Notices to Members

April 25, 2006

Effective Date of Amendments to NFA Financial Requirements Sections 1, 5, and 11

NFA has received notice that the Commodity Futures Trading Commission has approved changes to NFA Financial Requirements Sections 1, 5, and 11. These changes will become effective as of July 31, 2006. The revised sections are included at the end of this announcement.

The amendments increase the minimum net capital requirements for FCMs and independent IBs. In particular, the changes:

• Increase the minimum net capital requirements for FCMs from $250,000 to $500,000;

• Increase the minimum net capital requirement for independent IBs from $30,000 to $45,000;

• Increase the minimum net capital requirement for Forex Dealer Members from $250,000 to $1,000,000;

• Impose a $7,500,000 minimum capital requirement on FCMs with affiliates that are authorized to act as a counterparty, pursuant to Section 2(c)(2)(B)(ii)(III) of the Commodity Exchange Act, to off-exchange forex transactions with retail customers solely by virtue of their affiliation with a registered FCM; and

• Impose a $5,000,000 minimum capital requirement on all FCMs that are counterparties to off-exchange forex options transactions with retail customers (regardless of whether the FCM is a Forex Dealer Member).

The Commission also approved changes to the 1% alternative capital requirement for Forex Dealer Members to provide a separate calculation for determining the notional value of forex options. These changes, which are attached, are in Financial Requirements Section 11 and the Interpretive Notice regarding Forex Transactions with Forex Dealer Members.

Questions concerning these requirements should be directed to Sharon Pendleton, Associate Director, Compliance, (spendleton@nfa.futures.org or 312-658-6540) or Lisa Marlow, Team Manager, Compliance (lmarlow@nfa.futures.org or 312-658-6525).

SECTION 1. FUTURES COMMISSION MERCHANT FINANCIAL REQUIREMENTS

(a) Each Member that is registered or required to be registered with the Commodity Futures Trading Commission (hereinafter "CFTC") as a Futures Commission Merchant (hereinafter "Member FCM") must maintain "Adjusted Net Capital" (as defined in CFTC Regulation 1.17) equal to or in excess of the greatest of:

(i) $500,000;

(ii) For Member FCMs with less than $2,000,000 in Adjusted Net Capital, $6,000 for each remote location operated (i.e., proprietary branch offices, main office of each guaranteed IB and branch offices of each guaranteed IB);

(iii) For Member FCMs with less than $2,000,000 in Adjusted Net Capital, $3,000 for each AP sponsored (including APs sponsored by guaranteed IBs);

(iv) For securities brokers and dealers, the amount of net capital specified in Rule 15c3-1(a) of the Regulations of the Securities and Exchange Commission (17 CFR 240.15c3-1(a));

(v) Eight (8) percent of domestic and foreign domiciled customer and four (4) percent of non-customer (excluding proprietary) risk maintenance margin/performance bond requirements for all domestic and foreign futures and options on futures contracts excluding the risk margin associated with naked long options positions;

(vi) For Member FCMs with an affiliate described in section 2(c)(2)(B)(ii)(III) of the Act that engages in off-exchange forex transactions with retail customers (as those terms are defined in Compliance Rule 2-36(h) and (i)) and that is authorized to engage in those transactions solely by virtue of its affiliation with a registered FCM, $7,500,000; or

(vii) For Member FCMs that are counterparties to off-exchange forex options transactions with retail customers (as those terms are defined in Compliance Rule 2-36(h) and (i)), $5,000,000.

(d) No Member FCM may use retail forex customer equity as capital or may record retail forex customer equity as an asset without recording a corresponding liability. For purposes of this requirement:

(i) Retail forex customer means any person who is not an eligible contract participant, as defined in Section 1a(12) of the Act, and who enters into retail forex transactions with the FCM or any of its affiliates described in section 2(c)(2)(B)(ii)(III) (except transactions executed on a contract market, a derivatives transaction execution facility, a national securities exchange registered pursuant to Section 6(a) of the Securities Exchange Act of 1934, or a foreign board of trade); and

(ii) Retail forex customer equity means money, securities, and property received by the FCM or any of its affiliates described in section 2(c)(2)(B)(ii)(III) to margin, guarantee, or secure off-exchange forex transactions between a retail forex customer and the FCM or any of its affiliates described in section 2(c)(2)(B)(ii)(III) or accruing to a retail forex customer as a result of such transactions.

