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News Facts Actions - Summer 2010

In this issue:

NFA Board approves Fiscal Year 2011 budget

On May 20, NFA's Board of Directors approved a budget of $42.4 million for Fiscal Year 2011. The FY 2011 budget reflects a 2.5% increase over projected FY 2010 operating expenses. NFA's fiscal year runs from July 1 through June 30.

Three categories account for 90% of the increase in the Association's administrative expenses. Wages are budgeted to increase 1.5%. Board related expenses are budgeted to increase 30%, primarily due to the increase in the number of public directors on the Board. Finally, expenses related to recruiting, education and training and arbitration panelists are budgeted to increase 13%.

The FY 2011 budget comes on the heels of a year in which NFA initiated additional efficiencies as a way of reducing costs.

"Shortly after the Board approved our budget last year, we made a commitment to the Board to reduce cash spending for non-wage and benefits categories by over 5% compared to what had been budgeted," said David Hawrysz, vice-president and chief financial officer. "The actual savings turned out to be closer to 13%."

One of the major areas in which NFA reduced costs was travel. In Fiscal Year 2010, NFA spent $500,000 (19%) less on travel than what was spent in FY 2009.

"We reduced our non-regulatory travel and we also implemented a program to reduce average air and hotel cost," said Hawrysz. "As a result we managed to reduce our average per mile air cost by 12% and our average per night hotel cost by 14%."

Due in part to these new cost-savings, NFA was able to limit the increase in operating expenses in FY 2011 to 2.5%.

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

"We are very fortunate to have such dedicated individuals," says Hawrysz. "They are very supportive of our goal to operate as cost-effectively as possible without jeopardizing our ability to fulfill our regulatory responsibilities."

During the period of time the FY 2011 budget was prepared, NFA's Finance Committee consisted of the following individuals: Gerald F. Corcoran, R.J. O'Brien & Associates; David S. Goone, IntercontinentalExchange, Inc.; (NFA Finance Committee Chairman) Christopher K. Hehmeyer, Penson GHCO; Aleks A. Kins, AlphaMetrix LLC; Michael H. Moscow, The Chicago Council on Global Affairs; and NFA President Dan Roth.

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NFA petitions CFTC to amend commodity pool operator exemptions

National Futures Association recently petitioned the CFTC to amend CFTC Regulation 4.5 which provides an exclusion from the definition of the term "commodity pool operator" for otherwise regulated persons operating certain qualifying entities. NFA is asking the CFTC to reinstate the qualifying conditions for exemption that existed prior to amendments the Commission made in 2003.

Prior to 2003, if a firm was seeking an exemption from registering as a commodity pool operator, the firm had to file a notice of eligibility stating that the investment entity would not be marketed to the public as a commodity pool, would only use commodity futures or commodity options contracts for hedging purposes, and would limit its non-hedge futures trading to less than 5% of the liquidation value of the entity's portfolio.

In 2003, the Commission amended Regulation 4.5 and eliminated those qualifying conditions.

NFA has noticed an increase in mutual funds being marketed to customers, including retail investors, as commodity futures investments. Through various structures, these funds are indirectly invested substantially in derivatives and futures products. Although these funds are structured differently than public commodity pools and conduct futures trading through a subsidiary for tax and mutual fund regulatory purposes, their aim is the same as a commodity pool-targeting retail investors with in some cases minimum investment amounts of as little as $1,000 who want exposure to actively managed futures strategies.

"In studying these funds' prospectuses, NFA found that the offering material omits substantial disclosures that would otherwise be mandated if the fund was registered as a commodity pool," said Tom Sexton, NFA's general counsel. "These mutual funds are marketed and sold to customers, including retail investors, who may be unsophisticated in commodity futures investments."

By submitting this petition for rulemaking, NFA seeks to ensure that entities that engage in more than a de minimis amount of futures trading and that are marketed to retail customers as a vehicle for trading in commodity futures or commodity options markets are subject to the appropriate regulatory requirements and oversight by regulatory bodies with primary expertise in commodity futures.  

