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In January 2012, the Commodity Futures Trading Commission (CFTC) issued final rules that require each registered swap dealer (SD) and major swap participant (MSP, and with SD, Swap Participant) to become a Member of a registered futures association (i.e. NFA). In anticipation of this final rulemaking, in May 2011, NFA's Board of Directors (Board) appointed a Special Committee on NFA Governance (Special Committee) to review NFA's current governance structure; explore alternatives for structurally realigning NFA's Board, Executive Committee and other committees to include Swap Participants; and make formal recommendations on these governance issues to NFA's Swap Dealer Advisory Committee (SDAC), the Executive Committee, and ultimately the Board. The Special Committee is comprised of representatives from NFA's current Board and potential Swap Participants, and the SDAC is comprised of potential Swap Participants and swap end-users.

The Special Committee withheld making formal recommendations to integrate Swap Participants into NFA's current governance structure until the CFTC issued the final entity definitional rules relating to Swap Participants. The CFTC finalized these definitional rules in May 2012 and both the SDAC and the Executive Committee reviewed and recommended Board approval of the Special Committee's recommendations to integrate Swap Participants into NFA's governance structure and Membership.

On August 16, 2012, NFA's Board unanimously approved a resolution to amend NFA's Articles of Incorporation (Articles) to adopt the Special Committee's recommendations in their entirety and the proposed Articles' amendments specifically provide:

  • Increase the Board's size to thirty-nine directors by adding additional representatives to the Board to include seven Swap Participants, and four Public Directors (Article VII);

  • Within the Swap Participant category, allocate three seats to "large financial institution" SDs included in a well-defined, publicly available and independent list of financial institutions that the Board identifies by resolution from time to time, three seats to other SDs and one seat to an MSP; provided, however, that if no MSP is willing to serve, then this seat will be an at-large SD seat. The Board approved a resolution defining the term "large financial institution" to mean the over-the-counter (OTC) derivatives dealer signatories on the commitment letters executed with the OTC Derivatives Supervisors Group;

  • Substitute a Retail Foreign Exchange Dealer seat for an FCM seat on the Board thereby reducing the total number of FCM seats to seven, allocating three seats to top ten FCMs, three seats to non-top ten FCMs, and one at-large seat;

  • Adopt special category voting rules so that Board actions would require a majority vote by the Swap Participant Directors and the Public Directors as one voting category, a majority vote by the futures Directors and the Public Directors as another voting category and then a majority vote by the Board as a whole;

  • Prohibit the Member affiliates of a single corporate group entity from having more than one Board representative. For these purposes, an affiliate is a Member that directly or indirectly owns more than 50% of, or is owned more than 50% by, or has more than 50% ownership in common with another Member;

  • Phase-in the increase in Public Directors over a four-year Board election cycle by electing an additional Public Director each year so that Public Directors comprise 35% of the Board's overall composition at the conclusion of this four-year period; and

  • Slightly enlarge the Executive Committee to thirteen members, with Public Directors continuing to comprise 35% (i.e. five members) of the Committee's composition.

Pursuant to Article XVII, upon the Board's ratification of amendments to the Articles, the proposed Article changes were submitted to a ballot vote of the Members. The ballot results were tabulated and among those Members voting, the Articles’ amendments were overwhelmingly approved. NFA submitted the Articles' changes to the CFTC for approval on November 5, 2012. The CFTC approved the Articles' changes permitting NFA's Board to elect Swap Participants to the Board in 2013. As of April 1, 2013, SDs and MSPs must become NFA Members.

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