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Interpretive Notices



9058 - NFA COMPLIANCE RULE 2-40: PROCEDURES FOR THE BULK ASSIGNMENT OR LIQUIDATION OF FOREX POSITIONS; CESSATION OF CUSTOMER BUSINESS
(Board of Directors, November 16, 2006; effective February 16, 2007. Revised October 18, 2010; October 1, 2011; November 15, 2011; and July 26, 2012.)

INTERPRETIVE NOTICE

In addition to the requirements of CFTC Regulation 5.23, a Forex Dealer Member ("FDM") must follow these procedures when seeking to employ a bulk assignment or liquidation of its customer's positions or a bulk transfer of customer accounts. NFA may waive or modify any of these procedures or impose additional requirements if doing so is in the FDM's customers' best interest or if the circumstances otherwise require.

BULK ASSIGNMENTS AND TRANSFERS

Permitted Assignees

An FDM must notify NFA's Compliance Department ("Compliance") prior to any bulk assignment of customer positions or bulk transfer of customer accounts. An FDM may only assign open positions to an entity that is an authorized counterparty enumerated in Section 2(c)(2)(B)(i)(ll) of the Act, provided that entity is not prohibited from acting as a counterparty under 2(c)2(E) of the Act. Prior to the assignment or transfer, the FDM must conduct a reasonable investigation and determine that the assignee intends and is financially able to honor its commitments to the FDM's customers as a result of the assignment or transfer. The FDM must document this investigation and provide this information to NFA.

Written Consent or Prior Notice

An FDM may assign customer positions and transfer customer accounts to an authorized counterparty with the express written consent of its customers. Alternatively, an FDM may assign open positions and transfer accounts by providing its customers with prior notice. The FDM must send NFA's Compliance Department a copy of this notice before the notice is sent to customers.

    Notice to Customers
    The notice should be sent to the customer's independent e-mail address (not a dedicated address provided by the Forex Dealer Member) and by postal mail (at least first class delivery). Generally, the FDM must provide this notice at least seven calendar days before the assignment or transfer. In rare and unusual circumstances, NFA's Compliance Department might determine that a shorter notice period is appropriate. Additionally, there might be circumstances in which the Compliance Department determines that a longer notice period is required.

    The notice should include any information that is material based upon the specific circumstances of the assignment or transfer. At a minimum, the notice must include:

      1. The reason for the assignment/transfer;

      2. A clear and concise statement that as of a particular date (the assignment/transfer date, which should not be less than seven calendar days after the date of the notice) the FDM will no longer be the counterparty to the customer's positions and will not service the customer's account;

      3. The name, NFA ID (if applicable), postal and e-mail addresses, and telephone number of the proposed assignee/transferee as well as the name of an individual at the assignee/transferee the customer can contact about the proposed assignment/transfer;

      4. A statement that the customer is not required to accept the proposed assignment/transfer but may direct the assignor/ transferor FDM to liquidate the customer's positions;

      5. The name, postal and e-mail address, and telephone number of an individual at the assignor/transferor FDM the customer can contact with questions or to liquidate positions; and

      6. A statement that failure to respond to the notice within a specified period of time, not less than seven days from the date of the notice, will result in a default action, which must be either (A) assigning the customer's positions and transferring account balances to the assignee (if authorized by contract) or (B) liquidating the customer's positions and returning the remaining funds, whichever is the case.

    Where the customer positions and accounts are being assigned/transferred to a firm that is not an NFA Member, the notice must include the following disclosure:

      YOUR POSITIONS AND ACCOUNT WILL BE ASSIGNED TO A FIRM THAT IS NOT A MEMBER OF NATIONAL FUTURES ASSOCIATION (NFA), IS NOT REGULATED BY NFA, AND IS NOT REQUIRED TO COMPLY WITH NFA's RULES.

    Obligations of the Assignee/Transferee

    If forex positions or accounts are assigned or transferred to an FDM or an IB, the assignee/transferee FDM or IB may not accept orders initiating new positions until it obtains the personal and financial information pertaining to the retail forex customer that is required under Compliance Rule 2-36 from either the retail forex customer or the assignor/transferor FDM or IB.

    In addition to the disclosures required by CFTC Regulation 5.23, the assignee/transferee FDM or IB must also provide the retail forex customer with the disclosures required under CFTC Regulation 5.5(e)((1)(i)-(iii) with respect to the assignee/transferee FDM (prior to accepting any orders initiating new positions) and must receive the required signed acknowledgement within sixty days of such assignment or transfer. The only exception to this requirement is when the assignee/transferee IB introduces the retail forex customer to the same FDM as the assignor/transferor IB and the assignee/transferee IB has clear written evidence that the assignor/transferor IB provided the retail forex customer with these disclosures with respect to the FDM.

    Finally, the assignee/transferee FDM or IB must provide the disclosure required under 5.5(e)(1)(i)-(iii) with respect to the transferee FDM even in those situations when the assignment or transfer is at the retail forex customer’s request.

    BULK LIQUIDATIONS

    An FDM must notify NFA's Compliance Department prior to any bulk liquidation of customer positions. An FDM may liquidate customer positions with the express written consent of its customers. Alternatively, an FDM may liquidate customer positions by providing its customers with prior notice of the liquidation. The FDM must send NFA's Compliance Department a copy of this notice before the notice is sent to customers.

      Notice to Customers

      The notice should be sent to the customer's independent e-mail address (not a dedicated address provided by the Forex Dealer Member) and by postal mail (at least first class delivery). Generally, the FDM must provide this notice at least seven calendar days before the liquidation. In rare and unusual circumstances, NFA's Compliance Department might determine that a shorter notice period is appropriate. Additionally, there might be circumstances in which the Compliance Department determines that a longer notice period is required.

      The notice should include any information that is material based upon the specific circumstances of the liquidation. At a minimum, the notice must include:

        1. The reason for the liquidation;

        2. A clear and concise statement that as of a particular date (the liquidation date, which should not be less than seven calendar days after the date of the notice) the FDM will liquidate all open positions in the customer's account and close the account; and

        3. The name, postal and e-mail address, and telephone number of an individual at the FDM the customer can contact with questions regarding the liquidation.

    RECORDS

    For a bulk assignment, liquidation, or transfer, the assignor/transferor FDM and the assignee/transferee FDM must provide NFA's Compliance Department with all pertinent records pertaining to the transaction, including at a minimum:

    (A) At the time that the assignor/transferor FDM first contacts NFA's Compliance Department, the assignor/transferor FDM must provide:

      1. representative copies of the customer agreements;
      2. a list of the affected accounts, including:
        a. customer names;
        b. account numbers; and
        c. account values as of the end of the previous day;
      3. if an assignment or transfer, documentation regarding the assignor/transferor FDM's investigation of the assignee/transferee's status as an authorized counterparty and its financial ability to honor its commitments to the customers.

    (B) Immediately after the bulk assignment, liquidation, or transfer, the assignee/transferee FDM must provide a list of the affected accounts and the value of each account as of the date of the transaction.

       
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