Notices to Members

December 05, 2000

Proposed Amendments to NFA's Articles of Incorporation

INTRODUCTION

On November 16, 2000, NFA's Board of Directors ("Board") ratified a proposal to amend NFA's Articles of Incorporation ("Articles") to merge the CPO and CTA categories for purposes of Board, Executive Committee and Nominating Committee representation.

EXPLANATION OF AMENDMENTS

NFA's Articles currently provide that the Board must include three CPO and three CTA directors. Article VI provides that a Member registered in two or more categories may only vote for representatives in its primary category of business or be elected to the Board only in its primary business category. These restrictions impact CPOs and CTAs more than any other category because of the substantial overlap in these two categories. While these distinctions may have made sense when NFA was first formed, our experience over the last 18 years shows that the distinctions between CPOs and CTAs for purposes of Board representation are outmoded, inflexible and, possibly, unfair.

Approximately 70 percent of all registered CPOs currently operating at least one pool are or have been registered as CTAs. Similarly, 70 percent of all registered CTAs with money under management are or have been registered as CPOs. In addition, all six of the current CPO and CTA directors are dually registered, and 17 of the 18 individuals who have served as CPO and CTA directors since 1983 were dually registered. Our experience also shows that CPOs and CTAs share many of the same concerns and that CPO and CTA directors have never differed on category lines on any NFA issue. The reality is that the six CPO and CTA directors effectively represent the views and interests of both categories, and the current bright line distinction between them does not reflect that reality.

The current structure is unnecessarily complex, limits the flexibility of the Nominating Committee in choosing qualified CPO and CTA directors, and effectively disenfranchises CPO and CTA Members from voting for half of their representatives. Merging the two registration categories for purposes of Board representation would eliminate these drawbacks and provide all CPO and CTA Members the opportunity to vote for the best qualified individuals to represent their interests.

The proposed amendment to Article VII merges the CPO and CTA categories for purposes of Board representation. It does not totally eliminate the distinction because it preserves the requirement that one director be from a CPO within the top third of CPOs in terms of funds under management and one director be from a CTA within the top third of CTAs in terms of funds under management. However, the remaining four directors can be from any CPO or CTA, providing the Nominating Committee with more flexibility in filling those positions. The changes also franchise all CPOs and CTAs to vote for both CPO and CTA representatives elected each year.

Merging the CPO and CTA categories for directors would also require changes in the requirements for Executive Committee and Nominating Committee representation. First, Article VIII would be amended to give the CPO/CTA directors the ability to elect any two of the six directors to the Executive Committee. This increases the flexibility the CPO and CTA directors have when electing their representatives to the Executive Committee. Second, Article X would be amended to merge the two CPO and CTA subcommittees of the Nominating Committee. It would not, however, totally eliminate the distinction between the two categories. The amendment would require one member of the merged subcommittee to primarily act as a CPO and one member to primarily act as a CTA. The third member could, however, come from either primary membership category.

Finally, two technical amendments would be made to the definitions in Article XVIII. The amendment to Article XVIII(m) revises the definition of "Industry Participant" to harmonize it with the language of Article VII(c)(i), as revised. Staff also noticed that the definition of "Public Representative" in Article XVIII(r) was not updated when Article VII was amended to move commercial firm and commercial bank representatives from the Industry Participant category to the Public Representative category. A technical amendment to Article XVIII(r) makes it consistent with the description of public representatives found in Article VII(c)(ii).

PROPOSED AMENDMENTS

The proposed amendments to Article VII, VIII, X and XVIII are set forth below. Additions are underscored and deletions are stricken through.

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 January 5, 2001.

Section 2: Composition of Board.

The Board of Directors shall be comprised as follows:

(c) Industry Participant and Public Representatives.

(i) Six (6) individuals elected representatives (hereinafter "Industry Participants") as follows:
(A) Three (3) elected representatives of registered commodity pool operators (hereinafter "CPOs") and registered commodity trading advisors (hereinafter "CTAs") that are NFA Members, including at least one representative of a Member that acts primarily as a CPO which and 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 Member that acts primarily as a CTA which and ranks within the top one-third of CTAs with funds under management allocated to futures (as defined in Article XVIII(k)).

If neither none of the individuals serving continuing terms in a particular category is a representative of a firm within the top one-third of that category CPOs, the individual with the highest number of votes who is a representative of a firm within the top one-third shall be elected. If none of the individuals serving continuing terms is a representative of a firm within the top one-third of CTAs, 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.

Section 3: Nominations; Election.

The elected Directors shall be chosen as follows:

* * *

(b) Petition Procedure.

Nominations may be made for elected Director positions by:

(i) Petition signed by 50 or more NFA Members in the category for which the nomination is made (i.e., FCM and LTM, IB, and CPO, and CTA); or

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:

(C) One Two Directors representing CPOs and one Director representing CTAs; and

Section 1: General.

There shall be a Nominating Committee, composed of four three Subcommittees, one for each of the following categories of Members: FCMs and LTMs, IBs, and CPOs and CTAs. Each Subcommittee shall nominate at least one candidate for each position to be filled on the Board in the Subcommittee's category, in accordance with the eligibility requirements of Article VII.

Section 2: Composition; Term of Members.

(a) Each Subcommittee of the Nominating Committee shall be composed of three representatives of the Subcommittee's category, except that:

(iii) The CPO and CTA Subcommittee shall include at least one representative that primarily acts as a CPO and at least one representative that primarily acts as a CTA.

(m) "Industry Participant" - refers to a participant in the commodity futures industry, other than a contract market, futures commission merchant, leverage transaction merchant or introducing broker those members of NFA's Board of Directors who represent CPOs and CTAs, as described in paragraph 2(c)(i) of Article VII.

(r) "Public Representative" - refers to those members of NFA's Board of Directors having no present direct association with a business enterprise in the commodity futures industry who are not employed by any NFA Member, as described in paragraph 2(c)(ii) of Article VII. (See paragraph 2(d) of Article VII.)