CFTC Staff Letter 96-07 (No-Action): Guaranteed Introducing Broker and Guarantor FCM

U.S. COMMODITY FUTURES TRADING COMMISSION Three Lafayette Centre 1155 21st Street, NW, Washington, DC 20581 Telephone: (202) 418-5430 Facsimile: (202) 418-5536 DIVISION OF q &, - 0 I TRADING & MARKETS December 18, 1995 Re: Rule 1.57/Request for No-Action Relief Dear This is in response to your letter to the Division of Trading and Markets ("Division") of the Corrunodity Futures Trading Corrunission ("Corrunission") dated November 14, 1995, as supplement￾ed by telephone conversations with Division staff, in which you request the Division to confirm that it will not recorrunend that the Corrunission take any enforcement action against "X 11 , a guaranteed introducing broker ( 11 IB 11 ) of "Y", a registered futures corrunission merchant ( 11 FCM11 ) and clearing member of the Chicago Board of Trade, if 11 Y11 provides execution but not clearing services for certain customers introduced by 11 X11 • Based upon the representations made in your letter, as supplemented, we understand the pertinent facts to be as follows. 11 X11 , as 11 Y'S 11 introducing broker, introduces certain institutional customers to 11 Y11 • Although 11 Y11 will be providing execution services for 11 X's 11 customers, it will not necessarily be clearing such trades. Nonetheless, as noted below, 11 Y11 represents that it will be jointly and severally liable for all obligations of 11 X11 under the Corrunodity Exchange Act, and the rules and regulations thereunder, with respect to solicitation of and transactions involving all customer accounts of 11 X11 • In support of your request, you represent that, notwith￾standing that certain 11 X11 customers elect to have their transac￾tions cleared by FCMs other than 11 Y11 , 11 X11 has a business relationship only with 11 Y11 and receives no compensation from other FCMs through which the transactions are cleared. Moreover, you represent that 11 Y11 is substantially capitalized and will at all times have sufficient adjusted net capital to meet any obligations it may have to "X's 11 customers, without regard to whether those customer accounts are, in fact, carried by 11 Y11 • Specifically, you represent that as of September 30, 1995, 11 Y11 had adjusted net capital of approximately $ XXX million, and excess net capital of $ XXX million.