2005 Exemptive, No-Action, and Interpretative Letters

05-02; No-Action; December 10, 2004; The Division of Clearing and Intermediary Oversight issued a letter granting no-action relief to permit the U.S. affiliate of a futures commission merchant (FCM) to execute and clear foreign futures and foreign options transactions for the foreign futures and options customer omnibus accounts of the FCM without the affiliate having to register as an FCM pursuant to Rule 30.4(a). Rule 30.4(a) provides that a foreign futures and options broker (FFOB), as defined in Rule 30.1(e), is not required to register with the Commission as an FCM if, among other things, the FFOB solely accepts orders or carries an FCM’s foreign futures and options customer omnibus account(s). Although the affiliate conducts no brokerage or trading activities in the U.S. and is a member of a foreign board of trade and subject to regulation in the jurisdiction in which the foreign board of trade is located, the affiliate does not satisfy the Rule 30.1(e) definition of FFOB because it is not a “non-U.S. person” by virtue of its incorporation in the U.S. Absent relief, the affiliate would be precluded from operating pursuant to Rule 30.4(a) without obtaining registration as an FCM. Among other things, the relief is conditioned upon the FCM’s acknowledgment that it will be jointly and severally liable for any violations of the Act or the Commission’s rules committed by the foreign affiliate in connection with those activities. [Rule 30.4(a) and 30.1(e)] (DCIO).

05-03; No-Action; January 26, 2005; The Division of Market Oversight (Division) has granted no-action relief to U.S. Futures Exchange, LLC (Eurex U.S.) from Commission Rule 15.03(b).  Commission Rule 15.03(b) establishes contract reporting levels for futures and option contracts.  Eurex U.S. will list and commence trading in futures and option contracts based on 3-Year U.S. Treasury Notes (3-Year T-Notes) on February 1, 2005.  Since 3-Year T-Notes are newly offered, the default reporting level of 25 contracts set out in Commission Rule 15.03(b) will apply to such contracts absent relief from the Division or the Commission.  Although 3-Year T-Notes are new products, they are similar to 2-Year T-Note contracts that have been offered for many years and are widely traded.  In light of the similarities between 2- and 3-Year T-Notes, and discussions between the Division’s surveillance staff and Eurex U.S., the Division believes that a reporting level of 750 contracts is appropriate pending the adoption of final rules establishing a contract reporting level for 3-Year T-Notes.  The Division believes that a reporting level of 750 contracts eases the burden of reporting on market participants and preserves the Commission’s ability to effectively surveil trading in 3-Year T-Notes.  [Sections 4a, 4c(b), 4g, 4i; Parts 15 through 18, and 21 of Commission’s Regulations] (DMO).

05-04; No-Action; March 14, 2005; Osaka Securities Exchange Co., Ltd.’s request for no-action relief in connection with the offer and sale in the United States of its futures contract based on the Russell/Nomura Prime Index.  [Section 2(a)] (OGC).

05-05; No-Action; March 14, 2005; No-Action letter that permits FCMs and IBs to rely upon certain CTAs to perform procedures of the FCM’s or IB’s customer identification program.  [31 CFR §103.123 and 17 CFR §42.2] (DCIO).

05-06; No-Action; March 14, 2005: The Division of Clearing and Intermediary Oversight issued a letter granting no-action relief to permit the foreign affiliate of a futures commission merchant (FCM) to execute transactions via its internet-based order entry system on behalf of the FCM’s institutional and commercial customers in the U.S. for trading on U.S. exchanges without the affiliate having to register as an introducing broker (IB) pursuant to section 4d of the Commodity Exchange Act (Act). The FCM currently is connected to the internet-based order entry system for the purpose of gaining direct access to non-U.S. exchanges for its U.S. customers. Pursuant to Rule 30.10, the foreign affiliate has been granted exemption from registration as an FCM for purposes of offering foreign futures and options to U.S. customers. The Rule 30.10 relief, however, does not extend to any activities related to trading, directly or indirectly on U.S. exchanges. As a condition to the no-action relief, the foreign affiliate will not solicit any U.S. customers for trading on any U.S. market or handle any U.S. customer funds related to trading on any U.S. market, and all trades in U.S. contracts will be cleared directly by the FCM. In addition, the no-action relief is conditioned upon the FCM’s acknowledgment that it will be jointly and severally liable for any violations of the Act or the Commission’s rules committed by the foreign affiliate in connection with those activities. [Section 4d, CEAct] (DCIO).

