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NFA helps Members prepare to trade Security Futures Products

The final countdown to the launch of security futures products (SFPs) has begun, and NFA is proactively working to assure that our Members are fully aware of their regulatory requirements regarding these new products. During the past few months, NFA has prepared regulatory guidelines, sponsored educational seminars and personally contacted more than 300 Notice Registered Broker-Dealers to ensure that the firms and individuals intending to trade SFPs have taken all of the necessary preliminary steps.

"This is a new product with new rules and regulations," says Regina Thoele, NFA's Compliance Director. "We are using a variety of different methods to reach out to our Members to help them in any way we can."

NFA began its educational outreach program when it hosted SFP workshops in early 2002 in Chicago and New York. The materials from these workshops are available in the Member Education and Training section of NFA's Web site (www.nfa.futures.org/member_education). Senior NFA staff members also participated in other industry conferences, such as the Cutting Edge Derivatives Trading conference in April; the Futures Industry Association's conference, "Security Futures: Are You Ready?" held in New York and Chicago on September 10 and 25; and the Futures, Securities and Derivatives Special Interest Group of the Illinois CPA Society on September 4.

Also in September, NFA and NASD launched the Web-based Proficiency Training for Security Futures Products, developed in partnership with the Institute for Financial Markets. According to the rules governing SFPs, any currently registered securities or futures professionals who intend to trade SFPs must complete a proficiency training program. The NFA/NASD Web-based program is one way for individuals to satisfy the training requirement. Individuals registered only with NFA should access the program through NFA's Web site (www.nfa.futures.org), while those who are registered to sell securities should access the training through NASD's Web site (www.nasd.com). During the first four weeks in which the program was available, over 2,500 individuals accessed the online training and 1,678 completed it. More than 1,000 of the total individuals who have completed the program are futures industry representatives.

In October of this year, NFA released the Risk Disclosure Statement for Security Futures Contracts. NFA Compliance Rules require Members and Associates who are not members of NASD to provide a disclosure statement for SFPs to a customer at or before the time the Member approves an account to trade these products. The Disclosure Statement is available on NFA's Web site (www.nfa.futures.org) for downloading and will soon be available in hardcopy format.

Compliance staff members also have called all Notice Registered Broker-Dealers to ensure that they have met their requirements and to answer any questions they might have. Of the almost 400 Notice Registered Broker-Dealers, NFA staff members contacted 336 before this newsletter went to press. Of that number, about half are planning to offer SFPs when they launch.

"The firms expressed their gratitude to NFA staffers for calling, because many of the firms were not fully aware of all of their regulatory requirements," says Thoele.

NFA has developed an SFP Reference Guide, which is available on NFA's Web site (www.nfa.futures.org) or by calling the Information Center at 312-781-1410.The guide is divided into "Areas of Regulation" (e.g., registration, proficiency training, supervision, promotional material, etc.). For each of those areas the guide lists the SFP regulatory requirements and references the specific NFA Compliance Rule or Interpretive Notice that contains the requirement. This guide is not all-inclusive, however, and should be used solely as reference material. NFA will publish a comprehensive "Member Guide to Security Futures Products" before the end of the year.

The following is a checklist for Members who are getting ready to trade SFPs. Members should also use the Reference Guide noted above.

SFP Requirements Checklist

  • Written supervisory procedures established

  • Designated Security Futures Principal appointed

  • Associated Persons who intend to solicit for these products taken the Web-based Proficiency Training

  • Account Opening records updated to include the additional information required under new Compliance Rule 2-30 requirements

  • Procedures established for monitoring incoming and outgoing correspondence regarding SFPs

  • All SFP promotional material conforms to the new promotional material rules related to SFPs and has been approved in writing by the Designated Security Futures Principal

  • All mass media promotional materials for SFPs has been submitted to NFA for review and approval

NFA encourages Members with any questions regarding SFP rules to contact Vilia Sutkus-Kiela (312-781-1346), Regina Thoele (312-781-1327) or Jennifer Augustyn (212-513-6034).

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