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NFA Manual/Rules
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Compliance Rules
(Click Here to Print this Section) [¶ 5011] RULE 1-1. DEFINITIONS. [¶ 5011.1] (a) "Act" -means the Commodity Exchange Act. [¶ 5011.2] (b) "Actual Funds" - means the equity in a commodity trading account over which a CTA has trading authority and funds that can be transferred to that account without the client's consent to each transfer. [¶ 5011.3] (c) "Appeals Committee" -means the Appeals Committee established under NFA Bylaw 702. [¶ 5011.4] (d) "Associate" -means a person who is associated with a Member within the meaning of the term "associated person" as used in the Act and Commission Rules and who is required to be registered as an "associated person" with the Commission. [¶ 5011.5] (e) "Business Conduct Committee" -means the Business Conduct Committee established under NFA Bylaw 704. [¶ 5011.6] (f) "Commission" or "CFTC" -means the Commodity Futures Trading Commission. [¶ 5011.7] (g) "Commodity Pool Operator" or "CPO" - means a person who is required to register or is registered as a commodity pool operator under the Act and Commission Rules. [¶ 5011.8] (h) "Commodity Trading Advisor" or "CTA" - means a person who is required to register or is registered as a commodity trading advisor under the Act and Commission Rules. [¶ 5011.9] (i) "Contract Market" -means an exchange designated by the Commission as a contract market in one or more commodities or licensed by the Commission for the trading of options. [¶ 5011.10] (j) "Exchange Act" - means the Securities Exchange Act of 1934. [¶ 5011.11] (k) "Foreign Board of Trade" -means a board of trade, exchange, or market located outside the United States, its territories or possessions. [¶ 5011.12] (l) "Foreign Futures" and "Foreign Options" -means futures and options transactions made or to be made on or subject to the rules of a foreign board of trade. [¶ 5011.13] (m) "Foreign Futures or Foreign Options Customer" -means any person located in the United States, its territories or possessions who trades in foreign futures or foreign options. [¶ 5011.14] (n) "Forex" - has the same meaning as in Bylaw 1507(b). [¶ 5011.15] (o) "Forex Dealer Member" - has the same meaning as in Bylaw 306. [¶ 5011.16] (p) "Futures" includes-
(2) option contracts granted by a person that has registered with the Commission under Section 4c(d) of the Act as a grantor of such option contracts or has notified the Commission under the Commission's rules that it is qualified to grant such option contracts; (3) foreign futures and foreign options made or to be made on or subject to the rules of a foreign board of trade for or on behalf of foreign futures or foreign options customers as those terms are defined in the Commission's rules; (4) leverage transactions as that term is defined in the Commission's rules; and (5) security futures products, as that term is defined in Section 1a(32) of the Act. [¶ 5011.17] (q) "Futures Commission Merchant" or "FCM" -means a person who is required to register or is registered as a futures commission merchant under the Act and Commission Rules. [¶ 5011.18] (r) "Hearing Committee" - means the Hearing Committee established under NFA Bylaw 707. [¶ 5011.19] (s) "Introducing Broker" or "IB" -means a person who is required to register or is registered as an introducing broker under the Act and Commission Rules. [¶ 5011.20] (t) "Leverage Transaction Merchant" or "LTM" -means a person who is required to register or is registered as a leverage transaction merchant under the Act and Commission Rules. [¶ 5011.21] (u) "Member" -means a Member of NFA other than a contract market. [¶ 5011.22] (v) "Nominal Account Size" - means the account size agreed to by the client that establishes the level of trading in the particular trading program. [¶ 5011.23] (w) "Partially-Funded Account" - has the same meaning as in CFTC Regulation 4.10(m). [¶ 5011.24] (x) "Person" - includes individuals, corporations, limited liability companies, partnerships, trusts, associations and other entities. [¶ 5011.25] (y) "Qualified Eligible Person" or "QEP" - has the same meaning as in CFTC Regulation 4.7(a). [¶ 5011.26] (z) "Requirements" -includes any duty, restriction, procedure or standard imposed by a charter, bylaw, rule, regulation, resolution or similar provision. [¶ 5011.27] (aa) "Security Futures Products" - has the same meaning as in Section 1a(32) of the Act.
(Click Here to Print this Section) [¶ 5017] RULE 2-1. CONTRACT MARKET JURISDICTION. No Member or Associate shall be charged with an offense under these Rules if the specific conduct alleged to constitute the offense is governed or otherwise regulated by the requirements of a contract market and such Member or Associate is subject to the disciplinary jurisdiction of the contract market for such conduct. The foregoing shall not apply if the contract market has expressly delegated enforcement responsibility to NFA, or if the offense under these Rules is a violation of NFA Financial Standards requirements adopted pursuant to Section 1(b) of Article III or NFA Customer Protection requirements adopted pursuant to Section 1(e) of Article III of the NFA Articles of Incorporation.
[¶ 5023] RULE 2-2. FRAUD AND RELATED MATTERS. No Member or Associate shall:
(b) Bucket a customer's commodity futures order or engage in a business that is of the nature of a bucket shop; (c) Willfully make or cause to be made to a customer a false report, or willfully to enter or cause to be entered for a customer a false record, in or in connection with any commodity futures contract; (d) Disseminate, or cause to be disseminated, false or misleading information, or a knowingly inaccurate report, that affects or tends to affect the price of any commodity that is the subject of a commodity futures contract; (e) Engage in manipulative acts or practices regarding the price of a commodity futures contract; (f) Willfully submit materially false or misleading information to NFA or its agents; (g) Effect a commodity trade on a contract market for a person who is subject to a Commission prohibition from trading on any contract market, unless the Member or Associate did not know or have reason to know of the prohibition; or (h) Embezzle, steal, purloin or knowingly convert any money, securities or other property received from or accruing to a customer, client or pool participant in or in connection with commodity futures contracts. (i) Act in any capacity requiring registration under the Act unless the Member or Associate is either registered in that capacity or exempt from registration.
[¶ 5029] RULE 2-3. SHARING IN PROFITS. No Member or Associate shall share, directly or indirectly, in the profits or losses accruing from commodity futures trading in any account of a customer carried by the Member, or another Member, unless the customer's prior written authorization therefor is obtained.
[¶ 5035] RULE 2-4. JUST AND EQUITABLE PRINCIPLES OF TRADE. Members and Associates shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their commodity futures business. [See Interpretive Notice Interpretation of NFA Compliance Rule 2-4: Guideline for the Disclosure by FCMs and IBs of Costs Associated with Futures Transactions and Interpretive Notice NFA Compliance Rule 2-4:Confidentiality Language in Release Agreements.]
[¶ 5041] RULE 2-5. COOPERATION IN NFA INVESTIGATIONS AND PROCEEDINGS. Each Member and Associate shall cooperate promptly and fully with NFA in any NFA investigation, inquiry, audit, examination or proceeding regarding compliance with NFA requirements or any NFA disciplinary or arbitration proceeding. Each Member and Associate shall comply with any order issued by the Executive Committee, the Membership Committee, the Business Conduct Committee, the Appeals Committee or any NFA hearing or arbitration panel.
[¶ 5047] RULE 2-6. EXPELLED OR SUSPENDED MEMBER OR ASSOCIATE. No person who has been expelled or suspended or is subject to a similar sanction by NFA in a proceeding brought pursuant to Part 3 of NFA's Compliance Rules that temporarily or permanently prohibits the person from NFA membership or affiliation in any capacity with an NFA Member shall hold himself out as a Member in good standing of NFA, or as affiliated with a Member, as the case may be, during the period during which the sanction is in effect. No Member or Associate shall conduct commodity futures or forex business with such a person during the period the sanction is in effect unless authorized by the Business Conduct Committee, Hearing Committee or the Appeals Committee.
