|Past Member Newsletters|
In this issue:
In August 2009 NFA permanently barred from NFA membership Pioneer Commodities LLC (Pioneer), an Introducing Broker located in Boca Raton, Florida. The firm's principal, Anthony S. Bobba, was barred from NFA membership for a period of 24 months and from acting as a principal of an NFA Member for a period of 36 months. Bobba must pay a fine of $25,000 in the event he reapplies for NFA membership after the 24-month bar.
The Business Conduct Committee found that Pioneer and Bobba made misrepresentations to the Series 3 Examination testing service by requesting additional time for a number of Pioneer's prospective associated persons (APs) to take the Series 3 Exam on the purported ground that English was not the primary language of these prospective APs. In truth, English was the primary language of many of these prospective APs.
"We have obtained proficiency exam data and documentation from FINRA and the testing service companies," said Vice-President of Registration Greg Prusik, "and we are conducting an investigation of potential similar abuses by other Member firms and individuals."
In addition, NFA has already initiated a number of registration denial and revocation actions against individuals (not only former Pioneer prospective APs but also APs and prospective APs of other Member firms) who received extra time to complete the Series 3 Exam based on alleged false representations that these individuals have limited English proficiency because English was their second language. It is likely that NFA will be initiating more actions as the investigation continues. NFA and FINRA staffs are considering establishing specific criteria for eligibility for extra time to take an exam due to a candidate's limited English proficiency.
"In the course of our investigations, we also uncovered exam scheduling practices that caused some concern for NFA's Membership Committee," said Prusik. "As a result, the Committee directed us to implement waiting periods between failed exams that parallel securities industry policies."
Effective November 2, 2009, the following waiting periods will be implemented for individuals needing to retake the Series 3, Series 30, Series 31, Series 32 or Series 34 exams following a failed attempt:
(1) a minimum of 30 days after failing the first exam before the second taking of the exam can be scheduled;
(2) a minimum of 30 days after failing the exam for the second time before the third taking of the exam can be scheduled; and
(3) a minimum of 180 days after failing the exam for a third time before the fourth taking of the exam (and each subsequent taking) can be scheduled.
The only exception is if the required 30-day or 180-day waiting period has already elapsed since the last failed attempt, the waiting period will not be applied. However, all subsequent attempts will be subject to the appropriate waiting period.
As of November 30, 2009, NFA will eliminate the existing exemption from the security deposit requirements for Forex Dealer Members (FDMs) and institute a new alternative net capital requirement.
Currently, FDMs that maintain 150% of their required net capital requirement are exempt from collecting a security deposit from their customers. However, beginning November 30, that exemption will no longer exist, and all FDMs will be required to collect a customer security deposit of at least 1% for the major currencies (British pound, Swiss franc, Canadian dollar, Japanese yen, Euro, Australian dollar, New Zealand dollar, Swedish krona, Norwegian krone and Danish krone) and at least 4% for all other currencies.
The new alternative net capital requirement will be $20 million plus 5% of the amount of customer liabilities over $10 million. FDMs that exclusively use straight-through-processing for their customer transactions will be exempt from this alternative requirement and need only maintain the $20 million minimum (unless the firm is subject to a higher requirement under NFA Financial Requirements Section 1).
NFA recently amended its Code of Arbitration and Member Arbitration Rules, modifying the monetary thresholds for determining whether a case is processed as a summary proceeding or an oral hearing and the number of arbitrators NFA appoints to a case. The rule changes apply to all cases filed on or after October 1, 2009.
"In our most recent fiscal year, we received nearly 40% more arbitration claims than in the prior year," says Christine Roche, NFA's arbitration manager. "Because of this significant increase, NFA staff reviewed the arbitration program to identify changes we could make to keep the program operating efficiently without sacrificing the procedural rights of the parties."
Prior to October 1, customer cases with claim amounts that were less than or equal to $25,000 were administered as a summary proceeding where one arbitrator decided the case based on the parties' written submissions. However, a party with a claim amount between $15,000.01 and $25,000 had the option to request an oral hearing. Member-to-Member claims were administered as a summary proceeding if the claim amount was not more than $50,000, with a party having the option to request an oral hearing if the claim exceeded $15,000.
Under the amended Code, all customer cases filed on or after October 1, with claim amounts that are less than or equal to $50,000 will be processed as summary proceedings. Parties will be able to request an oral hearing for claims between $25,000.01 and $50,000. However, this request must be accompanied by a $675 fee, which approximates the costs associated with processing the case as an oral hearing. In Member-to-Member cases, an oral hearing may be requested for cases that exceed $25,000.
"Summary proceedings have proven to be an effective method of resolving disputes for claims under $50,000," said Roche. "By requiring more cases to be resolved through summary proceedings, NFA can reduce costs for both the parties and NFA."
