CFTC Staff Letter 99-28: No-Action Request Regarding Introducing Broker Registration for Grain Elevators

99-28
CFTC Letter No. 99-28
July 9, 1999
No-Action
Division of Trading & Markets
Re: Section 4d of the CEA - Request for No-Action Relief from Introducing Broker Registration Dear :
This is in response to your letter dated April 21, 1999 to the Division of Trading and Markets ("Division") of the Commodity Futures Trading Commission ("Commission") by which you requested a no-action position with regard to introducing broker ("IB") registration requirements as applied to certain grain elevators that may enter into a fee-splitting arrangement with "X", a registered futures commission merchant ("FCM"). Specifically, "X" proposes to split the fee paid by agricultural producers who sign up for its "Z" agricultural marketing program with the grain elevators that originally referred the producer to "X". Your letter was supplemented by information obtained during telephone conversations between Division staff and "A" of "X". Based upon the representations contained in your correspondence, we understand the relevant facts to be as follows. "X" is a registered FCM and a clearing member on the "B" and the "C". It is a subsidiary of "Y". "X" has over 45 branch offices throughout the central and northwestern United States. It focuses its business on agricultural hedging in the grain and livestock area. Its customer base consists of country elevators, commercial grain companies and agricultural producers. "X" provides a marketing plan service, known as the "Z" Program, for grain and livestock producers. The program helps producers develop marketing plans for corn, wheat, soybeans, cattle, hogs or other agricultural products that can be hedged using exchange-traded futures and option contracts. Under this program, "X" develops a marketing plan that fits each individual producer's needs and situation. In developing this plan, "X" works directly with producers to complete a producer profile that includes information on the producer's costs, acres, yields, cash flow needs, and historical marketing habits. "X" then analyzes this data and produces a final marketing plan. Final marketing decisions remain in the producer's hands. There is no obligation for the producer to use futures and options in their marketing. Producers are charged for this service a one-time fee which is due upon completion of the producer profile. Since producers historically have often contacted grain elevators for help in marketing their grain and livestock product, "X" believes that grain elevators can be a conduit for introducing file:///S|/Website%20Management/LegacyDataCopyasof2010-04-21/tm/letters/99letters/tm99-28.htm (1 of 5) [5/6/2010 7:12:33 PM]