Proposed Rule

SECTION 1. MINIMUM FINANCIAL REQUIREMENT.

Each NFA Member that is registered or required to be registered with the Commodity Futures Trading Commission (hereinafter "CFTC") as a Futures Commission Merchant (hereinafter "Member FCM") must maintain "Adjusted Net Capital" (as defined in CFTC Regulation 1.17 Schedule A hereto) equal to or in excess of the greatest of:

(i) $250,000;

(ii) Four (4) percent of the funds required to be segregated pursuant to the Commodity Exchange Act and CFTC Regulations and the foreign futures or foreign options secured amount, less the market value of commodity options purchased by customers on or subject to the rules of a contract market or a foreign board of trade for which full premiums have been paid: Provided, however, the deduction for each customer shall be limited to the amount of customer funds in such customer's account and foreign futures and foreign options secured amounts;

(iii) $6,000 for each remote location operated (i.e., proprietary branch offices, main office of each guaranteed IB and branch offices of each guaranteed IB);

(iv) $3,000 for each AP sponsored (including APs sponsored by guaranteed IBs); or

(v) (for securities brokers and dealers) the amount of net capital specified in Rule 15c3-1(a) of the Regulations of the Securities and Exchange Commission (17 CFR 240.15c3-1(a)).

A Member FCM that is required to file any document with or give any notice to the CFTC under CFTC Regulations 1.10 [Financial reports of futures commission merchants and introducing brokers], 1.12 [Maintenance of minimum financial requirements by futures commission merchants and introducing brokers], 1.16 [Qualifications and reports of accountants], or 1.17 [Minimum financial requirements by futures commission merchants and introducing brokers] shall also file one copy of such document with or give such notice to NFA at its Chicago office no later than the date such document or notice is due to be filed with or given to the CFTC.

A Member FCM that knows or should have known that its Adjusted Net Capital is less than this required amount must give telegraphic notice to its Designated Self-Regulatory Organization (hereinafter "DSRO") within 24 hours. Additionally, within 24 hours after giving telegraphic notice, the Member FCM must file with its DSRO a statement of financial condition, a statement of the computation of the minimum capital requirements, the statements of segregation requirements and funds in segregation for customers trading on U.S. exchanges and for customers' dealer options accounts, and the statement of secured amounts and funds held in separate accounts for foreign futures and foreign options customers, all as of the date such Member FCM's Adjusted Net Capital is less than the minimum required.

SECTION 2. DESIGNATED SELF-REGULATORY ORGANIZATION.

In the case of a Member FCM or Introducing Broker (hereinafter "Member IB") that is a member of one or more contract markets, the Member's DSRO shall be the organization that has been delegated primary financial responsibility for the Member pursuant to the Delegation Plan of NFA and the contract markets. In the case of a Member FCM that is not a member of a contract market, the Member's DSRO shall be NFA.

SECTION 3. DEBT/EQUITY RATIO REQUIREMENT.

(a) Requirement. Except as provided in (b) below, each Member FCM shall have "Equity Capital" (as defined in Schedule B hereto), inclusive of "Satisfactory Subordination Agreements" (as defined in Schedule C hereto) that qualify as Equity Capital, of not less than 30 percent of the following amount: The Member's Equity Capital plus the outstanding principal amount of Satisfactory Subordination Agreements.

(b) Exemption. A Member FCM may be exempted from Section 3(a) for a period not to exceed 90 days, or for such longer period as the FCM's DSRO may permit as within the best interests of the DSRO.

SECTION 4. COMPLIANCE WITH FINANCIAL REQUIREMENTS.

Each Member FCM and Member IB must be in compliance with these financial requirements at all times and must be able to demonstrate such compliance to the satisfaction of its DSRO.

SECTION 5. FAILURE TO COMPLY WITH FINANCIAL REQUIREMENTS.

