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July 25, 2002
Interpretive Notice Regarding Automated Order-Routing Systems
NFA has received notice that the Commodity Futures Trading Commission (CFTC) has approved an interpretive notice to NFA Compliance Rule 2-9 regardng supervison of the use of automated order-routing systems (AORSs). A copy of the interpretive notice is attached.
AORSs are becoming more and more common and are gradually replacing personal telephone contact as a means of entering orders for futures transactions. Although these are simply different ways to enter an order and are both governed by the same longstanding regulatory standards, the technology that is used affects the manner in which firms comply with those standards. As AORSs become more prevelant, it becomes increasingly important for NFA Members to understand how to adopt controls that apply pre-existing regulatory standards to these systems.
The interpretive notice adopted by NFA’s Board of Directors provides Members with guidance on their supervisory responsibility to include appropriate controls in the AORSs they offer to their customers. The interpretive notice was the culmination of a long process that included a wide-ranging review of AORS standards and regulatory requirements and sought and incorporated substantial input from all segments of the futures industry.
The interpretive notice does not impose new requirements but merely clarifies existing ones. Nonetheless, NFA realizes that some Members may not have understood these requirements and may not fully comply with them at the present time. We will work with Members to bring them into compliance and will not take disciplinary action against any Member that comes into compliance within a reasonable time.
NFA also recognizes that some Members have outstanding agreements with third-party vendors that may not comply with the standards in the interpretive notice. NFA does not expect Members to breach their existing agreements. NFA does, however, expect Members to work with their third-party vendors to conform to these standards. Members should also avoid entering into subsequent agreements that do not comply with the notice’s requirements.
Watch NFA’s web site at www.nfa.futures.org for information on an upcoming audio-visual, web-based training session on the requirements described in the interpretive notice. Questions concerning the notice can be directed to:
Associate Director, Compliance
National Futures Association
200 West Madison Street
Chicago, Illinois 60606-3447