Another Code amendment relates to the number of arbitrators NFA appoints to a case. As of October 1, all new claims between $50,000.01 and $100,000 will be heard by one arbitrator unless all parties in the proceeding submit a written request to NFA for three arbitrators.
"Appointing one arbitrator instead of three simplifies the arbitration process and reduces costs," said Roche.
The following actions were taken by NFA's Board of Directors at their meeting on August 20, 2009.
The Board approved the following committee appointments:
Finance Committee: Jeffrey C. Borchardt; Gerald F. Corcoran, Robert E. Murray and Susan M. Phillips
Hearing Committee: Mary Beth E. Rooney
The Board approved an amendment to NFA Bylaw 1301 related to the membership dues surcharge levied on Forex Dealer Members (FDMs). The amendment reduces the surcharge to $12,000 for exchange-member FDMs whose DSRO has agreed to examine for compliance with applicable NFA forex rules as part of its annual examination of the firm. The rule was subsequently approved by the CFTC and became effective on September 11, 2009.
The Board approved technical amendments to Compliance Rule 2-43(a) relating to the circumstances under which FDMs can make price adjustments. The amendments were subsequently approved by the CFTC and became effective on September 11, 2009.
The Board approved amendments to NFA's Code of Arbitration and Member Arbitration Rules. (See separate story.)
The Board resolved to establish a Forex Dealer Member Advisory Committee consisting of no more than five persons. Appointments will be made in February 2010.
The Board ratified amendments to Articles VII, VIII and XVIII of NFA's Articles of Incorporation related to the composition of NFA's Board.
The Board approved amendments to NFA Bylaws 301 and 701 and Registration Rule 501 to restructure the composition of the Membership Committee and registration hearing subcommittees. The CFTC subsequently approved the amendments, which will become effective on November 18, 2009.
The Board approved a new Compliance Rule 2-45 and the related interpretive notice entitled "Prohibition of Loans by Commodity Pools to CPOs and Affiliated Entities". The CFTC has approved the new rule and accompanying interpretive notice, which became effective on September 11, 2009.
The Board approved a new NFA Compliance Rule 2-46 - CPO Quarterly Reporting Requirements. NFA has begun developing a reporting system to allow CPOs to file the information required by these reports electronically. NFA is also drafting an interpretive notice that will provide further guidance on the system and detail the information that must be submitted. NFA expects the system to be ready for the reports due for the quarter ending March 31, 2010.
NFA requirements prohibiting loans by commodity pools to CPOs and related entities now in effect
On September 11, new NFA Compliance Rule 2-45 and its accompanying Interpretive Notice became effective. The new rule prohibits commodity pools from making direct or indirect loans or advances of pool assets to the CPO or any other affiliated person or entity.
CPOs that currently have existing loan or advance arrangements between their pools and the CPO, the CPO's principals or related entities must notify NFA of these arrangements by October 22, 2009.
For additional information on the new rule, refer to NFA's Notice to Members I-09-17.
NFA staff to participate in several industry events in Chicago
NFA staff members have been invited to speak at several futures industry events being held in Chicago the week of October 19-23.
The Futures Industry Association (FIA) is holding its annual Futures and Options Expo at the Hilton Chicago on October 21-22. NFA Senior Manager of Promotional Material and Disclosure Document Review Mary McHenry will be a panelist at the Social Media session. The panel will "discuss how sites such as Facebook, LinkedIn and Twitter are being used for marketing and trading and the associated legal considerations." NFA will also sponsor a booth in the Expo's Exhibit Hall, which showcases products, services and information for market professionals and participants.
A CTA Expo is also being held on October 21 at the Hotel Monaco Chicago. Compliance Associate Director Patricia Cushing will be participating in a panel discussion entitled "Compliance in a Changing Environment."
Additionally, the CFTC is hosting its annual International Symposium at the Federal Reserve in Chicago from October 19 through October 22. Senior Manager of Audits Lauren Brinati will be participating on the "Customer Funds Protection Issues" panel on October 21.
NFA to participate in two upcoming investor education conferences
NFA Communications and Education Director Larry Dyekman will give a presentation to investors at the American Association of Individual Investors (AAII) Conference in Orlando, Florida on November 12-14. The presentation will focus on how individual investors can use the futures markets to manage risks in their portfolios.
NFA will also sponsor an information booth in the exhibit hall, where investors can receive free educational brochures and learn how to conduct online background checks of futures firms and brokers.
For more information on the AAII conference, visit AAII's website.
In addition, NFA will sponsor an information booth at the Traders Expo being held at the Mandalay Bay Convention Center in Las Vegas on November 18-21. For more information on the expo, visit the Expo's website.