[¶ 5053] RULE 2-7. BRANCH OFFICE MANAGERS AND DESIGNATED SECURITY FUTURES PRINCIPALS. (a) No Member shall allow an Associate to be a branch office manager unless:
(2) The Associate is sponsored by a registered broker-dealer and is qualified to act as a branch office manager under the rules of either the New York Stock Exchange or the Financial Industry Regulatory Authority. (b) Each Member registered as a broker-dealer under Section 15(b)(11) of the Exchange Act must have at least one designated security futures principal. No such Member shall designate a person as a security futures principal unless:
(2) The person is a Member or an Associate of the Member as defined in Bylaw 301(b); and (3) The person has taken and passed the "Branch Manager Exam-Futures."
[¶ 5059] RULE 2-8. DISCRETIONARY ACCOUNTS. [¶ 5059.1] (a) Grant of Discretion Must Be in Writing. No Member or Associate shall exercise discretion over a customer's commodity futures account unless the customer or account controller has authorized the Member or Associate, in writing (by power of attorney or other instrument) to exercise such discretion. No Member or Associate shall exercise discretion with regard to foreign futures or foreign options transactions on behalf of a foreign futures or foreign options customer unless the customer or account controller has specifically authorized the Member or Associate, in writing, to exercise discretion with regard to foreign futures or foreign options transactions. The Member or Associate does not need written authorization to exercise discretion with regard to time and price only. Each Member must maintain records which clearly identify which of the Member's accounts are accounts over which the Member or any Associate thereof has discretionary authority.
[¶ 5059.2] (b) Review of Discretionary Trades. Each futures trade initiated in an account that a Member or Associate has written authorization to trade shall be presumed to have been made pursuant to that trading authorization unless otherwise indicated, in writing, at the time the trade was placed. Each Member initiating such trades (other than a Member who employs only one individual having discretionary authority if that individual is also the only principal who supervises futures activity) must adopt and enforce written procedures:
(2) Which require such partner, officer, director, branch office manager or supervisory employee or designated security futures principal to make a written record that such review procedures were performed. Discretionary trading activity must be regularly reviewed, and a written record of the review must be made, as required above.
[¶ 5059.3] (c) Minimum Experience Requirement. No Member FCM or IB shall allow an Associate to exercise discretion over a customer's commodity futures account unless that Associate has been continuously registered under the Act for a minimum of two years and has worked in such registered capacity for that period of time. This requirement shall not apply to any individual registered as a CTA. This requirement may, in NFA's discretion, be waived upon a showing that the Associate has equivalent experience. Any Member seeking such a waiver may submit a written request to the Compliance Director and all such requests shall be ruled upon by a three-member panel consisting of three members of the Business Conduct Committee and/or the Hearing Committee, said members to be appointed by the Board from time to time. The decision of the panel shall be final and shall be based upon the written submissions and the views of the Compliance Director. The panel shall communicate its decision to the Compliance Director or a person designated by the Compliance Director, who shall then inform the Member seeking the waiver. An Associate who has been determined to have equivalent experience pursuant to the rules of any contract market Member of NFA having a similar minimum experience requirement shall be deemed to have satisfied the requirement of this Rule.
[¶ 5059.4] (d) Third-Party Account Controllers. No FCM or IB shall accept an order from a third party, not an Associate of the FCM or IB, without first obtaining a copy of the account controller's written trading authorization or a written acknowledgment from the customer that such authorization has been given.
[¶ 5059.5] (e) Exception. The provisions of sections (b), (c) and (d) of this Rule shall not apply when the individual who owns the account and the individual exercising discretion are members of the same family (a spouse, parent, child, grandparent, grandchild, brother, sister, aunt, uncle, nephew, niece or in-law).
[¶ 5065] RULE 2-9. SUPERVISION. (a) Each Member shall diligently supervise its employees and agents in the conduct of their commodity futures activities for or on behalf of the Member. Each Associate who has supervisory duties shall diligently exercise such duties in the conduct of that Associate's commodity futures activities on behalf of the Member. (b) NFA's Board of Directors may require Members which meet specific criteria established by the Board relating to the employment history of its APs or principals or to the total commissions, fees and other charges paid by their customers to adopt supervisory procedures specified by the Board for the supervision of telemarketing. This requirement may, in NFA's discretion, be waived upon a showing by the Member that the Member's current supervisory procedures provide effective supervision over its employees and agents. Any Member seeking such a waiver may submit a written request to a three-member panel consisting of three members of the Business Conduct Committee and/or the Hearing Committee, said members to be appointed by the Board from time to time. Within 30 days after a Member submits a waiver request, the Compliance Director will submit a written response to the panel. The decision of the panel shall be final and shall be based upon the written submissions of the Member and of the Compliance Director. (c) Each FCM and IB Member shall develop and implement a written anti-money laundering program approved in writing by senior management reasonably designed to achieve and monitor the Member's compliance with the applicable requirements of the Bank Secrecy Act (31 U.S.C. 5311, et. seq.), and the implementing regulations promulgated thereunder by the Department of the Treasury and, as applicable, the Commodity Futures Trading Commission. That anti-money laundering program shall, at a minimum,
(2) Provide for independent testing for compliance to be conducted by Member personnel or by a qualified outside party; (3) Designate an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program; and (4) Provide ongoing training for appropriate personnel.
[See Interpretive Notice NFA Compliance Rule 2-9: FCM And IB Anti-Money Laundering Program and Interpretive Notice NFA Compliance Rule 2-29: Review of Promotional Material Prior to its First Use and Interpretive Notice Compliance Rule 2-9: Self-Audit Questionnaires and Interpretive Notice Compliance Rule 2-9: Supervision of Telemarketing Activity and Interpretive Notice Compliance Rule 2-9: Supervisory Procedures for E-Mail and the Use of Web Sites and Interpretive Notice Compliance Rule 2-29 and 2-9: NFA's Review and Approval of Certain Radio and Television Advertisements]
[¶ 5071] RULE 2-10. RECORDKEEPING. (a) Each Member shall maintain adequate books and records necessary and appropriate to conduct its business including, without limitation, the records required to be kept under CFTC Regulations 1.18 and 1.32 through 1.37 for the period required under CFTC Regulation 1.31. (b) Each FCM Member must either:
(2) Maintain an office in a jurisdiction that the CFTC has found to have a comparable regulatory scheme for purposes of Part 30 of the CFTC's rules and be subject to that regulatory scheme. This foreign office must be responsible for preparing and maintaining financial and other records and reports required by CFTC and/or NFA rules under the supervision of a listed principal and registered associated person of the FCM who is resident in that office, and the Member must agree to reimburse NFA for any travel, translation, telephone, and similar expenses incurred in connection with inquiries, examinations and investigations of the Member that exceed the normal expenses incurred by NFA in examining an FCM Member located at the closest point in the continental United States, Alaska, Hawaii, or Puerto Rico. (c) Each Member subject to minimum capital requirements must:
(2) maintain a general ledger in English using U.S. dollars. (d) Each Member must:
(2) maintain English translations of all foreign-language promotional material, including disclosure documents and Web sites, distributed to or intended for viewing by customers located in the United States, its territories, or possessions; (3) maintain written procedures required by CFTC or NFA rules in English (as well as in any other language if necessary for them to be understood by the Member's employees and agents); (4) provide English translations of other foreign-language documents and records and file financial information in U.S. dollars when requested by NFA; and (5) make available to NFA (during an examination or to respond to other inquiries) an individual who is authorized to act on the Member's behalf, is fluent in English, and is knowledgeable about the Member's business and about financial matters. [See Interpretive Notice NFA Compliance Rule 2-10: The Allocation of Block Orders for Multiple Accounts. and Interpretive Notice Compliance Rule 2-10: Orders Eligible For Post-Execution Allocation]
[¶ 5077] RULE 2-11. CUSTOMER ACCOUNTS. No Member FCM, unless a member of a contract market, shall carry customer accounts without prior notice to NFA.
