Proposed Amendments to NFA Compliance Rules
(additions are underscored and deletions are stricken)
Part 1 - DEFINITIONS
RULE 1-1. DEFINITIONS.
(a) "Act"- means the Commodity Exchange Act.
(b) "Appeals Committee"- means the Appeals Committee
of NFA established under Section NFA Bylaw 702 of NFA Bylaws.
(c) "Associate"- means a person who is associated with a Member within the meaning of the term "associated person" as used in the
Commodity Exchange Act and Commission Rules and who is required to be registered as an "associated person" with the Commodity Futures Trading Commission , and any other person designated by the Board to be an Associate.
(d) "Associated with a Member"- see (c) above.
(e) (d) "Business Conduct Committee"- means the Business Conduct Committee
of NFA established under Section NFA Bylaw 704 of NFA Bylaws.
(f) (e) "Commission" or "CFTC"- means the Commodity Futures Trading Commission.
(f) "Commodity Pool Operator" or "CPO"- means a person who is required to register or is registered as a commodity pool operator under the Act and Commission Rules.
(g) "Commodity Trading Advisor" or "CTA"- means a person who is required to register or is registered as a commodity trading advisor under the Act and Commission Rules.
(g) (h) "Contract Market"- means an exchange designated by the Commission as a contract market in one or more commodities or licensed by the Commission for the trading of options.
(h) (i) "Foreign Board of Trade"- means a board of trade, exchange, or market located outside the United States, its territories or possessions.
(i) (j) "Foreign Futures" and "Foreign Options"- means futures and options transactions made or to be made on or subject to the rules of a foreign board of trade.
(j) (k) "Foreign Futures or Foreign Options Customer"- means any person located in the United States, its territories or possessions who trades in foreign futures or foreign options.
(k) (l) "Futures"- includes -
(1) futures and option contracts traded on a contract market;
(2) option contracts granted by a person that has registered with the Commission under Section 4c(d) of the Act as a grantor of such option contracts or has notified the Commission under the Commission's rules that it is qualified to grant such option contracts;
(3) foreign futures and foreign options made or to be made on or subject to the rules of a foreign board of trade for or on behalf of foreign futures or foreign options customers as those terms are defined in the Commission's rules; and
(4) leverage transactions as that term is defined in the Commission's rules.
(l) (m) "Futures Commission Merchant" or "FCM"- means a person who is required to register or is registered as a futures commission merchant as that term is used in the Commodity Exchange Act, and that is required to be registered as such under the Act and Commission Rules.
(n) "Hearing Committee"- means the Hearing Committee established under NFA Bylaw 707.
(m) (o) "Introducing Broker" or "IB"- means a person who is required to register or is registered as an introducing broker as that term is used in the Commodity Exchange Act, and that is required to be registered as such under the Act and Commission Rules.
(n) (p) "Leverage Transaction Merchant" or "LTM"- means a person who is required to register or is registered as a leverage transaction merchant as that term is used in Commission Rules, and that is required to be registered as such under the Commodity Exchange Act and Commission Rules.
(o) (q) "Member"- means a Member of NFA that is required to be registered with the Commission, except a person required to register as a floor broker or floor trader other than a contract market.
(p) (r) "Person"- includes individuals, corporations, limited liability companies, partnerships, trusts, associations and other entities.
(q) (s) "Requirements"- includes any duty, restriction, procedure or standard imposed by a charter, bylaw, rule, regulation, resolution or similar provision.
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Part 2 - RULES GOVERNING THE BUSINESS CONDUCT OF MEMBERS REGISTERED WITH THE COMMISSION
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RULE 2-2. FRAUD AND RELATED MATTERS
No Member or Associate shall:
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(i) Act in any capacity requiring registration under the Act unless the Member or Associate is either registered in that capacity or exempt from registration.
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RULE 2-5. COOPERATION IN NFA INVESTIGATIONS AND PROCEEDINGS.
Each Member and Associate
and person belonging to NFA shall cooperate promptly and fully with NFA in any NFA investigation, inquiry, audit, examination or proceeding regarding compliance with NFA requirements or any NFA disciplinary or arbitration proceeding. Each Member and Associate shall comply with any order issued by the Executive Committee, the Membership Committee, the Business Conduct Committee, the Appeals Committee or any NFA hearing or arbitration panel.
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RULE 2-8. DISCRETIONARY ACCOUNTS.
(a) Grant of Discretion Must Be in Writing.
