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Interpretative Letters

Date
Interpretative Letters
04/02/2001
01-31 PDF Image; Regulation 1.25(c)(5); Interpretation
The Division of Trading and Markets provided an interpretative letter to the Board of Trade Clearing Corporation regarding the requirement contained in Rule 1.25(c)(5) that a money market mutual fund, which constitutes an investment of customer segregated funds of a futures commission merchant or clearing organization, must be able to redeem an interest in the fund within one day following a redemption request. The Division's interpretation states that the permitted circumstances under which a delay beyond the one-day requirement are: (1) non-routine closure of the Fedwire (or applicable Federal Reserve banks); (2) non-routine closure of the NYSE or general market conditions leading to a broad restriction of trading on the NYSE, i.e., a restriction of trading due to market-wide events; or (3) declaration of a market emergency by the SEC.
05/31/2001
01-48 PDF Image; ?5g of the CEA, 7 U.S.C. 7b-2, as amended by CFMA of 2000, New Part 160 of CFTC Regulations, 17 CFR 160, published as final rules at 66 Fed. Reg. 21,236; Interpretation
The CFTC privacy rules, to be published at 17 CFR Part 160, apply to operators of hedge funds that are registered with the CFTC as Commodity Pool Operators (CPOs), with a compliance date of March 31, 2002. CPOs are not subject to the privacy rules of the Federal Trade Commission (FTC), with a compliance date of July 1, 2001.
06/14/2001
01-64 PDF Image; Section 4m(1) and Rule 4.14(a)(9); Interpretation
The Division of Trading and Markets issued an interpretation that the developer of a weather prediction software program is eligible for the exemption provided by Rule 4.14(a)(9), where the developer creates an Internet website to market the software program to bulk (commercial) purchasers and sellers of natural gas. The program would issue impersonal recommendations indiscriminately to all subscribers to buy, sell or wait with respect to physical natural gas as well as derivative instruments, including commodity interests. In addition, the website would offer calculator functions that enable a subscriber to translate the program's recommendations into numerical amounts based on the subscriber's particular goals for projected natural gas production or consumption. The calculator functions would be entirely subscriber-operated with no involvement by the program developer.
07/02/2001
01-69 PDF Image; Rules 4.7(a)(1)(v); 4.7(a)(2)(ix) and 4.7(a)(3)(ix); Interpretation
The Division of Trading and Markets issued an interpretation that the assets of a revocable grantor trust (Trust) may be considered in determining whether the grantor and thus the Trust are qualified eligible persons (QEPs) within the meaning of amended Rule 4.7. The Trust was not formed for the specific purpose of either participating in an exempt pool or opening an exempt account, and the grantor of the Trust was the sole source of funding and was solely responsible for making investment decisions for the Trust. The Division's interpretation is intended to coordinate the QEP definition with the accredited investor definition under Rule 501(a)(5) of Regulation D under the Securities Act of 1933.
07/06/2001
01-70 PDF Image; ?5g of the CEA, 7 U.S.C. 7b-2, as amended by CFMA of 2000, New Part 160 of CFTC Regulations, 17 CFR 160, published as final rules at 66 Fed. Reg. 21,236; Interpretation
An earlier interpretative letter (No. 01-48, posted on www.cftc.gov) answered the first inquiry in the MFA letter, and stated that the CFTC privacy rules, to be published at 17 CFR Part 160, apply to operators of hedge funds that are registered with the CFTC as Commodity Pool Operators (CPOs). This letter answers the second inquiry, and states that institutional investors are not "consumers" within the definition of the CFTC privacy rules, and are, therefore, not entitled to the notice, the information disclosure provisions, or the opt-out opportunity provided by these rules.
