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November 21, 2000
Explanation of Proposed Amendments
A) Explanation of Proposed Amendments to NFA Bylaws 514 and 708(b) and Compliance Rule 2-29(c)(6):
As you are aware, the Commission recently adopted amendments to CFTC Regulation 1.59 that require self-regulatory organizations to adopt rules treating functional equivalents of board and committee members as board and committee members for purposes of prohibiting them from misusing or disclosing material, non-public information. The proposed amendments to NFA Bylaws 514 and 708(b) extend the current prohibitions for Board and committee members to their functional equivalents.
NFA's rules do not govern the conduct of consultants and independent contractors. However, NFA will make it a practice to include a prohibition against misusing or disclosing material, non-public information in its agreement with any consultant or independent contractor that has access to such information.
The Commission also adopted amendments to CFTC Regulation 4.7 to expand the definitions of "Qualified Eligible Participants" and "Qualified Eligible Clients" and to harmonize those definitions. As a result, the Commission eliminated the two definitions and merged them into a new definition of "Qualified Eligible Persons." The proposed amendment to NFA Compliance Rule 2-29(c)(6) uses the new term "Qualified Eligible Persons."
B) Explanation of Proposed Amendments to NFA Bylaw 1303:
Currently under NFA Bylaw 1303, if an NFA Member fails to pay annual NFA dues, assessments or audit fees, NFA must institute an action to suspend its membership and six months later send notice of its termination. This cumbersome process also results in, among other things, an entry in the BASIC system that looks like a disciplinary action and is a reportable matter on their registration forms, even though there is no disciplinary action.
The Board felt that these problems could be avoided by adopting the more streamlined procedures used with respect to the payment of registration fees. If a registrant fails to send in its registration fee, it is deemed a request to withdraw from registration. After a period of time and after notice to it, if the firm does not pay the required fee, its registration, as well as its membership, is withdrawn. There is no BASIC entry, and there is no matter for the firm to report if the firm reapplies for registration.
The proposed amendment to Bylaw 1303 replaces the current suspension/termination procedure with the more efficient and effective request-to-withdraw procedure, as described above.