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News Facts Actions - Spring 2009

In this issue:

NFA proposes new alternative minimum net capital requirement for Forex Dealer Members

NFA has proposed a new alternative minimum net capital requirement for Forex Dealer Members (FDMs) that NFA believes will more accurately reflect the level of customer risk at each individual FDM. NFA's Board of Directors approved the proposed changes to NFA Financial Requirements Section 11 and the "Forex Transactions" interpretive notice at its February 19 meeting. The proposal is currently being reviewed by the CFTC.

"Because the $20 million net capital requirement for FDMs becomes effective on May 16, the current alternative requirement - 5% of the FDM's liabilities to customers - has become obsolete," said NFA President Dan Roth. "We believe that larger FDMs should be subject to a different capital requirement than smaller FDMs and that this requirement should be related to the amount of each FDM's customer liabilities."

The proposed alternative net capital requirement will be $20 million plus 5% of liabilities to customers that exceed $10 million. For example, the capital requirement for an FDM with $8 million in liabilities to customers would stay at $20 million, while the capital requirement for an FDM with $208 million in liabilities to customers would rise to $29.9 million.

Firms that use a straight-through-processing model would not be subject to the alternative requirement.

"Since these firms automatically enter into an opposite transaction on every trade, instead of aggregating trades at various points during the day before entering into hedging transactions, their exposure to market movements is minimal," said Roth.

The full text of the rule submission is available on NFA's website.

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NFA proposes to eliminate Forex Dealer Members' exemption from collecting required security deposit

NFA Financial Requirements Section 12 currently requires Forex Dealer Members (FDMs) to collect a security deposit of 1% of the notional value for specified (major) currencies and 4% of the notional value of all other transactions. The rule also provides an exemption from collecting these amounts if an FDM maintains 150% of its capital requirement. At its meeting in February 2009, NFA's Board of Directors approved an amendment to Section 12 that will eliminate this exemption.

"When the Board adopted the exemption, the minimum capital requirement for FDMs was $250,000," said Tom Sexton, NFA senior vice-president and general counsel. "Given that the minimum net capital will soon be $20 million (effective May 16), we felt it was necessary to re-examine the whole issue of security deposits."

As part of its research, NFA staff examined margins at the CME Group's International Monetary Market (IMM) to see how they compare with the security deposits required by Section 12.

"As with exchange margin, the primary purpose of the security deposit is to protect the FCM from absorbing the losses of defaulting customers," said Sexton.

Another factor NFA staff considered when reviewing the security deposit exemption was the effect leverage amounts offered by FDMs could have on the firm's customers. NFA found that leverage at NFA's FDMs range from 50:1 to as much as 700:1.

"We are concerned that higher leverage amounts can deplete a customer's account balance - and result in forced liquidation - much faster than retail customers realize," said Sexton.

NFA reviewed the proposed amendment with its FCM Advisory Committee and distributed it to all FDMs for their comments.

The proposed rule amendment is currently at the CFTC for review.

The full text of the rule submission is available on NFA's website (

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Board Actions

The following actions were taken by NFA's Board of Directors at their meeting on February 19, 2009.

The Board approved the following committee appointments:

Membership Committee: Douglas O. Kitchen; Charles P. Nastro

Business Conduct Committee: Christopher Barry; Mary Bender; Calogero B. Carcione; Thomas L. Casey; Clarence Delbridge, III; Frank A. Gelber; Eric S. Wolff; Dorothy E. Bossung

FCM Advisory Committee: David M. Battan; Maureen C. Guilfoile; Dennis A. Klejna; Donald R. Levine; Bonnie Litt; Russell R. Wasendorf, Sr.

CPO/CTA Advisory Committee: Robert J. Amedeo; Douglas L. Bry; Barbara A. Pfendler; Gerard G. Trevino

IB Advisory Committee: Richard C. Schlabs; Michael T. Sherzan; Scott W. Stewart

Hearing Committee: L. Carlton Anderson; Terrence B. Clarke; Timothy P. Daven; Patricia C. Donahue; Carl W. Gilmore; John C. Jensen; Lawrence O. Kaplan; Eric L. Kunkes; Timothy J. Lankford; Timothy E. McDermott; Natalie McNeely Peters; Ronald S. Oppenheimer; Joy Pava Shulruff; Richard W. Petticrew; Mark J. Powers; Wendy Robinson; Carmen D. Soldato; Scott W. Stewart; John D. Streich; Michael A. Turro; Jan R. Waye

The Board approved an amendment to NFA Registration Rule 504(b)(3) to require floor brokers and floor traders to pay a $1,000 disqualification fee if they choose to have a hearing held in a registration case. Floor brokers and floor traders had previously been exempt from this "disqualification fee." This amendment treats them similar to other respondents in adverse registration actions.

