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Financial Requirements
SECTION 1. FUTURES COMMISSION MERCHANT FINANCIAL REQUIREMENTS.
[Effective dates of amendments: December 17, 1999; October 31, 2000; January 10, 2001; December 31, 2001; September 30, 2004; July 31, 2006; February 13, 2007; October 31, 2008; March 31, 2010; October 18, 2010; June 30, 2013; January 14, 2016; September 19, 2016; June 30, 2020 and October 6, 2021.]
(a) Each NFA 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) $1,000,000, provided, however, that if the Member FCM is also a registered swap dealer, the minimum amount shall be $20,000,000;
(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)); plus for a Member FCM that is also a registered swap dealer, two percent of the total uncleared swap margin, as defined in CFTC Regulation 1.17(b)(11);
(v) Eight (8) percent of domestic and foreign domiciled customer and non-customer (excluding proprietary) risk maintenance margin/performance bond requirements for all domestic and foreign futures, options on futures contracts and cleared over-the counter derivatives positions excluding the risk margin associated with naked long option positions; plus for a Member FCM that is also a registered swap dealer, two percent of the total uncleared swap margin, as defined in CFTC Regulation 1.17(b)(11);
(vi) For a Member FCM that acts as counterparty to a forex transaction (as forex is defined in Bylaw 1507(b) but excluding the counterparty limitation contained in Bylaw 1507(b)(ii)), $20,000,000, except that Forex Dealer Members must meet the requirements in Financial Requirements Section 11.
(b) A Member FCM that is also a registered swap dealer may not use an internal model(s) to calculate market and/or credit risk exposure under CFTC Regulation 1.17 without obtaining prior written approval from NFA or CFTC in accordance with CFTC Regulation 1.17(c)(6)(v), incorporating the requirements of CFTC Regulation 23.102. A Member FCM seeking NFA's approval to use an internal model(s) must submit an application to NFA in the form and manner required by NFA.
(c) A Member FCM that is also a registered swap dealer and has received approval to use internal models to compute market risk and credit risk charges for uncleared swaps, must maintain net capital equal to or in excess of $100 million.
(d) Each Member FCM for which NFA is the designated self-regulatory organization ("DSRO") must file financial reports with NFA for each month-end, including its fiscal year end, within 17 business days of the date for which the report is prepared. All financial reports must be filed on Form 1-FR-FCM; or, if the Member is a broker-dealer, on Form 1-FR-FCM or the FOCUS Report, and all financial reports must be filed electronically using an electronic medium approved by NFA.
(e) A Member FCM for which NFA is the DSRO that is required to file any document with or give any notice to its DSRO under CFTC Regulations 1.10 [Financial reports of futures commission merchants and introducing brokers], 1.12 [Maintenance of minimum financial requirements by futures commission merchants and introducing brokers], 1.16 [Qualifications and reports of accountants], or 1.17 [Minimum financial requirements for futures commission merchants and introducing brokers] or is required to file any financial report or statement (e.g., FOCUS Reports) with any other securities or futures self-regulatory organization of which it is a member shall also file one copy of such document with or give such notice to NFA, in a form and manner required by NFA, no later than the date such document or notice is due to be filed with or given to the CFTC or the self-regulatory organization.
(f) No Member FCM may use forex customer equity as capital or may record forex customer equity as an asset without recording a corresponding liability. For purposes of this requirement:
(i) Forex customer means any person who is not an eligible contract participant, as defined in Section 1a(18) of the Act, who enters into forex transactions (as defined in Bylaw 1507(b)) with the FCM or any of its affiliates described in Section 2(c)(2)(B)(i)(II)(cc)(BB) of the Act; and
(ii) Forex customer equity means money, securities, and property received by the FCM or any of its affiliates described in Section 2(c)(2)(B)(i)(II)(cc)(BB) of the Act to margin, guarantee, or secure forex transactions between a forex customer and the FCM or any of its affiliates described in Section 2(c)(2)(B)(i)(II)(cc)(BB) of the Act, or accruing to a forex customer as a result of such transactions.
SECTION 2. ELIGIBILITY TO GUARANTEE IBS.
[Effective dates of amendments: December 17, 1999; December 31, 2001; September 30, 2004; December 4, 2006; October 20, 2008; and June 14, 2010.]
(a) A Member FCM, other than a Forex Dealer Member, which knows or should know that its Adjusted Net Capital is less than the greatest of:
(i) 150% of the amount set forth in NFA Financial Requirements Section 1(a)(i);
(ii) For Member FCMs with less than $2,000,000 in Adjusted Net Capital, $9,000 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, $4,500 for each AP sponsored (including APs sponsored by guaranteed IBs);
(iv) For securities brokers or dealers, the amount of capital specified in Rule 17(a)-11(b) of the Regulations of the Securities and Exchange Commission (17 CFR 240.17a-11(b)); or
(v) One hundred and ten (110) percent of the amount required in Financial Requirements Section 1(a)(v)
may not enter into a guarantee agreement with an IB until it files three successive month-end statements where the Member FCM's Adjusted Net Capital is equal to or greater than the amount required by this subsection.
(b) A Forex Dealer Member which knows or should know that its Adjusted Net Capital is less than the amount required by Financial Requirements Section 11 may not enter into a guarantee agreement with an IB until it files three successive month-end statements where the Member FDM's Adjusted Net Capital is equal to or greater than the amount required by Financial Requirements Section 11.
