The Division of Clearing and Intermediary Oversight (DCIO) of the Commodity Futures Trading Commission has denied a request from a registered introducing broker (IB) for relief from the requirement under CFTC Regulation 1.35(a-1)(1) that an IB provide its clearing futures commission merchant (FCM) with specific customer account identifiers at or prior to the time it places orders with its FCM.
Customers of the requesting IB had directed it to place trades on their behalf based on signals produced by third-party computer-based trading systems and alerts from third-party newsletters. The IB had requested relief on the grounds that, because of the frequency with which signals and alerts are generated and because of the disparate nature of the trade parameters provided by individual customers and the possibility of such parameters being changed by customers on short notice, it was unable to find a technically feasible means of providing its FCM with accurate allocations of bunched orders prior to or at the time of order entry without the risk of missing customer trades or of price “slippage” for those trades. The IB also argued that relief was justified because CFTC Regulation 1.35(a-1)(5)(i) allows certain “eligible account managers,” including registered commodity trading advisors, to engage in post-trade allocation of bunched orders.
DCIO denied the request, noting that IBs were specifically excluded from the list of “eligible account managers” when CFTC Regulation 1.35(a-1)(5)(i) was adopted. IBs, therefore, are not eligible to provide customer account allocation information after a trade has been executed. DCIO further explained that the requesting IB was not required to operate under the business model that it had chosen and that the inconsistency of the IB’s business model with CFTC requirements was not sufficient justification for exemption from the relevant regulation.
The no-action letter from the CFTC can be found here.