11/02/2001
01-82 PDF Image; Section 2(c) of the Act; Rule 4.14(a)(9); Interpretation
The Division of Trading and Markets responded to an inquiry on the regulation of the foreign currency market by a company that offers training courses on how to trade in off-exchange foreign currency. The Division indicated that the Commodity Futures Modernization Act of 2000 had amended the Commodity Exchange Act to make clear that the offering of off-exchange foreign currency futures and options contracts to retail customers is unlawful unless the counterparty is a regulated entity enumerated in the Commodity Exchange Act, such as a registered FCM. The Division noted that, based on the limited information provided by the company, the activities of the company might bring it within the definition of a CTA and, therefore, require registration as such. However, the Division further noted that, pursuant to Rule 4.14 (a)(9), the company may be exempt from registration as a CTA, but that, in order to qualify for this exemption, any opinion given as to what commodity interests to buy or sell in the company's courses may not be tailored to a client's particular circumstances and the company may not direct client accounts.
11/02/2001
01-83 PDF Image; Section 2(c) of the Act; Interpretation
The Division of Trading and Markets responded to an inquiry on the regulation of the foreign currency market. The Division indicated that the Commodity Futures Modernization Act of 2000 had amended the Commodity Exchange Act to make clear that the offering of off-exchange foreign currency futures and options contracts to retail customers is unlawful unless the counterparty is a regulated entity enumerated in the Commodity Exchange Act, such as a registered FCM. Additionally, the Division noted that generally a person employed by an FCM to solicit customers must register as an AP of the FCM and a separate entity that introduces customers to an FCM must register as an IB. However, an entity that introduces retail customers to a registered FCM that is acting as counterparty under Section 2(c)(2)(B)(ii) of the Commodity Exchange Act may not be required to register as an IB, but may voluntarily do so.
10/30/2001
01-84 PDF Image; Rule 1.31; Interpretation
The Division of Trading and Markets stated that the requirement of Commission Rule 1.31 to retain a third party technical consultant if all, or all of a particular class, of a registrant's required records are stored on electronic media would not be met where an employee of the registrant kept duplicates of the records on a zip drive at the employee's home, subject to a written agreement to make the records available if, for any reason the records were not available at the registrant. The Division based its interpretation on the need for an actual third party, separate and distinct from the registrant, to assure Commission access to required records in the event that the principals and employees of the registrant with knowledge of the registrant's records storage systems became unable or unwilling to provide such access. Accordingly, an employee of the registrant would not be an acceptable substitute for the specified third party technical consultant.
10/15/2001
01-87 PDF Image; Rules 4.14(a); 4.31; and 4.33 - 4.36 - Required disclosures by commodity trading advisors; Interpretation
The Division of Trading and Markets stated, in response to an inquiry from a person who intended to develop a website with a daily forecast of the S&P 500 futures contract, that the unsettled nature of the proposed website did not permit delineation of the disclosures required under Commission rules. Nevertheless, the Division offered general guidance regarding: (1) the availability of exemption from CTA registration requirements for CTAs who provide advice on an impersonal basis that is not tailored to any client's particular circumstances; (2) the advisability, even for exempt CTAs, of clearly displaying all material information; (3) the applicability of Rule 4.41 regarding advertising, particularly to presentation of simulated or hypothetical trading results; (4) the applicability of the Part 4 disclosure and recordkeeping rules if a CTA is not within Rule 4.14(a)(9); and (5) the guidance available in the Commission's July 22, 2997, release regarding delivery of required disclosure materials in electronic environments.
12/03/2001
01-88 PDF Image; Rule 1.31 - Books and records, keeping and inspection; Interpretation
The Division of Trading and Markets responded to a request for clarification whether, in view of the possibility that required records stored electronically in the .pdf format may be altered in the process of conversion from text file format to .pdf format, it is sufficient to document how the information was obtained and the process used to convert it into .pdf format for storage. The Division stated that the fact that alteration may occur during this conversion process is part of the reason that the Commission continues to require that original trading cards and customer order tickets be retained in hard copy form. With respect to other required records, so long as the registrant insures that the information has been retained and carried over from one format to the other with substantial accuracy and integrity, the fact that some minor level of alteration may occur as part of the conversion process does not in itself constitute failure to comply with Rule 1.31.