(c) A Member FCM or RFED which is a party to a guarantee agreement with an IB and whose Adjusted Net Capital is less than the amount set forth in paragraph (a) or (b) of this Section, as applicable, must also provide its DSRO, NFA and any IBs which it guarantees with a notice that the FCM's or RFED's Adjusted Net Capital is less than the amount required by paragraph (a) or (b). If the FCM or RFED cannot demonstrate to NFA and its DSRO, within 30 days after filing the required notice, that its Adjusted Net Capital is greater than the amount required by paragraph (a) or (b), the FCM must immediately notify, in writing, any IB which it guarantees that the guarantee agreement will terminate 30 days following the notice. A copy of the notice must also be filed with the CFTC, NFA, and the DSRO of the FCM or RFED. If the FCM or RFED demonstrates to its DSRO and NFA prior to the effective date of the termination of the guarantee agreement that its Adjusted Net Capital is greater than the amount required by paragraph (a) or (b), then it may notify any IB which it guarantees, the CFTC, NFA, and its DSRO, that the guarantee agreement will not terminate.
SECTION 3. RELIEF REQUESTS.
[Effective dates of amendments: December 17, 1999 and October 18, 2010.]
A Member FCM, for which NFA is DSRO, RFED, or IB that may file a request for relief from certain provisions of CFTC Regulations 1.10, 1.12, 1.16, 1.17, 5.6 and 5.7 with its DSRO may file such request with NFA. NFA may grant the relief request without receiving the prior concurrence of the CFTC unless such concurrence is required by CFTC Regulations. Any such grant of relief shall be valid and shall remain in full force and effect unless or until reversed by the CFTC or withdrawn by NFA.
SECTION 4. FINANCIAL REQUIREMENTS AND TREATMENT OF CUSTOMER PROPERTY.
[Effective dates of amendments: December 17, 1999; June 2, 2008; October 4, 2010; October 18, 2010; September 1, 2012; February 15, 2013; September 6, 2013 and June 30, 2020.]
(a) Any Member FCM, RFED, or IB who violates any of CFTC Regulations 1.10, 1.12, 1.16, 1.17, 1.20 through 1.30, 5.6, 5.7, 30.7 or 22.2 through 22.17 (as applicable) shall be deemed to have violated an NFA Requirement.
(b) Each Member FCM must instruct each depository, as required by NFA, holding customer segregated funds under CFTC Regulation 1.20, customer secured amount funds under CFTC Regulation 30.7 or cleared swaps customer collateral under CFTC Regulation 22.2 to report the balances in the FCM's customer segregated funds, customer secured amount funds and cleared swaps customer collateral accounts to NFA or a third party designated by NFA in the form and manner prescribed by NFA.
(c) In addition to the requirements of CFTC Regulation 1.49(d), in order to be an acceptable depository to hold customer segregated funds accounts identified in CFTC Regulation 1.20, the depository must report the balances in the FCM's customer segregated funds account(s) held at the depository to NFA or a third party designated by NFA in the form and manner prescribed by NFA.
(d) In addition to the requirements of CFTC Regulation 30.7, in order to be an acceptable depository to hold customer secured amount accounts identified in CFTC Regulation 30.7, the depository must report balances in the FCM's customer secured amount account(s) held at the depository to NFA or a third party designated by NFA in the form and manner prescribed by NFA.
SECTION 5. INTRODUCING BROKER FINANCIAL REQUIREMENTS.
[Effective dates of amendments: December 17, 1999; December 31, 2001; June 30, 2004; September 30, 2004; July 31, 2006; December 22, 2006; July 18, 2012; September 30, 2014 and June 11, 2021.]
(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)).
(b)
(1) 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 file financial reports with NFA semi-annually, including its fiscal year end, within 17 business days of the date for which the report is prepared. All financial reports must be filed on Form 1-FR-IB or, if the Member is a broker-dealer, on Form 1-FR-IB or the FOCUS Report, and all financial reports must be filed electronically.
(2) The Member IB shall electronically file its financial reports by accessing NFA's financial reports database in the manner provided by NFA. Each Member IB shall designate, in the manner provided by NFA, the person or persons authorized to file its financial reports.
(3) The electronic filing of the Member IB's financial report shall constitute:
(A) a representation that the person electronically filing the financial report is a person specified in CFTC Regulation 1.10 (d)(4);
(B) an attestation that the person electronically filing the financial report is duly authorized to bind the Member IB submitting the financial report and representation that, to the best of such person's knowledge, all information contained therein is true, correct and complete;
(C) an acknowledgement that it is understood that all required items and statements are integral parts of the financial report and that the submission of any amendment represents that all unamended items and statements remain true, correct and complete as previously submitted; and
(D) an acknowledgement that it is further understood that any intentional misreports or omissions of facts constitute Federal Criminal Violations (see 18 U.S.C. 1001).
(4)
(A) No Member IB may access NFA's electronic financial reports database until NFA has assigned it a unique identifying code and password;
(B) Each Member IB is responsible for maintaining the security and confidentiality of its identifying code and password and those of the persons whom it authorizes to make electronic financial report filings on its behalf. NFA's electronic financial reports database shall record and store the identifying code of each person accessing NFA's database and shall logically associate in the database such identifying code with any electronic filing made by the person using such identifying code. The person whose identifying code is used to make an electronic filing will be deemed to have made such filing;
(C) Each Member IB shall make available any person it has authorized to make or actually performing duties related to electronic filings, for testimony in court or before the Commission, NFA or any contract market regarding the authentication, integrity or accuracy of any electronic filing; and
(D) The ability to electronically access NFA's financial reports database is a privilege and not a right. NFA may disable any person's identifying code and password and terminate the person's ability to access the database at any time, without notice or a hearing, in NFA's sole discretion, if NFA believes that the person has not complied with this Financial Requirements Section 5 or any procedures that NFA establishes to implement this Financial Requirements Section 5.
(c) A Member IB that is required to file any document with or give any notice to the CFTC under CFTC Regulations 1.10 [Financial reports of futures commission merchants and introducing brokers], 1.12 [Maintenance of minimum financial requirements by futures commission merchants and introducing brokers], 1.16 [Qualifications and reports of accountants], or 1.17 [Minimum financial requirements for futures commission merchants and introducing brokers] or is required to file any financial report or statement (e.g., FOCUS Reports) with any other securities or futures self-regulatory organization of which it is a member shall also electronically file one copy of such document with NFA no later than the date such document or notice is due to be filed with or given to the CFTC or the self-regulatory organization.
