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Cantor Futures Exchange, L.P.

CFTC Rule 40.6 Submission #2016-2

January 22, 2016

1. The text of the FAQ, which constitutes a rule interpretation and is a rule change under CFTC 

Rule 40.1, is found in Attachment 1. The full text is an addition. There are no deletions.

Capitalized terms, unless otherwise defined herein shall possess the meaning(s) ascribed in the 

Cantor Futures Exchange, L.P. Rulebook.

2. The proposed effective date is ten business days after receipt by the Commodity Futures 

Trading Commission of this submission.

3. Attached, please find a certification that: (1) these rules comply with the Commodity 

Exchange Act, and the Commission’s regulations thereunder; and (2) concurrent with this 

submission, Cantor Futures Exchange, L.P. posted on its website: (i) a notice of pending 

certification of the rule submissions with the Commission; and (ii) a copy of this submission.

4. A concise explanation and analysis of the operation, purpose, and effect of the amended rule 

appears below.

5. There were no opposing views expressed regarding these amended rules.

====================================================================

CONCISE EXPLANATION AND ANALYSIS OF THE OPERATION, PURPOSE, AND 

EFFECT OF THE CERTIFIED RULE AND ITS COMPLIANCE WITH APPLICABLE 

PROVISIONS OF THE ACT, INCLUDING CORE PRINCIPLES AND THE COMMISSION’S 

REGULATIONS THEREUNDER

Pursuant to Commission Rule 40.6(a)(7)(vi), the following is a concise explanation and analysis 

of the operation, purpose, and effect of the amended rules.

FAQ--Commodity Pools and Other Participants That Are an Entity 

CX has been asked whether commodity pools and other entities may become a CX Participant. 

Related questions that have arisen include whether the pooled investment vehicle or its 

investment manager would be considered to be the Participant, how does the exchange treat a

trading manager or advisor trading with discretion on behalf of a Participant, must such a thirdparty Authorized Trader be registered through the National Futures Association, and whether 

Participants that are natural persons may trade through a joint account or appoint a third party to 

trade their account. 

It should be noted that CX is not promulgating amendments to its Rulebook regarding these 

issues. This FAQ provides guidance relating to existing rules, which have not been amended 
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since the time that CX was first designated as a contract market or shortly thereafter. Moreover, 

the FAQs do not change or amend CX interpretation of the applicable rules. They merely clarify 

and memorialize the long-standing CX understanding of its rules. 

The FAQ provides guidance that Participants may be natural persons, associations, partnerships, 

limited liability companies, joint ventures, trusts or corporations. Thus it is clear from CX rules 

that in the case of a commodity pool, which generally is a limited partnership or other form of 

corporate organization, it is the pool and not its organizer or manager that is the CX Participant. 

Moreover, the FAQ makes clear that the Authorized Trader will be a natural person that is an 

employee or agent of the manager, commodity pool operator or commodity trading advisor, 

respectively if the foregoing is itself an entity. The FAQ does not purport to give legal advice on 

whether such individuals are required to be registered in order to act in the capacity of 

Authorized Trader. However, it is possible, if not likely, that such third-party Authorized 

Traders will be registered as a commodity pool operator, a commodity trading advisor or 

possibly an Associated Person of the foregoing. 

The FAQ also makes clear that Participants who are natural persons may also appoint an 

Authorized Trader other than himself or herself. Such a third party Authorized Trader may 

exercise trading discretion under a power of attorney. In addition, the FAQ makes clear that 

spouses may establish a joint account. In such an instance, each spouse will be required to 

become a Participant of the Exchange. Generally, unrelated natural persons that trade through a 

joint account will be treated by the Exchange as a partnership. Finally, the FAQ makes clear that 

only an independent third-party Authorized Trader may trade on behalf of more than one 

Participant.

Analysis

CX reviewed the FAQ in respect of the Core Principles for Designated Contract Markets under 

section 5(d) of the Act. The following are potentially applicable to this rule: Core Principle (1)

Designation as a Contract Market; Core Principle (4) Prevention of Market Disruption; and Core 

Principle (9) Execution of Transactions. 

An analysis of how the FAQ explaining the meaning and functions of “Authorized Traders” is 

consistent, and in accordance, with the CX designation as a Contract Market follows. 1/

The Commission’s Order designating CX as a Contract Market states that,

 

1/ The analysis provided here is similar to a prior analysis of this issue provided to the Commission. CX in 

Advisory # 2015-2 gave notice to members that it had certified to the Commodity Futures Trading Commission 

(“CFTC” or “Commission”) under CFTC rule 40.6 amendments to Rule I and Rule III. These amendments establish 

rules in respect of “Referring Participants.” As part of that notice, CX analyzed how the role of “Referring 

Participant” is in accordance with CX’s Order of Designation, which describes CX as a “non-intermediated market.” 

See, # 2015-2 (2015-01-29) http://www.cantorexchange.com/getdoc/e1edf1d9-1bb4-42d4-9e2ac3eb490b9ead/Notices-to-Participants.aspx.
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IT IS FINALLY ORDERED, in consideration of Cantor's status as a non-intermediated

market, that this designation as a contract market shall be subject to Cantor's compliance 

with representations it made to the Commission in its application.

