When trading software has to register as an adviser

How it works

Two US regimes license people who advise others on trading for money, one for futures and one for securities. Both define the regulated activity broadly enough to reach a product, not only a person, and both then carve out exceptions. A trading-software vendor's disclaimer, the line that says it "is not a registered investment adviser or commodity trading advisor", is a statement about which side of those carve-outs it believes it stands on.

The definitions are the starting point.

Futures. The Commodity Exchange Act defines a commodity trading advisor as any person who, "for compensation or profit, engages in the business of advising others, either directly or through publications, writings, or electronic media, as to the value of or the advisability of trading" in futures, security futures, swaps and options on futures, or who "as part of a regular business, issues or promulgates analyses or reports" on them. Electronic media are named in the statute.

Securities. The Investment Advisers Act defines an investment adviser as "any person who, for compensation, engages in the business of advising others, either directly or through publications or writings, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities".

Read literally, a subscription that sends trade signals, or a builder that ships ready-made strategies, could fit either. The question for a vendor is which exclusion takes it back out, and the question for a buyer is what the product must avoid doing to stay there.

The futures side: two lines in Rule 4.14

The statute itself excludes "the publisher or producer of any print or electronic data of general and regular dissemination", but only where that service "is solely incidental to the conduct of their business or profession". The CFTC's rules add exemptions from registration in 17 CFR 4.14. The one software vendors are built around is paragraph (a)(9). A person is not required to register as a CTA if "it does not engage in any of the following activities":

(i) Directing client accounts; or (ii) Providing commodity trading advice based on, or tailored to, the commodity interest or cash market positions or other circumstances or characteristics of particular clients.

Both words carry definitions. Rule 4.10 says direct "refers to agreements whereby a person is authorized to cause transactions to be effected for a client's commodity interest account without the client's specific authorization". It defines a trading program as one under which a person directs a client's account or "guides the client's commodity interest trading by means of a systematic program that recommends specific transactions".

So the exemption describes a product that is the same for every customer and does not trade on anyone's behalf without their specific authorisation. The rule text does not mention software, and it does not say how specific an authorisation must be when an order is generated by a program the customer switched on. That is the line automated products sit on, and it is a question for the CFTC or counsel, not for a vendor's FAQ.

Rule 4.14 has other exemptions with different conditions. Paragraph (a)(10) covers a person who has advised no more than 15 persons in the preceding 12 months and "does not hold itself out generally to the public as a commodity trading advisor", a condition about marketing as much as about size. Some exemptions require a notice filed through NFA's system; the (a)(8) exemption, for example, comes with annual affirmation and record-keeping duties. Paragraph (a)(9) as printed has neither.

The securities side: Lowe and the publisher's exclusion

The Advisers Act lists who is not an investment adviser. Exclusion (D) is "the publisher of any bona fide newspaper, news magazine or business or financial publication of general and regular circulation".

In Lowe v. SEC, decided on 10 June 1985, the Supreme Court held that investment newsletters fell within it. Congress, the Court wrote, "was primarily interested in regulating the business of rendering personalized investment advice", and "did not seek to regulate the press through the licensing of nonpersonalized publishing activities". It read "bona fide" as "genuine", meaning "disinterested commentary and analysis as opposed to promotional material disseminated by a 'tout'", and "general and regular circulation" as excluding "hit and run tipsters". The decisive passage sets the limit:

As long as the communications between petitioners and their subscribers remain entirely impersonal and do not develop into the kind of fiduciary, person-to-person relationships … that are characteristic of investment adviser-client relationships, we believe the publications are, at least presumptively, within the exclusion.

The case was about printed newsletters, and it does not decide whether a given piece of software is a publication. What it supplies is the test a vendor relying on the exclusion is invoking: the same output for every subscriber, offered to the public on a regular basis, with no advice "attuned to any specific portfolio or to any client's particular needs".

Three shapes of product against the definitions

The definitions do not sort products by category, and this page does not place any named product on either side. They sort by what the product does with your account and your circumstances, and most products in this field take one of three shapes.

1. Software that runs rules you wrote. A backtester, a no-code builder, or a relay that turns your own alerts into orders, such as TradersPost, SignalStack and PickMyTrade. The vendor supplies the machinery and you supply the decision.
2. Rules someone else wrote, delivered to everyone alike. A template library, a published strategy or a signal feed sent to all subscribers. Impersonal, but it is advice about specific trades, and whether it is excluded turns on the conditions above: the same for everyone, genuine, regular, and in futures, not directing accounts.
3. Anything tailored or discretionary. A service that adjusts recommendations to your positions or goals, or trades your account without your specific authorisation. This is what both regimes' exclusions leave out, and what registration exists for.

A product can be more than one of these, for instance a builder with a marketplace of other users' strategies beside it. Which part you use decides which shape you are in.

What you can do about it

Read the disclaimer as a claim about the activity. "Not a registered investment adviser or CTA" says the vendor believes an exclusion applies. Ask which one, and check that the product works the way the exclusion requires: the same for every customer, and no trading on your behalf without your specific authorisation.

Look the firm up. For futures, search the firm in NFA's BASIC, a free tool that NFA describes as a way "to research the background of derivatives industry professionals". For securities, use the SEC's Investor.gov lookup, which sends you to Investment Adviser Public Disclosure to see whether a professional or firm "is licensed with the SEC, with a state(s), and/or with FINRA" and any disciplinary history. A vendor relying on an exclusion will usually have no record there, which is consistent with its claim, not evidence against it.

Notice who makes each decision. If you write the rules, set the parameters and connect your own broker, you are using a tool. If someone else's strategy places orders in your account, ask what you authorised, how specifically, and what the provider's terms say it owes you when it goes wrong.

Keep your own records of what you switched on. A log of which strategy, which parameters and which account, with dates, is your evidence of what you authorised. Check what the platform itself logs before you rely on it; the products are listed in no-code strategy builders.

Know what registration would and would not give you. Registration brings a firm under a regulator and puts its record in a public database. It does not make a strategy profitable, and its absence does not make a tool unsafe. It changes what you can check, and who you can complain to.

This page describes the definitions and the cases that read them. Whether a particular product falls inside them is a question for the regulator or a lawyer, not for a catalogue.