U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

June 3, 1994

Gerald D. O'Connell
Chairman, Intermarket Surveillance Group
Philadelphia Stock Exchange
1900 Market Street
Philadelphia, PA 19103

Re: Surveillance Sharing Agreements

Dear Mr. O'Connell:

As you know, the Division of Market Regulation ("Division") considers information sharing agreements to be valuable tools to enhance market oversight, assist in the deterrence of suspicious market activities and increase international cooperation. The Division believes that market authorities should continue their efforts to maintain and enhance intermarket communications, and strongly supports the Intermarket Surveillance Group's continuing efforts to promote surveillance sharing agreements ("SSAs"). Pursuant to discussions that ISG members have had with Mark Fitterman and other Division staff, this letter is intended to outline the Division's views regarding the role of SSAs, particularly in connection with the Commission's consideration of whether to approve new products for trading in U.S. markets.

  1. General Background

The Division relies on information sharing between U.S. and foreign entities in a variety of contexts to help ensure that the complex interrelationships between U.S. entities and products and their foreign counterparts remain compatible with U.S. securities laws and with the maintenance of fair, orderly, and competitive U.S. markets.

For example, one context in which the Division relies on SSAs is in evaluating exchange rule changes to allow trading in new derivative products based on foreign securities or indexes. Pursuant to Section 19(b) of the Securities Exchange Act of 1934 ("Exchange Act"), U.S. exchanges are required to submit proposed rules and rule changes to the Commission for approval, including proposed rules that would allow trading in new derivative products that would not be covered by existing listing standards (provided such products are within the Commission's jurisdiction). In order to approve a proposed rule, the Commission must find that, among other things, the rule is consistent with Section 6 of the Exchange Act, which requires an exchange to have the capacity to enforce compliance with its rules and the securities laws and to enact rules designed to prevent fraud and manipulation. In making this finding regarding a request for approval of U.S. derivative products based on foreign securities or indexes, one factor the Commission evaluates is whether the U.S. exchange sponsoring the product has entered into SSAs with relevant foreign markets. The Division then evaluates whether those SSAs can provide the U.S. exchange with appropriate foreign information when necessary to enforce its rules and U.S. laws and regulations, and to protect investors from the effects of intermarket manipulation, in accordance with Section 6.

In the past, domestic entities have sought to gain Commission approval of new product listings by relying on SSAs that have been negotiated for the primary purpose of exchanging market information. Such SSAs may not provide the Commission with sufficient information to determine whether the U.S. entity will have routine access to information necessary for market oversight, and consequently whether trading in the new product would be consistent with Section 6. Where possible, this has been remedied by obtaining additional assurances that laws and circumstances in the relevant foreign country do not appear reasonably likely to prevent the foreign entity from sharing information. This process may involve extended communications between Division staff and the parties to an SSA to clarify information provided by the foreign entity.

The Division has undertaken in the past year to clarify its views regarding surveillance sharing and to expedite its related review processes. The Division believes that clarification of the criteria by which it reviews SSAs might make it easier for domestic entities to respond to Division informational requests, and ultimately streamline the Division's review process of new product approval requests. Given the significant role of the ISG in furthering information and surveillance sharing among markets, the Division believes that it would be useful to provide further information to ISG members on the role of SSAs in product approval and other matters involving Commission review.

  1. SSAs

For its purposes, the Division classifies SSAs into two categories:

  • Comprehensive Surveillance Sharing Agreements ("CSSAs"); and
  • Market Information Agreements.

The two categories indicate what type of information the Division believes will be routinely available to the U.S. party to the SSA, based on the language of the SSA and on supporting documentation. They do not express an opinion on the ultimate enforceability of an SSA.


In order to be classified as a CSSA, there must be a reasonable basis to conclude that, under the terms of the SSA, the foreign entity will be able to produce and share information about market trading activity, clearing activity, and customer identity, without being impeded by the foreign entity's rules, or secrecy or blocking laws. The hallmarks of a CSSA are:

  • the inclusion of information about market trading activity, clearing activity, and customer identity in the scope of the SSA by its express language (or supplemental documentation);
  • the foreign party's reasonable ability to obtain access to and produce requested information; and
  • based on the SSA and additional information provided by the foreign party, it does not appear that existing rules, laws, or practices would impede the U.S. entity from obtaining foreign information relating to market activity, clearing activity, or customer identity.

