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Proposed Rule

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PROPOSED AMENDMENTS
(additions are underscored and deletions are stricken through)

INTERPRETIVE NOTICES

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NFA COMPLIANCE RULE 2-4: MISUSE OF TRADE SECRETS AND PROPRIETARY INFORMATION

National Futures Association ("NFA") Compliance Rule 2-4 provides that Members and Associates shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their commodity futures business. Over the years, NFA's Board of Directors ("Board") has provided guidance on certain issues to ensure that Members and Associates understand their responsibilities to observe just and equitable principles of trade and to act honestly, fairly, and in the best interests of customers.

Compliance Rule 2-4 prohibits Members and Associates from knowingly obtaining or seeking to obtain another Member's or Associate's confidential information or trade secrets without that person's permission. It also prohibits Members and Associates from knowingly or recklessly misusing confidential information or trade secrets in their possession. Although that rule does not seek to regulate business disputes between Members or extend beyond their commodity futures activities, it does reach conduct that could potentially harm futures customers.

Conduct that may violate Compliance Rule 2-4 includes:

  • Misusing sensitive personal customer information, such as a misappropriating social security numbers, or purposefully or recklessly violating the firm's privacy policy statement;

  • Disclosing customer orders prior to execution (except as permitted by exchange rules); or

  • Obtaining or attempting to obtain information disclosing a CTA's historical trading positions without the CTA's permission when the CTA making the trades is identified and the information can be analyzed to discover its trading methodologies. Many CTAs closely guard this information out of concern that someone will anticipate the CTA's trading program's positions, making those positions less profitable-or bigger losers-for the CTA's customers.

These are merely examples of conduct that could potentially harm customers. Any Member or Associate that knowingly obtains or seeks to obtain confidential information or trade secrets of another Member or Associate without that person's permission or that knowingly or recklessly misuses trade secrets and/or proprietary information in the conduct of its commodity futures business violates Compliance Rule 2-4.

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