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Notice I-07-40

October 02, 2007

Effective Date of New Section 15 to NFA Financial Requirements and Related Amendments to the Interpretive Notice Entitled "Forex Transactions"

NFA has received notice that the Commodity Futures Trading Commission has approved a new NFA Financial Requirements Section 15 and related changes to the Interpretive Notice entitled "Forex Transactions." These provisions are designed to ensure that Forex Dealer Members (FDMs) have proper internal financial controls and a means to evaluate those controls. The changes are effective immediately.

Financial Requirements Section 15 has three parts.

  • Subsection (a) requires an FDM to provide NFA with an internal control report before commencing its retail forex business. The internal control report must be prepared by an independent public accountant registered and in good standing with the Public Company Accounting Oversight Board (PCAOB). This part of the rule will apply to firms that have not yet been approved as Members and to current Members who are not presently acting as the counterparty or offering to be the counterparty to retail forex transactions. It will not, however, apply to active FDMs unless NFA specifically asks the Member to provide one because it believes that the firm's internal controls are inadequate.

  • Subsection (b) authorizes NFA to require a PCAOB-registered accountant to certify an FDM's annual financial statements if NFA believes that the FDM's financial records are inadequate.

  • Subsection (c) requires each FDM to have an AP/principal who is responsible for supervising the firm's financial functions. The rule does not, however, require the firm's chief financial officer to become an AP/principal if the CFO reports to another individual (such as the firm's chief executive officer) who is an AP/principal with ultimate supervisory responsibility for the firm's financial books and records. The amendments to the Interpretive Notice clarify that part of this supervisory responsibility includes hiring and retaining qualified accounting staff and the firm's independent auditor.

NFA's August 17, 2007 submission letter to the Commodity Futures Trading Commission includes new Section 15 and the amendments to the Interpretive Notice 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, (spendleton@nfa.futures.org or 312-658-6540) or Lauren Brinati, Manager, Compliance (lbrinati@nfa.futures.org or 312-658-6585).

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