CFTC Staff Letter 85-12: No-Action Relief for CME Regarding Mutual Offset System Omnibus Accounts

Dear
COMMODITY FUTURES TRADING COMMISSION
2033 K STREET, N.W., WASHINGTON, D.C. 20681 August 2, 1985 f65-· \2.. Re; CME:-SIMEX Mutual Offset System; Request for No-Action Position This is in response to your letter of July 18, 1985 in which you requested, on bellalf of the Chicag-o Mercantile Exchange ("CME" or "Exchang-e), that the Conrnission not take any enforcement action if the Exd1ange penni ts "A", Inc. to accept and carry an onmilius account of "B", Inc. for purposes of trading through the Mutual Offset System establishE.>d between the G1E and tJ1e Singapore International Monetary Exchange, Ltd. You note in your letter that F,xchange Rule 879 provides that an authorized Clearing Ment>er shall not:. accept or carry positions executed pursuant to the Mutual Offset System in an onmibus account of a non-member futures conmission merchant ( "FCM") registered as such with the Co1m1ission under the Corrm:xlity Exchange Act unless such account is a proprietary account (as defined in Comoission regulation 1.3 (y)) of the non-member FCM. Thus, absent appropriate relief, the Exchange could not permit "A" to accept or carry non-proprietary positions executed pursuant to the Mutual Offset System for "B" in an omn.:iJJus account. In your le·tter, you indicate that:
"B" has represented that it will use the Mutual Offset System on behalf of a customer only after an authorization executed by the customer in the form required lmder CME Rule 87 4 is on file with "B". In the case of non-discretionary accounts, "B" has further represented that each order for Mutual Offset is to be authorized by the customer and designated as such when the order is taken. National Futures Association ( "NFA") has agreed to enforce Exchange Rule 874. Failure on the part of "B" to deliver the appropriate risk disclosure statements or to receive customer aut:J1orization would be a violation of NFA Corrpliance Rules, including, without limitation, NFA Ccmpliance Rule 2-4 and may subject "B" to disci￾plinary action by NFA. NFA has also undertaken to conduct periodic examinations of the books and records of "B" to dete:anine if "B" is in complian<.."E' with its agreement..

By letter dated July 30, 1985, NFA has confirmed its willingness to enforce Exchange Rule 874 in the m.mner descrilied above. Based upon the foregoing, the Division of Trading and Markets has detennined that it will not :r:ecommend that the Corrmi.ssion take any enforce .. ment action against the CME for its failure to enforce Exchange Rule 879 in the circumstances described obove. Of course, any different, changed, or orni tted facts might require a different conclusion, The Exchange may, however, proceed in a similar manner with respect ·to other non-rreniber futures comrnission merchants upon notice to the Division of Trading and Markets. If you have any questions concerrd.ng this matter, please contac·t Kenneth M. Rosenzweig, Associate Director of the Division, at (202) 254-8955. Very truly yours, Andrea M. Corcorar1 Director