Teacher and consultant to the futures industry since 1983
Teacher and consultant to the
futures industry since 1983
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Items you need to improve and protect your FCM or IB... 1. Very important and useful forms and letters for different applications for the FCM and the Introducing Broker. Visit our "forms" page. |
HOW DO THE CTA RULES AFFECT YOU? (Article written for: Rules as of March 1996) In late 1995 and through 1996, the NFA and CFTC have been frantically, and in some cases, hap-hazzardly writing new disclosure rules. The concern seems to be the disclosure to customers of representatives who trade accounts using systems developed by CTAs. In the past, an AP could trade customers according to any old system without fear of repercussion. For instance, I remember trading some of my customers based on over-the-phone conversations with CTA friends of mine. I also used recommendation from one of the oldest and largest subscription services in the industry. In fact to be totally honest, I even subscribed to a couple of information services and used their advice to trade my customers. Well, changes have caused that type of operation to be carefully looked at. According to a "new developments" letter (paragraph 26,540), an AP or IB who trades a customer's account using a leased or purchased system, that AP or IB must furnish the customer with a disclosure document from the source of the trading system. This would indicate that no system developer could sell or lease a system to be used by an FCM, IB or AP for the trading of customer accounts unless that system developer is registered as a CTA. I know, there are many questions about the firms that have done that for years such as the software companies that offer a completed system that generates trading signals. My contact with the CFTC and NFA has only resulted in conflicting information. I know the intent is good, but the enforcement of such rules has preceded the complete understanding of those rules, even on the part of the regulatory bodies themselves. In one instance I submitted, on behalf of a system writing CTA, a new CTA Disclosure Document which stated that should an AP, IB or FCM purchase or lease a system from this CTA, the customer of that AP, IB or FCM was not to be considered a customer of the CTA, and the CTA was not liable for the trades entered into the customer's account. A letter was received from the CFTC with the comment that this was not the case, and that the CTA was indeed liable since he wrote the system and was, as such, directing the trades. I phoned the CFTC to discuss my point. Using the following analogy: The CTA lives in Washington, DC, and sells the system to an AP in Los Angeles through an advertisement in a magazine. The AP then begins using the system to trade for customers. On one occasion the system calls for a long position in T.Bonds, but the AP on that day decides to play a "hunch" and goes Long Soybeans. As a result, the customers lose $4000 and decide to sue. The customer would no doubt name the AP and the CTA since he believes the CTA was involved. My question to the CFTC was, "should the CTA be liable and have to respond to the accusation?" After a short silence the answer was "I see your point, it shouldn't be that way, should it." Please understand I'm not challenging the CFTC, just trying to bring up valid concerns, and get them resolved. All the people I speak with at the CFTC and NFA are very receptive to new ideas, and concerns. They have always treated me well, and have my sincere respect. For your own protection, I strongly suggest you call the CFTC and NFA to get the most recent rules and regulations regarding your operations and liabilities. Remember, ignorance is no excuse when it comes to these matters because it is your responsibility to keep up to date on the things that affect your business. Call me with any questions you may have, and I will help you the best I can. Get in touch with us by
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