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Notice I-06-10

May 01, 2006

Amendments to NFA Code of Arbitration and Member Arbitration Rules

Introduction
On April 10, 2006 the Commodity Futures Trading Commission approved changes to NFA's Code of Arbitration and Member Arbitration Rules (collectively referred to as the arbitration rules). These amendments provide for three substantive changes and three technical changes to the arbitration rules. The rule changes will become effective on June 1, 2006. Three of the rule changes will apply to all pending cases as of June 1, while the other changes will only apply to cases filed on or after June 1. This Notice to Members explains these changes. Copies of the amended Code of Arbitration and Member Arbitration Rules will be available on June 1, 2006 on NFA's web site at www.nfa.futures.org or by contacting the Arbitration Department at (800) 621.3570.

Background
NFA periodically reviews its arbitration rules to ensure that the program is operating as efficiently as possible and that the rules are consistent with comparable forums. Based on a review of the rules and discussions with NFA's Advisory Committees, the Executive Committee, and the Board of Directors, representing every category of membership, the Board unanimously endorsed NFA adopting these changes.

Explanation of the Rule Changes

The following three changes will apply to all pending arbitration cases as June 1, 2006.

Non-Party Subpoena Requests
Most discovery involves the parties to the dispute requesting information and documents from each other. However, parties occasionally find that they require documents that can only be obtained from a non-party. In these circumstances, parties may need a subpoena to obtain this information. While NFA previously encouraged parties to submit subpoena request to the arbitrators, the rule change requires that parties submit all subpoena requests to the arbitrators. Therefore, parties will no longer be able to issue subpoenas on their own.

NFA feels strongly that arbitrators in NFA arbitration proceedings are in the best position to decide whether a subpoena should be issued. Arbitrators can consider objections from the non-party and other parties in the arbitration, as well as other relevant issues such as the scope and relevance of the subpoena to the arbitration.

Evidence Depositions
Under current arbitration rules, parties can agree to depositions and offer them as evidence at the hearing, but arbitrators cannot order depositions. This rule change authorizes arbitrators to order evidence depositions for good cause shown. NFA believes that evidence depositions are appropriate in limited circumstances such as where a witness cannot attend the hearing because they are too ill, or cannot otherwise be required to attend the hearing (e.g., a person who resides in a foreign country). This rule change does not affect other types of depositions.

Issuance of Award
This technical change to the arbitration rules clarifies that arbitrators have thirty days after the hearing record is closed to notify NFA of their decision in a case. NFA will then prepare a written award which will be signed and dated by the Panel members and then served on the parties by NFA.

The following three rule changes will apply to all new arbitration cases filed on or after June 1, 2006.

Pre-hearing Motion Fee
NFA rules specify the types of motions that are prohibited, as well as those that NFA permits and the timelines for filing them. Many of these motions are resolved by the arbitrators during NFA's pre-hearing conference call, and NFA is able to compensate arbitrators for their time spent during this call. However, NFA has found that parties often file motions after the pre-hearing conference call, and as a result arbitrators are required to devote a considerable amount of time and energy to resolving those motions. Therefore, NFA will now assess a motion fee for any motion filed after a certain date and use this fee to compensate arbitrators for their time.

For cases involving one arbitrator, a party who files a motion more than 80 days after the last pleading is due must include a $125 motion fee with the motion. For cases involving three arbitrators, a party who files a motion more than 100 days after the last pleading is due must include a $425 motion fee with the motion. Each panel member deciding the motion will receive $125, and the chairperson of the Panel will receive an additional $50 honorarium. The fee may be subsequently waived at the discretion of the arbitrators, or the arbitrators may assess it against the party they believed caused the filing of the motion.

Because NFA already assesses a preliminary hearing fee to decide motions to dismiss and motions for summary judgment, this fee will not apply to these motions. Likewise, NFA already requires a party who files a postponement request to submit a fee, so the new motion fee will not apply to this motion.

Right to Counsel
Several years ago, NFA amended the rules to allow for a party to be represented by a family member or another person who did not receive compensation for representing the party. However, NFA did not intend for this rule to allow a person with an interest in the outcome of the dispute to act as an unpaid representative for the party. As a result, NFA is amending the rule to specifically prohibit a person (other than a family member) who has an interest in the outcome of the dispute from acting as an unpaid representative for the party.

Site Selection
NFA's final rule change provides for a technical amendment to NFA's site selection process. NFA always endeavors to accommodate the parties' site preferences as indicated in their pleadings, and this rule change provides that NFA will only consider a site preference if it is indicated in a timely-filed pleading.

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If you have any questions regarding this Notice or the changes to the arbitration rules, please contact NFA's Arbitration Department at (800) 621.3570.

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