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News Facts Actions - Summer 2009

In this issue:

NFA officers urge Congress to close Zelener loophole for non-forex products

NFA President Dan Roth and Executive Vice President Dan Driscoll encouraged Congress to close the Zelener loophole for non-forex products during testimony presented at two congressional hearings on June 4. Dan Roth spoke before the Subcommittee on General Farm Commodities and Risk Management of the House Agriculture Committee. Dan Driscoll spoke before the Senate Committee on Agriculture, Nutrition and Forestry.

Zelener refers to the forex fraud case brought by the CFTC before a Seventh Circuit Court of Appeals. The court ruled that although retail customers had, in fact, been defrauded, the CFTC had no jurisdiction because the contracts at issue were not futures.

In legislation passed in 2008, Congress closed the loophole for forex contracts.

"Unfortunately," testified Roth, "the rationale of the Zelener decision is not limited to foreign currency products. Customers trading other commodities - such as gold and silver - are still stuck in an unregulated minefield."

Citing that NFA was aware of dozens of firms that offer Zelener contracts in metals or energy, Driscoll urged Congress to "play a leading role in protecting customers from the unregulated boiler rooms that are currently taking advantage of the Zelener loophole."

Transcripts of Roth's and Driscoll's testimonies are available on NFA's website (

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NFA proposes prohibiting loans by commodity pools to commodity pool operators and related parties

NFA's Board of Directors has approved a new compliance rule that would prohibit commodity pools from lending money to their Commodity Pool Operators (CPOs) or related persons. NFA subsequently submitted the rule (Compliance Rule 2-45) to the CFTC for approval.

"Recently, NFA has taken two emergency enforcement actions against three NFA Member CPOs," said NFA General Counsel Tom Sexton. "In both cases, our investigations revealed that the CPOs had misappropriated pool funds through improper loans from the pool to the CPO or related entities. The CFTC charged all three of the CPOs with misappropriating pool assets through improper loans, and all three were criminally charged with fraud."

Given the significant losses suffered by pool participants as a result of these improper loans, NFA began exploring ways to prohibit or guard against this type of abuse.

"We discussed this issue with the CPO/CTA Advisory Committee and the Compliance Consultative Committee," said Sexton. "Both committees support a rule that would prohibit loans between a pool and its CPO or other related entities."

Although the rule provides for a complete prohibition of these types of loans, NFA recognizes that there may be circumstances where an exemption may be appropriate and will handle these types of situations on a case by case basis.

The complete text of the submission letter to the CFTC for NFA Compliance Rule 2-45 can be found on NFA's website.

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NFA amends Articles of Incorporation regarding FCM representation on NFA Board of Directors

NFA recently amended its Articles of Incorporation to alter the structure of FCM representation on the Association's Board of Directors. The amendment became effective on May 18.

"Industry consolidation continues among our FCMs and FCM rankings have not remained static from year to year," said NFA President Dan Roth. "The amendments to our Articles of Incorporation provide NFA with additional flexibility regarding FCM representation on our Board."

Previously, the Board was composed, in part, of eight FCM representatives. Four of these eight representatives were drawn from FCMs ranked in the top ten FCMs based on the total amount of segregated funds and secured amounts, and four representatives were drawn from non-top ten FCMs.

Under the amended Articles, the Board continues to have eight FCM seats. However, two representatives will be drawn from the top ten FCMs, two from non-top ten FCMs and four will be "at large".

Although the amendment became effective on May 18, the first opportunity for the FCM Nominating Committee to nominate candidates under the new structure will be in Fall 2009 when the Committee nominates individuals to serve on the Board beginning in 2010.

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Board Actions

The following actions were taken by NFA's Board of Directors at their meeting on May 21, 2009.

The Board approved NFA's Fiscal Year 2010 budget.

The Board approved Compliance Rule 2-45 prohibiting loans by commodity pools to commodity pool operators and related parties. (See separate story.)

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News Briefs

NFA expands Member education resources with podcasts and webcasts

With the launch of its new website on June 29, NFA has added podcasts and webcasts to its library of Member education resources.

"We wanted to introduce a new method of delivering regulatory information to our Members," said Larry Dyekman, director of Communications and Education. "With the growing use of iPhones, BlackBerrys, and other mobile devices, you no longer need to be at your desk to access NFA's educational materials."

The first two podcasts offered by NFA are "Preparing for an NFA Audit" and "Registration Issues: Principals, APs and Branch Offices". Individuals can either listen to the podcast through their PC or download the podcast to their mp3 player.

The webcast, "CTA Performance Reporting" is a 10-minute video that discusses how CTAs should calculate capsule performance using NFA's sample performance spreadsheet. The webcast also describes what records are required to be maintained in order to support the performance information contained in the CTA's disclosure document. Finally, NFA staff discusses when it is appropriate for a CTA to use a composite capsule rather than report performance for each individual customer account.

"We want to tailor these presentations to the needs of our Members," said Dyekman. "If you have a suggestion for a podcast or webcast topic, please send an email to"

NFA compliance director to participate in panel discussion at Forex and Options Trading Expo

Compliance Director Sharon Pendleton will participate in a panel discussion entitled, "The Questions You Need to Ask Your Broker Before Opening a Forex Account" at the Forex and Options Trading Expo, scheduled on August 2 through August 4 at Caesar's Palace in Las Vegas. Joining Sharon on the panel will a representative from the CFTC and Tim Bourquin, co-founder of the Traders Expo and the Forex Trading Expo.

NFA will also sponsor an information booth in the exhibit hall, where NFA staff will distribute forex education brochures and discuss how to conduct online background checks of forex firms and brokers. They will also provide guidance for those forex solicitors, money managers and pool operators who are now required to register with the Commodity Futures Trading Commission.

For more information on the expo, visit the expo's website.

NFA's investigative work praised at SEC conference

NFA was lauded for its investigative work on the emergency enforcement action taken against Stephen Walsh and Paul Greenwood, Commodity Pool Operator Members of NFA, at the SEC's Los Angeles Region 23rd Annual Joint Regulatory Conference. NFA's work on the Walsh/Greenwood case was instrumental in subsequent enforcement actions taken by the SEC and the CFTC.

The conference, held July 7-8 in Los Angeles, gathers regulators from around the country to discuss a variety of enforcement issues. NFA's Senior Vice President of Compliance Regina Thoele participated on the "Cross-Agency Cooperation on Exams and Enforcement" panel. 

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