CFTC Staff Letter 03-13: No-Action Relief for Bank Affiliate Introducing Customers to FCM

CFTC Letter 03-13
CFTC letter No. 03-13
March 19, 2003
No-Action
Division of Clearing and Intermediary Oversight Re: Section 4d(1) -- Request for No-Action Relief from Introducing Broker Registration Dear :
This is in response to your letter dated February 24, 2003, to the Division of Clearing and Intermediary Oversight ("Division") at the Commodity Futures Trading Commission (the "Commission"). By your correspondence, you request that the Division not recommend enforcement action be taken against “V” or “W”, a registered futures commission merchant ("FCM") and affiliated company, based upon the Bank's introduction of commodity customers to “W” without being registered with the Commission as an introducing broker ("IB") under the Commodity Exchange Act (the "Act").[1] Based upon your representations, the relevant facts are understood to be as follows. The Bank and “W” are each a wholly-owned subsidiary of “X”, a bank holding company. The Bank is a commercial bank chartered under the laws of New York State and regulated by the New York State Superintendent of Banking and the Federal Reserve Board. A limited number of employees of the Bank will refer customers to “W” for the purpose of trading futures. You represent that, while such Bank employees will refer customers to “W”, they will not handle customer orders. These Bank employees will be registered as associated persons "APs" of “W” and, as such, “W” will be responsible for the futures￾related activities of these APs. The futures-related activities of these APs will take place in branch offices of “W”, identified as such in forms filed with the National Futures Association. An AP appropriately registered with the Commission and designated as a branch office manager will supervise the futures-related activities of that branch office, and of each AP in that branch office. You represent that it will be made clear to any customers, or prospective customers, that all futures￾related activities will be conducted through “W” and not the Bank. “W”, and not the Bank, will issue all statements and reports that are required to be provided to commodity customers under the relevant sections of the Act and Commission rules. The financial activities of “X”, the Bank, and “W” are reported on a fully consolidated basis for accounting and tax purposes. You represent that, "as a matter of internal accounting," a certain proportion of the revenues generated by customers referred by the Bank to “W” will be allocated to the Bank. In your letter, you indicate that, because the Bank and “W” are wholly-owned subsidiaries of “X” and because their financial reports are consolidated, the revenues generated by customer accounts introduced by the Bank to “W” are, ultimately, the revenues of “X”. Accordingly, the allocation of these revenues to the Bank is "merely a matter of internal accounting for the parent company's management purposes." file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/03letters/tm03-13.htm (1 of 2) [5/6/2010 5:38:25 PM]