[Code of Federal Regulations]
[Title 17, Volume 1]
[Revised as of April 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 17CFR1.10]

[Page 14-23]
 
              TITLE 17--COMMODITY AND SECURITIES EXCHANGES
 
             CHAPTER I--COMMODITY FUTURES TRADING COMMISSION
 
PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT--Table of Contents
 
Sec. 1.10  Financial reports of futures commission merchants and introducing brokers.

    (a) Application for registration. (1) Except as otherwise provided, 
a futures commission merchant or an applicant for registration as a 
futures commission merchant, in order to satisfy any requirement in this 
part that it file a Form 1-FR, must file a Form 1-FR-FCM, and any 
reference in this part to Form 1-FR with respect to a futures commission 
merchant or applicant therefor shall be deemed to be a reference to Form 
1-FR-FCM. Except as otherwise provided, an introducing broker or an 
applicant for registration as an introducing broker, in order to satisfy 
any requirement in this part that it file a Form 1-FR, must file a Form 
1-FR-IB, and any reference in this part to Form 1-FR with respect to an 
introducing broker or applicant therefor shall be deemed to be a 
reference to Form 1-FR-IB.
    (2) (i) (A) Except as provided in paragraphs (a)(3) and (h) of this 
section, each person who files an application for registration as a 
futures commission merchant and who is not so registered at the time of 
such filing, must, concurrently with the filing of such application, 
file either:
    (1) A Form 1-FR-FCM certified by an independent public accountant in 
accordance with Sec. 1.16 as of a date not more than 45 days prior to 
the date on which such report is filed; or
    (2) A Form 1-FR-FCM as of a date not more than 17 business days 
prior to the date on which such report is filed and a Form 1-FR-FCM 
certified by an independent public accountant in accordance with 
Sec. 1.16 as of a date not more than one year prior to the date on which 
such report is filed.
    (B) Each such person must include with such financial report a 
statement describing the source of his current assets and representing 
that his capital has been contributed for the purpose of operating his 
business and will continue to be used for such purpose.
    (ii) (A) Except as provided in paragraphs (a)(3) and (h) of this 
section, each person who files an application for registration as an 
introducing broker and who is not so registered at the time of such 
filing, must, concurrently with the filing of such application, file 
either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance with Sec. 1.16 as of a date not more than 45 days prior to 
the date on which such report is filed;
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which such report is filed and a Form 1-FR-IB certified 
by an independent public accountant in accordance with Sec. 1.16 as of a 
date not more

[[Page 15]]

