(h) Contract market. This term means a board of trade designated by the Secretary of Agriculture as a contract market under the Commodity Exchange Act.

(i) Contract of sale. This term includes sales, purchases, agreements of sale or purchase, and agreements to sell or purchase.

(j) Controlled account. An account shall be deemed to be controlled by a person if such person by power of attorney or otherwise actually directs trading for such account.

(k) Customer; commodity customer. These terms have the same meaning and refer to a customer trading in any commodity named in the definition of commodity in paragraph (e) of this section.

(1) Delivery month. This term means the month of delivery specified in a contract of sale of any commodity for future delivery.

(m) [Reserved]

(n) Floor broker. This term means any person who, in or surrounding any pit, ring, post, or other place provided by a contract market for the meeting of persons similarly engaged, shall purchase or sell for any other person any commodity for future delivery on or subject to the rules of any contract market.

(0) Future delivery. This term does not include any sale of a cash commodity for deferred shipment or delivery.

(p) Futures commission merchant. This term means individuals, associations, partnerships, corporations, and trusts engaged in soliciting or in accepting orders for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market and that, in or in connection with such solicitation or acceptance of orders, accepts any money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result therefrom.

(q) Member of a contract market. This term means and includes individuals, associations, partnerships, corporations, and trusts owning or holding membership in, or admitted to membership representation on, a contract market or given members' trading privileges thereon.

(r) Net equity. This term means the credit balance which would be obtained by combining the commodity margin balance of any person with the net profit

or loss, if any, accruing on the open trades or contracts of such person.

(s) Net deficit. This term means the debit balance which would be obtained by combining the commodity margin balance of any person with the net profit or loss, if any, accruing on the open trades or contracts of such person.

(t) Open contracts. This term means contracts of purchase or sale of any commodity made by or for any person on or subject to the rules of a board of trade for future delivery during a specified month or delivery period which have not been fulfilled by delivery nor offset by other contracts of sale or purchase in the same commodity and delivery month.

(u) Person. This term includes individuals, associations, partnerships, corporations, and trusts.

(v) Act Administrator. This term means the Administrator of the Commodity Exchange Authority, United States Department of Agriculture, in his capacity as Administrator of the Commodity Exchange Act, or any officer or employee of the Commodity Exchange Authority to whom he has heretofore lawfully delegated or may hereafter lawfully delegate the authority to act in his stead.

(w) Secretary of Agriculture. This term means the Secretary of Agriculture or any person to whom authority has heretofore lawfully been delegated, or to whom authority may hereafter lawfully be delegated, to act in his stead.

(x) Floor trader. A member of a contract market who, on the exchange floor, executes a futures trade for his own account or an account controlled by him, or has such a trade made for him.

(Sec. 2, 42 Stat. 998, as amended; 7 U.S.C. 2). [13 F.R. 7834, Dec. 18, 1948, as amended at 32 F.R. 7593, May 24, 1967; 33 F.R. 6088, Apr. 20, 1968; 33 F.R. 17900, Dec. 3, 1968]

brokers.

§ 1.6 Speculation in commodities by officers and employees prohibited.

No officer or employee of the Department of Agriculture engaged in the administration or enforcement of the Commodity Exchange Act, or having access to any confidential information obtained under authority of the act, shall have any interest directly or indirectly in any speculative transaction in any commodity for future delivery. REGISTRATION OF FUTURES COMMISSION MERCHANTS AND FLOOR BROKERS

§ 1.7 Registration required of futures commission merchants.

No person shall engage as futures commission merchant in the solicitation or acceptance of orders for the purchase or sale of any commodity for future delivery, or involving any contracts of sale of any commodity for future delivery, on or subject to the rules of any contract market, unless such person shall have been registered as futures commission merchant under the Commodity Exchange Act by the Secretary of Agriculture and such registration shall not have expired, been suspended, or been revoked. Such registration shall be required of every person engaged as described in this subpart irrespective of whether accounting records relating to such orders and trades and contracts resulting therefrom are maintained by other futures commission merchants to whom such orders are transmitted for execution or clearance. Any person who states on his application for registration that he intends to operate or is operating under the provisions of § 1.31a shall, if registered, be authorized to operate only in accord with the provisions of that regulation. [33 F.R. 14454, Sept. 26, 1968]

No person shall act as floor broker in executing any orders for the purchase or sale of any commodity for future delivery, or involving any contracts of sale of any commodity for future delivery, on or subject to the rules of any contract market unless such person shall have been registered as floor broker under the Commodity Exchange Act by the Secretary of Agriculture and such registration shall not have expired, been suspended, or been revoked.

