COMMODITY FUTURES TRADING COMMISSION 

2033 K STREET, N.W., WASHINGTON, D.C. 20581 

(202) 254-8955 

(202) 254-6265 FACSIMILE 

DIVISION OF 

TRADING AND MARKETS 

June 5, 1990 

Re: Request for No Action Position 

Dear 

This is in reference to your l~tters to the Division of 

Trading and Markets ("Division") dated March 26, 1990, and April 

23, 1990 on behalf of · I , in 

which you requested that~-tne · DTvisiof1. donfTrm· that -It wiii not 

reconunend that the Conunodity Futures Trading Commission ("Commission") initiate an administrative proceeding against ,if . London, England branch office ("London branch") does not 

furnlsh its non-United States customers with th~ risk disclosure 

statement prescribed by Commission rule 1.55. 11 

In your March 26, 1990 letter you have stated the following: 

a wholly-owned subsidiary of _ , is registered with the Commission as a futures 

a·ommissid·n merchant ( "FCM") and maintains a branch office in 

London, England. In this connection, is a member of 

the Association of Futures Brokers and ·Dealers ("AFBD") and 

its London branch is subject to the rules and regulations of 

the AFBD. In particular, the London branch is required to 

give each customer, all of which are non-u.s. institutional 

customers, a risk disclosure statement prescribed by AFBD 

Rule 5.45.1. Although somewhat longer than the risk disclosure statement prescribed by Commission Rule 1.55, the 

AFBD statement contains all of the disclosures in Rule 1.55. 

We understand that the Division has previously assumed, 

without discussion, that an FCM must furnish a copy of the 

Rule 1.55 risk disclosure statement to every customer, 

including customers not located in the United States [(~U.S.")]. This position was adopted when few, if any, 

1/ 17 C.P.R. §1.55 (1989). 
Page 2 

foreign countries regulated the offer and sale of futures 

contracts to their citizens. Under those circumstances, it 

was not inappropriate to expect that foreign branch offices 

of u.s. FCMs would give their customers the same disclosures 

that u.s.-based customers received. 

Since then, however, many countries have adopted comprehensive regulatory schemes to govern the offer and sale of 

futures contracts, including prescribing the risk disclosures that must be made to customers located in, or solicited from, that country. As you know, the United Kingdom is 

one such country. 

As noted earlier, the AFBD has prescribed a risk disclosure 

statement not unlike the disclosure statement prescribed by 

the Commission. Indeed, it is clear that the AFBD modeled 

its statement after the Commissionrs, enhancing it to 

include those additional disclosures that the AFBD concluded 

were the minimum that its members must provide their customers. Under these changed circumstances, we believe that 

no regulatory purpose is served by requiring a London branch 

of a u.s. FCM to furnish its [non-U.S.] customers with a 

Rule 1.55 risk disclosure statement in addition to that 

prescribed by the AFBD. The adoption of the no-action 

position we are requesting, therefore, is appropriate and, 

moreover, is consistent with the principles of international 

comity. 

As you know, the Commodity Exchange Act ("Act") and regulations promulgated thereunder establish a comprehensive regulatory 

system for ensuring customer protection and market integrity. 

Generally, no distinction is made in the treatment of u.s. and no~-u.s. customers of u.s. FCMs in the application of these 

rules. Specifically, rule 1.55 applies to FCMs in their dealings 

with any customer, u.s. and non-U.S. Your March 26, 1990 letter, 

however, requests confirmation that the Division will not recommend enforcement action against if London branch 

fails to provide its customers, ~~I of which are non-u.s. institutional customers, with the risk disclosure statement in Commission rule 1.55. The Division has carefully considered your 

letter and has determined, for the reasons and subject to the 

conditions set forth below, that it will not recommend that the 

Commission take enforcement action against if the London 

branch does not furnish its non-U.S. customers with the risk 

disclosure.statement prescribed by Commission rule 1.55. 

