New dispute looms between CFTC and London brokers

Panel asks for identification of some US-based affiliated companies

LONDON--Just as London metals brokers were beginning to see some hope for their cause in the argument with the U.S. Commodity Futures Trading Commission over fund segregation, a new dispute appears to be looming over the CFTC's right to review books of U.S.-based affiliated companies.

Last week, as soft-commodity brokers sought an exemption of full CFTC regulations over U.S. client business, they were asked to identify any U.S.-based affiliated businesses. Subsequently they then were contacted by the CFTC and said that as part of the exemption request the affiliated business must give the CFTC access to its books "to ensure compliance" as well as provide other information concerning the affiliate.

Keith Gaunt, director of corporate finance for Amalgamated Metal Corp. Plc here, an outspoken critic of the recent CFTC efforts, said that while the effort has not been directed at the metals brokers as of yet, it was apparent that the CFTC would attempt to apply the latest requirement to them as well.

According to officials, the information sought by the CFTC from U.S.-affiliated businesses of British commodity brokers was more extensive than the information required of wholly owned U.S. companies.

Prior to the deadline to implement fund segregation for U.S. clients, the CFTC granted an extension of the Sept. 15 deadline to 14 London Metal Exchange ring dealing members and one LME clearing member. The extension is for up to 60 days while the CFTC and the Association of Futures Brokers and Dealers (AFBD) negotiate a more acceptable solution. Soft-commodity brokers, however, were not included in the deadline extension and thus have had to apply to the CFTC to conduct business for U.S. clients.

Meanwhile, according to sources, the AFBD called a meeting of LME trading companies for last night apparently to discuss a "proposal or a response" from the CFTC with one of the provisos of attending being a vow of secrecy.

Only last week Christopher Sharples, chairman of the AFBD, said that progress was being made in negotiations with the CFTC on the fund segregation issue and he was hopeful of a settlement before the extension expiration.

In the most recent flap, the letter to those who applied for exemption from the CFTC rules said that the U.S. affiliate must submit a letter to the CFTC that states the name of the physical commodity house, that it undertakes no activity subject to regulation by the CFTC, that it will provide access to its books and records to ensure compliance with those undertakings and that it identify its offices and contact people and agree to notify the division of any new U.S. offices that are established.

The London metal-brokering community has charged that the CFTC was overstepping its jurisdiction and that an issue of sovereignty was involved. A group of commodity traders--both soft commodities and metals--has requested that the British government involve itself in the dispute on the question of whether the CFTC has the right to impose these rules.

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