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News Facts Actions - Summer 2007

In this issue:



NFA Board approves Fiscal Year 2008 budget

On May 17, NFA's Board of Directors approved a budget of $38.9 million for Fiscal Year 2008. The FY 08 budget reflects a 7.5% increase over projected FY 07 operating expenses. Revenue is budgeted at $48.2 million, an increase of 10.5% over projected FY 07 revenue. NFA's fiscal year runs from July 1 through June 30.

"Over 40% of the increase in administrative expenses in FY 08 is directly related to two events," says NFA's CFO David Hawrysz. "The majority of that 40% is related to increased staffing needed to regulate the off-exchange foreign currency (forex) market."

The costs related to forex regulation continue to increase. Although Forex Dealer Members (FDMs) make up only 1% of NFA's membership, over 25% of NFA's audit resources are expended on FDMs.

"NFA's Board strongly believes that revenue we receive from exchange-traded contracts should not subsidize the regulation of forex activities," says Hawrysz. "To ensure that forex regulation is paid for by forex firms and their customers, the Board recently approved NFA's proposal to increase dues for FDMs, institute an assessment fee based on the aggregate notional value of an FDM's open position and levy a charge for an FDM's solicitors."

The other extraordinary expense in FY 08 operating budget is related to relocating NFA's Chicago headquarters from 200 W. Madison to 300 S. Riverside.

NFA's Chicago office has been located at 200 W. Madison since NFA began operations in 1982. In February 2005, NFA's Board authorized staff to execute a lease for space at 300 S. Riverside.

"In negotiating our new lease, we looked for ways to house our operations more efficiently and effectively," says Hawrysz. "The result is that our new office space will occupy 10,000 square feet less than our current space, and we will realize a savings over the life of the lease."

As in past years, Hawrysz credits the hard work of NFA's Finance Committee for guiding the development of this year's budget.

"The knowledge and expertise of each Committee member have been invaluable," says Hawrysz. "We are very fortunate to have such dedicated individuals."

During the period of time the FY 08 budget was prepared, NFA's Finance Committee consisted of the following individuals: W. Robert Felker, J.P. Morgan Futures, Inc.; Robert E. Murray, Graham Capital Management LP; Joseph J. O'Neill, New York Board of Trade; Susan M. Phillips, The George Washington University School of Business; and NFA President Dan Roth.

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Electronic annual update process becomes effective with October 2007 registration renewals

Beginning with firms whose registration renewals occur in October 2007, NFA will require firms to complete an electronic annual registration update. Firms will have access to the update process through NFA's Online Registration System (ORS).

NFA believes this new electronic update process will achieve three major objectives:

  • It will maintain the integrity of the registration information and protect the privacy of each registrant's information.
  • It will ensure the accuracy of the registration information, especially contact information.
  • It will recognize NFA Members' preference for having information "pushed out" to them.

Prior to the implementation of ORS in 2002, NFA annually sent a pre-printed form 7-R to each registered firm, containing all of the firm's current registration information. The firm, after reviewing the form and making any necessary changes, returned the form to NFA. The failure to return the form was deemed to be a request to withdraw from registration.

"We discontinued the process when we implemented ORS because each firm had continuous access to ORS to make any necessary changes to its registration information," says NFA's Vice President of Registration Greg Prusik. "Since then, we have at times noted inaccurate firm registration information due to the firm's failure to update its records."

To begin the electronic annual registration update process, NFA will send a letter and invoice to each firm 45 days prior to its annual update date. NFA will also send an e-mail to the firm if it has enrolled in the e-mail notification service. To enroll in the e-mail notification program, the Security Manager should select "NFA E-mail Notification Service" under the "Security" tab in ORS.

The letter and e-mail will advise the firm of the need to (1) complete the electronic annual registration update process; (2) electronically submit the firm's annual questionnaire; and (3) pay its annual fees and dues. The firm will then access its annual registration update process in ORS.

"The process is very similar to filing a Form 7-R, except that all of the firm's current information will display," says Prusik. "The firm should review all of the information and, with certain exceptions, make appropriate changes as it moves through the process."

One exception concerns individual principals. Although the names, title and ownership interest of the principals will appear in the process, the firm may change only the title or ownership interest. If the firm needs to add or delete an individual or principal, it must electronically file a Form 8-R or 8-T, respectively.

The other exception applies to the firm's Associated Persons (APs). NFA will provide a list of the firm's APs for review. However, as with individual principals, firms can only add or delete APs by electronically filing the appropriate form.

"It's very important to us to ensure that only authorized people have access to the system," says Prusik. "Therefore, although we will provide a list of security users for the firm to review, only the firm's security manager can make changes to this list."

Once the firm has electronically filed the update form, NFA will create a PDF file containing all of the information that the firm reviewed (with a few exceptions). The PDF, which will be stored in the firm's "Filing History" screen in ORS, will not contain the firm's AP list. Additionally, to maintain the security of the system, the PDF will not include the list of security users.

If a firm has not completed one or more of the update requirements within 30 days following its annual update date, the firm will be deemed to have requested withdrawal, and that status will be reflected in ORS.