05-07; No-Action; April 20, 2005 (corrected May 17, 2005); The Division of Clearing and Intermediary oversight took: (1) a CPO registration no-action position regarding an investment adviser (division of a bank and not required to register with the SEC) (the adviser) and the directors of a family of Puerto Rico investment companies (the funds); and (2) a CTA registration no-action position regarding the Adviser. Each of the Funds is registered under the Puerto Rico Investment Companies Act, has it principal place of business in Puerto Rico, and may be offered and sold only to the persons whose principal place of business or principal residence is in Puerto Rico. At least 75% of each Fund’s directors have their principal residence in Puerto Rico and none of the directors is subject to statutory disqualification under Section 8(a)(2) or (a)(3) of the CEA. [Section 4m(1)] (DCIO).

05-08; No-Action; May 16, 2005; Request for no-action relief in connection with the offer and sale in the United States of futures contracts based on the Taiwan Stock Exchange Electronic Section Index and the Taiwan Stock Exchange Finance Sector Index traded on the Taiwan Futures Exchange. [Section 2(a)] (OGC).

05-09; No-Action; May 20, 2005; The Division of Clearing and Intermediary Oversight (DCIO) issued a letter granting no-action relief to a futures commission merchant (FCM) that is also registered as a securities broker-dealer (BD) with the U.S. Securities and Exchange Commission (SEC), and who had been approved by SEC order to compute its net capital using alternative deductions for market risk and credit risk for proprietary trading assets of the BD. The SEC approved the alternative deductions pursuant to amendments to its net capital rule (Rule 15c3-1) adopted last June, by which certain BDs that are subject to group-wide consolidated supervision may be approved to use mathematical models in computing their minimum net capital. The FCM requested relief from Division staff allowing it to use its SEC-approved alternative deductions when computing its adjusted net capital under Rule 1.17(c), and to file copies of the same financial condition report with both the SEC and the Commission, as it previously had been able to do under Commission Rule 1.10. In granting the requested relief, subject to the conditions set forth in its response letter, DCIO stated that its no-action position would be deemed withdrawn in the event that the Commission adopted amendments to Rule. 1.17 establishing requirements for the use by jointly registered FCM/BDs of their SEC-approved alternative deductions. [Rules 1.17 and 1.10] (DCIO).

05-10; No-Action; February 23, 2005; The Division of Clearing and Intermediary Oversight (DCIO) issued a letter granting no-action relief to a futures commission merchant (FCM) that is also registered as a securities broker-dealer (BD) with the U.S. Securities and Exchange Commission (SEC), and who has been approved by SEC order to compute its net capital using alternative deductions for market risk for its proprietary positions in securities and other trading assets. The SEC approved the alternative deductions pursuant to amendments to its net capital rule (Rule 15c3-1) adopted last June, by which certain BDs that are subject to group-wide consolidated supervision may be approved to use mathematical models in computing their minimum net capital. The FCM requested relief from Division staff allowing it to use its SEC-approved alternative deductions when computing its adjusted net capital under Rule 1.17(c), and to file copies of the same financial condition report with both the SEC and the Commission, as it previously had been able to do under Commission Rule 1.10. In granting the requested relief, subject to the conditions set forth in its response letter, DCIO stated that its no-action position would be deemed withdrawn in the event that the Commission adopted amendments to Rule 1.17 establishing requirements for the use by jointly registered FCM/BDs of their SEC-approved alternative deductions. [Rules 1.17 and 1.10] (DCIO).