SECTION 6. LEVERAGE TRANSACTION MERCHANT FINANCIAL AND REPORTING REQUIREMENTS.
[Effective dates of amendments: December 17, 1999; October 3, 2011 and June 11, 2021.]
(a) Each Leverage Transaction Merchant (hereinafter “Member LTM") must maintain "Adjusted Net Capital" (as defined in CFTC Regulation 1.17) equal to or in excess of the greatest of:
(i) $20,000,000;
(ii) the amount required by subsection (a)(i) above plus 5% of all liabilities owed to leverage customers (as leverage customer is defined in CFTC Regulation 31.4) exceeding $10,000,000; or
(iii) for Member LTMs registered in another capacity, any other amount required by these Financial Requirements.
(b) Each Member LTM required to file any document with or give notice to the CFTC under CFTC Regulations 31.7 [Maintenance of minimum financial, cover and segregation requirements by leverage transaction merchants], 31.13 [Financial reports of leverage transaction merchants], 31.16 [Monthly reporting requirements], and 31.26 [Quarterly reporting requirements] shall also electronically file one copy of such document with NFA no later than the date such document or notice is due to be filed with or given to the CFTC.
SECTION 7. PERFORMANCE MARGIN.
[Effective dates of amendments: December 17, 1999.]
Every Member FCM that is not a member of a contract market or a foreign board of trade must collect performance margin (initial and maintenance) for all customer accounts at a level no less than that established for customer accounts by the rules of the applicable contract market or a foreign board of trade.
SECTION 8. INFORMATION REQUESTS.
[Effective dates of amendments: December 17, 1999, October 18, 2010 and March 21, 2014.]
(a) If requested by NFA, a Member FCM, RFED, or IB must promptly submit such additional reports and supplemental financial information which NFA deems necessary.
(b) Each FCM for which NFA is the DSRO and each FDM must file the financial, operational, risk management and other information required by NFA in the form and manner prescribed by NFA.
SECTION 9. NOTIFICATION OF REPORTABLE POSITIONS.
[Effective dates of amendments: December 17, 1999 and June 11, 2021.]
Each Member FCM for which NFA is the DSRO and which is required to file any document with or give notice to the CFTC under CFTC Regulation 17.00 shall also electronically file one copy of such document with to NFA no later than the date such document or notice is due to be filed with or given to the CFTC.
SECTION 10. LATE FINANCIAL REPORTS AND OTHER FILINGS.
[Adopted Effective July 1, 2003. Effective dates of amendments: October 18, 2010; December 2, 2013; December 2, 2013 and October 6, 2021.]
Each financial report or other filing required by Section 1, 5, 6, 11, 17 or 18 that is filed after it is due shall be accompanied by a fee of $1,000 for each business day it is late. Payment and acceptance of the fee does not preclude NFA from filing a disciplinary action under the Compliance Rules for failure to comply with the deadlines imposed by NFA Financial Requirements or CFTC rules.
SECTION 11. FOREX DEALER MEMBER FINANCIAL REQUIREMENTS.
[Effective December 1, 2003. Effective dates of amendments: June 6, 2004; November 30, 2005; July 31, 2006; August 9, 2006; February 13, 2007; March 31, 2007; May 7, 2007; December 17, 2007; December 21, 2007; October 31, 2008; November 30, 2009; October 1, 2010; October 18, 2010; February 1, 2011; January 4, 2016 ; March 15, 2019; June 30, 2020 and June 11, 2021.]
(a) Each Forex Dealer Member must maintain "Adjusted Net Capital" (as defined in CFTC Regulation 5.7) equal to or in excess of the greatest of:
(i) $20,000,000;
(ii) the amount required by subsection (a)(i) above plus:
(aa) 5% of all liabilities the Forex Dealer Member owes to customers (as customer is defined in Compliance Rule 2-36(s)(2)) and to eligible contract participant counterparties that are not an affiliate of the Forex Dealer Member and are not acting as a dealer exceeding $10,000,000; and
(bb) 10% of all liabilities the Forex Dealer Member owes to eligible contract participant counterparties that are an affiliate of the Forex Dealer Member not acting as a dealer; and
(cc) 10% of all liabilities eligible contract participant counterparties that are an affiliate of the Forex Dealer Member and acting as a dealer owe to their customers (including eligible contract participants), including liabilities related to retail commodity transactions as described in Section 2(c)(2)(D) of the Act; and
(dd) 10% of all liabilities the Forex Dealer Member owes to eligible contract participant counterparties acting as a dealer that are not an affiliate of the Forex Dealer Member, including liabilities related to retail commodity transactions as described in Section 2(c)(2)(D) of the Act;
or
(iii) For FCMs, any other amount required by Section 1 of these Financial Requirements.
(b) A Forex Dealer Member may not include assets held by an affiliate or an unregulated person in its current assets for purposes of determining its adjusted net capital under CFTC Regulation 5.7.
For purposes of this section and section (c), a person is unregulated unless it is:
(i) a bank or trust company regulated by a U.S. banking regulator;
(ii) a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority;
(iii) a futures commission merchant registered with the U.S. Commodity Futures Trading Commission and a Member of NFA;
(iv) a retail foreign exchange dealer registered with the U.S. Commodity Futures Trading Commission and a Member of NFA; or
(v) a bank or trust company regulated in a money center country which has in excess of $1 billion in regulatory capital.
(c) A Forex Dealer Member may not offset currency transactions or positions executed with or held by or through an affiliate or an unregulated person, as defined in section (b), for purposes of determining net currency positions and the required capital deductions under CFTC Regulations 1.17(c)(5) and 5.7(b)(2)(v)(A). As used in this subsection (c), "currency" refers to open foreign currency positions with counterparties regardless of whether those counterparties are eligible contract participants as defined in Section 1a(18) of the Act.
