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price. B&C's retail customers in Treasury securities were long-
term clients, personal friends, employees, and friends of
personal friends. The only account holders at B&C, other than
petitioner, who traded Government securities were customers of
B&C, not of petitioner.
B&C's offices are in Peoria and Chicago, Illinois, and
employees in both offices engage in proprietary trading. The
Peoria office is primarily responsible for customer relations,
including identifying and soliciting customer prospects,
preparing customer account agreements, responding to customer
inquiries, and administering the managed account program. The
Chicago office serves "back office" functions, clearing all
Treasury securities, futures, and other trades and handling
accounting, customer credit, and regulatory compliance.
Petitioner works out of the Peoria office, and B&C pays the rent
on the space that he uses. Petitioner used this space to engage
in his personal trading, which included the trading of futures
contracts, stocks, corporate bonds, and all three types of
Treasury securities. Petitioner transacted his personal trades
through B&C, and B&C cleared these trades and performed the
required bookkeeping for them. Petitioner used B&C's video
screens and other market information services to assist him with
his Treasury securities cash trading, and he used B&C's
telephones and direct lines to primary dealers. An employee in
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