On December 11, at the request of the Futures Industry Association (FIA), the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (Division) issued an interpretive letter regarding the “solely incidental” exclusion from registration as a commodity trading advisor (CTA). Under the relevant provisions of the Commodity Exchange Act and CFTC rules, a futures commission merchant (FCM), swap dealer (SD) or introducing broker (IB) that provides commodity trading advice is required to be registered separately as a CTA unless such advice is “solely incidental” to the conduct of such registrant’s business as an FCM or SD (or “solely in connection with” such registrant’s business as an IB).

As of January 3, 2018, the European Union’s (EU) Market in Financial Instruments Directive II (MiFID II) will require EU investment managers to unbundle payments for investment research (including commodity trading advice) from payments for execution services. FIA requested the Division to confirm that such separate payments would not affect the ability of FCMs, SDs and IBs to continue to rely on the “solely incidental” exclusion from registration as a CTA.

In its response, the Division stated that, although direct payment for commodity trading advice may be one factor in determining if a FCM, SD or IB would be required to register as a CTA, receipt of separate compensation would not be dispositive on its own. Instead, the analysis of whether the commodity trading advice is “solely incidental” to the FCM’s or SD’s conduct of its business, or “solely in connection with” the IB’s business must be based upon the particular facts and circumstances of the relationship between the parties. The Division further noted that, although the request for interpretation was made as a result of the requirements that EU investment managers unbundle payments for investment research from payments for execution services, the interpretation “is not limited to entities who are bound by the MiFID II directive.”