(d) NFA will not accept requests to approve an affiliate or unregulated person under subsections (b) or (c) or CFTC Regulation 5.7.
(e) An FDM for which NFA is the DSRO that is required to file any document with or give any notice to its DSRO under CFTC Regulations 5.6 [Maintenance of minimum financial requirements by retail foreign exchange dealers and futures commission merchants offering or engaging in retail forex transactions], 5.7 [Minimum financial requirements for retail foreign exchange dealers and future commission merchants offering or engaging in retail forex transactions] and 5.12 [Financial reports of retail foreign exchange dealers], or is required to file any financial report or statement with any other securities or futures self-regulatory organization of which it is a member shall also electronically file one copy of such document with NFA no later than the date such document or notice is due to be filed with or given to the CFTC or the self-regulatory organization.
(f) For purposes of this rule:
(1) "Forex" has the same meaning as in Bylaw 1507(b);
(2) "Forex Dealer Member" has the same meaning as in Bylaw 306;
(3) "Affiliate" means any person that controls, is controlled by, or is under common control with the Forex Dealer Member; and
(4) "Dealer" means any person that (i) holds itself out as a dealer in forex or in retail commodity transactions as described in 2(c)(2)(D) of the Act; (ii) makes a market in forex or in retail commodity transactions as defined in 2(c)(2)(D) of the Act; (iii) regularly enters into forex or in retail commodity transactions as described in 2(c)(2)(D) of the Act with counterparties as an ordinary course of business for its own account; or (iv) engages in any activity causing the person to be commonly known in the trade as a dealer or market maker in forex or in retail commodity transactions as described in 2(c)(2)(D) of the Act. Dealer includes other FDMs, as well as any entity acting in this manner that is not required to be an FDM. For purposes of (a)(ii)(dd) above, dealer does not include a bank or trust company regulated in a money center country which has in excess of $1 billion in regulatory capital.
SECTION 12. SECURITY DEPOSITS FOR FOREX TRANSACTIONS WITH FOREX DEALER MEMBERS.
[Adopted Effective December 1, 2003. Effective dates of amendments: June 6, 2004; September 15, 2005; February 13, 2007; May 14, 2008; October 31, 2008; November 30, 2009; October 18, 2010; January 4, 2016 and March 15, 2019.]
(a) Each Forex Dealer Member shall collect and maintain the following minimum security deposit for each forex transaction between the Forex Dealer Member and its customers and/or eligible contract participant counterparties:
(i) 2% of the notional value of transactions in the British pound, the Swiss franc, the Canadian dollar, the Japanese yen, the Euro, the Australian dollar, the New Zealand dollar, the Swedish krona, the Norwegian krone, and the Danish krone;
(ii) 5% of the notional value of other transactions;
(iii) for short options, the above amount plus the premium received; and
(iv) for long options, the entire premium.
(b) The Executive Committee may temporarily increase these requirements under extraordinary market conditions.
(c) For purposes of this rule:
(1) "Forex" has the same meaning as in Bylaw 1507(b); and
(2) "Forex Dealer Member" has the same meaning as in Bylaw 306.
(d) In addition to cash, a Forex Dealer Member may accept those instruments described in CFTC Rule 1.25 as collateral for customers' security deposit obligations. The collateral must be in the FDM's possession and control and is subject to the haircuts in CFTC Rule 1.17.
(e) An FDM is required to collect additional security deposits from a retail forex customer, or liquidate the retail forex customer’s positions, if the amount of the retail forex customer’s security deposits maintained with the FDM is not sufficient to meet the requirements of this section.
(f) An FDM is required to immediately notify NFA's Compliance Department if the FDM changes the security deposit amount established by either subsection (a) or (b) above provided, however, that any decrease cannot fall below the highest minimum security deposit amount required by either subsection (a) or (b) as applicable to a particular currency.
(g) An FDM is prohibited from acting as a counterparty to an eligible contract participant acting as a dealer (as that term is defined in Financial Requirements Section 11(f)) unless that dealer collects and maintains from its customers and eligible contract participant counterparties security deposit amounts for forex equal or greater to the amounts required in subsection(s) (a) and (b).
SECTION 13. FOREX DEALER MEMBER REPORTS.
[Adopted Effective July 25, 2006. Effective dates of amendments: April 1, 2009; January 2, 2012; September 25, 2012; and December 2, 2013.]
(a) Each Forex Dealer Member must file electronically the following reports with NFA within the specified time periods in a form and manner prescribed by NFA:
(1) Daily electronic reports showing liabilities to customers and any other financial or operational information required by NFA. The report must be prepared each business day and must be filed by noon on the following business day.
(2) Monthly operational and risk management reports. These reports must be filed within seventeen business days after the end of each month for which the report is prepared.
(3) Quarterly reports containing the most updated performance disclosures required by CFTC Regulation 5.5(e)(1)(i) - (iii). These reports must be filed within seventeen business days after the end of each quarter for which the report is prepared.
(b) No Forex Dealer Member may access NFA's electronic financial reports database until NFA has assigned it a unique identifying code and password. Each Forex Dealer Member is responsible for maintaining the security and confidentiality of its identifying code and password and that of each person it authorizes to file electronic reports on its behalf.
(c) Submitting any of these reports certifies that the person filing it is a supervisory employee that is, or is under the ultimate supervision of, a listed principal who is also an NFA Associate; that the person filing it is duly authorized to bind the Forex Dealer Member; and that, to the best of that person's knowledge, all information in the report is true, correct, and complete.
(d) Any report that is filed after it is due shall be accompanied by a fee of $1,000 for each business day it is late. Payment and acceptance of the fee does not preclude NFA from filing a disciplinary action for failure to comply with the deadlines imposed by this rule.
