Notices to Members

August 30, 2001

PROPOSED AMENDMENTS TO NFA'S ARTICLES OF INCORPORATION FOR CHANGES TO NFA'S BOARD OF DIRECTORS IMPORTANT: BALLOT ENCLOSED

INTRODUCTION

On August 16, 2001, NFA's Board of Directors ("Board") unanimously ratified a proposal to amend NFA's Articles of Incorporation ("Articles") to reduce the size of the Board from 45 Directors to 25 and to change certain voting restrictions of NFA's Board and the composition of NFA's Membership Committee and the size of NFA's Appeals Committee.

SUMMARY

NFA's Board consists of 45 directors, drawn from each category of NFA membership and the public. The basic structure of NFA's Board has remained unchanged since 1982. Obviously, the industry itself has changed dramatically over the years and the pace of change remains so rapid that all organizations, including NFA, must be able to adapt quickly to changes in the business environment. These factors have led other self-regulatory organizations in both the futures and securities industries to dramatically reduce the size of their boards. For all of these reasons, the Board appointed a Special Committee to review NFA's governing structure.

As discussed below, the Special Committee recommended, and NFA's Board approved, the following changes:

1. The Board will consist of 25 directors, all of whom would serve two-year terms except the exchange representatives whose terms would be one year;

2. The transition to the new Board will be completed by February 2002;

3. A supermajority voting rule (two-thirds of the directors present and voting) will replace the category voting rules for those matters that now require a category vote; and

4. The Appeals Committee will have five members, all of whom are directors, and the Membership Committee will consist of nine members, five of whom are directors.

The following chart compares NFA's existing and proposed restructured Board by category:

	Exchange	FCM/IB	CPO/CTA	Public	Total
Current Board	13	14/3	6	9	45
Proposed Board	6	8/2	4	5	25

Four exchange directors would represent the top four exchanges based on volume; the other two would be elected by the remaining exchanges that are not affiliated with any of the top four. Similarly, four FCM representatives would come from the top ten FCMs based on the amount of segregated funds and secured amount and the rest from all other FCMs. One IB director would be an independent IB and the second, a guaranteed IB. In the CPO/CTA category, two directors would be affiliated with either CPOs or CTAs that are ranked in the top 20% of funds under management allocated to futures. The number of public directors satisfies the Commodity Futures Trading Commission's requirement that 20% of the Board must be public representatives.

RATIONALE FOR BOARD SIZE AND COMPOSITION

In deciding how the Board would be structured, the Special Committee first identified and agreed upon certain principles that would guide its analysis. Some principles applied to the Board as a whole and others to individual categories. Having agreed on these principles, the Special Committee then developed its recommendation for a 25-director Board. The principles included:

1. Overall Board Structure

• All of NFA's constituencies must be fairly and adequately represented on the Board consistent with statutory and regulatory provisions.

• Representation of membership categories must be based not solely on the number of Members in a category but rather on a variety of factors, including the contribution the category's Members make to NFA and the industry and the impact of NFA's regulation on the category's Members.

• The Board seats should be apportioned among categories consistent to the extent possible with the existing apportionment scheme.

• The allocation of seats within each category should result in broad and diverse representation of the category, reflecting differences in size, business methods, and types of customers.

• The size of the Board must be no larger than necessary to accomplish its purposes.

2. Exchange Representatives

• Fewer exchanges require Board seats.

• The largest exchanges based on volume must be represented on the Board, but other exchanges must also be represented.

• An exchange should have only one representative on the Board to represent it and its affiliates.

3. FCM/IB Representatives

• There must be more FCM representatives than exchange representatives on the Board.

• The largest FCMs, based on amount of segregated funds held, must be represented on the Board, but other FCMs must also be represented.

• At least 1 guaranteed and 1 independent IB representative should have Board seats.

4. CPO/CTA Representatives

• CPOs and CTAs should remain in one Board category.

• The largest CPOs and CTAs, based on funds under management allocated to futures, must be represented but other CPOs and CTAs must also be represented.

5. Public Director Representatives

• Public Directors must comprise at least 20% of the Board.

The Special Committee applied these principles by starting with the contract market category. The current structure provides that all exchanges are entitled to a representative on NFA's Board, up to a maximum of 11 exchanges. Additionally, each exchange that accounts for more than 20% of aggregate volume is entitled to two representatives. Historically, this has meant that there have been 13 exchange directors on the Board.

To ensure adequate and diverse representation of the exchange community but still reduce the size of the Board, the Special Committee decided that the four largest exchanges based on volume should be entitled to seats on the Board. In addition, two other exchanges elected by the remaining exchanges should also be represented. In keeping with the principle that only one director should represent an exchange and all of its affiliates, the six contract market directors must represent exchanges not affiliated with each other. Similarly, only exchanges that are not affiliated with the four exchanges whose Board seats are based on volume will vote for the two contract market directors that come from their ranks.