than one year prior to the date on which such report is filed;
    (3) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which such report is filed, Provided, however, that such 
applicant shall be subject to a review by the applicant's designated 
self-regulatory organization within six months of registration; or
    (4) A guarantee agreement.
    (B) Each person filing in accordance with paragraphs (a)(2)(ii)(A) 
(1), (2) or (3) of this section must include with such financial report 
a statement describing the source of his current assets and representing 
that his capital has been contributed for the purpose of operating his 
business and will continue to be used for such purpose.
    (3)(i) The provisions of paragraph (a)(2) of this section do not 
apply to any person succeeding to and continuing the business of another 
futures commission merchant. Each such person who files an application 
for registration as a futures commission merchant and who is not so 
registered in that capacity at the time of such filing must file a Form 
1-FR-FCM as of the first month end following the date on which his 
registration is approved. Such report must be filed with the National 
Futures Association, the Commission and the designated self-regulatory 
organization, if any, not more than 17 business days after the date for 
which the report is made.
    (ii) The provisions of paragraph (a)(2) of this section do not apply 
to any person succeeding to and continuing the business of another 
introducing broker.
    (A) Each such person who succeeds to and continues the business of 
an introducing broker which was not operating pursuant to a guarantee 
agreement, or which was operating pursuant to a guarantee agreement and 
was also a securities broker or dealer at the time of succession, who 
files an application for registration as an introducing broker, and who 
is not so registered in that capacity at the time of such filing, must 
file with the National Futures Association either a guarantee agreement 
with his application for registration or a Form 1-FR-IB as of the first 
month end following the date on which his registration is approved. Such 
Form 1-FR-IB must be filed not more than 17 business days after the date 
for which the report is made.
    (B) Each such person who succeeds to and continues the business of 
an introducing broker which was operating pursuant to a guarantee 
agreement and which was not also a securities broker or dealer at the 
time of succession, who files an application for registration as an 
introducing broker, and who is not so registered in that capacity at the 
time of such filing, must file with the National Futures Association 
either a guarantee agreement or a Form 1-FR-IB with his application for 
registration. If such person files a Form 1-FR-IB with his application 
for registration, such person must also file a Form 1-FR-IB, certified 
by an independent public accountant, as of a date no later than the end 
of the month registration is granted. The Form 1-FR-IB certified by an 
independent public accountant must be filed with the National Futures 
Association not more than 45 days after the date for which the report is 
made.
    (b) Filing of financial reports. (1)(i) Except as provided in 
paragraphs (b)(3) and (h) of this section, each person registered as a 
futures commission merchant must file a Form 1-FR-FCM for each fiscal 
quarter of each fiscal year, including the final fiscal quarter of each 
fiscal year, unless the futures commission merchant elects, pursuant to 
paragraph (e)(2) of this section, to file a Form 1-FR-FCM for each 
calendar quarter of each calendar year, including the final calendar 
quarter of each calendar year. Each Form 1-FR-FCM must be filed no later 
than 17 business days after the date for which the report is made: 
Provided, however, That for each fiscal or calendar quarter ending 
between June 30, 1997 and December 31, 1997, inclusive, each Form 1-FR-
FCM must be filed no later than 30 calendar days after the date for 
which the report is made.
    (ii) In addition to the financial reports required by paragraph 
(b)(1)(i) of this section, each person registered as a futures 
commission merchant must file a Form 1-FR-FCM as of the close

[[Page 16]]

of its fiscal year (even if it files quarterly reports as of each 
calendar quarter) which must be certified by an independent public 
accountant in accordance with Sec. 1.16 no later than 90 days after the 
close of each futures commission merchant's fiscal year: Provided, 
however, that a registrant which is registered with the Securities and 
Exchange Commission as a securities broker or dealer must file this 
report not later than the time permitted for filing an annual audit 
report under Sec. 240.17a-5(d)(5) of this title.
    (2)(i) Except as provided in paragraphs (b)(3) and (h) of this 
section, and except for an introducing broker operating pursuant to a 
guarantee agreement which is not also a securities broker or dealer, 
each person registered as an introducing broker must file a Form 1-FR-IB 
semiannually as of the middle and the close of each fiscal year unless 
the introducing broker elects pursuant to paragraph (e)(2) of this 
section to file a Form 1-FR-IB semiannually as of the middle and the 
close of each calendar year. Each Form 1-FR-IB must be filed no later 
than 17 business days after the date for which the report is made: 
Provided, however, That for each reporting period ending between June 
30, 1997 and December 31, 1997, inclusive, each Form 1-FR-IB must be 
filed no later than 30 calendar days after the date for which the report 
is made.
    (ii) (A) In addition to the financial reports required by paragraph 
(b)(2)(i) of this section, each person registered as an introducing 
broker must file a Form 1-FR-IB as of the close of its fiscal year (even 
if it files semiannual reports on a calendar year basis) which must be 
certified by an independent public accountant in accordance with 
Sec. 1.16 no later than 90 days after the close of each introducing 
broker's fiscal year: Provided, however, that a registrant which is 
registered with the Securities and Exchange Commission as a securities 
broker or dealer must file this report not later than the time permitted 
for filing an annual audit report under Sec. 240.17a-5(d)(5) of this 
title.
    (B) If an introducing broker has filed previously a Form 1-FR-IB, 
certified by an independent public accountant in accordance with the 
provisions of paragraphs (a)(2)(ii) or (j)(8) of this section and 
Sec. 1.16 of this part, as of a date not more than one year prior to the 
close of such introducing broker's fiscal year, it need not have 
certified by an independent public accountant the Form 1-FR-IB filed as 
of the introducing broker's first fiscal year-end following the as of 
date of its initial certified Form 1-FR-IB. In such a case, the 
introducing broker's Form 1-FR-IB filed as of the close of the second 
fiscal year-end following the as of date of its initial certified Form 
1-FR-IB must cover the period of time between those two dates and must 
be certified by an independent public accountant in accordance with 
Sec. 1.16 of this part.
    (iii) A Form 1-FR required to be certified by an independent public 
accountant in accordance with Sec. 1.16 which is filed by a futures 
commission merchant, an introducing broker or an applicant for 
registration in either category, must be filed in paper form and may not 
be filed electronically.
    (3) The provisions of paragraphs (b)(1) and (b)(2) of this section 
may be met by any person registered as a futures commission merchant or 
as an introducing broker who is a member of a designated self-regulatory 
organization and conforms to minimum financial standards and related 
reporting requirements set by such designated self-regulatory 
organization in its bylaws, rules, regulations, or resolutions and 
approved after the effective date of these regulations by the Commission 
pursuant to section 4f(b) of the Act and Sec. 1.52: Provided, however, 
That each such registrant shall promptly file with the Commission a true 
and exact copy of each financial report which it files with such 
designated self-regulatory organization.
    (4) Upon receiving written notice from any representative of the 
National Futures Association, the Commission or any self-regulatory 
organization of which it is a member, an applicant or registrant, except 
an applicant for registration as an introducing broker which has filed 
concurrently with its application for registration a guarantee agreement 
and which is not also a securities broker or dealer, must, monthly or at 
such times as specified, furnish the National Futures