The Board approved an amendment to NFA Financial Requirements Section 12 that will eliminate a Forex Dealer Member's exemption from collecting the required security deposit. (See separate story.)

The Board approved amendments to NFA Financial Requirements Section 11 and the "Forex Transactions" interpretive notice that will establish a new alternative minimum net capital requirement for Forex Dealer Members. (See separate story.)

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News Briefs

CPO/CTA Disclosure Document electronic filing requirement now mandatory
Effective April 6, 2009, CPOs and CTAs filing a disclosure document with NFA for review will be required to submit the filing through NFA's Electronic Disclosure Document Filing System. NFA will not accept any disclosure document filings through any other mode (i.e., email, fax, or regular mail) after this date.

This new system will benefit NFA's CPO and CTA Members by creating a more efficient document review process. Electronic filing will allow NFA to identify issues sooner in the review process. Firms will also be able to track the status of their submissions online, in real-time, and will have instantaneous access to NFA's comment and acceptance letters. Additionally, all correspondence, including filed disclosure documents and NFA's comment or acceptance letters, will be archived in the system, creating an electronic file cabinet that will be easily accessible to CPOs and CTAs at any time.

To use the new electronic system, a security manager entering the system for the first time must designate himself as a disclosure document user in NFA's Online Registration System ("ORS"). The security manager can also designate additional users to file disclosure documents through the system. Filers can access the system at Once in the system, filers will be required to enter certain information specific to the filing and to upload the filing in either a PDF or Word format.

NFA also has prepared a web seminar to assist users with the new system. This online seminar is entitled "How to File CPO and CTA Disclosure Documents Electronically with NFA" and is available at:

If you have any questions about the new filing system, please contact Susan Koprowski at or (312) 781-1288 or Mary McHenry at or (312) 781-1420.

NFA provides investor education at Los Angeles Traders Expo
NFA is sponsoring an information booth at the Los Angeles Traders Expo on June 4-6 at the Pasadena Convention Center. 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).

The Expo offers educational seminars and workshops as well as an exhibit hall featuring trading software providers, futures and options exchanges and other vendors. For more information visit the Expo's Web site at

NFA spreads investor education message during Money Smart Week
NFA will participate in two events in conjunction with Money Smart Week in Chicago. Coordinated by the Federal Reserve Bank of Chicago, Money Smart Week (April 18-25) offers more than 450 free educational classes, seminars and activities focusing on financial topics for people of all walks of life.

On Tuesday, April 21, NFA and AARP will co-sponsor a seminar to advise individuals on how to help make ends meet during the current economic downturn and how to avoid becoming a victim of investment fraud. During the program an AARP representative will discuss the information in a new section of AARP's website called "Real Relief". Immediately following the AARP portion of the program, an NFA representative will provide attendees with advice on how to avoid becoming victims of investment fraud.

On Wednesday, April 22, NFA will join several other regulatory and enforcement agencies at a Financial Regulators Fair at the State of Illinois Building, Thompson Center. Representatives from ten agencies, including the CFTC, FINRA, the SEC and the FDIC, will distribute information on financial protection, banking, credit and investing. The event will run from 10:00 a.m. to 2:00 p.m.

For more information on these and other Money Smart Week events, visit

NFA issues Investor Alert for retail forex customers
On March 31, NFA published a new Investor Alert for forex customers advising them of new requirements that Forex Dealer Members (FDMs) must meet regarding the information to be included in customer account statements. The new requirements, which become effective on June 1, 2009, will provide retail forex customers with clearer, more uniform confirmations, daily statements and monthly statements.

As stated in the Alert, "NFA believes that forex customer account statements should contain clear, concise and complete information. The more difficult a customer account statement is to understand, the easier it is for a broker or account manager to mislead a customer about the value of a customer's account and the success of the customer's trades."

Click here to view the entire Investor Alert.

NFA reminds all individuals who trade forex to conduct business with a regulated forex firm - i.e., a bank, an insurance company, a broker-dealer or a futures commission merchant. If the firm is a futures commission merchant, it is required to be registered with the Commodity Futures Trading Commission and to be a Forex Dealer Member of NFA. You can easily check an FDM's registration status through NFA's Background Affiliation Status Information Center (BASIC), available through NFA's website (

Anyone who has any questions or concerns regarding their forex dealer should contact NFA either through our website ( or by calling our Information Center toll-free at (800) 621-3570 during normal business hours.

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