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News Facts Actions - Summer 2011

In this issue:

NFA's Board of Directors appoints Swap Dealer Advisory Committee

At its May 19 meeting, NFA's Board of Directors appointed a Swap Dealer Advisory Committee to help NFA incorporate the swap dealer category of registration into NFA membership. The committee is comprised of representatives of several entities currently engaging in swap activities, including major financial institutions, end users and energy and agricultural firms.

"The CFTC has proposed requiring all registered swap dealers and major swap participants to become members of NFA and requiring NFA to monitor those members for compliance with regulatory requirements," says NFA President Dan Roth. "The Swap Dealer Advisory Committee was formed to provide guidance as we prepare to take on these new responsibilities."

Initially, the Committee will focus on three major areas: governance, funding and developing rules and regulatory programs.

The Committee has recommended several individuals to serve on NFA's new Special Committee on Governance. Those individuals, along with NFA Board members Maureen Downs, Michael Dawley, Ronald Filler, David Goone, William McCoy and Ronald Oppenheimer, will address several governance issues, including:

  • The number of swap dealer and major swap participant directors that should be added to the Board to ensure adequate representation of the various components of the swap community;
  • A system of checks and balances to ensure that neither futures nor swap representatives have unfettered discretion to write rules favorable to their constituents at the expense of sound public policy;
  • A process that will ensure that both major FCMs and major swap dealers are represented on the Board, and whether to retain the current prohibition on any firm having more than one representative on the Board; and
  • Whether to add more public representatives to the Board.

The Advisory Committee will also recommend individuals to work with NFA's Finance Committee to develop a set of proposed fees and dues to recover NFA's direct and indirect expenses related to the regulation of swap dealers.

"Like any of our other advisory committees, the Swap Dealer Advisory Committee will be a valuable resource in developing NFA's swap-related rules and regulatory programs," said Roth.

The following individuals have been appointed to serve on NFA's Swap Dealer Advisory Committee:

Steven Bunkin, Managing Director and Associate General Counsel - Goldman Sachs & Co.
Robert Burke, Managing Director - Bank of America Merrill Lynch
Charles Cerria, Associate General Counsel-Trading - Hess Corporation
William De Leon, Executive Vice President, Global Head of Portfolio Management - PIMCO
Joseph Glace, Vice President and Chief Risk Officer - Exelon Risk Management
Chip Goodrich, Managing Director and Senior Counsel - Deutsch Bank
Bryan Murtagh, Managing Director - UBS Securities, LLC
Matthew Nevins, Vice President and Associate General Counsel - Fidelity Investments
Richard Ostrander, Managing Director - Morgan Stanley
David Robertson, Assistant Vice President and Assistant General Counsel - Cargill, Incorporated
Don Thompson (committee chairman), Managing Director and Associate General Counsel - JPMorgan Chase & Co.
Conrad Voldstad, Chief Executive Officer - ISDA (as ex officio member of the committee)
Matthew Wiffen, Director - Citigroup Global Markets, Inc.

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NFA Board approves Fiscal Year 2012 budget

On May 19, NFA's Board of Directors approved a budget of $45.1 million for Fiscal Year 2012. The FY 2012 budget reflects a 7.2% increase over projected FY 2011 operating expenses. NFA's fiscal year runs from July 1 through June 30.

Wages and benefits account for the majority of the increase in the Association's administrative expenses. The 8% increase in both areas is related to NFA's additional staff requirements as the Association prepares for swaps-related regulatory activities.

"Although the CFTC has yet to finalize its extensive set of rules governing Swap Dealers, Major Swap Participants and Swap Execution Facilities, we are beginning to hire qualified individuals who will help us meet the anticipated expanded scope of NFA's regulatory responsibilities," said David Hawrysz, vice-president and chief financial officer.

NFA has budgeted $49.8 million in revenue in FY 2012, based on the assumption that public trading volume will remain relatively unchanged from FY 2011 levels.

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."

NFA's Finance Committee consists 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. Moskow, The Chicago Council on Global Affairs; and NFA President Dan Roth.

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NFA hires Jamila Piracci to oversee regulation of swap dealers and major swap participants

As part of its continuing efforts to prepare to oversee the regulation of swap dealers (SDs) and major swap participants (MSPs), NFA has hired Jamila Piracci as Vice President of OTC Derivatives.

"We are very excited to have Jamila join NFA," said NFA President Dan Roth. "With her extensive background in swaps and depth of experience she is the perfect candidate to lead NFA's efforts in this area."

The Commodity Futures Trading Commission's (CFTC) proposed rules delegate to NFA the responsibility of processing applications for registrations as SDs and MSPs, conducting the background checks on those applicants and their principals and, as appropriate, granting or denying those applications. The CFTC has also proposed requiring all registered SDs and MSPs to become members of NFA and requiring NFA to monitor those members for compliance with regulatory requirements.

