No-action position regarding the consolidation of separate risk disclosure statements contained in Regulation 1.55(b) and Appendix A to Regulation 1.55 into a single risk disclosure statement

Summary: No-action position regarding the consolidation of separate risk disclosure statements contained in Regulation 1.55(b) and Appendix A to Regulation 1.55 into a single risk disclosure statement

U.S. COMMODITY FUTURE S TRADING COMMISSION

Three Lafayette Centre

1155 21st Street, NW, Washington, DC 20581

Telephone: (202) 418-6700

Facsimile: (202) 418-5528

Eileen T. Flaherty

Director

Division of Swap Dealer and

Intermediary Oversight

CFTC Letter No. 16-82

No-Action

November 30, 2016

Division of Swap Dealer and Intermediary Oversight

Ms. Allison Lurton

Senior Vice President and General Counsel

Futures Industry Association

2001 Pennsylvania Avenue, NW

Suite 600

Washington, DC 20006

Re: No-Action Position Regarding the Consolidation of Separate Risk Disclosure

Statements Contained in Regulation 1.55(b) and Appendix A to Regulation 1.55 into a

Single Risk Disclosure Statement

Dear Ms. Lurton:

This is in response to your letter dated November 15, 2016 to the Division of Swap

Dealer and Intermediary Oversight (“DSIO”) of the Commodity Futures Trading Commission

(“Commission”). By your letter, you request, on behalf of the Futures Industry Association’s

(“FIA”) member futures commission merchants (“FCMs”) and introducing brokers (“IBs”), and

similarly situated FCMs and IBs, confirmation that DSIO would not recommend that the

Commission initiate an enforcement action against an FCM or IB that relies upon an updated risk

disclosure statement (the “FIA Combined Risk Disclosure Statement”) to comply with the

disclosure statement requirements of Commission Regulations 1.55(b), 30.6(a), 33.7(a), and

190.10(c).1 Specifically, you request relief from Regulations 1.55(a) & (b), 30.6(a), 33.7(a), and

190.10(c) such that an FCM or, in the case of an introduced account, an IB may provide its non-

institutional customers with the FIA Combined Risk Disclosure Statement, which consolidates

into a single document the separate risk disclosur

s of Commission Regulations 1.55(b), 30.6(a), 33.7(a), and

190.10(c).1 Specifically, you request relief from Regulations 1.55(a) & (b), 30.6(a), 33.7(a), and

190.10(c) such that an FCM or, in the case of an introduced account, an IB may provide its non-

institutional customers with the FIA Combined Risk Disclosure Statement, which consolidates

into a single document the separate risk disclosure statements contained in Regulation 1.55(b)

and Appendix A of Regulation 1.55, in lieu of providing separate risk disclosure statements.2

1 The Commodity Exchange Act (“Act”) may be found at 7 U.S.C. 1 et. seq., and the Commission’s regulations may

be found at 17 CFR 1 et. seq.

2 A “non-institutional” customer is defined as a person that does not satisfy the standards of an “eligible contract

participant” as set forth in section 1a(18) of the Act. See, Regulation 1.3(g).

Ms. Allison Lurton

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I. Regulatory Background

Regulations 1.55(a), 30.6(a), 33.7(a), and 190.10(c) require an FCM or IB, as applicable,

to provide each non-institutional customer with written risk disclosure statements prior to

opening the customer’s account.3 Regulations 1.55(a), 30.6(a), and 33.7(a) further require the

FCM or IB to obtain the customer’s signed acknowledgment stating that the customer received

and understands the applicable risk disclosure statement.

Prior to November 2013, pursuant to Commission Regulation 1.55(c), an FCM or IB

could provide customers with the Commission-approved risk disclosure statement set forth in

Appendix A to Regulation 1.55 in lieu of the separate risk disclosure statement required by

Regulation 1.55(a) or required by Regulations 30.6(a), 33.7(a), and 190.10(c)

derstands the applicable risk disclosure statement.

Prior to November 2013, pursuant to Commission Regulation 1.55(c), an FCM or IB

could provide customers with the Commission-approved risk disclosure statement set forth in

Appendix A to Regulation 1.55 in lieu of the separate risk disclosure statement required by

Regulation 1.55(a) or required by Regulations 30.6(a), 33.7(a), and 190.10(c). The Commission

adopted Appendix A to Regulation 1.55 to “permit firms doing multinational business to use the

same risk disclosure statement for foreign and U.S-based business, thereby reducing duplicative

disclosure requirements without sacrificing important customer protections or obscuring any

special risks of trading outside the U.S.” 4 Appendix A was intended to provide FCMs and IBs

with the ability to use a single risk disclosure statement to meet CFTC risk disclosure

requirements and to meet the risk disclosure requirements of certain foreign jurisdictions that

approved the risk disclosure document.5

In November 2013, the Commission revised the risk disclosures contained in Regulation