[¶ 5083] RULE 2-12. [RESERVED].
[¶ 5089] RULE 2-13. CPO/CTA REGULATIONS. (a) Any Member who violates any of CFTC Regulations 4.1, 4.7, 4.12 and 4.16 through 4.41 shall be deemed to have violated an NFA requirement. (b) Each Member CPO which delivers or causes to be delivered a Disclosure Document under CFTC Regulation 4.21 must include in the Disclosure Document a break-even analysis which includes a tabular presentation of fees and expenses. The break-even analysis must be presented in the manner prescribed by NFA's Board of Directors and must be accurate as of the date of the Disclosure Document. (c) Each Member required to file any document with or give notice to the CFTC under CFTC Regulations 4.7, 4.12, 4.22, 4.26 or 4.36 shall also file one copy of such document with or give such notice to NFA at its Chicago office no later than the date such document or notice is due to be filed with or given to the CFTC. Any CPO Member may file with NFA a request for an extension of time in which to file the annual report required by CFTC Regulation 4.22(c) or a request for approval of a change to its fiscal-year election. [See Interpretive Notice Interpretation of NFA Compliance Rule 2-13: Guideline for the Disclosure by CPOs and CTAs of "Up Front" Fees and Organizational and Offering Expenses and Interpretive Notice Compliance Rule 2-13: Break-Even Analysis (Board of Directors).]
[¶ 5095] RULE 2-14. COMPLIANCE JURISDICTION. Any Member or Associate who violates or fails to comply with any NFA requirement shall be subject to appropriate Member or Associate Responsibility Action or disciplinary action, or both, in accordance with these rules.
[¶ 5101] RULE 2-15. [RESERVED]
[¶ 5107] RULE 2-16. [RESERVED]
[¶ 5113] RULE 2-17. [RESERVED]
[¶ 5119] RULE 2-18. [RESERVED]
[¶ 5125] RULE 2-19. [RESERVED]
[¶ 5131] RULE 2-20. [RESERVED]
[¶ 5137] RULE 2-21. [RESERVED]
[¶ 5143] RULE 2-22. PROHIBITED REPRESENTATIONS. No Member or Associate shall represent or imply in any manner whatsoever that such Member or Associate has been sponsored, recommended or approved, or that such Member's or Associate's abilities have in any respect been passed upon, by NFA or any federal or state regulatory body: Provided, however, that this Rule shall not prohibit a Member from stating the fact of membership, or an Associate from stating the fact of registration as an Associate if the effect of NFA membership or registration as an Associate is not misrepresented, or from discussing or explaining the functions and purposes of NFA.
[¶ 5149] RULE 2-23. FCM RESPONSIBILITY FOR GUARANTEED MEMBER IBs. Any Member FCM which enters into a guarantee agreement, pursuant to CFTC Regulation 1.10(j), with a Member IB, shall be jointly and severally subject to discipline under NFA Compliance Rules for acts and omissions of the Member IB which violate NFA requirements occurring during the term of the guarantee agreement.
[¶ 5155] RULE 2-24. QUALIFICATION TESTING OF ASSOCIATED PERSONS OF FCMs. (a) Testing Requirement. Subject to the provisions of paragraphs (d) and (e) of Bylaw 301, no FCM, IB, CPO, CTA or LTM Member of NFA shall have associated with it (See Bylaw 301(b)) any person who has not satisfied the applicable proficiency requirements set forth in Registration Rule 401. (b) Limitations on Activities.
(ii) No Member of NFA shall have associated with it (See Bylaw 301(b)) any person who has satisfied the requirements of Registration Rule 401 by the use of an alternative to the National Commodity Futures Examination (Series 3) that requires the person to limit their futures-related activities and who exceeds such limits.
[¶ 5161] RULE 2-25. REQUIREMENTS FOR DEALER OPTIONS TRANSACTIONS OF FCMs. Any Member who violates any of the CFTC Part 32 Regulations shall be deemed to have violated an NFA requirement. Each Member required to file any documents with or give notice to the CFTC under the CFTC Part 32 Regulations shall also file one copy of such document with or give such notice to NFA at its Chicago office no later than the date such document or notice is due to be filed with or given to the CFTC.
[¶ 5167] RULE 2-26. FCM AND IB REGULATIONS. Any Member or Associate who violates any of CFTC Regulations 1.33, 1.55, 1.56, 1.57, 1.65, 155.3, or 155.4, as applicable, shall be deemed to have violated an NFA Requirement.
[¶ 5173] RULE 2-27. TRANSFER OF CUSTOMER ACCOUNTS. (a) Upon receipt of a signed instruction from a customer to transfer an account from one Member to another, and provided that such instruction contains the customer's name, address and account number (and, if the transfer is not of the entire account, a description of which portions are to be transferred) and the name and address of the receiving Member, the carrying Member shall confirm to the receiving Member all balances in the account, whether money, securities or other property, and all open positions, within two business days or within such further time as may be necessary in the exercise of due diligence. Within three business days of the day such confirmation is due, or within such further time as may be necessary in the exercise of due diligence, and provided that the receiving Member agrees to accept the account, the carrying Member shall effect the transfer of the balances and positions to the receiving Member. (b) This rule shall apply only to transfers made at the request of a customer. (c) This rule shall not prohibit transfers based upon oral requests.
[¶ 5179] RULE 2-28. [RESERVED]
[¶ 5185] RULE 2-29. COMMUNICATIONS WITH THE PUBLIC AND PROMOTIONAL MATERIAL. (a) General Prohibition. No Member or Associate shall make any communication with the public which:
(2) employs or is part of a high-pressure approach; or (3) makes any statement that futures trading is appropriate for all persons. (b) Content of Promotional Material. No Member or Associate shall use any promotional material which:
(2) contains any material misstatement of fact or which the Member or Associate knows omits a fact if the omission makes the promotional material misleading; (3) mentions the possibility of profit unless accompanied by an equally prominent statement of the risk of loss; (4) includes any reference to actual past trading profits without mentioning that past results are not necessarily indicative of future results; (5) includes any specific numerical or statistical information about the past performance of any actual accounts (including rate of return)
(ii) in the case of rate of return figures, unless such figures are calculated in a manner consistent with CFTC Regulation 4.25(a)(7) for commodity pools and with CFTC Regulation 4.35(a)(6), as modified by NFA Compliance Rule 2-34(a), for figures based on separate accounts, or (6) includes a testimonial that is not representative of all reasonably comparable accounts, does not prominently state that the testimonial is not indicative of future performance or success, and does not prominently state that it is a paid testimonial (if applicable). (c) Hypothetical Results.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
ONE OF THE LIMITATIONS OF A HYPOTHETICAL COMPOSITE PERFORMANCE RECORD IS THAT DECISIONS RELATING TO THE SELECTION OF TRADING ADVISORS AND THE ALLOCATION OF ASSETS AMONG THOSE TRADING ADVISORS WERE MADE WITH THE BENEFIT OF HINDSIGHT BASED UPON THE HISTORICAL RATES OF RETURN OF THE SELECTED TRADING ADVISORS. THEREFORE, COMPOSITE PERFORMANCE RECORDS INVARIABLY SHOW POSITIVE RATES OF RETURN. ANOTHER INHERENT LIMITATION ON THESE RESULTS IS THAT THE ALLOCATION DECISIONS REFLECTED IN THE PERFORMANCE RECORD WERE NOT MADE UNDER ACTUAL MARKET CONDITIONS AND, THEREFORE, CANNOT COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FURTHERMORE, THE COMPOSITE PERFORMANCE RECORD MAY BE DISTORTED BECAUSE THE ALLOCATION OF ASSETS CHANGES FROM TIME TO TIME AND THESE ADJUSTMENTS ARE NOT REFLECTED IN THE COMPOSITE.
