (SEK 961.5 billion) comprised government bonds.^[135] Belgium's federal government had outstanding debt totaling €553.1 billion at the end of December 2025.^[136]

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 ( printed 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]

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 €900 million in daily average trading volumes, with peak days exceeding €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]

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]

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.

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 ( printed 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]

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]

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]

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]

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.

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 ( printed 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]

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.

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]

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.

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]

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.

A related but unique effect could arise in a different market: futures on the debt of Designated Foreign Governments that ( printed 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.

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]

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]

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.

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]

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.

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 ( printed 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]

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]

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.

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]

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.

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.

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.

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 ( printed page 56406) formation for both the EU and the U.S. relative to the proposed amendment.^[196]

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]

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]

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.

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]

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]

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]

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 €9.3 billion in general government (Maastricht) debt and Malta approximately €10.6 billion,^[209] compared with approximately €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.

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 ( printed 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.

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.

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 adopted, would not have a significant economic impact on a substantial number of small entities.^[218] Pursuant to 5 U.S.C. 605(b) of the RFA, the Commission hereby certifies that the proposed amendments to Rule 3a12-8 would not, if adopted, have a significant economic impact on a substantial number of small entities. Such certification is based on the following reasons. First, the proposed amendment would impose no recordkeeping or compliance burden and merely would allow, in effect, the marketing and trading in the United States of futures contracts overlying the debt securities of the European Union. Second, because those primarily interested in trading such futures contracts are large, institutional investors, the availability of these futures products will not have a significant economic impact on a substantial number of small entities, as that term is defined for broker-dealers in 17 CFR 240.0-10.^[219]

The Commission encourages written comments on the certification. The Commission solicits comment as to whether the proposed rule could have an effect on small entities that has not been considered. The Commission asks that commenters describe the nature of any impact on small entities and ( printed page 56408) provide empirical data to support the extent of the impact.

VII. Congressional Review Act

For purposes of Subtitle E of the Small Business Regulatory Enforcement Fairness Act of 1996 (also known as the Congressional Review Act),^[220] the Commission must seek the Office of Management and Budget's (“OMB”) determination as to whether a final regulation constitutes a “major rule.” Under the Congressional Review Act, a rule is considered “major” where, if adopted, it results in or is likely to result in:

• An annual effect on the economy of $100 million or more;
• A major increase in costs or prices for consumers or individual industries; or
• Significant adverse effects on competition, investment, or innovation.^[221]

To help inform OMB's determination as to whether any final rule that results from the proposal would be a “major rule,” the Commission solicits comment and data on:

• The potential effect on the U.S. economy on an annual basis;
• Any potential increase in costs or prices for consumers or individual industries; and
• Any potential effect on competition, investment, or innovation.

Commenters are requested to provide empirical data and other factual support for their views to the extent possible.

VIII. Other Matters

The Office of Management and Budget has determined that this action is not a significant regulatory action under Executive Order 12866 and therefore it was not subject to Executive Order 12866 review. This action, if finalized as proposed, is expected to be an Executive Order 14192 deregulatory action.

Statutory Authority

The amendment to Rule 3a12-8 is being proposed pursuant to 15 U.S.C. 78a et seq., particularly sections 3(a)(12) and 23(a), 15 U.S.C. 78c(a)(12) and 78w(a).

Text of Rule Amendment

For the reasons set forth in the preamble, title 17, chapter II of the Code of Federal Regulations is proposed to be amended as follows:

1. The authority citation for Part 240 continues to read in part as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78j-4, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 1681w(a)(1), 6801-6809, 6825, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.

Section 240.3a12-8 also issued under 15 U.S.C. 78a et seq., particularly secs. 3(a)(12), 15 U.S.C. 78c(a)(12), and 23(a), 15 U.S.C. 78w(a).

2. Amend by revising § 240.3a12-8 to read as follows:

91 FR 56387