Interpretation of Commission Regulation 1.73(a)(2)(iv).
Regulation 1.73 addresses risk management by clearing FCMs. Section (a)(2)(iv) provides that when a firm executes an order on behalf of a customer but gives it up to another firm for clearing, the clearing FCM shall establish risk-based limits and enter into an agreement in advance with the executing firm that requires the executing firm to screen orders for compliance with those limits.
Under the fact pattern you have described, ICAP would be the executing firm and the clearing firms selected by the customers would be the clearing FCMs within the meaning of Regulation 1.73(a)(2)(iv). The sponsoring FCM would be the clearing FCM for purposes of this provision only for those customers who had chosen that firm as their clearing FCM. Accordingly, the Division of Clearing and Risk (Division) can confirm that:
1. The term executing firm in Regulation 1.73(a)(2)(iv) refers to IBs or FCMs that execute orders for customers; and
2. An FCM that provides to an executing firm sponsored access to a market is not obligated under Regulation 1.73(a)(2)(iv), by virtue of the provision of such access, to conduct order screening of the executing firms customers.