CFTC Staff Letters

The Division of Clearing and Intermediary Oversight confirmed that a person registered as an investment adviser with the Securities and Exchange Commission: (1) would come within the CTA definition in Section 1a(6) of the Act if it offered as part of its comprehensive portfolio management a “managed futures account” component; and (2) would be required to register as a CTA with the Commission unless an exemption from registration was available to it. Based upon the facts presented to it, the Division concluded that none of the exemptions from CTA registration in Regulation 4.14 would be available to the investment adviser. The Division further offered that, assuming that none of the adviser’s customers would be in the nature of the collective investment vehicles identified in Section 4m(3) of the Act, the adviser might be able to claim the exemption from CTA registration available under that section.

The Division of Clearing and Intermediary Oversight provided an Interpretation that a software vendor would not be an introducing broker (“IB”) as defined in Commodity Exchange Act Section 1a(23) and Commission Regulation 1.3(mm) as a result of providing its customers a software application with the ability to route orders for the purchase or sale of commodity futures and options contracts to a futures commission merchant (“FCM”) or IB of their choice. This relief is subject to conditions that: (1) each customer will have established a relationship with an FCM or IB independent of its relationship with the software vendor; (2) the vendor would not recommend, propose, or encourage that customers use any particular FCM or IB, even upon request; (3) the platform would not produce express “buy” or “sell” signals; (4) the software vendor would not solicit or accept orders for any commodity futures or commodity option transaction; (5) fees charged by the vendor would not be related to any fees charged by the FCM or IB for the execution of any futures orders; and (6) the software vendor would not have a membership with trading privileges on any designated contract market (“DCM”) or derivatives transaction execution facility (“DTEF”).

The Division of Clearing and Intermediary Oversight issued an interpretation that when an IB does no more than introduce a non-clearing FCM to a clearing FCM, and the non-clearing FCM then establishes an omnibus account with the clearing FCM, the requirement of Regulation 1.57(a)(1) that an IB open and carry each customer’s account with a carrying FCM on a fully-disclosed basis is not triggered, where: (1) the IB does not transmit trading orders fore the omnibus account to the clearing FCM; and (2) the IB does not accept funds from the customers whose accounts are maintained in the omnibus account.

The Division of Clearing and Intermediary Oversight issued an interpretation that a technology service provider is not an introducing broker (IB) and, therefore, is not required to register as such, as a result of providing its customers with an internet-based software application with the ability to route orders for the purchase or sale of commodity futures and options to an IB or futures commission merchant (FCM) of their choice in connection with related cash market transactions. The software application permits a customer to establish parameters for purchasing grain in the cash market based upon a plurality of delivery locations with reference to the price of a futures contract, and upon finding a matching counterparty, subsequently generates an order for a corresponding futures transaction based upon the parameters established by the customer in advance. This interpretation was based on the representations that: (1) each customer will establish a relationship with an IB or FCM of its own choosing prior to engaging in futures and options transactions using the application; (2) a customer may use the software application solely to engage in cash market transactions; (3) all customers pay the same fee to the technology service provider regardless of whether the customer engages in any futures transactions, and such fee is not related to any fees charged by the FCM or IB for the execution of any futures orders; (4) the technology service provider does not receive any compensation from any customers’ FCM or IB, nor does it have any membership with trading privileges on any designated contract market or derivatives transaction execution facility; and (5) the software application does not provide express “buy” or “sell” signals.