Source: https://www.fincen.gov/resources/statutes-regulations/guidance/application-customer-identification-program-rule-future
Timestamp: 2018-03-21 05:15:53
Document Index: 713621335

Matched Legal Cases: ['§ 1', '§ 103', '§ 1', '§ 103', '§ 6', '§ 103', '§ 103', '§ 1']

Application of the Customer Identification Program Rule to Future Commission Merchants Operating as Executing and Clearing Brokers in Give-Up Arrangements | FinCEN.gov
cftc_fincen_guidance.pdf54.45 KB
A. No. The customer identification program rule for futures commission merchants applies when a futures commission merchant opens a new account for a customer.7 The term "account" is defined for the purposes of the rule as a formal relationship with a futures commission merchant including, but not limited to, those established to effect transactions in commodity futures or options.8 Although an executing broker in a give-up arrangement will facilitate trades for a commodity or option customer, and the give-up arrangement may be governed by a written agreement, the clearing broker, but not the executing broker, will establish a formal relationship with the commodity or option customer for the purposes of the customer identification program rule.
In a give-up arrangement, the executing broker merely enters into an agreement with a commodity or option customer to execute certain orders given up for a fee. Unlike a clearing broker, the executing broker does not: (a) accept money, securities, or other property from the commodity or option customer for the purpose of margining, guaranteeing, or securing trades until they are offset or settled; (b) enter into an agreement with the commodity or option customer that establishes the parties' respective rights and obligations with respect to the acceptance of money, securities, or other property from the commodity or option customer for the purpose of margining, guaranteeing, or securing the customer's trades;9 (c) maintain records of, and have the ability to monitor on a daily basis, all of the commodity or option customer's transactions that are cleared by the clearing broker; and (d) issue confirmations and monthly statements.10 Moreover, according to the provisions of a give-up arrangement, a trade executed by a commodity or option customer through an executing broker is not effected until it is accepted by a clearing broker.11 Thus, in a give-up arrangement, the executing broker, unlike the clearing broker, does not establish a formal relationship with the commodity or option customer.12
Although a futures commission merchant's customer identification program will not apply when it is operating solely as an executing broker in a give-up arrangement, the futures commission merchant's anti-money laundering program should contain risk-based policies, procedures, and controls for assessing the money laundering risk posed by its operations, including its execution brokerage activities; for monitoring and mitigating that risk; and for detecting and reporting suspicious activity.
2See 17 C.F.R. § 1.3(k) and compare 31 C.F.R. §§ 103.123(a)(1)(i) and (a)(5)(i). The Commodity Futures Trading Commission's Regulation 1.3(k) defines the term "commodity customer" as "a customer trading in any commodity." This definition includes a wide array of persons that may trade commodity futures, including those that enter into a give-up arrangement with a futures commission merchant or floor broker who will execute trades, and a futures commission merchant who will submit trades for clearing, pursuant to the give-up arrangement. The term is not limited to circumstances in which the "commodity customer" establishes a "formal relationship with a futures commission merchant," and is therefore a "customer" for purposes of the customer identification program rule.
3As used herein, the term "option customer" is defined in 17 C.F.R. § 1.3(jj), and it refers to a customer trading options. The term is not limited to circumstances in which the "option customer" establishes a "formal relationship with a futures commission merchant," and is therefore a "customer" for the purposes of the customer identification program rule.
6See 31 C.F.R. § 103.123(b). The customer identification program rule applies to futures commission merchants registered, or required to be registered, with the Commodity Futures Trading Commission under the Commodity Exchange Act (except persons who register pursuant to Section 4f(a)(2) of the Act, 7 U.S.C. § 6f(a)(2)).
7See 31 C.F.R. § 103.123(a)(5)(i) (defining "customer" for the purposes of the customer identification program rule as "a person that opens a new account with a futures commission merchant").
831 C.F.R. § 103.123(a)(1)(i).
9Pursuant to this agreement, the clearing broker will establish a "futures account" as that term is defined at 17 C.F.R. § 1.3(vv), for the commodity or option customer.
12In the event that an executing broker - if it is a futures commission merchant - establishes a futures account for a commodity or option customer whose trade was not accepted by its clearing broker, the executing broker then will become subject to the provisions of the customer identification program rule.