The Special Committee also agreed that the current arrangement of having more FCM directors than exchange directors should continue since NFA's regulatory activities impact FCMs more than contract markets. In light of this, the Special Committee decided that there should be eight FCMs directors. These seats would also be divided by size, so that four of the eight would represent FCMs ranked in the top ten FCMs based on segregated funds. The FCM ranking would also be based on secured amount of funds. The other four directors would represent the remaining FCMs. Unlike the exchange category, however, all FCMs would vote for all FCM directors, splitting votes between the "large FCM" subcategory and the remaining FCMs. IBs will continue to be represented by a guaranteed and an independent IB.

CPO/CTA directors comprise 6 of 45 directors on the existing Board. The Special Committee determined that four directors should represent the CPO/CTA category on the restructured Board. As is currently the case and like the exchange and FCM categories, the Special Committee believes that size should determine to a certain extent how the CPO/CTA seats are allocated. Under the existing structure, one CPO director and one CTA director must come from a CPO and CTA, respectively, ranked in the top one-third of money under management allocated to futures. To make the size distinction more meaningful and to provide some flexibility, two of the four directors should be affiliated with either CPOs or CTAs that are ranked in the top 20% of funds under management allocated to futures.

The number of public director seats is determined by the CFTC regulation that requires public directors to comprise at least 20% of the Board. The other categories account for 20 directors. Therefore, there must be five public directors on the Board. The current rules specify that none of the public directors may be employed by an NFA Member. Additionally, at least four of the current nine public directors must have no direct association with a business enterprise in the futures industry and the rest may come from entities such as commercial banks, commercial firms and other users of the futures markets. The Special Committee believed that these rules are overly rigid. Instead, the Special Committee believed that all public directors should simply meet the standards of the CFTC regulation, which provides that they cannot be principals, officers or employees of an NFA Member.

The Special Committee is strongly committed to broad and diverse representation in each of the categories. Though the Special Committee has recognized size as a very significant criterion and therefore built size into the category composition requirements, other factors are also important to ensuring representation of all segments of the membership. For example, the type of business firms conduct and the type of customers they service may also differentiate firms within a category. Similarly, whether an exchange is an open-outcry or electronic exchange is a differentiating factor, as is the exchanges' history in the industry. However, the Special Committee concluded that constructing each category in accordance with rigid criteria was not workable. Rather, the best way to ensure diversity on the Board is to include directions to the Nominating Committee that these factors must be considered when selecting nominees for Board seats.

TRANSITION

In order to be successful, the transition from the current Board to the restructured Board must accomplish a number of things. It should minimize the disruption to the Board and its proper functioning. The quality of the directors must be maintained and the current directors' prior service to NFA needs to be recognized. Finally, the transition should be accomplished as quickly as possible consistent with these goals.

The Special Committee recommended a single-step process to accomplish the transition. The process requires the creation of an Interim Board that would consist of the existing directors. The Interim Board will have all the powers of the Board except the power to adopt, amend or repeal the Articles of Incorporation. All interim directors' terms would end in February 2002 and all 25 of the new directors would be elected. The Annual Election date, which is currently the second Tuesday in January, will be changed to the third Tuesday in January to accommodate the elections for contract market directors. The terms of the new directors would be staggered based upon the number of votes they receive. Half of the directors in each category would serve two-year terms and the other half would serve one-year terms. The directors receiving the highest number of votes in the election will serve two-year terms.

VOTING RESTRICTIONS OF THE BOARD

NFA's Articles currently require category votes in three instances: delegation of authority to amend NFA Bylaws; changes in dues or assessment fees; and amendment of the Articles. A majority vote of the representatives of each category is required for the delegation of authority to amend the Bylaws. Amendments of the Articles require a majority vote in each category except that two-thirds of the exchange representatives must approve the amendment (two-thirds of the exchange Members voting must also approve the amendments). Changes to dues and assessment fees also require a majority vote of each category, except that the unanimous consent of the exchange representatives is required if the change affects contract market Members. These rules enable, at least theoretically in certain instances, any single category to dominate the Board and in matters involving changes to dues and assessments, a single director could control the outcome. In fact, however, this has rarely been an issue.

The Special Committee believed that the protection that the category voting requirements provides is no longer necessary. However, the Special Committee also believed that the issues that currently require category votes are sufficiently important that they deserve special attention. The Special Committee recommended substituting super-majority requirements (two-thirds of the directors present and voting) for category votes on these issues. This would eliminate the potential domination by a few directors or even one director but maintain protection against dominance of a simple majority on critical issues. The Special Committee also recommended replacing the requirement that two-thirds of the contract market Members voting approve Articles amendments with a simple majority rule as is the case with all other categories.

