U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5430 

Facsimile: (202) 418-5547 

aradhakrishnan@cftc.gov

Division of Clearing and 

Intermediary Oversight

Ananda Radhakrishnan 

Director 

CFTC letter No. 07-09 

June 1, 2007 

Other Written Communication 

Division of Clearing and Intermediary Oversight 

 Re: Request for Reconsideration 

Dear : 

 On November 10, 2005, the Division of Clearing and Intermediary Oversight 

(“Division”) issued a letter to you stating that it would not recommend that the Commodity 

Futures Trading Commission (“Commission”) commence any enforcement action against “A” 

for its failure to register as a commodity trading advisor (“CTA”) under Section 4m(1) of the 

Commodity Exchange Act (the “Prior Letter”).1

 That relief was, however, subject to compliance 

with the conditions that “B”, an affiliated registered introducing broker (“IB”): (1) register as a 

CTA; and (2) provide a Disclosure Document to each of its customers that participates, or will 

participate, in “A’s” Broker-Assisted Trading Program. By letter dated December 24, 2005, as 

supplemented by information provided to Division staff via email (collectively, the 

“correspondence”),2 you have requested that the Division reconsider the imposition of these 

conditions. 

 

 In support of this request, you claim that “B” does not exercise discretionary control over 

customer accounts. Consequently, you claim that any past performance results in each account 

are not attributable to the “A” trading systems as executed pursuant to “B’s” trading authority, 

but rather, to each individual customer, and therefore that any performance disclosures set forth 

in a Disclosure Document regarding the “A” trading systems would be misleading to prospective 

customers.3 However, you also have confirmed that each customer signs a letter of direction 

 

1

 CFTC Staff Letter 05-22, [Current Transfer Binder], Comm. Fut. L. Rep. (CCH) ¶30,167 

(November 10, 2005). A copy of the Prior Letter may be accessed on the Commission’s website 

at: http://www.cftc.gov/files/tm/letters/05letters/tm05-22.pdf. 

2

 Most recently, you provided Division staff with a copy of the letter of direction to be 

signed by “A” customers in favor of “B”. 

3

 Alternatively, you claim that because “B” does not limit its brokerage execution services 

to the Broker-Assisted Trading Program, it qualifies for the registration exemption set forth in 
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granting “B” a limited power of attorney for the express purpose of entering orders in accordance 

with the signals generated by the “A” trading systems.4

 Moreover, you have confirmed that 

customers do not receive trade signals concurrently with the transmittal of the signals to “B”, nor 

does “B” contact customers prior to the execution of any system trades. Rather, customers are 

required to refer to the “A” website for a summary of trade signals after the orders have been 

executed. 

 CTA registration and the attendant Disclosure Document requirement set forth in 

Regulation 4.35 are intended to provide protections to customers, particularly those who may be 

unsophisticated in financial matters, by apprising prospective customers of material facts before 

they commit their funds.5

 Accordingly, in the Prior Letter, the Division determined that the 

discretionary nature of services provided by “A” and “B”, in the aggregate, warranted CTA 

registration and the provision of a Disclosure Document to current and prospective customers by 

 

Regulation 4.14(a)(6), which provides that a person is not required to register as a CTA if it is 

registered as an IB and the person’s trading advice is solely in connection with its business as an 

IB. (Emphasis added.) 

 However, in light of various statements “A” makes on its website, the Division disagrees 

with your claim. For example, since 2005, the “A” website has stated: 

How many brokerages provide the “A”? One. The principals of “A” formed a 

brokerage in July of 2005 for the purpose of providing a sanitized and focused 

environment. This is needed to ensure correct execution of every trade, and 

correct application of the cash management programs on behalf of each system 

traded for each member participant. These are full time brokerage functions that 

are not suited for brokerages with many other activities.

Members needing additional brokerage services for activity that is in addition to 

the trading of our systems will be accommodated through a strategic alliance 

partner of the brokerage. The strategic alliance was established for this purpose, 

and so that “B” brokers remain undistracted and focused on high quality 

execution of the entire “A” program. (Emphasis added.) 

4

 The “A” website states: 

By simply becoming an “A” member and issuing the Letter of Direction, a 

professional brokerage firm, trained by “A” in all aspects of our systems and cash 

management programs, will execute the systems and correctly size each trade on 

your behalf. 

5

 See CFTC Staff Letter No. 03-15, [2002-2004 Transfer Binder], Comm. Fut. L. Rep. 

(CCH) ¶29,454 (Apr. 1, 2003). A copy of this letter may be accessed on the Commission’s 

website at: http://www.cftc.gov/tm/letters/03letters/tm03-15.htm. 
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“B”. The ability of a customer to amend periodically its participation in any given “A” trading 

system executed pursuant to the letter of direction granted to “B” and consistent with the 

advertisements posted on “A’s” website does not diminish the discretionary nature of the 

relationship between each customer and “B”. Furthermore, in the Prior Letter, the Division 

noted specifically that relief was being provided to “A” on the basis that no additional benefit 

would be provided to “A” customers in light of the registration and disclosure obligations to be 

fulfilled by “B”, an entity already registered as an IB and whose sole principals were the sole 

principals of “A”. 

 Based upon the foregoing, the Division denies your request for reconsideration. If you 

have any questions concerning this correspondence, please contact Andrew Chapin, an attorney 

on my staff, at (202) 418-5450. 

 Very truly yours, 

 Ananda Radhakrishnan 

 Director