[[Page 17]]

Association, the Commission or the self-regulatory organization 
requesting such information a Form 1-FR or such other financial 
information as requested by the National Futures Association, the 
Commission or the self-regulatory organization. Each such Form 1-FR or 
such other information must be furnished within the time period 
specified in the written notice, and in accordance with the provisions 
of paragraph (c) of this section.
    (c) Where to file reports. The reports provided for in this section 
will be considered filed when received by the regional office of the 
Commission nearest the principal place of business of the registrant 
(except that a registrant under the jurisdiction of the Commission's 
Western Regional Office must file such reports with the South-western 
Regional Office) and by the designated self-regulatory organization, if 
any; and reports required to be filed by this section by an applicant 
for registration will be considered filed when received by the National 
Futures Association and by the regional office of the Commission nearest 
the principal place of business of the applicant (except that an 
applicant under the jurisdiction of the Commission's Western Regional 
Office must file such reports with the South western Regional Office): 
Provided, however, That any report filed pursuant to paragraphs (b)(1), 
(b)(2), or (b)(4) of this section or Sec. 1.12 (a) or (b) which need not 
be certified in accordance with Sec. 1.16 may be submitted to the 
Commission in electronic form using a Commission-assigned Personal 
Identification Number, and otherwise in accordance with instructions 
issued by the Commission, if the futures commission merchant, 
introducing broker or a designated self-regulatory organization has 
provided the Commission with the means necessary to read and to process 
the information contained in such report: And, provided further, That 
any guarantee agreement entered into between a futures commission 
merchant and an introducing broker in accordance with the provisions of 
this section need be filed only with and will be considered filed when 
received by the National Futures Association.
    (d) Contents of financial reports. (1) Each Form 1-FR filed pursuant 
to this Sec. 1.10 which is not required to be certified by an 
independent public accountant must be completed in accordance with the 
instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) A statement of changes in ownership equity for the period 
between the date of the most recent statement of financial condition 
filed with the Commission and the date for which the report is made;
    (iii) A statement of changes in liabilities subordinated to claims 
of general creditors for the period between the date of the most recent 
statement of financial condition filed with the Commission and the date 
for which the report is made;
    (iv) A statement of the computation of the minimum capital 
requirements pursuant to Sec. 1.17 as of the date for which the report 
is made;
    (v) For a futures commission merchant only, the statements of 
segregation requirements and funds in segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the statement of secured amounts and funds held in separate accounts 
for foreign futures and foreign options customers in accordance with 
Sec. 30.7 of this chapter as of the date for which the report is made; 
and
    (vi) In addition to the information expressly required, such futher 
material information as may be necessary to make the required statements 
and schedules not misleading.
    (2) Each Form 1-FR filed pursuant to this Sec. 1.10 which is 
required to be certified by an independent public accountant must be 
completed in accordance with the instructions to the form and contain:
    (i) A statement of financial condition as of the date for which the 
report is made;
    (ii) Statements of income (loss), cash flows, changes in ownership 
equity, and changes in liabilities subordinated to claims of general 
creditors, for the period between the date of the most recent certified 
statement of financial

