Definitions - SDs and MSPs
Section 1a(49) of the Commodity Exchange Act (CEA) defines, in general, an SD as a person (which includes entities) that: holds itself out as a dealer in swaps; makes a market in swaps; regularly enters into swaps with counterparties as an ordinary course of business for its own account; or engages in any activity causing the entity to be commonly known in the trade as a dealer or market maker in swaps. An insured depository institution that enters into a swap with a customer in connection with originating a loan with that customer is not considered to be an SD.
Section 1a(33) of the CEA defines, in general, an MSP as a person (which includes entities) that is not an SD and: maintains a substantial position in swaps for any of the major swap categories (with certain hedging and benefit plan exclusions); whose outstanding swaps create substantial counterparty exposure that could have serious adverse effects on the financial stability of the US banking system or financial markets; or is a financial entity that is highly leveraged relative to the amount of capital it holds and that is not subject to capital requirements established by an appropriate Federal banking agency and maintains a substantial position in outstanding swaps in any major category as determined by the CFTC.
The CFTC's final rules further define SD and MSP.
Associated Persons of SDs and MSPs
Section 1a(4) of the CEA and CFTC Regulation 1.3(aa)(6) define an Associated Person of an SD or MSP as a natural person who is associated with an SD or MSP in any capacity that involves the solicitation or acceptance of swaps or the supervision of any person so engaged. Section 4s(b)(6) of the CEA and CFTC Regulation 23.22(b) prohibit SDs and MSPs from permitting an Associated Person of an SD or MSP who is subject to a statutory disqualification under Section 8a(2) or 8a(3) of the CEA to effect or be involved in effecting swaps on behalf of the SD or MSP, if the SD or MSP knows, or in the exercise of reasonable care should know, of the statutory disqualification.
Associated Persons of an SD or MSP do not need to be registered with the CFTC and none of NFA's current proficiency requirements apply to Associated Persons of an SD or MSP.
It is the SD/MSP's obligation to determine whether or not a statutory disqualification exists for one of its APs. If a statutory disqualification exists, the SD/MSP may elect to file a Statutory Disqualification Form electronically via NFA's EasyFile system for a determination as to whether NFA would have granted the person registration as an AP despite the statutory disqualification. NFA will assume that each matter being submitted to NFA is a statutory disqualification. The SD/MSP should not submit information to NFA to determine whether or not the statutory disqualification exists. Based solely on the information that the SD/MSP electronically reports on the Statutory Disqualification Form via NFA's EasyFile system, NFA will notify the SD/MSP whether or not NFA would have granted the person registration as an AP despite the statutory disqualification.
If the SD/MSP has already determined that a statutory disqualification exists for one of its APs, it can use these templates to assist in filing the form electronically in NFA's EasyFile system. NFA will NOT accept a form submitted via fax, mail or email. Please go to NFA's EasyFile system to complete these forms electronically for NFA's review.
SDs/MSPs should NOT submit supporting documentation in connection with Criminal or Regulatory Statutory Disqualification Form. NFA will make its determination based solely on the information reported on the form.
For additional information see the CFTC No-Action Relief from Statutory Disqualification Prohibition http://www.cftc.gov/ucm/groups/public/@lrlettergeneral/documents/letter/12-15.pdf
The Registration Process
SDs and MSPs
SDs and MSPs are required to be registered with the CFTC. Firms register with the CFTC through NFA's Online Registration System. SDs and MSPs begin the application process by submitting a completed Form 7-R application, a completed Form 8-R application and fingerprint cards for each of its principals, the application fee and documentation required to demonstrate compliance with CFTC regulations Implementing Sections 4s(e), 4s(f), 4s(g), 4s(h) and 4s(i) of the CEA (Section 4s Implementing Regulations*) that have an effective compliance date as of the completed registration application date and are applicable to the applicant. SDs and MSPs must submit this documentation to NFA for review via a web-based system called the Registration Documentation Submission System (RDSS), which is part of NFA's EasyFile system. Once NFA receives the completed Form 7-R application (and required Forms 8-R) and 4s documentation, NFA will notify the applicant that it is provisionally registered.