A Member FCM that is not in compliance with these financial requirements or is unable to demonstrate compliance with these requirements as required by Section 4 above may trade for liquidation purposes only unless otherwise directed by its DSRO. Otherwise, the Member FCM may be directed by the DSRO to transfer customer accounts or cease doing business as an FCM until it is able to demonstrate compliance. If, however, the Member FCM immediately demonstrates to the satisfaction of the DSRO the ability to achieve compliance, the DSRO may allow the Member FCM a maximum of 10 business days in which to achieve compliance without having to transfer accounts, cease doing business, or trade for liquidation purposes only.

SECTION 2. 6. EARLY WARNING CAPITAL REQUIREMENTS , BOOKS AND RECORDS, ELIGIBILITY TO GUARANTEE IBS.

(a) A Member FCM must file the a written notice required by CFTC Regulation 1.12 with its DSRO, within five business days, when the FCM that knows or should have known that its Adjusted Net Capital is less than the greatest of:

(i) $375,000;

(ii) Six percent of the funds required to be segregated pursuant to the Commodity Exchange Act and CFTC Regulations and the foreign futures or foreign options secured amount, less the market value of commodity options purchased by customers on or subject to the rules of a contract market or a foreign board of trade for which full premiums have been paid: Provided, however, the deduction for each customer shall be limited to the amount of customer funds in such customer's account and foreign futures and foreign options secured amounts;

(iii) $9,000 for each remote location operated (i.e., proprietary branch offices, main office of each guaranteed IB and branch offices of each guaranteed IB);

(iv) $4,500 for each AP sponsored (including APs sponsored by guaranteed IBs); or

(v) (for securities brokers or dealers) the amount of capital specified in Rule 17(a)-11(b) of the Regulations of the Securities and Exchange Commission (17 CFR 240.17a-11(b)).

(b) A Member FCM whose Adjusted Net Capital is less than the amount set forth in paragraph (a) of this Section must file with its DSRO a Form 1-FR (or, if such Member is registered with the Securities and Exchange Commission as a securities broker or dealer, it may file a copy of its Financial and Operational Combined Uniform Single Report under the Securities Exchange Act of 1934, in lieu of Form 1-FR), containing the statements required by Section D2-b of these requirements, as of the close of business for the month during which such event takes place and as of the close of business for each month thereafter until three successive months have elapsed during which the Member's Adjusted Net Capital is at all times equal to or in excess of the amounts set forth in paragraph (a). Each financial statement required by this paragraph must be filed within 30 calendar days after the end of the month for which such report is being made.

(c) Whenever a Member FCM is required to give notice to the CFTC pursuant to CFTC Regulation 1.12, the FCM also is required to give such notice to its DSRO.

(b) (d) A Member FCM which is subject to the financial reporting requirements of CFTC Regulation 1.12 paragraph (b) of this Section may not enter into a guarantee agreement with an IB.

(c) (e) A Member FCM which is a party to a guarantee agreement with an IB and whose Adjusted Net Capital is less than the amount set forth in paragraph (a) of this Section, must also provide NFA and any IBs which it guarantees with a copy of the notice required by paragraph (a) (b). If the FCM cannot demonstrate to NFA and its DSRO, within 30 days after filing the required notice, that its Adjusted Net Capital is greater than the amount required by paragraph (a), the FCM must immediately notify, in writing, any IB which it guarantees that the guarantee agreement will terminate 30 days following the notice. A copy of the notice must also be filed with the CFTC, NFA, and the DSRO of the FCM. If the FCM demonstrates to its DSRO and NFA prior to the effective date of the termination of the guarantee agreement that its Adjusted Net Capital is greater than the amount required by paragraph (a), then it may notify any IB which it guarantees, the CFTC, NFA, and its DSRO, that the guarantee agreement will not terminate.

SECTION 3 7. RELIEF REQUESTS.

