DIVISION OF 

COMMODITY FUTURES TRADING COMMISSION 

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

(202) 254-8955 

(202) 254-3534 FACSIMILE 

TRADINGANDMARI<ETS April 14, 1992 

Dear 

Re: Request for No-Action Position 

Concerning Customer Acknowledgments 

This is in response to your letter dated January 24, 1992 to 

the Division of Trading and Markets (the "Division''), as supplemented by telephone conversations with Division staff. In your 

letter, you request, on behalf of the Futures Industry Associa~ 

tion' s Law & Compliance Division ("LCD"), that the Division confirm 

that it will not recommend that. the Commodity Futures Trading 

Commission (the "Commission") take enforcement action against any 

futures commission merchant ("FCM") if such FCMs, with respect to 

customers within specified categories, do not obtain the separate 

acknowledgments required under Commission rules 1.55, 30.6, 32.5, 

33.7 and 190.10 recording the cpftomer's receipt and understanding 

of the disclosure statements- which ~? FCM must provide the 

customer, as well as several elections- which under Commission 

1/ Under the following Commission rules 1 an FCM (or, where 

applicable, an introducing broker) is prohibited from opening a 

commodity interest account without first providing the customer 

with certain disclosure statements and receiving a signed customer 

acknowledgment form stating that the risk disclosure statements 

have been received and understood by the customer: Rule 1. 55 

(domestic futures trading risk disclosure statement); Rule 30.6 

(foreign futures and options risk disclosure statement); Rule 32.5 

(commodity options customer summary disclosure statement); Rule 

33.7 (domestic exchange-traded commodity options risk disclosure 

statement); and Rule 190.10 (bankruptcy disclosure statement for 

non-cash margin). 

Commission rules referred to herein may be found at 17 C.F.R. 

Ch. I (1991). 

21 ·Rule 180.3 provides, among other things, that if an arbitration or other customer dispute settlement agreement bet.ween a 

commodity professional and its customer is contained as a clause or 

clauses within a broader agreement, the customer must separately 

endorse the clause or clauses constituting the arbitration or 

(continued ... ) 
Page 2 

rules are required to be provided to the customer before an account 

can be opened with an FCM. The no-action relief requested would be 

subject to the condition that the FCM obtain a single acknowledgment from the customer at the end of the FCM's customer account 

agreement or on a separate page. In support of your request, you 

have submitted a proposed Form of Acknowledgment of Receipt of 

Required Disclosures for use with respect to such customer 

accounts. The form provides a list of disclosure statements and 

elections, which the customer acknowledges by checking a box next 

to the appropriate acknowledgment and election, and provides a 

single signature line at the bottom of the page intended to apply 

to all such acknowledgments and elections. The required wording of 

disclosures and elections, as well as the required wording of the 

various risk disclosure statements, would remain unchanged. 

The relief requested would be limited to FCMs opening accounts 

for customers in the f~Tlowing categories: entities qualifying for 

relief under Rule 4.5- ; entities which would qualify for relief 

under proposed Rule 4. 7 ;A.I and foreign entities which are otherwise 

ll ( ... continued) 

settlement agreement and the cautionary language specified in the 

rule. Rule 190.06(d) requires a commodity broker to provide each 

customer the opportunity, when undertaking its first hedging (. 

contract, to specify whether in the event of a bankruptcy such 

customer prefers that open contracts held in a hedging account be 

liquidated without seeking customer instructions in the event of 

bankruptcy. 

ll Rule 4.5(a)(1)-(4) identifies the following "otherwise 

regulated" entities: ( 1) registered investment companies; ( 2) 

state regulated insurance companies; (3) state or federally 

regulated financial depository institutions; and (4) certain 

pension plans subject to regulation under the Employee Retirement 

Income Security Act of 1974 ("ERISA"). 

A.! Generally, under the proposed rule, the term qualified 

eligible participant ("QEP") comprises three types of investors: 

(1) brokers or dealers registered under the Securities and Exchange 

Act or FCMs as well as certain commodity pool operators ( "CPOs") and 

commodity trading advisors ("CTAs") registered under the Commodity 

Exchange Act; (2) natural persons and entities including certain 

corporations, partnerships or similar entities, commodity pools, 

banks, savings and loan associations, insurance companies, 

registered investment companies, and employee benefit plans, which 

meet a portfolio requirement and in certain instances other 

requirements with respect to total assets, net worth and annual 

income; and (3) entities in which all the equity owners are QEPs. 

