© CCH. All rights reserved. Originally published in the CCH Commodity Futures Law Reporter. Reposted by the CFTC with 

permission. Such reposting does not constitute or imply endorsement by the Commodity Futures Trading Commission of the 

accuracy of the reposted material or of any summaries thereof. 

1

Commodity Futures Archive - Selected materials, CFTC Interpretative Letter 

No. 89-5. (Request for Exemption from Registration as FCM, IBs and 

Principals.), ¶24,471, Commodity Futures Trading Commission, (Dec. 8, 1988)

¶24,471. Commodity Futures Trading Commission. Division of Trading and Markets. December 8, 1988. 

Correspondence in full text.

Interpretations: Foreign Transactions: Registration Exemption: Futures Commission Merchants..– 

Notwithstanding the legal status of a firm's U.S. branch office, the existence of the U.S. branch office in the U.S. should 

not preclude the firm's foreign futures division from being eligible for the exemptive relief in Reg. §30.10. The sales 

activities undertaken by the U.S. branch in the U.S. are activities which are subject to and require licensing by the 

Office of the Comptroller of the Currency and the U.S. branch essentially is treated as a separate entity by the OCC.

See ¶12,825, "Liabilities—Prohibitions" division, Volume 1.

Interpretations: Foreign Transactions: Registration Exemption: Introducing Brokers..– The regulatory purposes 

of limiting Reg. §30.10 relief to firms located outside the U.S. would be adequately addressed provided that neither a 

firm's U.S. branch office nor any affiliate of the firm would undertake any activity subject to regulation under Part 30 or 

engage in any clerical capacity related thereto. Should a U.S. affiliate registered as a broker/dealer determine at some 

future date to engage in introducing broker activities, it must notify the CFTC and NFA prior to engaging in such 

activities and comply with all of the regulatory requirements applicable to IBs in the CFTC's rules. This means that 

neither the U.S. branch nor a U.S. affiliate that engages in leveraged buyout services may engage in any activity subject 

to regulation under Part 30, including referring customers to the U.S. affiliate registered as a broker/dealer for referral to 

the firm or its foreign futures division, unless such entity also registers in an appropriate capacity. The Division of 

Trading and Market's no action position was also based upon the representations that the U.S. branch, and the two U.S. 

affiliates have consented to produce all books and records for inspection by the CFTC and NFA upon request; the three, 

notwithstanding the broker/dealer's consent to register as an IB, have undertaken not to engage in any activity subject to 

regulation under Part 30 without prior notice to the CFTC and at least one entity, the registered broker/dealer has agreed 

to register as an IB.

See ¶12,825, “Liabilities—Prohibitions” division, Volume 1.

Interpretations: Foreign Transactions: Principals: Introducing Brokers: Registration..– The Division of Trading 

and Markets accepted the designation of one of the vice-presidents of a firm's U.S. affiliate that deals in U.S. Treasury 

securities and is an underwriter of and dealer in certain municipal securities as the sole principal for purposes of its 

introducing broker registration. To effectuate this relief, however, the board of directors of the affiliate must certify in 

writing to the Division that no principal of the affiliate would be precluded from being registered with the CFTC under 

Section 8a(2) of the Commodity Exchange Act and must further acknowledge that the designated vice president of the 

affiliate will comply with the regulatory requirements applicable to principals for purposes of the no action position, 

and that absent further notice and compliance, neither the affiliate, its officers or employees will engage in any 

IB-related activities at this time. Specifically, the Division noted that pursuant to the terms of relief, the affiliate will 

have undertaken to notify the Division before it engages in any IB-related activities and otherwise be in compliance 

with all of the requirements applicable to such an entity, including the requirement in Reg. §3.12 that all persons who 

act in the capacity of an associated person of an IB, or any person who supervises any person so engaged, up to and 

including the president or chief executive officer, must register as such.

See ¶12,825, “Liabilities—Prohibitions” division, Volume 1.

This is in reference to your letter to the Division of Trading and Markets (“Division”) dated October 12, 1988 on behalf 

of your client A in which you requested that the Division confirm that it will not recommend any enforcement action 

against: (i) A's United Kingdom futures division, B, for failure to register as a futures commission merchant (“FCM”) 

under the Commodity Futures Trading Commission's (“Commission”) foreign futures and option regulations, 17 C.F.R. 

Part 30; (ii) A's United States branch, C, and D, a United States affiliate of A for failure to register as introducing 

brokers (“IBs”); and (iii) certain principals, as defined in Commission rule 3.1(a), 1 of E, a United States affiliate of A, 

for failure to comply with certain of the regulatory requirements applicable to principals of Commission registrants.

