Proposed Rule

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EXPLANATION OF PROPOSED AMENDMENTS

Earlier this year, NFA adopted changes to Section 1 of NFA's Financial Requirements, and those amendments became effective on July 31, 2006. One amendment increased the minimum net capital requirement for FCMs from $250,000 to $500,000.

Section 2 of NFA's Financial Requirements sets forth the minimum net capital requirements for FCMs that guarantee IBs. Specifically, Section 2(a) prohibits a Member FCM that knows or should have known that its adjusted net capital is less than the greatest of the amounts listed in Section 2(a)(i)-(v) from entering into a guarantee agreement with an IB until the FCM files three successive month-end statements demonstrating that its adjusted net capital is equal to or greater than the amounts listed. Currently, the amount in 2(a)(i) is $375,000, or 150% of $250,000, the minimum net capital requirement for FCMs prior to July 31, 2006. In light of the previous amendment to Section 1 that increased an FCM's minimum net capital requirement to $500,000, Section 2(a)(i) should be similarly increased to $750,000, or 150% of $500,000.

As mentioned earlier, NFA is invoking the "ten-day" provision of Section 17(j) of the Commodity Exchange Act. NFA intends to make the amendments to NFA Financial Requirements Section 2 regarding the eligibility to guarantee IBs effective ten days after receipt of this submission by the Commission, unless the Commission notifies NFA that the Commission has determined to review the proposal for approval.

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