Proposed Rule

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PROPOSED AMENDMENTS

ARTICLES OF INCORPORATION
OF
NATIONAL FUTURES ASSOCIATION

(Additions are underscored and deletions are stricken)

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Article IV: Form Of Organization

NFA shall be a membership corporation and shall have no capital stock and shall have no authority to issue any stock. NFA is not organized and shall not be conducted for profit, and no part of its net revenues or earnings shall inure to the benefit of any Member except for the repayment of bona fide loans or other credit extended by a Member to NFA.

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Article VII: Board Of Directors

Section 1: General.

The duties of the Board of Directors shall include the management of NFA's business, the adoption of NFA's Bylaws, and the fulfillment of NFA's fundamental purposes.

Section 2: Composition of Board.

The Board of Directors shall be comprised as follows:

(a) Contract Market Representatives.

(i) One representative of each contract market Member, except that any contract market Member ranked in the top four contract market Members based on that had transaction volume of more than 20 percent of aggregate contract market annual transaction volume during any the prior calendar year. shall have two representatives on the Board for the following year (i.e., beginning at the Annual Election for that year and continuing until the next Annual Election).

(ii) Two (2) elected representatives of contract market Members not ranked in the top four contract market Members based on annual transaction volume during the prior calendar year. Only contract market Members not represented in accordance with Section 2(a)(i) shall be eligible to vote for the representatives elected in accordance with this Section 2(a)(ii).

(iii) A specific contract market's annual transaction volume shall be the number of commodity futures contracts entered into on the contract market during the calendar year. The aggregate contract market transaction volume shall be the number of such contracts entered into on all U.S. contract markets. The number of contracts entered into on a contract market shall be adjusted where necessary because of differences in sizes of contracts (e.g., one 5,000 oz. contract for a particular commodity would equal five 1,000 oz. contracts for that commodity for purposes of the computation).: Provided, however, that not more than 11 contract market Members shall have representatives on the Board at any one time. Should there be more than 11 contract market Members, the 11 contract market Members with the greatest transaction volume during the previous calendar year shall have representatives.

(iv) A contract market Member and all contract market Members with which it is affiliated shall have no more than one representative on the Board at any one time. For the purposes of this limitation, a contract market Member shall be deemed to be affiliated with another contract market Member if it directly or indirectly owns 100 percent of or is owned 100 percent by or has 100 percent ownership in common with such other contract market Member.

(b) Futures Commission Merchant, Leverage Transaction Merchant and Introducing Broker Representatives.

(i) Seventeen (17)Ten (10) elected representatives of registered Futures Commission Merchant (hereinafter "FCM") Members, registered Leverage Transaction Merchant (hereinafter "LTM") Members, and registered Introducing Broker (hereinafter "IB") Members, divided as follows:

(A) Two Four (4) representatives of FCMs and LTMs having 1-15 offices ranked in the top ten FCMs based on the total of segregated funds and secured amounts, as those terms are defined in the applicable Commission regulations, held as of June 30 of the prior calendar year.

(B) Two Four (4) representatives of FCMs and LTMs not ranked in the top ten FCMs based on the total of segregated funds and secured amounts, as those terms are defined in the applicable Commission regulations, held as of June 30 of the prior calendar year. having 16-50 offices.

(C) Five representatives of FCMs and LTMs having 51 or more offices.

(D) Five representatives of FCMs and LTMs from category A, B or C above.

(CE) One representative of IBs required to maintain minimum adjusted net capital.

(DF) One representative of IBs not required to maintain minimum adjusted net capital.

(G) One representative of IBs from either category E or F above.

An FCM and an LTM Member’s offices shall include the offices of any affiliate through which offices the FCM or LTM Member conducts its FCM or LTM business.

(ii) No FCM, LTM or IB shall have more than one representative on the Board at any one time. For purposes of this limitation, a person shall be deemed a representative of an FCM, LTM or IB Member if the person is an officer, director, partner, employee or beneficial owner of more than 10 percent of the equity stock of the FCM, LTM or IB, and the person is not a contract market representative.