COMMITTEES

There are currently five standing subcommittees of the Board: Executive, Appeals, Audit, Finance and Membership. The Special Committee felt that there should be no changes to the basic structure of the Executive Committee. The current Articles provide for one Executive Committee seat to a representative of a contract market having two Board seats and one to a contract market with one Board representative. Under the revised provisions, however, no contract market will have two Directors. Consequently, a technical amendment to the Articles regarding the composition of the Executive Committee is needed to retain the current arrangement.

The current Appeals and Membership Committees each have nine members. Given the reduction from 45 to 25 Board members, the Special Committee has concluded that having both of these committees continue in their present size and composition is not tenable. The Special Committee considered a number of ways to address this issue and decided that the size of the Appeals Committee should be reduced from nine members to five, a reduction in line with the overall reduction of the size of the Board. However, this approach does not work well with the Membership Committee because of its activities and workload.

The Membership Committee establishes general policies governing fitness of firms and individuals for registration and membership and oversees staff's implementation of those policies. It discharges its oversight responsibility by periodically reviewing staff's decisions to grant registration and membership and to institute adverse actions to deny or revoke registration and membership. The Membership Committee also reviews settlement offers and conducts evidentiary hearings for persons who are subject to adverse registration actions. The Special Committee decided that the Membership Committee's responsibilities and workload require more than a 5-person committee. The Special Committee, therefore, recommended that the Membership Committee will be comprised of nine members, five of whom are directors. The remaining four will be affiliated with NFA Members.

The Special Committee felt that no changes to the current structure of the Audit and Finance Committee are necessary.

CONCLUSION

The Special Committee formulated its recommendations after substantial consideration of the many complex issues involved in modernizing NFA's governance structure. In its view -- and in the view of NFA's Executive Committee and Board of Directors -- these recommendations provide for a Board whose size, composition and voting rules will enable it to operate efficiently and effectively while maintaining the unique character and style that NFA's Board has developed over the past twenty years.

PROPOSED ARTICLES AMENDMENTS

The proposed amendments to Articles IV, VII, VIII, X, XI, XVII and XVIII are set forth below and incorporate the recommendations made by the Special Committee and approved by NFA's Board, as discussed above. Amendments to NFA's Articles 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.

Amendments to NFA's Bylaws, which incorporate the recommendations made by the Special Committee and approved by NFA's Board, are also set forth below. Amendments to NFA's Bylaws, however, do not require a vote by the membership.They are included here solely for the membership's information.

Please use the enclosed ballot to vote and submit it to NFA by September 30, 2001, in the postage-paid, self-addressed envelope which is also enclosed.

NFA shall be a membership corporation and shall have no capital stock and shall have no authority to issue any stock. NFA is not organized and shall not be conducted for profit, and no part of its net revenues or earnings shall inure to the benefit of any Member except for the repayment of bona fide loans or other credit extended by a Member to NFA.

ARTICLE VII: BOARD OF DIRECTORS

Section 1: General.
The duties of the Board of Directors shall include the management of NFA's business, the adoption of NFA's Bylaws, and the fulfillment of NFA's fundamental purposes.

Section 2: Composition of Board.
The Board of Directors shall be comprised as follows:

(a) Contract Market Representatives.
(i) One representative of each contract market Member, except that any contract market Member ranked in the top four contract market Members based on that had transaction volume of more than 20 percent of aggregate contract market annual transaction volume during any the prior 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).

(ii) Two (2) elected representatives of contract market Members not ranked in the top four contract market Members based on annual transaction volume during the prior calendar year. Only contract market Members not represented in accordance with Section 2(a)(i) shall be eligible to vote for the representatives elected in accordance with this Section 2(a)(ii).

(iii) A specific contract market's annual transaction volume shall be the number of commodity futures contracts entered into on the contract market during the calendar year. 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.

(iv) A contract market Member and all contract market Members with which it is affiliated shall have no more than one representative on the Board at any one time. For the purposes of this limitation, a contract market Member shall be deemed to be affiliated with another contract market Member if it directly or indirectly owns 100 percent of or is owned 100 percent by or has 100 percent ownership in common with such other contract market Member.

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

(i) Seventeen (17)Ten (10) 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 Four (4) representatives of FCMs and LTMs having 1-15 offices ranked in the top ten FCMs based on the total of segregated funds and secured amounts, as those terms are defined in the applicable Commission regulations, held as of June 30 of the prior calendar year.

(B) Two Four (4) representatives of FCMs and LTMs not ranked in the top ten FCMs based on the total of segregated funds and secured amounts, as those terms are defined in the applicable Commission regulations, held as of June 30 of the prior calendar year. having 16-50 offices.

(C) Five representatives of FCMs and LTMs having 51 or more offices.

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

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

(DF) 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) 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 ParticipantCommodity Pool Operator, Commodity Trading Advisor and Public Representatives.

