A) Explanation of Proposed Adoption of Section 10 of NFA Financial Requirements
Financial filing requirements are designed to enable NFA to monitor an FCM's or independent IB's financial situation so that NFA can identify potential problems before they occur and work with the Member to avoid them. For this reason, it is important for all Members to meet their financial filing obligations, even if they are adequately capitalized. In addition, experience has shown that firms that file late are more likely to have financial problems that NFA should be aware of as quickly as possible.
Since January 1, 2002, all FCMs and independent IBs have been required to file their financial reports electronically using software that allows them to file their statements quickly and more accurately and that provides Members with immediate notification that their filings have been received. As a result, NFA has seen a significant drop in the number of late financial statements, but we still receive a number of late filings, with a handful of firms consistently filing late.
Proposed Section 10 of NFA's Financial Requirements establishes a late filing fee in order to deter late filings. Section 10 imposes a fee of $200 for each business day a financial filing is late. NFA would exercise its discretion to waive the fee in appropriate circumstances, such as where the late filing resulted from temporary computer problems. In addition, NFA reserves the right to take a disciplinary action if a Member is consistently late or if a financial report is outstanding for an extended period of time.
B) Explanation of Proposed Adoption of NFA Compliance Rule 2-38 and its Interpretive Notice Regarding Business Continuity and Disaster Recovery Plan
Subsection (a) of proposed Compliance Rule 2-38 contains the general requirement that NFA Members establish and maintain reasonable business continuity plans. Subsection (b) requires Members to provide NFA with emergency contact information to make it easier for NFA to assist Members in an emergency and to facilitate an industry-wide response in a crisis situation.
The Interpretive Notice supplements Compliance Rule 2-38 by providing guidance on the essential components of an effective business continuity plan and what is required to maintain that plan. The Board realized, however, that a Member's business continuity plan cannot be effective unless it is tailored to that Member's particular situation and needs. Therefore, the interpretive notice describes the components in general terms to give Members the flexibility to tailor their plans to their individual businesses.
The Rule and Interpretive Notice contemplate that Members' plans would enable them to either continue their operations or reestablish them as soon as possible, but the Rule and Interpretive Notice also allow for the fact that for some small businesses the only viable option after a major disaster would be to transfer their accounts to another firm and cease operations.
NFA intends to make the list of contact persons required to be provided to NFA under subsection (b) of the proposed rule readily available to the industry in the event of an emergency.