(c) Industry ParticipantCommodity Pool Operator, Commodity Trading Advisor and Public Representatives.

(i) Six (6) Four (4) elected representatives (hereinafter "Industry Participants") of registered commodity pool operators (hereinafter "CPOs") and registered commodity trading advisors (hereinafter "CTAs") that are NFA Members, including at least one two (2) representatives of a Member that acts primarily as a CPOs or CTAs that and ranks within the top one third 20 percent of CPOs or CTAs with funds under management allocated to futures (as defined in Article XVIII(k)). and one representative of a Member that acts primarily as a CTA and ranks within the top one third of CTAs with funds under management allocated to futures (as defined in Article XVIII(k)). If none of the individuals serving continuing terms is a representative of a firm within the top one third of CPOs, the individual with the highest number of votes who is a representative of a firm within the top one third shall be elected. If none of the individuals serving continuing terms is a representative of a firm within the top one third of CTAs, the individual with the higest number of votes who is a reprsentative of a firm within the top one third shall be elected. Ties shall be resolved by the Board by random draw.

(ii) Nine (9) Five (5) individuals who are not officers, directors, partners, employees or beneficial owners of more than 10 percent of the equity stock of employed by any Member of NFA (hereinafter "Public Representatives"). At least four of these individuals may not have any direct association with a business enterprise in the commodity futures industry. The remaining Public Representatives may be drawn from commercial banks, commercial firms or other users of the futures markets. Any individual serving as a Public Representative must meet the standards set forth in Commission Regulations.

(iii) No Industry Participant CPO or CTA may have more than one representative on the Board at any one time. For purposes of this limitation, a person shall be deemed a representative of an Industry Participant CPO or CTA if the person is an officer, director, partner, employee or beneficial owner of more than 10 percent of the equity stock of the Industry Participant CPO or CTA, and the person is not a contract market representative.

Section 3: Nominations; Election.

The elected Directors shall be chosen as follows:

(a) Nominating Committee.

The Nominating Committee (see Article X) shall nominate at least one candidate for each elected FCM and LTM, IB, and CPO and CTA Director position to be filled, at least one of which shall be a representative of an FCM which is not a member of any contract market. These nominations shall be made in accordance with the eligibility requirements contained in this Article. The Nominating Committee shall nominate candidates whose election shall result in diverse segments of each category being represented on the Board based upon the size of the Member, the type of business conducted by the Member and the type of customer serviced by the Member.

 

(b) Petition Procedure.

Nominations may be made for elected FCM and LTM, IB, and CPO and CTA Director positions by:

(i) Petition signed by 50 or more NFA Members in the category for which the nomination is made (i.e., FCM and LTM, IB, and CPO and CTA); or

(ii) Petition submitted by any organization or association recognized by NFA as fairly representing the category (See (b)(i) above) for which the nomination is made.

Petitions shall be submitted in the manner specified in the Bylaws. No petition may nominate more than one candidate for the same position.

(c) Election.

If there is a contested election in any category (See (b)(i) above) of NFA Members, the Members in that category shall thereafter elect by plurality vote from such nominees the Directors that are to represent that category. The election shall be conducted in the manner provided in the Bylaws, which shall provide for an Annual Election.

(d) Public Representatives.

The Public Representatives shall be chosen as follows: Before the Annual Election, the Board shall solicit from the Members the nomination of individuals to serve on the Board in the Public Representative category. At the Board's regular annual meeting, the Board shall, by majority vote, select from among such nominees the Public Representatives to serve on the Board.

(e) Contract Markets

The contract market representatives described in Article VII, Section 2(a)(ii) shall be elected as follows: Before the Annual Election, the Board shall solicit from contract market Members described in Article VII, Section 2(a)(ii) the nomination of individuals to serve on the Board as representatives of such contract market Members. If there is a contested election of such contract market Members, such contract market Members shall thereafter elect by plurality vote from such nominees the Directors that will represent them. The election shall be conducted in the manner provided in the Bylaws, which shall provide for an Annual Election.

