Two general partners were granted relief from CPO registration where, among other things: (1) the third general partner of the limited partnership was a registered CPO; (2) the two non-registering general partners agreed to limit their activities; and (3) all general partners agreed to assume joint and several liability for any violations committed by each other.
Section 4m(1), Rule 4.14;
The Division of Trading and Markets provided guidance to a registered FCM concerning whether its business dealings with and purchase of a trading system from a unregistered CTA required it, its APs or an IB guaranteed by it (IBG) to register as CTAs. The Division stated that to the extent to the FCM, its APs or the IBG used information generated by the trading system to discuss or encourage trades by clients or potential clients, these persons would fit within the statutory definition of CTA. Registration as a CTA would therefore be required unless an exclusion or exemption from the CTA registration requirements were available to them under the Commodity Exchange Act or Commission rules.
The Commission's Division of Trading and Markets confirmed that a limited partnership which was composed of family members was not a commodity pool. As a result, the Division permitted the registered commodity pool operator (CPO) for the limited partnership (which at one time had contained both family and non-family members) to withdraw its CPO registration.
Section 1a(ii), 2(a)(1);
In this letter, staff of the Division of Economic Analysis confirms that a contract obligating a producer to sell and deliver to an elevator a specified amount of grain at a future date which includes on its face an agreement by the elevator to purchase an exchange-traded call option is consistent with the earlier 1985 Counsel distinguishing forward contracts excluded from regulation by the Commission from "trade options" which may not be legally offered or sold for specified agricultural commodities, where the contract does not permit the option pricing feature to be reestablished once terminated, where no ""rolling"" of the option month is permitted and where the amount of the grain covered by the options cannot exceed the amount of grain to be delivered.
Rule 4.10(d)(1) and Section la(4) of the Act;
The Division of Trading and Markets confirmed that a "subchapter S" corporation is not a commodity pool as defined in Rule 4.10(d)(1), and the corporation's president and vice president are not CPOs as defined in Section la (4) of the Commodity Exchange Act. The president and vice president have significant experience in the commodities industry and will be the sole investors in the corporation.
Sections 1a(14), 4d and 4k(1) of the Act;
The Division of Trading and Markets expressed the view that a proposed company which would generate lists of potential commodity futures and options customers and sell such lists to Commission registrants, including futures commission merchants and introducing brokers, would be required to register under the Commodity Exchange Act. In the letter, the Division discussed its previous determinations in this area and concluded, based upon the very cursory information provided by the proposed company, that the company would be required to register as an introducing broker, and that certain persons involved with the company's operations would be required to register as associated persons.
Other Written Communication: Statement of Policy of and Statement of Guidance - Statement of Policy of the Division of Economic Analysis to provide certainty that in light of current market conditions, cash payments may be used, in whole or in part, to unwind work-out or restructure "Hedge-to-Arrive" contracts existing as of May 15, 1996, where the parties mutually agree to do so through a separately negotiated settlement entered into subsequent to entry into the original contract. The Division also is issuing a separate Statement of Guidance regarding the risk implications of particular features of, and practices related to, these contracts for the delivery of grain.
Section 4c(b) and 4d(2) of the Act; Rule 1.3(gg), 1.3(hh), 1.16(d), 1.55(b)(1), 1.56, 33.4 and 33.7;
In response to an inquiry whether it is a violation of the Commodity Exchange Act (Act) for a futures commission merchant (FCM) to fail to demand or receive from a customer funds in payment of premiums for the purchase of commodity options and, if so, whether such violation relieves the customer from the duty to pay an unsecured debit balance which has arisen as a result of unprofitable commodity option transactions ordered by the customer. The Division of Trading and Markets (Division) explained that while a customer's funds are not required to be in the account prior to the purchase of a commodity option, prompt payment is required. The Division stated that FCMs are required to collect option premiums and margin under Rule 1.56 and 1.16(d). The Division also explained that responsibilities of the FCM and the customer are set forth in the account agreement, and that violations of the Act or the Commission's regulations do not necessarily give rise to liability on the part of the FCM to its customers. Finally, the Division noted that in a number of cases a customer has been held liable for losses on trades he authorized notwithstanding the fact that the FCM did not close out the customer's account or prevent the customer from making new trades once the level of the account funding became insufficient to support the customer's commodity futures or options positions.
Rule 4.10(d)(1) and Section la(4) of the Act;
The Division of Trading and Markets confirmed that a limited partnership is not a commodity pool as defined in Rule 4.10(d)(1), and the partnership's sole general partner is not a CPO as defined in Section la(4) of the Commodity Exchange Act. The sole investors in the partnership are, and will be, members of the general partner's family and entities wholly owned by the general partner. The general partner makes all trading decisions on behalf of the partnership and will not receive any compensation for his activities on behalf of the partnership.
Section 4m(1) of the Act;
the Division of Trading and Markets denied an IB's request for clarification that developers of commodity trading software (Third Party Advisors) are not required to register as CTAs. The Third Party Advisors recommended an AP of the IB to software purchasers, and the AP personally endorsed some trading systems in publication touting such systems. The Division required the AP to register as a CTA and provide customers with disclosure, including past performance history, if he intends to continue his current relationships with the Third Party Advisors.
section 4d(2) of the Act; rules 4.22(h), 4.23, 30.1, 304.;
The Division of Trading and Markets stated that a foreign entity that places orders on foreign futures markets on behalf of a United States commodity pool is required to register as an introducing broker (IB). The Division noted that the "clerical capacity" exemption from IB registration would not be applicable to the entity even though the entity does not exercise any discretion with respect to the computer-generated trading signals it uses to place orders. Additionally, the Division stated that since the commodity pool operator was domiciled in the United States, it must remain registered as a CPO even if the Pool becomes domiciled outside of the United States. Finally, the Division stated that CPOs are not required to manually sign every copy of the pool account statement and that a facsimile signature may be used provided that the CPO retains the account statement from which the facsimile is made in accordance with Commission recordkeeping1requirements
The Division of Trading and Markets provided an explanation of exemptions from registration available to commodity trading advisors. CTAs located outside of the United States that do not have US citizens as clients are exempt from registration even if their advice concerns commodity contracts traded on US exchange. Furthermore, section 4(m)(l) provides a self-executing exemption for anyone who, during the proceeding twelve months, has not furnished commodity trading advice to more than fifteen people and has not held themselves out to the public as a CTA.
The Division of Trading and Markets provided an interpretation on the registration of third party advisors. Generally, a person producing software which is marketed to persons for use in making trading decisions involving commodity interests is acting as a commodity trading advisor and must be registered as such. Knowledge by a registrant that a customer is receiving commodity trading advice from an unregistered third party advisor gives rise to a duty to disclose to the customer the unregistered status of such person. The unregistered status of a third party advisor would appear to be a material fact, and the knowing failure to disclose material information to customers constitutes fraud under section 4b and 4o of the Commodity Exchange Act.
A financial planner that proposed to sell gold coins and gold bullion to his clients was advised to carefully review all the facts and circumstances relating to the transactions to determine whether such transactions would constitute futures contracts or commodity options and thus be within the purview of the Commodity Exchange Act and Commission regulations promulgated thereunder.