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June 6, 2013

NFA's Board approves expanded Fiscal Year 2014 budget

A number of factors are having a significant impact on NFA's operating budget for Fiscal Year 2014. The substantial expansion of NFA's regulatory duties has resulted in an 18 percent increase in NFA's budget for Fiscal Year 2014, which begins July 1, 2013. NFA's Board of Directors met on May 16 and approved a budget of $74 million for the coming fiscal year.

One reason for the significant rise in spending is due to the registration and monitoring of new swap dealer (SD) and major swap participant (MSP) Members. NFA is currently hiring and training additional staff to manage these oversight efforts. NFA is in the second year of a ramp-up of its swaps regulatory program. There currently are 80 provisionally registered SDs and two provisionally registered MSPs. NFA's Board also recently approved a membership dues structure for SDs and MSPs.

"In order for SDs and MSPs to obtain and maintain provisional registration status, they are required to file documents demonstrating compliance with Implementing Regulations under Section 4s of the Commodity Exchange Act," says Jamila Piracci, NFA's vice president of OTC derivatives. "We are in the process of reviewing over 1,000 separate filings of policies and procedures, ranging in size from 50 to 500 pages each. As due dates for further requirements approach, we expect to receive and review submissions relating to those requirements as well."

Similarly, NFA is developing systems and hiring and training new staff for the expanding role of NFA's Market Regulation department. Swap execution facilities (SEF) will have certain self-regulatory responsibilities, including trade practice and market surveillance. The CFTC rules allow SEFs to contract with a registered futures association, such as NFA, for regulatory services to assist the SEF in complying with its core principles. NFA expects to soon begin delivering regulatory services to a number of SEFs.

Another factor affecting the Fiscal Year 2014 budget is the influx of about 1,000 new commodity pool operator (CPO) Members after the CFTC last year eliminated numerous widely held CPO exemptions. Further, the CFTC amended the definitions of CPO, commodity trading advisor and introducing broker to include swaps. If these entities engage in swap activities, they will be required to register with the CFTC, which will result in a further increase in NFA membership.

These increased regulatory responsibilities have spurred the need for additional staffing. NFA anticipates the hiring of about 100 employees in Fiscal Year 2014. The budgeted rise in operating expenses is mostly attributed to headcount.

To accommodate all of the new staff, NFA last year expanded its Chicago office, and just recently signed a lease to move to a new, larger office space in New York. Construction on the new office, located at One New York Plaza, already is underway. NFA expects staff to begin working in the new space by the end of the year.

NFA will continue to operate on the premise that each regulatory program (futures, swaps, forex and market regulation) should be financially self-sufficient, and that each program should generate enough revenue to recover the costs associated with operating their respective programs.

"Given NFA's current expansion, there are many more variables to consider when constructing the budget," says David Hawrysz, NFA's senior vice president, CFO and treasurer. "For that reason, the Fiscal Year 2014 budget process was especially challenging."

NFA is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the futures markets.
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