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Proposed Rule

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EXPLANATION OF PROPOSED AMENDMENTS

Despite reducing the assessment fee five times (66%) since the beginning of Fiscal 2002, unprecedented public trading volume has kept NFA's reserves higher than necessary. In light of this, NFA's Board approved a further reduction to the assessment fee and a reduction in membership dues for all Member firms. The reduction in the assessment fee will be effective January 2005 while the reduction in membership dues will take effect in July 2004.

Membership Dues

The current annual membership dues for IBs, CPOs, and CTAs is $1,000, exchange member FCMs pay $2,000, and FCMs that are not exchange members pay $7,500. Since 2001, when dues were increased to their current level, membership dues have covered 14-15% of administrative spending and have represented 12-16% of total revenue.

After reducing the assessment fee several times in response to the strong trading volume, the Board believes it is appropriate to also reduce membership dues. With the 25% decrease approved by the Board, we anticipate that membership dues will cover about 11% of administrative spending and represent about 13% of overall revenue.

Assessment Fee

NFA's current assessment fee is $.06 per futures round-turn and $.03 per options contract traded ($.06/$.03). The last decrease in the assessment fee occurred in January 2003 when it was reduced from $.08/$.04 to $.06/$.03.

The Board approved a 33% reduction in the assessment fee to $.04/$.02, effective January 1, 2005. This decrease results in a projected operating loss that will bring reserves down to a more reasonable level. The Board decreased the assessment fee in mid-Fiscal 2005, as opposed to the beginning of the fiscal year, to increase the chances that this level can be maintained for at least two years. The Board will continue to monitor NFA's finances and will increase fees as necessary to ensure NFA's continued financial health.

NFA is invoking the "ten-day" provision of Section 17(j) of the Commodity Exchange Act. NFA intends to make the amendments to Bylaws 1301(b)(ii) and (d) effective on July 1, 2004 and the amendment to Bylaw 1301 (b)(i) effective on January 1, 2005, unless the Commission notifies NFA that the Commission has determined to review the proposals for approval.

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