[[Page 18]]

condition filed with the Commission and the date for which the report is 
made: Provided, That for an applicant filing pursuant to paragraph 
(a)(2) of this section the period must be the year ending as of the date 
of the statement of financial condition;
    (iii) A statement of the computation of the minimum capital 
requirements pursuant to Sec. 1.17 as of the date for which the report 
is made;
    (iv) For a futures commission merchant only, the statements of 
segregation requirements and funds in segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the statement of secured amounts and funds held in separate accounts 
for foreign futures and foreign options customers in accordance with 
Sec. 30.7 of this chapter as of the date for which the report is made;
    (v) Appropriate footnote disclosures;
    (vi) A reconciliation, including appropriate explanations, of the 
statement of the computation of the minimum capital requirements 
pursuant to Sec. 1.17 and, for a futures commission merchant only, the 
statements of segregation requirements and funds in segregation for 
customers trading on U.S. commodity exchanges and for customers' dealer 
option accounts, and the statement of secured amounts and funds held in 
separate accounts for foreign futures and foreign options customers in 
accordance with Sec. 30.7 of this chapter, in the certified Form 1-FR 
with the applicant's or registrant's corresponding uncertified most 
recent Form 1-FR filing when material differences exist or, if no 
material differences exist, a statement so indicating; and
    (vii) In addition to the information expressly required, such 
further material information as may be necessary to make the required 
statements not misleading.
    (3) The statements required by paragraphs (d)(2)(i) and (d)(2)(ii) 
of this section may be presented in accordance with generally accepted 
accounting principles in the certified reports filed as of the close of 
the registrant's fiscal year pursuant to paragraphs (b)(1)(ii) or 
(b)(2)(ii) of this section or accompanying the application for 
registration pursuant to paragraph (a)(2) of this section, rather than 
in the format specifically prescribed by these regulations: Provided, 
the statement of financial condition is presented in a format as 
consistent as possible with the Form 1-FR and a reconciliation is 
provided reconciling such statement of financial condition to the 
statement of the computation of the minimum capital requirements 
pursuant to Sec. 1.17. Such reconciliation must be certified by an 
independent public accountant in accordance with Sec. 1.16.
    (4) Attached to each Form 1-FR filed pursuant to this section must 
be an oath or affirmation that to the best knowledge and belief of the 
individual making such oath or affirmation the information contained in 
the Form 1-FR is true and correct. If the applicant or registrant is a 
sole proprietorship, then the oath or affirmation must be made by the 
proprietor; if a partnership, by a general partner; or if a corporation, 
by the chief executive officer or chief financial officer. In the case 
of a Form 1-FR filed via electronic transmission in accordance with 
procedures established by the Commission, such transmission must be 
accompanied by the Commission-assigned Personal Identification Number of 
the authorized signer and such Personal Identification Number will 
constitute and become a substitute for the manual signature of the 
authorized signer for the purpose of making the oath or affirmation 
referred to in this paragraph.
    (e) Election of fiscal year. (1) An applicant wishing to establish a 
fiscal year other than the calendar year may do so by notifying the 
National Futures Association of its election of such fiscal year, in 
writing, concurrently with the filing of the Form 1-FR pursuant to 
paragraph (a)(2) of this section, but in no event may such fiscal year 
end more than one year from the date of the Form 1-FR filed pursuant to 
paragraph (a)(2) of this section. A copy of such written notice must 
also be filed with the regional office of the Commission nearest the 
principal place of business of the applicant (except that an applicant 
under the jurisdiction of the Commission's Western Regional Office