(i) Six (6) Four (4) elected representatives (hereinafter "Industry Participants") of registered commodity pool operators (hereinafter "CPOs") and registered commodity trading advisors (hereinafter "CTAs") that are NFA Members, including at least one two (2) representatives of a Member that acts primarily as a CPOs or CTAs that and ranks within the top one third 20 percent of CPOs or CTAs with funds under management allocated to futures (as defined in Article XVIII(k)). and one representative of a Member that acts primarily as a CTA and ranks within the top one third of CTAs with funds under management allocated to futures (as defined in Article XVIII(k)). If none of the individuals serving continuing terms is a representative of a firm within the top one third of 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 higest number of votes who is a reprsentative of a firm within the top one third shall be elected. Ties shall be resolved by the Board by random draw.

(ii) Nine (9) Five (5) individuals who are not officers, directors, partners, employees or beneficial owners of more than 10 percent of the equity stock of 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) No Industry Participant CPO or CTA 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 CPO or CTA 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 CPO or CTA, and the person is not a contract market representative.

Section 3: Nominations; Election.

The elected Directors shall be chosen as follows:

(a) Nominating Committee.
The Nominating Committee (see Article X) shall nominate at least one candidate for each elected FCM and LTM, IB, and CPO and CTA Director position to be filled, at least one of which shall be a representative of an FCM which is not a member of any contract market. These nominations shall be made in accordance with the eligibility requirements contained in this Article. The Nominating Committee shall nominate candidates whose election shall result in diverse segments of each category being represented on the Board based upon the size of the Member, the type of business conducted by the Member and the type of customer serviced by the Member.

(b) Petition Procedure.
Nominations may be made for elected FCM and LTM, IB, and CPO and CTA 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

(ii) Petition submitted by any organization or association recognized by NFA as fairly representing the category (See (b)(i) above) for which the nomination is made. Petitions shall be submitted in the manner specified in the Bylaws. No petition may nominate more than one candidate for the same position.

(c) Election.
If there is a contested election in any category (See (b)(i) above) of NFA Members, the Members in that category shall thereafter elect by plurality vote from such nominees the Directors that are to represent that category. The election shall be conducted in the manner provided in the Bylaws, which shall provide for an Annual Election.

(d) Public Representatives.
The Public Representatives shall be chosen as follows: Before the Annual Election, the Board shall solicit from the Members the nomination of individuals to serve on the Board in the Public Representative category. At the Board's regular annual meeting, the Board shall, by majority vote, select from among such nominees the Public Representatives to serve on the Board.

(e) Contract Markets
The contract market representatives described in Article VII, Section 2(a)(ii) shall be elected as follows: Before the Annual Election, the Board shall solicit from contract market Members described in Article VII, Section 2(a)(ii) the nomination of individuals to serve on the Board as representatives of such contract market Members. If there is a contested election of such contract market Members, such contract market Members shall thereafter elect by plurality vote from such nominees the Directors that will represent them. The election shall be conducted in the manner provided in the Bylaws, which shall provide for an Annual Election.

Section 4: Terms of Directors.

(a) Contract Market Directors.
Directors representing contract market contract market Members shall serve at the pleasure of the contract market they represent serve for one-year terms, from the date of the Board's regular annual meeting following the Annual Election at which they are elected until the date of the Board's regular annual meeting one year hence.

(b) Other Directors.
Directors other than contract market contract market Member Directors shall serve for three year two-year terms, from the date of the Board's regular annual meeting following the Annual Election at which they are elected until the date of the Board's regular Aannual Election meeting three two years hence at which their successor is elected: Provided, however, the terms of the initial Directors elected at the Annual Election in 2002 shall be staggered. The initial Nominating Committee shall identify the term to be served by each candidate for initial Director. Except for Public Representatives, half of the Directors in each category elected at the Annual Election in 2002 shall serve two-year terms, and half shall serve one-year terms. The Directors who receive the highest number of votes in each category shall serve the two-year terms. Ties shall be resolved by random draw. Three of the Public Representatives elected at the Board's regular annual meeting held in 2002 shall serve two-year terms and two shall serve one-year terms. The Public Representatives who serve two-year terms shall be determined by random draw.

Section 5: Voting; Quorum.

Each Director shall have one vote upon any matter coming before the Board for official action, and, except as otherwise provided in these Articles or NFA's Bylaws, the affirmative vote of a majority of the Directors present and voting at a meeting of the Board shall be NFA's official act if a quorum is present. A quorum of the Board shall consist of one-half of the Directors, except where NFA Bylaws specify a lesser number in emergency situations.

Section 6: Establishment of Major Plans and Priorities.

The Board shall establish for observance by the Executive Committee (See Article VIII) and NFA staff major plans and priorities, including those regarding the commitment and expenditure of NFA funds.

Section 7: Chairman and Vice Chairman.

There shall be a Chairman and Vice Chairman of the Board. 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.

