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News Facts Actions - Summer 2005

In this issue:

NFA's Fiscal Year 2006 budget includes costs for enhanced disaster recovery project

NFA's budgeted operating expenses for Fiscal Year 2006 of $34.1 million represent a 5.8% increase over projected expenses for FY 2005.

The increase, slightly higher than in previous years, is directly related to costs associated with a major addition to NFA's disaster recovery program.

Due to increased reliance on Web-based systems, NFA has recently re-examined its disaster recovery plans. On a high-volume day, NFA can receive up to one thousand data filings from outside of NFA. Under NFA's existing plans, in the event of a disaster, all of the data entered on the day of the disaster could be lost.

"We would have to contact every Member, ask if they had entered any data during the previous 24 hours and ask them to resubmit the data," says NFA Sr. Vice President of Information Systems Ken Haase. "Whether all of that data would ever be recovered, and if so, how long it would take is uncertain, at best."

To address these issues, NFA's Board approved the development of a Hot Site. NFA will install high-speed data lines to an off-site recovery facility (a Hot Site). Data will be fed on a continuous basis to the database server at the Hot Site. Should any or all of the production systems at NFA experience failure, the systems at the Hot Site will automatically start up and resume processing within an hour.

"The Hot Site will dramatically reduce the time that NFA's systems would be unavailable," says Haase, "and for all practical purposes, eliminate the possibility of lost data due to a disaster."

Absent the expense of the Hot Site, NFA's total operating budget for FY 2006 is $33.7 million, a 4.4% increase over FY 2005 spending.

"The 4.4% increase is driven almost entirely by wages and benefits," says NFA Vice President and Treasurer Dave Hawrysz, "and is in line with the increases we have budgeted over the past few years."

NFA has budgeted $30.6 million in revenues for Fiscal Year 2006, which is almost $1.3 million less than FY 2005's projected revenue. The decreased revenue is a result of the lower assessment fees that became effective January 1, 2005. NFA receives approximately 70% of its revenue from the assessment fee.

Preparing a budget is a challenging project, and Hawrysz credits NFA's Finance Committee for their valuable contributions.

"The committee members come from diverse business backgrounds and offer different perspectives on important issues, which we find very helpful," says Hawrysz. "They give us valuable feedback throughout the process. We are very fortunate to have such dedicated individuals."

NFA's Finance Committee consists of Chairman Douglas Kitchen, managing director, Rosenthal Collins Group; Paul Georgy, president, Allendale, Inc.; Robert Murray, chief operating officer, Graham Capital Management LP; Joseph O'Neill, senior executive vice president, New York Board of Trade; Susan Phillips, dean, School of Business, The George Washington University; and Daniel Roth, president, National Futures Association.

NFA's Board of Directors approved the FY 2006 budget on May 19. NFA's fiscal year runs from July 1 through June 30.

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BASIC: A helpful pre-hiring tool for NFA Members

The integrity and reputation of a firm is largely reflected in its employees and agents, and NFA regularly receives questions from Members on how to effectively supervise the futures-related activities of these individuals.

One of the first steps in developing a strong supervisory system is the hiring process. Members should carefully screen prospective Associated Persons (APs), both to ensure their qualifications and to determine the extent of supervision the prospective AP would require if hired.

NFA provides a comprehensive database to assist Members in conducting their due diligence. It's called the Background Affiliation Status Information Center, or BASIC, and it's located on our Web site ( Although we do not have specific data on how often our Members include a BASIC check as part of their pre-hire process, we know that Members, investors and other industry participants conduct over 600,000 BASIC searches every year.

BASIC was introduced in 1999 and contains current and historical registration information concerning all existing and former CFTC registrants, including name, business address and registration history in the futures industry. Using BASIC, NFA Members will find information regarding all formal disciplinary actions ever taken by NFA and all administrative and injunctive actions ever taken by the CFTC. In addition, all U.S. futures exchanges contributed information regarding their regulatory actions from at least 1990 to the present.

BASIC also contains details concerning NFA arbitration matters involving disputes between investors and Members if the case went to hearing and an award was issued after January 1, 1990. Members will also find summary data concerning the number of cases filed with the CFTC's reparations program.

With the help of BASIC, Members can review a potential new hire's recent employment history and any disciplinary proceedings against them. Members should also consider whether any of the applicant's previous employers have been subject to disciplinary proceedings by the CFTC or by NFA.

This information could be helpful in determining the extent of supervision a particular applicant would require after being hired. Certainly, if a recently hired AP has received the bulk of his professional training and experience from, for example, a number of firms which have been closed down as a result of disciplinary proceedings brought by the CFTC or by NFA, that individual may well require closer supervision for a period of time than other APs.

