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. 07-05 

April 26, 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 March 7, 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”, “B”, and “C” if “A” and “B” 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. 

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

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

affiliates of “C”, located in the United Kingdom and Australia, respectively. “A” is registered in 

the United Kingdom with the Financial Services Authority (“FSA”) to conduct an investment 

business. “B” is licensed in Australia by the Australian Securities & Investments Commission 

(“ASIC”) to conduct investment business. Pursuant to Commission Regulation 30.10,1

 “A” and 

“B” 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. The relief granted 

to “A” and “B” 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, “A” and 

“B” would be required to comply with all applicable U.S. laws and regulations, including the 

requirement to register with the Commission in the appropriate capacity.2

 As “A” and “B” 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 

 

1

 Commission regulations referred to herein may be found at 17 C.F.R. CH I (2006). 

2

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

2

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 (“US 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 systems in fast-moving markets is highly inefficient and 

may increase both systemic and liquidity risks. Accordingly, you have proposed that “A” and 

“B” be permitted to introduce US Customers to “C” for purposes of trading U.S. exchangetraded futures and options consistent with prior staff letters.3

 You have represented that all U.S. customers that “A” and “B” will introduce to “C” will 

be institutional customers as defined in Regulation 1.3(g).4 You also represented that “A” and 

“B” will not solicit US Customers for trading on U.S. markets, nor will “A” or “B” handle any 

US Customer funds for trading on any U.S. market. In addition, you represented that all US 

Customers that “A” and “B” introduce to “C” or to another registered FCM will be introduced on 

a fully-disclosed basis in accordance with Regulation 1.57. 

 You further represented that the control functions at “D”5 relevant to futures brokerage 

are organized across legal entities and along global reporting lines. Legal, compliance, audit, 

and credit personnel at “A” and “B”, therefore, have identical reporting lines to a central global 

head, while maintaining local day-to-day reporting lines to the local senior manager. As such, 

“C” is willing to accept liability for trades given up by “A” and “B” to another FCM because “C” 

will be subject to the same procedures and oversight designed to monitor and control risks 

associated with the trading of futures and options by US 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”, “B”, and “C” 

based solely upon the failure of “A” and “B” to register as an IB for purposes of introducing US 

Customers, as defined herein, to “C” or any other FCM to trade US exchange-traded futures and 

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

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

and “B” in connection with the latter’s handling of orders for US Customers for trading of 

futures and options on US exchanges, including those orders executed by “C” and given up to 

another FCM. “C” must submit such an acknowledgment in writing manually signed by a 

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

 

3 See, e.g., CFTC Staff Letter 04-09, [2003-2004 Transfer Binder] Comm. Fut. L. Rep. ¶29,710 

(Feb. 20, 2004). 

4

 Commission Regulation 1.3(g) defines an institutional customer as an eligible contract 

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

5

 In 1998, “E” and “F” merged to form “D”. “C”, “A” and “B” are part of “D’s” “G”, one of 

three major business groups within “D”. 
Page 3 of 3 

3

This letter does not excuse “A”, “B”, “C”, 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”, 

“B” and “C” solely in connection with the introduction of US Customers on a fully-disclosed 

basis to “C” by “A” and “B” for purposes of executing trades on US 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”, 

“B” and “C”, 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