SECTION 14. ASSETS COVERING LIABILITIES TO RETAIL FOREX CUSTOMERS.
[Adopted Effective July 1, 2007. Effective dates of amendments: December 17, 2007; February 1, 2011; July 26, 2012; and October 15, 2014.]
(a) Each Forex Dealer Member shall calculate the amount owed to customers for forex transactions and shall hold assets equal to or in excess of that amount at one or more qualifying institutions in the United States or money center countries (as defined in CFTC Regulation 1.49).
(b) The amount owed to customers shall be calculated by adding up the net liquidating values of each forex account that liquidates to a positive number, using the fair market value for each asset other than open positions and the current market value for open positions.
(c) For assets held in the United States, a qualifying institution is:
(i) a bank or trust company regulated by a U.S. banking regulator;
(ii) a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority; or
(iii) a futures commission merchant registered with the U.S. Commodity Futures Trading Commission and a Member of NFA.
(d) For assets held in a money center country as defined in CFTC Regulation 1.49, a qualifying institution is:
(i) a bank or trust company regulated in the money center country which has in excess of $1 billion in regulatory capital; or
(ii) a futures commission merchant registered with the U.S. Commodity Futures Trading Commission and a Member of NFA.
(e) Assets held in a money center country are not eligible to meet the requirements of this rule unless the Forex Dealer Member and the qualifying institution have entered into an agreement, acceptable to NFA, authorizing the institution to provide NFA and the CFTC with information regarding the Forex Dealer Member's accounts and to provide that information directly to NFA or the CFTC upon their request. The Forex Dealer Member must file the signed agreement with NFA.
(f) Each Forex Dealer Member must instruct each qualifying institution, as required by NFA, holding assets used to cover the Forex Dealer Member's liabilities to its retail forex customers under subsection (a), to report the balances in the Forex Dealer Member's account(s) to NFA or a third party designated by NFA in the form and manner prescribed by NFA.
(g) In addition to the requirements of subsections (c), (d) and (e), in order to be an acceptable qualifying institution to hold assets used to cover a Forex Dealer Member's liabilities to its retail forex customers identified in subsection (a), the qualifying institution must report the balances in the Forex Dealer Member's account(s) held at the qualifying institution to NFA or a third party designated by NFA in the form and manner prescribed by NFA.
SECTION 15. FOREX DEALER MEMBER INTERNAL FINANCIAL CONTROLS.
[Adopted Effective September 21, 2007. Effective dates of amendments: December 17, 2009 and September 30, 2019.]
(a) No Member may act as a Forex Dealer Member (as defined in Bylaw 306) unless it has demonstrated to NFA that the Member has adequate internal financial controls. The Forex Dealer Member must demonstrate that its system of internal controls provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Forex Dealer Member must also demonstrate that its system of internal financial controls has no material weaknesses and that it is adequate for establishing and maintaining internal controls over financial reporting by the Member. A Forex Dealer Member may satisfy this obligation by obtaining an internal control report that is prepared and certified by an independent public accountant who is registered under Section 102 of the Sarbanes-Oxley Act. The internal control report shall contain, at a minimum, a detailed explanation of the examination performed by the accountant and a representation by the accountant that it has examined and tested the Forex Dealer Member's system of internal controls and that the controls comply with the above standards.
If NFA believes that a Forex Dealer Member's internal controls are inadequate at any time, the Compliance Department may require it to provide to NFA an internal control report that is prepared and certified by an independent public accountant who is registered under Section 102 of the Sarbanes-Oxley Act. The internal control report shall meet the above standards.
(b) Provided the Compliance Department believes that a Forex Dealer Member's financial records are inadequate, the Compliance Department may require a Forex Dealer Member's annual certified financial statements to be prepared by an independent public accountant who is registered under Section 102 of the Sarbanes-Oxley Act.
(c) The individuals who prepare the Forex Dealer Member's financial books and records must be under the ultimate supervision of a listed principal and registered associated person of the Member. This principal must also be responsible for researching and selecting the independent public accountant that certifies the firm's annual financial statements.
SECTION 16. FCM FINANCIAL PRACTICES AND EXCESS SEGREGATED FUNDS/SECURED AMOUNT/CLEARED SWAPS CUSTOMER COLLATERAL DISBURSEMENTS.
[Adopted Effective September 1, 2012. Effective dates of amendments: July 1, 2013; January 14, 2016; and March 29, 2017.]
(a) Each Member FCM must maintain written policies and procedures regarding the maintenance of the FCM's residual interest in its customer segregated funds account(s) as identified in CFTC Regulation 1.20, in its foreign futures and foreign options customer secured amount funds account(s) as identified in CFTC Regulation 30.7 and in its cleared swaps customer collateral account(s) as identified in CFTC Regulation 22.2. The written policies and procedures must establish a target amount (either by percentage or dollars) that the FCM seeks to maintain as its residual interest in customer segregated funds, in its foreign futures and foreign options customer secured amount funds and in its cleared swaps customer collateral, and those policies and procedures must be designed to reasonably ensure the FCM maintains each of these target amounts. The FCM's Board of Directors or similar governing body 1, must approve in writing the FCM's targeted residual amount, any change(s) thereto, and any material change(s) in the FCM's written policies and procedures regarding the maintenance of the FCM's residual interest in either the customer segregated funds account(s), the foreign futures and foreign options customer secured amount funds account(s), or the cleared swaps customer collateral accounts.