In order to satisfy the last condition, SSAs or accompanying documentation will need to address whether existing secrecy or blocking laws may be applicable and, if so, the likelihood that those laws would impede the production of customer and other information in response to a request from a U.S. party. An SSA can be "comprehensive" even where the foreign party is subject to secrecy or blocking laws, if it is apparent at the time the Division reviews the SSA that those laws would not materially impede the production of customer and other information.

Market Information Agreements

If an SSA does not meet the above criteria for a CSSA, it may be viewed as a market information agreement if the Division believes that, by its terms, the foreign entity will be able to produce and share information about market trading activity without being hampered by existing rules, secrecy or blocking laws. The hallmarks of a market information agreement are:

  • the inclusion of market trading activity information in the scope of the SSA by its express language (or supplemental documentation);
  • the foreign party's reasonable ability to obtain access to and produce requested market activity information; and
  • based on the SSA and additional information provided by the foreign party, it does not appear that existing laws would impede the U.S. entity from obtaining foreign information relating to market activity information.

Under this standard, an SSA that includes customer identity information within its scope will be categorized as a market information agreement, rather than a CSSA, if supporting documentation does not make it apparent that existing laws would not impede routine requests to share customer identity information. An SSA that does not meet the criteria of a CSSA, and does not meet the first three criteria above, will not be classified as either a CSSA or a market information agreement by the Division.

Significance of Classification as CSSA or Market Information Agreement

The Division generally believes that SSAs should meet the criteria for CSSAs whenever possible. We recognize, however, that it is sometimes not possible or necessary to obtain this level of surveillance sharing assurances, and that U.S. entities often enter into SSAs for purposes that do not require comprehensive surveillance sharing. Therefore, when Commission approval of a product or other action requires review of an SSA, the Division attempts to identify whether the risks and circumstances in each case require entities to enter into a CSSA, or may be satisfied by a market information agreement.

For example, approval to list options on American Depositary Receipts ("ADRs") will generally require a CSSA between the listing entity and the primary market for the security underlying the ADR. Under certain circumstances (such as when 50% or more of world-wide trading volume in the foreign security underlying an ADR trades in U.S. markets), however, the Commission would not require a CSSA as a condition to granting listing approval. The Division also has considered other circumstances in its review of surveillance sharing agreements, such as whether a product can be "unwound" if information becomes unavailable through an existing SSA.[1]

For those products already in existence, such as options on ADRs, the Commission has tried to indicate through public releases the appropriate level of information sharing. Because the determination of whether a CSSA or a market information agreement will be appropriate is based on a case-by-case analysis, however, the Division cannot forecast whether any particular new product type will require a CSSA. The Division therefore recommends that wherever possible, if a U.S. entity believes that it may use an SSA as a component of a request for product approval or other purposes requiring Commission review, the entity should attempt to enter into a CSSA.

  1. ISG Affiliate Member Agreements as CSSAs

The Division understands that the ISG's application process for affiliate membership by foreign entities includes extensive review of secrecy and blocking laws in the relevant foreign country, and elicits much of the same information that is used by the Division in its review of SSAs. The Division already has had occasion to review such supporting documentation for all current foreign ISG affiliate members[2] and to discuss the terms of the standard affiliate agreement with the ISG.[3] The Division would therefore consider ISG affiliate member agreements entered into under the current application process (for both existing and future affiliate members) to be CSSAs without further review or documentation.

  1. SSAs with Foreign Entities that are not Affiliated with the ISG

In order to classify an SSA between a U.S. entity and a foreign entity that is not affiliated with the ISG as a CSSA or a market information agreement, the Division must:

  1. review the language of the SSA,
    1. to determine whether market activity, clearing activity, and customer identity information are included in the scope, and
    2. to determine whether the agreement contains representations that the foreign entity has access to information covered by the scope of the agreement;
  2. and

  3. review information provided by the foreign party about its ability to share information,
    1. to determine whether the foreign entity believes that any legal impediments to information sharing exist,
    2. to determine to what degree such impediments would hamper routine information sharing, and
    3. to confirm that the Division's understanding of the scope of information sharing possible under the SSA comports with the foreign party's view of its obligations under the SSA in light of its rules and local laws.