[33 F.R. 14454, Sept. 26, 1968]

§ 1.9 Registration as floor broker not included in registration as futures commission merchant and vice versa. Registration as futures commission merchant shall not include registration as floor broker nor shall registration as floor broker include registration as futures commission merchant. § 1.10

Applications for registration and financial reports.

(a) Application for registration as futures commission merchant shall be made on Form 1-R. Application for registration as floor broker shall be made on Form 2-R. Each application shall be executed and filed in accordance with the instructions accompanying the prescribed form.

(b) Except as provided in paragraph (e) of this section, every person who files an application for registration as futures commission merchant, and who is not so registered at the time of such filing, shall, concurrently with the filing of such applications, file on Form 1-FR a report of the applicant's financial condition as of a date not more than 3 months prior to the date on which such report is filed. Each such financial report shall be executed in accordance with the instructions accompanying the prescribed form.

(c) Except as provided in paragraphs (d) and (e) of this section, every person registered as futures commission merchant under the Act shall file on Form 1-FR a report of his financial conditions as of each June 30 and each December 31, unless the registrant's records kept on a fiscal year basis, in which case he shall file on Form 1-FR such a report as of the midpoint and the end of each fiscal year. Each such report shall be executed and filed in accordance with the instructions accompanying the prescribed

are

form, and shall be filed not more than 3 months after the date as of which it reports the registrant's financial condition.

(d) The provisions of paragraph (c) of this section shall not apply to any person registered as futures commission merchant who is a member of a contract market and conforms to minimum financial standards and related reporting requirements set by such contract market in its bylaws, rules, regulations, or resolutions and approved by the Secretary of Agriculture as adequate to effectuate the purposes of section 4f (2) of the Act: Provided, however, That each such registrant shall promptly file with the Commodity Exchange Authority a true and exact copy of each financial report which he files with such contract market.

(e) The provisions of paragraph (b) of this section shall not apply to any applicant for registration as futures commission merchant to operate only in accordance with the provisions of § 1.31a, and the provisions of paragraph (c) of this section shall not apply to any registered futures commission merchant who in accordance with his latest application for registration is authorized to operate only in accordance with the provisions of § 1.31a and who in fact at all times so operates. However, every such person shall, concurrently with the filing of the application for registration and each application for re-registration as futures commission merchant, file with the Commodity Exchange Authority a report of his financial condition prepared in accordance with generally accepted accounting principles. Each such financial report shall show the applicant's financial condition as of a date not more than 3 months prior to the date on which it is filed with the Commodity Exchange Authority.

(f) Every person registered as futures commission merchant under the Act, except those registrants referred to in paragraph (e) of this section, shall prepare a written computation of his net worth at least once each month and retain it in accordance with § 1.31. Whenever any such computation shows, or any registrant knows or has reason to believe, that the registrant's net worth has declined 20 percent or more from his net worth as shown in the report of his financial condition, referred to in this section, which he most recently filed with the Commodity Exchange Authority,

or

whenever any registrant knows or has reason to believe that he is not in compliance with the requirements prescribed in § 1.17, such registrant shall immediately notify the Commodity Exchange Authority thereof.

[34 F.R. 599, Jan. 16, 1969]

§ 1.11 Registration fees; form of re

mittance.

