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Proposed Rule

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EXPLANATION OF PROPOSED AMENDMENTS

Since February 2002,1 NFA's Board has been comprised of twenty-five directors, including six contract market representatives. Article VII, Section 2(a) of NFA's Articles of Incorporation addresses contract market representation on the Board. Subsections 2(a)(i) and (ii) currently provide that NFA's Board shall include one representative of each contract market ranked in the top four based on annual transaction volume during the prior calendar year and two elected representatives drawn from contract market Members not ranked in the top four.

With the CME Group Inc.'s recent acquisition of The Chicago Board of Trade ("CBOT"), the CBOT is no longer eligible to have a representative on NFA's Board. Excluding the CBOT, NFA has seven contract market Members, but only five of these exchanges have any significant volume.

Amendments to Article VII, Section 2(a) provide that contract market representatives on NFA's Board be drawn from exchanges with annual volume during the prior calendar year of more than 1,000,000 transactions. Amendments to Section 2(a)(i) provide that in the event that there are five or less contract market Members having annual volume during the prior calendar year of more than 1,000,000, then the Board shall include one representative of each such exchange.

Additionally, amendments to Section 2(a)(ii)(b) provide that in the event that there are more than five contract market Members with annual volume during the prior calendar year of more than 1,000,000 transactions, then the Board shall include one representative of each exchange ranked in the top three based on annual volume during the prior calendar year and two other elected representatives drawn from exchanges with annual volume of more than 1,000,000 that are not ranked in the top three. Similar to the current contract market election procedure, in the event of a contested election, all contract market Members except the top three exchanges will be eligible to vote for the two elected representatives.

NFA believes that this new structure not only provides sufficient flexibility in the likely event of further exchange consolidation but also allows for the possibility that exchanges with significant volume may want to become Members and seek to have a representative on the Board. In order to implement this new structure, necessary corresponding amendments have also been made to Section 3(e), Section 4(a) and Section 8 of Article VII and NFA Bylaws 406 and 503.


1 Prior to 2002, all exchange Members were entitled to a representative on NFA's Board and each exchange that accounted for more than 20% of the aggregate volume was entitled to two representatives.

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