The supervision of employees must be an issue of paramount concern to all NFA Members. NFA supplies the information available in BASIC as a tool to assist our Members in their due diligence process as they evaluate the merits of potential employees.

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NFA invited to join U.S. Treasury's Bank Secrecy Act Advisory Group

In May of this year, National Futures Association joined representatives from financial institutions, federal law enforcement agencies, regulatory authorities and others from the private and public sector at a meeting of the Bank Secrecy Act Advisory Group (BSAAG). This marked the first time self-regulatory organizations were invited to participate in BSAAG meetings. Other self-regulatory organizations invited to participate included the NASD and NYSE.

The BSAAG is a task force established by Congress in 1994 for the purpose of giving the Treasury Department advice on strengthening anti-money laundering programs and simplifying currency reporting forms. The group is currently chaired by William Fox, Director of the Financial Crimes Enforcement Network (FinCEN).

"The BSAAG has formed a Securities and Futures Subcommittee that looks at anti-money laundering issues related to the securities and futures industries," says Carol Wooding, NFA assistant general counsel. "NFA was also invited to participate in this subcommittee, which met on July 7."

Other members of the subcommittee, co-chaired by Barbara Wierzynski of the Futures Industry Association and Julie Copeland of Merrill Lynch, include representatives of the CFTC, SEC, NASD, FCMs and broker-dealers.

"At the July meeting, the group discussed issues related to the Customer Identification Rule, information sharing under Section 314 and correspondent accounts under Section 312 of the USA Patriot Act," says Wooding, NFA's representative on the subcommittee. "The group is scheduled to meet again in September and will finalize matters to bring to the full BSAAG at its meeting later in the fall."

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Board Report

NFA's Board of Directors took the following actions at a meeting on May 19, 2005 in Washington, DC:

The Board welcomed Acting Chairman of the CFTC Sharon Brown-Hruska, who discussed several topics of interest with the Board.

The Board approved NFA's fiscal year 2006 budget, as approved by the Finance Committee and Executive Committee.

The Board approved an amendment to an interpretive notice to Compliance Rule 2-36. The amended notice would treat Members subject to forex requirements the same as other Members in connection with the use of promotional material promoting trading systems developed by third-party system developers.

The Board agreed to withdraw proposed amendments to NFA Compliance Rule 2-6 and the Interpretive Notice submitted to the CFTC in early December 2004. The Board subsequently approved a newly amended Compliance Rule 2-6 and its Interpretive Notice entitled "Conducting Commodity Futures Business with an Expelled or Suspended Member or Associate."

The Board approved several amendments to NFA's Code of Arbitration and Member Arbitration Rules to require that parties attest to the truth of all pleadings. NFA believes these amendments will reduce the number of instances where parties make untrue statements or recant statements they verified in good faith. Measures that promote responsible pleadings will produce more efficient arbitration and enhance the integrity of NFA's arbitration program.

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News Briefs

NFA participates in Chicago Traders Expo
NFA Compliance staff members Tracey Hunt and Mary McHenry gave a presentation outlining registration and compliance issues for futures trading professionals at the Chicago Traders Expo, held on July 13-16 at the Hyatt Regency Hotel. In addition, Compliance Associate Director Sharon Pendleton was a panelist at a session titled "How FX Trading Has Been Simplified for the Retail Marketplace."

The Chicago Traders Expo, which attracts more than 5,000 active traders annually, offers free and paid workshops on a variety of subjects, including money management, trading strategies and market analysis. The Expo also hosts an exhibit hall featuring futures exchanges, FCMs and trading product and service providers. At NFA's exhibit booth, NFA staff distributed investor education materials and demonstrated how to conduct a background check using the Web-based Background Affiliation Status Information Center (BASIC).

NFA president to speak at Asia Derivatives Conference
NFA President Dan Roth has been invited to participate in an international regulators meeting being held in conjunction with the Futures Industry Association's (FIA) first Asia-wide derivatives conference. The event, co-hosted by Dalian Commodity Exchange, Shanghai Futures Exchange and Zhengzhou Commodity Exchange, will be held August 9-11 in Bejing, China.

In addition to regulation, the conference will address issues such as risk management, clearing, cross-border access and attracting global market participants. Additional information on the conference can be found at

NFA staff volunteer for Financial Literacy Day
Several NFA staff members volunteered to participate in a special one-day financial literacy program designed to help Chicago Public School students understand the basics of working with money. The program, sponsored by Operation Hope, was held on July 12. Financial Literacy Day was part of the KidStart Summer Jobs program. The NFA staff members joined more than 100 volunteers from other Chicago companies to help teach financial literacy to inner city high school students.

Operation Hope is an independent not-for-profit group dedicated to financial education and empowerment.

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