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NFA President Dan Roth to be featured speaker at China futures conference

Dan Roth, president and CEO of NFA, has been invited to speak at the International Seminar on Futures Market Regulation to be held in Beijing, China, from August 5 to 6. The seminar is being hosted by the China Securities Regulatory Commission (CSRC) and sponsored by the Shanghai Futures Exchange.

The commodity futures market in China has become one of the biggest in the world in terms of trading volume, and the first financial futures contract, based on a stock index future, was launched this year. In light of this tremendous growth in the Chinese markets, the CSRC decided to invite futures industry experts from around the world to share their knowledge and experience in regulating the futures markets.

According to CSRC, "the purpose of the seminar is to learn from the experiences and lessons in mature markets and discuss the prominent issues in futures market supervision. Regulatory agencies, self-regulatory organizations and other relevant futures experts in the U.S. and U.K. have been invited to share with the Chinese participants their expertise in their respective areas."

In addition to Mr. Roth, representatives from the Commodity Futures Trading Commission, the Financial Services Authority, the CME Group, NYSE Liffe and other futures industry organizations will discuss various aspects of regulation, supervision and oversight of the futures markets. 


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NFA announces registration/compliance workshops for currently unregistered forex IBs, CPOs and CTAs

In early 2010, the Commodity Futures Trading Commission (CFTC) published its proposed rules regarding the regulation of retail off-exchange foreign currency (forex) products. One component of the proposed rules requires all forex introducing brokers, account managers and pool operators to register with the CFTC as forex IBs, CTAs and CPOs and to become Members of National Futures Association (NFA).

In anticipation of the publication of the CFTC's final rules, NFA will be offering registration/compliance workshops in conjunction with the upcoming Futures and Forex Expo to be held on September 23-25 at Caesars Palace in Las Vegas. These workshops will outline the registration process and discuss regulatory requirements for each registration category.

The schedule for the workshops is as follows:

Saturday, September 25

8:30 a.m. - 10:30 a.m.

Registration workshop for all registration categories. This session will cover who has to register and will present a walkthrough of the registration process.

10:30 a.m. - 12:00 p.m.

General compliance workshop for all registration categories. This session will include discussion of NFA rules regarding promotional material/sales practices, supervisory procedures (including ethics training requirements, supervision of branch offices and disaster recovery/business continuity planning) and anti-money laundering requirements.

1:30 p.m. - 3:00 p.m.

Disclosure documents/financial requirements workshop for CPOs and CTAs, including performance reporting.

3:00 p.m. - 5:00 p.m.

NFA staff available for one-on-one consultations.

All workshops will be held in the Tribune Room in the Convention Center at Caesar's Palace.

Although there is no fee to attend the workshops, advanced registration is recommended. Click here to register online.

For additional information on the Futures and Forex Expo, click here.

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Board Actions

The following actions were taken by NFA's Board of Directors at their meeting on May 20, 2010.

The Board approved NFA's proposed Fiscal Year 2011 budget. (See separate story.)

The Board approved an amendment to NFA Bylaw 1302 reducing the time period in which FCMs can submit claims for overpayment of assessment fees to six months. The amendment was subsequently submitted to the CFTC and became effective on July 1, 2010.

The Board approved a technical amendment to NFA Financial Requirements Section 2 regarding an FCM's eligibility to Guarantee IBs. NFA has historically used a dollar figure to indicate the adjusted net capital required of an FCM in order to guarantee IBs. The amendment will replace the fixed dollar amount with a percentage (150%) of the minimum adjusted net capital as set for in NFA Financial Requirements Section 1(a)(i). The amendment was subsequently submitted to the CFTC and became effective on June 14, 2010.

The Board approved an amendment to the Charter of NFA's Audit Committee to provide that the Audit Committee will consist of at least three members. This will allow NFA the flexibility to add another Public Director to the Audit Committee's roster.

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