(ii) if the Member has less than one year of experience in directing customer accounts, past performance results of his proprietary trading over at least the last five years or over the entire performance history if less than five years. (5) Any Member or Associate utilizing promotional material containing hypothetical performance results must adhere to all the requirements contained in the Board's Interpretive Notice relating to this issue. (6) These restrictions on the use of hypothetical trading results shall not apply to promotional material directed exclusively to persons who meet the standards of a "Qualified Eligible Person" under CFTC Regulation 4.7. Statements of opinion included in promotional material must be clearly identifiable as such and must have a reasonable basis in fact. (e) Supervisory Requirements Every Member shall adopt and enforce written procedures to supervise its Associates and employees for compliance with this Rule. Prior to its first use, all promotional material shall be reviewed and approved, in writing, by an officer, general partner, sole proprietor, branch office manager or other supervisory employee other than the individual who prepared such material (unless such material was prepared by the only individual qualified to review and approve such material). If the Member is registered as a broker-dealer under Section 15(b)(11) of the Exchange Act and the promotional material specifically refers to security futures products, the individual reviewing and approving the promotional material must be a designated security futures principal. (f) Recordkeeping. Copies of all promotional material along with a record of the review and approval required under paragraph (e) of this Rule and supporting materials for any results described under paragraphs (b)(5)-(6) or (c) of this Rule must be maintained by each Member and be available for examination for the periods specified in CFTC Regulation 1.31, measured from the date of the last use. Each Member who uses promotional material of the types described in paragraph (b)(5)-(6) or (c) of this Rule shall demonstrate the basis for any reported results to NFA upon request. (g) Filing with NFA. The Compliance Director may require any Member for any specified period to file copies of all promotional material with NFA promptly after its first use. (h) Radio and Television Advertisements. No Member shall use or directly benefit from any radio or television advertisement that makes any specific trading recommendation or refers to or describes the extent of any profit obtained in the past or that can be achieved in the future unless the Member submits the advertisement to NFA's Promotional Material Review Team for its review and approval at least 10 days prior to first use or such shorter period as NFA may allow in particular circumstances. (i) Definitions.
(2) "Futures account, agreement or transaction" includes futures accounts and orders, commodity pool participations, agreements to direct or guide trading in futures accounts, and agreements and transactions involving the sale, through publications or otherwise, of non-personalized trading advice concerning futures. (j) Security Futures Products In addition to the other requirements of this Rule, Members registered as broker-dealers under Section 15(b)(11) of the Exchange Act and their Associates shall not use any promotional material that specifically refers to security futures products unless the promotional material:
(2) includes the date that the material was first used; (3) provides contact information for obtaining a copy of the disclosure statement for security futures products; (4) states that security futures products are not suitable for all customers; (5) does not include any statement suggesting that security futures positions can be liquidated at any time; (6) does not include any cautionary statement, caveat, or disclaimer that is not legible, that attempts to disclaim responsibility for the content of the promotional material or the opinions expressed in the material, that is misleading, or that is otherwise inconsistent with the content of the material; (7) discloses the source of any statistical tables, charts, graphs, or other illustrations from a source other than the Member, unless the source of the information is otherwise obvious; (8) states that supporting documentation will be furnished upon request if it includes any claims, comparisons, recommendations, statistics or other technical data; (9) if soliciting for a trading program that will be managed by an FCM or IB or Associate of an FCM or IB, it includes the cumulative performance history of the Member's customers who have used the trading program; provided, however, that if the Member does not have customers who have traded the program through the Member, the promotional material must state that the trading program is unproven and must include all of the information required by section (c) of this Rule and the Interpretive Notice on the Use of Promotional Material Containing Hypothetical Performance Results (9025); (10) refers to past recommendations regarding security futures products, the underlying securities, or a derivative thereof only if it sets forth all recommendations as to the same type, kind, grade, or classification of securities (including security futures products and other security derivatives) made by the Member or Associate within the last year; which information must include the name of each security recommended with the date and nature of each recommendation (e.g., whether to buy or sell), the price at the time of the recommendation, the price at which or the price range within which the recommendation was to be acted upon, and the general market conditions during the period covered if the promotional material refers to past recommendations regarding security futures products, the underlying securities, or a derivative thereof; (11) includes current recommendations regarding security futures products only if: (i) the Member has a reasonable basis for the recommendation; (ii) the material discloses all material conflicts of interest created by the Member's or Associate's activities in the underlying security; and (iii) the material contains contact information for obtaining the list of prior recommendations described in subsection (10); (12) includes only a general description of the security futures products for which accounts, orders, trading authorization, or pool participations are being solicited; the name of the Member; and contact information for obtaining a copy of the current disclosure statement for security futures products; provided, however, that this subsection does not apply if the promotional material is accompanied or preceded by the disclosure statement for security futures products; and (13) has been submitted to NFA for review and approval at least ten days prior to first use if it reaches or is designed to reach a public audience through mass media (e.g., newspapers, magazines, radio, television, or other electronic media). This requirement does not apply to any promotional material in which the only reference to security futures products is contained in a listing of the Member's services. [See Interpretive Notice NFA Compliance Rule 2-29: Communications with the Public and Promotional Material and Interpretive Notice NFA Compliance Rule 2-29: Review of Promotional Material Prior to its First Use and Interpretive Notice Compliance Rule 2-29: Use of Promotional Material Containing Hypothetical Performance Results and Interpretive Notice NFA Compliance Rule 2-29: Deceptive Advertising (1996) and Interpretive Notice NFA Compliance Rule 2-29: Deceptive Advertising (1998) and Interpretive Notice Compliance Rule 2-29: High Pressure Sales Tactics and Interpretive Notice NFA Compliance Rules 2-29 and 2-9: NFA's Review and Approval of Certain Radio and Television Advertisements]
[¶ 5191] RULE 2-30. CUSTOMER INFORMATION AND RISK DISCLOSURE. (a) Each Member or Associate shall, in accordance with the provisions of this Rule, obtain information about its futures customers who are individuals and provide such customers with disclosure of the risks of futures trading. (b) The Member or Associate shall exercise due diligence to obtain the information and shall provide the risk disclosure at or before the time a customer first opens a futures trading account to be carried or introduced by the Member, or first authorizes the Member to direct trading in a futures account for the customer. A Member registered as a broker or dealer under Section 15(b)(11) of the Exchange Act shall provide a copy of the disclosure statement for security futures products at or before the time the Member approves the account to trade security futures products. (c) The information to be obtained from the customer shall include at least the following:
(2) the customer's current estimated annual income and net worth; (3) the customer's approximate age; and (4) an indication of the customer's previous investment and futures trading experience;