2/

This statement is followed by ten specific undertakings of the Exchange. The Commission’s 

Designation Letter stated similarly that the Exchange “will operate as a non-intermediated 

market and that its members will also be members of the Cantor Clearinghouse.”3/

 

“Intermediation” is undefined in the Commodity Exchange Act or Commission rules. However, 

in common usage, “intermediation” is thought to refer to the carrying of a customer account. 

The intermediated customer does not have a direct relationship with the exchange or the 

clearinghouse; instead the customer gains access to the exchange or clearinghouse through its 

intermediary agent. Thus, an intermediated market is one where a customer’s position on the 

exchange and at the clearinghouse is carried by another person and its legal relationship to the 

exchange or clearinghouse is indirect. 

The structure of the CX rules provides that in each and every instance, the Participant maintains 

its account directly with the exchange and clearinghouse. An “Authorized Trader” as provided 

for under CX Rules and as explicated under the FAQs does not affect the direct relationship 

between the Participant and the exchange or clearinghouse and therefore is fully in accordance 

with the Designation Order.4/ Entities have no choice but to carry out trading in their account 

through natural persons. Such natural persons are “Authorized Traders.” The fact that an entity 

operates through natural persons who are its Authorized Traders does not alter the fact that the 

account is directly owned by the Participant, who has a direct legal relationship to the exchange 

and to the clearinghouse. No person is able to have its CX positions or account held for it

indirectly as a customer of a Participant member, which is the essence of intermediation. 

That this is the case is amply evidenced by the CX rule providing for “Authorized Traders”

which was approved by the Commission in April 2010 at the time that CX was designated as a 

Contract Market. Specifically, Rule III-(2)(a) provided for third-party Authorized Traders for 

Participants that are natural persons. That rule provided that: 

(a) Each Participant that is an Entity shall be required to appoint one or more individuals 

to act as its Authorized Trader or Authorized Traders, as applicable. Participants that 

are natural persons may act as their own Authorized Trader or may appoint a third 

party as his or her Authorized Trader, pursuant to a power of attorney or other 

 

2/ Order of Designation Of Cantor Futures Exchange, L.P. as a Designated Contract Market, (April 20, 2010) , found 

at http://sirt.cftc.gov/SIRT/SIRT.aspx?Topic=TradingOrganizationsAD&Key=16669 (“Designation Order”) at page 

4 (emphasis added).

3/ The specific conditions are not relevant to the role of Authorized Traders on CX and are not discussed herein. For 

a general discussion of the conditions, see Submission #2015-2, supra n. 1.

4/

It also is in accordance with the Order Registering Cantor Clearing House as a Derivatives Clearing Organization, 

which provides that “Funds held in Participant Clearing Accounts shall be considered Member Property, as such 

term is defined in the Bankruptcy Code.” See, “In the Matter of the Application of Cantor Clearinghouse, L.P.

For Registration as a Derivatives Clearing Organization; Amended Order of Registration,” at

http://www.cftc.gov/stellent/groups/public/@requestsandactions/documents/ifdocs/cantoramdorderdcoreg.pdf, p.2.
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instrument, in a form prescribed or approved by the Exchange, providing such third 

party with discretionary trading authority with respect to the Participant's Trading 

Account.

Because third parties that trade for another with discretion may be required to be registered as a 

CTA, it is possible to conclude that CX Rule II-2(a) is inconsistent with CX Rule III-3(h), which 

provides that,

“

Futures commission merchants or other intermediaries shall not be permitted to 

submit trades in Contracts for execution on behalf of customers.” Such a conclusion would 

follow if one were to conclude that a third-party Authorized Trader is an “intermediary” within 

the meaning of CX rules. However, both rules (which were adopted at the same time) can be 

read together and given effect by concluding that CX did not intend for third-party Authorized 

Traders trading with or without discretion, including CTAs, to be considered to be 

“intermediaries.” This is also consistent with an understanding that unlike third-party 

Authorized Traders, FCMs may trade on behalf of customers using an omnibus account 

structure. 

Shortly thereafter, in October 2010, CX clarified any ambiguity of the meaning of the two rules 

by further clarifying the role of “Authorized Trader” on the exchange, making it clear that third 

parties could be appointed as an Authorized Trader by any Participant, regardless of whether the 

Participant is a natural person or an entity. Specifically, CX amended CX Rule III-2 by adding 

subparagraph (c), explicitly providing that Participants that are entities may appoint third parties 

as Authorized Traders.

5/

This provision maintained the same structure as the rule approved in 

April 2010 and simply extended its scope to entities. At that time, CX also amended the rule to 

make clear that a third-party Authorized Trader could exercise trading discretion for more than 

one Participant, and in so doing, would be required to allocate trades fairly.

6/ CX explained in its

CFTC Rule 40.6 submission that the “effect of this rule is to provide an administrative route for 

commodity pool operators/commodity trading advisors to be able to trade accounts on behalf of a 

pool or managed account customer.”

