CFTC Staff Letter 97-38: No-Action for Registered Investment Advisers Providing Cash Management to FCMs

97-38
CFTC Letter No. 97-38
March 26, 1997
Division of Trading & Markets
Re: Request for No-Action Relief with Respect to Provision of Securities Investment Advice by a Registered Investment Adviser to Futures Commission Merchants ( FCMs ) in Connection with Investment of such FCMs Segregated Customer Funds Dear :
This is in response to your letter dated January 10, 1997 to the Division of Trading and Markets (the "Division") of the Commodity Futures Trading Commission (the "Commission"), as supplemented by telephone conversations with Division staff. By your correspondence, you request on behalf of X confirmation that: (1) the Division will not recommend enforcement action against X or its futures commission merchant ( FCM ) clients if X provides securities investment advisory services to such FCMs in connection with the segregated customer funds held by such client FCMs; and (2) that the provision and receipt of such advisory services will not require X to be registered in any capacity under the Commodity Exchange Act (the Act ).1 Based upon the representations in your correspondence, we understand the relevant facts to be as follows. X is registered with the Securities and Exchange Commission ( SEC ) as an investment adviser under the Investment Advisers Act of 1940 (the Advisers Act ) 2 and under various state securities laws.3 Although X is not registered with the Commission in any capacity, it is a wholly-owned subsidiary of Y , a registered FCM.4 X s primary business activity is providing short-term money management services for institutional clients. X provides cash management services to clients pursuant to written advisory agreements by directing investment of a client s available cash in short-term instruments, including short-term instruments subject to repurchase agreements. X receives advisory fees for its services equal to a percentage of the funds under X s management. X proposes to offer its advisory services to FCMs with respect to segregated funds belonging to the customers of such FCMs. Pursuant to a written advisory agreement, X would have complete and sole discretion and authority to make all investment decisions with respect to such segregated funds and to purchase, sell and otherwise trade in such file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/97letters/tm97-38.htm (1 of 4) [5/6/2010 7:34:55 PM]