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Notice I-97-13

June 17, 1997

NFA Announces iNFAst System

There are a number of significant changes to NFA Financial Requirements which will go into effect on June 30, 1997. FCMs and independent IBs should carefully review each section of this notice so that they can make any necessary plans for the June 30, 1997 effective date.

Changes have been made in the following five areas

• Electronic filing of financial reports by FCMs and IBs

• New filing deadlines for unaudited financial reports of FCMs and IBs

• Additional unaudited report required for FCMs and IBs

• Time period to prepare monthly capital computation reduced

• Debt-Equity ratio calculation modified

ELECTRONIC FILING OF FINANCIAL REPORTS BY FCMs AND IBs

iNFAst
National Futures Association
Electronic Financial Reporting System

Beginning with reports dated June 30, 1997, FCMs for which NFA is the designated self-regulatory organization and independent IBs may file financial reports with NFA electronically. Forms 1-FR-FCM and 1-FR-IB and the SEC FOCUS Report may all be filed electronically. All that is needed is a personal computer with a modem, an Internet e-mail address, Microsoft Excel (version 5 or later) and Windows 3.x or Windows95 operating system.

NFA has developed software which allows FCMs and IBs to enter data, either manually or by importing it from existing financial software, which would be filled in on the 1-FR or FOCUS Report. The software is an easy-to-use spreadsheet which also incorporates some basic checks for clerical accuracy. Once the spreadsheet is complete, an authorized signer of the financial report must enter a personal identification number (PIN) which will encrypt the file for security purposes and send it to NFA. You should not file a hard copy of the report if you have filed electronically.

In order to begin filing electronically an FCM or IB must sign an agreement and receive PINs for any people who will be signing financial reports. Once the agreement has been signed and the PINs issued, NFA will send an e-mail message to the FCM or IB on, or about, the as of date of the report That message will include an attachment that is the NFA filing package. The filing software and agreement will also be available for download on NFA's World Wide Web site at http://www.nfa.futures.org.

If you are interested in filing electronically beginning with the June 30, 1997 financial report you should send an e-mail (from the address where you wish to receive the filing software) to NFA at iNFAst@nfa.futures.org. By return e-mail we will send the agreement which needs to be signed. You must print out and manually sign the agreement and return it by mail to NFA. We will then issue your PINs by return mail. FCMs and IBs must still file all financial reports with the CFTC in hard copy.

The full interpretive notice on electronic filing is included at the end of this notice. If you have questions regarding electronic filing please contact either Bob Krewer at 312-781-1324, Tim McHenry at 312-781-1425 or Tony Gialanella at 312-781-1328.

NEW FILING DEADLINES FOR UNAUDITED FINANCIAL REPORTS OF FCMs AND IBs

Beginning with reports which have an as of date in 1998 all unaudited financial reports, for both FCMs and IBs, will be due within 17 business days of the date of the report. This applies whether the report is a regular quarterly or semi-annual report or a monthly report.

Unaudited financial reports as of June 30, 1997 through December 31, 1997 will be due within 30 calendar days. This will allow FCMs and IBs to acclimate to the reduced time periods for filing. Audited reports will still be due within 90 calendar days of the firm’s fiscal year end.

Finally, IBs switching from guaranteed to independent that file an audited financial report which is more than 45 days old must include an unaudited financial report which is not older than 17 business days as of the termination date. This requirement is effective as of June 30, 1997 with no phase in period. The chart below may help simplify the changes:

Type of Statement

Current Rule

From 6/30 to 12/31/97

Beginning January 1, 1998

Unaudited

45 days

30 days

17 business days

Unaudited on monthly reporting

30 days

30 days

17 business days

Audited

90 days

90 days

90 days

Unaudited as of fiscal year end

N/A

30 days

17 business days

IBG to IBI audited

45 days

45 days

45 days

IBG to IBI unaudited
(if audited is more than 45 days old)

45 days

17 business days

17 business days


The full interpretive notice concerning the new filing deadlines is included at the end of this notice.