Each application for registration, or renewal thereof, as futures commission merchant shall be accompanied by a fee of $30, plus a fee of $5 for each domestic branch office and for each correspondent or agent, operating within the United States, authorized to solicit or accept orders for the purchase or sale of any commodity for future delivery on behalf of the applicant. Each application for registration, or renewal thereof, as floor broker, shall be accompanied by a fee of $15. Fees shall be remitted by money order, bank draft, or check, payable to The Commodity Exchange Authority, USDA. Applications and fees shall be forwarded to the nearest regional office of The Commodity Exchange Authority, U.S. Department of Agriculture.

[34 F.R. 17511, Oct. 30, 1969]

§ 1.13 Deposit of registration fee; fee not subject to refund after registration.

Upon receipt of an application for registration (or renewal thereof) the Commodity Exchange Authority will, if the application be approved, notify the registrant that he has been registered under the act as futures commission merchant or as floor broker. If registration is refused, the fee shall be returned to the applicant, but if the applicant is registered, the fee will not be subject to refund.

[33 F.R. 14454, Sept. 26, 1968]

§ 1.14 Deficiencies, inaccuracies, and changes, to be reported by futures commission merchants and floor brokers.

(a) Each registrant shall file promptly with the Commodity Exchange Authority a statement on Form 3-R to correct any deficiency or inaccuracy in the registrant's application for registration, or any supplemental statement thereto, and report any change which renders no longer accurate and current the information contained in any of the following items of such application or supplemental statement:

(1) With respect to a futures commission merchant. The following items of Form 1-R "Application for Registration as Futures Commission Merchant":

Item 2-Address of principal office;

Item 3-Location of books and records, and whether or not the operation is conducted under section 1.31a;

Item 5-Partners, if a partnership, which as a matter of law does not create a new partnership (see section 1.15);

Item 6-Management, and ownership or control of registrants which are corporations; Item 8-Addresses of domestic branch offices and names of managers thereof;

Item 9-Correspondents and agents (excluding employees), operating within the United States, authorized to solicit or accept commodity futures orders on behalf of the registrant whether or not they maintain offices;

Item 10-Memberships in regulated commodity markets;

Item 11.-Action by any commodity or securities exchange or related clearing organization, a national securities association, the U.S. Securities and Exchange Commission, the securities commission or equivalent authority of any State for the regulation of brokers and dealers in securities, involving the registrant or any general partner of the registrant if it is a partnership, or any officer or holder of more than 10 per centum of the stock of the registrant if it is a corporation, or any person who participates in managing the business of the registrant or of any office of the registrant, or any person authorized to solicit or accept orders on behalf of the registrant; conviction of the registrant or any such person of any felony in any Federal or State court; conviction of the registrant or any such person of any offense involving the handling of any commodity or securities account for any customer, in any Federal or State court; debarment of the registrant or any such person by any agency of the United States from contracting with the United States; or involvement by the registrant or any such person in either voluntary or involuntary bankruptcy proceedings.

New domestic branch offices and new correspondents and agents who are operating within the United States and are authorized to solicit or accept commodity futures orders on behalf of the registrant, shall be reported promptly and fees shall be remitted as provided in § 1.11.

(2) With respect to a floor broker. The following items of Form 2-R "Application for Registration as Floor Broker": Item 2-Business address;

Item 4 Names of principal clearing members through whom registrant clears commodity futures transactions for accounts

which he controls or in which he has a financial interest;

Item 5-Name of each principal clearing member for whom the registrant is currently engaged as floor broker;

Item 6-Action involving the registrant by any commodity or securities exchange or related clearing organization, a national securities association, the U.S. Securities and Exchange Commission, the securities commission or equivalent authority of any State for the regulation of brokers and dealers in securities; conviction of any felony in any Federal or State court; conviction of any offense involving the handling of any commodity or securities account for any customer, in any Federal or State court; or debarment by any agency of the United States from contracting with the United States.

(b) All statements on Form 3-R shall be prepared and filed in accordance with the instructions appearing thereon. [34 F.R. 17511, Oct. 30, 1969]

A new registration shall be required in the event of a change:

(a) In the name of the registrant; (b) In the form of organization of the registrant;

(c) In the ownership of the business of the registrant in the case of a sole proprietorship; and

(d) In the personnel of a partnership resulting from the death, withdrawal, or addition of a partner: Provided, That if such change does not, as a matter of law, create a new partnership, it may be reported by the registrant to the Commodity Exchange Authority on Form 3-R within 10 days of the date of such change, and if so reported a new registration shall not be required.

