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. 07-23 

November 8, 2007 

No-Action 

Division of Clearing and Intermediary Oversight 

 

Re: Section 4d -- Request for No-Action Relief from Introducing Broker Registration

Dear : 

 This is in response to your letter dated October 25, 2007, to the Division of Clearing and 

Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the 

“Commission”), by which you request that the Division not recommend enforcement action be 

taken against “A”, and its affiliates “B” and “C” (collectively, the “Affiliates”), if the Affiliates 

were to introduce certain institutional customers located in the U.S. on a fully-disclosed basis to 

any registered futures commission merchant (“FCM”) without being registered with the 

Commission as an introducing broker (“IB”). 

 Based upon your representations, the facts are understood to be as follows. “A” is 

located in New York and is registered with the Commission as an FCM. “B” is authorized by 

the United Kingdom’s Financial Services Authority (“FSA”) to conduct investment business. 

“C” has been granted an Australian Financial Services License by the Australian Securities and 

Investments Commission and is a clearing member on the Australian Securities Exchange.1

Pursuant to Commission Regulation 30.10,2

 the Affiliates have been granted an exemption from 

registration with the Commission as an FCM for purposes of offering foreign futures and options 

to persons located in the U.S.3

 The relief granted to the Affiliates pursuant to Regulation 30.10 

does not extend to any activities related to trading, directly or indirectly, on U.S. exchanges on 

behalf of any U.S. persons. In such a case, an Affiliate would be required to comply with all 

 

1 In 2006, the Sydney Futures Exchange (“SFE”) merged with the Australian Stock Exchange, 

and now operates under the name of the Australian Securities Exchange. 

2

 Commission regulations referred to herein may be found at 17 C.F.R. CH I (2007). 

3 See 68 Fed. Reg. 58583 (October 10, 2003) (FSA); 71 Fed. Reg. 40395 (July 17, 2006) (SFE). 
Page 2 of 3 

2

 

applicable U.S. laws and regulations, including the requirement to register with the Commission 

in the appropriate capacity. 

 As the Affiliates are not permitted to solicit or accept trades for U.S. persons on U.S. 

exchanges, you represented that customers of each firm that desire to place an order for foreign 

futures and options and U.S. exchange-traded futures and options must use two or more entry 

systems or place two or more phone calls to execute such trades. In particular, you noted that 

this is an issue for certain institutional customers (“U.S. Customers”) who, as part of their trading 

strategies, are increasingly conducting business on numerous worldwide exchanges. You further 

stated that requiring the use of multiple efforts to enter orders in fast-moving markets is highly 

inefficient and may increase both systemic and liquidity risks. Accordingly, you have proposed 

that the Affiliates be permitted to introduce U.S. Customers to “A” or to another registered FCM 

for purposes of trading U.S. exchange-traded futures and options consistent with prior staff 

letters.4

 You have represented that all U.S. customers that the Affiliates will introduce to “A” or 

to another registered FCM will be “institutional customers,” as that term is defined in Regulation 

1.3(g).5

 You also represented that each Affiliate will not solicit U.S. Customers for trading on 

U.S. markets, nor will any Affiliate handle any U.S. Customer funds for trading on any U.S. 

market. In addition, you represented that all U.S. Customers that an Affiliate introduces to “A” 

or to another registered FCM will be introduced on a fully-disclosed basis in accordance with 

Regulation 1.57. 

You also represented that the control functions at “A” and the Affiliates relevant to 

futures brokerage are coordinated across legal entities. Although legal, compliance, audit, and 

credit personnel at “A” and the Affiliates do not report to a central global head, all relevant 

entities within the “A” brand of companies nonetheless adhere to essentially the same methods of 

operation and supervision. For these reasons, “A” is willing to accept liability for trades given 

up by an Affiliate to another FCM, because “A” and the Affiliates will be subject to essentially 

the same procedures and supervision designed to monitor and control risks associated with the 

trading of futures and options by U.S. customers.

Based upon the representations in your letter, the Division believes that granting the 

requested relief would not be contrary to the public interest. Accordingly, the Division will not 

recommend that the Commission commence any enforcement action against “A” or the Affiliates 

based solely upon the failure of the Affiliates to register as IBs for purposes of introducing U.S. 

Customers, as defined herein, to “A” or any other FCM to trade U.S. exchange-traded futures 

4 See, e.g., CFTC Letter 07-20, [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶_____ 

(October 18, 2007). 

5

 Commission Regulation 1.3(g) defines the term “institutional customer” as an eligible contract 

participant, as defined in Section 1a(12) of the Commodity Exchange Act (“Act”). 
Page 3 of 3 

3

and options. This relief is conditioned upon “A’s” acknowledgment that it will be jointly and 

severally liable for any violations of the Act or the Commission’s regulations committed by any 

Affiliate in connection with the latter’s handling of orders for U.S. Customers for trading of 

futures and options on U.S. exchanges, including those orders executed by any Affiliate and 

given up to another FCM. “A” must submit such an acknowledgment in writing manually signed 

by a representative duly authorized to bind “A” within two weeks of the date of this letter. 

This letter does not excuse “A”, the Affiliates, or any other FCM acting pursuant to this 

relief from compliance with any other applicable requirements contained in the Act or in the 

Commission’s regulations issued thereunder. For example, each remains subject to all applicable 

antifraud provisions of the Act. Moreover, the position taken in this letter is applicable to “A” 

and the Affiliates solely in connection with the introduction of U.S. Customers on a 

fully-disclosed basis to “A” or any other FCM by the Affiliates for purposes of executing trades 

on U.S. exchanges. 

The position taken in this letter is based upon the representations that have been made to 

the Division. Any different, changed, or omitted facts or conditions might render this position 

void. You must notify the Division immediately in the event the operations or activities of “A”, 

the Affiliates, or any other participating FCM change in any material way from those represented 

to us. Further, this letter represents the position of this Division only and does not necessarily 

represent the views of the Commission or any other division or office of the Commission. If you 

have any questions concerning this correspondence, please contact Deputy Director Lawrence B. 

Patent, or Special Counsel Andrew V. Chapin at (202) 418-5450. 

Very truly yours, 

Ananda Radhakrishnan 

Director