06-29 ;
Section 1a(23); Regulation 1.3(mm);
Interpretation
The Division of Clearing and Intermediary Oversight issued an interpretation that a software vendor is not an introducing broker, and is not required to register as such, in connection with its marketing of a software program with the ability to route orders to a designated contract market (“DCM”) or derivatives transaction execution facility (“DTEF”) on behalf of the futures commission merchant ("FCM") of the customers’ choice. This interpretation was based on the representations that: (1) the software vendor does not have a membership with or trading privileges on any DCM or DTEF that uses the order routing software; (2) the software does not provide express “buy” or “sell” signals; (3) customers have pre-existing relationships with their FCMs and will negotiate any and all fees for executing trades between themselves and the FCM; (4) the software provider will not solicit orders for, or recommend, propose, or encourage customers to use, any particular FCM; (4) the software will reside on customers’ computers and the orders will go directly from the end user to the DCM or DTEF without passing through the FCM’s order entry system; and (5) the software provider will be compensated by fees that are paid to it by the customer, and are not related to the fees charged by the FCM for the placement of customer orders.