Sections 4m(l) of the Act;
The Division of Trading and Markets confirmed that sellers and developers of commodity interest trading systems are within the statutory definition of CTA contained in the Act, and thus, such persons must register as CTAs. The_ Division also expressed its view that the Supreme Court's ruling in SEC v. Lowe did not mandate a broad reading of the exclusion from the CTA definition contained in the Act so as to exclude sellers or developers of commodity interest trading systems from registration requirements.
Act Section 4d; Rules 1.20 et seq.;
The Division advised that neither the Commodity Exchange Act nor the Commission's rules promulgated thereunder would be violated if a registered investment adviser ("RIA") provided cash management services to futures commission merchants ("FCMs") with respect to segregated customer funds. Such services would include purchase and sale of instruments permitted by Rule 1.25, execution of reverse repurchase agreements and consummation of reverse repurchase transactions, all pursuant to limited power of attorney given under a written advisory agreement. The RIA would not handle customer funds, securities purchased with such funds, or proceeds of sales of such securities. Each individual FCM's customer funds would be separately accounted for, and the RIA's compensation would be paid directly by its client FCM, without use of customer funds.
Letter of Off-Exchange Task Force confirms that certain contractual arrangements for the delivery of live hogs proposed to be offered by an agricultural cooperative are not futures or options contracts under the Commodity Exchange Act and Commission regulations thereunder.
Confirmation that two private investment limited partnerships are not commodity pools under Rule 4.10(d) and, therefore, the general partners are not CPOs thereof, because alj of the participants are immediate family members
A fund is not a pool under Rule 4.10(d) where: (1) the general partner is a registered CPO; (2) one of the limited partners is a registered CPO; and (3) the other limited partner has only a .04% interest in the fund and is operated by a registered CPO who has known the sole principal of the general partner for 25 years
CEAct ?1a(4) and 1a(5), Rule 4.10(d) and 4.14(a)(5);
A general partnership is not a commodity pool under Rule 4.10(d), and none of the partners is a CPO of the partnership, where, among other things: of the 14 partners, one is a long term advisor and the other 13 are immediate family members, or trusts those immediate family members beneficially own and for which they serve as trustees. Neither are any of the partners required to register as CTAs
A CTA who bunches client orders into a single order for execution must use a predetermined and fair system to allocate the variously priced fills among customers, such that no customer or group of customers receives consistently favorable or unfavorable treatment, if the CTA is to avoid liability under the antifraud provisions of the CEAct
Realized and unrealized gains and losses on regulated commodities transactions presented i the income statements or account statements of a commodity pool may be combined with realized or unrealized gains and losses, respectively, from the trading of non-CFTC-regulated instruments or contracts, provided that the gains and losses to be combined are part of a related trading strategy
CEAct ?4p(b), Rule 3.34;
CEAct section 4p(b) and Rule 3.34 do not contain a "grandfather" clause and do not otherwise excuse a registrant from ethics training because of other licenses held or other training taken. Therefore, an AP, who undertook legal ethics and commodity futures regulation courses and testing in connection with his or her training and licensing as an attorney, is not exempt from the ethics training requirements
A limited partnership and a limited liability company are not commodity pools under Rule 4.10, and the general partner and managers thereof, respectively, are not CPOs, where the partnership's partners and the company's members consist of 15 irrevocable and four revocable trusts beneficially owned by four siblings. The siblings are also the directors of the general partner and the managers of the company
Rules 3.1(a) and 3.10(a)(2);
A corporation serving as a general partner of a CPO that is formed as a general partnership is a principal of the CPO under Rule 3.1(a). Therefore, Rule 3.10(a)(2) requires that the CPO list the corporation as a principal on the CPO's Form 7-R and the CPO must file a Form 8-R and fingerprints on behalf of the corporation's sole owner, who is a natural person
The developers of commodity interest trading systems are required to register as CTAs, where such systems are marketed by a registered IB to investors who open accounts with a registered FCM (the IB's guarantor) in which trades are made in response to signals generated by such systems. The IB and/or the FCM also may be engaged in activities requiring CTA registration
A limited partnership, consisting solely of one individual general partner (registered as a floor trader) and one individual limited partner (registered as a floor broker), does not constitute a pool within the meaning of Rule 4.10(d), where the individuals have been business associates, and where the limited partner - an accredited investor with many years experience in the futures industry - placed at risk only his initial contribution and a share of his initial profits
CEAct Section 4(c), 7 U.S.C. 6(c)(1994); 17 C.F.R. 35.1 (b)(2)(1994) - Definition of "eligible swap participant";
The Division of Trading and Markets provided clarification of the definition of 17 C.F.R 35.1 (b)(2), "eligible swap participant," adopted as part of Part 35, "Exemption of Swap Agreements," as the term applies to natural persons and corporations, and also to domestic and foreign persons.
CEAct Section 1a(5) and Rules 4.10(f), 4.14(a)(6) and 4.31;
If an IB solicits and trades customer accounts pursuant to trade recommendations made by a newsletter, hotline, or computer software system (Third Party Advisor), the Third Party Advisor must register as a CTA. If the IB and the Third Party Advisor are operated as wholly independent entities, the IBs have no contractual, marketing, compensation or other arrangement or relationship with the Third Party Advisor and the IB has no authority to deviate from the Third Party Advisor's recommendations, the IB generally need not also register as a CTA. However, where the IB's activities with respect to a Third Party Advisor would require the IB also to register as a CTA, it would further be required to provide a disclosure document in accordance with Commission Rule 4.31 and Advisory 86-3.
