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such futures commission merchant or introducing broker is subject.
(1) In the event a plan is not filed and/or approved for each registered futures commission merchant or for each registered introducing broker which is a member of more than one self-regulatory organization, the Commission may design and, after notice and opportunity for comment, approve a plan for those futures commission merchants or introducing brokers which are not the subject of an approved plan (under paragraph (g) of this section), delegating to a designated self-regulatory organization the responsibilities described in paragraph (c) of this section. (Approved by the Office of Management and Budget under control numbers 30380007 and 3038-0022) (7 U.S.C. 60, 60, 61, 6g, 7a, 12a, 19, and 21; 5 U.S.C. 552, 5 U.S.C. 552b, and secs. 2(a)(11), 4b, 48, 4g, 5a, 8a, and 17 of the Commodity Exchange Act, 7 U.S.C. 4a(j), 6b, 68, 68, 7a, 12a, and 21, as amended, 92 Stat 865 et seq.) (43 FR 39981, Sept. 8, 1978, as amended at 46 FR 63035, Dec. 30, 1981; 48 FR 35290, Aug. 3, 1983)
8 1.54 Contract market rules submitted to
and approved or not disapproved by
the Secretary of Agriculture. Notwithstanding any provision of these rules, any bylaw, rule, regulation, or resolution of a contract market that was submitted to the Secretary of Agriculture pursuant or $ 1.38(a) or $ 1.39(a) of these rules, and was either approved by the Secretary or not disapproved by him, as of April 21, 1975, shall continue in full force and effect unless and until disapproved, altered or supplemented by or with the approval of the Commission. The adoption of this rule does not constitute approval by the Commission of any contract market bylaw, rule, regulation or resolution.
(Sec. 411, Pub. L. 93-463, 88 Stat. 1414; 7 U.S.C. 4a note) (45 FR 2314, Jan. 11, 1980)
8 1.53 Enforcement of contract market
bylaws, rules, regulations, and resolu
tions. Each contract market shall enforce each bylaw, rule, regulation, and resolution, made or issued by it or by the governing board thereof or any committee thereof, which is in effect as of July 18, 1975, and which relates to terms and conditions in contracts of sale to be executed on or subject to the rules of such contract market or relates to other trading requirements, unless such bylaw, rule, regulation, or resolution has been disapproved by the Commission pursuant to section 5a(12) of the Act, or the amendment or revocation of such bylaw, rule, regulation or resolution has been approved by the Commission pursuant to section 5a(12) of the Act. (Secs. 5, 5a, 6, 6b; 42 Stat. 1000, 1001, 49 Stat. 1497, 1498, 82 Stat. 29, 30, 31, 88 Stat. 1392, 1400, 1401, 1402; 7 U.S.C. 7, 7a, 8, 13a)
8 1.55 Distribution of “Risk Disclosure
Statement” by futures commission
merchants and introducing brokers. (a) No futures commission merchant or, in the case of an introduced account, no introducing broker may open a commodity futures account for a customer unless the futures commission merchant or introducing broker first: (1) Furnishes the customer with a separate written disclosure statement containing only the language set forth in paragraph (b) of this section (except for nonsubstantive additions such as captions); and (2) receives from the customer an acknowledgment signed and dated by the customer that he received and understood the disclosure statement.
(b) The language set forth in the written disclosure document required by paragraph (a) of this section shall be as follows:
RISK DISCLOSURE STATEMENT
This statement is furnished to you because rule 1.55 of the Commodity Futures Trading Commission requires it.
The risk of loss in trading commodity futures contracts can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade, you should be aware of the following:
(1) You may sustain a total loss of the ini. tial margin funds and any additional funds that you deposit with your broker to establish or maintain a position in the commodity futures market. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.
(2) Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a "limit move."
(3) Placing contingent orders, such as a “stop-loss" or "stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.
(4) A "spread” position may not be less risky than a simple “long" or "short” position.