(6) the customer's employment status (e.g., name of employer, self-employed, retired); (7) the customer's estimated liquid net worth (cash, securities, other); (8) the customer's marital status and number of dependents; (9) such other information used or considered to be reasonable by such Member or Associate in making recommendations to the customer. (d) The risk disclosure to be provided to the customer shall include at least the following:
(2) the Disclosure Document required by CFTC Regulation 4.31, if the Member is required by that Regulation to provide it; (3) the Options Disclosure Statement required by CFTC Regulation 33.7, if the Member is required by that Regulation to provide it; and (4) the Disclosure Document required by CFTC Regulation 31.11, if the Member is required by that Regulation to provide it. (e) In the case of an account which is introduced by an FCM or IB or for which a CTA directs trading, and except as otherwise provided in subsections (b) and (j), it shall be the responsibility of the Member soliciting the account to comply with this Rule. (f) A Member or Associate shall be entitled to rely on the customer [as the sole source] for the information obtained under Section (c) of this Rule and shall not be required to verify such information, except as provided in section (j)(2) of this rule. (g) Each Member or Associate shall make or obtain a record containing the information obtained under Section (c) of this Rule at the time the information is obtained. If a customer declines to provide the information set forth in Section (c) of this Rule, the Member or Associate shall make a record that the customer declined, except that such a record need not be made in the case of a non-U.S. customer unless such customer trades security futures products. Subject to the provisions of Section (i) of this Rule, a Member may open, introduce or agree to direct a futures trading account for a customer only upon the approval of a partner, officer, director, branch office manager or supervisory employee of the Member. Each Member shall keep copies of all records made pursuant to this Rule in the form and for the period of time set forth in CFTC Regulation 1.31. (h) Each Member shall establish and enforce adequate procedures to review all records made pursuant to this Rule and to supervise the activities of its Associates in obtaining customer information and providing risk disclosure. (i) Nothing herein shall relieve any Member from the obligation to comply with all applicable CFTC and SEC Regulations and NFA Requirements. (j) Members that are not also members of the Financial Industry Regulatory Authority and their Associates shall adhere to the following additional requirements relating to accounts for customers that trade security futures products:
(2) A Member or Associate shall forward the background and financial information upon which the customer's account has been approved for trading security futures products to each customer who is an individual, unless the information has been obtained in writing from the customer, for verification of accuracy within fifteen days after the customer's account has been approved. A copy of the background and financial information on file with the Member shall also be sent to each customer who is an individual for verification within fifteen days after the Member becomes aware of any material change in the customer's financial status. In all cases, absent notice to the contrary from the customer, the information is deemed verified. (3) No FCM or IB Member or Associate thereof shall recommend to a non-institutional customer a transaction in security futures products or a particular trading strategy relating to such products without making reasonable efforts to obtain current information regarding the customer's financial status and investment objectives; provided, however, that this requirement does not apply to transactions in discretionary accounts. For purposes of this requirement, a non-institutional customer is any customer who is not:
(ii) an investment advisor registered either with the Securities and Exchange Commission under Section 203 of the Investment Advisers Act of 1940 or with a state securities commission (or any agency or office performing like functions) or a registered commodity trading advisor; (iii) an investment company exempt from registration under the Investment Company Act of 1940, a commodity pool operator exempt from registration under the Commodity Exchange Act, a commodity pool operated by a commodity pool operator exempt from registration under the Commodity Exchange Act, an investment advisor exempt from both federal and state registration under the Investment Advisers Act of 1940, or a commodity trading advisor exempt from registration under the Commodity Exchange Act; (iv) a registered broker-dealer or futures commission merchant; or (v) any other entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million. (4) No FCM or IB Member or Associate thereof shall recommend to any customer a transaction in security futures products or a particular trading strategy relating to such products without reasonable grounds for believing that the recommendation or strategy is not unsuitable for the customer on the basis of the customer's current investment objectives, financial situation and needs, and any other information known by the Member or Associate. (5) No FCM or IB Member or Associate shall recommend a security futures transaction to a customer unless the person making the recommendation has a reasonable basis for believing, at the time of making the recommendation, that the customer has such knowledge and experience in financial matters that the customer may reasonably be expected to be capable of evaluating the risks of the recommended transaction, and is financially able to bear the risks of the recommended transaction. (6) No Member or Associate exercising discretion over an account may effect security futures transactions that are excessive in size or frequency in view of the customer's investment objectives and financial situation. [See Interpretive Notice NFA Compliance Rule 2-30: Customer Information and Risk Disclosure (Board of Directors) and Interpretive Notice NFA Compliance Rule 2-30: Customer Information and Risk Disclosure (Staff).]
[¶ 5197] RULE 2-31. FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS. Any Member who violates any of the CFTC Part 30 Regulations shall be deemed to have violated an NFA Requirement.
[¶ 5203] RULE 2-32. LEVERAGE TRANSACTIONS. Any Member or Associate who violates any of the CFTC Part 31 Regulations shall be deemed to have violated an NFA Requirement.
[¶ 5209] RULE 2-33. FCM RECEIPT OF FUNDS FROM OMNIBUS ACCOUNTS. Each FCM must give notice to its DSRO or, if so directed by its DSRO, to NFA whenever the FCM accepts other than immediately available funds from an FCM doing business on an omnibus basis. Notice must be received within 24 hours of such acceptance. For purposes of this Rule, wire transfers and certified checks shall be considered immediately available funds for which notice is not required.
[¶ 5215] RULE 2-34. CTA PERFORMANCE REPORTING AND DISCLOSURES (a) Performance Information
(2) Draw-down information reported under CFTC Regulation 4.35(a)(1)(v) and (vi) must be based on rate of return figures using nominal account size as the denominator. (3) In calculating net performance, Member CTAs may include interest earned on actual funds but may not impute interest on other funds. (b) Written Confirmation for Partially-Funded Accounts
(ii) the nominal account size agreed to by the client and the CTA. (2) For new clients, the written confirmation must be received from or delivered to the client before the CTA places the first trade for the client. (3) For existing clients, the written confirmation must be received from or delivered to the client before the CTA places the first trade after any of the information required under Section (b)(1) of this rule changes. The written confirmation must include the new information and the effective date of the change but need not include any information that will remain the same. (c) Additional Disclosures for Partially-Funded Accounts CTAs must provide the following information to clients with partially-funded accounts if the clients are not QEPs:
(2) An explanation of how cash additions, cash withdrawals, and net performance will affect the nominal account size, (3) A brief explanation regarding the effect of partial funding on margin and leverage, (4) A statement that partial funding increases the fees and commissions as a percentage of actual funds but does not increase the dollar amount of those fees, and (5) A description, by example or formula, of the effect of partial funding on rate of return and drawdown percentages. (d) CPO Use of CTA Performance Information Member CPOs who are required by CFTC Regulation 4.25(c) to disclose CTA performance must report the CTA performance on the same basis as the CTA is required to report it.