"Before a firm's registration or membership is actually withdrawn, we will make multiple attempts to contact the firm and remind them of their obligation," says Prusik. "And, if a firm's registration is withdrawn for failure to complete its annual update, the firm can request re-instatement of their registration or membership rather than file a new application."

However, the firm must request re-instatement within 60 days of withdrawal, pay all outstanding fees, and, if the request is made between the 30th and 60th day, pay a $500 re-instatement fee.

"The fee will partially offset the cost of staff time needed to re-instate firms, which is a manual process," says Prusik. "Once the firm is reinstated, the firm has 30 days to file its annual registration update. If the firm does not meet its deadline, the firm's registration will be withdrawn, and the firm will need to file a new application if it wants to be registered."

To coincide with NFA's new electronic annual update process, the CFTC recently amended Commission Regulation 3.10 to require FCMs, IBs, CPOs and CTAs "to complete an online annual review of their registration information maintained with the National Futures Association."

Additional information on this new requirement will be available in ORS later this summer. Questions regarding the requirement should be directed to NFA's Information Center at (800) 621-3570 or (312) 781-1410 or email NFA at information@nfa.futures.org.

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Board Actions

NFA's Board of Directors took the following actions during the Board meeting on May 17, 2007 in New York City:

The Board approved the proposed budget for Fiscal Year 2008. (See separate story.)

The Board appointed Thomas A. Kloet to the Finance Committee for a term to expire in August 2007.

The Board appointed Timothy G. McDermott to the Hearing Committee for a term to expire in January 2009.

The Board approved changes to NFA Bylaws 1301, 1302 and 1303 to recover the cost of regulating Forex Dealer Members (FDMs). The changes include a dues increase, an assessment fee based on the aggregate notional value of open positions and a charge for an FDM's unregulated solicitors.

The Board approved an amendment to Compliance Rule 2-36 and 2-39 and the Interpretive Notice entitled "Forex Transactions" to enable NFA to require any Forex Dealer Member for any specified period to file copies of all promotional material with NFA for its review and approval at least 10 days prior to its first use or such shorter period as NFA may allow. Under the new amendment, a Compliance Director may also require a Forex Dealer Member to file with NFA for review and approval copies of promotional material prepared or used by some or all of the non-Members it is responsible for under NFA rules.

The Board approved amendments to Registration Rule 203 and 204 for the adoption of an annual update process. (See separate story.)

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News Briefs

NFA publishes new investor education brochure
National Futures Association has published a new investor education booklet entitled "Scams and Swindles: An Educational Guide to Avoiding Investment Fraud." The guide describes common characteristics of investment scams and outlines steps individuals can take to avoid them.

"Fraudulent investment offers are pitched at us every day," says NFA's Senior Vice President of Strategic Planning and Communications Karen Wuertz. "They come by telephone, through e-mails, in newspapers, magazines and late night television programs. We all have to learn how to spot these scams before we lose our money to them."

Single copies of "Scams and Swindles" are offered free of charge. Individuals may order a copy of the publication by calling NFA's Information Center toll-free at 800-621-3570 or by emailing NFA at information@nfa.futures.org.

Individuals or organizations may purchase multiple copies of the brochure for 80¢ each. Payment must accompany any request for multiple copies. Mail a check made payable to National Futures Association to NFA Information Center, 200 W. Madison, #1600, Chicago, IL 60606.

Individuals also have the option of viewing and printing the publication by downloading it from the Investor Learning Center of NFA's Web site (www.nfa.futures.org).

NFA staff to participate in panel discussion at Forex Trading Expo
Compliance Director Sharon Pendleton will participate in a panel discussion entitled, "Making the Right Choices When Opening Your Forex Account" at the Forex Trading Expo, scheduled on September 15 and 16 in Las Vegas. Joining Sharon on the panel will be CFTC Deputy Director Lawrence Patent, Division of Clearing and Intermediary Oversight.

NFA will also sponsor an information booth in the exhibit hall, where NFA staff will distribute forex education brochures and demonstrate how to conduct online background checks of forex firms and brokers.

For more information on the expo, visit http://www.forextradingexpo.com/.

NFA offers Web seminar on promotional material
NFA announces a new Web seminar designed to help Members understand "The Do's and Don'ts of Promotional Material." The seminar will be held on Thursday, July 26, at 1:00 PM CST.

Promotional material is an essential component of an NFA Member's business. This seminar will give you an overview of NFA Compliance Rule 2-29: "Communication with the Public and Promotional Material." NFA specialists in promotional material review will walk you through the restrictions and responsibilities outlined in each section of the rule and discuss areas where they see the most deficiencies. They will also discuss your supervisory requirements, including supervision of electronic communications, and describe NFA's pre-review program. The seminar will conclude with a question and answer session.

There is no charge to participate in the seminar, but registration is required. To register, just use the Web link below:

http://www.iian.ibeam.com/events/nfas001/23081/

For those individuals who are unable to attend the live event, the seminar will also be available for viewing from NFA's Web site anytime after July 26.

If you have any questions about the seminar or would like additional information, please contact Ruth Hong at (312) 781-1371 or rhong@nfa.futures.org.

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