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Principal

A principal (means, with respect to an applicant, a registrant, or a person required to be registered under the Commodity Exchange Act) is:

an individual who is:

  • a sole proprietor of a sole proprietorship;
  • a general partner of a partnership;
  • a director, president, chief executive officer, chief operating officer, chief financial officer or a person in charge of a business unit, division or function subject to regulation by the Commission of a corporation, limited liability company or limited liability partnership;
  • a manager, managing member or a member vested with the management authority for a limited liability company or limited liability partnership; or
  • a chief compliance officer; or

an individual who directly or indirectly, through agreement, holding companies, nominees, trusts or otherwise:

  • is the owner of 10% or more of the outstanding shares of any class of an applicant or registrant's equity securities, other than non-voting securities;
  • is entitled to vote 10% or more of the outstanding shares of any class of an applicant or registrant's equity securities, other than non-voting securities;
  • has the power to sell or direct the sale of 10% or more of the outstanding shares of any class of an applicant or registrant's equity securities, other than non-voting securities;
  • is entitled to receive 10% or more of an applicant or registrant's net profits; or
  • has the power to exercise a controlling influence over an applicant or registrant's activities that are subject to regulation by the Commission; or

an entity that:

  • is a general partner; or
  • is the direct owner of 10% or more of the outstanding shares of any class of an applicant or registrant's equity securities, other than non-voting securities; or

an individual who or an entity that:

  • has contributed 10% or more of an applicant or registrant's capital unless such capital contribution consists of subordinated debt contributed by:
    • an unaffiliated bank insured by the Federal Deposit Insurance Corporation;
    • an unaffiliated "foreign bank," as defined in 12 CFR 211.21(n) that currently operates an "office of a foreign bank," as defined in 12 CR 211.21(t), which is licensed under 12 CFR 211.24(a);
    • such office of an unaffiliated, licensed foreign bank; or
    • an insurance company subject to regulation by any State.

    provided such debt is not guaranteed by an individual who or entity that is not a principal of the applicant or registrant.

An individual's status as a principal is determined by the individual's 1) ability to control a registrant's business activities; 2) formal title or position with the registrant; and 3) financial or ownership interest in the registrant. Individuals who, through their conduct or activity, directly or indirectly control a registrant are principals of the registrant, irrespective of their formal title or financial interest in the registrant. Similarly, individuals who hold specific positions or titles with registrants (see definition of principal) are also principals of the registrant, irrespective of their ability to control the registrant's business.

Individuals who, directly or indirectly, have a 10% or more financial or ownership interest in the registrant are principals of the registrant, irrespective of their titles, position or ability to control the registrant's business activity. The following examples illustrate how direct and indirect ownership impact an individual's status as a principal based on ownership.

  • Example 1: Individual owns 100% of any class of stock of Registrant. Individual is a principal of registrant.
  • Example 2: Individual owns 100% of Holding Company's stock and Holding Company owns 50% of Registrant's stock. Individual is a principal because Individual indirectly owns 50% of Registrant's stock (100% x 50%=50%).
  • Example 3: Individual owns 100% of Holding Company A's stock. Holding Company A owns 50 % of Holding Company B's stock. Holding Company B owns 50% of Registrant's stock. Individual is a principal of Registrant because Individual indirectly owns 25% of Registrant's stock (100% x 50% x 50%=25%).
  • Example 4: Individual owns 50% of Holding Company's stock. Holding Company owns 10% of Registrant's stock. Individual is not a principal of Registrant (based on ownership interest) because Individual indirectly owns 5% of Registrant's stock (50% x 10%=5%).

This same analysis applies to determination of the entitlement to vote, sell or direct the sale of the registrant's voting securities or to receive the registrant's net profits and the contribution of capital to the registrant.

A company is a principal either because it is a general partner of a partnership or based on its ownership or financial stake in a registrant. Unlike individuals, a company's status as a principal based on ownership or capital contribution is determined solely by its direct relationship with the registrant. Holding companies that directly own 10% or more of a class of a registrant's stock or directly contribute 10% of a registrant's capital are principals of the registrant. In contrast, a holding company that indirectly owns a registrant's stock or contributes capital is not a principal. The following example illustrates how direct and indirect ownership impact a company's status as a principal of a registrant.

  • Example 1: Holding Company A owns 100% of Holding Company B's stock. Holding Company B owns 50% of Registrant's stock. Holding Company B is a principal of Registrant because Holding Company B directly owns 50% of Registrant's stock. Holding Company A is not a principal of Registrant because although it indirectly owns 50% of Registrant's stock (100% x 50%=50%), it does not directly own 10% or more of Registrant's stock. The same would be true regarding capital contributions.

Principal is technically not a registration class and principals do not apply for registration. However, the following are required to be filed for individuals who are principals of an applicant or registrant firm

  • A completed online Form 8-R
  • Fingerprint Cards
  • Verification of the Form 8-R
  • A non refundable Principal Application Fee of $85.00*

*An application fee is not required if the individual is currently registered with the CFTC in any capacity or is listed as a principal of a current CFTC registrant.  

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