No Member or Associate
thereof shall exercise discretion over a customer's commodity futures account unless the customer or account controller has authorized the Member or Associate thereof, in writing (by power of attorney or other instrument) to exercise such discretion. No Member or Associate thereof shall exercise discretion with regard to foreign futures or foreign options transactions on behalf of a foreign futures or foreign options customer unless the customer or account controller has specifically authorized the Member or Associate thereof, in writing, to exercise discretion with regard to foreign futures or foreign options transactions. For purposes of this Rule, a person does not exercise discretion where the customer or account controller specifies the commodity, year and delivery month of the contract, the number of contracts, and that the transaction is either to buy or to sell. The Member or Associate does not need written authorization to exercise discretion with regard to time and price only. Each Member must maintain a record or system of records which clearly identifies identify which of the Member's accounts are accounts over which the Member or any Associate thereof has discretionary authority.
(b) Review of Discretionary Trades.
Except where specifically identified as an order for which discretion was not exercised, each commodity futures trade initiated in an account over which any Member or Associate, other than the person in whose name the account is carried, exercises trading authority or control shall be conclusively presumed to have been made pursuant to such trading authority or control. Each futures trade initiated in an account that a Member or Associate has written authorization to trade shall be presumed to have been made pursuant to that trading authorization unless otherwise indicated, in writing, at the time the trade was placed. Each Member initiating such trades (other than a Member who employs only one individual having discretionary authority if that individual is also the only principal who supervises futures activity) must adopt and enforce written procedures:
(1) Which ensure that a partner, officer, director, branch office manager or supervisory employee of the Member (other than any individual who exercises discretion in trading the account) regularly reviews discretionary trading activity; and
(2) Which require such partner, officer, director, branch office manager or supervisory employee to make a written record that such review procedures were performed.
Each Member shall supervise all commodity futures accounts for which the Member (or the Member's Associate) has been authorized to exercise discretion for compliance with applicable provisions of these Rules.
(d) (c) Minimum Experience Requirement.
No Member FCM or IB shall allow an Associate to exercise discretion over a customer's commodity futures account unless that Associate has been continuously registered under the Act for a minimum of two years and has worked in such registered capacity for that period of time. This requirement shall not apply to any individual registered as a CTA. This requirement may, in NFA's discretion, be waived upon a showing that the Associate has equivalent experience. Any Member seeking such a waiver may submit a written request to the Compliance Director and all such requests shall be ruled upon by a three-member panel consisting of three members of the Business Conduct Committee and/or the Hearing Committee, said members to be appointed by the Board from time to time. The decision of the panel shall be final and shall be based upon the written submissions and the views of the Compliance Director. The panel shall communicate its decision to the Compliance Director or a person designated by the Compliance Director, who shall then inform the Member seeking the waiver. An Associate who has been determined to have equivalent experience pursuant to the rules of any contract market Member of NFA having a similar minimum experience requirement shall be deemed to have satisfied the requirements of this Rule.
(e) (d) Third-Party Account Controllers.
No Member FCM shall accept a customer account, and no Member FCM or IB shall introduce a customer account, over which No FCM or IB shall accept an order from a third party, not an Associate of such the FCM or IB, is to exercise discretion without first obtaining a copy of such the account controller's written trading authorization or a written acknowledgment from the customer that such authorization has been given.
(f) (e) Exception.
The provisions of sections (b), (c), and (d)
and (e) of this Rule shall not apply when the individual who owns the account and the individual exercising discretion are members of the same family (a spouse, parent, child, grandparent, grandchild, brother, sister, aunt, uncle, nephew, niece or in-law).
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RULE 2-11. CUSTOMER ACCOUNTS.
No Member FCM, unless a member of a contract market, shall carry customer accounts without prior notice to NFA.
approval from NFA obtained either at the time of registration or prior to a change in the nature of business previously authorized. In order to originate and carry on a business with public customers, Member FCMs are subject to the Financial Requirements of NFA as provided therein.
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RULE 2-12. OMNIBUS ACCOUNTS.
(a) A Member FCM, whether or not a contract market member, carrying omnibus accounts of any kind in commodity futures must maintain with NFA a complete list of all such omnibus accounts, and shall immediately notify NFA when new omnibus accounts are opened and when existing accounts are subsequently closed. Information for each omnibus account must include account name and address, and an indication of the type of account as either house or customer and regulated or unregulated.
(b) Each FCM doing business on an omnibus basis must maintain with NFA a complete list of all FCMs carrying its omnibus accounts, including the addresses of such FCMs, and shall immediately notify NFA of any changes in such information.
RULE 2-13. CPO/CTA REGULATIONS.
(a) Any Member who violates any of CFTC Regulations 4.1 , 4.7, 4.12 and 4.16 through 4.41 shall be deemed to have violated an NFA requirement.
(b) Each Member CPO which delivers or causes to be delivered a Disclosure Document under CFTC Regulation 4.21 must include in the Disclosure Document a break-even analysis which includes a tabular presentation of fees and expenses. The break-even analysis must be presented in the manner prescribed by NFA's Board of Directors and must be accurate as of the date of the Disclosure Document.