As set forth in your letter, A's futures division, B, which is domiciled in the United Kingdom, intends to solicit and 

accept orders for foreign futures and option transactions from customers resident in the United States pursuant to an 

exemption granted under Commission rule 30.10. 2 B is the subject of a petition, which is still pending, filed by the 

Association of Futures Brokers and Dealers (“AFBD”), a United Kingdom self-regulatory organization, under that rule 
© CCH. All rights reserved. Originally published in the CCH Commodity Futures Law Reporter. Reposted by the CFTC with 

permission. Such reposting does not constitute or imply endorsement by the Commodity Futures Trading Commission of the 

accuracy of the reposted material or of any summaries thereof. 

2

for an exemption from the application of certain of the Commission's rules based on the existence of a comparable 

regulatory system in the United Kingdom. Although A has a branch office located in the United States, that branch 

solely in banking activities which are subject to regulation by the Office of the Comptroller of the Currency (“OCC”). 

Other firms related to A doing business in the United States are D, which engages in leveraged buyout services, and E, 

which is a primary dealer in United States Treasury securities and an underwriter of and dealer in certain municipal 

securities. Both firms are registered as broker/dealers with the National Association of Securities Brokers and Dealers.

In adopting the exemptive provision in rule 30.10 of the foreign futures and option rules, the Commission clarified that 

the generalized exemption based on comparability of regulation would be available only to persons located outside the 

United States who are subject to a comparable regulatory system. 52 Fed. Reg. 28980, 28981 (Aug. 5, 1988). As you 

are aware, in a letter interpreting the scope of that exemption, the Division specifically addressed the issue of a foreign 

firm's ability to qualify for such exemptive relief in instances where the foreign firm maintains a presence in the United 

States through an operating division/branch 3 or through an affiliate or subsidiary which acts in the capacity of a 

securities broker/dealer, a bank or a merchant or processor of cash commodities. 4 In the case of a division or branch of 

a foreign firm, the Division stated that as such a presence would not constitute a separate entity but would legally be 

part of the firm as whole, a United States division or branch would render the offshore firm unable to claim that it was 

not located in the United States and that it therefore could avail itself of the broad exemption in rule 30.10. Accordingly, 

by letter of July 19, 1988, based on information provided to the Division by the National Futures Association (“NFA”), 

the Division advised the United Kingdom's Securities and Investments Board (“SIB”), which has oversight 

responsibility with respect to AFBD, that B might not be eligible for the exemptive relief under rule 30.10 based on the 

existence of C.

In its letter of January 15, 1988, the Division noted that the existence of an affiliate or subsidiary would not, in and of 

itself, cause the Division to find that the related foreign firm was located in the United States for purposes of rendering 

such firm ineligible for rule 30.10 relief. To the extent, however, such entity acted in the capacity of a securities 

broker/dealer, bank or merchant or processor of cash commodities which potentially could share the same customer 

base, the Division stated that it would premise eligibility for relief on registration by the subsidiary or affiliate as an IB.

In the Division's July 19, 1988 letter to the SIB, however, the Division further stated that the status of firms in the 

United Kingdom which have affiliates and subsidiaries in the United States would be addressed on a case-by-case basis.

Based upon the foregoing and for the reasons set forth in your October 12, 1988 letter, you seek confirmation that: (i) C 

may be treated as a subsidiary or affiliate for purposes of Interpretative Letter No. 88-3, thereby allowing B to qualify 

for exemptive relief under Commission rule 30.10; (ii) C and each United States affiliate of A will not be required to 

register as IBs if E registers as an IB and A, B, C, D, and E comply with the undertakings described below; and (iii) 

registration of one of the principals of E will satisfy the Commission's regulatory requirements applicable to principals 

of Commission registrants 5 in connection with the registration of E as an IB.

Should C be Treated as a Subsidiary or Affiliate for Purposes of Determining B's Eligibility for the Rule 30.10 Relief?

Your assertion that the existence of C in the United States should not preclude B from eligibility for the comparability 

exemption is premised on your argument that C should be treated as a separate entity as would an affiliate or subidiary. 

In support of that position, you state the following:

Although C is not technically a separate legal entity, it is viewed as a separate legal entity in many respects under 

the federal bank regulatory scheme. As a limited federal branch licensed by the [OCC], C is subject to extensive 

regulation, including reporting and recordkeeping requirements and examinations. C has the same powers and is 

subject to the same restrictions and liabilities that would apply to a national bank at the same location.

Furthermore, C, like other U.S. federal branches of foreign banks, is subject to separate financial requirements. 