(5) The high degree of leverage that is often obtainable in futures trading because of the small margin requirements can work against you as well as for you. The use of le. verage can lead to large losses as well as gains.
This brief statement cannot, of course, disclose all the risks and other significant aspects of the commodity markets. You should therefore carefully study futures trading before you trade.
(c) The acknowledgment required by paragraph (a) of this section must be retained by the futures commission merchant or introducing broker in accordance with $ 1.31.
(d) This section does not relieve a futures commission merchant or introducing broker from any other disclosure obligation it may have under applicable law. (Approved by the Office of Management and Budget under control number 30380022) (Secs. 4b, 4c(b), 4g(1), 41, 40, and 8a(5), Commodity Exchange Act, 7 U.S.C. 66, 6c(b), 6g(1), 61, 60, and 12a(5)(1976), and sec. 217, Commodity Futures Trading Act of 1974, 88 Stat. 1405; secs. 2(a)(1), 4b, 4c, 40, 4f and 8a, Commodity Exchange Act, as amended (7 U.S.C. 2, 6b, 6c, 6f and 12a)) (43 FR 31890, July 24, 1978, as amended at 46 FR 63035, Dec. 30, 1981; 48 FR 35290, Aug. 3, 1983; 50 FR 5383, Feb. 5, 1985)
$ 1.56 Prohibition of guarantees against
loss. (a) For purposes of this section "commodity interest" means
(1) Any contract for the purchase or sale of a commodity for future delivery; and
(2) Any contract, agreement or transaction subject to Commission reg. ulation under sections 4c or 19 of the Act.
(b) No futures commission merchant or introducing broker may in any way represent that it will, with respect to any commodity interest in any account carried by the futures commission merchant for or on behalf of any person:
(1) Guarantee such person against loss;
(2) Limit the loss of such person; or
(3) Not call for or attempt to collect initial and maintenance margin as established by the rules of the applicable board of trade.
(c) No person may in any way represent that a futures commission merchant introducing broker will engage in any of the acts or practices described in paragraph (b) of this section.
(d) This section shall not be construed to prevent a futures commission merchant or introducing broker from:
(1) Assuming or sharing in the losses resulting from an error or mishandling of an order; or
(2) Participating as a general partner in a commodity pool which is a limited partnership.
(e) This section shall not affect any guarantee entered into prior to (the effective date of this section), but this section shall apply to any extension, modification or renewal thereof entered into after such date.
(46 FR 62844, Dec. 29, 1981, as amended at 48 FR 35291, Aug. 3, 1983)
8 1.57 Operations and activities of intro
ducing brokers. (a) Each introducing broker must:
(1) Open and carry each customer's and option customer's account with a carrying futures commission merchant on a fully-disclosed basis; and
(ii) For which the bank or trust company restricts withdrawals to withdrawals by the carrying futures commission merchant;
(iii) For which the bank or trust company prohibits the introducing broker or anyone acting upon its behalf from withdrawing funds; and
(iv) For which the bank or trust company provides the futures commission merchant carrying the customer's or option customer's account with a written acknowledgment, which the futures commission merchant must retain in its files in accordance with $ 1.31, that it was informed that the funds deposited therein are those of commodity or option customers and are being held in accordance with the provisions of the Act and these regulations.
[48 FR 35291, Aug. 3, 1983)
(2) Transmit promptly for execution all customer and option customer orders to: (i) A carrying futures commission merchant; or (ii) floor broker, if the introducing broker identifies its carrying futures commission merchant and that carrying futures commission merchant is also the clearing member with respect to the customer's or option customer's order.
(b) An introducing broker may not carry proprietary accounts, nor may an introducing broker carry accounts in foreign futures.