"I very much look forward to working with the talented individuals here at NFA," said Piracci. "I am excited to have the opportunity to play a role at NFA as the OTC derivatives industry transitions to a new regulatory environment."

Piracci comes to NFA from the Federal Reserve Bank of New York. She has also worked for the International Swaps Derivatives Association, Inc. (ISDA), where she served as Assistant General Counsel. Piracci graduated from Harvard-Radcliffe College at Harvard University. She received her MBA from Johnson Graduate School of Management at Cornell University and Doctor of Law from Cornell Law School.

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Helping forex firms adjust to new era of regulation

Last fall, the Commodity Futures Trading Commission (CFTC) set October 18, 2010, as the date by which Introducing Brokers, Commodity Trading Advisors and Commodity Pool Operators conducting business in the retail off-exchange foreign currency (forex) markets had to register with the CFTC and become Members of NFA. For many of these firms, it marked the beginning of a new era for their businesses - an era of promotional material review, ethics training and anti-money laundering programs, as well as supervisory procedures. In other words, for the first time these firms were subject to regulation.

In the subsequent months, NFA has been tracking the regulatory areas that Forex firms have found particularly challenging. In June, NFA launched an education initiative to help those firms understand and comply with their regulatory requirements.

On June 8, NFA held a 90-minute webinar focusing on areas in which NFA Compliance staff members have frequently found regulatory deficiencies. The webinar can be viewed on demand at NFA's website. On June 28, NFA held a workshop in New York City giving attendees a more in-depth analysis of their regulatory requirements.

Listed below are some of the major issues covered in both educational programs.


  • Before conducting retail forex business, firms must be designated as an Approved Forex Firm with NFA.
  • Firms must list all of its principals in its registration forms. The three areas to review when determining who needs to be a listed principal are job titles, ownership and job duties.
  • Firms must ensure that all of its Associated Persons (APs) are properly registered.
  • For the most part, all forex APs must take and pass both the Series 3 and the Series 34 exams.
  • Firms should ensure that all of its registered APs are operating either out of the firm's main office or a listed branch office.

Promotional Material

  • Many new IB Members are unable to support every statement made in their promotional material, both fact and opinion. For example, some firms display hypothetical performance without disclosing the material assumptions used. Also, some firms post testimonials from customers on their websites or in other promotional material but do not make it clear if the testimonials were paid for and whether they are representative of all customers.
  • Firms that solicit for third party forex trading systems often fail to disclose the limitations of using some of the enhancements provided to the investor to trade. These enhancements usually interfere with the investor trading the system in the manner in which it was designed.
  • Some IBs forget to review and approve each promotional piece in writing. If the piece is printed, the appropriate supervisory personnel must sign and date its approval, keeping it in a promotional material file for the required 5 years. If the firm has a website, it should keep a spreadsheet of content changes and include the date of approval. The approval should be done by someone that did not create the promotional material.

Anti-Money Laundering

  • IBs sometime rely on another institution to perform any part of its AML responsibilities but fail to get an annual certification from the other party that they will do these duties.
  • Many IBs just adopt their FCM's AML procedures. While this gives the IB a starting point, the program must be tailored to the firm's operations.
  • NFA's rules also require AML programs to be audited every 12 months. Oftentimes, the audit is done by the firm's AML compliance officer. This person is not independent of the AML process and, therefore, does not qualify under NFA rules to conduct the AML audit. In some instances, NFA also has found that the audit was not done by someone knowledgeable of AML requirements.
  • Finally, some IBs fail to maintain documents reviewed during the AML audit. Other topics covered in both the webinar and the workshop were recordkeeping requirements, disclosure documents and supervisory responsibilities.

NFA's website has a wide variety of resources (publications, webcasts, podcasts, tutorial videos, etc.) to help its Members understand their regulatory responsibilities. And NFA's Information Center is available Monday through Friday from 8:00 am - 5:00 pm Central Time at (312) 781-1410 or (800) 621-3570.

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Board Actions

The following actions were taken by NFA's Board of Directors at their meeting on May 19, 2011.

The Board approved NFA's proposed Fiscal Year 2012 budget. (See separate story.)

The Board appointed individuals to serve on the Swap Dealer Advisory Committee. (See separate story.)

The Board appointed the following individuals to serve on the Special Committee on Governance:

  • Robert Burke, Managing Director, Bank of America Merrill Lynch
  • Michael Dawley, Managing Director, Goldman Sachs & Co.
  • Maureen Downs, President, Rosenthal Collins Group, LLC (committee chairperson)
  • Ronald Filler, Professor of Law, New York Law School
  • Chip Goodrich, Managing Director and Senior Counsel, Deutsch Bank
  • David Goone, Senior Vice President and Chief Strategic Officer, IntercontinentalExchange, Inc.
  • Robert Klein, Managing Director, Citigroup Global Markets, Inc.
  • William McCoy, Managing Director, Morgan Stanley
  • Ronald Oppenheimer, Senior Vice President and General Counsel, Vitol, Inc.
  • Don Thompson, Managing Director and Associate General Counsel, JPMorgan Chase & Co.

