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EXPLANATION OF PROPOSED AMENDMENTS

Last August the Board approved an interpretive notice discussing a Member's obligations regarding material promoting third-party trading systems for exchange-traded futures and options. The amendment to the interpretive notice to NFA Compliance Rule 2-36 reminds Members subject to the forex requirements that they have the same obligations in connection with third-party trading systems for retail off-exchange forex. NFA recently noted that some Forex Dealer Members ("FDMs") appear to be expressly offering third-party system software. For example, a website of one FDM states, in pertinent part, that its trading department keeps up to date information about the latest trading software and that third-party software is available to automate trade execution. This same FDM states that private investors, CTAs and hedge funds that have developed mechanical trading systems can have their systems automatically generate trades on the FDM's trading station.

A general search of websites that offer forex trading systems reveals that many contain problematic statements. For example, one third-party system developer's website states "Our signals work for you" and contains testimonials, one of which says, "thanks and good job to everyone there who had a hand in this weeks trading signals, this week netted 232 pips." Other testimonials state, in part, "I just wanted to let you know that so far I made USD 27,333/ on a capital of USD 30,000," "I am very glad I joined up, 120% profit in 1 week aint too bad huh," and "very good calls today!! 313 pips for me." At least one testimonial references an NFA FDM and states, in pertinent part, "I ran your signals in a Demo Account which I was playing with (FDM name) and showed a US $7000 profit overnight using 500 bets on each of your signals." Almost all of the trading system sites reviewed offer systems with extremely profitable trading results, do not explain whether the results are actual or hypothetical, and contain little, if any, discussion of risk.

The legal principles described in the third-party interpretive notice approved last August also apply to off-exchange forex activities. Nonetheless, the Board amended the forex interpretive notice to eliminate an unnecessary argument. In particular, the amendment adds a new footnote to the section on promotional material to clarify a Member's responsibility for material that promotes third-party systems for trading off-exchange forex by retail customers.

The Board made a technical amendment to NFA Bylaw 306. The amendment makes a minor change to the definition of off-exchange forex transactions to conform the definition to other rules.

As mentioned earlier, NFA is invoking the "ten-day" provision of Section 17(j) of the Commodity Exchange Act. NFA intends to make the amendments to NFA Bylaw 306 and the Interpretive Notice regarding Forex transactions with FDMs effective ten days after receipt of this submission by the Commission, unless the Commission notifies NFA that the Commission has determined to review the proposal for approval.

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