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Principal Status

An individual's status as a principal is determined by:

  • The individual's ability to control a registrant's business activities;
  • The individual's formal title or position with a registrant; and/or
  • The individual's ownership or financial stake in a registrant.

An entity is a principal either:

  • Because it is a general partner of a partnership; and/or
  • Based on its ownership or financial stake in a registrant.

Definition

A principal with respect to an applicant, a registrant, or a person required to be registered under CFTC Regulation 3.1 (a) 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:

  • Owns 10 percent or more of the outstanding shares of any class of an applicant's or registrant's equity securities, other than non-voting securities;
  • Is entitled to vote 10 percent or more of the outstanding shares of any class of an applicant's 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's or registrant's equity securities, other than non-voting securities;
  • Is entitled to receive 10 percent or more of an applicant's or registrant's net profits; or
  • Has the power to exercise a controlling influence over an applicant's 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 percent 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 percent 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.

Examples

The following examples illustrate how direct and indirect ownership impact an individual's or an entity's status as a principal of a registrant.

See examples.

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%).

Example 5: 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.

 

Filing Requirements for Principals

Principal is 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
  • Verification of the Form 8-R
  • Fingerprint cards
  • 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.)