[[Page 19]]

must file such a notice with the Commission's Southwestern Regional 
Office). An applicant which does not so notify the National Futures 
Association and the Commission will be deemed to have elected the 
calendar year as its fiscal year. A registrant must continue to use its 
elected fiscal year, calendar or otherwise, unless a change in such 
fiscal year is approved upon written application to the principal office 
of the Commission in Washington, DC, and written notice of such change 
is given to the designated self-regulatory organization, if any.
    (2) An applicant may elect to file its Form 1-FR for each calendar 
quarter in lieu of each fiscal quarter by notifying the National Futures 
Association of its election, in writing, concurrently with the filing of 
the Form 1-FR pursuant to paragraph (a)(2) of this section. A copy of 
such written notice must also be filed with the regional office of the 
Commission nearest the principal place of business of the applicant 
(except that an applicant under the jurisdiction of the Commission's 
Western Regional Office must file such a notice with the Commission's 
Southwestern Regional Office). A registrant wishing to change such 
election or to make such election other than concurrently with the 
filing of the Form 1-FR pursuant to paragraph (a)(2) of this section may 
do so only if such change or election is approved by the Commission upon 
written application to the principal office of the Commission in 
Washington, DC, and written notice of such change is given to the 
designated self-regulatory organization, if any.
    (f) Extension of time for filing uncertified reports. (1) In the 
event a registrant finds that it cannot file its report for any period 
within the time specified in paragraphs (b)(1)(i), (b)(2)(i) or (b)(4) 
of this section or Sec. 1.12(b) without substantial undue hardship, it 
may file with the principal office of the Commission in Washington, 
D.C., an application for an extension of time to a specified date which 
may not be more than 90 days after the date as of which the financial 
statements were to have been filed. The application must state the 
reasons for the requested extension and must contain an agreement to 
file the report on or before the specified date. The application must be 
received by the Commission before the time specified in paragraphs 
(b)(1)(i), (b)(2)(i) or (b)(4) of this section or Sec. 1.12(b) for 
filing the report. Notice of such application must be given to the 
designated self-regulatory organization, if any, concurrently with the 
filing of such application with the Commission. Within ten calendar days 
after receipt of the application for an extension of time, the 
Commission shall: (i) Notify the registrant of the grant or denial of 
the requested extension; or (ii) indicate to the registrant that 
additional time is required to analyze the request, in which case the 
amount of time needed will be specified. (See Sec. 1.16(f) for extension 
of the time for filing certified financial statements.)
    (2) In the event an applicant finds that it cannot file its report 
for any period within the time specified in paragraph (b)(4) of this 
section or Sec. 1.12(b) without substantial undue hardship, it may file 
with the National Futures Association an application for an extension of 
time to a specified date which may not be more than 90 days after the 
date as of which the financial statements were to have been filed. The 
application must state the reasons for the requested extension and must 
contain an agreement to file the report on or before the specified date. 
The application must be received by the National Futures Association 
before the time specified in paragraph (b)(4) of this section or 
Sec. 1.12(b) for filing the report. Notice of such application must be 
filed with the regional office of the Commission nearest the principal 
place of business of the applicant (except that an applicant under the 
jurisdiction of the Commission's Western Regional Office must file such 
a notice with the Commission's Southwestern Regional Office) 
concurrently with the filing of such application with the National 
Futures Association. Within ten calendar days after receipt of the 
application for an extension of time, the National Futures Association 
shall:
    (i) Notify the applicant of the grant or denial of the requested 
extension; or
    (ii) Indicate to the applicant that additional time is required to 
analyze the request, in which case the amount of time needed will be 
specified.

[[Page 20]]