1.55(b) as part of a series of amendments enhancing customer protection.6 The Commission did

not, however, amend Appendix A to Regulation 1.55. In adopting the amendments to Regulation

1.55(b), the Commission stated that FCMs could continue to use the Appendix A risk disclosure

statement provided that the firms also provided non-institutional customers with the revised

Regulation 1.55(b) risk disclosure statement.7

3 Regulation 30.6 governs the risk disclosures required to be provided to customers trading foreign futures and

foreign options transactions. Regulation 33.7 governs the risk disclosures required to be provided to customers

trading domestic, exchange-traded commodity options

3 Regulation 30.6 governs the risk disclosures required to be provided to customers trading foreign futures and

foreign options transactions. Regulation 33.7 governs the risk disclosures required to be provided to customers

trading domestic, exchange-traded commodity options. Regulation 190.10 governs the risk disclosures required to

be provided to customers regarding the treatment of non-cash margin in the event of an FCM’s bankruptcy.

Regulation 1.55(b) contains the risk disclosures that an FCM must provide to customers trading domestic futures

and options, and includes disclosures for foreign futures and foreign options transactions. An FCM that provides a

Regulation 1.55(b) risk disclosure statement to a customer is not required to provide the customer with the separate

risk disclosure statement required by Regulation 30.6. See Regulation 30.6(a).

4 See 59 FR 34376 (July 8, 1994).

5 The Appendix A risk disclosure statement has been approved for use by relevant regulatory authorities in Ireland

and the United Kingdom in addition to the United States. See, 59 FR 38118.

6 See Enhancing Protections Afforded Customers and Customer Funds Held By Futures Commission Merchants and

Derivatives Clearing Organizations, 78 FR 68506 (Nov. 14, 2013).

7 See 77 FR 68506, 68564. See also Regulation 1.55(c).

ure statement has been approved for use by relevant regulatory authorities in Ireland

and the United Kingdom in addition to the United States. See, 59 FR 38118.

6 See Enhancing Protections Afforded Customers and Customer Funds Held By Futures Commission Merchants and

Derivatives Clearing Organizations, 78 FR 68506 (Nov. 14, 2013).

7 See 77 FR 68506, 68564. See also Regulation 1.55(c).

Ms. Allison Lurton

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II. Summary of Request for No-Action Position

FIA believes that providing two separate risk disclosure statements to non-institutional

customers that contain substantially similar risk disclosure information is unnecessary and

potentially confusing to customers. To address this issue, and to reduce the paperwork burden

on firms, FIA has drafted the FIA Combined Risk Disclosure Statement. The FIA Combined

Risk Disclosure Statement consolidates the mandated risk disclosures set forth in revised

Regulation 1.55(b) and the substantive additional disclosures contained in Appendix A to

Regulation 1.55 into a single risk disclosure statement.

III. DSIO No-Action Position

Based on the foregoing, DSIO believes that a no-action position is warranted.

Accordingly, DSIO will not recommend an enforcement action against an FCM or an IB, in the

case of an introduced account, that provides a non-institutional customer with the FIA Combined

Risk Disclosure Statement prior to such customer opening an account in lieu of the separate risk

disclosure statements specified in Regulations 1.55(b) and (c), 30.6(a), 33.7(a), 190.10(c), and/or

Appendix A to Regulation 1.55. This no-action position is subject to the conditions that the FIA

Combined Risk Disclosure Statement is provided to non-institutional customers in the manner

required by Regulation 1.55.

This letter, and the positions taken herein, represent the views of DSIO and do not

necessarily represent the positions or views of the Commission or of any other office or division

of the Commission

55. This no-action position is subject to the conditions that the FIA

Combined Risk Disclosure Statement is provided to non-institutional customers in the manner

required by Regulation 1.55.

This letter, and the positions taken herein, represent the views of DSIO and do not

necessarily represent the positions or views of the Commission or of any other office or division

of the Commission. The relief issued by this letter does not excuse persons relying on it from

compliance with any other applicable requirements contained in the Act or in the Regulations

issued thereunder. This letter does not create or confer any rights or obligations on any person or

persons subject to compliance with the Act that bind the Commission or any of its other offices

or divisions. As with all no-action letters, DSIO retains the authority to condition further,

modify, suspend, terminate, or otherwise restrict the terms of the no-action relief provided

herein, at its discretion.

Should you have any questions, please contact me at (202) 418-5326, Peter Sanchez,

Special Counsel, at (202) 418-5237, or Joshua Beale, Special Counsel, at (202) 418-5446.

Very truly yours,

Eileen T. Flaherty

Director