Principal

From MarketsWiki
Jump to: navigation, search
Cinnober logo.gif

In the context of NFA registration, a principal [1] is defined as:

(1) 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 or chief financial officer of a corporation, limited liability company or limited partnership
  • in charge of a business unit, division or function of a corporation, limited liability company or limited partnership if the unit, division or function is subject to regulation by the Commission, or
  • a manager, managing member or a member vested with the management authority for a limited liability company or limited liability partnership

or

(2) an individual who directly or indirectly, through agreement, holding companies, nominees, trusts or otherwise:

  • is the owner of 10 percent or more of the outstanding shares of any class of a registrant's stock
  • is entitled to vote 10 percent or more of any class of a registrant's voting securities
  • has the power to sell or direct the sale of 10 percent or more of any class of a registrant's voting securities
  • has contributed 10 percent or more of a registrant's capital
  • is entitled to receive 10 percent or more of a registrant's net profits, or
  • has the power to exercise a controlling influence over a registrant's activities that are subject to regulation by the Commission

or

(3) an entity that:

  • is a general partner of a registrant
  • is the direct owner of 10 percent or more of any class of a registrant's securities, or
  • has directly contributed 10 percent or more of a registrant's capital unless such capital contribution consists of subordinated debt contributed by:
    • an unaffiliated bank insured by the Federal Deposit Insurance Corporation
    • a U.S. branch or agency of an unaffiliated foreign bank that is licensed under the laws of the United States and regulated, supervised and examined by U.S. government authorities having regulatory responsibility for such financial institutions, or
    • an insurance company subject to regulation by any State.

An individual's status as a principal is determined by that individual's 1) ability to control a registrant's business activities, 2) formal title or position with the registrant, and 3) financial or ownership interest in the registrant. Individuals who, through their conduct or activity, directly or indirectly control a registrant are principals of the registrant, irrespective of their formal title or financial interest in the registrant. Similarly, individuals who hold specific positions or titles with registrants are also principals of the registrant, irrespective of their ability to control the registrant's business.

Individuals who, directly or indirectly, have a 10 percent or more financial or ownership interest in the registrant are principals of the registrant, irrespective of their titles, position or ability to control the registrant's business activity. The following examples illustrate how direct and indirect ownership impact an individual's status as a principal based on ownership.

A company is a principal either because it is a general partner of a partnership or based on its ownership or financial stake in a registrant. Unlike individuals, a company's status as a principal based on ownership or capital contribution is determined solely by its direct relationship with the registrant. Holding companies that directly own 10 percent or more of a class of a registrant's stock or directly contribute 10 percent of a registrant's capital are principals of the registrant. In contrast, a holding company that indirectly owns a registrant's stock or contributes capital is not a principal.

References

  1. www.nfa.futures.org. National Futures Association, Principal.