Under the OCC's so-called “capital equivalency deposit” requirement, A must deposit with a federal reserve 

member bank investment securities of the type that may be held by a national bank for its own account in an 

amount equal to at least 5% of the total liabilities of C excluding accrued expenses and amounts due and other 

liabilities to branches, offices, agencies and subsidiaries of A. C must also maintain a capital equivalency 

account that keeps track of the liabilities covered by the deposit requirement. The OCC also has the power to 

impose a special asset maintenance requirement on C requiring A to maintain assets in New York of such type 

and in such amount as the OCC may prescribe by ruling.

Based upon the foregoing, and subject to the conditions set forth below, notwithstanding the legal status of C, the 

Division concurs that the existence of C in the United States should not preclude B from being eligible for the 

exemptive relief in rule 30.10. In this connection, the Division notes that the sales activities undertaken by C in the 

United States are activities which are subject to and require licensing by the OCC and that C essentially is treated as a 

separate entity by the OCC.
© CCH. All rights reserved. Originally published in the CCH Commodity Futures Law Reporter. Reposted by the CFTC with 

permission. Such reposting does not constitute or imply endorsement by the Commodity Futures Trading Commission of the 

accuracy of the reposted material or of any summaries thereof. 

3

Should C or any United States Affiliate of A be Required to Register as an IB?

In Interpretative Letter No. 88-3, the Division stated that because United States subsidiaries or affiliates of foreign firms 

which act as a broker/dealer, a bank or a merchant or processor of cash commodities are entities which potentially could 

share the same customer base as the foreign firm and, therefore, engage in servicing customers for such foreign firm, 

such United States affiliates and subsidiaries should be required to register as IBs before the foreign firm could be 

eligible for an exemption from registration under Commission rule 30.10. This is because although such a firm would 

refer business to its related foreign firm, the applicable foreign regulator may not scrutinize the activities of an 

unregulated offshore subsidiary or affiliate of that entity and the Commission and NFA would not, and possibly could 

not, oversee the activities of a non-registrant.

As an alternative to requiring C and each of the United States affiliates to register, A proposes the following:

1. E will register with the Commission as an IB. In accordance with Interpretative Letter No. 88-3, E will not 

accept any funds from foreign futures and option customers and does not intend to carry any customer 

accounts with B. If in the future E decides to carry customer accounts with B, it will do so only on a 

fully-disclosed basis;

2. B will appoint E as its agent for purposes of accepting delivery and service of communications issued by or 

on behalf of the Commission, the U.S. Department of Justice, any U.S. self-regulatory organization, or any 

foreign futures or option customer;

3. Neither C nor any U.S. affiliate of A will refer any foreign futures or option customer to B or otherwise be 

involved in B's business in foreign futures and option transactions;

4. Neither C nor any U.S. affiliate of A will solicit any foreign futures or option business or purchase or sell 

foreign futures and option contracts on behalf of any foreign futures or option customers. If any such entity 

desires to engage in such activities in the future, it will do so only through E which shall comply with all 

applicable requirements for IBs, including those that apply to principals of IBs;

5. C and each U.S. affiliate of A will agree to provide upon request of the Commission or the National Futures 

Association access to records for the purpose of ensuring compliance with the terms and conditions of any 

exemptive relief granted hereto, and will make such records available for inspection at a location in the 

United States;

6. B will maintain outside the United States all contract documents, books and records regarding foreign futures 

and option transactions; and

7. Although it will continue to engage in normal commercial banking activities, C will not establish banking 

relationships in the United States with B's foreign futures and option customers for the purpose of effecting 

transactions in foreign futures and option contracts in the United States or for the purpose of facilitating B's 

activities subject to regulation under Part 30.

The Division has reviewed the undertakings proposed by A/B and its C and affiliates and believes that such 

undertakings, subject to the conditions noted below, will be sufficient to ensure that the regulatory purposes of limiting 

30.10 relief to firms located outside the United States would be adequately addressed.

In particular, the Division notes that the C, E and D 6 have consented to produce all books and records for inspection 

by the Commission and NFA upon request, C, D and E, notwithstanding E's consent to register as an IB, have 

undertaken not to engage in any activity subject to regulation under Part 30 without prior notice to the Commission and 

at least one entity, E, has agreed to register as a IB. The Division, however, is adopting the no action position herein 

subject to the following conditions and clarifications. First, the no action position adopted herein is subject to the 

condition that neither C nor any affiliate of A will undertake any activity subject to regulation under Part 30 or engage 

in any clerical capacity related thereto. Should E determine at some future date to engage in IB activities, it must notify 

the Commission and NFA prior to engaging in such activities and comply with all of the regulatory requirements 

applicable to IBs in the Commission's rules. This means that neither C nor D may engage in any activity subject to 

regulation under part 30, including referring customers to E for referral to A/B, unless such entity also registers in an 

appropriate capacity.

