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Futures Commission Merchants (FCMs) & Introducing Brokers (IBs)

  • Disclosure


    Before futures commission merchants (FCMs) or introducing brokers (IBs) may open a commodity futures account for a retail customer, the customer must receive a written disclosure statement and send back to the FCM or IB a signed and dated acknowledgment that the customer has received and understood the statement. The statement informs the customer of some of the risks inherent in futures trading and asks the customer to consider carefully whether it is in a financial position to take such risks.

    There are comparable disclosure requirements before opening a commodity options account.

    A retail customer trading on non-U.S. markets must be provided with additional disclosures concerning foreign markets, such as differences in the laws and regulations that may apply and the impact of foreign exchange rates. The CFTC has permitted the use of a "generic" risk disclosure statement that is acceptable for domestic and international trading; it has been approved for use in the U.K., Ireland, and Singapore.

    Trading Authorization


    An FCM or IB may not effect a transaction for a customer unless the customer:

    • Specifically authorized the transaction by specifying the precise commodity interest and the exact amount of the commodity interest to be purchased or sold; or
    • Authorized the FCM or IB in writing to effect transactions for the account without the customer’s specific authorization.

    An FCM or IB always has discretion as to time and price when entering an order.

    Reporting to Customers


    An FCM must furnish its customers with monthly statements that show, e.g., all transactions occurring in the month, all charges and credits to the account, and the account balance. In addition to monthly statements, an FCM must provide the customer, within the next business day, confirmation of each transaction made for the customer and a statement showing the net gain or loss from any offsetting positions.

    Recordkeeping


    All FCMs and IBs must keep:

    • A permanent record pertaining to their customers, including each customer's name, address, and occupation; and
    • Full, complete, and systematic records, together with all pertinent data and memoranda, of all transactions.
    • Immediately upon receipt, FCMs and IBs must prepare a written record of a customer's order, including the date and time of receipt and the date and time it is transmitted for execution. In addition, a floor broker executing the trade must prepare a written record including the date and time of execution.
    • A financial ledger for each customer must be maintained that includes a record of all transactions, credits, debits, etc.
    • A record or journal must be maintained that shows all transactions made on each business day by the FCM or IB.
    • All records maintained under the Commodity Exchange Act (CEA) and accompanying regulations must be retained for five years. They may be maintained in electronic form.
    • Regardless of the form in which records are kept, they must be open to inspection by the CFTC, the National Futures Association, and the Department of Justice.

    Supervision


    Each CFTC registrant, except an associated person who has no supervisory duties, must diligently supervise the handling by its partners, officers, employees, and agents (or persons occupying a similar status or performing a similar function) of all commodity interest accounts carried, operated, advised, or introduced by the registrant and all other activities of such persons relating to its business as a CFTC registrant.

    Antifraud Prohibition


    All firms are subject to the antifraud prohibition in the CEA when acting for or on behalf of a customer.

    Other Futures Commission Merchant and Introducing Broker Requirements

See Also:

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CFTC's Commitment to Open Government

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