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Notice I-04-18

October 08, 2004

Harmonization of Customer Type Indicators

The Joint Compliance Committee ("JCC") was formed in May 1989. The JCC is a committee comprised of senior compliance officials from all of the domestic futures exchanges and the NFA, formed to foster improvements and uniformity in their systems and procedures used for trade practice compliance.

Recently, as several U.S. Futures Exchanges have begun to independently redefine Customer Type Indicators ("CTI") Codes and industry members have begun to utilize multiple electronic trading systems, the JCC determined that now may be the right time to create harmonized CTI Codes across all U.S. Futures markets.

The JCC agreed upon the following definitions for CTI Codes on all U.S. Futures Exchanges for both open outcry and electronic trading:

    CTI 1- Transactions initiated and executed by an individual member for his own account, for an account he controls, or for an account in which he has ownership or financial interest.

    CTI 2- Transactions executed for the proprietary account of a clearing member or non-clearing member firm.

    CTI 3- Transactions where an individual member or authorized trader executes for the personal account of another individual member, for an account the other individual member controls or for an account in which the other individual member has ownership or financial interest.

    CTI 4- Any transaction not meeting the definition of CTI 1, 2 or 3. (These should be non-member customer transactions).

Exchanges are in the process of incorporating the aforementioned definitions. It is anticipated that this will be accomplished in the next couple of months. Each Exchange will be distributing Notices to their Members regarding their implementation of these newly revised CTI Codes.

Frequently Asked Questions and Answers for CTI Code Harmonization

Question 1:
Why are you redefining the CTI Codes?

Answer:
With industry members utilizing multiple electronic trading systems and Exchanges permitting many different methods for accessing markets, firms have been spending a great deal of time translating their systems to fit the various Exchange requirements. Furthermore, several Exchanges reported that they were considering redefining CTI Codes on their markets. As a result of this, it was determined that now may be the right time to create standardized CTI Codes across all U.S. markets. This would alleviate confusion for market participants and reduce the burden on firms.

Question 2:
Do the changes affect all U.S. Futures Markets?

Answer:
Yes, all major U.S. Futures Exchanges participated in creating the harmonized codes.

Question 3:
What changes were made to the CTI Codes?

Answer:
Generally, there were three changes.

    1.) CTI 2 trades can now be utilized on the customer side. That is, non-clearing member firms that are customers of an FCM now will be categorized as CTI 2 instead of CTI 4.

    2.) CTI 1 will now include all trades that are for the accounts of individual members in which the individual member owns or controls. (Previously some new electronic markets did not include accounts controlled by the individual member under CTI 1).

    3.) It is under consideration that CTI 5 transactions on NYBOT could be rolled into CTI 3 in an attempt to be consistent with the definition on other markets and therefore create four harmonized CTI Codes on all U.S. Futures Exchanges.

Question 4:
When will these changes go into effect?

Answer:
The changes will go into effect during November and early December 2004.

Question 5:
Who do I contact with any questions?

Answer:
Please contact any one of the following representatives ......

Question 6:
What are the benefits to the end user?

Answer:
The main benefit will be that firms will be able to harmonize CTI Codes in their systems, which will be beneficial for market participants who trade across several markets. This will alleviate confusion for market participants who are currently unsure if they are utilizing the correct CTI Codes and will reduce the burden on firms who have been spending a great deal of time translating their systems to fit the various Exchange requirements.

If you have any questions, please contact Edward Dasso, Senior Manager, at edasso@nfa.futures.org or (312) 658-6551 or Yvonne Downs, Senior Vice President, at ydowns@nfa.futures.org or (312) 781-1210.

NFA is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the futures markets.
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