Proposed Rule

Each Forex Dealer Member must maintain "Adjusted Net Capital" (as defined in CFTC Regulation 1.17) equal to or in excess of the greatest of:

(i) $250,000;

(ii) 1% of the total net aggregate notional value of all open foreign currency futures and options plus 1% of the total net aggregate options value (calculated by multiplying the notional value of the underlying currency by the larger of the option's delta or .25) for transactions in customer and non-customer but not proprietary accounts that are between the Forex Dealer Member and a person that is not an eligible contract participant as defined in Section 1a(12) of the Act and that are not executed on a contract market, a derivatives transaction execution facility, a national securities exchange registered pursuant to Section 6(a) of the Securities Exchange Act of 1934, or a foreign board of trade; or

(iii) any other amount required by Section 1 of these Financial Requirements.

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INTERPRETIVE NOTICE

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FOREX TRANSACTIONS WITH FOREX DEALER MEMBERS
INTERPRETIVE NOTICE

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2. Financial Requirements Section 11

Forex Dealer Members must maintain adjusted net capital equal to or higher than the greatest amount required by Section 11 of NFA's Financial Requirements. For Forex Dealer Members, one of those amounts is 1% of the total net aggregate notional value of all open foreign currency futures and options plus 1% of the total net aggregate options value for transactions that are between the Forex Dealer Member and any person that is not an eligible contract participant, including foreign persons. To calculate the capital requirement, follow these steps:

• Calculate the aggregate long notional value for each currency pair by adding up the long positions, multiplying by the contract size, and converting to U.S. dollars using the relevant exchange rate;
• Calculate the aggregate short notional value for each currency pair by adding up the short positions, multiplying by the contract size, and converting to U.S. dollars using the relevant exchange rate;
• Subtract the smaller value from the larger value to determine the net value for the currency pair;
• Add the net values of the pairs (whether long or short) to arrive at the total notional value; and
• Multiply that number by .01.

For example:

Currency Pair	Long Value	Short Value	Net Value
EUR/USD	$29,518,561	$12,489,666	$17,028,895
CND/JPY	25,422,685	15,387,016	10,044,669
CND/BRL	18,123,654	18,876,273	752,619
USD/MXN	5,431,980	6,769,211	1,337,231
BRL/MXN	2,111,789	4,097,815	1,986,026
Total Notional Value			$31,149,440
Capital Requirement ($31,149,440 X .01)			$311,494

If the firm carries forex options positions for retail customers and non-customers, follow these additional steps for each currency pair:

• Net identical options (long and short calls with the same strike price and expiration date and long and short puts with the same strike price and expiration date);
• Multiply the remaining long calls by their deltas or by .25, whichever is larger, and by their contract size;
• Multiply the remaining long puts by their deltas or by .25, whichever is larger, and by their contract size;
• Multiply the remaining short calls by their deltas or by .25, whichever is larger, and by their contract size;
• Multiply the remaining short puts by their deltas or by .25, whichever is larger, and by their contract size;
• Add the results;
• Multiply the sum by the spot exchange rate (converting to U.S. dollars in the process) to get the net aggregate options value for that currency pair;

Then calculate the capital requirement as follows:

• Add the results from each currency pair to get the total net aggregate options value;
• Multiply the total net aggregate options value by .01 to determine the options capital requirement; and
• Add the options capital requirement to the futures capital requirement to determine the firm's capital requirement.

For example:

Assume the Forex Dealer Member's customers have the following EUR/USD options:

Type	Long Options	Short Options	Delta	Delta for Capital Purposes	Contract Size
Call	1499	321	.5	.5	10,000
Call	2181	780	.5	.5	5,000
Call	1167	912	.15	.25	10,000
Call	1674	1688	.15	.25	5,000
Put	91	32	.4	.4	10,000
Put	281	70	.4	.4	5,000
Put	364	115	.1	.25	10,000
Put	845	198	.1	.25	5,000

Calculate the values for long calls, long puts, short calls, and short puts:

(Long calls)	1499 X .5 X 10,000 = 7,495,000
	2181 X .5 X 5,000 = 5,452,500
	1167 X .25 X 10,000 = 2,917,500
	1674 X .25 X 5,000 = 2,092,500
	17,957,500
(Long puts)	91 X .4 X 10,000 = 364,000
	281 X .4 X 5,000 = 562,000
	364 X .25 X 10,000 = 910,000
	845 X .25 X 5,000 = 1,056,250
	2,892,250
(Short calls)	321 X .5 X 10,000 = 1,605,000
	780 X .5 X 5,000 = 1,950,000
	912 X .25 X 10,000 = 2,280,000
	1688 X .25 X 5,000 = 2,110,000
	7,945,000
(Short puts)	32 X .4 X 10,000 = 128,000
	70 X .4 X 5,000 = 140,000
	115 X .25 X 10,000 = 287,500
	198 X .25 X 5,000 = 247,500
	803,000

Calculate the net aggregate options value:

Long calls	17,957,500
Long puts	2,892,250
Short calls	7,945,000
Short puts	803,000
	29,597,750
Spot exchange rate	X     1.2016
	$35,564,656

Calculate the options capital requirement:

EUR/USD	$35,564,656
USD/JPY	12,791,554
USD/MXN	11,905,332
	(Etc.)
Total Net Aggregate Options Value	$93,411,016
Options Capital Requirement ($93,411,016 X .01)	$934,110

Calculate the firm's capital requirement:

Options Capital Requirment	$934,110
Plus Futures Capital Requirement	311,494
Total Capital Requirement	$1,245,604

A Forex Dealer Member that carries forex options positions for retail customers and non-customers must submit the methodology it uses to calculate the deltas to NFA prior to use and must maintain records showing the actual deltas used in the firm's daily capital computations.