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Compliance Q&A


The Commodity Futures Modernization Act of 2000 permits the trading of security futures products ("SFPs")(futures on individual stocks and narrow-based indexes) for retail customers effective December 21, 2001. SFPs will be regulated jointly by the Securities and Exchange Commission and the Commodity Futures Trading Commission. As a result, SFP proficiency requirements have been developed for individuals registered in, or seeking to register in, the futures and securities industries.

For currently registered individuals who have passed the Series 3 (National Commodity Futures Exam) or Series 7 (General Securities Representative Exam) exams, no additional proficiency test will be required to trade SFPs. However, these individuals will be required to take an SFP training program. NFA and NASDR will be offering a web-based training program, with content developed by the Futures Industry Institute. The program will consist of four modules: (1) stocks and stock options, (2) futures contracts, (3) security futures products, and (4) regulatory requirements for security futures (including a section on supervision). Each registrant will be required to complete modules 3 and 4. Registrants may be able to opt out of modules 1 and 2, depending on previous testing and experience. Individuals will not be required to take the NFA/NASDR training program if they take an equivalent program offered by the individual's firm or an independent firm. It will be each Member firm's responsibility to ensure registrants have completed an SFP training program before they engage in SFP activities. Member firms engaging in SFP activity will be responsible for logging which registrants have completed the modules and the date on which the training was completed. This log may be inspected if the firm is audited.

Individuals must be Series 3 or Series 7 registered by a cut-off date in order to qualify by training rather than testing. This cut-off date has not been finalized, but will probably be six months after SFPs begin trading.

For individuals who become registered after the cut-off date, SFP proficiency will be formally tested. Individuals registering as associated persons will have to take the Series 3, which will be updated to include questions relating to SFPs. The Series 30 and 33 examinations will also be updated to include SFP questions.

NFA anticipates issuing Notices to Members regarding the training program and proficiency testing in November 2001. If there are any questions about these issues, contact NFA at 1-800-621-3570.

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