CFTC Staff Letter 97-74: Regulatory Requirements for Forming an FCM or IB

97-74
CFTC Letter No. 97-74
August 25, 1997
Division of Trading & Markets
Re: Rule 3.10 -- Regulatory Requirements For Forming an FCM or IB Dear :
This is in response to your letter dated July 29, 1997 to the Commodity Futures Trading Commission (the "Commission"), which has been referred to the Division of Trading and Markets (the "Division") for reply. By your correspondence, as supplemented by telephone conversations with Division staff, you inquire generally about the regulatory requirements under the Commodity Exchange Act (the "Act") for forming a futures commission merchant ("FCM")2 or introducing broker ("IB")3 . You also inquire about the applicability of the FCM registration requirements for the "Bank", as further described below. With regard to the general issue of forming an FCM or IB, Rule 3.10 requires that applicants for registration as an FCM or IB complete and submit a Form 7-R and a certified financial report (using Form 1-FR-FCM or 1-FR-IB, respectively) together with the appropriate registration fee, to the National Futures Association ("NFA"), an industry-wide self-regulatory organization. In addition, each Form 7-R must be accompanied by a Form 8-R completed by each natural person who is a principal of the applicant together with the fingerprints of that principal on a fingerprint card provided by NFA. A firm applying for registration as an FCM or IB must also submit a Form 8-R and fingerprint card for each individual salesperson or supervisor of salespersons. Such persons are known as "associated persons" or "APs" and, unlike principals, must show proof of having taken and passed the National Commodity Futures Examination (the "Series 3 Exam.") The Act also requires that registrants attend ethics training periodically to ensure that registrants understand their responsibilities under the Act. Rule 3.34 implements the statutory mandate and requires that an individual registered as an FCM, IB or AP attend a four-hour ethics training session within six months of becoming registered and thereafter attend a one-hour session every three years. The initial training requirement can also be satisfied by attending a four-hour session within six months prior to filing of an application for registration. Although nothing in the Act or Commission rules prohibits a bank from registering as an FCM or file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/97letters/tm97-74.htm (1 of 3) [5/6/2010 7:36:34 PM]