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News Facts Actions - Winter 2006

In this issue:

Board Actions

NFA's Board of Directors took the following actions at a meeting on November 17, 2005 in New York City:

The Board directed the Secretary to solicit from the membership the nomination of individuals to serve on the Board in the Public Representative category.

The Board authorized the staff to submit to the CFTC a Petition for Rulemaking to require the electronic filing of CPO and CTA notices of exemption. Currently, NFA staff manually inputs and scans all exemptions (300 a month on average). To make the process more efficient, NFA has developed an electronic exemption filing system. Before NFA can implement the electronic filing system, the CFTC must amend its regulations to eliminate the manual signature requirement and require notices to be filed electronically.

The Board approved an amendment to NFA Registration Rule 401 to retire the Series 33 - Financial Instruments Examination. The Series 33 exam was first offered in 1998 in response to the desire of futures exchanges to facilitate the AP registration of general securities representatives to deal in futures on financial instruments. However, Member firms have not made use of the limited AP registration, and NFA recommends that the Series 33 exam be retired.

The Board approved amendments to Financial Requirements Section 1 and the Interpretive Notice entitled "Forex Transactions with Forex Dealer Members" that adopt a $7,500,000 minimum net capital requirement for Member FCMs with an affiliate that engages in off-exchange forex transactions with retail customers and a $5,000,000 minimum net capital requirement for FCMs that act as counterparties for retail off-exchange forex options transactions.

The Board approved amendments to NFA Compliance Rule 2-10 to ensure that NFA has effective access to books and records maintained by foreign firms or in a foreign language.

The Board approved amendments to NFA Bylaw 1301 to increase Forex Dealer Member dues. Because Forex Dealer Members do not pay assessment fees on their forex transactions, NFA relies solely on dues to recover its regulatory costs.

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CFTC proposes to amend regulations to require electronic filing of commodity pool annual financial reports

On December 15, 2005, the CFTC published in the Federal Register a proposal to amend Commission regulations to require that commodity pool financial statements submitted by CPOs to NFA be filed electronically. The proposed amendments will eliminate the current requirement that pool financial statements must contain a manually signed oath or affirmation.

Specifically, the CFTC's amended regulations would: 1) require CPOs to file electronically a commodity pool annual report with NFA; 2) require CPOs to maintain for five years a manually signed copy of each annual report and to maintain records of how certain key financial balances submitted to NFA were compiled from the annual report; and 3) eliminate the requirement that the annual report filed with NFA be manually signed, allowing the oath or affirmation to be made through compliance with NFA's electronic filing procedures.

When the amendments are approved, NFA Member CPOs will be required to file their pool financial statements with NFA electronically using EasyFile, a Web-based filing system accessed through NFA's Web site (

NFA launched EasyFile in 2004 to allow Non-Broker/Dealer Introducing Brokers to submit their 1-FR-IB unaudited financial statements to NFA electronically. In January 2005, NFA began a pilot program for CPOs to use EasyFile to submit their pool financial statements. During the pilot program over 15% of the 2004 statements were filed through EasyFile, and NFA received very positive feedback from the CPOs who used the system.

"With EasyFile there is no software to download or install, and you can submit files from anywhere you have Internet access," says Vice President of Compliance Regina Thoele. "EasyFile also immediately notifies the sender that the statement has been received."

Last fall, NFA held workshops for CPOs in Chicago, New Jersey and Connecticut, produced a Web seminar and offered hands-on demonstrations of EasyFile at NFA's New York office. An archived version of the Web seminar, "Fulfilling Your Regulatory Responsibilities More Efficiently with NFA's EasyFile, Online Registration System and Other Electronic Filing Systems," can be accessed through NFA's Web site.

NFA will continue this education initiative in 2006. For example, NFA's upcoming "Issues and Answers" meeting in San Francisco on March 7 will feature a special session dedicated to CPO filing requirements.

In addition, NFA will continue to offer in-person demonstrations of EasyFile at the Association's Chicago and New York offices. Members who wish to schedule a demonstration in Chicago should contact Lisa Marlow at (312) 658-6525. For a demonstration in New York, contact Tim Wigand at (212) 513-6021.

"We want to ensure that all of our Member CPOs have the information and training they need to meet their new electronic filing requirements within the specified timeframe," says Thoele.

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News Briefs

CFTC adding email address requirement as part of registration filing
The CFTC has notified NFA that it has determined that every registered firm will need to provide an email address as part of its registration filings. NFA and CFTC staffs have begun discussions regarding how to implement this requirement in NFA's Online Registration System (ORS).

"We do not as yet have a date when this requirement will become effective," says NFA's Vice President of Membership and Registration Greg Prusik. "We will provide further details as the necessary changes are made to ORS."

