A FCM can function as a go-between for a customer and the exchange members who execute or settle trades. A FCM can also be a member of an exchange and act as a clearing member.
What is the definition of a future commission merchant?
A futures commission merchant (FCM) is a company that solicits or accepts orders to purchase or sell futures contracts, options on futures, retail off-exchange forex contracts, or swaps, and then pays money or other assets to consumers to fulfill those orders. If your company is soliciting or accepting orders to purchase or sell retail off-exchange forex contracts, as well as accepting money or assets from retail consumers, it must be designated as a Forex Dealer Member and meet the conditions listed on the Forex Dealer Member landing page.
- Handles transactions only for the firm, its affiliates, top officers, and directors; or
- Is a non-U.S. resident or a firm with only non-U.S. customers that sends all trades to a CFTC-registered FCM for clearing.
Is an FCM considered a broker?
Futures commission merchants (FCM) and introducing brokers (IB) are SEC-registered broker-dealers who only sell security futures products on contract marketplaces.
What is the distinction between a local commission merchant and a futures commission merchant?
What is the distinction between a local commission merchant and a futures commission merchant? A futures commission merchant makes trades on behalf of a client for a fee. A local trades for himself or herself.
What is the function of a futures clearing broker?
A clearing broker is an exchange member who serves as a link between an investor and a clearing business. A clearing broker assists in ensuring that the trade is properly settled and that the transaction is completed successfully.
What is an FCM that does not clear?
Clearing FCMs must maintain significant deposits with the clearing house of any exchange to which they belong. Customers’ trades must be cleared by a clearing FCM for a non-clearing FCM.
What is a clearing institution for derivatives?
A derivatives clearing organization (DCO) is an entity that allows each party to an agreement, contract, or transaction to substitute the DCO’s credit for the parties’ credit, either through novation or otherwise; arranges or provides for the settlement or netting of obligations on a multilateral basis; or otherwise provides clearing services or arrangements that mutualize or transfer credit risk among participants.
A DCO that wants to provide clearing services for futures contracts, options on futures contracts, or swaps must first register with the CFTC.
If the Commission considers that a DCO is subject to similar, thorough monitoring by suitable government authorities in the DCO’s home country, the Commission may exempt the DCO from registration for swap clearing.
A DCO must follow the DCO fundamental principles specified in Section 5b, 7 USC 7a-1, of the Commodity Exchange Act (CEA) to receive and retain registration:
- System protections, emergency procedures, and a disaster recovery plan that are adequate and appropriate
- Obligation to submit required reports to the CFTC in order for it to monitor clearinghouse activity
- All business records must be kept for five years in a format acceptable to the CFTC.
- Participation in relevant information-sharing agreements on a national and international level
- Actions that are unjustifiable trade barriers or entail anti-competitive burdens should be avoided.
- Rules to reduce conflicts of interest in the DCO’s decision-making process, as well as a procedure for addressing any conflicts that arise.
Section 5b of the CEA, 7 USC 7a-1, and Part 39 of the CFTC’s regulations lay forth the criteria, methods, and requirements for becoming a DCO.
Is it necessary for introducing brokers to register as an affiliated person?
An associated person (AP) is someone who works for a futures commission merchant (FCM), a retail foreign exchange dealer (RFED), an introducing broker (IB), a commodity trading advisor (CTA), or a commodity pool operator and solicits orders, customers, or customer funds (or supervises people who do) (CPO). In effect, an AP is anyone who works as a salesperson or oversees salespeople for any of these individuals or businesses.
The registration requirements apply to anybody in the supervisory chain of command, not just those who directly manage orders, clients, or financial solicitations. For more information, see NFA Notice to Members I-07-38.
- If an individual is to be affiliated with a CPO, he or she must first be registered as a CPO.
- If an individual is to be affiliated with a CTA, he or she must first register as a CTA.
- The individual is already a registered representative with the Financial Industry Regulatory Authority (FINRA), and his or her futures activity is limited to the solicitation of commodities pool memberships.
*Registered Floor Brokers who intend to solicit customer business should check the exchange rules to see if there are any additional exchange requirements or activity constraints.
What is the definition of an introducing broker?
An introducing broker (IB) is a person or company who solicits or accepts orders to purchase or sell futures, commodities options, retail off-exchange forex contracts, or swaps, but does not receive money or other assets from consumers to back these orders.
- Registered as a CTA but does not earn per-trade remuneration or only maintains accounts under powers of attorney; or
- Is a non-U.S. resident or a firm with only non-U.S. customers that sends all trades to an FCM for clearing.