Member Newsletter

In this issue of News, Facts and Actions, the Compliance Department is taking a break from answering your questions. Instead, NFA would like to tell its Members about two initiatives that the department has undertaken.

One of the most important tools NFA auditors should possess is knowledge of the futures industry and the business in which our Member firms are involved. Therefore, in order to ensure that they have an enhanced understanding of the markets, NFA has begun requiring all Compliance staff to pass the Series 3 exam.

NFA feels that the Series 3 is a good benchmark for ensuring that the Compliance staff gain knowledge of the markets that they regulate. As early as 1999, NFA's Compliance staff began sitting for the exam. It started as a voluntary initiative, and NFA had several staff members pass it at that time. Last year, NFA decided that all Compliance staff should be required to pass the exam, as it provides NFA with tangible proof of both their market knowledge and the regulations associated with trading. It also shows us that they have met the same criteria that we require of our Associate Members. To date, almost 100 percent of the staff have passed the exam.

With the advent of security futures products, NFA has also begun to encourage Compliance staff to sit for the Series 7 exam. In fact, several have already taken and passed the exam last year. By becoming more knowledgeable about securities markets and securities regulation, NFA staff can develop a greater depth of knowledge in the financial markets as a whole, which will be a huge benefit to NFA Members who do business in the equity markets as well as the futures markets.

While this is currently a voluntary initiative, NFA believes that, like the Series 3, it will eventually see all of our Compliance staff pass this exam as well.

The Challenge
In addition to the Series 3 and Series 7, NFA provides a hands-on opportunity to gain greater understanding of the markets by pitting teams against each other in a trading exercise known as "The Challenge." The simulated trading contest, which completed its second run on December 1, allows Compliance staff and other NFA staff members to experience the ups and downs of futures and options trading for a period of three months. Teams use imaginary money to trade in the real futures and options markets to see who can amass the most equity.

The experience greatly enhances NFA staff's market knowledge and also provides insight into how NFA's Member firms operate. The contest, which follows a 5-day options trading class that covers the theory behind various trading strategies, was created so that participants can apply what they learn in class by using these trading strategies in a hypothetical setting.

The contest consists of five to ten teams, each with two participants. The teams start out with $100,000 in imaginary equity, and they can use the money to trade using any strategy or combination of trading strategies. Certain parameters the participants must follow, such as trading a certain percentage of options and futures, assessing a $25 per-trade commission, and margin requirements, are in place in order to provide participants with the most accurate and realistic trading experience possible. Trades are placed via an Internet-based mock trading system called Auditrade.com. At the end of the three-month trading period, the team with the highest return is declared the winner.

Enhancing staff knowledge, and encouraging the utilization of this knowledge in their jobs, is beneficial for both NFA and its Members. Acquiring a fuller understanding of market regulations via the Series 3 and Series 7 exams, and participating in a training exercise that lets participants experience trading first-hand, are just some of the ways in which NFA constantly strives to provide its staff members with the best possible resources to do their jobs effectively.