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Filing Requirements for FCMs and RFEDs

Required Accounting Records

Futures Commission Merchants (FCMs) and Retail Foreign Exchange Dealers (RFEDs) are required to maintain an accounting system that records all of the firm's financial activity. The financial reports created from the accounting system must be prepared following U.S generally accepted accounting principles ("GAAP"), must be done on an accrual basis, and must be kept current. Additionally, NFA Financial Requirements and CFTC Regulation 1.17 include definitions which a Member should fully understand in order to properly prepare its financial reports. Some of these requirements are much more restrictive than GAAP with respect to the classification of current and non-current assets. See the 1-FR Instruction Guide for a detailed explanation of these requirements 

Adjusted Net Capital

FCMs and RFEDs are required to maintain at all times adjusted net capital greater than the minimum net capital requirement for that FCM or RFED. Adjusted net capital is computed as follows: 

Current Assets - Liabilities - Charges against Capital = Adjusted Net Capital.

When computing adjusted net capital, a firm may exclude a liability that is subordinated to the claims of all general creditors pursuant to a satisfactory subordination agreement. A subordinated loan agreement must be filed with NFA at least ten days prior to the proposed effective date of the agreement and cannot be considered "satisfactory" until NFA finds the agreement acceptable. In order to facilitate the approval process for subordinated loan agreements ("SLA"), NFA recommends that the FCM or RFED use the templates below as a guide when drafting an SLA.

Net Capital Requirements

NFA Financial Requirements Section 1 and Section 11 define the minimum net capital requirements for FCMs and RFEDs, respectively. If a Member's adjusted net capital falls below its minimum net capital requirements, it must immediately notify the appropriate agencies of this deficiency. See Reporting Requirements for FCMs and Reporting Requirements for RFEDs.

FCMs and RFEDs also have an "early warning" capital level. If they fall below the early warning level, they can be subject to additional reporting requirements and they may be prohibited from guaranteeing IBs. (See NFA Financial Requirements Section 2)

Members subject to capital requirements should also be aware of restrictions imposed when adjusted net capital falls to a restrictive level. A Member may not withdraw capital when it is below the equity withdrawal restriction nor may it pay down a subordinated loan agreement if it is below the suspended repayment restriction. Further, Members must maintain equity capital of at least 30% at all times.  

Filing of Financial Reports

FCMs and RFEDs must file financial reports with NFA and the CFTC on a periodic basis and most filings must be done electronically. See Reporting Requirements for FCMs and Reporting Requirements for RFEDs for what must be filed, when and how, and see the "Forms" list below for links to the appropriate financial reporting forms. Additionally, financial reports filed late will be subject to Late Filing Fees.

Segregation Requirements, 30.7 Secured Amounts and Cleared Swaps Customer Collateral

The Commodity Exchange Act (CEA) and CFTC Regulation 1.20 requires that all customer funds received by an FCM must be segregated from and accounted for separately from the FCM's own funds. CFTC Regulation 30.7 contains a related requirement for foreign futures and foreign options customer funds. Additionally, CFTC Regulation 22.2 contains a related requirement for cleared swaps customer collateral.  

FCMs must obtain acknowledgment letters from depositories, including derivatives clearing organizations (DCOs) where applicable and other FCMs, that declare certain funds placed with it are customer funds held in accordance with the CEA and CFTC Regulations. FCMs and their depositories must file a copy of each acknowledgment letter with both the CFTC and the firm's DSRO.

An FCM must be adequately prepared with an appropriate back office system to account for customer equities and for handling customer funds in an appropriate manner. The 1-FR-FCM Instruction Guide provides guidance on accounting for, investing and reporting customer funds. An FCM must inform NFA of its intent to accept customer funds prior to doing so. See FCM Reporting Requirements for filing of reports for segregated funds, 30.7 secured amounts and cleared swaps customer collateral, and Segregated Investment Detail Report (SIDR) Statements Due Dates for the list of filing due dates. See also Holiday Daily Filing Requirements for the schedule of filing requirements for U.S. holidays.

Additional Requirements

FCMs have additional obligations designed to protect customers and customer funds held by FCMs and DCOs. CFTC Regulation 1.11 requires each FCM that holds customer funds to establish, maintain and enforce a system of risk management policies and procedures, known as a Risk Management Program, that is designed to monitor and manage the risks associated with the FCM's activities. As a part of the Risk Management Program, each FCM is required to provide its senior management and its governing body with a quarterly Risk Exposure Report (RER), as well as interim RERs at anytime the FCM detects a material change in the FCM's risk exposure. FCMs must also electronically file through WinJammer™ a copy of the quarterly RER and any interim RERs within five business days of providing the report to its senior management.    

As required by CFTC Regulations 1.15 and 5.11, each FCM and RFED must also electronically file through WinJammer™ an annual Risk Assessment Report  containing a copy of the firm's organizational chart and copies of the financial and operational policies, procedures and systems, as well as fiscal year-end consolidated financial statements for certain affiliates. Each FCM and RFED must also report any material change in the firm's organizational chart and/or financial and operational policies and procedures within 60 days after the end of the fiscal quarter where the change occurred .

Furthermore, each FCM must designate a Chief Compliance Officer (CCO) and ensure that person is listed as a principal of the FCM. The CCO is required to prepare an annual report as outlined in CFTC Regulation 3.3(e) and provide the report to the firm's senior management or the board of directors. CFTC Regulation 3.3 requires that the report be furnished to the CFTC electronically, not more than 90 days after the FCM's fiscal year-end. The annual report must also include a certification by the firm's CCO or CEO regarding the accuracy and completeness of the report. FCMs should use WinJammer™ to submit the report.

See the Reporting Requirements for FCMs for more details and notice filings required for FCMs.

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