U.S. COMMODITY FUTURES TRADING COMMISSION

Three Lafayette Centre 

1155 21st Street, NW, Washington, DC 20581 

Telephone: (202) 418-5430 

Facsimile: (202) 418-5536

Division of Clearing and 

Intermediary Oversight

CFTC letter No. 05-18 

October 5, 2005 

Exemption 

Division of Clearing and Intermediary Oversight 

 Re: “U” 

Dear : 

 This is in response to your letter dated June 22, 2005, to the Commodity Futures Trading 

Commission (the “Commission”), which has been referred to the Division of Clearing and 

Intermediary Oversight (the “Division”) for response. By your letter and subsequent emails from 

you and your colleague, “A” (collectively, the “correspondence”), you have requested 

confirmation that your client, “U”, need not register with the Commission in order to receive 

ongoing payments from “V” and “W” (collectively, “X”). 

 Based upon our review of the correspondence, you have made the following 

representations. “U” entered into an employment agreement with “X” in 1995. In connection 

with her employment with “X”, “U” solicited investors for various of “X’s” funds. After 

introducing investors to the funds, “U” would remain available to answer any questions or 

concerns, sometimes putting investors directly into contact with the fund manager. “U” ceased 

soliciting new investors for the “X” funds in 2002, and her employment was terminated in 2004. 

Pursuant to the terms of her employment agreement, “U” is entitled to a bonus “in perpetuity” 

that is calculated based upon investments by “X” investors who were solicited by “U”. 

 Generally, “a person must be properly registered to collect fees as compensation for 

soliciting clients on behalf of other Commission registrants, even where . . . the person is 

receiving a so-called ‘trailing commission.’ ”1

 The Commission has stated, however, that “the 

[Commodity Exchange] Act does not require registration as a prerequisite to the receipt of 

trailing commissions in all circumstances.”2

 For example, the Division’s predecessor, the 

 

1

 CFTC Letter 96-39, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. ¶ 26,689 (May 6, 

1996). 

2

 See In the Matter of GNP Commodities Inc., [1992-1994 Transfer Binder] Comm. Fut. L. 

Rep. ¶ 25,375 at 39,263 (Sept. 4, 1992) (although futures commission merchant’s registration 

was revoked and its assets sold, it was permitted to receive payments based on commissions paid 

and floor broker revenues earned on those assets, provided that it exercised no control over the 

solicitation or trading of those accounts). 
Page 2 

Division of Trading and Markets (“Trading and Markets”), permitted a company to receive 

continuing finder’s fees for soliciting on behalf of commodity trading advisors (“CTAs”) even 

though the company was no longer registered as an introducing broker.3 Notably, the decision to 

grant relief was based on representations that the company would have no follow-up contact 

with, or responsibilities for, the accounts in question, and that the company’s business activity 

would be limited to accepting fees from its former CTA clients. Similarly, Trading and Markets 

permitted an individual to earn ongoing per-trade compensation from a former business partner 

on customer accounts they had jointly serviced, but expressly noted that the unregistered 

recipient of the compensation had not engaged in any commodity-related business since her 

termination.4

 In the course of considering your request, “U” and “X” have provided conflicting 

information on at least two facts that significantly bear on the registration question. First, “U” 

and “X” have provided conflicting accounts as to whether certain of “X’s” funds traded 

commodity interests during the time “U” solicited for those particular funds.5

 Second, “U” and 

“X” have provided conflicting accounts as to whether “U” has engaged in any commodityrelated business with “X” investors since her termination in 2004. 

 The Division does not believe that it would be appropriate to attempt to resolve these 

conflicting factual accounts in its response to your registration question. In the event that “U” 

and “X” are unable to agree as to the facts bearing on the registration question, they may elect to 

resolve their dispute in a court or other competent fact finding forum. Accordingly, the Division 

is unable to continue with its consideration of your request. 

 

 If you have any questions concerning this correspondence, please contact R. Stephen 

Painter Jr., an attorney on my staff, at (202) 418-5416. 

 Very truly yours, 

Ananda Radhakrishnan 

Director 

 

3

 See CFTC Letter 96-39, supra note 1. 

4

 A copy of this letter, dated April 23, 1986, is enclosed. Cf. In the Matter of GNP 

Commodities Inc., [1992-1994 Transfer Binder] Comm. Fut. L. Rep. ¶ 25,594 (Oct. 9, 1992) 

(permitting futures commission merchant whose registration had been revoked to receive income 

from the lease of its memberships on various contract markets, provided that it did not directly or 

indirectly exercise control over the lessees). 

5

 The Division notes that “X” has been registered as a commodity pool operator with the 

Commission since 2000.