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EXPLANATION OF PROPOSED AMENDMENTS

Explanation of Amendments

The Chicago Board of Trade and the Chicago Mercantile Exchange recently requested that NFA consider granting testing relief to General Securities Representatives who limit their futures related activities to financial futures. The proposed amendments to NFA Registration Rule 401 provide that General Securities Representatives applying to become registered as APs may complete NFA's new Financial Futures Examination in lieu of the Series 3 Examination if they limit their activities to the solicitation and acceptance of customer orders for futures or options involving stock index, currency or interest rate products.

In considering this issue, the Board realized that the Series 3 Examination covers a number of topics which are completely unrelated to the products these APs would be marketing. The Board also realized that the NASD Series 7 examination is not, in and of itself, an acceptable alternative to the Series 3 Examination. The Board, therefore, concluded that NFA should develop a specialized, more focused examination, limited to those subject areas related to financial futures. The development of the new Financial Instruments Examination is currently under way. Similar to the Series 31 Examination regarding pools and managed accounts, the Financial Instruments Examination would largely be drawn from existing questions in the Series 3 data bank. In addition, as with all of NFA's tests, outside consultants will review the proposed examination to validate its content. The Board determined that this approach will achieve the dual purposes of ensuring customer protection while expanding access to our markets.

NFA intends to make the proposed amendments to NFA Registration Rule 401 effective as soon as the development of the new test is completed unless, within ten days after receipt of this submission, NFA receives notification that the Commission has determined to review the amendments for approval.

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