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NFA Manual / Rules

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NFA's Functions Explained



NFA STRUCTURE

Board of Directors.

NFA's Board of Directors is composed of 28 directors as follows:

Four exchange members of NFA are represented on the Board. In the event that there are four or less contract market Members having annual transaction volume during the prior calendar year of more than 1,000,000, then one representative of each such contract market Member. In the event that there are more than four contract market Members having annual transaction volume during the prior calendar year of more than 1,000,000, there will be one representative of each contract market Member ranked in the top three contract market Members based on annual transaction volume during the previous year. The other representative will come from all other contract market Members having annual transaction volume during the prior calendar year of more than 1,000,000.

Eight directors represent FCM Members of NFA. At least two FCM representatives would come from the top ten FCMs based on the amount of segregated funds and secured amount, and at least two FCM representatives would not come from the top ten FCMs based on the amount of segregated funds and secured amount.

Two directors represent IB Members of NFA; one IB director would be an independent IB and the second, a guaranteed IB.

Four directors represent CPO/CTA Members of NFA. At least two directors would be affiliated with either CPOs or CTAs that are ranked in the top 20% of funds under management allocated to futures.

Finally, ten seats are held by "public" directors (i.e., individuals who meet the definition of "public director" set forth in section (b)(2) of Core Principle 15 in Appendix B to Part 38 of the CFTC's regulations).

Executive Committee.

While all decisions about Bylaws, budgets, funding, plans and priorities are made by the full NFA board, it is too large to serve as the daily overseer of NFA management. Thus, an Executive Committee has been created to perform that function.

The Executive Committee has 12 members comprised of NFA's President (who is an ex officio, non-voting member) and 11 directors, including Chairman of the Board (who also represents his membership category). Two directors represent exchange Members. Three directors represent FCMs and IBs. There are two representatives from the CPO/CTA category. Finally, four public directors serve on the Committee.

Because the Executive Committee is organized along category lines, the members are elected by the directors in that particular category. The public directors on the Committee, however, are elected by the full Board.

Election to the Board.

The Board (except as defined below) is elected by the Members of NFA at an Annual Election held in January of each year.

The representatives of the contract market members are selected by the contract markets they represent.

In the case of other directors (except the public directors), candidates can emerge from three sources. First, NFA's Nominating Committee presents a slate of candidates. Second, 50 or more NFA Members in a particular category can nominate a candidate in that category by filing a petition. Third, any association recognized by NFA as fairly representing a particular category of Members may nominate candidates in that category.

Nominees receiving a plurality of votes in their respective category (e.g., the FCM directors are elected solely by the FCM Members) are elected. A person that is a "dual" Member of NFA (e.g., a firm that is both a CTA and a CPO) is permitted to vote only in that category to which its business activities primarily relate.

The Public directors are elected by the full Board from a list of candidates nominated by the Members.

Each elected director serves a two-year term. The terms of the members of the initial Board elected by the membership in 2002 were staggered, however, to assure continuity. In the exchange category, each representative serves a one-year term, from the date of the Board's regular annual meeting following the Annual Election.

Mandatory Membership.

In 1978, Congress amended Section 17 of the Commodity Exchange Act expressly to permit NFA to have rules requiring mandatory membership. NFA's Articles of Incorporation seek to achieve this result with respect to certain futures professionals. Basically, the Articles as implemented by Bylaw 1101 prohibit a Member of NFA from accepting futures orders from another person (except a direct customer) unless that other person is a member of either NFA or another registered futures association.1 The requirement focuses on the flow of customer orders and, in effect, interrupts that flow if an ineligible person becomes involved. NFA Compliance Rule 2-36 imposes a similar requirement on Members.2 for forex related transactions.

One exception to the requirement is the handling of orders by floor brokers. Floor brokers and floor traders are regulated by the exchange where they conduct business, not by NFA. Thus, floor brokers and floor traders are not compelled to join NFA in order to accept futures orders for execution. However, from the point of order origination (i.e., the first FCM, IB, CTA or CPO) until the order reaches a floor broker for execution, only eligible persons may participate in that order flow.


1 In addition, CFTC Rule 170.15 requires that every FCM required to register as such must be a member of a registered futures association.

2CFTC Rule 5.22 requires RFEDs, IBs, CPOs and CTAs dealing in forex to be a member of a registered futures association.

 
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