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Interpretative Letters

Interpretative Letters
06-05 PDF Image; Regulation 1.17(d)(1); Interpretation
The Division of Clearing and Intermediary Oversight (DCIO), in response to an inquiry from the designated self-regulatory organization of a futures commission merchant (FCM), issued a letter to provide guidance on a Commission rule that permits FCMs to include in their equity capital the funds borrowed under subordination agreements that meet all of the requirements specified in the rule, including that the lender be a partner or stockholder of the FCM. DCIO took the position that, consistent with the purposes of Rule 1.17(d)(1), and also consistent with NASD guidance to broker-dealers for similar equity capital requirements under Securities Exchange and Commission (SEC) regulations, the lender of the funds under such an agreement may be a company that owns 100 percent of the shares of the company that owns 100 percent of the sole shareholder of the FCM.
06-10 PDF Image; Regulation 166.4; Interpretation
The Division of Clearing and Intermediary Oversight confirmed that a registrant would be conducting its branch office operations in compliance with regulation 166.4, based upon certain changes to those operations that registrant represented that it would make. (Previously, by CFTC Staff Letter No. 05-17, the Division had denied the request of the registrant to operate a branch office as a separately incorporated entity.)
06-29 PDF Image; Section 1a(23); Regulation 1.3(mm); Interpretation
The Division of Clearing and Intermediary Oversight issued an interpretation that a software vendor is not an introducing broker, and is not required to register as such, in connection with its marketing of a software program with the ability to route orders to a designated contract market (“DCM”) or derivatives transaction execution facility (“DTEF”) on behalf of the futures commission merchant ("FCM") of the customers’ choice. This interpretation was based on the representations that: (1) the software vendor does not have a membership with or trading privileges on any DCM or DTEF that uses the order routing software; (2) the software does not provide express “buy” or “sell” signals; (3) customers have pre-existing relationships with their FCMs and will negotiate any and all fees for executing trades between themselves and the FCM; (4) the software provider will not solicit orders for, or recommend, propose, or encourage customers to use, any particular FCM; (4) the software will reside on customers’ computers and the orders will go directly from the end user to the DCM or DTEF without passing through the FCM’s order entry system; and (5) the software provider will be compensated by fees that are paid to it by the customer, and are not related to the fees charged by the FCM for the placement of customer orders.