Otkritie Capital International, Ltd., a UK-based broker, agreed to settle charges with the Commodity Futures Trading Commission that it solicited and accepted orders and funds from two US persons from June 2010 to October 2013 without being registered with the CFTC as a futures commission merchant or exempt from registration. According to the CFTC, Otkritie facilitated the trading of two US-based affiliates of institutional global proprietary trading organizations that were automated, algorithmic traders. After endeavoring to process an application for exemption from FCM registration with the Financial Services Authority during 2011 and 2012 (to ultimately be passed on to the CFTC) –which was rejected–, Otkritie learned in September 2013 that it was handling the two US-based customers and self-reported itself to the Financial Conduct Authority (the successor to the FSA) and the CFTC. The broker ceased handling the customers’ business the following month. Otkritie agreed to pay a fine of US $140,000 to resolve the CFTC charges.
Compliance Weeds: Ordinarily, all entities that solicit orders from US persons or handle funds in connection with futures and options must be registered with the Commodity Futures Trading Commission in some capacity (typically as a futures commission merchant or commodity pool operator if they handle funds, or in those capacities, or as an introducing broker or commodity trading advisor if they handle orders). Part 30 of the CFTC’s rules provides a number of exemptions for non-US based entities to deal with US persons in connection with foreign futures and options contracts. One exemption – under CFTC Rule 30.5 – applies to any entity other than one that might otherwise be required to register as an FCM, while another – under CFTC rule 30.10 – applies to an entity that would otherwise be required to register as an FCM. A Rule 30.10 exemption typically requires the involvement of a local regulator as part of the exemption request process. (Click here for copies of the relevant regulations, and here for a CFTC-provided summary of applicable requirements.) Another CFTC rule authorizes certain entities outside the United States exempted from registration as an FCM under CFTC Rule 30.10 to execute US futures and options for certain institutional customers to be carried at a registered FCM subject to strict conditions. (Click here to access CFTC Rule 3.10(c)(4).)