Notices to Members

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Notice I-07-24

May 15, 2007

Effective Date of Amendments to Financial Requirements Section 11 and the Related Interpretive Notice Regarding Forex Transactions

NFA has received notice that the Commodity Futures Trading Commission ("CFTC") has approved amendments to Financial Requirements Section 11: Forex Dealer Member Financial Requirements [hyperlink updated 1/22/2022] and related amendments to the Interpretive Notice entitled "Forex Transactions ." [hyperlink updated 1/22/2022] The amended requirement and Interpretive Notice became effective on May 7, 2007.

Forex Dealer Members ("FDMs") are subject to a concentration charge when an FDM's net positions with a counterparty exceed 10% of its total long or short positions in a particular currency. Under Section 11(b) of NFA's Financial Requirements, the concentration charge is applicable to transactions with all unaffiliated unregulated counterparties, including customers of an FDM. The amended requirement permits an FDM to reduce the concentration charge by the net liquidating value of the off-exchange foreign currency account and by excess funds in any regulated commodity accounts, i.e., segregated accounts or secured funds accounts, held by the FDM for the customer subject to the concentration charge. An FDM is not required to take the offset, however, but may continue to calculate the concentration charge in the current manner if it chooses.

Excess funds in a regulated account are that portion of the net liquidating value of the account in excess of any margin requirements. To use excess funds in the customer's regulated commodity accounts the FDM must have the right under an agreement with the customer to apply excess funds in these accounts to meet any losses incurred in the customer's off-exchange foreign currency account.

Regardless of whether the customer's assets are in a regulated commodity account or an off-exchange foreign currency account, the concentration charge can only be reduced by the value of the assets under CFTC Rule 1.17 when calculating adjusted net capital. In other words, in determining the net liquidating value or excess funds of a customer's account, the assets in the account are subject to the same haircuts as they are under CFTC Rule 1.17. The Interpretive Notice has been amended to provide an example of how to calculate the concentration charge when reducing the charge pursuant to the amended requirement.

The amendments to Financial Requirements Section 11 and the changes to the Interpretive Notice are included in the February 23, 2007, submission letter to the CFTC. That letter also provides a more detailed explanation of the new requirements. You can access an electronic copy of the submission letter through this link: National Futures Association | News Center.

NFA is continuing to review the concentration charge under Financial Requirements Section 11. NFA sent all FDMs a Request for Comments on proposed changes to the concentration charge, and comments were due by May 4, 2007. We will, however, consider late comments if they are received in the near future.

Questions concerning these changes or the concentration charge proposal should be directed to Sharon Pendleton, Director, Compliance, ( or 312-658-6540) or Lauren Brinati, Field Supervisor, Compliance ( or 312-658-6585).

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