Internal Control Manual

Futures Brokerage Activities and Futures Commission Merchants Section 3030.1

Bank holding company subsidiaries, banks (generally through operating subsidiaries), Edge Act corporations, and foreign banking organizations (FBOs) operating in the United States may operate futures brokerage and clearing services involving a myriad of financial and nonfinancial futures contracts and options on futures. These activities can involve futures exchanges and clearinghouses throughout the world. In general, most institutions conduct these activities as futures commission merchants (FCMs). FCM is the term used in the Commodity Exchange Act to refer to registered firms that are in the business of soliciting or accepting orders, as broker, for the purchase or sale of any exchangetraded futures contract and options on futures contracts. In connection with these activities, institutions may hold customer funds, assets, or property and may be members of futures exchanges and their associated clearinghouses. They may also offer related advisory services as registered commodity trading advisors (CTAs). The Federal Reserve has a supervisory interest in ensuring that the banking organizations subject to its oversight conduct their futures brokerage activities safely and soundly consistent with Regulations Y and K (including any terms and conditions contained in Board orders for a particular organization). Accordingly, a review of futures brokerage activities is an important element for inspections of bank holding companies (BHCs), examinations of state member banks, and reviews of FBO operations. The following guidance on evaluating the futures brokerage activities of bank holding company subsidiaries, branches and agencies of foreign banks operating in the United States, or any operating subsidiaries of state member banks provides a list of procedures that may be used to tailor the scope of an examination or inspection of these activities at individual institutions. For the purposes of...