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Proposed Interpretive Notice
NFA COMPLIANCE RULE 2-4: BROKER-DEALER REGISTRATION REQUIREMENTS FOR SECURITY FUTURES PRODUCTS
The Commodity Futures Modernization Act of 2000 (CFMA), which was signed into law on December 21, 2000, amended the Commodity Exchange Act (CEA) to lift the ban on single-stock futures and narrow-based security indices ("security futures products"). Under the CFMA, security futures products are securities as well as futures and, therefore, trading in these products is subject to regulatory schemes in both the futures and securities industries, including registration requirements. As a result, NFA Member FCMs and IBs that solicit or accept orders or carry accounts for security futures products are also required to be registered as broker-dealers under the Securities Exchange Act of 1934 (Exchange Act). NFA Member FCMs and IBs that are not fully registered broker-dealers may fulfill the broker-dealer registration requirement through notice registration by filing Form BD-N with NFA.
NFA Compliance Rule 2-4 requires all Members and Associates to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their commodity futures business. This includes the requirement that Members abide by all applicable state and federal laws and regulations governing their commodity futures business, including security futures products. It is a violation of NFA Compliance Rule 2-4 for an NFA Member FCM or IB to solicit or accept orders, carry accounts, or otherwise act as a broker-dealer for security futures products unless the Member is properly registered either as a full broker-dealer under Section 15(b)(1) or as a notice registered broker-dealer under Section 15(b)(11) of the Exchange Act.