7/ Clearly, the role of Authorized Trader as contemplated by 

exchange rules, and approved by the Commission, at the time of CX’s designation, and later 

clarified in a rule amendment certified under CFTC Rule 40.6, is consistent with the terms of its 

Designation Order. The FAQ does not modify the meaning, operation or purpose of the rules 

and simply memorializes CX’s longstanding interpretation and understanding of its rules.

Finally, the FAQ does not impact CX’s ability to perform trade practice and market surveillance 

of its market as required by Core Principles 1 and 4, nor does it make any change which would 

affect order execution on CX. See Core Principle 9.

 

5//

See CX Submission 2010-2 (October 6, 2010) at 

http://www.cftc.gov/stellent/groups/public/@rulesandproducts/documents/ifdocs/rul100610cantor002.pdf. 

6//

http://www.cftc.gov/stellent/groups/public/@rulesandproducts/documents/ifdocs/rul100610cantor002.pdf

7//

Id. 

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ATTACHMENT 1

Frequently Asked Questions

Commodity Pools, Other Participants That Are Entities and the 

Relationship of Authorized Traders to Natural Person Participants

Thank you for your interest as a Commodity Pool or other entity in becoming a Cantor Exchange 

Participant. Below we have compiled a list of frequently asked questions relating to how such 

entities may become Participants and trade under Cantor Exchange rules and the relationship of 

Authorized Traders to Participants that are natural persons.

Are Commodity Pools or other entities permitted to become CX Participants? 

The Cantor Exchange (“CX”) Rulebook defines a “Participant” as a “Person” that has 

been granted Trading Privileges. “Person” is defined as meaning “any natural person, 

association, partnership, limited liability company, joint venture, trust or corporation.”

Accordingly, it is clear that entities, such as partnerships, limited liability companies and 

other forms of entities may become Participants.

Who may trade for such entities?

CX Rule III-2 requires that a Participant that is an entity must appoint one or more 

individuals to act as its Authorized Trader or Authorized Traders. CX defines the term 

“Authorized Trader” as “any natural person who is authorized by a Participant to place 

Orders on the Cantor Direct System.” CX Rule III-2(c) makes clear that an Authorized 

Trader may be either an employee or a third-party and that an Authorized Trader may be 

granted trading discretion by the Participant.

Who may be an Authorized Trader for a Commodity Pool? 

An Authorized Trader must be a natural person. Accordingly, a commodity pool, acting 

through its operator, could appoint as its Authorized Trader(s) the pool operator him or 

herself, if the pool operator is a natural person, or an employee or agent of the pool 

operator if the pool operator is an entity. Alternatively, the commodity pool through its 

operator may appoint a commodity trading advisor that is a natural person to exercise 

trading discretion on behalf of the commodity pool. If the commodity trading advisor is 

an entity, such as a partnership or a limited liability company, the pool through its 

operator would appoint as the pool’s Authorized Trader an employee (or other agent) of 

the commodity trading advisor. 
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Would a third-party Authorized Trader be required to be registered through the National 

Futures Association in any capacity?

A third-party Authorized Trader for a commodity pool has trading discretion over the 

commodity pool’s account. Unless exempt from registration, typically, the Authorized 

Trader of a commodity pool or other entity would be registered through the National 

Futures Association or would be an employee of a registrant. Parties should consult their 

counsel whether registration of such individuals is required. 

May CX Participants who are natural persons appoint a third-party Authorized Trader?

Yes. CX Rule III-2(b) makes clear that a Participant that is a natural person is not 

required to act as his or her own Authorized Trader and may appoint a third-party 

Authorized Trader, acting either on a discretionary or a non-discretionary basis. 

Who may be an Authorized Trader for an Individual?

As discussed above, a Participant that is a natural person may appoint another natural 

person(s) to be his or her Authorized Trader and may grant such a third-party Authorized 

Trader discretion. Such a third-party Authorized Trader may be a commodity trading 

advisor himself or herself or the employee or agent of a commodity trading advisor that is 

an entity. 

Are joint accounts permitted on CX?

Generally, natural persons that wish to establish a joint account should do so as a 

Partnership, Limited Liability Company, or other such entity. In that case, it is the entity 

which will be the Participant and not its owners. However, spouses may establish a joint 

account. In such an instance, each spouse will be required to become a Participant of the 

Exchange. One or both spouses may be appointed as Authorized Traders for the account, 

or they may jointly appoint a third-party as Authorized Trader for the account. 

In addition, “investment clubs” that qualify for exemption from registration as a 

commodity pool operator and that have not formed a partnership or other entity to trade 

on behalf of the club, may operate through a joint account. In that case, each member 

would be required to become a Participant of the Exchange. One or more natural persons 

may be appointed as the Authorized Trader on behalf of each of the joint account holders.

May more than one Participant appoint the same third-party Authorized Trader? 

Yes. CX Rule III-2(e) provides that each Authorized Trader that is an employee of a 

third-party with discretionary trading authority may exercise Trading Privileges for more 

than one Participant, and is required to allocate contracts fairly and in an equitable 

manner among the multiple Participants for which the Authorized Trader trades.