Section 4: Terms of Directors.

(a) Contract Market Directors.

Directors representing contract market contract market Members shall serve at the pleasure of the contract market they represent serve for one-year terms, from the date of the Board’s regular annual meeting following the Annual Election at which they are elected until the date of the Board’s regular annual meeting one year hence.

(b) Other Directors.

Directors other than contract market contract market Member Directors shall serve for three year two-year terms, from the date of the Board’s regular annual meeting following the Annual Election at which they are elected until the date of the Board’s regular Aannual Election meeting three two years hence at which their successor is elected: Provided, however, the terms of the initial Directors elected at the Annual Election in 2002 shall be staggered. The initial Nominating Committee shall identify the term to be served by each candidate for initial Director. Except for Public Representatives, half of the Directors in each category elected at the Annual Election in 2002 shall serve two-year terms, and half shall serve one-year terms. The Directors who receive the highest number of votes in each category shall serve the two-year terms. Ties shall be resolved by random draw. Three of the Public Representatives elected at the Board’s regular annual meeting held in 2002 shall serve two-year terms and two shall serve one-year terms. The Public Representatives who serve two-year terms shall be determined by random draw.

Section 5: Voting; Quorum.

Each Director shall have one vote upon any matter coming before the Board for official action, and, except as otherwise provided in these Articles or NFA's Bylaws, the affirmative vote of a majority of the Directors present and voting at a meeting of the Board shall be NFA's official act if a quorum is present. A quorum of the Board shall consist of one-half of the Directors, except where NFA Bylaws specify a lesser number in emergency situations.

 

Section 6: Establishment of Major Plans and Priorities.

The Board shall establish for observance by the Executive Committee (See Article VIII) and NFA staff major plans and priorities, including those regarding the commitment and expenditure of NFA funds.

Section 7: Chairman and Vice Chairman.

There shall be a Chairman and Vice Chairman of the Board. They shall serve for one-year terms and shall be elected by the Board at its regular annual meeting, by majority vote. The Chairman shall be elected from among the Directors in office and the Vice Chairman shall be elected from among Directors elected to serve on the Executive Committee.

Section 8: Vacancies.

A vacancy that occurs on the Board before the expiration of a Director's term shall be filled (for the unexpired term) by an eligible individual elected by majority vote of the remaining Directors who represent the category of Members in which the vacancy occurred, except that if the vacancy involves a representative of a contract market Member described in Article VII, Section 2(a)(i), that contract market Member shall designate the successor. In the event there are no Directors remaining who represent the category of Members in which the vacancy occurred, the vacancy shall be filled by an eligible individual elected by the Board.

Article VIII: Executive Committee

Section 1: General.

There shall be an Executive Committee of the Board, which may exercise all powers of the Board except as set forth in Section 2 below. The authorized actions of the Executive Committee shall be deemed actions of the Board.

Section 2: Board Powers Not Exercisable By Executive Committee.

(a) General Prohibitions.

The Executive Committee shall not exercise any power of the Board when the Board is in session, and the Executive Committee shall at no time take any action with respect to any matter that is the subject of a notice of a pending Board meeting without the concurrence of the Board.

(b) Specific Prohibitions.

The Executive Committee shall at no time exercise any of the following powers of the Board:

(i) The adoption, amendment or repeal of any Bylaw unless such power has been delegated by the Board in accordance with Article XI, Section 1(a); or the ratification of any proposal to adopt, amend or repeal these Articles.

(ii) The establishment of major plans and priorities, including those regarding the commitment and expenditure of NFA funds, except that the Board may authorize the Executive Committee to make expenditures within specific monetary limits prescribed in the Bylaws or Board Resolutions.

