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NFA submits comment letter to CFTC on proposed changes to the Joint Audit Agreement

NFA recently expressed its opinions regarding the proposed revisions to the Joint Audit Agreement (JAA) in a comment letter to the CFTC. In its Federal Register release dated April 12, the CFTC invited comment on the proposed JAA, "particularly with respect to the ability of the DSRO system to serve the public interest, reduce duplicative reporting and examination burdens on FCMs, strengthen customer protections, and foster cooperation and coordination among the markets."

In its comment letter, NFA noted that it had been a party to the JAA and an active participant in the Joint Audit Committee (JAC) since the JAA was adopted in 1984.

"The current JAA worked well when it was adopted," wrote NFA's General Counsel Tom Sexton. "Since 1984, however, innovation and rapid change have altered the landscape of the futures industry."

The existing JAA states that each member gets one vote. In recent years, however, the JAC had conditioned membership by new exchanges on waiving those voting rights.

The revised JAA provides that only two groups of members can vote: those that are DSROs and conduct their own auditing activities, and those that became members before 2000 regardless of whether they are DSROs or conduct their own auditing activities. In its comment letter, NFA expressed its concerns regarding this provision.

"All JAC members should be allowed to vote," wrote Sexton. "The public interest-and, in fact, everyone's interest-dictates that SROs should conserve resources and avoid legal confusion by harmonizing rules in areas subject to joint regulation, coordinating audits, and sharing information. JAC is the vehicle for achieving these public benefits. Every SRO has the right-whether or not it chooses to exercise all of those rights-to adopt rules, perform audits, and share information. Therefore, every JAC member should be able to vote."

NFA also expressed concern over the provision of the JAA that governs how FCMs are assigned to a particular DSRO.

The existing JAA does not specify how DSRO assignments will be made, while the revised agreement would codify the assignment procedures that JAC follows in practice.

"We believe it is a bad idea to codify assignment procedures in the JAA," wrote Sexton. "Codifying the assignment procedures in the JAA will eliminate any flexibility to adapt those procedures as the industry changes."

When the CFTC published a notice for request for comment on the proposed amendments to the JAA, it established a 45-day period for submitting public comment, ending on May 27. The CFTC subsequently extended the comment period until June 18 and ultimately received nine comment letters.

The full text of NFA's comment letter can be found on NFA's Web site at http://www.nfa.futures.org/news/newsComment.asp?ArticleID=1307.

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