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September 28, 2007
Effective Date of Amendments to NFA Financial Requirements Section 11 and the Interpretive Notice Entitled "Forex Transactions"
NFA has received notice that the Commodity Futures Trading Commission has approved changes to NFA Financial Requirements Section 11 and the Interpretive Notice entitled "Forex Transactions." The amendments increase the minimum net capital requirement for Forex Dealer Members (FDMs) to $5,000,000. They also eliminate the concentration charge and replace it with restrictions on the types of firms with which an FDM may maintain assets and cover its exposure for purposes of CFTC Regulation 1.17. These changes will become effective on December 21, 2007.
A Forex Dealer Member must have $5 million in adjusted net capital as of December 21, 2007. This increase also raises to $10 million the amount of capital required for a security deposit exemption under NFA Financial Requirements Section 12(b). Since this is a significant change to the qualifications for the exemption, Members that are currently operating under Section 12(b) should notify NFA's Compliance Department whether they intend to continue using the exemption.
As noted above, the changes eliminate the concentration charge and replace it with restrictions on the types of firms with which an FDM may maintain assets and cover its exposure for purposes of CFTC Regulation 1.17. In particular, an FDM may not include assets held by an unregulated person or an affiliate in its current assets for purposes of determining its adjusted net capital, and it may not use positions entered into with an unregulated person or an affiliate to cover its exposure for purposes of avoiding the haircuts imposed by CFTC Regulation 1.17. In general, a firm is unregulated unless it is a U.S. bank; a FINRA-member broker-dealer; an NFA-Member FCM; a state regulated insurance company; or a bank, broker-dealer, FCM, or insurance company regulated in certain foreign jurisdictions. NFA can, however, grant exemptions authorizing the use of unregulated entities or of particular affiliates.
NFA's August 17, 2007 submission letter to the Commodity Futures Trading Commission includes a copy of the revised language as well as a more detailed description of the changes. You can access an electronic copy of the submission letter at National Futures Association | News Center.
Questions concerning these requirements should be directed to Sharon Pendleton, Director, Compliance, (email@example.com or 312-658-6540) or Valerie Kretschmer, Field Supervisor, Compliance (firstname.lastname@example.org or 312-658-6588).