CFTC Staff Letter 00-105: No-Action Relief for Online Agricultural Marketplace Linking Elevators to FCMs

00-105
CFTC Letter No. 00-105
November 15, 2000
No-Action
Division of Trading & Markets
Re: Section 4d(1) – No-Action Relief in Connection with Registration as an Introducing Broker Dear :
This is in response to your letter dated September 14, 2000, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as supplemented by telephone conversations with Commission staff, in which you request an interpretation as to whether linking elevators with the futures commission merchant ("FCM") of their choice, on an electronic trading platform, would require “X” to register as an introducing broker ("IB") under the Commodity Exchange Act ("Act").1 Based upon your representations, we understand the relevant facts to be as follows. “X” is an online agricultural marketplace where producers, dealers, elevators, and manufacturers conduct business. As
part of “X”, producers and elevators buy and sell grain on an electronic platform. Each elevator
approves producers from whom they want to purchase grain, and the platform permits password protected online negotiating between the producers and the elevators. All participants have fair and impartial access to post bids and offers with no preferential access afforded to any participant. You represented that, for the trading platform to be effective, the elevators must be able to simultaneously hedge their purchases from producers in the futures market. Accordingly, as part of the trading platform, “X” will offer an integration tool that permits elevators to be linked to their chosen FCMs so as to permit simultaneous hedging of purchases in the futures market. You also represented that without such an integration tool an elevator's risk management position could be adversely affected, e.g., it could buy grain at the high of the day, yet not be aware of this until it later seeks to hedge its purchase and is forced to hedge at a lower value. You represented that the elevators will select their own FCMs and negotiate any and all fees between themselves and the FCM. Additionally, the elevators are responsible for all margin obligations created by any trade directed to the FCM. “X” is not involved in any way in the selection of an FCM for any elevator and does not receive any payment from an FCM in relation to any aspect of this integration tool. file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/00letters/tm00-105.htm (1 of 4) [5/6/2010 6:21:51 PM]