Section 8: Vacancies.

A vacancy that occurs on the Board before the expiration of a Director's term shall be filled (for the unexpired term) by an eligible individual elected by majority vote of the remaining Directors who represent the category of Members in which the vacancy occurred, except that if the vacancy involves a representative of a contract market Member described in Article VII, Section 2(a)(i), that contract market Member shall designate the successor. In the event there are no Directors remaining who represent the category of Members in which the vacancy occurred, the vacancy shall be filled by an eligible individual elected by the Board.

ARTICLE VIII: EXECUTIVE COMMITTEE

Section 1: General.

There shall be an Executive Committee of the Board, which may exercise all powers of the Board except as set forth in Section 2 below. The authorized actions of the Executive Committee shall be deemed actions of the Board.

Section 2: Board Powers Not Exercisable By Executive Committee.

(a) General Prohibitions.
The Executive Committee shall not exercise any power of the Board when the Board is in session, and the Executive Committee shall at no time take any action with respect to any matter that is the subject of a notice of a pending Board meeting without the concurrence of the Board.

(b) Specific Prohibitions.
The Executive Committee shall at no time exercise any of the following powers of the Board:

(i) The adoption, amendment or repeal of any Bylaw unless such power has been delegated by the Board in accordance with Article XI, Section 1(a); or the ratification of any proposal to adopt, amend or repeal these Articles.

(ii) The establishment of major plans and priorities, including those regarding the commitment and expenditure of NFA funds, except that the Board may authorize the Executive Committee to make expenditures within specific monetary limits prescribed in the Bylaws or Board Resolutions.

(iii) The election, appointment or removal of any NFA Director, officer or committee member.

(iv) The adoption of a plan of merger or consolidation with another entity.

(v) The sale, lease, exchange or mortgage of all or substantially all of NFA property or assets.

(vi) The voluntary dissolution of NFA or the revocation of proceedings therefor.

(vii) The adoption of a plan for the distribution of NFA assets.

(viii) The amendment or repeal of any Board Resolution that, by its terms, provides that it shall not be amended or repealed by the Executive Committee.

Section 3: Composition.

The Executive Committee shall comprise the following:

(a) NFA's President, and

(b) Nine (9) Directors, as follows:

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

(ii) Eight (8) other Directors, as follows:

(A) Two (2) Directors representing contract markets:
(1) One (1) representative of a contract market with two Directors on the Board that had transaction volume of more than 20 percent of aggregate contract market transaction volume during the prior calendar year. 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); and

(2) One (1) representative of a contract market other than a contract market described in clause (1) above: that has one Director on the Board: Provided, however,if no contract market has two Directors described in clause (1) above is represented on the Board, there shall be two Directors on the Committee from contract markets with one Director represented on the Board;

(B) Three (3) Directors representing FCMs, LTMs or IBs;

(C) Two (2) Directors representing CPOs and CTAs; and

(D) One (1) Director who is a Public Representative without a present direct association with a business enterprise in the commodity futures industry.

Section 4: Election of Members; Vacancies.

The elected members of the Executive Committee shall be chosen by the Board at the regular annual meeting as follows: The Directors representing contract markets with two Directors on the Board that had transaction volume of more than 20 percent of aggregate contract market transaction volume during the prior calendar year shall elect the Committee member in category (b)(ii)(A)(1) above; the Directors representing all other contract markets having one Director on the Board shall elect the Committee members (or members, if there are no contract markets with two Directors on the Board) in category (b)(ii)(A)(2) above shall elect the Committee member in category (b)(ii)(A)(2) above; the Directors representing FCMs, LTMS, and IBs shall elect the Committee members in category (b)(ii)(B) above; the Directors representing Industry Participant CPOs and CTAs shall elect the Committee members in category (b)(ii)(C) above; and the Public Representative Director shall be elected by the Board. A vacancy that occurs on the Executive Committee shall be filled in like manner. Tie votes may be resolved by the Board by random draw.

Section 5: Voting; Quorum.

Each member of the Executive Committee shall have one vote on Executive Committee matters. A quorum of the Committee shall consist of one contract market Member of the Committee, one FCM, LTM or IB member of the Committee, and any three other Committee members.

ARTICLE X: NOMINATING COMMITTEE

There shall be a Nominating Committee, composed of 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:
(i) The FCM and LTM Subcommittee shall be composed of three representatives, including at least one representative of FCMs or LTMs with 1-15 offices, one representative of FCMs or LTMs with 16-50 offices, described in Article VII, Section 2(b)(i)(A) and at least one representative of FCMs or LTMs with 51 or more offices described in Article VII, Section 2(b)(i)(B); and

(ii) The IB Subcommittee shall be composed of three (3) representatives, including at least one representative of IBs required to maintain minimum adjusted net capital and at least one representative of IBs not required to maintain minimum adjusted net capital.