(c) An introducing broker may not accept any money, securities or property (or extend credit in lieu thereof) to margin, guarantee or secure any trades or contracts of customers or option customers, or any money, securities or property accruing as a result of such trades or contracts: Provided, however, That an introducing broker may deposit a check in a qualifying account or forward a check drawn by a customer or option customer if:
(1) The futures commission merchant carrying the customer's option customer's account authorizes the introducing broker, in writing, to receive a check in the name of the futures commission merchant, and the introducing broker retains such written authorization in its files in accordance with $ 1.31;
(2) The check is payable to the futures commission merchant carrying the customer's or option customer's account;
(3) The check is deposited by the introducing broker, on the same day upon which it is received, in a bank or trust company located in the United States in a qualifying account, or the check is mailed or otherwise transmitted by the introducing broker to the futures commission merchant on the same day upon which it is received;
(4) For purposes of this paragraph (c), a qualifying account shall be deemed to be an account:
(i) Which is maintained in an account name which clearly identifies the funds therein as belonging to commodity or option customers of the futures commission merchant carrying the customer's or option customer's account;
$ 1.58 Gross collection of exchange-set
margins. (a) Each futures commission merchant which carries a commodity futures or commodity option position for another futures commission merchant on an omnibus basis must collect, and each futures commission merchant for which the omnibus account is being carried must deposit, initial and maintenance margin on each position reported in accordance with $ 17.04 of this chapter at a level no less than that established for customer accounts by the rules of the applicable contract market.
(b) If the futures commission merchant which carries a commodity futures or commodity option position for another futures commission merchant on an omnibus basis allows a position to be margined as a spread position or
a hedged position in accordance with the rules of the applicable contract market, the carrying futures commission merchant must obtain and retain a written representation from the futures commission merchant for which the omnibus account is being carried that each such position is entitled to be so margined.
(47 FR 21028, May 17, 1982)
$ 1.60 Pending legal proceedings.
(a) Every contract market shall submit to the Commission copies of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decisions and such further documents as the Commission may thereafter request filed in any material legal proceeding to which the contract market is a party or its property or assets is subject.
(b) Every futures commission merchant shall sumit to the Commission copies of any dispositive or partially dispositive decision for which a notice of appeal has been filed, the notice of appeal and such further documents as the Commission may thereafter request filed in any material legal proceeding to which the futures commission merchant is a party or its property or assets is subjects.
(c) Every contract market shall submit to the Commission copies of the complaint, any dispositive or partially dispositive decision, any notice of appeal filed concerning such decisions and such further documents as the Commission may thereafter request filed in any material legal proceeding instituted against any officer, director, or other official of the contract market arising from conduct in such person's capacity as a contract market official and alleging violations of: (1) The act or any rule, regulation, or order thereunder; (2) the constitution, bylaws or rules of the contract market; or (3) the applicable provisions of state law relating to the duties of officers, directors, or other officials of business organizations.
(d) Every futures commission merchant shall submit to the Commission copies of any dispositive or partially dispositive decision concerning which a notice of appeal has been filed, the notice of appeal, and such further documents as the Commission may thereafter request filed in any material legal proceeding instituted against any person who is a principal of the futures commission merchant (as that term is defined in $ 3.1(a) of this chapter) arising from conduct in such person's capacity as a principal of the futures commission merchant and alleg. ing violations of: (1) The Act or any
rule, regulation, or order thereunder; or (2) provisions of state law relating to a duty or obligation owed by such a principal.
(e) All documents required by this section to be submitted to the Commission shall be mailed via first-class or submitted by other more expeditious means to the Commission's head. quarters office in Washington, D.C., Attention: Office of the General Counsel. All documents required by this section to be submitted to the Commission as to matters pending on the effective date of the section (May 25, 1984), shall be mailed to the Commission within 45 days of that effective date. Thereafter, all complaints required by this section to be submitted to the Commission by contract markets shall be mailed to the Commission within 10 days after the initiation of the legal proceedings to which they relate, all decisions required to be submitted by contract markets shall be mailed within 10 days of their date of issuance, all notices of appeal required to be submitted by contract markets shall be mailed within 10 days of the filing or receipt by the contract market of the notice of appeal, and all decisions and notices of appeal required to be submitted by futures commission merchants shall be mailed within 10 days of the filing or receipt by the futures commission merchant of the relevant notice of appeal. For purposes of paragraph (a), (b), (c) and (d) of this rule, a “material legal proceeding" includes but is not limited to actions involving alleged violations of the Commodity Exchange Act or the Commission's regulations. However, a legal proceeding is not “material" for the purposes of this rule if the proceeding is not in a federal or state court or if the Commission is a party. (Sec. 8a(5), Commodity Exchange Act. as amended, 7 U.S.C. 12a(5) (1982)) (49 FR 17750, Apr. 25, 1984)
§ 1.61 Speculative position limits.