[¶ 5221] RULE 2-35. CPO/CTA DISCLOSURE DOCUMENTS. (a)Required Delivery of Pool Disclosure Document and Statement of Additional Information
(2) In addition to the Disclosure Document, the CPO of a commodity pool required to register its securities under the Securities Act of 1933 must deliver (or cause to be delivered) a separate Statement of Additional Information to a prospective participant prior to accepting or receiving funds from the prospective participant. The information that may be included in the Statement of Additional Information is described in subsection (c). (3) The CPO of a commodity pool that is not required to register its securities under the Securities Act of 1933 may, but is not required to, prepare and distribute a Statement of Additional Information containing any or all of the information described in subsection (c). The Statement of Additional Information may be bound together with the Disclosure Document as long as the Disclosure Document comes first. If the Statement of Additional Information is separately bound, the CPO is not required to provide it to a prospective participant unless the prospective participant requests it. (4) If a Statement of Additional Information is required under paragraph (2) of this section, the cover page of the Disclosure Document required under paragraph (1) of this section and the Statement of Additional Information required under paragraph (2) of this section shall state that the Disclosure Document is in two parts, both of which must be provided to a prospective participant prior to investing in the offered pool. If a Statement of Additional Information is prepared and separately distributed under paragraph (3) of this section, the cover page of the Disclosure Document required under paragraph (1) of this section shall state that the Statement of Additional Information is available free of charge and shall indicate how to obtain a copy of the Statement of Additional Information. (b) Disclosures Required in the Disclosure Document
(ii) Any other information necessary to understand the fundamental characteristics of the pool or keep the Disclosure Document from being misleading. (2) The Disclosure Document required under subsection (a)(1) for pools required to register their securities under the Securities Act of 1933 shall include any other information that the Securities and Exchange Commission or state securities administrators require to be included in Part I of a two-part disclosure document. For all other pools, Disclosure Documents required under subsection (a)(1) may include such information. (c) Information Included in the Statement of Additional Information
(ii) A brief statement that the Statement of Additional Information is the second part of a two-part document and that it should be read in conjunction with the pool's Disclosure Document, with instructions on how to obtain a free copy of the Disclosure Document; (iii) The date of the most recent Disclosure Document for the pool; and (iv) The date of the Statement of Additional Information. (2) The cover page must be immediately followed by a table of contents. (3) The Statement of Additional Information may also include:
(ii) Statements that expand on or explain the disclosures in the Disclosure Document, provided that the statements are not misleading or inconsistent with applicable statutes, rules, or regulations; and (iii) Any other information about the commodity pool; its investments; its CPO, CTA(s), service providers, and their principals and employees; the commodity futures markets; or any other markets, including cash markets, that affect the value of the pool's investments, provided that the information is not misleading or otherwise inconsistent with applicable statutes, rules, or regulations.
[¶ 5227] RULE 2-36. REQUIREMENTS FOR FOREX TRANSACTIONS (a) General Prohibition No Forex Dealer Member shall engage in any forex transaction that is prohibited under the Commodity Exchange Act. (b) Fraud and Related Matters No Forex Dealer Member or Associate of a Forex Dealer Member engaging in any forex transaction shall: (1) Cheat, defraud or deceive, or attempt to cheat, defraud or deceive any other person; (2) Willfully make or cause to be made a false report, or willfully to enter or cause to be entered a false record in or in connection with any forex transaction; (3) Disseminate, or cause to be disseminated, false or misleading information, or a knowingly inaccurate report, that affects or tends to affect the price of any foreign currency; (4) Engage in manipulative acts or practices regarding the price of any foreign currency or a forex transaction; (5) Willfully submit materially false or misleading information to NFA or its agents with respect to forex transactions; (6) Embezzle, steal or purloin or knowingly convert any money, securities or other property received or accruing to any person in or in connection with a forex transaction. (c) Just and Equitable Principles of Trade Forex Dealer Members and their Associates shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their forex business. (d) Doing Business with Non-Members A Forex Dealer Member that is the counterparty, or offers to be the counterparty, to forex transactions for customers shall be subject to discipline for the activities of any person that solicits or introduces a customer to the Member or that manages such customer's accounts, unless such person is a Member or Associate of NFA, meets the criteria in Bylaw 306(b), or would be exempt from Commission registration if it were acting in the same capacity in connection with exchange-traded futures contracts. (e) Supervision Each Forex Dealer Member shall diligently supervise its employees and agents in the conduct of their forex activities for or on behalf of the Forex Dealer Member. Each Associate of a Forex Dealer Member who has supervisory duties shall diligently exercise such duties in the conduct of that Associate's forex activities for or on behalf of the Forex Dealer Member. (f) Affiliates Each Forex Dealer Member that has an affiliate that is authorized to engage in forex transactions solely by virtue of its affiliation with the Forex Dealer Member shall supervise its affiliate's forex activities for compliance with the same requirements that apply to the Forex Dealer Member, including section (a) of this rule. The Forex Dealer Member shall make the affiliate's books and records available to NFA staff upon request and shall be subject to discipline for acts and omissions of the affiliate that violate the standards imposed by NFA requirements. (g) BASIC Disclosure When a customer first opens an account and at least once a year thereafter, each Forex Dealer Member shall provide each customer with written information regarding NFA's Background Affiliation Status Information Center (BASIC), including the web site address. (h) Filing Promotional Materials with NFA. The Compliance Director may require any Forex Dealer Member for any specified period to file copies of all promotional material with NFA for its review and approval at least 10 days prior to its first use or such shorter period as NFA may allow. The Compliance Director may also require a Forex Dealer Member to file for review and approval copies of promotional material prepared or used by some or all of the non-Members it is responsible for under Section (d). (i) Scope This rule governs forex transactions as defined in Bylaw 1507(b). (j) Definition of Customer For purposes of this rule, the term "customer" means a counterparty that is not an eligible contract participant as defined in Section 1a(12) of the Act.
[¶ 5233] RULE 2-37. SECURITY FUTURES PRODUCTS. This rule applies to Members registered as broker-dealers under Section 15(b)(11) of the Exchange Act and their Associates.
(b) In addition to the supervisory requirements contained in NFA Compliance Rule 2-9, Members must establish, maintain and enforce written procedures reasonably designed to achieve compliance with applicable securities laws, including Sections 9(a), 9(b), and 10(b) of the Exchange Act and any applicable regulation thereunder. (c) Members who carry security futures accounts Act shall, not less than once a year, provide each security futures customer with written information regarding NFA's Background Affiliation Status Information Center (BASIC), including the web site address. (d) In addition to complying with Registration Rules 204(a) and 210(a), each Member shall notify NFA within 10 business days after the Member knows or should know that the Member or its associated person:
(2) is the subject of a written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery in connection with security futures transactions; (3) is named as a defendant or respondent in any proceeding brought by a self-regulatory organization in the securities or insurance industry in connection with security futures transactions; (4) is a defendant or respondent in any civil litigation or arbitration proceeding or is subject to any other claim for damages involving security futures transactions that has been disposed of by judgment, award, or settlement for an amount exceeding $15,000 if the claim is against an associated person or $25,000 if the claim is against the Member; (5) is associated in any business or financial activity involving security futures products with any person who is subject to a statutory disqualification under either Section 8a of the Commodity Exchange Act or Section 15(b)(4) of the Exchange Act; or (6) is the subject of a disciplinary action taken by the Member for activities involving security futures products if it results in suspension, termination, the withholding of commissions or imposition of fines in excess of $2,500, or any significant limitation on the Associate's activities on a temporary or permanent basis. (e) In addition to complying with Registration Rules 206(a) and 210(b), each Associate shall promptly notify its sponsor of:
(2) the existence of any of the circumstances listed in section (d) of this rule. (f) Each Member shall file a quarterly report with NFA containing statistical and summary information regarding written customer complaints involving security futures products. The report must be filed with NFA, in the form NFA requires, by the 15th day of the month following the calendar quarter in which the complaints are received. A Member is not required to file a quarterly report for any quarter in which no complaints were received. (g) Members shall not charge customers more than a fair commission or service charge for transactions in security futures products, taking into consideration all relevant circumstances, including the expense of executing the order and the value of any service the Member may have rendered by reason of its experience in and knowledge of the security futures product and the market in that product.