(iii) The election, appointment or removal of any NFA Director, officer or committee member.

(iv) The adoption of a plan of merger or consolidation with another entity.

(v) The sale, lease, exchange or mortgage of all or substantially all of NFA property or assets.

(vi) The voluntary dissolution of NFA or the revocation of proceedings therefor.

(vii) The adoption of a plan for the distribution of NFA assets.

(viii) The amendment or repeal of any Board Resolution that, by its terms, provides that it shall not be amended or repealed by the Executive Committee.

Section 3: Composition.

The Executive Committee shall comprise the following:

(a) NFA's President, and

(b) Nine (9) Directors, as follows:

(i) The Chairman of the Board of Directors, and

(ii) Eight (8) other Directors, as follows:

(A) Two (2) Directors representing contract markets:

(1) One (1) representative of a contract market with two Directors on the Board that had transaction volume of more than 20 percent of aggregate contract market transaction volume during the prior calendar year. A specific contract market's transaction volume shall be the number of commodity futures contracts entered into on the contract market. The aggregate contract market transaction volume shall be the number of such contracts entered into on all U.S. contract markets. The number of contracts entered into on a contract market shall be adjusted where necessary because of differences in sizes of contracts (e.g., one 5,000 oz. contract for a particular commodity would equal five 1,000 oz. contracts for that commodity for purposes of the computation); and

(2) One (1) representative of a contract market other than a contract market described in clause (1) above: that has one Director on the Board: Provided, however,if no contract market has two Directors described in clause (1) above is represented on the Board, there shall be two Directors on the Committee from contract markets with one Director represented on the Board;

(B) Three (3) Directors representing FCMs, LTMs or IBs;

(C) Two (2) Directors representing CPOs and CTAs; and

(D) One (1) Director who is a Public Representative without a present direct association with a business enterprise in the commodity futures industry.

 

Section 4: Election of Members; Vacancies.

The elected members of the Executive Committee shall be chosen by the Board at the regular annual meeting as follows: The Directors representing contract markets with two Directors on the Board that had transaction volume of more than 20 percent of aggregate contract market transaction volume during the prior calendar year shall elect the Committee member in category (b)(ii)(A)(1) above; the Directors representing all other contract markets having one Director on the Board shall elect the Committee members (or members, if there are no contract markets with two Directors on the Board) in category (b)(ii)(A)(2) above shall elect the Committee member in category (b)(ii)(A)(2) above; the Directors representing FCMs, LTMS, and IBs shall elect the Committee members in category (b)(ii)(B) above; the Directors representing Industry Participant CPOs and CTAs shall elect the Committee members in category (b)(ii)(C) above; and the Public Representative Director shall be elected by the Board. A vacancy that occurs on the Executive Committee shall be filled in like manner. Tie votes may be resolved by the Board by random draw.

Section 5: Voting; Quorum.

Each member of the Executive Committee shall have one vote on Executive Committee matters. A quorum of the Committee shall consist of one contract market Member of the Committee, one FCM, LTM or IB member of the Committee, and any three other Committee members.

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Article X: Nominating Committee

There shall be a Nominating Committee, composed of three Subcommittees, one for each of the following categories of Members: FCMs and LTMs, IBs, and CPOs and CTAs. Each Subcommittee shall nominate at least one candidate for each position to be filled on the Board in the Subcommittee's category, in accordance with the eligibility requirements of Article VII.

Section 2: Composition; Term of Members.

(a) Each Subcommittee of the Nominating Committee shall be composed of three representatives of the Subcommittee's category, except that:

(i) The FCM and LTM Subcommittee shall be composed of three representatives, including at least one representative of FCMs or LTMs with 1-15 offices, one representative of FCMs or LTMs with 16-50 offices, described in Article VII, Section 2(b)(i)(A) and at least one representative of FCMs or LTMs with 51 or more offices described in Article VII, Section 2(b)(i)(B); and

(ii) The IB Subcommittee shall be composed of three (3) representatives, including at least one representative of IBs required to maintain minimum adjusted net capital and at least one representative of IBs not required to maintain minimum adjusted net capital.