In the past, the Division has requested that U.S. entities arrange for foreign entities to provide such information, typically in the form of a "side letter" addressed to the U.S. entity. It is not significant to the Division whether such information is incorporated as part of the SSA itself, or provided separately. It is important to the Division, however, that such information provide a clear understanding of the scope of the SSA and of the basis for the foreign entity's view of its ability to share information in light of its rules and local laws. Therefore, it would not be sufficient for a foreign entity simply to represent that it is able to obtain and share the information, without providing supporting detail about local laws, rules, etc. The Division also believes that it is important that the foreign entity itself provide the Division with the information about its ability to obtain and share information in light of local law, and that the representations reference a specific SSA (or SSAs).[4]

The Division has found that a foreign entity generally can provide sufficient information for the Division's review if it:

  • identifies, describes, and provides a copy of any local law, rule, regulation, practice, or circumstance that might be reasonably invoked by any person in the foreign country to prevent, delay, or otherwise impede disclosure of market activity, clearing activity, or customer identity information to the U.S. entity by the foreign entity (including any rule of the foreign entity, contracts or arrangements with members, local or national laws, etc.); and
  • states whether such law, rule, regulation, practice, or circumstance is reasonably likely, as a practical matter, to be invoked to impede disclosure of information pursuant to the SSA, and to what degree it will impede such disclosure if invoked. If such laws, rules, etc. exist and the foreign entity does not believe they would be invoked, the reasons for such an assessment should be explained.[5]

The Division has been working with a number of ISG members in reviewing their existing SSAs with foreign entities that are not affiliated with the ISG, to determine in advance whether additional information as described above would be needed by the Division to approve a product based on an SSA with that foreign entity. We note that, although such "advance" review cannot eliminate altogether the need for consideration of an SSA in light of the circumstances involved with any particular request for Commission action, it is intended to reduce as much as possible the need for SSA review at the time of such a request. To the extent possible, the Division will continue to respond to U.S. entity requests for such "advance" review of any SSA.

We hope the enclosed information will be useful to your members in structuring future surveillance sharing agreements that they wish to rely upon to support requests for Commission approval of new product listings, market linkages, and other actions. Please do not hesitate to contact me at 202/942-0090 or Mark Fitterman, at 202/942-4160, if you have questions on the enclosed, or if we can be of further assistance in this matter.

Very truly yours,

Brandon Becker

cc: Larry E. Bergmann
Mark Fitterman
Jonathan Kallman
Howard L. Kramer
Michael Macchiaroli
Michael D. Mann
Caite McGuire


[1] The Division will continue to condition product approval on appropriate representations of the listing exchange, which may include an agreement to unwind a product if the foreign entity became unable or unwilling to provide information pursuant to an SSA.

[2] Alberta Stock Exchange, Amsterdam Stock Exchange, London Stock Exchange, The Montreal Exchange, Securities & Futures Authority of the United Kingdom, The Toronto Stock Exchange, and Vancouver Stock Exchange.

[3] See, e.g., Letter to Jonathan Kallman, Associate Director, SEC, from Stephen L. Lister, Chairman, ISG, dated February 26, 1993.

[4] For Commission purposes, a U.S. exchange could obtain additional information on behalf of several U.S. exchanges that have similar SSAs with a particular foreign exchange, if the response from the foreign entity clearly references each U.S. exchange which can rely upon the representations contained therein.

[5] We note that a U.S. exchange may also consider obtaining an analysis or opinion regarding these issues from independent counsel qualified to determine the applicability of existing local laws, rules, regulations, and practices. Although the Division would not require such an analysis or opinion of counsel, the U.S. exchange may find it helpful in determining the extent to which it may rely upon an SSA to meet its own statutory obligations.


Modified: 05/08/18