(c) Each Member required to file any document with or give notice to the CFTC under CFTC Regulations 4.7, 4.12, 4.22, 4.26 or 4.36 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. Any CPO Member may file with NFA a request for an extension of time in which to file the annual report required by CFTC Regulation 4.22(c) or a request for approval of a change to its fiscal-year election
by following the procedures set forth in NFA Financial Requirements Schedule E.
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RULE 2-14. COMPLIANCE JURISDICTION.
Any Member or Associate who violates or fails to comply with any NFA requirement shall be subject to appropriate Member or Associate Responsibility Action
(See Rule 3-12) or disciplinary action, or both, in accordance with these rules.
RULE 2-15. WRITTEN OPTION PROCEDURES.
Each Member FCM or IB which engages in the offer or sale of commodity options traded on or subject to the rules of a contract market must adopt and enforce written procedures:
(a) which will enable such Member or FCM or IB to supervise adequately each option customer's account, including but not limited to, the complaints received by such FCM or IB or any such account and the handling of complaints received by such FCM or IB relating to any such account (for purposes of this subsection (a) the term "option customer" does not include an FCM or IB);
(b) which will enable such Member FCM to allocate notices of exercise received by such FCM in a fair and nonpreferential manner, and promptly notify the appropriate grantor of such allocation; and
(c) which will enable such Member FCM or IB to monitor adequately the solicitation and sale of deep-out-of-the-money options.
RULE 2-16. OPTION SALES COMMUNICATIONS.
No Member or Associate shall employ fraudulent or high pressure sales communications relating to the offer or sale of commodity options trade on or subject to the rules of a contract market.
RULE 2-17. PAYMENT OF OPTION PREMIUMS.
Any Member FCM which accepts an order from a customer to purchase a commodity option traded on or subject to the rules of a contract market shall receive from such customer the full amount of each option premium within the time prescribed for the receipt of such premium by the rules of the contract market on which the option is traded.
RULE 2-18. OPTION CUSTOMER COMPLAINTS.
With respect to all written option customer complaints each Member FCM or IB which engaged in the offer or sale of commodity options traded on or subject to the rules of a contract market shall:
(a) Retain all such written complaints; and
(b) Make and retain of record of the date the complaint was received, the Associate who serviced the account, a general description of the matter complained of, and what, if any, action was taken in regard to the complaint.
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RULE 2-26. FCM AND IB REGULATIONS.
Any Member or Associate who violates any of CFTC Regulations 1.33, 1.55,
or 1.56 or 1.65 shall be deemed to have violated an NFA Requirement. Any Member IB who violates CFTC Regulation 1.57 shall be deemed to have violated an NFA Requirement.
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RULE 2-29. COMMUNICATIONS WITH THE PUBLIC AND PROMOTIONAL MATERIAL.
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(c) Hypothetical Results.
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(4) No Member or Associate may use promotional material which includes a measurement or description of or makes any reference to hypothetical performance results which could have been achieved had a particular trading system of the Member or Associate been employed in the past if the Member or Associate has three months of actual trading results for that system.
(4) (5) Any Member or Associate utilizing promotional material containing hypothetical performance results must adhere to all the requirements contained in the Board's Interpretive Notice relating to this issue. [See Interpretive Notice at ¶ 9025.]
(5) (6) These restrictions on the use of hypothetical trading results shall not apply to promotional material directed exclusively to persons who meet the standards of a "Qualified Eligible Participant" under CFTC Regulation 4.7.
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Copies of all promotional material along with a record of review and approval required under paragraph (e) of this Rule and supporting materials for any results described under paragraphs (b)(5) or (c) of this Rule must be maintained by each Member and be available for examination for
a period of three years from the periods specified in CFTC Regulation 1.31, measured from the date of the last use. Each Member who uses promotional material of the types described in paragraph (b)(5) or (c) of this Rule shall demonstrate the basis for any hypothetical any reported results to NFA upon request.
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(1) For purposes of this Rule "promotional material" includes:
(1)(i) Any text of a standardized oral presentation, or any communication for publication in any newspaper, magazine or similar medium, or for broadcast over television, radio, or other electronic medium, which is disseminated or directed to the public concerning a futures account, agreement or transaction; (2) (ii) any standardized form of report, letter, circular, memorandum or publication which is dissemninated or directed to the public; and (3) (iii) any other written material dissemnated or directed to the public for the purpose of soliciting a futures account, agreement or transaction.
(2) "Futures account, agreement or transaction" includes futures accounts and orders, commodity pool participations, agreements to direct or guide trading in futures accounts, and agreements and transactions involving the sale, through publications or otherwise, of non-personalized trading advice concerning futures.