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Notice I-98-06

March 12, 1998

Proposed Amendments to NFA's Articles of Incorporation

Important: Ballot Enclosed

INTRODUCTION

On February 19, 1998, NFA's Board of Directors ("Board") ratified a proposal to amend Articles V, VII, VIII and XVIII of NFA's Articles of Incorporation ("Articles") to change the allocation of FCM seats on the Board by reducing the number of directors in the 51 and above office category and by creating an additional "at large" position. The proposed amendments to the Articles also eliminate the geographical restrictions related to Board and Executive Committee representatives.

EXPLANATION OF AMENDMENTS

NFA's Articles currently provide a total of 14 seats on the Board for FCM representatives. These seats are divided among three subcategories of FCMs which are based on the number of offices operated by the FCM. Thus, there are two representatives for FCMs with 1-15 offices, two representatives for FCMs with 16-50 offices, and six representatives for FCMs with 51 or more offices. In addition, four representatives are chosen "at large" from FCMs with 50 offices or less.

At the request of this year's Nominating Committee, the Board reviewed the Articles regarding FCM Board representation with an eye toward injecting more flexibility into the current selection process. Previous Nominating Committees have raised similar concerns, prompted by the dwindling number of FCM Members in the 1-15 and 16-50 branch office categories. The Board responded in 1992 by amending the Articles to reduce the required number of representatives from each category from four to three and creating two "at large" positions which could be filled from either category. In 1996 the Executive Committee created an ad hoc group of FCM representatives to further review the issue, and, based on that group's recommendations, the Articles were amended again to reduce the required number of representatives from each category to two and to create two additional "at large" positions. This year, though, the Nominating Committee's concerns focused on the 51 and above office category and on the geographical restrictions imposed by the Articles.

The Articles currently provide that FCMs with 51 or more branch offices are entitled to six positions on NFA's Board of Directors. While recognizing that these FCMs should be assured adequate representation on the Board, the Nominating Committee felt that reducing the number of positions allotted to FCMs with 51 or more offices and increasing the number of "at large" positions would provide the Nominating Committee with greater flexibility in selecting the most qualified candidates. Therefore, the Board determined to amend the Articles to reduce the required number of representatives in the 51 and above office category to five and to create an additional "at large" position to provide five FCM representatives from any branch office category. These changes would maintain the total of 14 seats on the Board for FCM representatives and would provide the Nominating Committee with more flexibility in selecting FCM director candidates.

The Nominating Committee also recommended eliminating the requirement in the Articles that no more than half of the FCM directors may come from the same region. The Nominating Committee felt that the interests of the FCMs do not vary along geographical lines and although the geographical restriction may have been politically expedient when NFA was being formed, the restriction has outlived any usefulness and should be eliminated. The Board thought that this reasoning should be applied equally to all categories of membership and, therefore, determined to eliminate the geographical restrictions related to Board and Executive Committee representatives in all categories of membership.

The Board feels that the proposed amendments to the Articles will provide the Nominating Committee with greater flexibility in selecting candidates.

PROPOSED AMENDMENTS

The proposed amendments to Articles V, VII, VIII and XVIII are set forth below. Additions are underscored and deletions are placed within brackets.

PLEASE NOTE: The Article amendments set forth below require the affirmative vote of two-thirds of those Members actually voting in the Contract Market category and a majority of those Members actually voting in the FCM, LTM and IB category and the Industry Participant (CPO and CTA) category.

Please use the enclosed ballot to vote and submit it to NFA by April 13, 1998.

IT IS IMPORTANT THAT MEMBERS VOTE AND RETURN THEIR BALLOTS TO NFA, SO PLEASE GIVE THIS MATTER YOUR ATTENTION.

YOUR BALLOT MUST BE HAND-DELIVERED TO NFA OR POSTMARKED NO LATER THAN APRIL 13, 1998 OR IT WILL NOT BE COUNTED.

* * *

ARTICLES OF INCORPORATION
OF
NATIONAL FUTURES ASSOCIATION

* * *

ARTICLE V (RESERVED) [: REGIONS

    For purposes of these Articles, there shall be three NFA regions, as follows:

(a) Eastern Region - Connecticut, Delaware, District of Columbia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia.

(b) Central Region - Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Michigan, Mississippi, Ohio, Tennessee, Texas, Wisconsin, Puerto Rico, the U.S. Virgin Islands and the Canal Zone.