A Member FCM or IB may, as provided in Schedule E hereto, file with NFA its DSRO a request for relief from certain provisions of these Requirements, the Schedules hereto, and CFTC Regulations 1.10, 1.12, 1.16 and 1.17. NFA may grant the relief request without receiving the prior concurrence of the CFTC unless such concurrence is required by CFTC Regulations. Any such grant of relief shall be valid and shall remain in full force and effect unless or until reversed by the CFTC or withdrawn by NFA.

SECTION 4 8. FINANCIAL REQUIREMENTS AND TREATMENT OF CUSTOMER PROPERTY.

Any Member FCM who violates any of CFTC Regulations 1.10, 1.12, 1.16, 1.17 or 1.20 through 1.30 shall be deemed to have violated an NFA requirement.

SECTION 5 9. INTRODUCING BROKER FINANCIAL REQUIREMENTS.

Each Member IB, except an IB operating pursuant to a guarantee agreement which meets the requirements set forth in CFTC Regulation 1.10(j), must maintain Adjusted Net Capital (as defined in CFTC Regulation 1.17 Schedule A hereto) equal to or in excess of the greatest of:

(i) $30,000;

(ii) $6,000 per office operated by the IB (including the main office);

(iii) $3,000 for each AP sponsored by the IB; or

(iv) (for securities brokers and dealers) the amount of net capital required by Rule 15c3-1(a) of the Securities and Exchange Commission (17 CFR 240.15c3-1(a)).

A Member IB that is required to file any document with or give any notice to the CFTC under CFTC Regulations 1.10 [Financial reports of futures commission merchants and introducing brokers], 1.12 [Maintenance of minimum financial requirements by futures commission merchants and introducing brokers], 1.16 [Qualifications and reports of accountants], or 1.17 [Minimum financial requirements by futures commission merchants and introducing brokers] shall also file one copy of such document with or give such notice to NFA at its Chicago office no later than the date such document or notice is due to be filed with or given to the CFTC.

SECTION 10. INTRODUCING BROKER REPORTING REQUIREMENTS.

(a) A Member IB which knows or should have known that its adjusted net capital is less than the amount required by Section 9 or by the capital rule of any self-regulatory organization to which it is subject, must give telegraphic notice to NFA within 24 hours.

(b) A Member IB which fails to make or keep current the books and records required to be kept under CFTC Regulations 1.18, 1.35 and 1.37 must, on the same day this event occurs, give telegraphic notice to NFA.

(c) A Member IB must file with NFA the financial reports required under CFTC Regulation 1.10(b)(1) and (2).

(d) A Member IB which is also a securities broker or dealer may in lieu of a form 1-FR file a copy of its Financial and Operational Combined Uniform Single Report under the Securities Exchange Act of 1934, Part II or Part IIA, in accordance with CFTC Regulation 1.10(h). A Member IB which is also a country elevator may file a copy of a financial report prepared by a grain commission firm in accordance with CFTC Regulation 1.10(i).

(e) A Member IB which violates either CFTC Regulation 1.10 or 1.12 shall be deemed to have violated an NFA requirement.

[Note: CFTC Regulation 1.10(b)(1) generally requires IBs to file financial reports on a semi-annual basis. In accordance with CFTC Regulation 1.10(b)(3), Section 10 requires that each Member IB for which NFA is DSRO which files financial reports must file such reports with NFA with a copy to the CFTC.]

[See Interpretive Notice at 9028.]

SECTION 6 11. LEVERAGE TRANSACTION MERCHANT REPORTING REQUIREMENTS.

Each Leverage Transaction Merchant (hereinafter "Member LTM") is required to file any document with or give notice to the CFTC under CFTC Regulations 31.7 [Maintenance of minimum financial, cover and segregation requirements by leverage transaction merchants], 31.13 [Financial reports of leverage transaction merchants], 31.16 [Monthly reporting requirements], and 31.26 [Quarterly reporting requirements] shall also file one copy of such document with or give such notice to NFA at its Chicago office no later than the date such document or notice is due to be filed with or given to the CFTC.