NFA President to attend CFTC hearing on self-regulation
NFA President Dan Roth will represent the Association at the CFTC's "Hearing on Self-Regulation and Self-Regulatory Organizations in the U.S. Futures Industry" on February 15 in Washington, DC. In announcing the hearing, the CFTC described it as "a major event in the Commission's ongoing review of the roles, responsibilities and capabilities of self-regulatory organizations in a rapidly changing environment. The SRO Hearing will consolidate and update the Commission's prior research; build upon the most recent industry developments; and offer interested parties an opportunity to address the Commission directly, respond to questions and focus on differing viewpoints".

The hearing will begin at 10:00 a.m. at the Commission's headquarters in Washington. For additional information, contact the CFTC at (202) 418-5080.

NFA provides investor education at New York Traders Expo
Sharon Pendleton, associate director of Compliance, will participate in a panel discussion on the retail off-exchange foreign currency (forex) markets at the Traders Expo, scheduled for February 18-21 in New York City. The Expo offers educational seminars and workshops as well as an exhibit hall featuring trading software providers, futures and options exchanges and other vendors. In previous years, the Expo has attracted more than 5,000 traders.

NFA is also sponsoring an information booth in the exhibit hall where NFA staff will distribute copies of NFA's investor education materials and demonstrate how to conduct a background check of a futures firm or individual using NFA's Web-based Background Affiliation Status Information Center (BASIC).

Individuals wishing to learn more about the Expo can visit the Expo's Web site at

First "Issues and Answers" meeting of 2006 will be held in San Francisco
NFA will hold the first "Issues and Answers" meeting of 2006 on March 7 in San Francisco. The meeting is scheduled from 1:00 to 3:00 p.m. at the Grand Hyatt San Francisco, 345 Stockton Street.

"Issues and Answers" is a series of Member meetings NFA conducts at various locations around the country. NFA staff members lead discussions of current issues in the futures industry and provide updates on the latest rules and regulations. At the San Francisco meeting, there will be a special breakout session for CPOs regarding upcoming changes to financial statement filing requirements.

There is no charge to attend the meeting; however, space is limited and NFA encourages Members to pre-register online. Individuals can also register by contacting Deb Loehrke at (312) 781-1392.

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CFTC approves rule amendments to ensure effective NFA audits of foreign firms

Responding to increasing numbers of foreign firms applying for FCM registration and NFA membership, NFA's Board of Directors recently approved amendments to NFA Compliance Rule 2-10 to ensure that NFA has effective access to books and records maintained by foreign firms or in a foreign language. The rule amendments have been approved by the CFTC and will become effective on April 1, 2006.

"NFA has had foreign firms as Members since its inception in 1982," says NFA's General Counsel Tom Sexton, "but they were primarily CPOs and CTAs. Now, however, we're seeing more foreign FCM applications and most of these foreign firms want to offer retail off-exchange foreign currency (forex) trading to U.S. customers."

As of October 3, 2005, NFA had six foreign FCM Members, five of which offer retail forex. Four of these FCMs are located in London and the other two are located in Canada. Within the past few years, however, NFA has received applications from firms located in Argentina, Columbia, Cypress, Israel, Jordan, Pakistan, Romania, Russia and Singapore.

"Although most of the foreign firms withdrew their applications before they completed the registration process, the applications raised concern about our ability to audit and obtain information from foreign FCMs located in countries without regulatory systems comparable to that in the U.S.," says Sexton.

NFA currently requires foreign firms to certify that they can and will produce their books and records in the U.S. within 72 hours (24 hours for FCMs) and that they are not subject to any blocking, privacy or secrecy laws that would interfere with this inspection. In addition, the registration application asks foreign firms to list all foreign regulators (including SROs) it has been regulated by within the past five years and all disciplinary actions taken by foreign regulators. It also imposes an ongoing obligation on foreign firms to provide NFA with copies of audit and disciplinary reports from foreign regulators.

"While our existing requirements regarding foreign firms have been effective, we realize that additional steps need to be taken," says Sexton.

The proposed amendments to Compliance Rule 2-10 would add the following requirements:

  • FCMs would be required to maintain their books and records in an office located in the U.S. or a Part 30 jurisdiction (Great Britain or Canada, for example). FCMs that do not maintain their books and records in the U.S. would be required to reimburse NFA for additional travel and related expenses.
  • All Members subject to minimum capital requirements (FCMs and Independent IBs) would be required to prepare financial and other required reports in English, using U.S. dollars and U.S. accounting standards, and maintain a general ledger in English using U.S. dollars.
  • All Members would be required to: 1) file documents with NFA in English; 2) maintain English translations of foreign-language promotional material; 3) maintain required procedures in English; 4) provide English translations of other documents when requested by NFA; and 5) ensure that an English-speaking individual who is knowledgeable about the firm's business is available to assist NFA during an audit.

"As the number of foreign FCM applicants grows, we must do everything we can to ensure that we will be able to conduct efficient and effective audits of those firms," says Sexton.

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