(iii) The CPO and CTA Subcommittee shall include at least one representative that primarily acts as a CPO and at least one representative that primarily acts as a CTA.

(b) Members of the Nominating Committee shall serve staggered terms of three years from the date of the Board’s regular annual meeting following the Annual Election at which they are elected until the date of the Annual Election Board’s regular annual meeting three years hence at which their successor is elected.

Section 3: Selection of Committee Members.

Each Subcommittee of the Nominating Committee shall nominate, for each position to be filled on the Nominating Committee, one eligible individual for election by the Members to that Subcommittee for the following term. Additional nominations may be made for each such position by petition in the manner set forth in Article VII, Section 3. The procedures for such election shall be the same as those prescribed in Article VII, Section 3. No person shall be nominated or elected to the Nominating Committee who has served on the Nominating Committee during the preceding term, and no person shall be nominated or elected to the Nominating Committee who, at the time of such nomination or election, is a Director. Any vacancy that occurs on the Nominating Committee shall be filled by the Board from among persons eligible under this Article to serve thereon.

 

Article XI: Bylaws

Section 1: Adoption, Amendment and Repeal.

Bylaws of NFA may be adopted, amended or repealed by a majority of all Directors in office at the time, except that:

(a) Category Voting.

Tthe Board shall not take the following actions unless a two-thirds majority of all Directors present and voting in each of the membership categories set forth in Section 2(a)-2(c) of Article VII (contract markets, FCMs, LTMs, IBs and Industry Participants and Public Representatives) approves:

(i) Delegating or otherwise granting authority to any NFA Committee, officer, employee or agent, or any other person, to adopt, amend or repeal any Bylaw.

(ii) Adopting, amending or repealing any Bylaw regarding dues or assessments; and

(b) Contract Market Dues and Assessments.

(iii) Adopting, amending or repealing any No Bylaw regarding dues, assessments or similar charges imposed on contract market Members may be adopted, amended or repealed without the consent of all Directors representing contract markets.

Section 2: Content of Bylaws.

Except insofar as such matters are expressly contained in these Articles, the following shall be as provided from time to time in NFA's Bylaws: The conditions of, method of admission to, and qualifications for membership and Associate registration; the limitations, rights, powers and duties of Members and Associates; dues and assessments; the method of expulsion from and the termination of membership and Associate registration; the procedures for the settlement of claims and grievances; and all other matters pertaining to membership in, registration with, and the conduct, management and control of the business, property and affairs of NFA.

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Article XVII: Adoption, Amendment and Repeal of Articles

No provision of these Articles may be adopted, amended or repealed except in the manner prescribed in this Article. Each such proposed change to the Articles shall be reviewed by the Board, and shall be submitted to the Members of NFA only upon ratification of the proposal by two-thirds of the Directors. in the category set forth in Section 2(a) of Article VII (contract markets), a majority of the Board members in the category set forth in Section 2(b) of that Article (FCMs, LTMs, and IBs) and a majority of the remaining Board members. If any such proposed change relates to Article III, Section 2, such proposed change shall not be considered by the Board for ratification unless at least 60 days written notice of the proposed change has been given to each contract market Member. Upon such ratification, the proposal shall be submitted to a ballot vote of the Members and shall be adopted upon the affirmative vote of two thirds of those Members in the category set forth in Section 2(a) of Article VII who submit a proper ballot in a timely manner and a majority of those Members in each of the categories set forth in Sections 2(a), 2(b) and 2(c) of Article VII who submit a proper ballot in a timely manner.

Article XVIII: Definitions.

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(h) "Contract Market"-means an exchange designated by the Commission as a derivatives transaction execution facility or registered by the Commission as a contract market. in one or more commodities or licensed by the Commission for the trading of options.

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