CFTC COVID-19 Relief Allows Certain Foreign Brokers to Enter US Customer Orders
On March 31, 2020, in an effort to continue to respond to the challenges brought about by the Covid-19 crisis, the Commodity Futures Trading Commission (CFTC) staff issued temporary relief that will permit certain US trading firms to serve their US customers from foreign affiliates. Many US futures commission merchants (FCM) are part of international financial service groups with global operations in various financial centers outside the United States, and the new relief will have the practical effect of allowing those non-US personnel to enter orders of US customers where certain conditions are satisfied.
The issuance of the relief marks a significant and helpful step. Recognizing the operational difficulties confronting numerous FCMs during this period, CFTC staff has taken an aggressive and well-advised step to help promote the efficiency of order execution.
FCM Request for Relief
The CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued Staff Letter No. 20-12 in response to a request by the Futures Industry Association (FIA) on behalf of certain member FCMs. FIA represented that each of the FCMs’ affiliated foreign brokers exempt under CFTC Rule 30.5:
- Is duly licensed by or registered with the regulatory authority in its home jurisdiction;
- Is, although not registered with the CFTC, permitted to solicit and accept orders from U.S. persons for trading in foreign futures and options pursuant to an exemption under CFTC Rule 30.5; and
- Is located in a jurisdiction for which the Commission has provided an exemption pursuant to CFTC Rule 30.10, which generally requires that the CFTC find the customer protection aspects of the laws and regulations of such jurisdictions to be comparable to the customer protection aspects of the Commodity Exchange Act and related regulations.
Foreign Broker Relief Granted
DSIO stated that each of the 30.5 foreign brokers is operating in a jurisdiction that the Commission has found to have comparable customer protections. For this reason, until September 30, 2020, DSIO will not recommend that the CFTC take an enforcement action against a 30.5 foreign broker for failure to register with the CFTC as an introducing broker, subject to the following conditions:
- The 30.5 foreign broker is an affiliate of an FCM registered with the CFTC;
- The 30.5 Foreign Broker is appropriately licensed or registered in a jurisdiction for which the Commission has issued an exemptive order under CFTC Rule 30.10;
- The 30.5 foreign broker introduces on a fully-disclosed basis to FCMs registered with the Commission only institutional customers, as defined by CFTC Rule 1.3, for the purpose of trading on a designated contract market (DCM);
- The 30.5 foreign broker accepts, but does not solicit, orders from, and does not handle the customer funds of, any person located in the US for trading on a DCM;
- Subject to the relief provided by DSIO under CFTC Staff Letter 20-03, the 30.5 foreign broker creates and maintains the records required by CFTC Rule 1.35 with respect to its brokerage activities with U.S. persons, and complies with CFTC Rule 1.31 with respect thereto, including providing prompt access thereto to representatives of the CFTC and the U.S. Department of Justice upon request;
- Each FCM with which the 30.5 foreign broker is affiliated files with the National Futures Association (NFA) an acknowledgement it will be jointly and severally liable for any violations of the CEA or the Commission’s regulations by the 30.5 foreign broker in connection with its introducing activities in which it engages in reliance on this letter; and
- The 30.5 foreign broker provides written notice to DSIO both when it begins reliance on the relief provided by the staff letter and, if it ceases to rely on the letter prior to September 30, 2020, when it ceases to rely on this letter.
Other Mayer Brown Regulatory Updates
The foregoing CFTC relief and changes supplement other measures by the CFTC and NFA. See our blog posts and Legal Updates:
- NFA and CFTC Continue to Respond to COVID-19
- CFTC Issues Additional COVID-19 Relief for Remote Derivatives Trading
- COVID-19 Business Continuity Updates for Commodity Futures Trading Commission Registrants and National Futures Association Members
For CFTC firms dually registered with the SEC and FINRA, Mayer Brown has provided Legal Updates regarding similar regulatory actions by those agencies.
- COVID-19 Implications for SEC and CFTC Registrants
- COVID-19: US SEC Provides Temporary, Conditional Relief to Funds and Advisers
- US SEC Staff Publishes Guidance on Annual Shareholder Meeting Related to COVID-19
- COVID-19: FINRA Addresses U.S. Broker-Dealer Preparedness and Regulatory Relief in Regulatory Notice 20-08
- COVID-19: US SEC Staff Offers Relief for RIAs and Funds
The derivatives and securites law updates are part of an evolving COVID-19 response that is moving across regulatory agencies. Please visit our website to learn more.
If you wish to receive periodic updates on this or other topics related to the pandemic, you can be added to our COVID-19 “Special Interest” mailing list by subscribing here. For any other legal questions related to this pandemic, please contact the Firm’s COVID-19 Core Response Team at FW-SIG-COVID-19-Core-Response-Team@mayerbrown.com.
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