CFTC Letter 04-10

CFTC letter No. 04-10 

March 5, 2004 

Interpretation 

Division of Clearing and Intermediary Oversight

Re: Re: Rule 1.55 – Request for Interpretation that Making the Required Risk Disclosure Statement 

Available on an FCM’s Internet Website Constitutes Compliance with the Requirement of Rule 1.55(a)

(1)(i) 

Dear: 

This is in response to your letter dated November 14, 2003 to the Division of Clearing and Intermediary 

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

supplemented by telephone conversations with Division staff. By this correspondence, you request, on 

behalf of “X”, the Division’s views on whether the procedure you propose to employ in order to furnish 

prospective customers with the required risk disclosure statement complies with the requirements of 

Rule 1.55(a)(1)(i).[1]

Based upon the representations made in your correspondence, we understand the facts to be as follows. 

“X” is registered under Section 4d[2] of the Commodity Exchange Act (the “Act”) as a futures 

commission merchant (“FCM”). It provides an Internet-based electronic trading platform, including 

analytic tools, real-time market data and direct-access order placement and trade execution.[3]

Persons who apply to open an account with “X” are sent hard-copy account opening documents in the 

mail. You propose to include among the provisions in the Account Application and Agreement a 

statement that the applying customer has visited the “X” website, has followed links on the home page 

to access, and has “fully read and understood” twelve listed documents, one of which is “Risk 

Disclosure Statement For Futures and Futures Options.”

[4] The applicant’s signature on the Account 

Application and Agreement would also constitute the signed acknowledgement required by Rule 1.55(a)

(1)(ii). 

In support of your proposed delivery method, you state that the people who open accounts with “X” are 

self-directed active traders, who seek out the software trading tools “X” provides, and who wish to place 

virtually all of their trades themselves through “X’s” online electronic trading platform. You contend 

that in directing prospective customers to the website to review important information and risk 

disclosures you are also directing them to detailed product and service information, as well as fee 

schedules, so that the customers can make a well-informed decision whether to use your firm. 

Rule 1.55(a)(1) provides that an FCM may not open a commodity futures account for a customer (other 

than an “institutional customer” as defined in Rule 1.55(f)) unless the FCM first: 

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(i) Furnishes the customer with a separate written disclosure statement obtaining only the language set 

forth in paragraph (b) of this section(except for nonsubstantive additions such as captions) or as 

otherwise approved under paragraph (c) of this section; Provided, however, that the disclosure statement 

may be attached to other documents as the cover page or as the first page of such documents and as the 

only material on such page; and 

(ii) Receives from the customer an acknowledgement signed and dated by the customer that he received 

and understood the disclosure statement. 

[emphasis added] 

The Commission intended that if the risk disclosure statement is incorporated into other materials, it 

should effectively be the first thing that the customer sees. A table of contents or a customer application 

cannot precede the risk disclosure statement.[5] The Division does not believe that having a prospective 

customer affirm, as part of his application, that he has separately looked up the risk disclosure statement 

on “X’s” website and read it is consistent with the expressed intention of the Commission in adopting 

Rule 1.55.

Accordingly, the Division cannot confirm that your proposed delivery method for the Rule 1.55 risk 

disclosure statement would comply with the requirements of the rule.

This letter is based upon the representations that have been made to us. Any different, changed or 

omitted material facts or circumstances might render this letter void. Further, this

letter represents the position of this Division only and does not necessarily reflect the views of the 

Commission or of any other office or division of the Commission.

If you have any questions concerning this correspondence, please contact me or Christopher W. 

Cummings, Special Counsel, at (202) 418-5445.

Very truly yours, 

James Carley 

Director 

[1] Commission rules referred to herein are found at 17 C.F.R. Ch. I (2003).

[2] 7 U.S.C. §6d (2000).

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[3] “X” connects directly to the CME and CBOT for market data and order execution, and it clears all 

futures trades through “Y” on a fully-disclosed basis. “X” provides no trading advice or 

recommendations and has no discretionary accounts.

[4] The corresponding hyperlink at the bottom of “X’s” home page links to a page containing the Generic 

Risk Disclosure Statement in Appendix A to Rule 1.55(c).

[5] See 58 Fed. Reg. 17495, 17500. “One commenter asked that the Commission confirm that the “first 

page” of a booklet is the first page that contains substantive text and that a table of contents or customer 

application could therefore precede the “first” page. The Commission intends, however, that the risk 

disclosure statement appear on the cover page or the first page of the booklet, by which it means the 

page immediately following the cover page. Consequently, there may be no intervening table of contents 

or other material between the cover page and the disclosure statement.”

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