(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.

(b) Members of the Nominating Committee shall serve staggered terms of three years from the date of the Board's regular annual meeting following the Annual Election at which they are elected until the date of the Annual Election Board's regular annual meeting three years hence at which their successor is elected.

Section 3: Selection of Committee Members.

Each Subcommittee of the Nominating Committee shall nominate, for each position to be filled on the Nominating Committee, one eligible individual for election by the Members to that Subcommittee for the following term. Additional nominations may be made for each such position by petition in the manner set forth in Article VII, Section 3. The procedures for such election shall be the same as those prescribed in Article VII, Section 3. No person shall be nominated or elected to the Nominating Committee who has served on the Nominating Committee during the preceding term, and no person shall be nominated or elected to the Nominating Committee who, at the time of such nomination or election, is a Director. Any vacancy that occurs on the Nominating Committee shall be filled by the Board from among persons eligible under this Article to serve thereon.

ARTICLE XI: BYLAWS

Section 1: Adoption, Amendment and Repeal.

Bylaws of NFA may be adopted, amended or repealed by a majority of all Directors in office at the time, except that:

(a) Category Voting.

Tthe Board shall not take the following actions unless a two-thirds majority of all Directors present and voting in each of the membership categories set forth in Section 2(a)-2(c) of Article VII (contract markets, FCMs, LTMs, IBs and Industry Participants and Public Representatives) approves:

(i) Delegating or otherwise granting authority to any NFA Committee, officer, employee or agent, or any other person, to adopt, amend or repeal any Bylaw.

(ii) Adopting, amending or repealing any Bylaw regarding dues or assessments; and

(b) Contract Market Dues and Assessments.

(iii) Adopting, amending or repealing any No Bylaw regarding dues, assessments or similar charges imposed on contract market Members may be adopted, amended or repealed without the consent of all Directors representing contract markets.

Section 2: Content of Bylaws.

Except insofar as such matters are expressly contained in these Articles, the following shall be as provided from time to time in NFA's Bylaws: The conditions of, method of admission to, and qualifications for membership and Associate registration; the limitations, rights, powers and duties of Members and Associates; dues and assessments; the method of expulsion from and the termination of membership and Associate registration; the procedures for the settlement of claims and grievances; and all other matters pertaining to membership in, registration with, and the conduct, management and control of the business, property and affairs of NFA.

ARTICLE XVII: ADOPTION, AMENDMENT AND REPEAL OF ARTICLES

No provision of these Articles may be adopted, amended or repealed except in the manner prescribed in this Article. Each such proposed change to the Articles shall be reviewed by the Board, and shall be submitted to the Members of NFA only upon ratification of the proposal by two-thirds of the Directors. in the category set forth in Section 2(a) of Article VII (contract markets), a majority of the Board members in the category set forth in Section 2(b) of that Article (FCMs, LTMs, and IBs) and a majority of the remaining Board members. If any such proposed change relates to Article III, Section 2, such proposed change shall not be considered by the Board for ratification unless at least 60 days written notice of the proposed change has been given to each contract market Member. Upon such ratification, the proposal shall be submitted to a ballot vote of the Members and shall be adopted upon the affirmative vote of two thirds of those Members in the category set forth in Section 2(a) of Article VII who submit a proper ballot in a timely manner and a majority of those Members in each of the categories set forth in Sections 2(a), 2(b) and 2(c) of Article VII who submit a proper ballot in a timely manner.

ARTICLE XVIII: DEFINITIONS.

(h) "Contract Market" — means an exchange designated by the Commission as a derivatives transaction execution facility or registered by the Commission as a contract market. in one or more commodities or licensed by the Commission for the trading of options.

BYLAW 406. ELECTIONS.

The Annual Election shall be held on the second third Tuesday in January, at which the contested vacancies on the Board and Nominating Committee shall be filled. Before the October 15 preceding the election, the Secretary shall:

(1) notify all Members in the FCM and LTM, IB, CPO and CTA categories of the elected Directors and the members of the Nominating Committee whose terms will expire at the Annual Election, and

(2) request the submission to the Nominating Committee of the names of eligible persons to fill those positions.

Before the November 20 preceding the election, the Nominating Committee shall submit its list of nominees for the positions to the Secretary, who shall promptly notify the Members of the nominations. Other nominations may be made by petition, as prescribed in the Articles. Each petition must identify the position to which the nomination pertains. Petitions must be received by the Secretary within 21 days of the issuance of the Secretary's notification of the candidates proposed by the Nominating Committee. Promptly after the expiration of the period within which petitions may be submitted, the Secretary shall notify the Members of all of the candidates for Director and member of the Nominating Committee. In the event of a contested election in any of the FCM and LTM, IB, or CPO and CTA categories, the Secretary shall cause written ballots to be sent to all Members in that category (i.e., FCM and LTM, IB, CPO or CTA) by December 15. Promptly after December 31 of the year immediately preceding the election, the Secretary shall request the contract market Members eligible to vote in accordance with Article VII, Section 2(a)(ii) to nominate eligible persons to represent such contract market Members. In the event of a contested election in the contract market category, the Secretary shall cause written ballots to be sent to all contract market Members eligible to vote by January 10.