§ 1.16 Registrations expire December 31 of each year.

All registrations shall automatically terminate at midnight on December 31 of the year for which issued, unless sooner suspended or revoked in accordance with the provisions of the act and the rules and regulations thereunder. (Sec. 4f, 49 Stat. 1495; 7 U.S.C. 6f)

§ 1.17 Minimum financial requirements.

(a) Except as provided in paragraphs (b) and (c) of this section, no person applying for registration as futures commission merchant shall be so registered unless he has adjusted working capital equal to or in excess of whichever of the following is greater: (1) $10,000 or (2)

the sum of the safety factors hereinafter prescribed in this section with respect to both proprietary accounts and customers' accounts plus 5 percent of the applicant's aggregate indebtedness; and each person registered as futures commission merchant shall at times continue to meet such financial requirements.

(b) The requirements of paragraph (a) of this section shall not be applicable if the applicant for registration or registrant is a member of a contract market and conforms to minimum financial standards and related reporting requirements set by such contract market in its bylaws, rules, regulations or resolutions and approved by the Secretary of Agriculture as adequate to effectuate the purposes of paragraph (2) of section 4f of the Act.

(c) The minimum financial requirements prescribed in the regulations in this part shall not be applicable to any applicant for registration as futures commission merchant to operate only in accordance with the provisions of § 1.31a, or to any registrant who in accordance with his application for registration is authorized to operate only in accordance with that section and who in fact at all times so operates.

(d) Definitions: For the purposes of this section:

(1) The term "working capital" means the amount by which current assets exceed current liabilities.

(2) The term "current assets" means cash and other assets or resources commonly identified as those which are reasonably expected to be realized in cash or sold during the next 12 months in the normal course of operation of the principal business of the applicant or registrant, and which are available for and intended for payment of current liabilities. The term "current assets" excludes, among other things:

(i) Customers' regulated and nonregulated commodity futures accounts that liquidate to an unsecured deficit or contain unsecured debit balances and which accounts have been in such a condition for more than 30 consecutive days;

(ii) Crop loans (loans made to farmers for the purpose of financing their crops or farm operations) which are not (a) due and collectable within 9 months after the respective dates of making of such loans, and (b) evidenced by legally enforceable written instruments in the possession of the registrant or applicant;

(iii) All other unsecured receivables that are not due and collectable within 6 months from the respective dates of their inception;

(iv) Exchange membership, clearing house stocks and guaranty funds;

(v) Unsecured advances and loans to any business affiliate that directly or indirectly controls, is controlled by, or is under common control with, the applicant or registrant;

(vi) Unrealized commissions on open futures contracts;

(vii) Cash and claims to cash which are restricted as to withdrawal, such as customers' segregated funds;

(viii) Land, buildings, furniture and fixtures, improvements to real property and other fixed assets;

(ix) Prepaid expenses and deferred charges;

(x) Unsecured loans and advances to partners, officers and employees of the applicant or registrant;

(xi) Unsecured debit balances and unsecured deficits in accounts owned by the applicant or registrant or in accounts of partners, officers and employees of the applicant or registrant; and

(xii) Securities without a ready market.

(3) The term "current liabilities" means obligations that are or will become due and payable in the next 12 months, or the liquidation of which is reasonably expected to require the use of existing resources classifiable as current assets or the creation of other current liabilities. For the purpose of computing "working capital" within the meaning of this section, the following amounts may be excluded from current liabilities:

(i) The amount of money, securities and property due to commodity customers of the applicant or registrant which is held in segregated account in compliance with the requirements of section 4d (2) of the Act and the regulations thereunder: Provided, however, That such exclusion may be taken only if the applicant or registrant has also excluded such money, securities, and property held in segregated account from current assets in computing his working capital; and

(ii) The amount of indebtedness subordinated to the claims of all general creditors of the applicant or registrant pursuant to a satifactory subordination agreement, as hereinafter defined.