CEAct Section 1a(5);
A registered CTA is not acting as a CTA to a fund for which it serves as an investment adviser and provides only securities advice
CEAct Sections 1a(5) and 4m(1) and Rule 4.14(a)(6) and 4.31;
(1) An FCM or an IB engaged solely in the business of "guiding" customer accounts in engaging in a commodity interest advisory activity which is neither "solely in connection solely incidental" to no "solely in connection with" his business as an FCM or an IB, respectively, and this required to register as a CTA. (2) An IB that "guides" trading in a majority of its customer accounts must register as a CTA. (3) Rule 4.21(a) does not impose a duty to provide a disclosure document upon persons who are not "registered or required to be registered" under the Act as a CTA. (4) If an FCM's or IB's "guided account" activities do not require one to register as a CTA, no other written disclosures concerning one's guided account recommendations, beyond the "Risk Disclosure Statements" required by Rules 1.55 and 33.7 and all other information that is material in the circumstances, are necessary
Section 4m(1), 7 U.S.C. ?6m(1);
A registered investment advisor (RIA) is not exempt from registration as a commodity trading advisor (CTA) under Section 4m(1) of the Act, where although the RIA proposed to advise or direct the trading of the accounts of 15 or fewer persons, the RIA held itself out as a CTA to such clients in the course of discussing with such clients the RIA's development of a model for trading in stock index futures and in soliciting a broad power of attorney pursuant to which the RIA would engage in trading in stock index futures in the accounts of such clients.
CEAct Sections 1a(5) and 4m(1) and Rules 4.14(a)(3), 4.14(a)(6) and 166.2;
Where an IB utilizes the trading signals generated by a Third Party Advisor's trading system to enter trades on behalf of a customer, then the IB generally need not also register as a CTA if the IB and the Third Party Advisor are operated as wholly independent entities, the IB has no contractual, marketing, compensation or other arrangement or relationship with the Third Party Advisor, the IB has no authority to deviate from the Third Party Advisor's recommendations and the Third Part Advisor is registered as a CTA. This is clearly the case where a customer independently selects a newsletter, trading system software or hotline and the IB does not solicit discretionary trading authority. However, if the IB makes use of the Third Party Advisor's services to solicit or maintain accounts if it has discretion with respect to the use of the recommendations of a Third Party Advisor, or other types of relationships between the IB and the IB and the CTA exist, the IB may be required to register as a CTA. 2) If an AP of an IB independently utilizes the signals of a Third Part Advisor on behalf of his customers, than an examination of factors similar to those examined in determining whether an IB must register as a CTA is appropriate. 3) A blanket verbal authorization directing an IB or AP to enter trades for each signal or recommendation generated by a customer's trading system or a Third Party Advisor's trading system or service is insufficient under Rule 166.2. The IB or AP must either obtain specific authorization to enter a trade upon receiving each signal or recommendations, or obtain written authorization to effect transactions for the customer's account without the customer's specific authorization. A letter from the customer directing the IB or AP to enter a trade for each signal or recommendation generated by the customer's system or a Third Party Advisor's system or service would appear to be written authorization as contemplated by Rule 166.2
CEAct Sections 4b and 4o);
The Division of Trading and Markets confirmed that sponsorship of a simulated trading contest on certain agricultural futures by an AP of a guaranteed IB would not violate any of the AP's obligations under the Act or Commission Rules if undertaken according to the rules represented by the AP. However, because the contest was a means for the AP to solicit potential business, the AP would be subject to the antifraud provisions of Section 4b of the Act. In addition, the Division conditioned its position on (1) the AP's providing contestants with statements concerning hypothetical trading, and (2) the IB, and the IB's guaranteeing FCM each providing written confirmations that they would be co-liable for any violations of Commission rules that may occur during the contest
Rules, Part 30;
Clarifies circumstances in which certain institutional customers of a US FCM may transmit orders directly to that FCM's foreign affiliate for execution on their behalf through the FCM's omnibus account. A previous CFTC Letter (No. 93-115) addressed circumstances in which the foreign affiliate had Rule 30.10 relief. This CFTC Letter applies to circumstances in which the foreign affiliate does not have Rule 30.10 relief
The Division of Trading and Markets confirmed that a general partnership consisting of three partners who were business associates and industry professionals was not a commodity pool and, therefore, that no partner was a CPO.
The Division of Trading and Markets stated that a voluntary, non-contributory benefit plan established by a futures exchange ("Exchange") to reward certain of its members would not be a commodity pool as defined by Commission regulations and therefore neither the Board of Directors of the Exchange nor any designee thereof would have to register as a CPO in connection with the operation of the plan.
Two offshore firms were granted CPO and CTA registration relief in connection with their operational and advisory activities in a U.S. pool, where among other things: (1) each of the approximately four investors will be a large federal or state regulated financial institution, or an affiliate thereof; (2) the minimum investment will be $100 million; (3) only proprietary funds will be invested; and (4) the fund through which the pool will trade commodity interests is operated by a registered CPO.