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EXPLANATION OF PROPOSED AMENDMENTS

Before changing the registration process from paper to electronic filing, NFA annually sent a pre-printed Form 7-R to each registered firm. The pre-printed form contained all of the firm's current registration information. The firm, after reviewing the pre-printed form and making any necessary changes or noting that no changes were needed, returned the form to NFA. The failure to return the form was deemed to be a request to withdraw from registration. NFA also sent a list of the firm's personnel with the pre-printed form for the firm to review and file termination notices if an individual was no longer with the firm.

When NFA implemented the Online Registration System ("ORS") in 2002, the annual registration update process was discontinued because each firm had continuous access to ORS to make any necessary changes to its registration information. However, a number of developments have caused NFA to reconsider this decision and adopt an electronic annual registration update process. The driving forces behind this recommendation include:

  • maintaining the integrity of the registration information and protecting the privacy of each registrant's information;

  • ensuring the accuracy of the registration information, especially contact information; and

  • recognizing Members' preference for having information "pushed out" to them.

The integrity and privacy of the information in ORS depends, in part, on access to the system by users designated by each firm and authenticated by NFA. Consequently, keeping the list of ORS users current and accurate must be a high priority for every firm. Although NFA is unaware of any unauthorized access to any registrant's information in ORS, NFA has on occasion become aware of situations in which a firm has not deleted an ORS user's access even though that person is no longer affiliated with the firm. Similarly, NFA has noted, albeit infrequently, inaccurate firm registration information due to the firm's failure to update its records. The accuracy of the firms' information, particularly the email addresses for its contacts, has become more important as emails are increasingly relied on to communicate with firms.

In the time since NFA implemented ORS, one of the common pieces of feedback that firms have provided is that they prefer NFA to push registration information to them. For example, NFA posts an electronic notice in ORS each time a firm conducts registration activity, and the firm has access to those notices at any time by accessing its Notice page in ORS. However, many firms advised NFA that they preferred, in addition to the notice posting, that NFA inform them that the notice was posted or that some event that would impact the firm's or an AP's registration status would soon occur. In response, NFA recently provided an email notification service that duplicates certain of the notices posted in ORS concerning the firm's registration activities and advises firms of certain significant future events.

Instituting an electronic annual update process will push out the information to each firm that it needs to review and update and thereby satisfy the need for security, integrity and accuracy of the registration information. The electronic process will essentially model but also improve upon the old paper process.

The first step of the electronic annual registration update process will be a letter and invoice from NFA to each firm 45 days prior to its annual update date. NFA will also send an email to the firm if it has enrolled in the email notification system. The letter and email will advise the firm of the need to (1) complete the electronic annual registration update process; (2) electronically submit the firm's annual questionnaire; and (3) pay its annual fees and dues. Instructions on how to do so will also be provided. The letter and email will notify the firm that the failure to complete any one of these requirements could result in the firm's withdrawal from registration, NFA membership or both.

The firm will access its annual registration update process in ORS. The process will be very similar to filing a Form 7-R, except that all of the firm's current information will display. The firm will be able to review all of the information and, with certain exceptions, make appropriate changes as it moves through the process. One exception concerns individual principals. Although the names, title and ownership interest of the principals will appear, the firm may change only the title or ownership interest as part of the process. If the firm needs to add or delete an individual as a principal, it must do so by electronically filing a Form 8-R or 8-T, respectively. The other exception applies to the firm's APs. NFA will provide a link to the firm's AP list so that it can review them as well. As with individual principals, additions or deletions of APs must be accomplished by electronically filing the appropriate form. Finally, NFA will provide a list of security users for the firm to review. While changes to this list can be made as part of the update process, only the firm's security manager can make those changes. All other changes can be made by anyone whom the firm has designated as an update user.

If the firm has not completed one or more of these requirements within 30 days following its annual update date, the firm will be deemed to have requested withdrawal. Based on NFA's experience with the old paper-based update process, it is believed that despite every effort by NFA to remind them, some firms will not complete the annual update process and will be withdrawn. A number of these firms will subsequently request re-instatement of their registration or membership rather than file a new application.

NFA will honor a re-instatement request once - and only once - each annual update cycle provided that the firm requests re-instatement within 60 days of withdrawal, pays all outstanding fees, and, if the request is made between the 30th and 60th day, pays a $500 re-instatement fee. This fee will partially offset the cost of staff time needed to re-instate the firm, which is a manual process in which each principal, AP and branch office must be re-associated with the firm in the ORS database. A firm that has been withdrawn for failure to file the annual registration update will be re-instated but will be deemed to have requested withdrawal until the update is filed. If the firm fails to file the annual registration update within 30 days of being re-instated, the firm's registration will be withdrawn, and the firm will need to file a new application if it wants to be registered.

As you know, the Commission has already proposed corresponding amendments to its registration requirements and comments are due May 29, 2007.1 NFA will not make the amendments to its rules effective before the CFTC adopts final rules.


1 72 Fed. Reg. 20788 (Apr. 26, 2007)

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