CFTC Letter 04-28

CFTC letter No. 04-28 

October 15, 2004 

Exemption 

Division of Clearing and Intermediary Oversight 

Re: Rule 3.12(g) – Request for Exemption from the Associated Person Registration Requirement 

Dear : 

This is in response to your letter dated April 15, 2004, to the Commodity Futures Trading Commission 

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

(the “Division”). By your letter, as supplemented by your email messages dated June 25, 2004 and July 

13, 2004, and telephone conversations with Division staff (collectively, the “correspondence”), you 

requested relief on behalf of “X” from the requirement that certain of its “associated persons” (“APs”) 

be registered with the Commission. 

Based upon the representations contained in the correspondence, we understand the facts to be as 

follows. “X” is registered with the Commission as a commodity trading advisor (“CTA”) and is a 

member of the National Futures Association (“NFA”). “X” provides various marketing-related services 

to agricultural farmers and producers designed to manage market risks associated with agricultural 

production. These risk management strategies may include, among other things, advising clients with 

respect to trading futures contracts and options on futures contracts. In connection with these advisory 

services, “X”, at the direction of certain of its clients, places orders on those clients’ behalf, provided 

that the clients execute a power of attorney granting “X” authority to act as their agent with respect to 

their commodity interest accounts. Although in practice “X” confirms each trade before placing any 

orders on a client’s behalf, the power of attorney is broadly worded and on its face grants “X” full power 

and authority to effect transactions on its clients’ behalf. 

Section 4k(3) of the Commodity Exchange Act (the “Act”) requires generally that any natural person 

employed by, or associated with, a CTA in any capacity involving the solicitation of a client’s or 

prospective client’s discretionary account, must be registered with the Commission as an AP.[1] Because 

“X” trades certain of its clients’ accounts pursuant to powers of attorney granting “X” discretion over 

those clients’ commodity interest accounts, “X” is engaged in the solicitation of discretionary accounts 

as contemplated by Section 4k(3) of the Act and Rule 1.3(aa)(4).[2] Consequently, persons associated 

with “X” in connection with this soliciting activity, including its principals, must be registered with the 

Commission as APs.[3]

In light of the foregoing, the Division does not believe that it is appropriate to grant the requested relief, 

and your request for relief is hereby denied. If you have any questions concerning this correspondence, 

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

file:///H|/Desktop/04letters/tm04-28.htm (1 of 2) [5/6/2010 5:31:45 PM]
CFTC Letter 04-28

Very truly yours, 

James L. Carley 

Director 

[1] Specifically, Section 4k(3) of the Act provides that “[i]t shall be unlawful for any person to be 

associated with a commodity trading advisor as a partner, employee, consultant, or agent . . . in any 

capacity which involves (i) the solicitation of a client’s or prospective client’s discretionary account or 

(ii) the supervision of any person or persons so engaged, unless such person is registered with the 

Commission under this Act as an associated person of such commodity trading advisor[.]” Rule 1.3(aa)

(4) defines the term “associated person” of a CTA for purposes of the Commission’s rules, essentially 

tracking the language of Section 4k(3) of the Act. 

Both the Act and the Commission’s regulations may be accessed at: http://www.access.gpo.gov/uscode/

title7/chapter1_.html and http://www.gpoaccess.gov/ecfr/, respectively. 

[2] CFTC Staff Letter No. 93-85, [1992-1994 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶25,851 

(Aug. 31, 1993) (a CTA directs accounts over which it holds a power of attorney notwithstanding that 

clients may choose among several trading systems and reject trading system recommendations); see also

CFTC Staff Letter No. 96-47, [1994-1996 Transfer Binder] Comm. Fut. L. Rep. (CCH) ¶26,717 (May 

31, 1996). Cf. Premex, Inc. v. CFTC, 785 F.2d 1403, 1406 n.7 (9th Cir. 1986) (“the obligation to meet 

the minimum financial requirements flows from the registrant’s status as an FCM [futures commission 

merchant] and not from the nature of its current activities”) (emphasis added). Copies of the staff letters 

cited herein are enclosed for your reference. 

Because it is exercising discretionary authority over client accounts, “X” should review its Disclosure 

Document to ensure that the Document complies with all applicable requirements. 

[3] Independent of the AP registration requirement of Section 4k(3) of the Act, NFA Bylaw 301(a)(iii) 

also requires that NFA members register at least one principal as an AP. Because NFA is permitted to 

adopt registration requirements with respect to its members that are more stringent than those required 

under the Act or the Commission’s rules, the Division generally does not consider requests for relief 

from those more stringent requirements. Consequently, NFA members must either comply with Bylaw 

301(a)(iii), or, if they do not exercise discretionary authority over client accounts, they may discontinue 

their membership with NFA. CTAs that are not required to be members of NFA, but that are 

nevertheless required to be registered under the Act or that simply wish to register although not required 

to do so, may terminate their NFA membership and maintain their registered status with the 

Commission. Here, because, as explained above, “X” exercises discretionary authority over client 

accounts, it is required to be a member of NFA, and therefore must comply with Bylaw 301(a)(iii). 

file:///H|/Desktop/04letters/tm04-28.htm (2 of 2) [5/6/2010 5:31:45 PM]