CFTC Staff Letter 97-85: No-Action for Separately Incorporated Affiliates of an FCM Referring Business

97-85
CFTC Letter No. 97-85
October 8, 1997
Division of Trading & Markets
Re: Request for Relief from Registration as an Introducing Broker Dear :
This is in response to your letter dated August 13, 1997, to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as supplemented by telephone conversations with Division staff, in which you request that the Division take a no-action position with respect to the activities of T and certain affiliated companies, described below, if the affiliates of T do not register as introducing brokers ("IBs") or in any other capacity.1 Based upon the representations made in your letter, as supplemented, we understand the relevant facts to be as follows. T is registered with the Commission as a futures commission merchant ("FCM") and maintains its headquarters in New York and branch offices in Chicago and London. U is a bank regulated by the New York State Superintendent of Banks and the Federal Reserve Board, which maintains its headquarters in New York and branch offices in London as well as other locations. V is a securities broker-dealer registered with the Securities and Exchange Commission ("SEC") and maintains its headquarters in New York and branch offices in London as well as other locations. W is a member of the London Metals Exchange, regulated by the U.K. and Futures Authority ( SFA ) and maintains its headquarters in London. T , U , and V are all wholly-owned subsidiaries of X , a bank holding company as defined under the Bank Holding Company Act of 1956, as amended. W is an indirect wholly-owned subsidiary of U . The New York offices of T , U and V are located on the same premises. Similarly, the London offices of T , U , V and W are located on the same premises. None of U , V or W (collectively, the "Affiliates") is registered with the Commission in any capacity. You state that customers of the Affiliates may wish to enter into commodity interest transactions to complement or to manage exposures in connection with their "equity, derivative, cash market or other non-futures trading activities." In this regard, the Affiliates' personnel (collectively, the "Affiliated Salespersons") wish to refer such customers to T to handle any related commodity interest orders. Similarly, T wants to compensate the respective Affiliates for referrals from commission revenues derived from referred customers' commodity interest transactions. You represent that annual commission revenues generated by any Affiliate from customer referrals to T will in no event exceed two percent of such Affiliate's total annual revenue. You further represent that none of the Affiliates will accept customer funds for purposes of effecting commodity interest transactions. Additionally, you represent that the Affiliates and the Affiliated Salespersons working together with T compliance personnel will take appropriate measures to prevent confusion regarding the identity of the entity with which a customer is dealing. For example, in all correspondence and communications with customers being solicited for commodity interest
transactions, Affiliated Salespersons will clearly identify that they are acting on behalf of T . file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/97letters/tm97-85.htm (1 of 3) [5/6/2010 7:36:23 PM]