At the Kansas City Conference we discussed CFTC Rule 1.71, which among other things, applies to conflicts of interests within a brokerage operation. That is to say that the “research” department and the “trading” desks must independently coexist. The genesis of the rule really comes from the securities industry where research departments tout trade recommendations to the brokers who in turn interact with their clients and often suggest the trade. Admittedly, there is some overlap with the commodities world, but not as much as one may suppose leading to a conclusion that trying to replicate this concept in our industry is like comparing apples and oranges.
NIBA highly recommends you discuss your duties and obligations under this new rule with your FCM. However, the buck stops with you, the Introducing Broker. If you are sending out trading recommendation materials the consensus at this juncture is to conspicuously label them as “solicitations” and perhaps even include a further statement that this is not trading research, that your firm does not conduct trading research but in the event it does engage in such activity in the future it shall certainly comply with applicable rules, including Rule 1.71. This recommendation to label your materials “solicitations” has as least been tacitly approved by both CFTC and NFA.
This issue remains in its developmental stage and all of us are looking for direction and further clarity. No doubt this will be a hot topic of discussion at the Chicago Conference on September 12. So, see you there.
Steve Pherson
Schuyler Roche & Crisham, Chicago, IL
spherson@srcattorneys.com