    (g) Nonpublic treatment of reports. (1) The following portions of 
Forms 1-FR filed pursuant to this section will be public: the statement 
of financial condition, the statement of the computation of the minimum 
capital requirements, the statements (to be filed by a futures 
commission merchant only) of segregation requirements and funds in 
segregation for customers trading on U.S. commodity exchanges and for 
customers' dealer options accounts, and the statement (to be filed by a 
futures commission merchant only) of secured amounts and funds held in 
separate accounts for foreign futures and foreign options customers in 
accordance with Sec. 30.7 of this chapter. The other financial 
statements (including the statement of income (loss)), footnote 
disclosures and schedules of Form 1-FR, trade secrets and certain other 
commercial or financial information on such other statements and 
schedules will be treated as nonpublic for purposes of the Freedom of 
Information Act and the Government in the Sunshine Act and parts 145 and 
147 of this chapter.
    (2) The following portions of copies of the Financial and 
Operational Combined Uniform Single Report under the Securities Exchange 
Act of 1934, Part II or Part IIA filed pursuant to paragraph (h) of this 
section, will be public: The statement of financial condition, the 
computations of net capital and the minimum capital requirements, the 
statements (to be filed by a futures commission merchant only) of 
segregation requirements and funds in segregation for customers trading 
on U.S. commodity exchanges and for customers' dealer options accounts, 
and the statement (to be filed by a futures commission merchant only) of 
secured amounts and funds held in separate accounts for foreign futures 
and foreign options customers in accordance with Sec. 30.7 of this 
chapter. The other financial statements (including the statement of 
income (loss)), footnote disclosures and schedules of the Financial and 
Operational Combined Uniform Single Report under the Securities and 
Exchange Act of 1934, Part II or Part IIA, trade secrets and certain 
other commercial or financial information on such other statements and 
schedules will be treated as nonpublic for purposes of the Freedom of 
Information Act and the Government in the Sunshine Act and parts 145 and 
147 of this chapter.
    (3) [Reserved]
    (4) All information on such other statements, footnote disclosures 
and schedules will, however, be available for official use by any 
official or employee of the United States or any State, by any self-
regulatory organization of which the person filing such report is a 
member, by the National Futures Association in the case of an applicant, 
and by any other person to whom the Commission believes disclosure of 
such information is in the public interest. Nothing in this paragraph 
(g) will limit the authority of any self-regulatory organization to 
request or receive any information relative to its members' financial 
condition.
    (5) The independent accountant's opinion and a guarantee agreement 
filed pursuant to this section will be deemed public information.
    (h) Filing option available to a futures commission merchant or an 
introducing broker which is also a securities broker or dealer. Any 
applicant or registrant which is registered with the Securities and 
Exchange Commission as a securities broker or dealer may comply with the 
requirements of this section by filing (in accordance with paragraphs 
(a), (b), (c), and (j) of this section) a copy of its Financial and 
Operational Combined Uniform Single Report under the Securities Exchange 
Act of 1934, part II or part IIA, in lieu of Form 1-FR: Provided, 
however, That all information which is required to be furnished on and 
submitted with Form 1-FR is provided with such Report.
    (i) Filing option available to an introducing broker or applicant 
for registration as an introducing broker which is also a country 
elevator. Any introducing broker or applicant for registration as an 
introducing broker which is also a country elevator but which is not 
also a securities broker or dealer may comply with the requirements of 
this section by filing (in accordance with paragraphs (a), (b) and (c) 
of this section) a copy of a financial report prepared by a grain 
commission firm which has been

[[Page 21]]

