CFTC Staff Letter 03-19: Denial of Exemption from Introducing Broker Registration

CFTC Letter 03-19
CFTC letter No. 03-19
April 29, 2003
Exemption
Division of Clearing and Intermediary Oversight Re: Request for Exemption from Registration as an Introducing Broker Dear :
This is in response to your letter dated April 21, 2003, to the Division of Clearing and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “Commission”). By your letter, you request an exemption from registration with the Commission as an introducing broker (“IB”) under the Commodity Exchange Act (“Act”). In your letter, you state that you have a marketing and consulting company, “X”. Through “X”, you have received requests for information and contact names on opening commodity accounts and you would like to furnish names of associated persons (“APs”) [1] and futures commission merchants (“FCMs”) in response to these requests. By your letter, you state that “X” will not trade or open any of these accounts. However, you state that you intend to charge a monthly fee for giving these referrals to APs or FCMs. The Act defines an “Introducing Broker” as “any person...engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market or derivatives transaction execution facility who does not accept any money, securities, or property (or extend credit in lieu thereof) to margin, guarantee, or secure any trades or contract that result or may result therefrom....” [2] In addition, Commission Rule 1.3(mm)[3] further defines an introducing broker as “[a]ny person who, for compensation or profit, whether direct or indirect, is engaged in soliciting or in accepting orders (other than in a clerical capacity) for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market....”
Section 4d of the Act requires registration of any person who comes within the IB definition. As you
state in your letter, “X” wishes to refer potential customers to APs and FCMs. In return, “X” would charge a monthly fee to select APs and FCMs. However, “X” would not provide advice to the potential referrals nor would it trade the referrals’ accounts. Generally, persons who refer potential customers to Commission registrants for compensation are required to register under the Act.[4] The registration requirements of the Act are an important element of customer protection and a method of screening unfit persons from dealing with customers. The registration requirements have been construed flexibly to require the registration of persons who participate even indirectly in such solicitations or referrals.[5] The Division has interpreted the IB file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/03letters/tm03-19.htm (1 of 2) [5/6/2010 5:38:13 PM]