05-11; No-Action; June 28, 2005; The Division of Clearing and Intermediary Oversight took a no-action position with respect to the failure of a co-manager of a commodity pool (the Pool) to register as a CPO. Consistent with prior no-action letters, the other co-manager was a registered CPO, both co-managers were closely affiliated, and the unregistered co-manager would not participate in: (1) solicitation, acceptance or receipt of funds or property to be used for purchasing interests in the Pool; or (2) the investment, use or disposition of funds or property of the Pool. Neither co-manager was subject to statutory disqualification and each co-manager cross-acknowledged in writing joint and several liability for any violation of the Commodity Exchange Act or CFTC rules by the other co-manager. [Section 4m(1)] (DCIO).

05-12; Exemption; June 3, 2005; The Division of Clearing and Intermediary Oversight denied a request by a CPO for relief from the requirement of Rule 4.13(a)(2) that, for a CPO to be eligible to claim the CPO registration exemption available under that rule, none of the pools that the CPO operates may have more than 15 participants at any time. [Rule 4.13(a)(2)] (DCIO).

05-13; Interpretation; August 15, 2005; The Division of Clearing and Intermediary Oversight affirmed that a registered investment adviser could claim CTA registration exemption under Rule 4.14(a)(8) with respect to certain of its advisory activities while simultaneously relying upon the CTA registration exemption provided by Section 4m(3) of the Commodity Exchange Act. For purposes of the letter, it was not necessary for the Division to define or otherwise interpret the criteria of Section 4m(3), or to make any determination whether the requester met those criteria. [Rule 4.14 (a)(8)] (DCIO).

05-14; No-Action; July 25, 2005; The Division of Clearing and Intermediary Oversight issued a letter denying a request from an FCM seeking relief from certain risk assessment reporting and recordkeeping requirements set forth in Commission Rules 1.14 and 1.15, respectively. Rules 1.14 and 1.15 set forth requirements which permit the Commission to obtain information concerning activities of FCM affiliates that could pose material risks to the FCM. In support of its request for relief, the FCM indicated that it has not conducted any futures brokerage activities since its inception and does not plan to conduct such activities in the future, and stated that, as a dually-registered BD/FCM, it files with the SEC a Form 17-H and makes available for inspection by the SEC all supporting documentation. The Division noted that the Commission, upon adopting the risk assessment rules, did not grant a complete exemption from Rules 1.14 and 1.15 for firms filing a Form 17-H with the SEC, and recognized that the risk management policies requirements pertain to activities involving instruments, such as securities or swaps, that are generally outside of the Commission’s transactional jurisdiction. The Division also noted that firms that are registered FCMs must comply with the regulatory requirements pertaining to FCMs, regardless of the extent, at any given time, of their involvement in futures-related activities. In conclusion, the Division determined that the FCM did not demonstrate special circumstances to justify granting the relief sought. The Division noted, however, that the FCM may continue to rely upon the exemption from certain provisions of Rules 1.14 and 1.15 applicable to those firms that file Form 17-H with the SEC. [Commission Rule 1.14 and 1.15] (DCIO).

05-15; Exemption; August 15, 2005; The Division of Clearing and Intermediary Oversight granted a request by a CPO for relief from the CPO registration requirement of Section 4m(1) of the Act with respect to a pool in which seven of the pool’s thirty-four participants are non-accredited investor. The relief was based upon representation made with respect to the nature of the non-accredited investors and representations that the pool would trade commodity interest solely for bona fide hedging purposes. The relief was further subject to the condition that the aggregate initial margin and premiums the pool commits to establish its commodity interest positions will not exceed one percent of the liquidation value of the pool’s portfolio. [Section 4m(1)] (DCIO).