(c) Western Region - Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Louisiana, Minnesota, Missouri, Montana, Nebraska, New Mexico, Nevada, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Washington, Wyoming and all U.S. territories or possessions not included in (b) above.]

* * *

ARTICLE VII: BOARD OF DIRECTORS

* * *

Section 2: Composition of Board.

    The Board of Directors shall be comprised as follows:

    (a) Contract Market Representatives. One representative of each contract market Member, except that any contract market Member that had transaction volume of more than 20 percent of aggregate contract market transaction volume during any calendar year shall have two representatives on the Board for the following year (i.e., beginning at the Annual Election for that year and continuing until the next Annual Election). A specific contract market's transaction volume shall be the number of commodity futures contracts entered into on the contract market. The aggregate contract market transaction volume shall be the number of such contracts entered into on all U.S. contract markets. The number of contracts entered into on a contract market shall be adjusted where necessary because of differences in sizes of contracts (e.g., one 5,000 oz. contract for a particular commodity would equal five 1,000 oz. contracts for that commodity for purposes of the computation): Provided, however, that not more than 11 contract market Members shall have representatives on the Board at any one time. Should there be more than 11 contract market Members, the 11 contract market Members with the greatest transaction volume during the previous calendar year shall have representatives.

    (b) Futures Commission Merchant, Leverage Transaction Merchant and Introducing Broker Representatives.

      (i) Seventeen (17) elected representatives of registered Futures Commission Merchant (hereinafter "FCM") Members, registered Leverage Transaction Merchant (hereinafter "LTM") Members, and registered Introducing Broker (hereinafter "IB") Members, divided as follows:

        (A) Two representatives of FCMs and LTMs having 1-15 offices.

        (B) Two representatives of FCMs and LTMs having 16-50 offices.

        [(C) Four representatives of FCMs and LTMs from either category A or B above.]

      (C) [(D)] [Six] Five representatives of FCMs and LTMs having 51 or more offices.

        (D) Five representatives of FCMs and LTMs from either category A, B or C above.

        (E) One representative of IBs required to maintain minimum adjusted net capital.

        (F) One representative of IBs not required to maintain minimum adjusted net capital.

        (G) One representative of IBs from either category E or F above.

        An FCM and an LTM Member's offices shall include the offices of any affiliate through which offices the FCM or LTM Member conducts its FCM or LTM business.

      [(ii) Not more than one-half of the total number of FCM and LTM representatives on the Board shall reside (as defined in Article XVIII) in the same NFA region. If more than one-half of the individuals receiving sufficient votes for election to the Board reside in the same NFA region, only the seven such individuals receiving the greatest number of votes among those individuals shall be elected, subject to the category apportionment requirements of paragraph (b)(i) above; the remaining seven FCM and LTM representatives on the Board shall be those individuals not within that region who receive the greatest number of votes among such individuals, subject to the category apportionment requirements of paragraph (b)(i) above: Provided, however, the prohibition on more than one-half of the FCM and LTM representatives residing in the same region shall not be applied to the extent it would create a vacancy or vacancies on the Board. Ties shall be resolved by the Board by random draw.]

      [(iii) Not more than two of the IB Directors shall reside in the same NFA region. If the individual receiving the most votes for election to the Board in the IB category resides in the same NFA region as both of the IB representatives serving continuing terms on the Board, the individual with the next highest number of votes who does not reside in that region shall be elected. Ties shall be resolved by the Board by random draw.]

    (ii) [(iv)] No FCM, LTM or IB shall have more than one representative on the Board at any one time. For purposes of this limitation, a person shall be deemed a representative of an FCM, LTM or IB Member if the person is an officer, director, partner, employee or beneficial owner of more than 10 percent of the equity stock of the FCM, LTM or IB, and the person is not a contract market representative.

    (c) Industry Participant and Public Representatives.

      (i) Six (6) individuals (hereinafter "Industry Participants") as follows:

        (A) Three (3) elected representatives of registered commodity pool operators (hereinafter "CPOs") that are NFA Members, including at least one representative of a CPO which ranks within the top one-third of CPOs with funds under management allocated to futures (as defined in Article XVIII(k)); and

        (B) Three (3) elected representatives of registered commodity trading advisors ("CTAs") that are NFA Members, including at least one representative of a CTA which ranks within the top one-third of CTAs with funds under management allocated to futures (as defined in Article XVIII(k)).