Under category (2) above, the portfolio requirement requires that 

(continued .•. ) 
Page 3 

authorized to engage in futures related transactions under 

applicable law and are analogous to the entities specified in Rule 

4.5 and proposed Rule 4.7. 

The Division has previously granted no-action relief permitting the use of a single customer acknowledgment in place of the 

multiple acknowledgments required under Commission rules with 

respect to certain limited categories of institutional customers. 

Specifically, the Division has granted an FCM no-action relief 

concerning the use of a single acknowledgment and signature line 

in customer account documents for institutional hedge and asset 

(non-speculative) customers falling within the categories of 

"otherwise regulated" institutional entities which, pursuant to 

Rule 4. 5 (a:~(/)- ( 4), are excluded from commodity pool operator 

regulation.- Subsequently, the Division granted similar no-action 

relief permitting use of customer account documentation employing 

a . single acknowledgment and signature line for foreign trading 

vehicle~ analogous to the entities specified in Rule 4.5 in that 

they are subject to foreign regulatory frameworks comparable to 

those 7pecified in Rule 4.5 and having assets of $250 million or· 

more.&. 

!/ ( ... continued) 

the person or entity: (i) own or control in excess of $ 5 million 

in securities of unaffiliated issuers; ( ii) have deposited in 

excess .of $1 million in initial margin and op~ion premiums for 

commodity interest trading at an FCM; or (iii) a.combination of (i) 

and (ii). See 57 Fed. Reg. 3148, 3156 (January 28, 1992). 

21 Unpublished letter dated July 22, 1987 from Andrea M. 

Corcoran, Director of the Division of Tradinq and Markets, 

Commodity Futures Trading Commission, to , 

The no-action relief granted applied to the account disclosure and acknowledgment requirements contained in Rules 1.55, 32.5, 

33.7, 190.10, 180.3 and 190.06(d). The relief was conditioned upon 

the Commission-required disclosures remaining unchanged and being 

separately furnished to the customer where required. 

6/ Unpublished letter dated September 21, 1989 from Susan C. 

Ervin, Chief Counsel, Division of Trading and Markets, to 

The no-action relief granted applied to the account 

disclosure and acknowledgment requirements contained in Rules 1. 55, 

32.5, 33.7, 190, 180.3 and 190.06(d). The relief was conditioned 

upon the single acknowledgment and signature format being used with 

respect to customers analogous to Rule 4. 5 entities, organized 

under the laws of specified foreign countries and subject to 

comparable regulation in those countries, and having assets of $250 

million or more. The relief was further conditioned upon the 

Commission-required disclosures remaining unchanged and separately 

furnished to the customer where required. 
Page 4 

Essentially, the no-action relief you request would provide to 

all FCMs a broader range of relief than t}tat provided by the 

Division on a case-by-case basis to individ~al requestors under 

specific circumstances. In particular, the requested relief would 

include, in addition to Rule 4. 5 entities and the comparably 

regulated foreign entities as to which relief was previously 

granted, all customers falling within the definition of QEP set 

forth in proposed Rule 4.7 (and comparable foreign customers). 

Based upon the foregoing, the Division· believes that the 

relief requested with respect to FCM account opening procedures for 

the specified categories of institutional and highly accredited 

investors would not be contrary to the public interest. Accordingly, subject to the condition stated below, the Division will not 

recommend that the Commission take enforcement action against an 

FCM based solely upon such FCM's use of the Form of Acknowledgment 

of Receipt of Required Disclosures proposed by you and attached to 

this letter, or a comparable format, with respect to accounts of 

the following categories of customers: (1) qualifying entities 

under Rule 4.5; (2) persons who would qualify as QEPs under ~reposed Rule 4.7, subject to such modificati~~ as the Commission may 

subsequently make in the proposed rule;- ( 3) foreign entities 

that are analogous to qualifying entities under Rule 4. 5 and 

subject to regulatory frameworks comparable to those applicable to 

Rule 4.5 qualifying entities; and (4) foreign persons substantially 

equivalent to those constituting QEPS under proposed Rule 4. 7, 

subject to such modifications as the Commission may subsequently 

make in the proposed rule, and otherwise authorized to engage in 

futures related transactions. Thus, the Division would not recommend enforcement action where FCMs obtain a single acknowledgment from an eligible customer at the end of the customer agreement 