05-16; No-Action; August 26, 2005; The Division of Market Oversight issued a letter granting no-action relief to permit Euronext Amsterdam N.V. to make its electronic trading and order matching system (LIFFE CONNECT®) available to Euronext Amsterdam members in the U.S. without obtaining contract market designation or registration as a derivatives transaction execution facility pursuant to Sections 5 and 5a of the CEAct. The relief applies to Euronext Amsterdam members trading for their own accounts; Euronext Amsterdam members who are registered as futures commission merchants (FCMs) or who are exempt from such registration pursuant to CFTC Rule 30.10 (Rule 30.10 Firms) submitting orders from or on behalf of U.S. customers for transmission to LIFFE CONNECT® or accepting orders for U.S. customers transmitted via automated order routing systems for submission to LIFFE CONNECT®; and Euronext Amsterdam members who are registered as Commodity Pool Operators (CPO) or Commodity Trading Advisors (CTA), or who are exempt from such CPO or CTA registration pursuant to Commission Regulation 4.13 or 4.14, submitting orders on behalf of U.S. pools they operate or U.S. customer accounts for which they have discretionary authority, respectively, for transmission to LIFFE CONNECT®, provided that an FCM or Rule 30.10 Firm acts as clearing firm with respect to all activity conducted by such CPOs and CTAs through the submission of orders on LIFFE CONNECT®. [Sections 5 and 5a of the Act] (DMO).

05-17; Exemption; October 5, 2005; The Division of Clearing and Intermediary Oversight denied a request by a registered CPO/CTA that it be permitted to operate its branch office, a wholly-owned subsidiary of the CPO/CTA, as a separately incorporated entity. The Division denied the request because, in its view, allowing separately incorporated branch offices would frustrate a core purpose of Rule 166.4 – i.e., that Commission registrants be accountable for the acts and omissions of their branch offices. The Division further noted that this position is consistent with prior positions taken both by the Commission and the Division’s predecessor, the Division of Trading and Markets. [Rule 166.4] (DCIO).

05-18; Exemption; October 5, 2005; Because of conflicting information provided to it, the Division of Clearing and Intermediary Oversight declined to consider a request for confirmation that registration is not required for an individual to receive ongoing payments in connection with past solicitation activity on behalf of various funds. The Division further advised that, in the event the interested parties are unable to agree as to the facts bearing on the registration question, they may elect to resolve their dispute in a court or other competent fact finding forum. [Sections 4d and 4k(s)] (DCIO).

05-19; Exemption; November 10, 2005; The Division of Clearing and Intermediary Oversight granted exemptive relief from certain of the Part 4 rules to the registered CPO of a commodity pool, whose shares the CPO intended to publicly offer and to list for trading on a national securities exchange. As is discussed in the letter, this relief was in the nature of substituted compliance with those rules. [Rules 4.21, 4.22 and 4.23] (DCIO).

05-20; No-Action; November 30, 2005; The Division of Clearing and Intermediary Oversight (DCIO) has issued letters granting no-action relief to two futures commission merchants (FCMs) that are also registered as securities broker-dealers (BDs) with the U.S. Securities and Exchange Commission (SEC), and who have been approved by SEC order to compute their net capital using alternative deductions for market risk and credit risk for proprietary trading assets of the BD. The SEC approved the alternative deductions pursuant to amendments to its net capital rule (Rule 15c3-1) adopted last June, by which certain BDs that are subject to group-wide consolidated supervision may be approved to use mathematical models in computing their minimum net capital. Each FCM requested relief from Division staff that would allow it to use its SEC-approved alternative deductions when computing its adjusted net capital under Rule 1.17(c), and to file copies of the same financial condition report with both the SEC and the Commission, as it previously had been able to do under Commission Rule 1.10. In granting the requested relief, subject to the conditions set forth in its response letters to each of the firms, DCIO stated that its no-action position would be deemed withdrawn in the event that the Commission adopted amendments to Rule 1.17 establishing requirements for the use by jointly registered FCM/BDs of their SEC-approved alternative deductions. [Rules 1.17 and 1.10] (DCIO).

