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July 21, 2010
Amendments to NFA Financial Requirements for Forex Dealer Members
Amendments to NFA Financial Requirements Section 11(b) and (c) and its related Interpretive Notice will become effective October 1, 2010. Section 11(b) and (c) prohibit a Forex Dealer Member ("FDM") from including assets as current for purposes of determining adjusted net capital and from using those assets to cover currency positions if the assets are held at an affiliate or an unregulated person. An unregulated person is defined by the rule to include any entity except those specifically excluded. Prior to the amendments, the following entities, as well as entities regulated as foreign equivalents, were excluded from the definition of an unregulated person:
- a financial institution regulated by a U.S. banking regulator;
- a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority;
- a futures commission merchant registered with the U.S. Commodity Futures Trading Commission and a Member of NFA;
- a retail foreign exchange dealer registered with the U.S. Commodity Futures Trading Commission and a Member of NFA;
- an insurance company regulated by any U.S. state.
The amendments remove regulated foreign equivalents from this list. Therefore, FDMs will no longer be able to treat assets held at regulated foreign equivalents of the above entities as current for purposes of determining their adjusted net capital or to cover currency positions.
Notwithstanding this, the amendments will continue to permit NFA to approve the use of certain foreign equivalent entities that are appropriately regulated and capitalized. Please refer to Section (C)(3) of the related Interpretive Notice, 9053-Forex Transactions, which lists the factors NFA considers when determining whether to approve an otherwise unregulated entity for purposes of Financial Requirements Section 11(b) and (c).
More information on NFA's amendment to NFA Financial Requirements Section 11(b) and (c) as well as the related Interpretive Notice can be found in NFA's February 22, 2010 Submission Letter to the CFTC. Questions concerning these changes should be directed to Lauren Brinati, Associate Director, Compliance (firstname.lastname@example.org or 312-781-1215) or Laurie Gavin, Senior Manager, Compliance (email@example.com or 212-513-6017).