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

CFTC letter No. 07-10 

June 25, 2007 

No-Action 

Division of Clearing and Intermediary Oversight 

Re: Section 4d(a)(1) of the Act 

Request for relief from requirement to register as an IB where commissions 

payable to an AP of the IB are paid to a registered CTA owned and operated 

by the AP 

Dear : 

This is in response to the letter dated January 26, 2007 from “A”, President of “B”, to the 

Division of Clearing and Intermediary Oversight (the “Division”) of the Commodity Futures 

Trading Commission (the “Commission”), as supplemented by your statements (provided to the 

Division March 22, 2007), in which you acknowledge the representations in “A’s” letter and 

authorize him to submit this request on your behalf, and by telephone conversations and e-mail 

communications between Division staff and “B” (the “correspondence”). By the 

correspondence, you request confirmation that the Division will not recommend that the 

Commission commence any enforcement action against you or your commodity trading advisory 

firms, based solely upon the failure of those firms to register as introducing brokers (“IBs”) 

under the circumstances described below. 

Based upon the representations made in the correspondence, we understand the relevant 

facts to be as follows. “B” is registered with the Commission as a guaranteed IB. “C” and “D” 

are registered as associated persons (“APs”) of “B”. “C” owns and operates “E”. “D” and his 

wife own and operate “F”. “E” and “F” are each registered as a commodity trading advisor 

(“CTA” or, collectively “The CTAs”) and each of “C” and “D” is listed as a principal of his 

respective advisory firm. The CTAs are in the business of providing marketing, merchandising 

advice and assistance to agricultural producer customers. Neither CTA exercises discretion or 

control over customer accounts. 

For accounting, tax and recordkeeping purposes, “C” and “D” desire to have the per-trade 

compensation that becomes payable to them from time to time, as APs of “B”, paid to their 

Ananda Radhakrishnan 

 Director 
Page 2 

respective CTA firms, rather than to “C” and “D” directly.1 However, as noted above, neither of 

The CTAs exercises discretion over customer accounts. Accordingly, pursuant to Section 

4d(a)(1) of the Commodity Exchange Act (the “Act”),2 absent relief, each of The CTAs would 

be required to be registered as an IB in order to receive per-trade compensation.3

In support of your request, you note that: (1) because “C”, “D” and The CTAs are all 

registered with the Commission, in no event would per-trade compensation be paid to 

unregistered persons; (2) each of “C” and “D” has provided to Commission staff a written cross 

acknowledgment of joint and several liability with his respective CTA firm for any violation of 

the Act or the Commission’s regulations in connection with advising customers and acting as 

APs of “B”; and (3) The CTAs will remain registered with the Commission as such. 

Based upon the representations made in the correspondence, and subject to the condition 

stated below, the Division will not recommend that the Commission commence any enforcement 

action against “C”, “D” or their respective CTAs based solely upon the failure of The CTAs to 

register as IBs in accordance with Section 4d(a)(1) of the Act. This position, however, is subject 

to the condition that The CTAs disclose to their customers, in the manner described in “A’s” 

January 26, 2007 letter, that commissions generated by customer commodity futures and option 

transactions may be paid to the respective CTA firm in lieu of being paid directly to “C” or “D” 

as an AP of “B”.4

 

1

 As registered APs of “B”, “C” and “D” are entitled to a percentage of the commissions 

paid by customers solicited by them who place trades in accounts introduced by “B”. This is the 

per-trade compensation that “C” and “D” desire to have paid to their respective CTA firms. 

 The Division takes no position regarding the advisability or legality of the proposed 

activities of “C” and “D” under Federal or state tax law or the regulations adopted by the 

Department of the Treasury. 

2

 7 U.S.C. §6d(a) (2000). The Act may be accessed through the Commission’s website, at: 

http://www.cftc.gov/cftc/cftclawreg.htm. 

3

 Regulation 1.3(mm) excludes from the IB definition “(ii) any commodity trading advisor, 

which, acting in its capacity as a commodity trading advisor, is not compensated on a per-trade 

basis or which solely manages discretionary accounts pursuant to a power of attorney. . . .” This 

exclusion is not available here, however, because The CTAs do not exercise discretionary 

authority over their customers’ accounts. Commission regulations referred to herein are found at 

17 C.F.R. Ch. I (2006) and also may be accessed through the Commission’s website, at: 

http://www.cftc.gov/cftc/cftclawreg.htm. 

4

 By his letter, “A” represented that, in order to obtain the requested relief, The CTAs 

would be willing “to amend the marketing agreements entered into between the customers and 

[The CTAs] to include an acknowledgement from the customers that commissions generated by 

their futures transactions may be paid to the respective entity.” 
Page 3 

This letter is applicable to “C”, “D” and The CTAs solely in connection with the receipt 

by The CTAs of per-trade compensation payable to “C” and “D” as APs of “B”. It does not 

excuse any of them 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 

antifraud provisions of the Act and the Commission’s regulations, to the reporting requirements 

for traders set forth in Parts 15, 18 and 19 of the Commission’s regulations, and to all applicable 

provisions of Part 4. 

 This letter is based upon the representations made to us and is subject to compliance with 

the condition set forth above. Any different, changed or omitted material facts or circumstances 

might render this letter and the position taken herein void. In this connection, you must notify us 

immediately in the event that the operations and activities of “C”, “D” or The CTAs change in 

any material way from those represented to us. Further, this letter and the position taken herein 

represent the views of this Division only and do not necessarily represent 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, 

 Ananda Radhakrishnan 

 Director