View The Registration Process: The 4s Document Submission Process for Swap Dealers and Major Swap Participants video tutorial for more information on the 4s submission process.
On January 19, 2012, the CFTC published Regulation 170.16, which requires each registered SD and MSP to become and remain a member of at least one registered futures association. NFA's Board of Directors recently voted to amend NFA's Articles of Incorporation to approve the addition of these membership categories. NFA has submitted the proposal to the Commission for its approval.
SDs and MSPs are required to file the following:
SDs and MSPs are required to file the following for each of their principals
The CFTC's registration rules applicable to SDs and MSPs require registration of the SD or MSP entity - not an office location. Therefore, a person that meets the CFTC's final definition of SD or MSP and is engaging in swaps (as defined by the CFTC) activity must register in the appropriate category. SDs and MSPs are not required to disclose on their Forms 7-R the branch office locations in which persons are located who are associated with the SD or MSP in any capacity that involves the solicitation or acceptance of swaps or the supervision of any person so engaged.
An SD or MSP is also required to list those individuals that meet the definition of principal in CFTC Regulation 3.1(a). For example, each member of the Board of Directors of an SD or MSP must be listed as a principal. Members of the Board of Directors of the parent company of an SD or MSP, however, are not considered principals of the registered entity based on that function alone. Moreover, an individual that is solely in charge of an SD's or MSP's business unit that is not involved in swaps would likely not have to be listed as a principal based on that function alone.
*The CEA imposes substantive ongoing compliance requirements for SDs/MSPs in a number of areas including capital and margin, reporting and recordkeeping, daily trading records, business conduct standards, documentation standards, monitoring of trading, risk management procedures, disclosure of information, ability to obtain information, conflicts of interest, segregation of collateral, and a requirement that each SD/MSP designate a chief compliance officer who is a principal of the firm. The CFTC has proposed and is in the process of finalizing the Section 4s Implementing Regulations pertaining to these ongoing compliance requirements. The CFTC published final rules in the Federal Register on the following 4s requirements on the date noted:
Business Conduct Standards for SDs and MSPs with Counterparties (Section 4s(h)) – February 17, 2012
SD and MSP Reporting, Recordkeeping and Daily Trading Records Requirements (Section 4s(f) and 4s(g)); Internal Business Conduct Duties for SDs and MSPs (Section 4s(j)) and Chief Compliance Officer Requirements for SDs (Section 4s(k)) – April 3, 2012
Confirmation, Portfolio Reconciliation, Portfolio Compression, and Swap Trading Relationship Documentation Requirements for SDs and MSPs (Section 4s(i)) – September 11, 2012
**Form 7-R and Form 8-R applications are filed over the Internet via NFA's Online Registration System (ORS).
***An application fee is not required if the individual is currently registered with the CFTC in any capacity or is listed as a principal of a current CFTC registrant.
As stated above, registration applications are filed over the internet via NFA's ORS. To learn about the ORS process, go to NFA's website at www.nfa.futures.org and select the "Registration" tab. Select the following "Registration Video Tutorials" for information on accessing ORS and filing applications:
The Registration Process: Getting Started: The Enrollment Process
The Registration Process: Filing a Firm Application for a Swap Dealer or Major Swap Participant
The Registration Process: Filing an Application for a Principal of a Swap Dealer or a Major Swap Participant
The Registration Process: The 4s Document Submission Process for Swap Dealers and Major Swap Participants
Submitting an AP Statutory Disqualification Form through EasyFile
Contact NFA's Information Center if you need assistance or have any questions concerning the registration process. Our knowledgeable and helpful Information Center Representatives are available from 8:00 a.m. to 5:00 p.m. CST, Monday through Friday, to answer your questions and provide additional information on any NFA-related topic. Questions on the substantive requirements of the Section 4s Implementing Regulations should be directed to the CFTC staff contacts identified in the respective rulemaking.
Contact the Information Center by phone at 312-781-1410 or 800-621-3570, or send an email to firstname.lastname@example.org.
NFA Members can file many of their required documents electronically.