ADDITIONAL UNAUDITED REPORT REQUIRED FOR FCMs AND IBs

As of June 30, 1997 all FCMs will be required to file an unaudited financial report as of the quarter ending on their fiscal year end. Similarly, IBs must file an unaudited financial report for the semi-annual period ending on their fiscal year end. In accordance with the new filing deadlines, that report will be due within 30 calendar days for reports as of June 30, 1997 through December 31, 1997 and within 17 business days beginning with reports which have an as of date in 1998.

TIME PERIOD TO PREPARE MONTHLY CAPITAL COMPUTATION REDUCED

Beginning in 1998 FCMs and IBs will have to complete monthly capital computations withiN 17 business days of the previous month end.

DEBT-EQUITY RATIO CALCULATION MODIFIED

FCMs and IBs must still maintain equity capital, which includes qualifying subordinated loan agreements (SLA), equal to 30 percent of a debt-equity total. The calculation of the debt-equity total has been modified and is now equal to all satisfactory SLAs plus all owners equity. Before this change, excess net capital was deducted in arriving at the required debt-equity total. This requirement becomes effective on June 30, 1997.

To summarize, the new calculation is:

Owners Equity + SLAs which qualify as equity capital
Owners Equity + All satisfactory SLAs

If you have questions concerning any of these topics please contact NFA’s Compliance Department at (312)781-1342.

INTERPRETIVE NOTICE CONCERNING THE
ELECTRONIC FILING OF FINANCIAL REPORTS BY FCMs AND IBs

NFA Financial Requirements require each FCM for which NFA is DSRO and each IB which is not operating pursuant to a guarantee agreement to file financial reports with NFA. FCMs must file reports at least quarterly while IBs file on a semi-annual basis. FCMs file reports on CFTC Form 1-FR-FCM while IBs use Form 1-FR-IB. FCMs or IBs which are also registered as securities brokers or dealers may use the SEC FOCUS Report in lieu of the Form 1-FR for their financial reports.

The filing requirements are discussed in Schedule D of NFA Financial Requirements for FCMs and in Section 10 of the Financial Requirements for IBs. These rules cover the contents of the financial reports and the time periods in which the reports must be filed. Additionally, CFTC regulations require that any financial report filed by an FCM or IB with NFA must also be filed with the CFTC.

NFA has developed personal computer software which allows FCMs and IBs to electronically file financial reports with NFA. The software accommodates filing of the Form 1-FR-FCM, Form 1-FR-IB and the FOCUS Report. NFA’s Board of Directors has determined that the electronic filing of financial reports will satisfy the filing requirements for FCMs and IBs set forth in NFA Financial Requirements. All other filing related requirements, such as deadlines for filing and the contents of the reports, remain unchanged. These requirements are not affected by the manner of filing.

NFA’s filing software will also include procedures for the appropriate representative of the NFA Member FCM or IB to attest to the completeness and accuracy of the financial report in order to comply with NFA and CFTC certification and attestation requirements.

Full details about the software and electronic filing procedures will be available from NFA.

Finally, while all Member FCMs and IBs are encouraged to file financial reports electronically, electronic filing of financial reports is not required. Member FCMs and IBs may continue to file hard copy financial reports as they have in the past in accordance with NFA Financial Requirements.

INTERPRETIVE NOTICE
FCM AND IB FILING REQUIREMENTS

Effective June 30, 1997 NFA Financial Requirements call for any unaudited financial report filed by an FCM or an IB not operating pursuant to a guarantee agreement to be filed with NFA within 17 business days. In order for FCMs and IBs to become acclimated to the new filing deadlines, the due dates for all unaudited financial reports as of a date from June 30, 1997 through December 31, 1997 will be 30 days after the date of the statement instead of 17 business days. Beginning with unaudited statements dated in 1998 the 17 business day requirement will apply.

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