      If neither of the individuals serving continuing terms in a particular category is a representative of a firm within the top one-third of that category, the individual with the highest number of votes who is a representative of a firm within the top one-third shall be elected. Ties shall be resolved by the Board by random draw.

      (ii) Nine (9) individuals who are not employed by any Member of NFA (hereinafter "Public Representatives"). At least four of these individuals may not have any direct association with a business enterprise in the commodity futures industry. The remaining Public Representatives may be drawn from commercial banks, commercial firms or other users of the futures markets. Any individual serving as a Public Representative must meet the standards set forth in Commission Regulations.

      [(iii) Not more than two of the Directors in either of the categories (i)(A) and (B) above shall reside in the same NFA region. Subject to the restrictions imposed by Section 2(c)(i) of this Article, if the individual receiving the most votes for election to the Board in a particular category resides in the same NFA region as both of the individuals in that category serving continuing terms on the Board, the individual with the next highest number of votes who does not reside in that region shall be elected. Ties shall be resolved by the Board by random draw.]

    (iii) [(iv)] No industry Participant may have more than one representative on the Board at any one time. For purposes of this limitation, a person shall be deemed a representative of an Industry Participant if the person is an officer, director, partner, employee or beneficial owner of more than 10 percent of the equity stock of the Industry Participant, and the person is not a contract market representative.

    * * *

Section 7: Chairman and Vice Chairman.

There shall be a Chairman and Vice Chairman of the Board[, who shall reside in different regions]. They shall serve for one-year terms and shall be elected by the Board at its regular annual meeting, by majority vote. The Chairman shall be elected from among the Directors in office and the Vice Chairman shall be elected from among Directors elected to serve on the Executive Committee.

* * *

ARTICLE VIII: EXECUTIVE COMMITTEE

* * *

Section 3: Composition.

The Executive Committee shall comprise the following:

(a) NFA's President, and

(b) Nine Directors, as follows:

    (i) The Chairman of the Board of Directors, and

    (ii) Eight other Directors, as follows:

      (A) Two Directors representing contract markets:

        (1) One representative of a contract market with two Directors on the Board; and

        (2) One representative of a contract market that has one Director on the Board [and that is in a different region from the contract market represented in paragraph (1) above]: Provided, however, if no contract market has two Directors on the Board, there shall be two Directors on the Committee from contract markets with one Director on the Board[. Such Directors shall be from contract markets residing in different regions];

      (B) Three Directors representing FCMs, LTMs or IBs[, except that no more than two of the Directors may represent FCMs, LTMs or IBs residing in the same region];

      (C) One Director representing CPOs and one Director representing CTAs[. The CPO and CTA representatives must reside in different regions]; and

      (D) One Director who is a Public Representative without a present direct association with a business enterprise in the commodity futures industry.

* * *

ARTICLE XVIII: DEFINITIONS. As used in these Articles-

* * *

[(s) "Region" - means an NFA region as described in Article V.]

[(t) "Reside" - a person other than an Associate shall be deemed to "reside" where the entity the person represents maintains its headquarters office. (See, e.g., paragraph (b)(ii) of Article VII.) An Associate shall be deemed to reside in the Region where the Associate is employed.]

(s) [(u)] "Requirements" - includes any duty, restriction, procedure, or standard imposed by a charter, bylaw, rule, regulation, resolution or similar provision.

* * *

NATIONAL FUTURES ASSOCIATION

BALLOT



ARTICLE VII, Section 2(b)(i)
(Amendment to change the way FCM seats on the Board are allocated by reducing the number of directors in the 51 and above office category from six to five, and to create an additional "at large" position to provide five FCM representatives from any branch office category.)

APPROVE  ________

DISAPPROVE  ________
ARTICLE V;
ARTICLE VII, Section 2(b) and (c);
ARTICLE VII, Section 7;
ARTICLE VIII, Section 3; and
ARTICLE XVIII

(Amendments to eliminate the geographical restrictions related to Board and Executive Committee representatives in all categories of membership.)
APPROVE  ________

DISAPPROVE  ________



THIS BALLOT MUST BE HAND-DELIVERED TO NFA OR POSTMARKED NO LATER THAN APRIL 13, 1998

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