CFTC Staff Letter 98-73: Declining No-Action Request for Gold and Silver Transactions

98-73
CFTC Letter No. 98-73
October 8, 1998
Division of Trading & Markets
Re: Applicability of the Commodity Exchange Act to Transactions Involving the Purchase or Sale of Gold Coins and Silver Bars Dear :
This is in response to your letter dated July 22, 1998 to the Office of the General Counsel of the Commodity Futures Trading Commission ("Commission"). Your letter was forwarded to the Division of Trading and Markets ("Division") for reply. By your letter, you requested the issuance by the Commission of a "no-action letter" with regard to a failure by "A" to register as a futures commission merchant ("FCM") under Section 4d of the Commodity Exchange Act ("Act")1 if "A" undertakes to buy and sell gold coins and silver bars with members of the general public (the "Transactions"). As is set forth more fully below, the Transactions may implicate more than just the FCM registration provisions of the Act. Accordingly, by this letter the Division is providing you with general guidance concerning the application of the Act and the Commission's regulations issued thereunder to "A" and the Transactions. The Act provides the Commission with "exclusive jurisdiction" with respect to "any transaction which is of the character of, or is commonly known to the trade as, an option', privilege', indemnity', bid', offer', put', call', advance guaranty', or decline guaranty'" and "transactions involving contracts of sale of a commodity for future delivery . . .," which are more commonly known as "futures contracts." 2 If the Transactions are futures or commodity option contracts, the Act and the Commission's regulations require, with few exceptions, that the transactions be conducted on a regulated futures exchange and in accordance with the regulatory structure established by the Act and administered by the Commission.3 As discussed more fully below, this regulatory scheme includes requirements that persons who are involved in the offer, sale and execution of futures or option contracts generally register with the Commission in an appropriate category. Neither the Act nor the Commission's regulations specifically define the phrase "contracts of sale of a commodity for future delivery," although the Act does state that the "term future delivery' does not include any sale of any cash commodity for deferred shipment."4 In determining whether a specific transaction constitutes a commodity futures contract, the Commission and the courts have assessed the transaction as a whole with an eye toward its underlying purpose.5 While neither the courts nor the Commission has identified an exclusive list of factors that define a futures contract, they have identified file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/98letters/tm98-73.htm (1 of 4) [5/6/2010 7:32:18 PM]