We have reviewed the relevant disclosure statement and 

concur in the assessment noted in your March 26, 1990 letter that 

the risk disclosure statement required by AFBD Rule 5.45.1 

contains all of the disclosures contained in the Commission's 

rule 1.55 risk disclosure statement, as well as certain additional disclosures that the AFBD has determined to be 
Page 3 

necessary. ll In your letter of April 23, 1990, you have confirmed that AFBD Rule 5.45.1 requires that the disclosure statement prescribed therein be provided to all customers of the AFBD 

member, including "business investors" and "professional investors," notwithstanding certain distinctions otherwise permitted 

in the treatment1of different classes of customers under the 

rules of AFBD. J You further note, however, that paragraph (b) 

of that rule provides that· London branch is not required 

to receive a signed acknowleagment if reasonably believes 

that the customer is such a business investor, experienced 

investor or professional investor, and the customer has read and 

understood the statement. Notwithstanding this provision of AFBD 

Rule 5.45.1, you confirm in your April 23, 1990 letter that if 

the requested relief is granted, will obtain a signed 

acknowledgment from each customer witn' respect to the risk disclosu~e statement. In addition, you note that under the AFBD 

rules, !I such an acknowledgment must be retained for a period of 

three years from the ti~e the person ceases to be a customer of 

the AFBD member firm. ~/ 

ll The additional disclosures contained in the risk disclosure 

statement required by AFBD Rule 5.45.1 are not inconsistent 

with the disclosures contained in the Commission's rule 1.55 

risk disclosure statement. 

J/ Specifically, Rule 5.45.1 provides, in part, that 

a member firm shall not effect with or on behalf of a 

customer or advise or procure a customer to enter into 

a transaction ••• unless .•• the member firm has, 

before the transaction is effected or the advice givent 

delivered to the customer a written Risk Disclosure 

Statement • • • • 

!/ See AFBD Rules 5.25 and 5.26. 

~/ The period of retention of the acknowledgment required in 

connection with the disclosure statement prescribed in 

Commission rule 1.55 is set forth in Commission rule 1.31, 

which provides in part that: 

All books and records required to be kept by the 

[Commodity Exchange] Act or by these regulations shall 

be kept for a period of five years from the date 

thereof and shall be readily accessible during the 

first 2 years of the 5-year period. All such books and 

records shall be open to inspection by any 

representative of the Commission or the U.S. Department 

(Footnote Continued) 
Page 4 

The Division believes that in circumstances such as this 

where the AFBD's requirements are similar to those set forth in 

rule 1.55, and London branch will be providing the AFBD's 

risk disclosure· St~~ement to non-u.s. customers, the enforcement 

of the risk disclosure rules of both the AFBD and the Commission 

would be duplicative. 

Under these circumstances, the Division finds no significant 

regulatory benefit to be derived by requiring London 

branch to also provide the rule 1.55 risk disclosure document. 

Based upon the foregoing, in particular, the undertakings of 

as set forth in its letters dated March 26 and April 23, 1990, 

the Division will not recommend enforcement action against 

if: (i) in lieu of furnishing its non-U.S. customers with the 

risk disclosure statement prescribed by rule 1.55, the London 

branch provides each such customer with the risk disclosure 

statement prescribed in AFBD Rule 5.45.1; and (ii) the London 

branch maintains the customer acknowledgments which has 

undertaken to obtain from all of the customers which~re-the 

subject of this no action request in accordance with the period 

specified in AFBD rules 5.25 and 5.26 in lieu of the provisions 

of Commission rule 1.31. This no action position, however, is 

limited to 3 London branch and does not provide relief to 

your client from any other provisions of Commtqsion rule 1.55, 

including, without limitation, rule 1.55(d). -' 

The position set forth in this letter is based upon the 

facts set forth in your March 26, 1990, and April 23, 1990 

letters. Any different, changed or omitted facts might require 

us to reach a different conclusion. In addition, the views set 

forth herein are solely those of this Division and do not 

(Footnote Continued) 

of Justice. 

As a registered FCM, would be required to provide the 

Commission and the Department of Justice with access to its 

books and records, including the acknowledgment of receipt · of the AFBD's risk disclosure statement which has 

confirmed it will obtain from all of its non-u~. customers. 

Q/ As you noted, the Commission has taken the position that 

persons acting in the capacity of associated persons with 

respect to non-u.s. customers in an FCM's foreign branch 

office need not register with the Commission. See 45 Fed. 

Reg. 18356 (March 20, 1980); 45 Fed. Reg. 80485 (December 5, 

1980). However, this position does not provide a general 

exemption from other customer protection requirements 

applicable to FCMs with respect to their non-u.s. customers. 
Page s 

necessarily represent the views of the Commission or those of any other unit of the Commission. 

Very truly yours, 

Andrea 

a~nr~W?~ M. Corcoran 

Director 

,. '