authorized by the Deputy Vice President of the Commodity Credit 
Corporation of the United States Department of Agriculture to provide a 
compilation report of financial statements of warehousemen for purposes 
of Uniform Grain Storage Agreements, and which complies with the 
standards for independence set forth in Sec. 1.16(b)(2) with respect to 
the registrant or applicant: Provided, however, That all information 
which is required to be furnished on and submitted with Form 1-FR is 
provided with such financial report, including a statement of the 
computation of the minimum capital requirements pursuant to Sec. 1.17: 
And, provided further, That the balance sheet is presented in a format 
as consistent as possible with the Form 1-FR and a reconciliation is 
provided reconciling such balance sheet to the statement of the 
computation of the minimum capital requirements pursuant to Sec. 1.17. 
Attached to each financial report filed pursuant to this paragraph (i) 
must be an oath or affirmation that to the best knowledge and belief of 
the individual making such oath or affirmation the information contained 
therein is true and correct. If the applicant or registrant is a sole 
proprietorship, then the oath or affirmation must be made by the 
proprietor; if a partnership, by a general partner; or if a corporation, 
by the chief executive officer or chief financial officer.
    (j) Requirements for guarantee agreement. (1) A guarantee agreement 
filed pursuant to this section must be signed in a manner sufficient to 
be a binding guarantee under local law by an appropriate person on 
behalf of the futures commission merchant and the introducing broker, 
and each signature must be accompanied by evidence that the signatory is 
authorized to enter the agreement on behalf of the futures commission 
merchant or introducing broker and is such an appropriate person. For 
purposes of this paragraph (j), an appropriate person shall be the 
proprietor, if the firm is a sole proprietorship; a general partner, if 
the firm is a partnership; and either the chief executive officer or the 
chief financial officer, if the firm is a corporation.
    (2) No futures commission merchant may enter into a guarantee 
agreement if:
    (i) It knows or should have known that its adjusted net capital is 
less than the amount set forth in Sec. 1.12(b); or
    (ii) There is filed against the futures commission merchant an 
adjudicatory proceeding brought by or before the Commission pursuant to 
the provisions of sections 6(c), 6(d), 6c, 6d, 8a or 9 of the Act or 
Secs. 3.55, 3.56 or 3.60 of this chapter.
    (3) A guarantee agreement filed in connection with an application 
for initial registration as an introducing broker in accordance with the 
provisions of Sec. 3.10(a) of this chapter shall become effective upon 
the granting of registration or, if appropriate, a temporary license, to 
the introducing broker. A guarantee agreement filed other than in 
connection with an application for initial registration as an 
introducing broker shall become effective as of the date agreed to by 
the parties.
    (4)(i) If the registration of the introducing broker is suspended, 
revoked, or withdrawn in accordance with the provisions of this chapter, 
the guarantee agreement shall expire as of the date of such suspension, 
revocation or withdrawal.
    (ii) If the registration of the futures commission merchant is 
suspended or revoked, the guarantee agreement shall expire 30 days after 
such suspension or revocation, or at such earlier time as may be 
approved by the Commission, the introducing broker, and the introducing 
broker's designated self-regulatory organization.
    (5) A guarantee agreement may be terminated at any time during the 
term thereof:
    (i) By mutual written consent of the parties, signed by an 
appropriate person on behalf of each party, with prompt written notice 
thereof, signed by an appropriate person on behalf of each party, to the 
Commission and to the designated self-regulatory organizations of the 
futures commission merchant and the introducing broker;
    (ii) For good cause shown, by either party giving written notice of 
its intention to terminate the agreement,

[[Page 22]]

signed by an appropriate person, to the other party to the agreement, to 
the Commission, and to the designated self-regulatory organizations of 
the futures commission merchant and the introducing broker; or
    (iii) By either party giving written notice of its intention to 
terminate the agreement, signed by an appropriate person, at least 30 
days prior to the proposed termination date, to the other party to the 
agreement, to the Commission, and to the designated self-regulatory 
organizations of the futures commission merchant and the introducing 
broker.
    (6) The termination of a guarantee agreement by a futures commission 
merchant or an introducing broker, or the expiration of such an 
agreement, shall not relieve either party from any liability or 
obligation arising from acts or omissions which occurred during the term 
of the agreement.
    (7) An introducing broker may not simultaneously be a party to more 
than one guarantee agreement: Provided, however, That the provisions of 
this paragraph (j)(7) shall not be deemed to preclude an introducing 
broker from entering into a guarantee agreement with another futures 
commission merchant if the introducing broker or the futures commission 
merchant which is a party to the existing agreement has provided notice 
of termination of the existing agreement in accordance with the 
provisions of paragraph (j)(5) of this section, and the new guarantee 
agreement does not become effective until the day following the date of 
termination of the existing agreement: And, provided further, That the 
provisions of this paragraph (j)(7) shall not be deemed to preclude an 
introducing broker from entering into a guarantee agreement with another 
futures commission merchant if the futures commission merchant which is 
a party to the existing agreement ceases to remain registered and the 
existing agreement would therefore expire in accordance with the 
provisions of paragraph (j)(4)(ii) of this section.
    (8)(i)(A) An introducing broker that is a party to a guarantee 
agreement that has been terminated in accordance with the provisions of 
paragraph (j)(5) of this section, or that is due to expire in accordance 
with the provisions of paragraph (j)(4)(ii) of this section, must cease 
doing business as an introducing broker on or before the effective date 
of such termination or expiration unless, on or before 10 days prior to 
the effective date of such termination or expiration or such other 
period of time as the Commission or the designated self-regulatory 
organization may allow for good cause shown, the introducing broker 
files with its designated self-regulatory organization either a new 
guarantee agreement effective as of the day following the date of 
termination of the existing agreement, or, in the case of a guarantee 
agreement that is due to expire in accordance with the provisions of 
paragraph (j)(4)(ii) of this section, a new guarantee agreement 
effective on or before such expiration, or either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance with Sec. 1.16 as of a date not more than 45 days prior to 
the date on which the report is filed; or
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which the report is filed and a Form 1-FR-IB certified by 
an independent public accountant in accordance with Sec. 1.16 as of a 
date not more than one year prior to the date on which the report is 
filed.
    (B) Each person filing a Form 1-FR-IB in accordance with this 
section must include with the financial report a statement describing 
the source of his current assets and representing that his capital has 
been contributed for the purpose of operating his business and will 
continue to be used for such purpose.
    (ii) (A) Notwithstanding the provisions of paragraph (j)(8)(i) of 
this section or of Sec. 1.17(a), an introducing broker that is a party 
to a guarantee agreement that has been terminated in accordance with the 
provisions of paragraph (j)(5)(ii) of this section shall not be deemed 
to be in violation of the minimum adjusted net capital requirement of 
Sec. 1.17(a)(1)(ii) or (a)(2) for 30 days following such termination. 
Such an introducing broker must cease doing business as an introducing 
broker on or after the effective date of such termination, and may not 
resume

