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Notice I-09-15

September 17, 2009

Amendments to NFA Code of Arbitration and Member Arbitration Rules

Introduction
NFA recently amended its Code of Arbitration (Code) and Member Arbitration Rules (Rules). The amendments modify the monetary thresholds for determining whether a case is processed as a summary proceeding or an oral hearing and the number of arbitrators NFA appoints to a case. The rule changes will apply to all cases filed on or after October 1. This Notice to Members explains these changes. Copies of the amended Code and Rules will be available on October 1, on NFA's web site at www.nfa.futures.org or by contacting the Arbitration Department at (800) 621.3570.

Background
NFA received nearly 40% more arbitration claims in fiscal year 2009 than the prior year. Given this significant increase in caseload, NFA staff reviewed the arbitration program to identify modifications to keep the program operating efficiently, without sacrificing the procedural rights of the parties.

After careful consideration, the Board unanimously endorsed NFA adopting the following changes.

Explanation of the Rule Changes

Summary Proceedings
Currently, under the Code, cases with claim amounts that are less than or equal to $25,000 are administered as a summary proceeding where one arbitrator decides the case based on the parties' written submissions. However, a party with a claim amount between $15,000.01 -$25,000 has the option to request an oral hearing. Claims under the Rules are administered as a summary proceeding if the claim amount is not more than $50,000, with a party having the option to request an oral hearing if the claim exceeds $15,000.

Summary proceedings have proven to be an effective method of resolving disputes for claims under $50,000. Summary proceedings are resolved more quickly and are less costly to both the parties and to NFA. As a result, NFA has amended the Code to ensure that more cases are processed as summary proceedings. Specifically, all cases filed on or after October 1, with claim amounts that are less than or equal to $50,000 will be processed as summary proceedings. Parties will be able to request an oral hearing for claims between $25,000.01 and $50,000. However, this request must be accompanied by a $675 fee, which approximates the costs associated with processing the case as an oral hearing.

NFA has also amended the Rules' provision for requesting an oral hearing to parallel the changes to the Code. As of October 1, an oral hearing may be requested under the Rules for cases that exceed $25,000 (rather than the current $15,000).

Three Arbitrator Panels
Under the Code, all claims between $25,000.01 and $50,000 are heard by one arbitrator unless a party requests that NFA appoint three arbitrators. However, under the Rules, all claims between $50,000.01 and $100,000 are heard by one arbitrator unless a party asks NFA to appoint three.

Appointing one arbitrator instead of three simplifies the arbitration process and reduces costs. In addition, NFA generally processes one arbitrator claims more quickly than three arbitrator claims.

Therefore, NFA has increased the threshold for three arbitrator panels under the Code so it is consistent with the Rules. As of October 1, all new claims between $50,000.01 and $100,000 will be heard by one arbitrator unless all parties in the proceeding submit a written request to NFA for three arbitrators.

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If you have any questions regarding this Notice or the changes to the arbitration rules, please contact NFA's Arbitration Department at (800) 621.3570.

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