BYLAW 407. TRANSITIONAL BOARD INTERIM BOARD AND INTERIM COMMITTEES.

The Provisional Board of Directors may elect a transitional Board of Directors. Such transitional Board shall be comprised in the manner set forth in Article VII and may hold office until the Directors elected by Members assume office. The transitional Board shall have the powers of the provisional Board of Directors (See Articles XVI and XVII), except the power to adopt, amend or repeal Articles.

The Directors holding office and all members of the Executive Committee, Nominating Committee, Appeals Committee and Membership Committee ("Committees") as of September 1, 2001 shall constitute an interim Board of Directors and interim Committees. The terms of all interim Directors and interim Committee Members shall end on the date of the Board's regular annual meeting in 2002. The interim Board and interim Committees shall have all the powers of the Board of Directors and Committees, respectively except the power to adopt, amend or repeal Articles.

BYLAW 503. REMOVAL OF DIRECTORS.

Notwithstanding the provisions of Bylaw 515, Directors may be removed from office as follows:

(a) Any Director representing a contract Market Member described in Article VII, Section 2(a)(ii) and any FCM and LTM, IB or Industry Participant CPO and CTA Director may be removed by a majority of the Members eligible to elect the Director whenever, in their judgment, the best interests of NFA will be served thereby.

(b) Upon recommendation of the Executive Committee, any Director may be removed by two-thirds of the Directors present and voting at a duly convened meeting of the Board whenever, in their judgment, the best interests of NFA will be served thereby.

BYLAW 507. SPECIAL MEETINGS.

(a) General.
Special meetings of the Board shall be held at the request of the Chairman, the President, or any 10 Directors. The date and place of the meeting shall be determined by the Chairman and specified in the notice of the meeting.

(b) Notice of Emergencies.
Notice of each special meeting shall be provided in accordance with such procedures as the Board may specify by resolution. The Chairman shall cause notice of the meeting to be given at the earliest practicable time, and, except in unusual circumstances, at least two days before the date on which the meeting is to be held.

Attendance of a Director at the meeting shall constitute a waiver of notice of the meeting, except where a Director attends a meeting exclusively for the limited purpose of objecting to the transaction of any business thereat on the ground that the meeting shall be limited to the matters specified in the notice of such meeting.

In the event of an emergency (as defined herein), the Chairman or President may call a meeting on one-hour notice to all Directors. Such notice may be given by telephone, telegraph or other means. The business of the meeting shall be limited to the emergency. A quorum shall consist of 14 8 Directors, provided there is present at least one contract market Director, one FCM Director and one Industry Participant CPO, CTA or Public Representative Director (See Article VII, Sections 2(a)-(c)). For purposes of this Bylaw, an emergency shall exist when the Chairman or President determines that, because of an unusual, unforeseeable and adverse circumstance, it is necessary to hold a meeting on one hour notice.

BYLAW 701. MEMBERSHIP COMMITTEE.

There shall be a Membership Committee, consisting of nine five Directors and four other persons. A majority of the Committee members eligible to participate in a proceeding shall constitute a quorum, except that in cases in which a Subcommittee has been designated a quorum shall consist of a majority of such Subcommittee members but no fewer than three. The Committee members shall be proposed by the President and appointed by the Board. The President and the Board shall endeavor to propose and appoint Directors and persons who reflect the various categories of Members described in the Articles. The Committee or its designated Subcommittee shall review actions taken by the President pursuant to the President's authority under Chapter 3 to make the initial determination regarding:

(a) applicants for membership in NFA or registration as Associates, and

(b) continued eligibility for such membership or registration.

Each Committee member shall serve for three two years, except for the initial Committee members the Committee members appointed at the Board's regular annual meeting in 2002, whose terms shall be staggered, or until the member's successor is appointed and qualified, or until the member's death, resignation, ineligibility or removal. A Committee vacancy shall be filled in the manner prescribed in Bylaw 601 for officers. A Committee member may be removed by the Board whenever in its judgment the best interests of NFA will be served thereby.

BYLAW 702. APPEALS COMMITTEE.

