leverage can lead to large losses as well as §1.55 Distribution of “Risk Disclosure gains. Statement" by futures commission merchants. (a) No futures commission merchant may open a commodity futures account for a customer unless the futures commission merchant first (1) furnishes the customer with a separate written disclosure document containing only the language set forth in paragraph (b) of this section (except for nonsubstantive additions, e.g., captions) and (2) receives from the customer an acknowledgment signed and dated by the customer that he received and understood the disclosure document. (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 initial 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 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 in accordance with § 1.31. (Secs. 4b, 4c(b), 4g(1), 41, 40, and 8a(5), Commodity Exchange Act, 7 U.S.C. 6b, 6c(b), 6g(1), 61, 60, and 12a(5) (1976, and sec. 217, Commodity Futures Trading Act of 1974, 88 Stat. 1405) [43 FR 31890, July 24, 1978] § 1.60 Pending legal proceedings. (a) Every contract market shall submit to the Commission copies of the complaint and answer (whether or not formally characterized as such) and such further documents as the Commission may thereafter request, filed in any material legal proceedings to which the contract market is a party or its property or assets is subject. (b) Every contract market shall submit to the Commission copies of the complaint and answer (whether or not formally characterized as such) and such further documents as the Commission may thereafter request, filed in any material legal proceedings 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. (c) Every contract market shall notify the Commission in writing of any proceedings known to the contract market to be contemplated against the contract market by governmental authorities, other than investigations or enforcement actions which may be instituted by the Commission. To the extent that such information is available, the notification must include the name of the court or agency in which the proceedings may be brought; the anticipated date of the institution of the proceedings; the principal parties (including any officers, directors or other officials of the contract market) which may be bringing or named in the proceedings; a description of the factual and legal basis which may be alleged to underlie the proceedings and the relief which may be sought therein. If proceedings are later instituted against the contract market by governmental authorities, the contract market shall submit to the Commission copies of the complaint and answer (whether or not formally characterized as such) and such further documents as the Commission may thereafter request, filed in such proceedings. (d) Every contract market shall notify the Commission if any officer, director or other official of the contract market is to be indemnified by the contract market for any amounts paid as settlements or judgments or amounts paid as fines or penalties in any legal proceeding referred to in paragraphs (a), (b), and (c) of this section. The notification must include information regarding the nature and amount of any such indemnification and a brief statement explaining the reasons why the official is to be indemnified for such liabilities. (e) The documents required by this section shall be mailed to the Commission's headquarters in Washington, D.C. within 10 days after the effective date (February 15, 1977) of this section as to all matters referred to in paragraphs (a), (b), and (c) of this section then pending, within 10 days after the initiation of legal proceedings referred to in paragraphs (a) and (b) of this section, within 10 days after the contract market determines to indemnify a contract market official as provided in paragraph (d) of this section, and within 10 days after the contract market becomes aware of the contemplated proceedings and within 10 days after formal initiation of any contemplated proceedings referred to in paragraph (c) of this section. For purposes of paragraphs (a) and (b) of this section, legal proceedings are not "material" if the only relief sought is a money judgment for less than $15,000. [42 FR 2629, Jan. 12, 1977] APPENDIX A-INTERPRETATIVE STATEMENT REGARDING GOOD CAUSE STANDARDS FOR DENIAL OF REGISTRATION The Commission interprets its authority to refuse to register any person, or to suspend or revoke the registration of any person, "for other good cause shown" within the meaning of section 8a(2)(B)(ii) of the Act to include, but not be limited to, any of the factors listed below. Consistent with section 8a(2)(B)(i) of the Act, the Commission views these factors as relevant to the issue of unfitness for registration not only to the extent they directly involve an applicant for registration or registrant, as the case may be, but also to the extent they involve any general partner, officer, director, holder of more than 10 per cent of the stock of the applicant or registrant, controlling person, or any person occupying a similar status or performing similar functions. (1) The operations of such person disrupt or would tend to disrupt orderly market conditions, or cause or would tend to cause sudden or unreasonable fluctuations or unwarranted changes in the prices of commodities or contracts for future delivery of commodities. (2) Such person has been, is or is about to become employed or otherwise associated with another person at a time when such other person is required to be, but is not, registered with the Commission. (3) Such person has, within ten years preceding the filing of the application for registration, been convicted of a misdemeanor which (a) involves any transactions or advice concerning any commodity, contract for future delivery of a commodity, or security; or (b) arises out of conduct of the business of a futures commission merchant, associated person, floor broker, commodity trading advisor, commodity pool operator, securities broker, securities dealer, municipal securities dealer, transfer agent, clearing agency, securities information processor, investment adviser, investment company, or an affiliated person or employee of any of the foregoing; or (c) involves embezzlement, defalcation, fraudulent conversion, misappropriation of funds or securities, forgery, counterfeiting, false pretenses, gambling or similar crimes indicating a lack of high ethical standards or unreliability in maintaining a fiduciary relationship. (4) Such person is permanently or temporarily enjoined by order, judgment or decree of any court of competent jurisdiction, or by agreement of settlement to which the Commission, the Securities and Exchange Commission, or any state agency or governmental body is a party, from (a) acting as a futures commission merchant, associated person, floor broker, commodity trading advisor, commodity pool operator, securities broker, securities dealer, municipal securities dealer, transfer agent, clearing agency, securities information processor, investment adviser, investment company or employee or affiliated person of any of the foregoing or (b) engaging in or continuing any conduct or practice in connection with any such activity or involving any transaction or advice concerning commodities, contracts for future delivery of commodities, or securities. (5) Such person is subject to an outstanding order of the Commission denying trading privileges on any contract market to such person, suspending or expelling such person from membership on any contract market or futures association registered under the Act, or refusing such person registration in any capacity. (6) Within ten years preceding the filing of the application, such person has (a) been found to have violated, or to have willfully aided, abetted, counseled, commanded, induced or procured the violation by any other person of, any provision of the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Securities Investors Protection Act of 1970, the Foreign Corrupt Practices Act of 1977, or any similar statute of a State or foreign jurisdiction, or any rule, regulation, or order under any such statutes or (b) failed reasonably to supervise another person, who is subject to such person's supervision, with a view to preventing violations of the Commodity Exchange Act, or any of the statutes set forth in paragraph (a) of this clause, or any of the rules, regulations or orders thereunder, and the person subject to supervision committed such a violation. No person shall be deemed to have failed reasonably to supervise another person, within the meaning of this clause if (i) there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and (ii) such person has reasonably discharged the duties and obligations incumbent upon that person, as supervisor, by reason of such procedures and system, without reasonable cause to believe that such procedures and system were not being complied with. (7) Such person has pleaded nolo contendere to criminal charges of felonious conduct, or has been convicted in a State court or in a foreign court, of conduct which would constitute a felony under Federal law if the offense had been committed under Federal jurisdiction. (8) Such person has used or is using in its name a term such as "board of trade" or "exchange" in a misleading context, or uses any terms in its representations to the public which may indicate that the person is a contract market or a member of a contract market when such is not the case, or has used or is using a misleading name which would tend to suggest to the public that the person is affiliated with another person when that is not the case or that the person is engaged in a commodity-related business when the person is not in fact substantially so engaged, or has failed to disclose to the public an agency relationship with another person when such failure could mislead the public. (9) Such person is subject to an outstanding order (a) denying, suspending or expelling such person from membership in a futures association registered under the Act, or from any other self-regulatory associ ation, such as the National Association of Securities Dealers Inc., or (b) denying, suspending or revoking the license of such person by a licensing authority, such as a state real estate or insurance commission. (10) Such person has failed to answer inquiries or requests for further information concerning the application for registration filed with the Commission. NOTE: This foregoing listing of factors for denial of registration "for other good cause shown" is not exclusive. The Commission, after opportunity for hearing, may determine to deny registration in any case in which facts are sufficient to indicate the applicant's unfitness for registration. For example, a breach of fiduciary duty or a pattern of failure to honor debts may constitute good cause for the denial of registration. Indeed, any act or pattern of conduct attributable to an applicant which, although never the subject of formal action or proceeding before either a court or governmental agency, demonstrates to the Commission's satisfaction the applicant's potential disregard of or inability to comply with the requirements of the Commodity Exchange Act or the rules, regulations or orders thereunder, or the applicant's moral turpitude, or a lack of honesty or financial responsibility, can result in denial of registration. Any inability to deal fairly with the public and consistent with just and equitable principles of trade may render an applicant unfit to be registered, given the high ethical standards which must prevail in the industry. (Secs. 8a and 4n(6) of the Act, 7 U.S.C. 12a and 6n(6)) [45 FR 14210, Mar. 5, 1980] Sec. PART 2-OFFICIAL SEAL 2.1 Description. 