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EXPLANATION OF PROPOSED AMENDMENTS
Explanation of Amendments to NFA Compliance Rule 3-11
As currently written, NFA Compliance Rule 311 allows a settlement offer to be withdrawn at any time within 15 days following the issuance of a written Decision by the Hearing Panel or, if NFA's President refers the matter to NFA's Appeals Committee, at any time prior to a final Decision of the Appeals Committee. The proposed amendments to Rule 311 make clear that a settlement offer may not be withdrawn by a respondent after it has been submitted to the Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee. The proposed amendments stipulate that a settlement offer shall be null and void upon rejection of the settlement offer by the appropriate Committee or Panel.
Under NFA's existing registration rules, NFA may grant temporary licenses ("TLs") to individuals applying for registration as an associated person, floor broker, floor trader or guaranteed introducing broker. The premise underlying the TL concept is that applicants who appear to be fit for registration should be able to go to work while NFA awaits the FBI fingerprint check results, which can take six to eight weeks. NFA has successfully processed tens of thousands of applications using its TL Rules. For the most part, the TL Rules have accomplished the goal of making the registration process more efficient for applicants and NFA. The intention of the proposed amendments is to further improve the efficiency of the TL process.
Under the current rules, only applicants with no "yes" to the disciplinary history questions are eligible for temporary licenses. Consequently, NFA may not grant TLs to new applicants with "yes" answers no matter how innocuous the disclosed matter may be, even if NFA has previously registered the individual in spite of the "yes" answer.
Over the years, NFA has developed sufficient expertise to accurately and quickly identify those disciplinary matters that it will not use as a basis to disqualify any applicant from registration. If NFA were to have the authority to grant TLs to new applicants with "yes" answers that NFA has previously cleared or knows that it intends to clear, NFA could reduce the time such applicants must wait before going to work. The proposed amendments Rules 301 and 302 eliminate the language which provides that any "yes" answer disqualifies an applicant from receiving a TL.
The TL scheme for transferring APs, FBs and FTs provides that persons applying within 60 days of their last registration may receive TLs if they have no new "yes" answers to the disciplinary history questions. A new "yes" answer is one that the applicant has not previously disclosed or has disclosed for the first time within 30 days of the current application.
The complexity of the no-new-yes-answer requirement creates processing difficulties for NFA's automated registration processing system ("MRRS"). To process transfer TLs, MRRS must compare the date of the application and the date of the last termination to determine if the 60 day requirement is met. It must then compare the "yes" answer on the current application to the "yes" answer previously disclosed to establish that the applicant has previously disclosed the "yes" answer. Finally, MRRS must compare the date of the current application to the date the applicant previously disclosed the "yes" answer to determine if the 30 day requirement is satisfied.
The cumbersome nature of the TL rule answersfor transferring APs produces processing errors which must be manually reviewed and corrected, a process which requires significant staff resources. For example, in 1996, there were 24 instances in which NFA did not grant TLs because of new "yes" answers. However, NFA ultimately granted registration to all but one of these individuals. The remaining individual withdrew his application.
Besides being cumbersome to administer, the present rule is not particularly effective in weeding problematic APs out of the industry. The fact is that an AP with a serious disciplinary problem can easily circumvent the rule by disclosing the matter 31 days before filing a new application. By doing this, the AP will receive a transfer TL no matter how egregious the disciplinary matter is. Alternatively, because the dual registration rules permit dual registration even if the registrant has any "yes" answers, the AP can become dually registered with new sponsor and then terminate from the prior sponsor without a break in registration. More fundamentally, APs can simply remain at their current firm and remain registered until NFA revokes or suspends their registration.
The proposed amendments to Rules 301 and 302 eliminate the no-new-yes-answer requirement. NFA believes that these amendments would more efficiently achieve NFA's regulatory goals because MRRS would operate more efficiently and staff resources could be redirected to quickly identifying those transfer applicants who receive TLs despite problematic disciplinary information. When appropriate, NFA would promptly terminate these TLs and institute registration denial proceedings.
The proposed amendment to NFA Registration Rule 201 and the proposed adoption of Rule 303 applies the proposed changes discussed above to FBs and FTs. The major impact on FBs and FTs will flow from the provisions that allow NFA the discretion to grant TLs over "yes" answers for new applicants. There are very few transfer TLs issued to FBs and FTs because of the nature of their activities.
Finally, the proposed amendments to Rule 302 would grant the TL to the GIB, assuming the GIB satisfies all other requirements, if NFA would have granted TLs to its principals had they applied as APs.
NFA respectfully requests that the Commission review and approve the proposed amendments to NFA Registration Rules 201, 301 and 302 and the proposed adoption of NFA Registration Rule 303 and requests that they be declared effective upon Commission approval.
NFA respectfully requests that the Commission review and approve the proposals contained in this submission and requests that they be declared effective upon Commission approval.