[¶ 5239] RULE 2-38. BUSINESS CONTINUITY AND DISASTER RECOVERY PLAN. (a) Each Member must establish and maintain a written business continuity and disaster recovery plan that outlines procedures to be followed in the event of an emergency or significant business disruption. The plan shall be reasonably designed to enable the Member to continue operating, to reestablish operations, or to transfer its business to another Member with minimal disruption to its customers, other Members, and the commodity futures markets. (b) Each Member must provide NFA with the name of and contact information for an individual who NFA can contact in the event of an emergency, and the Member must update that information upon request. Each IB, CPO, and CTA Member that has more than one principal and each FCM Member must also provide NFA with the name of and contact information for a second individual who can be contacted if NFA cannot reach the primary contact, and the Member must update that information upon request. These individuals must be authorized to make key decisions in the event of an emergency.
[¶ 5245] RULE 2-39. SOLICITING, INTRODUCING, OR MANAGING FOREX TRANSACTIONS OR ACCOUNTS. (a) Except for Members who meet the criteria in Bylaw 306(b) and Associates acting on their behalf, Members and Associates who solicit customers, introduce customers to a counterparty, or manage accounts on behalf of customers in connection with forex transactions shall comply with Sections (a), (b), (c), (e), and (h) of Compliance Rule 2-36. (b) No Member except a Forex Dealer Member or a Member who meets the criteria in Bylaw 306(b) may accept forex orders or accounts or receive compensation-directly or indirectly-for forex transactions from any person unless that person is a Member or Associate of NFA, meets the criteria in NFA Bylaw 306(b), or would be exempt from Commission registration if it were acting in the same capacity in connection with exchange-traded futures products. (c) For purposes of this rule, the term "customer" means a person that is not an eligible contract participant as defined in Section 1a(12) of the Act and includes persons who participate in pooled accounts.
[¶ 5251] RULE 2-40. BULK ASSIGNMENT OR LIQUIDATION OF FOREX POSITIONS; CESSATION OF CUSTOMER BUSINESS. (a) Bulk Assignment, Transfer, or Liquidation. A Forex Dealer Member may not enter into a bulk assignment, transfer, or liquidation of forex positions or accounts unless the assignment, liquidation, or transfer complies with procedures established by NFA. (b) Obligation of Assignees. If forex positions or accounts are assigned or transferred to a Forex Dealer Member, the Member may not accept orders initiating new positions until it has either:
(2) if the assignor was a Forex Dealer Member, obtained the necessary personal and financial information pertaining to the customer from the assignor and obtained reliable written evidence (which may include electronic records) that the assignor provided the required disclosures. (c) Ceasing Business. A Forex Dealer Member must notify NFA by e-mail or facsimile seven calendar days prior to ceasing its forex business. (d) Definitions. For purposes of this rule, the term "forex" has the same meaning as in Bylaw 1507(b) and the term "customer" has the same meaning as in Compliance Rule 2-36(i).
(Click Here to Print this Section) [¶ 5500] RULE 3-1. DEPARTMENT OF COMPLIANCE. There is hereby established a Department of Compliance (hereinafter "Compliance Department"), under the direction and control of a Director of Compliance (hereinafter "Compliance Director"), which shall conduct audits and examinations, and shall investigate violations of NFA requirements, prepare reports and conduct prosecutions, as provided in this Part. The Compliance Department shall commence investigations at the direction of the Commission; upon the discovery or receipt of information by NFA (such as complaints from customers or Members) that, in the Compliance Director's opinion, indicates a possible basis for finding that a violation has occurred; on the Compliance Director's own initiative. The Compliance Director shall have the authority to compel testimony, subpoena documents and require statements under oath from any Member, Associate or person connected therewith.
[¶ 5500.2] (b) Prohibitions. Neither the Compliance Director nor any employee or agent of the Compliance Department (including persons hired on a contract basis to perform compliance duties) may be a Member or Associate or have any connection, direct or indirect, with a Member or Associate, except as approved by the President. Except with the President's approval, the Compliance Director and any employee of the Compliance Department shall not trade, directly or indirectly, any commodity interest. A commodity interest shall be defined as any commodity futures or commodity option contract traded on or subject to the rules of a contract market or linked exchange, or cash commodities traded on or subject to the rules of a board of trade which has been designated as a contract market.
[¶ 5506] RULE 3-2. INVESTIGATION. [¶ 5506.1] (a) Initiation; Report. In each case in which the Compliance Director has reason to believe that any NFA requirement is being, has been or is about to be violated, the Compliance Director shall submit a written report of the matter to the Business Conduct Committee. (See NFA Bylaw 704.) The report shall include:
(ii) a summary of the complaint, if the investigation was begun as the result of a complaint; (iii) the relevant facts; and (iv) the Compliance Director's conclusion whether the Business Conduct Committee should proceed with the matter.
[¶ 5506.2] (b) Termination. If upon completing the investigation the Compliance Director concludes that there is no reason to believe that an NFA requirement is being, has been or is about to be violated, the Compliance Director shall submit a report to the Business Conduct Committee, containing the information specified in paragraph (a) above and, if applicable, recommending whether the Business Conduct Committee should issue or authorize the Compliance Director to issue a warning letter. The report, and any warning letter issued, shall become part of the investigation file, which may thereafter be closed as the Compliance Director deems appropriate. Investigations shall be completed within four months of commencement except for good cause.
[¶ 5506.3] (c) Review of Report. Each investigation report shall be reviewed by the Business Conduct Committee. If, upon review of the report, the Business Conduct Committee finds that additional investigation or evidence is necessary, it shall so instruct the Compliance Director. Within 30 days after receiving a completed report the Business Conduct Committee shall either:
(ii) serve a written and dated Complaint, if it finds reason to believe that an NFA requirement is being, has been or is about to be violated and that the matter should be adjudicated. No member of the Business Conduct Committee or its designated Panel shall participate in the matter if the member, or any person with which the member is connected, has a financial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c).
[¶ 5512] RULE 3-3. SERVICE. For purposes of any proceeding brought under Part 3 of these Rules: (a) service of a Complaint will be sufficient if mailed to the person charged ("the Respondent") by first class and overnight mail, to the last address provided by the Respondent on record with NFA, or the address of his duly authorized agent for service; (b) one copy of all pleadings, motions and briefs filed with NFA subsequent to the Complaint shall be served by the party upon all parties not in default (including the attorney of record in NFA's General Counsel's Office), unless otherwise provided. Service on a party's representative shall be service on the party. Service shall be made either by personal service (effective upon delivery), mail (effective upon deposit), facsimile (effective upon receipt of a readable document), or e-mail (effective upon receipt of a readable document): provided, however, that service by facsimile or e-mail shall only be permitted on Parties who have consented to service by that means. Proof of service of a document shall be made by attaching thereto an affidavit or certificate of service. To mail means to deposit in the U.S. Mail, first-class postage prepaid, or with an overnight delivery service, delivery fee prepaid; and (c) documents filed with NFA under this Part must be delivered or mailed to: 300 South Riverside Plaza Chicago, IL 60606 Attn: Legal Docketing Department or sent by facsimile to the attention of the Legal Docketing Department at a facsimile number provided in the original complaint or by e-mail to Docketing@nfa.futures.org. Filing by delivery or mailing is effective upon receipt. Filing by electronic means is effective upon receipt of a readable document; and (d) parties who file documents by electronic means thereby consent to accept service of pleadings in the proceedings by same method and waive any objection based on authenticity and genuineness to the use and admissibility into evidence in the proceeding of any document that they file by electronic means. The first document that a party files by electronic means must identify that party's facsimile number or e-mail address at which other parties may serve pleadings in the proceeding. Parties who provide a facsimile number or an e-mail address must advise Legal-Docketing and all other parties not in default of any change to the facsimile number or e-mail address.