(b) No Member FCM via a single or multiple transaction(s) may withdraw, transfer or otherwise disburse funds (disbursement) from any customer segregated funds account(s) as identified under CFTC Regulation 1.20 that exceed twenty-five percent (25%) of the FCM's residual interest in customer segregated funds based upon the daily segregated funds calculation CFTC Regulation 1.32 unless:
(i) The FCM has prepared the daily segregation calculation required by Regulation 1.32 as of the close of business on the previous business day;
(ii) The FCM's CEO, CFO or other senior official who holds a position with knowledge of the FCM's financial requirements and financial position and is listed as a principal on the firm's Form 7-R (for purposes of this Section only, a "Financial Principal") pre-approves in writing the segregated funds disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (b) above; and
(iii) The FCM files written notice signed by the FCM's CEO, CFO or Financial Principal that pre-approved the disbursement in the form and manner prescribed by NFA immediately after the FCM's CEO, CFO or Financial Principal pre-approves in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (b) above, which includes the following:
(1) Notification that the FCM has made or intends to make a disbursement(s) from segregated funds that exceeds or will exceed twenty-five percent (25%) of the FCM's residual interest in customer segregated funds based upon the daily segregated funds calculation required by CFTC Regulation 1.32 computed as of the close of business the previous business day;
(2) A description of the reason(s) for and the name and the amount provided to each recipient of the single or multiple transaction(s) that results or will result in the disbursement(s) that exceeds the twenty-five percent (25%) threshold;
(3) Confirmation that the FCM's CEO, CFO or Financial Principal pre-approved in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold; and
(4) The current estimate of the FCM's remaining total residual interest in the customer segregated funds account(s) after the disbursement, and a representation from the CEO, CFO or Financial Principal, that to the best of that person's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the segregation requirements after the disbursement.
(iv) In calculating whether an FCM has exceeded or will exceed the twenty-five percent (25%) threshold, an FCM shall exclude any segregated funds disbursement(s) that is made to or for the benefit of commodity and option customers.
(v) After making a disbursement that requires the approval and notice filing described in subsections (b)(ii) and (b)(iii) above, and until such time that the FCM completes its next daily segregated funds calculation required by CFTC Regulation 1.32, no Member FCM may make any subsequent disbursement(s) in any amount from any customer segregated funds accounts (except to or for the benefit of commodity and option customers) without for each disbursement obtaining the pre-approval required in subsection (b)(ii) and filing a written notice signed by the CEO, CFO or Financial Principal that discloses the name and amount to each recipient of the disbursement and the reason(s) for the disbursement, confirming that the CEO, CFO or Financial Principal pre-approved the disbursement in writing, indicating the current estimate of the FCM's remaining total residual interest in the customer segregated funds account(s) after the disbursement, and containing a representation that to the best of the CEO, CFO or Financial Principal's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the segregation requirements after the disbursement.
(c) No Member FCM via a single or multiple transaction(s) may withdraw, transfer or otherwise disburse funds (disbursement) from foreign futures and foreign options customer secured amount funds account(s) as identified under CFTC Regulation 30.7 that exceed twenty-five percent (25%) of the FCM's residual interest in foreign futures and foreign option customer secured amount funds based upon the daily secured amount funds calculation required by CFTC Regulation 30.7 unless:
(i) The FCM has prepared the daily segregation calculation required by Regulation 30.7 as of the close of business on the previous business day;
(ii) The FCM's CEO, CFO or Financial Principal pre-approves in writing the secured amount funds disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (c) above; and
(iii) The FCM files written notice signed by the FCM's CEO, CFO or Financial Principal that pre-approved the withdrawal in the form and manner prescribed by NFA immediately after the FCM's CEO, CFO or Financial Principal pre-approves in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (c) above, which includes the following:
(1) Notification that the FCM has made or intends to make a disbursement(s) from secured amount funds that exceeds or will exceed twenty-five percent (25%) of the FCM's residual interest in secured amount funds based upon the daily secured amount funds calculation performed required by CFTC Regulation 30.7 computed as of the close of business on the previous business day;
(2) A description of the reason(s) for and the name and amounts provide to each recipient of the single or multiple transaction(s) that results or will result in the disbursement(s) that exceeds the twenty-five percent (25%) threshold;
(3) Confirmation that the FCM's CEO, CFO or Financial Principal pre-approved in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold; and
(4) The current estimate of the FCM's remaining total residual interest in the secured amount funds account(s) after the disbursement, and a representation from the CEO, CFO or Financial Principal, that to the best of that person's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the secured amount requirements after the disbursement.
(iv) In calculating whether an FCM has exceeded or will exceed the twenty-five percent (25%) threshold, an FCM shall exclude any secured amount funds disbursement(s) that is made to or for the benefit of foreign futures and foreign options customers.
(v) After making a disbursement that requires the approval and notice filing described in subsections (c)(ii) and (c)(iii) above, and until such time that the FCM completes its next daily secured amount funds calculation required by CFTC Regulation 30.7, no Member FCM may make any subsequent disbursement(s) in any amount from any customer secured amount funds accounts (except to or for the benefit of foreign futures and foreign option customers) without for each disbursement obtaining the pre-approval required in subsection (c)(ii) and filing a written notice signed by the CEO, CFO or Financial Principal that discloses the name and amount to each recipient of the disbursement and the reason(s) for the disbursement, confirming that the CEO, CFO or Financial Principal pre-approved the disbursement in writing, indicating the current estimate of the FCM's remaining total residual interest in the customer secured amount funds account(s) after the disbursement, and containing a representation that to the best of the CEO, CFO or Financial Principal's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the secured amount requirements after the disbursement.