[[Page 23]]

doing business as an introducing broker unless and until it files a new 
agreement or either:
    (1) A Form 1-FR-IB certified by an independent public accountant in 
accordance with Sec. 1.16 as of a date not more than 45 days prior to 
the date on which the report is filed; or
    (2) A Form 1-FR-IB as of a date not more than 17 business days prior 
to the date on which the report is filed and a Form 1-FR-IB certified by 
an independent public accountant in accordance with Sec. 1.16 as of a 
date not more than one year prior to the date on which the report is 
filed.
    (B) Each person filing a Form 1-FR-IB in accordance with this 
section must include with the financial report a statement describing 
the source of his current assets and representing that his capital has 
been contributed for the purpose of operating his business and will 
continue to be used for such purpose.
    (k) Filing option available to an introducing broker. (1) Any 
introducing broker or applicant for registration as an introducing 
broker which is not operating or intending to operate pursuant to a 
guarantee agreement may comply with the requirements of this section by 
filing (in accordance with paragraphs (a), (b) and (c) of this section) 
a Form 1-FR-IB in lieu of a Form 1-FR-FCM.
    (2) If an introducing broker or applicant therefor avails itself of 
the filing option available under paragraph (k)(1) of this section, the 
report required to be filed in accordance with Sec. 1.16(c)(5) of this 
part must be filed as of the date of the Form 1-FR-IB being filed, and 
such an introducing broker or applicant therefor must maintain its 
financial records and make its monthly formal computation of its 
adjusted net capital, as required by Sec. 1.18 of this part, in a manner 
consistent with Form 1-FR-IB.

(The information collection requirements contained in Sec. 1.10 were 
approved by the Office of Management and Budget under control number 
3038-0024; in paragraphs (a) and (b) under control number 3038-0023; and 
in paragraph (f) under control number 3038-0003.)

[43 FR 39967, Sept. 8, 1978, as amended at 45 FR 80491, Dec. 5, 1980; 46 
FR 63035, Dec. 30, 1981; 48 FR 35280, Aug. 3, 1983; 49 FR 39524, Oct. 9, 
1984; 53 FR 4611, Feb. 17, 1988; 53 FR 7179, Mar. 7, 1988; 57 FR 23143, 
June 2, 1992; 58 FR 10953, Feb. 23, 1993; 58 FR 12988, Mar. 8, 1993; 58 
FR 19589, Apr. 15, 1993; 59 FR 5525, Feb. 7, 1994; 62 FR 4639, Jan. 31, 
1997; 62 FR 10444, Mar. 7, 1997; 62 FR 33007, June 18, 1997; 66 FR 
53516, Oct. 23, 2001]