The Board approved amendments to NFA's Bylaws, Financial Requirements and Registration Rules to include two new categories of registration created by the Dodd-Frank Act: Swap Dealer and Major Swap Participant. The Board also authorized the Executive Committee to make further amendments in order for NFA to obtain CFTC approval of the proposed amendments.

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News Briefs

NFA announces effective date of amendment to Code of Arbitration and Member Arbitration Rules
On July 15, NFA announced an immediate effective date for an amendment to NFA's Code of Arbitration and Member Arbitration Rules. Previously, when an NFA Member or Associate failed to pay an arbitration award or comply with the terms of a settlement agreement. NFA's President could summarily suspend the Member or Associate until the award or settlement agreement had been satisfied. However, when a former Member or Associate failed to satisfy an award or comply with the terms of a settlement agreement, NFA's only recourse was to update the former Member's or Associate's registration record to reflect the failure to pay. This action alone did not constitute grounds to deny NFA Membership to the firm or individual should they choose to reapply in the future.

Effective immediately for all arbitration cases pending on after July 7, 2011, the President of NFA may, on 30 days written notice, summarily bar from Membership or Associate Membership a former Member or Associate when that former Member, or employee, fails to comply with an arbitration award or a settlement agreement. The bar would remain in effect until the award is paid or the settlement agreement has been satisfied.

In other arbitration-related news, amendments to the NFA Interpretive Notice entitled "Standard List of Documents to be Exchanged Under Section 8 of NFA's Code of Arbitration," became effective for all claims filed on or after April 15, 2011. When NFA's Board of Directors originally approved the list of relevant documents, NFA did not have jurisdiction over disputes that involved forex transactions. Although many of the documents included on the list are relevant regardless of whether the dispute involves on-exchange futures or forex transactions, NFA's Board recently identified a few additional documents that may be routinely relevant in certain disputes involving forex transactions. The amended Notice now contains all of the documents that may be automatically exchanged in an NFA arbitration proceeding.

Questions concerning these amendments should be directed to Christine Roche, Manager, Arbitration Department ( or 312-781-1562).

NFA President testifies before Senate Committee
On June 15, NFA President Dan Roth testified before the Senate Committee on Agriculture, Nutrition and Forestry regarding NFA's proposed expanded responsibilities as a result of the CFTC's Dodd-Frank rule making. Roth told the Committee the CFTC has proposed regulations that could expand NFA responsibilities in three areas:

  • The CFTC has proposed delegating to NFA the responsibility for processing applications for registrations as swap dealers and major swap participants, conducting the background checks on those applicants and their principals and, as appropriate, grating or denying those applications;
  • The CFTC has also proposed required all registered swap dealers and major swap participants to become members of NFA and requiring NFA to monitor those members for compliance with regulatory requirements; and
  • Under Dodd-Frank, swap execution facilities (SEFs) will have certain surveillance and self-regulatory responsibilities. The CFTC has proposed allowing SEFs to outsource those functions to other registered entities, such as NFA.

In his testimony, Roth discussed each of the three areas and described the challenges facing NFA and the steps the Association has taken and are taking to meet those challenges.

The full transcript of Roth's testimony can be found on NFA's website.

NFA produces webinar and workshop to help forex IBs, CPOs and CTAs meet their regulatory requirements
NFA provided two educational programs in June to help forex IBs, CPOs and CTAs understand their regulatory requirements.

NFA held a webinar on Wednesday, June 8, focusing on areas in which NFA Compliance staff has frequently found regulatory deficiencies, including registration issues, disclosure documents, recordkeeping, promotional material and anti-money laundering programs for IBs. More than 130 individuals participated in the webinar, which can be viewed on demand at NFA's website.

NFA also conducted a compliance workshop on Tuesday, June 28 in New York. The workshop offered a more in-depth exploration of the topics covered in the webinar.

NFA is planning to produce a similar workshop in Chicago this fall. An announcement will be sent to all NFA Members once the details are finalized.

News for forex traders
NFA will again this year participate in the Futures and Forex Trading Expo, held on September 22-24 at Caesar's Palace in Las Vegas. NFA will sponsor an information booth in the exhibit hall, where staff will distribute forex education brochures and discuss how to conduct online background checks of forex firms and brokers.

"Although our primary audience at the expo is the retail forex trader, we are also available to answer regulatory questions from our forex Members," says Larry Dyekman, director of Communications and Education at NFA.

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

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