(d) Unless acting pursuant to relief granted by the Commission in CFTC Letter No. 17-03,2 no Member FCM via a single or multiple transaction(s) may withdraw, transfer or otherwise disburse collateral (disbursement) from any cleared swaps customer collateral account(s) as identified under CFTC Regulation 22.2 that exceed twenty-five percent (25%) of the FCM's residual interest in the cleared swaps customer collateral based upon the daily cleared swaps customer collateral calculation required by CFTC Regulation 22.2(g) unless:
(i) The FCM has prepared the daily segregation calculation required by Regulation 22.2(g) as of the close of business on the previous business day;
(ii) The FCM's CEO, CFO or Financial Principal pre-approves in writing the cleared swaps customer collateral disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (d) above; and
(iii) The FCM files written notice signed by the FCM's CEO, CFO or Financial Principal that pre-approved the withdrawal in the form and manner prescribed by NFA immediately after the FCM's CEO, CFO or Financial Principal pre-approves in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold referred to in (d) above, which includes the following:
(1) Notification that the FCM has made or intends to make a disbursement(s) from cleared swaps customer collateral that exceeds or will exceed twenty-five percent (25%) of the FCM's residual interest in cleared swaps customer collateral based upon the daily cleared swaps customer collateral calculation required by CFTC Regulation 22.2(g) computed as of the close of business on the previous business day;
(2) A description of the reason(s) for and the name and the amount provided to each recipient of the single or multiple transaction(s) that results or will result in the disbursement(s) that exceeds the twenty-five percent (25%) threshold;
(3) Confirmation that the FCM's CEO, CFO or Financial Principal pre-approved in writing the disbursement whereby the FCM exceeds or will exceed the twenty-five percent (25%) threshold; and
(4) The current estimate of the FCM's remaining total residual interest in the cleared swaps customer collateral account(s) after the disbursement, and a representation from the CEO, CFO or Financial Principal, that to the best of that person's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the cleared swaps customer collateral requirements after the disbursement.
(iv) In calculating whether an FCM has exceeded or will exceed the twenty-five percent (25%) threshold, an FCM shall exclude any cleared swap customer collateral disbursement(s) that is made to or for the benefit of cleared swap collateral customers.
(v) After making a disbursement that requires the approval and notice filing described in subsections (d)(ii) and (d)(iii) above, and until such time that the FCM completes its next daily cleared swaps customer collateral calculation required by CFTC Regulation 22.2(g), no Member FCM may make any subsequent disbursement(s) in any amount from any cleared swaps customer accounts (except to or for the benefit of cleared swap customer collateral customers) without for each disbursement obtaining the pre-approval required in subsection (d)(ii) and filing a written notice signed by the CEO, CFO or Financial Principal that discloses the name and amount to each recipient of the disbursement and the reason(s) for the disbursement, confirming that the CEO, CFO or Financial Principal pre-approved the disbursement in writing, indicating the current estimate of the FCM's remaining total residual interest in the cleared swaps customer collateral account(s) after the disbursement, and containing a representation that to the best of the CEO, CFO or Financial Principal's knowledge and reasonable belief, after due diligence, the FCM remains in compliance with the cleared swaps customer collateral requirements after the disbursement.
(e) Each Member FCM must report the following financial and operational information to NFA in the form and manner prescribed by NFA and in accordance with the respective time periods specified:
(i) On a monthly basis, within 17 business days after the end of each month, the following information as of the close of business on the last business day of the month:
(1) Adjusted net capital, minimum net capital, and excess net capital (listed in U.S. dollar figures); and
(2) The firm's measure of leverage (i.e., total balance sheet assets, less any instruments guaranteed by the U.S. government and held as an asset or to collateralize an asset (e.g., a reverse repo) divided by total capital (the sum of stockholder’s equity and subordinated debt)) all computed in accordance with U.S. GAAP.
(ii) By 11:59 P.M. Eastern time on the business day following the 15th and the last business day of each month, the following information as of the close of business on the 15th (or the following business day if the 15th falls on a weekend) and the last business day of each month:
(1) The identity and location of each depository holding customer segregated funds and the dollar amount held at each depository;
(2) The dollar amount of customer segregated funds held in cash, each type of permitted investments identified in CFTC Regulation 1.25(a), customer owned securities held as margin, and as securities under agreements to resell the securities (reverse repurchase transactions) held at each depository identified in subsection (1) above;
(3) The identity and location of each depository holding foreign futures and foreign options customer secured amount funds and the dollar amount held at each depository;
(4) The dollar amount of foreign futures and foreign options customer funds held in cash, each type of permitted investments identified in CFTC Regulation 1.25(a), customer owned securities held as margin, and as securities under agreements to resell the securities (reverse repurchase transactions) held at each depository identified in subsection (3) above;
(5) The identity and location of each depository holding cleared swaps customer collateral and the dollar amount held at each depository;
(6) The dollar amount of cleared swaps customer collateral held in cash, each type of permitted investments identified in CFTC Regulation 1.25(a), customer owned securities held as margin, and as securities under agreements to resell the securities (reverse repurchase transactions) held at each depository identified in subsection (5) above; and
(7) The identity of each depository that held customer segregated funds, foreign futures and foreign options customer secured amount funds or cleared swaps customer collateral during the reporting period that is an affiliate of the FCM.
(iii) By noon of each business day, the daily segregated funds computation, the daily secured amount funds computation and the daily cleared swaps customer collateral calculation as of the close of the preceding business day.
(iv) The FCM's CEO, CFO or other individual designated by the CEO or CFO to file on his/her behalf, or where applicable, a person described in CFTC Regulation 1.10(d)(4)(ii), must submit the information required by subsections (i)-(iii) above, and by submitting the information the CEO or CFO certifies that to the best of his/her knowledge and belief the information is true, correct and complete.
(v) Any information filed after its due date shall be accompanied by a fee of $1,000 for each business day that it is late. Payment and acceptance of the fee does not preclude NFA from filing a disciplinary action under the Compliance Rules for failure to comply with the deadlines imposed by NFA Financial Requirements.
1 Governing Body means proprietor if FCM is a sole proprietorship; general partner if the FCM is a partnership; board of directors if the FCM is a corporation; Member(s) vested with management authority if the FCM is a LLC or LLP.
2 See CFTC Letter No. 17-03 – No-Action Positon Regarding Regulation 22.17(b) Withdrawals of Residual Interest (January 26, 2017).
