CFTC Staff Letter 97-91: No-Action Relief Denied for Agricultural Marketing Service Provider

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 TRADING & MARKETS Re:
Dear
Section 4m(l) of the Act:
from Registration as a
Advisor.
November 24, 1997
Request for Relief
Commodity Trading
: I
This is in response to your letter dated October 20, 1997.to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"), as supplemented by a telephone conversation with Division staff, by which you re￾quested no-action relief from the requirement that "X" register as a commodity trading advisor ("CTA") in connection with providing a marketing service for agricultural products (the "Service"). Based upon the representations set forth in your correspon￾dence, we understand the pertinent facts to be as follows. "X" is a limited liability company, formed for the purpose of serving as a consultant, and providing marketing information and advice, to operators of agri-businesses. · The strategies that "X" proposes to develop as part of its Service···would make use of cash contracts, futures contracts and commodity options. As part of the Service, and in consultation with each client, "X" would develop a marketing plan for that client. In some cases, the clients themselves would place any commodity interest trades necessary under the plan. In other cases, "X" intends to obtain discretionary trading authority over clients' accounts so that "X" can enter any required commodity interest trades on behalf of these clients. Clients using the Service would be responsible for opening their own commodity trading accounts. 1 "X" would not receive any commission income or fees Clients who provide would be required to registration database "X" with discretionary trading authority open their accounts with "Z". The maintained by the National Futures ' i' ',il

from any Commission registrant based upon the number of futures or options contracts traded by its clients but, instead, would be compensated directly by its clients based upon the total bushels of grain produced by a client or the total number of livestock sold by the client.
Section 4m(1) of the Commodity Exchange Ace ( 11 Act 11 ) pro￾hibits a person from using the mail or any means or instru￾mentality of interstate commerce in connection with his business
as a CTA unless registered under the Act. As defined in Section 1a(5) of the Act, 3 a CTA is -- any person who, for compensation or profit, engages in the business of advising others, either directly or through publications, w;ritings or electronic media, as to the value of or the advisability of trading in any contract of sale of a commodity for future delivery made or to be made on or subject the rules of a contract market; any [authorized] commodity option . or who, for compensation or profit, and as part of a regular business, ;lssues or promulgates analyses or re￾ports concerning any of the foregoing . . . . Thus, to the extent that 11 X11 recommends the use of commodity futures or options contracts to achieve the clients' goals, even if "X" does not accept discretionary control over any client accounts, "X 11 would be involved in activities which implicate the statutory definition of a CTA and would be required to register as such. Based upon the information provided in your correspondence, we do not find that your situation presents facts upon which the Division can grant relief from the Act's CTA registration, re￾quirement. Thus, we are declining to provide the relief you have requested. In addition, if 11 X11 intends ,Jo seek discretionary control over a client's account or seeks to guide such an account, 11 X11 would be required by Commission Rule 4.31 to provide such client with a Disclos 5 ure Document4 and may be required to become a member of the NFA. Association ( 11 NFA11 ) indicates that nyn, a registered futures commission merchant, does business under the name nzn. 2 3 7 U.S.C. §6m(1) (1994). 7 U.S.C. §1a(5)(1994). 4 Commission rules referred to herein are found at 17 C.F.R. Ch. I (1997) . We have enclosed for your information a copy of a previous Division letter which discusses the concept of guiding

If you have any questions concerning this correspondence, please contact me or Thomas E. Joseph, an attorney on my staff, at 202-418-5450. Very truly yours, Susan C. Ervin Chief Counsel client accounts in the context of an agricultural marketing ser￾vice. 5 NFA By-Law 1101 requires that any party who is required to be registered with the Commission is also required to become a member of NFA or another registered futures association if such party intends to conduct business on behalf of a customer with a NFA member. 11 X11 may wish to contact NFA at 1-800-621-3570 for further information concerning this requirement.