Finally, with respect to the requirement that B, D, and C consent to make their books and records available, the Division 

notes that B will be subject to certain requirements relating to the availability of its books and records as a condition of 

obtaining relief under rule 30.10. In the case of D and C, the position adopted herein is subject to the condition that D 

and C agree to provide access to their books and records generally upon the request of any representative of the 

Commission, NFA or the United States Department of Justice at the place in the United States designated by such 
© CCH. All rights reserved. Originally published in the CCH Commodity Futures Law Reporter. Reposted by the CFTC with 

permission. Such reposting does not constitute or imply endorsement by the Commodity Futures Trading Commission of the 

accuracy of the reposted material or of any summaries thereof. 

4

representative within 72 hours after service of the request. The no action position outlined herein will not take effect 

until an appropriate officer of A, B, C, D and E each files a notice with the Division affirming his consent to all of the 

conditions of relief specified herein.

Should Exemptive Relief be Granted to E from Compliance with Certain of the Regulatory Requirements Applicable to 

Principals?

In connection with the registration of E as an IB, E has requested relief from certain of the regulatory requirements 

applicable to “principals” of IBs set forth in Commission rule 3.15(a)(2). A “principal” is defined in rule 3.1(a) as:

“(1) any person including, but not limited to ... [an] officer, director, branch office manager or designated supervisor, or 

person occupying a similar status or performing similar functions, having the power ... to exercise a controlling 

influence over its activities which are subject to regulation by the Commission; (2) any holder or beneficial owner of ten 

percent or more of the outstanding shares of any class of stock; or (3) any person who has contributed ten percent or 

more of the [applicant's] capital”. In connection with the foregoing, A states that E proposes to designate one of its Vice 

Presidents as a “principal” and requests that the Division adopt a no action position with respect to the failure of all

persons who fall within the definition of principal of E as defined in Commission rule 3.1 to comply with the 

Commission's regulatory requirements applicable to principals.

The Division concurs in A's position that requiring all principals of E to comply with all of the Commission's regulatory 

requirements applicable to principals would be unnecessarily burdensome in view of the fact that E has represented that 

it will not engage in any activity which requires registration as an IB absent further notice to the Division. Accordingly, 

under the circumstances, the Division will accept the designation of one of the Vice Presidents of E as the sole principal 

for purposes of its IB registration. To effectuate this relief, however, the board of directors of E must certify in writing 

to the Division that no principal of E would be precluded from being registered with the Commission under Section 

8a(2) of the Act, 7 U.S.C. §12a(2) (1982), and must further acknowledge that the designated Vice President of E will 

comply with the regulatory requirements applicable to principals for purposes of the no action position set forth in this 

letter and that absent further notice and compliance, neither E, its officers or employees will engage in any IB-related 

activities at this time. Specifically, the Division notes that pursuant to the terms of relief, E will have undertaken to 

notify the Division before it engages in any IB-related activities and otherwise be in compliance with all of the 

requirements applicable to such an entity, including the requirement in Commission rule 3.12 7 that all persons who act 

in the capacity of an associated person of an IB, or any person who supervises any person so engaged, up to and 

including the president or chief executive officer, must register as such.

The positions adopted herein are based on the information provided to us. Any different, changed or omitted facts or 

conditions might require us to reach a different conclusion. Further, these positions are solely those of the Division of 

Trading and Markets and do not necessarily represent the views of the Commission or those of any other unit of its 

staff.

Footnotes

1 17 C.F.R. §3.1(a) (1988).

2 17 C.F.R. §30.10 (1988).

3 In the Division's opinion, for the purposes herein, a "branch" is legally indistinguishable from a "division."

4 Interpretative Letter No. 88-3, 2 Comm. Fut. L. Rep. (CCH) ¶24,085 (January 15, 1988).

5 See Commission rules 3.15(a)(2) and 30.4(b), 17 C.F.R. §3.15(a)(2) and 30.4(b) (1988).

6 As a Commission registrant, E would be required under Commission rule 1.31, 17 C.F.R. §1.31 (1988), to 

produce all books and records required to be maintained under the Commodity Exchange Act ( "Act") or 

regulations thereunder for inspection by any representative of the Commission or the United States Department of 

Justice.

7 17 C.F.R. §3.12 (1988)