05-21; No-Action; November 30, 2005; The Division of Clearing and Intermediary Oversight (DCIO) has issued letters granting no-action relief to two futures commission merchants (FCMs) that are also registered as securities broker-dealers (BDs) with the U.S. Securities and Exchange Commission (SEC), and who have been approved by SEC order to compute their net capital using alternative deductions for market risk and credit risk for proprietary trading assets of the BD. The SEC approved the alternative deductions pursuant to amendments to its net capital rule (Rule 15c3-1) adopted last June, by which certain BDs that are subject to group-wide consolidated supervision may be approved to use mathematical models in computing their minimum net capital. Each FCM requested relief from Division staff that would allow it to use its SEC-approved alternative deductions when computing its adjusted net capital under Rule 1.17(c), and to file copies of the same financial condition report with both the SEC and the Commission, as it previously had been able to do under Commission Rule 1.10. In granting the requested relief, subject to the conditions set forth in its response letters to each of the firms, DCIO stated that its no-action position would be deemed withdrawn in the event that the Commission adopted amendments to Rule 1.17 establishing requirements for the use by jointly registered FCM/BDs of their SEC-approved alternative deductions. [Rules 1.17 and 1.10] (DCIO).

05-22; Exemption; November 10, 2005; The Division of Clearing and Intermediary Oversight issued a CTA registration “no-action” position to a third party trading system developer where (1) the third party trading system developer’s clients execute a “letter of direction” authorizing an IB to trade those clients’ accounts pursuant to the third party trading system developer’s trading signals; (2) the IB shares common principals with the third party trading system developer; and (3) the IB does not provide services to its customers other than trading their accounts pursuant to the third party trading system developer’s trading signals, subject to the conditions that the IB: (1) registers with the Commission as a CTA; and (2) provides a Disclosure Document, as specified by Part 4 of the Commission’s regulations, to each of the third party trading system developer’s clients that have executed a “letter of direction.” [Section 4m(1)] (DCIO).

05-23; No-Action; November 23, 2005; Eurex Deutschland’s request for no-action relief in connection with the offer and sale in the United States of its Dow Jones Italy Titans 30 Index Futures Contracts. [Section 2(a)] (OGC).

05-24; No-Action; December 16, 2005; The Division of Market Oversight issued a letter granting no-action relief to permit NYMEX Europe Limited to make its electronic trading and order matching system (NYMEX ACCESS®, to be replaced at a later date by NYMEX ClearPort^(sm) Trading) available to NYMEX Europe Limited members in the U.S. without obtaining contract market designation or registration as a derivatives transaction execution facility pursuant to Sections 5 and 5a of the CEAct. The relief applies to NYMEX Europe Limited members trading for their own accounts; NYMEX Europe Limited members who are registered as futures commission merchants (FCMs) or who are exempt from such registration pursuant to CFTC Rule 30.10 (Rule 30.10 Firms) submitting orders from or on behalf of U.S. customers for transmission to NYMEX ACCESS® or NYMEX ClearPort^(sm) Trading or accepting orders for U.S. customers transmitted via automated order routing systems for submission to NYMEX ACCESS® or NYMEX ClearPort^(sm) Trading; and NYMEX Europe Limited members who are registered as Commodity Pool Operators (CPO) or Commodity Trading Advisors (CTA), or who are exempt from such CPO or CTA registration pursuant to Commission Regulation 4.13 or 4.14, submitting orders on behalf of U.S. pools they operate or U.S. customer accounts for which they have discretionary authority, respectively, for transmission to NYMEX ACCESS® or NYMEX ClearPort^(sm) Trading, provided that a NYMEX clearing member that is registered as an FCM acts as clearing firm with respect to all activity conducted by such CPOs and CTAs through the submission of orders on NYMEX ACCESS® or NYMEX ClearPort^(sm) Trading. [Sections 5 and 5a of the Act] (DMO).