[¶ 5518] RULE 3-4. NOTICE OF CHARGES. (a) A Complaint issued by the Business Conduct Committee under these Rules must:
(ii) state each act or omission that constitutes, constituted or will constitute the alleged violation. (b) NFA shall advise the Respondent in writing:
(ii) that failure to file an Answer as provided in Part (i) above shall be deemed an admission of the facts and legal conclusions contained in the Complaint; (iii) that failure to respond to any allegation shall be deemed an admission of that allegation; and (iv) that failure to file an Answer as provided in Part (i) above shall be deemed a waiver of hearing.
[¶ 5524] RULE 3-5. RIGHT TO COUNSEL. The Respondent may be represented by an attorney-at-law or other person at any stage of the investigation or disciplinary proceeding.
[¶ 5530] RULE 3-6. ANSWER. (a) The Respondent must file a written Answer to the Complaint with NFA within 30 days from the date of the Complaint. (b) Failure to file a timely Answer shall be deemed an admission of the facts and legal conclusions contained in the Complaint, and a waiver of hearing. The Answer shall respond to each allegation in the Complaint by admitting, denying or averring that the Respondent lacks sufficient knowledge or information to admit or deny the allegation. An averment of insufficient knowledge or information may be made only after a diligent effort has been made to ascertain the relevant facts, and shall be deemed to be a denial of the pertinent allegation. The failure to respond to any allegation shall be deemed an admission of that allegation. (c) For good cause shown, the Business Conduct Committee, or a Hearing Panel may waive the effects of failure to file a timely or complete Answer. (d) On motion of the Respondent for good cause shown, then Chairman of the Business Conduct Committee, or another member of the Business Conduct Committee designated by the Chairman may grant an extension of time in which to comply with this Rule.
[¶ 5536] RULE 3-7. APPOINTMENT OF HEARING PANEL. The Respondent shall be afforded a hearing on the charges and possible sanctions. The hearing shall be before a designated Hearing Panel of the Hearing Committee ("Hearing Panel"). A Hearing Panel shall consist of no fewer than three members of the Hearing Committee. The Chairman and the remaining members of the Hearing Panel shall be appointed by the Chairman of the Hearing Committee or his designee. If a Hearing Panel member's term on the Hearing Committee expires while the member is serving on a Hearing Panel, the member may continue to serve on that Hearing Panel until the matter is concluded. The hearing shall be held at such location as the Chairman of the Hearing Panel shall determine.
[¶ 5542] RULE 3-8. PRE-HEARING PROCEDURES. (a) The Respondent shall be entitled to a reasonable pre-hearing examination of all evidence in the Compliance Department's possession or under its control that is to be relied upon by the Compliance Department or that is relevant to the Complaint. Such pre-hearing examination:
(ii) can be conducted either by the Respondent examining all such evidence at the offices of NFA, or by the Respondent requesting that all such evidence be copied and sent to him with any transportation and copying costs borne by the Respondent making the request; (iii) is subject to the Compliance Department's right to withhold any privileged material (including, but not limited to, the investigation report), pursuant to all common law and statutory privileges it has available to it. (c) The Chairman of the Hearing Panel shall schedule pre-hearing conferences and hearing sessions and shall decide all pre-hearing motions concerning discovery, motion deadlines, location of the hearing, continuances, and requests for telephonic or video testimony. All other motions shall be decided by the Hearing Panel. (d) A motion for continuance shall be supported by an affidavit that provides a detailed description of the circumstances that form the basis for the continuance request.
[¶ 5548] RULE 3-9. HEARING. If a hearing is held: (a) The formal rules of evidence need not apply; (b) Telephonic testimony shall be permitted if ordered by the Hearing Panel; (c) The Respondent may appear personally, examine any witnesses, call witnesses and present relevant testimony and other evidence; (d) Any party to a hearing may move for an order or the Hearing Panel, on its own motion, may issue an order requiring an NFA Member, Associate, or person connected therewith to testify or produce documents at a hearing at the moving party's expense. Such an order is discretionary with the Hearing Panel and shall be issued only for good cause shown; and (e) A substantially verbatim record of the hearing shall be made (i.e., one that can be accurately transcribed). The cost of transcription shall be borne by the Respondent only if it requests the transcript, appeals the decision under Rule 3-13 below, or applies for Commission review and review is granted (See paragraph (f)(iii) of Rule 3-13). Otherwise, any transcription costs shall be borne by NFA. No member of the Hearing Panel shall participate in the matter if the member, or any person with which the member is connected, has a financial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c).
[¶ 5554] RULE 3-10. DECISION. After the hearing or other consideration of the matter, the Hearing Panel shall render a written decision, based upon the weight of the evidence, containing: (a) the charges or a summary of the charges; (b) the Answer, if any, or a summary of the Answer; (c) a brief summary of the evidence produced at the hearing, or, where appropriate, incorporation by reference of the investigation report; (d) a statement of findings and conclusions as to each allegation, including a statement setting forth: each act or practice the Respondent was found to have committed or omitted, is committing or omitting, or is about to commit or omit; each NFA requirement that such act or practice violated, is violating, or is about to violate; and whether the act or practice is deemed to constitute conduct inconsistent with just and equitable principles of trade; (e) a declaration of any penalty imposed (See Rule 3-14) and the penalty's effective date; and (f) a statement that the Respondent may appeal an adverse decision to the Appeals Committee by filing a written notice of appeal with NFA within 15 days after the date of the decision. The decision shall be dated and promptly furnished to the Respondent and the Appeals Committee and shall be final upon expiration of time for appeal or review of the decision. (See Rule 3-13.)
[¶ 5560] RULE 3-11. SETTLEMENT. [¶ 5560.1] (a) Offer.
(ii) The Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee may in its discretion accept an offer in which the person neither admits nor denies violating NFA requirements; and (iii) Every settlement offer:
[Respondent] acknowledges that the Compliance Department will present the settlement offer and its views on the proposed settlement orally, in writing or both; (b) presented to the Business Conduct Committee or BCC Panel shall also contain the following language:
(c) presented to the Hearing Panel shall also contain the following language:
(d) presented to the Appeals Committee shall also contain the following language:
(e) shall also contain the following language:
[¶ 5560.2] (b) Decision. If the Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee accepts the offer, it shall issue a written decision specifying each NFA requirement it has reason to believe is being, has been or is about to be violated, any penalty imposed and whether the settling party has admitted or denied any violation. A decision on settlement by the Business Conduct Committee, BCC Panel or Hearing Panel shall be promptly furnished to the President. A decision on settlement by the Business Conduct Committee, BCC Panel or Hearing Panel shall become final and binding 15 days after the date of the decision unless the President, with notice to all parties, refers the matter to the Appeals Committee for review. The Appeals Committee shall approve or disapprove the settlement within 30 days after the date of such referral. Its decision to approve or disapprove the settlement shall become final and binding 15 days after the date of that decision. A decision on settlement by the Appeals Committee shall become final and binding 15 days after the date of the decision.
[¶ 5560.3] (c) Withdrawal of Settlement Offer Is Prohibited. A settlement offer may not be withdrawn by a Respondent after it is submitted to the Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee. An offer that is rejected by the appropriate Committee or Panel shall be null and void and shall not be deemed to have been an admission of any matter.
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