What Are Customer Type Indicator Codes?
Customer type indicator codes (CTI codes) are part of a system that identify futures exchange transactions made by brokers for different clients or for themselves. Four different codes indicate the party for whom the transaction is made.
The main purpose for implementing these codes is to create a robust audit trail to track transactions by not only "what" and "when" but to also include "who."
Understanding Customer Type Indicator Codes (CTI)
Futures exchanges use numbered codes to indicate different types of transactions. These codes are part of the paper trail filed with the exchange's clearing house. Their purpose is to distinguish for whom and on what type of account the trades are being placed.
Here are the four coded categories, as defined on the National Futures Association (NFA) website:
CTI 1- Transactions initiated and executed by an individual member for his own account, for an account he controls, or for an account in which he has ownership or financial interest.
CTI 2- Transactions executed for the proprietary account of a clearing member or non-clearing member firm.
CTI 3- Transactions where an individual member or authorized trader executes for the personal account of another individual member, for an account the other individual member controls or for an account in which the other individual member has ownership or financial interest.
CTI 4- Any transaction not meeting the definition of CTI 1, 2 or 3. (These should be non-member customer transactions).
Standardization of Information
The Joint Compliance Committee (JCC) determined in 2004 that there was a need to create uniform CTI Codes across all U.S. futures markets. The JCC, itself, is a committee of senior compliance officials from all of the domestic futures exchanges and the National Futures Association, formed in May 1989 to foster improvements and uniformity in their systems and procedures.
The code system improvements were specifically meant to address the growing number of electronic trading systems and many different venues for accessing markets. Several futures exchanges planned to redefine CTI codes on their own markets. That would result in many different, and possibly conflicting codes, as well as a loss of uniformity across exchanges. The primary benefits were the alleviation of confusion for market participants and reduction in the compliance burden on placed on trading firms.
A designated contract market's audit trail includes an electronic transaction history database. This database must carry a history of all trades, whether by open outcry or, more commonly, by entry into an electronic trading system. This includes all changes and cancellations, the customer type indicator code, and timing and sequencing information to reconstruct trading.