What is a Contract Broker?

Introducing brokers are similar to China's futures intermediaries, and can be institutions or individuals, usually institutions. It refers to a business model in which a securities company acts as an introduction broker or futures trading assistant for a futures company, helping the futures company to solicit customers, assisting the futures company to accept customer account openings, accepting client orders, and delivering futures companies to execute.

Introducing Broker

Right!

Introducing brokers are similar to China's futures intermediaries, and can be institutions or individuals, usually institutions. It refers to a business model in which a securities company acts as an introduction broker or futures trading assistant for a futures company, helping the futures company to solicit customers, assisting the futures company to accept customer account openings, accepting client orders, and delivering futures companies to execute.

Chinese name

Introducing Broker

Foreign name

Introducing Broker

Short name

IB

Business Scope

Soliciting futures traders to engage in futures trading

Related person

Futures broker

Return

Draw commission

Introducing Broker (IB)

Introducing Broker

In the United States, IB's related parties include customers, futures brokerage companies (FCM), commodity futures trading commissions (CFTC), and the National Futures Industry Association (NFA). Clients recruited by the introducing broker should directly sign futures trading contracts with futures companies, which is the same as other clients, but the introducing broker and the client also need to sign an introducing broker agreement and risk disclosure (sometimes

Introducing brokers can engage in some or all of the following intermediate services:

1. Solicit investors to engage in stock index futures trading;

2. Assist in the relevant account opening procedures;

3. Provide convenience for investors to place orders;

4. Assist the futures company to send the additional margin notice and settlement statement to investors;

5. Other businesses required by the China Securities Regulatory Commission.

As a stock index futures introducer, securities companies may not handle futures

IB calls it a business assistant in Taiwan. According to law, only

IB generally has two forms:

1. Guaranteed introducing broker (GIB)

If an IB signs a guarantee with a futures brokerage company, and the futures brokerage company agrees to guarantee IB's obligations under the Commodity Trading Act, then IB becomes the guaranteed introducing broker of the futures company. About 70% of the introducing brokers in the United States The person is GIB and a secured introducing broker can only introduce clients to one futures company.

2. Non-guaranteed introducing broker

Non-guaranteed introducing brokers, also known as independent introducing brokers (IIB). About 30% of introducing brokers in the United States are IIB. Independent introducing brokers can introduce customers to several futures companies.

1. Does not have membership of the exchange.

Introducing Broker

2. A specific relationship must be established with the futures brokerage company, and the futures brokerage company will handle the client's instructions for it, and the futures brokerage company is also responsible for reporting the processing situation to the introducing broker.

3. If the introducing broker is willing, he can directly transfer the client to the futures brokerage company and charge a certain introduction fee to the futures brokerage company.

4. Introducing brokers cannot charge customers any fees, they can only charge futures brokerage companies.

5.Do not accept customer transactions

IB and futures companies need to sign an introduction brokering agreement to make specific provisions on the rights and obligations of both parties. For independent introducing brokers, their rights and obligations with futures companies are reflected in the contract of cooperation between the two parties, and generally include:

1. The names of the parties to the contract.

2. Provisions on commission distribution and other expenses.

3. Introduce the business scope of brokers and other implementation procedures.

4. The scope of information and service matters provided by both parties to customers.

5. Dealing with transaction disputes.

6. Effectiveness of the contract, changes in terms, termination and termination of the contract, etc.

Introducing Broker

The guaranteed introducing broker and the futures company also have to sign a guarantee agreement. The content and format of the guarantee agreement are stipulated by the Commodity Futures Trading Commission. No changes can be made. The guarantee agreement determines the guarantee that occurs during the validity of the agreement. The debts of the introducing brokers are guaranteed by the futures company.

Specifically, the two parties have the following agreements in terms of funding, services, and benefit distribution:

1. In terms of funding

Client funds must be deposited in the account of the futures brokerage company. The introducing broker must not accept funds in the name of the company, nor can it act as the custodian of the client's funds. The client's funds cannot be held by any other means. Account. After the funds are deposited in the account of the futures brokerage company, the futures brokerage company should separate the client's funds from its own funds. The client's account must reflect its daily trading net value. When the client account loses and additional margin is required, the introducing broker is obliged Assist futures brokerage companies to add funds.

2.Customer transactions

The futures brokerage company shall provide the introductory broker with the necessary software and hardware facilities related to trading and marketing, train IB staff if necessary, and bear the review obligation for the clients introduced by IB. After a customer opens an account, IB can accept customer instructions and record them separately. Introducing brokers must follow the following rules when seeking or accepting customer orders:

1) Let clients fully understand futures risks.

2) The client must be told that all his futures trading activities are performed by the futures brokerage company.

3) The transaction must be recorded separately with the futures brokerage company holding the client's funds.

4) When receiving the customer's order, the time must be printed on the order and made into a written record.

Due to the current popularity of the Internet, customers generally place orders online, rather than placing orders through IB. Therefore, the introduction of brokers is mainly engaged in the role of customer development, risk management and trading consultants, assisting futures brokerage companies to make settlement notifications to customers on a monthly basis, and after customers confirm settlement statements, they are aggregated to futures brokerage companies.

3. R & D services

The relevant information service platform and research work can be provided by the futures company, or the introductory broker can provide information and research and development services to customers on its own. Who provides the service will affect the proportion of commission distribution. However, if IB provides research and development and information services on its own, its related service content and marketing materials should be recognized by the futures company, and it must not mislead the customer, and must not intentionally make the customer think that IB (or IB's employees) is an employee of the futures brokerage company , The client should be made aware that there is no other relationship between the introducing broker and the futures brokerage company other than the introducing brokerage contract.

4.Commission income

Introducing brokers do not charge any fees to the customers they serve, so futures brokerage companies should compensate the services provided by IB, pay a certain percentage of commissions, the proportion of commission payments, payment methods and time are clearly stipulated in the contract , Usually in the first few days of the month by bank transfer.

The determination of the commission ratio is generally considered in the following aspects:

1) The trading volume of clients introduced by IB. This ratio is divided into different grades according to the size of the client's transaction volume. Generally, the larger the transaction volume, the higher the commission ratio to IB.

2) Commissions vary according to the market and variety of customer transactions.

3) The amount of customer funds, whether they deposit funds in cash, Treasury bills or other acceptable deposit certificates.

4) IB's compliance with FCM.

5) Orders are placed on the platform. Different platforms have different fees, so the commissions obtained by IB are also different.

6) If the futures company provides other services, such as providing sales support, providing corresponding promotional materials, and providing professional research and development reports, these costs must be increased, so the commissions introduced by the brokers are also less.