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NFA amends Financial Requirements to conform to changes to CFTC Regulations

Effective September 30, 2004, FCMs can no longer compute their minimum capital requirements based on segregated funds. The CFTC replaced the computation based on segregated funds to one based on the maintenance margin levels of the positions or transactions carried by the FCM in customer and non-customer accounts, commonly referred to as a risk based capital computation.

"The Commission's risk based alternative computation is identical to the computation we added to NFA's minimum capital calculation in October 2000," says NFA President Dan Roth. "As a result, we did not have to make any changes to Section 1 of our Financial Requirements other than to delete the reference to the segregated funds computation."

However, the CFTC's amendments required NFA to make some amendments to NFA Financial Requirements, which were approved by the CFTC and became effective on September 30.

The CFTC amended Regulation 1.12 related to the computation used to determine an FCM's eligibility to guarantee IBs. The amendment deleted the computation method based on the FCM's segregated amount and replaced it with an early warning capital level of 110 percent of the risk based capital amount.

"Although our Financial Requirements do not have an early warning requirement, Financial Requirements Section 2 requires FCMs guaranteeing or seeking to guarantee IBs to maintain adjusted net capital at least in excess of the greater of a number of various alternative calculations," says Roth. "These calculations mirror the Commission's early warning requirements except for the newly adopted risk based capital alternative."

As a result, in order to keep the eligibility amount consistent with the Commission's early warning calculation, NFA revised Financial Requirements Section 2 to increase this alternative to 110 percent of the risk based amount set forth in Section 1.

In addition, the CFTC adopted changes to the financial reporting requirements for FCMs and IBs that do not require changes to NFA's rules, including the following:

  • IBs no longer need to file unaudited Form 1-FRs and the annual certified financial statements with the Commission. IBs will now be required to file those statements with NFA only.

  • FCMs for which NFA is the DSRO and IBs should now file requests to change their fiscal years or extensions of time to file unaudited Form 1-FRs and the annual certified statements with NFA (with a copy to the CFTC). NFA now has the authority to grant or deny those requests.

  • Firms must notify the CFTC and its DSRO that their adjusted net capital is less than the early warning level within 24 hours after the firm knows or should have known that its adjusted net capital is less than the early warning capital level.

"These amendments will help reduce duplicative filing requirements and add increased consistency in financial requirements," says Roth.

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