(a) Speculative limits on futures positions. (1) For the purpose of preventing excessive speculation in any commodity under contracts of sale of such commodity for future delivery, arising from those extraordinarily large posi.
tions which may cause sudden or un- to bona fide hedging positions as dereasonable fluctuations or unwarrant- fined by a contract market in accorded changes in the price of such com- ance with $ 1.3(z)(1) of the Commismodity, each contract market shall, sion's regulations. Provided, that the for each separate type of contract for contract market may limit bona fide which delivery months are listed to hedging positions which it determines trade, adopt and submit for Commis- are not in accord with sound commersion approval under $ 1.41 of this cial practices or exceed an amount chapter and section 5a(12) of the Act, which may be established and liquidata bylaw, rule, regulation or resolution ed in an orderly fashion. which shall limit the maximum net (b) Speculative limits on option polong and net short position which any sitions. (1) In order to accomplish the one person may hold or control under purposes expressed in paragraph (a)(1). contracts for future delivery of any of this rule, each contract market commodity subject to the rules of such which trades option contracts pursucontract market. Provided, this section ant to Part 33 of this chapter shall for shall not apply to a contract market each put and call option adopt and for which position limits are set forth submit for Commission approval in Part 150 of this chapter; and pro- under Rule 1.41 of this chapter and vided further, that nothing in this sec- section 5a(12) of the Act a bylaw, rule, tion shall be construed to prohibit a regulation or resolution which shall contract market from fixing different limit the maximum net long option poand separate position limits for differ- sition and net short option position ent types of futures contracts based on which any one person may hold or the same commodity, different posi- control. tion limits for different futures, or for (2) No bylaw, rule, regulation or resdifferent delivery months, or from ex- olution adopted pursuant to paraempting positions which are normally graph (b)(1) of this section shall apply known in the trade as "spreads, strad- to positions held by commercial interdles or arbitrage” or from fixing limits ests in the underlying commodity which apply to such positions which which are determined by a contract are different from limits fixed for market to be economically appropriate other positions.
to the reduction or risks in the con(2) A contract market shall base its duct and management of a commercial determination of levels for speculative enterprise. Provided, that the contract limits on such factors that will accom- market may limit positions of such plish the purposes of this section. As commercial interests which it deterappropriate, these factors shall in- mines are not in accord with sound clude position sizes customarily held commercial practices or exceed by speculative traders on such market amount which may be established and for a period of time selected by the liquidated in an orderly fashion. contract market, which shall not be (c) Time of filing. Initial submissions extraordinarily large relative to total made pursuant to paragraph (a) of open positions in the contract for such this section for contracts for which period. In addition to the above or trading months have been listed on upon a determination that the above the effective date of this regulation standard is inappropriate for setting shall be made within 90 days of such such limits, a contract market may effective date. Upon a showing of good base its determination on other factors cause by a contract market, the Comwhich may include breadth and liquid- mission may extend for a reasonable ity of the cash market underlying time, the time in which a contract each delivery month and the opportu- market must make an initial submisnity for arbitrage between the futures sion. If, during the 90 days from the market and cash market in the com- effective date of this rule, a designated modity underlying the futures con- contract market does not submit rules, tract.
bylaws, regulations or resolutions pur(3) No bylaw, rule, regulation or res- suant to this section for contracts with olution adopted pursuant to para- no delivery months listed for trading, graph (a)(1) of this section shall apply such contract market shall, prior to