SECTION 5. INTRODUCING BROKER FINANCIAL REQUIREMENTS

(a) Each Member IB, except an IB operating pursuant to a guarantee agreement which meets the requirements set forth in CFTC Regulation 1.10(j), must maintain Adjusted Net Capital (as defined in CFTC Regulation 1.17) equal to or in excess of the greatest of:

(i) $45,000;

(ii) For Member IBs with less than $1,000,000 in Adjusted Net Capital, $6,000 per office operated by the IB (including the main office);

(iii) For Member IBs with less than $1,000,000 in Adjusted Net Capital, $3,000 for each AP sponsored by the IB; or

(iv) For securities brokers and dealers, the amount of net capital required by Rule 15c3-1(a) of the Securities and Exchange Commission (17 CFR 240.15c3-1(a)).

SECTION 11. FOREX DEALER MEMBER FINANCIAL REQUIREMENTS

(a) Each Forex Dealer Member must maintain "Adjusted Net Capital" (as defined in CFTC Regulation 1.17) equal to or in excess of the greatest of:

(i) $1,000,000;

(ii) 1% of the total net aggregate notional value of all open foreign currency futures plus 1% of the total net aggregate options value (calculated by multiplying the notional value of the underlying currency by the larger of the option's delta or .25) for transactions in customer and non-customer but not proprietary accounts that are between the Forex Dealer Member and a person that is not an eligible contract participant as defined in Section 1a(12) of the Act and that are not executed on a contract market, a derivatives transaction execution facility, a national securities exchange registered pursuant to Section 6(a) of the Securities Exchange Act of 1934, or a foreign board of trade; or

(iii) any other amount required by Section 1 of these Financial Requirements.

2. Financial Requirements Section 11

Forex Dealer Members must maintain adjusted net capital equal to or higher than the greatest amount required by Section 11 of NFA's Financial Requirements. For Forex Dealer Members, one of those amounts is 1% of the total net aggregate notional value of all open foreign currency futures plus 1% of the total net aggregate options value for transactions that are between the Forex Dealer Member and any person that is not an eligible contract participant, including foreign persons. To calculate the capital requirement, follow these steps:

• Calculate the aggregate long notional value for each currency pair by adding up the long positions, multiplying by the contract size, and converting to U.S. dollars using the relevant exchange rate;

• Calculate the aggregate short notional value for each currency pair by adding up the short positions, multiplying by the contract size, and converting to U.S. dollars using the relevant exchange rate;

• Subtract the smaller value from the larger value to determine the net value for the currency pair;

• Add the net values of the pairs (whether long or short) to arrive at the total notional value; and

• Multiply that number by .01.

For example:

If the firm carries forex options positions for retail customers and non-customers, follow these additional steps for each currency pair:

• Net identical options (long and short calls with the same strike price and expiration date and long and short puts with the same strike price and expiration date);
  
• Multiply the remaining long calls by their deltas or by .25, whichever is larger, and by their contract size;
  
• Multiply the remaining long puts by their deltas or by .25, whichever is larger, and by their contract size;
  
• Multiply the remaining short calls by their deltas or by .25, whichever is larger, and by their contract size;
  
• Multiply the remaining short puts by their deltas or by .25, whichever is larger, and by their contract size;
  
• Add the results;
  
• Multiply the sum by the spot exchange rate (converting to U.S. dollars in the process) to get the net aggregate options value for that currency pair;

• Add the results from each currency pair to get the total net aggregate options value;
  
• Multiply the total net aggregate options value by .01 to determine the options capital requirement; and
  
• Add the options capital requirement to the futures capital requirement to determine the firm's capital requirement.

Assume the Forex Dealer Member's customers have the following EUR/USD options:

Calculate the values for long calls, long puts, short calls, and short puts:

Calculate the net aggregate options value:

Calculate the options capital requirement:

Calculate the firm's capital requirement:

A Forex Dealer Member that carries forex options positions for retail customers and non-customers must submit the methodology it uses to calculate the deltas to NFA prior to use and must maintain records showing the actual deltas used in the firm's daily capital computations.