Proposed Rule

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Explanation of Proposed Interpretive Notice and Risk Disclosure Statement

The proposed interpretive notice states that NFA Compliance Rule 2-30(b) requires Members and Associates who are not members of NASD to provide a disclosure statement for security futures products to a customer at or before the time the member approves the account to trade security futures products. The interpretive notice identifies the statement that must be provided and notifies Members that it is available on NFA's web site.

The risk disclosure statement has nine sections. They are 1) Risks of Security Futures, 2) Description of a Security Futures Contract (including its purposes and characteristics), 3) Clearing Organizations and Mark-to-Market Requirements, 4) Margin and Leverage, 5) Settlement, 6) Customer Account Protections, 7) Special Risks for Day Traders, 8) Other (which covers corporate events, position limits and large trader reporting, transactions on foreign exchanges, and tax consequences), and 9) a Glossary of Terms.

NFA, NASD, and a number of securities and futures exchanges jointly developed the risk disclosure statement for security futures contracts using the statement for listed equity options as the template. Futures and securities firms will both be required to provide this document to security futures customers, regardless of where the products are traded. NFA will make the statement available on its web site.

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