SECTION 17. SWAP DEALER AND MAJOR SWAP PARTICIPANT REPORTING REQUIREMENTS.
[Adopted Effective March 21, 2017.]
Each Swap Dealer and Major Swap Participant Member must file the financial, operational, risk management and other information required by NFA in the form and manner prescribed by NFA.
SECTION 18. SWAP DEALER AND MAJOR SWAP PARTICIPANT FINANCIAL REQUIREMENTS.
[Adopted Effective October 6, 2021. Effective date of amendments: December 21, 2021]
(a) Application of this Rule
(i) Except for subsection (f), the provisions of this rule do not apply to an NFA Member swap dealer (Member SD) or major swap participant (Member MSP) that is subject to minimum capital requirements of a prudential regulator under section 4s(e) of the Commodity Exchange Act or to an NFA Member FCM that is subject to the capital requirements under NFA Financial Requirements Section 1 and CFTC Regulation 1.17.
(ii) The provisions of this rule do not apply to a Member SD or MSP that is organized and domiciled outside the United States and that meets the requirements of CFTC Regulation 23.101(a)(5) or CFTC Regulation 23.101(b)(4), respectively.
(b) Minimum Financial Requirements for Swap Dealers and Major Swap Participants
(i) Each Member SD must maintain "Regulatory Capital" (as defined in CFTC Regulation 23.100) as set forth in CFTC Regulation 23.101(a), as applicable.
(ii) Each Member Major Swap Participant must meet the minimum financial requirements set forth in CFTC Regulation 23.101(b).
(c) Requirements for Calculating Market Risk and Credit Risk Exposure Requirements using Internal Models
(i) Except as provided in (iii) below, a Member SD may not use an internal model(s) to calculate market and/or credit risk exposure under 23.101(a) without obtaining prior written approval from NFA or CFTC in accordance with CFTC Regulation 23.102, as applicable and subject to the restrictions set forth in CFTC Regulation 23.102(e).
(ii) A Member SD seeking NFA's approval to use an internal model(s) under (i), must submit an application to NFA in a form and manner required by NFA.
(iii) A Member SD that meets the requirements of CFTC Regulation 23.102(f) may use an internal model(s) to calculate market and/or credit risk exposure prior to obtaining NFA's approval upon filing with the CFTC the application and certification and by filing with NFA the certification required by CFTC Regulation 23.102(f)(1) and subject to the requirements of CFTC Regulation 23.102(f)(2) and (3).
(d) NFA Pre-Approval of Subordinated Debt Loan Agreements
(i) A Member SD that is not otherwise registered with the Securities and Exchange Commission as a broker-dealer (including an OTC derivatives dealer) or security-based swap dealer (non-SEC registered SD Member) that elects to be subject to the minimum capital requirements under CFTC Regulation 23.101(a)(1)(i) and seeks to use subordinated debt to meet regulatory capital requirements, or elects to be subject to the minimum capital requirements under CFTC Regulation 23.101(a)(1)(ii) and seeks to use subordinated debt to meet regulatory capital requirements, must obtain pre-approval of the subordinated debt loan agreement from NFA in order for the subordinated debt to be satisfactory for regulatory capital.
(ii) A non-SEC registered Member SD may not make any prepayments of the subordinated debt without prior approval of NFA.
(iii) A non-SEC registered Member SD must file any proposed subordinated debt loan agreement and request for prepayment with NFA, in a form and manner required by NFA.
(iv) A Member SD that has received approval from the SEC or designated examining authority (DEA), as applicable, of a proposed subordinated debt agreement or prepayment shall immediately file with NFA a copy of the SEC's or DEA's approval.
(e) Financial Reporting
(i) Each Member SD and MSP must file unaudited financial reports with NFA for each month-end or quarter-end, as required under CFTC Regulation 23.105(d), including its fiscal year end, within 17 business days of the date for which the report is prepared using an electronic medium approved by NFA.
(ii) Within 60 days of the Member's fiscal year end, or within 90 days of the Member's fiscal year end for those SDs or MSPs electing to be subject to minimum capital requirements under CFTC Regulation 23.101(a)(2) or CFTC Regulation 23.101(b), each Member SD and MSP must file with NFA its annual audited financial report as required per CFTC Regulation 23.105(e) in a form and manner required by NFA.
(iii) SD Members must file their financial reports on Form FR-CSE-NLA or FR-CSE-BHC, except that an SD Member that is an SEC registered broker-dealer, security-based swap dealer or major security-based swap participant must file its financial reports on the FOCUS report if it otherwise files such report with the SEC.
(f) Notice Requirements
A Member SD or MSP that is required to file any document with or give any notice to a registered futures association under CFTC Regulations 23.105(c)-(h), (j), and (l)-(m)[Financial recordkeeping, reporting and notification requirements for swap dealers and major swap participants] or receives an approval or a confirmation from the CFTC under CFTC Regulations 23.101 [Minimum financial requirements for swap dealers and major swap participants] or 23.106 [Substituted compliance for swap dealer's and major swap participant's capital and financial reporting], shall also file one copy of such document with and give such notice to NFA, or provide such approval or confirmation to NFA, in a form and manner required by NFA, no later than the date required to be filed with or given to the CFTC or the registered futures association, as applicable. A Member SD that receives any notification, order, or regulatory restrictions limiting or prohibiting the Member SD's use of internal models under CFTC Regulation 23.102 shall also immediately file one copy of such notification, order, or regulatory restriction with NFA, in a form and manner required by NFA.
(g) Additional Reporting Requirements For Capital Models
A Member SD that is required to comply with the additional reporting requirements for SDs approved to use models to calculate market risk and credit risk for computing capital requirements under CFTC Regulation 23.105(k) will satisfy its NFA filing requirement by providing the information specified by NFA in the form and manner required by NFA.