CFTC Staff Letter 97-97: Ability of an FCM to Register as a CPO or CTA

97-97
CFTC Letter No. 97-97
November 18, 1997
Division of Trading & Markets
Re: Sections 1a(4) and 1a(5) of the Commodity Exchange Act: Ability of an FCM to Register as a CPO or CTA Dear :
This is in response to your letter dated October 22, 1997 to Pete Shiner of the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission"). Your letter has been forwarded to the Office of Chief Counsel for reply. By your correspondence, you inquire about the ability of futures commission merchants ("FCMs") registered under the Commodity Exchange Act1 (the "Act") also to register as commodity pool operators ("CPOs") and commodity trading advisors ("CTAs"). Nothing in the Act or in the Commission's rules thereunder prohibits an FCM from also being registered as a CPO. Section 1a(4)of the Act defines a CPO as "any person 2 engaged in a business that is of the nature of an investment trust, syndicate, or similar form of enterprise, and who in connection therewith, solicits, accepts or receives from others, funds, securities or property" for the purpose of trading commodity interests. 3 Although some firms are registered as both FCMs and CPOs, it is more common for an FCM to be affiliated with a CPO established as a subsidiary or as a sister corporation by the FCM's parent company. Similarly, an FCM is not prohibited from being registered as a CTA. Section 1a(5) of the Act defines a CTA as "any person who, for compensation or profit," advises others about trading in commodity futures or commodity option contracts "either directly or through publications, writings or electronic media" or who as part of a regular business "issues or promulgates analyses or reports" concerning such transactions. Section 1a(5) provides a statutory exclusion from the CTA definition for certain categories of persons, which includes, among others, banks, teachers and FCMs, who provide commodity interest advice in a manner "solely incidental" to the conduct of their business or profession.4 As a general matter, the staff has not required an FCM which manages a customer's commodity interest account to register as a CTA so long as the firm is acting as an FCM with respect to the account, i.e., carrying the account on its books and accepting customer funds in connection with commodity interest transactions.5 However, if a registered FCM were not acting as an FCM with respect to an account it was advising or managing, the file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/97letters/tm97-97.htm (1 of 2) [5/6/2010 7:36:29 PM]