2.3 Prohibitions against misuse of seal. AUTHORITY: Sec. 2(a)(10) of the Commodity Exchange Act, as amended, 7 U.S.C. 4(i). SOURCE: 41 FR 9552, Mar. 5, 1976, unless otherwise noted. §2.1 Description. Pursuant to section 2(a)(10) of the Commodity Exchange Act, as amended, 7 U.S.C. 4(i), the Commodity Futures Trading Commission has adopted an official seal (the "Seal"), the description of which is as follows: (a) An American bald eagle in black and white holding the scales of balanced interests over a black and white wheel of commerce and a farmer's plow, also in black and white. These symbols are enclosed with an inner red octagon and a blue outer octagon representing traditional futures contract trading pits. Around the outside of the octagons are the words “Commodity Futures Trading Commission” separated by two stars from the year "1975," the first year of the Commission's existence. (b) The Seal of the Commodity Futures Trading Commission is illustrated as follows: FUTURES TRADING DITY COMMIS OWWOO☆ 1975 NOISSI § 2.2 Authority to affix seal. (a) The following officials of the Commodity Futures Trading Commission are authorized to affix the Seal to appropriate documents and other materials of the Commission for all purposes including those authorized by 28 U.S.C. 1733(b) (relating to authenticated copies of agency documents used as evidence): The Chairman and all Commissioners, the General Counsel, the Executive Director, the Directors of Divisions, and the Secretariat. (b) The officials, named in paragraph (a) of this section, except the Secretariat, may redelegate, and authorize redelegation of this authority. § 2.3 Prohibitions against misuse of seal. (a) Fraudulently or wrongfully affixing or impressing the Seal to or upon any certificate, instrument, document or paper or with knowledge of its fraudulent character, or with wrongful or fraudulent intent, using, buying, procuring, selling or transferring to another any such paper is punishable under Section 1017 of Title 18, United States Code. (b) Falsely making, forging, counterfeiting, mutilating, or altering the Seal, or knowingly using a fraudulent or altered Seal or possessing any such Seal knowingly is punishable under Section 506 of Title 18, United States Code. PART 4-COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS Sec. Subpart C-Commodity Trading Advisors 4.30 [Reserved] 4.31 Disclosure to prospective clients. 4.32 Recordkeeping. AUTHORITY: Secs. 2(a) (1), 4b, 4c, 41, 4m, 4n, 40, 8a and 19 of the Commodity Exchange Act, 7 U.S.C. 2 et seq., as amended, 92 Stat. 865 et seq. SOURCE: 44 FR 1924, Jan. 8, 1979, unless otherwise noted. Subpart A-Definitions and Exemptions § 4.10 Definitions. For purposes of this part: (a) "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 regulation under sections 4c or 19 of the Act. (b) "Net asset value" means total assets minus total liabilities, with each position in a commodity interest marked to the market or accounted for at fair market value, in accord with generally accepted accounting principles. (c) "Participant" means any person that has any direct financial interest in a pool (e.g., a limited partner). (d) "Pool" means any investment trust, syndicate or similar form of enterprise that trades commodity interests. (e) "Principal," when referring to a person that is a principal of a particular entity, means any general partner or director or officer (or person performing similar functions) of the entity, or any owner of more than 10 percent of the equity interest of the entity. "Equity interest" means any financial interest that permits the owner thereof to exercise direct or indirect control of the entity in which the interest is held. "Owner" includes not only the holder of record of the equity interest but also any person that has control over the equity interest. § 4.11 Exemption from section 4n(3)(B). The provisions of section 4n(3)(B) of the Act shall not apply to any commodity pool operator or commodity trading advisor that is registered under the Act as such or that is exempt from such registration. §4.12 Exemption from provisons of Part 4. The Commission may exempt any person or any class or classes of per sons from any provision of this part if it finds that the exemption is not con trary to the public interest and the purposes of the provision from which the exemption is sought. The Commission may grant the exemption subject to such terms and conditions as it may find appropriate. § 4.13 Exemption from registration; continued applicability of antifraud and reparations sections. (a) A person is not required to register with the Commission as a commodity pool operator if (1) (i) It does not receive any com pensation or other payment, directly or indirectly, for operating the pool, except reimbursement for the ordi nary administrative expenses of oper ating the pool; (ii) it operates only one commodity pool at any time; (iii) it is not otherwise required to register with the Commission and has no business affiliation with any person required to register with the Commission; and (iv) neither the person nor any other person involved with the pool does any advertising in connection with the pool (for purposes of this section, advertising includes the systematic solicitation of prospective participants by the telephone or seminar presentation); or (2) (i) The net asset value of the pool it operates (or, if it operates more than one pool, the combined net asset values of the pools it operates) does not exceed $50,000 at the beginning of the pool's fiscal year, and (ii) none of the pools operated by it has more than 15 participants (excluding the pool's operator and trading advisor(s)) at any time during the pool's fiscal year. |