09/28/2001
01-89 PDF Image; Section 4(a); Rule 4.14(a)(9) - Foreign currency futures and option; CTA registration exemption for providers of impersonal non-tailored trading advice; Interpretation
The Division of Trading and Markets stated, in response to an inquiry from a person who intended to develop a website to provide foreign currency trading advice, that the Commodity Futures Modernization Act of 2000 had confirmed the CFTC's jurisdiction over foreign currency futures and options trading. The Division referred the person to the Commission's February 5, 2001, Advisory on Foreign Currency. Assuming that the subject matter of the proposed website could fall within CFTC jurisdiction, the Division offered general guidance regarding: (1) the general requirement that a CTA must register; (2) the availability of exemption from commodity trading advisor registration requirements for CTAs who provide advice on an impersonal basis that is not tailored to any client's particular circumstances; and (3) the applicability of a antifraud jurisdiction regardless of any registration exemption.
12/12/2001
01-91 PDF Image; Section 2(c) of the Act; Interpretation
The Division of Trading and Markets responded to an inquiry about the regulation of the foreign currency market by a company that offers to exercise discretionary trading authority over a customer's account for trading in foreign currency on an off-exchange basis. The Division indicated that the Commodity Futures Modernization Act of 2000 had amended the Commodity Exchange Act to make clear that the offering of off-exchange foreign currency futures and options contracts to retail customers is unlawful unless the counterparty is a regulated entity enumerated in the Commodity Exchange Act, such as a registered FCM. The Division noted that, generally, a firm that, for compensation or profit, exercises discretionary trading authority over a customer's account for trading in futures or options contracts is a CTA and must register as such. However, with respect to a firm that manages the funds of retail customers that are held by a registered FCM acting as a counterparty under Section 2(c)(2)(B)(ii) of the Act for the purposes of off-exchange foreign currency trading, the firm is not required to register with the Commission as a CTA, but may voluntarily do so.
12/11/2001
01-92 PDF Image; Section 4m(1); Rule 4.14(a)(6); NFA Bylaw 1101; Interpretation
The Division of Trading and Markets responded to an inquiry regarding a registered CTA becoming an NFA member. The Division indicated that NFA Bylaw 1101 provides that an NFA member may not accept an order or handle a transaction for or on behalf of any non-Member of NFA that is required to be registered with the Commission. Accordingly, before a registered CTA could direct client accounts it must be a member of NFA. The CTA indicated that it was contemplating becoming a principal of an IB that is a member of NFA. The Division noted that if the IB were provided with a power of attorney to direct trading in client accounts, its NFA membership would be sufficient for purposes of satisfying NFA Bylaw 1101. However, the IB would fall within the definition of a CTA and, absent an exemption, the IB also would be required to register with the Commission as a CTA. If, however, the customer, instead of giving the power of attorney to the IB, gives it to the CTA directly, the IB would be acting solely as an IB and would not also be required to register as a CTA. However, the IB's NFA membership would not be sufficient as to the CTA for purposes of NFA Bylaw 1101, even though the CTA was a principal of the IB.
12/11/2001
02-01 PDF Image; Section 1a, 4d, 4e, 4k, 4m, 5a and 5b; Interpretation
The Division of Trading and Markets issued an interpretation that a staff and employee leasing company was not required to register with the Commission under the Act, where the leasing company does not control, supervise or participate in the client/employer's commodity interest trading activities or those of the employees it leases to the client/employer. The leasing company would not be holding itself out in any way as being involved in activities subject to regulation under the Act. Although the leasing company's compensation would be a percentage of the gross wages paid to the leased employee (including employees who receive commissions), that compensation would not be directly related to commodity interest trading activity on the part of the client/employer.
12/20/2001
02-02 PDF Image; Rules 4.24(l) and 4.34(k); Interpretation
The Division of Trading and Markets denied a CPO/CTA's request for exemption from the requirement to disclose material self-regulatory organization (SRO) actions involving the CPO/CTA and concluded within the preceding five years. The request asserted that, but for unnecessary delay by the SRO in responding to a request for hearing, the SRO action in questions would have been concluded more than five years prior to the date of the exemption request. The Division found that the SRO action was material, and that the CPO/CTA had not made the required showing that the requested exemption wad not contrary to the public interest and the purposes of the provisions from which the exemption was sought.

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