There shall be an Appeals Committee, consisting of nine five Directors, at least one of whom shall be a Public Director. A majority of the Committee members eligible to participate in a proceeding shall constitute a quorum. The Committee members shall be proposed by the President and appointed by the Board. The President and the Board shall endeavor to propose and appoint Directors who reflect the various categories of Members described in the Articles. The Committee shall hear and decide appeals from and reviews of decisions in disciplinary cases by the Business Conduct Committee under the Compliance Rules. Each Committee member shall serve for three two years, except for the initial Committee members and the Committee members appointed at the Board's regular annual meeting in 2002, whose terms shall be staggered, or until the member's successor is appointed and qualified, or until the member's death, resignation, ineligibility or removal. A Committee vacancy shall be filled in the manner prescribed in Bylaw 601 for officers. A Committee member may be removed by the Board whenever in its judgment the best interests of NFA will be served thereby.

BYLAW 1301. SCHEDULE OF DUES AND ASSESSMENTS.

Subject to the provisions of Article XII, dues and assessments of Members shall be as follows:

(a) Contract Markets.
Each contract market Member shall pay to NFA an assessment calculated on the basis of $.01 for each round-turn transaction in a commodity futures contract (purchase and sale or sale and purchase) executed on the contract market, except that in any NFA fiscal year, the total of such assessments paid by a contract market Member that had transaction volume of more than 20 percent of aggregate contract market transaction volume during that fiscal year with two Directors on the Board shall not be more than $150,000 and the total of such assessments paid by a contract market Members that had transaction volume of 20 percent or less of aggregate contract market transaction volume during that fiscal year with one Director on the Board shall not be more than $100,000. 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).

(b) FCM Members.

(i) Each FCM Member shall pay to NFA an assessment equal to:
(A) $.14 for each commodity futures contract traded on a contract market (other than an option contract) on a round-turn basis;

(B) $.07 for each option contract traded on a contract market on a per trade basis, carried by it for a customer other than: (1) a person having privileges of membership on a contract market where such contract is entered; or (2) a business affiliate of such FCM that directly or indirectly owns 100 percent of or is owned 100 percent by or has 100 percent ownership in common with such FCM provided such FCM has privileges of membership on the contract market where such contract is entered; or (3) an omnibus account carried for another FCM Member for which assessments are payable to NFA by the other FCM;

(C) $.14 for each commodity futures contract traded on a foreign board of trade (other than an option contract) on a round-turn basis;

(D) $.07 for each option contract traded on a foreign board of trade on a per trade basis, carried by it for a customer other than on an omnibus account basis for another FCM Member for which assessments are payable to NFA by the other FCM; and

(E) $.07 for each dealer option contract on a per trade basis carried by it for a customer other than a business affiliate of such FCM that directly or indirectly owns 100 percent of or is owned 100 percent by or has 100 percent ownership in common with such FCM Member: Provided, however, such assessments shall be suspended or adjusted by the Board for a period not to exceed three months when in the judgment of the Board such action is appropriate in light of NFA's overall financial goals. The FCM Member shall invoice these assessments to its customer and shall remit the amount due to NFA; and

(ii) Each FCM for which NFA serves as the DSRO, as defined in NFA Financial Requirements Section 2, shall pay to NFA annual dues of $7,500 and each FCM for which NFA does not serve as the DSRO as defined in NFA Financial Requirements Section 2, shall pay to NFA annual dues of $2,000.

(c) LTM Members.

(i) Each LTM Member shall pay to NFA an assessment equal to $.09 for each leverage contract purchased from or sold to the LTM by a customer: Provided, however, such assessments shall be suspended or adjusted by the Board for a period not to exceed three months when in the judgment of the Board such action is appropriate in light of NFA's overall financial goals. The LTM Member shall invoice these assessments to its customers and shall remit the amount due to NFA; and

(ii) Each LTM Member shall pay to NFA annual dues of $1,000.

(d) Other Members.
Annual dues for the other membership categories shall be as follows:

(i) Commodity Trading Advisor-$1,000

(ii) Commodity Pool Operator-$1,000

(iii) Introducing Broker-$1,000

Subject to category voting as prescribed by Article XI, Section 1(a), the Board may in its discretion waive or establish lower annual dues for particular Members.

BYLAW 1506. AMENDMENTS TO BYLAWS.

No Bylaw may be adopted, amended or repealed except as specified in a written notice sent to each Director at least two weeks prior to the meeting at which the Board considers the same: Provided, however, that such prior notice is not required in an emergency as defined by Bylaw 507, or where a two-thirds majority of all Directors present and voting in each of the membership categories set forth in Sections 2(a)-2(c) of Article VII (Contract Markets, FCMs, LTMs, IBs, Industry Participants and Public Representatives) approves.

Amendments to the following NFA Articles of Incorporation to change the size and composition of NFA's Board of Directors, the voting restrictions of the Board, the composition of NFA's Membership Committee, and the size of NFA's Appeals Committee.

Article IV: Form of Organization

Article VII: Board of Directors

Article VIII: Executive Committee

Article X: Nominating Committee

Article XI: Bylaws

Article XVII: Adoption, Amendment and Repeal of Articles

Article XVIII: Definitions