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Proposed Rule

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PROPOSED AMENDMENTS
(additions are underscored)

FINANCIAL REQUIREMENTS

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SECTION 14. ASSETS COVERING LIABILITIES TO RETAIL FOREX CUSTOMERS.

(a) Each Forex Dealer Member shall calculate the amount owed to U.S. customers for forex transactions and shall hold assets equal to or in excess of that amount at one or more qualifying institutions in the United States or money center countries (as defined in CFTC Regulation 1.49).

(b) The amount owed to U.S. customers shall be calculated by adding up the net liquidating values of each forex account that liquidates to a positive number, using the fair market value for each asset other than open positions and the current market value for open positions.

(c) For assets held in the United States, a qualifying institution is:

    (i) a bank or trust company regulated by a U.S. banking regulator;

    (ii) a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of NASD Inc.; or

    (iii) a futures commission merchant registered with the U.S. Commodity Futures Trading Commission and a Member of NFA.

(d) For assets held in a money center country as defined in CFTC Regulation 1.49, a qualifying institution is:

    (i) a bank or trust company regulated in the money center country 1) which has in excess of $1 billion in regulatory capital or 2) whose commercial paper or long-term debt instrument or, if part of a holding company system, its holding company's commercial paper or long-term debt instrument, is rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization;

    (ii) an entity regulated in the money center country as an equivalent of a broker-dealer or futures commission merchant 1) which has in excess of $100 million in regulatory capital or 2) whose commercial paper or long-term debt instrument or, if part of a holding company system, its holding company's commercial paper or long-term debt instrument, is rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization; or

    (iii) a futures commission merchant registered with the U.S. Commodity Futures Trading Commission and a Member of NFA.

(e) Assets held in a money center country are not eligible to meet the requirements of this rule unless the Forex Dealer Member and the qualifying institution have entered into an agreement, acceptable to NFA, authorizing the institution to provide NFA and the CFTC with information regarding the Forex Dealer Member's accounts and to provide that information directly to NFA or the CFTC upon their request. The Forex Dealer Member must file the signed agreement with NFA.

(f) For purposes of this rule, a U.S. customer is a retail customer that is:

    (i) a natural person who is a resident of the United States;

    (ii) a partnership, corporation, or other entity (including a collective investment vehicle) organized under the laws of the United States or which has its principal place of business in the United States;

    (iii) an estate or trust, the income of which is subject to United States income tax regardless of source; or

    (iv) an entity organized principally for passive investment (e.g., a commodity pool or investment company) in which U.S. persons beneficially own, in the aggregate, a 10% or greater interest.

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INTERPRETIVE NOTICE

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FOREX TRANSACTIONS

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B. COMPLIANCE RULE 2-36

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5. Communications with the Public and Promotional Material

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No Member or Associate may represent that forex funds deposited with a Forex Dealer Member are given special protection under the bankruptcy laws. No Member or Associate may represent or imply that any assets necessary to satisfy its obligations to customers are more secure because the Member keeps some or all of those assets at a regulated entity in the United States or a money center country.

NFA is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets.
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