or on a separate page; if such acknowledgment immediately precedes 

the signature line of the FCM's customer agreement, the customer 

would be required to sign the agreement only once and a separate 

signature acknowledging the receipt of the disclosures would not be 

required. · 

This relief is applicable solely to the acknowledgment 

requirements and the customer election requirements noted above and 

is conditioned upon the FCM's compliance with the duty to make all 

required disclosures and elections in their prescribed form, 

separately furnished to the customer where required by Commission 

rules. This no-action position is subject to the condition that 

the terms of such relief shall continue under the requirements of 

proposed Rule 4.7 until the adoption by the Commission of Rule 4.7 

as a final vule. Upon the adoption of the final rul~, the terms of 

11 The LCD recognizes that the Commission may amend the QEP 

definition when proposed Rule 4.7 is adopted as a final rule and 

proposes that in that event the no-action relief proposed to be 

granted would be similarly amended. 
Page 5 

the no-action relief provided herein shall be amended to conform to 

the terms of Rule 4.7 as adopted by the Commission. Our position 

does not affect the obligation of an FCM to comply with contract 

market rules which require the FCM to obtain, by instrument 

separate and apart from the customer agreement, a customer's 

consent that the fCM· may knowingly take the other side of a 

customer's order.~ . 

The position taken herein is based upon the representations 

you have made to us and is subject to compliance with the conditions set forth herein. The position taken herein does not excuse 

an FCM from compliance with any otherwise applicable requirements 

contained in the Commodity Exchange Act or the Commission's rules 

thereunder. Any different, changed or omitted facts or circumstances might cause us to reach a different conclusion. Further, 

this is the opiriion of the Division only and does ~ot necessarily 

represent the opinion of the Commission or any other division or 

office of the Commission. · 

Finally, we note that the Law and Compliance Division has 

suggested that relief of the nature addressed herein be made 

applicable with respect to all customer accounts. The Commission 

is reviewing disclosure simplification on a more generalized basis 

and may in that context consider the latter iss~e. 

If you have any questions about this correspondence, please 

feel free to contact me or Susan C. Ervin, the Division's Chief 

Counsel, at (202) 254-8955. 

Attachment 

~/ See Commission Rule 155.3(b)(2) and the Division of Trading 

and Markets Interpretative Letter No. 83-7, ( 1982-1984 Transfer 

Binder] Comm. Fut. L. Rep. (CCH) ~ 21,907 (October 25, 1983). 

Similarly, we note that relief from any requirements of the 

National Futures Association or from any requirements of a contract 

market should be addressed directly to NFA or the contract market 

concerned. 
'/ 

~reposed Form of Acknowledgment 

of Receipt of Required Disclosures 

Customer Acknowledgments. 

(a) Customer hereby acknowledges that it has received and understands 

the following disclosure statements prescribed by the CFTC (check where 

applicable) : 

[ ] Risk Disclosure Statement 

(CFTC Rule 1.55) 

[ ] Options Disclosure Statement 

(CFTC Rule 33.7) 

( ] Non-Cash Margin Disclosure Statement 

(CFTC Rule 190.10) 

(b) (If applicable) All transactions effected for this account will be 

bona fide hedging transactions as described in Section 4a of the Act, as 

amended, and Rule 1.3(z) promulgated thereunder. As such, in accordance 

with CFTC Rule 1.90.06, Customer may specify whether, in the event of 

Broker's bankruptcy, Customer prefers that the trustee liquidate open 

commodity contracts in the accounts without seeking Customer's 

instructions. Accordingly, in the event of Broker's bankruptcy, the 

trustee should: 

( ] Attempt to contact Customer for instructions regarding the 

disposition of open contracts in the account, 

( ] Liquidate open commodity contracts without seeking 

Customer's instructions. 

(c) (If applicable) Customer has read the pre-dispute· arbitration 

provisions set forth in paragraph __ of this Agreement and undBrstands 

that it is not required to agree to such arbitration in order to open an 

account with .Broker. 

( ] Customer agrees to arbitration. 

[ ] Customer does not agree to arbitration. 

Customer's Name (Printed) Date 

By: ~~--~--~--------------------------~------------ Signature 

Title: ------------------------------------~-----------

. .