CFTC Staff Letter 93-76: No-Action for FCM and Guaranteed IB Providing Execution Only for Introduced Institutional Customers

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DIVISION OF
TRADING AND MARKETS
Dear
COMMODITY FUTURES TRADING COMMISSION 2033 K Strut, NW, Washington, DC 20581 {202) 254- 8955 {202) 254-8010 Facsimile July 29, 1993 Re: Rule 1.5'1/Regyest for No-Action Position This is in response to your letter to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission") dated June 25, 1993 as supplemented by telephone conversations with Division staff, ~.n which you request the Division to confirm that it will not recommend that the Commission take any enforcement action against "X", a guaranteed introducing broker {"IB") of "Y", a registered futures commission merchant ("FCM") and clearing member of the Chicago Board of Trade, if "Y" provides execution but not clearing services for certain customers introduced by "X". Based upon the representations made in your letter, as supplemented, we understand the pertinent facts to be as follows. "X", as "Y"'s introducing broker, introduces certain institution￾al customers to "Y". Upon entering into their guarantor/intro￾ducing broker relationship, both "Y" and "X" anticipated that all accounts introduced by "X" would be cleared through "Y". None￾theless, although the institutional clients introduced by "X" have selected "Y" as their executing broker, they generally have directed that their accounts be cleared through other FCMS. In this regard, you note that in many, if not all cases, the insti￾tutional customers introduced by "X" were clearing their transac￾tions with FCMs other than "Y" prior to directing their execution business to "Y". In support of your request, you represent that, not,;.rith￾standing that certain "X" customers elect to have their transac￾tions cleared ?.'ith FCMs other than "Y", "X" has a business relationship only with "Y" and receives no compensation from other FCMs through which the transactions are cleared. Moreover, you represent that "Y" is substantially capitalized and has a substantial cushion over the capital required to support out￾standing customer positions. Specifically, you represent that as of March 30, 1993 "Y" had adjusted net capital of approximately $56.7 million, and excess net capital of $51 million.