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September 30, 2014
Effective Date of Amendments to NFA Financial Requirements Section 14 Regarding Use of Technology to Monitor FDM Forex Customer Liability Requirements
NFA Financial Requirements Section 14 requires FDMs to calculate daily the amount owed to customers for forex transactions and hold assets equal to or in excess of that amount in a qualifying institution in the U.S. or money center country (forex funds depository). NFA recently amended NFA Financial Requirements Section 14 to require FDMs to instruct any forex funds depository holding these funds to report the balances in these accounts on a daily basis to NFA or a third party designated by NFA. The amendment also provides that the forex funds depository must comply with this request in order to be an acceptable depository for retail forex assets.
As previously communicated to FDMs, NFA has partnered with CME Group Inc. (CME) to collect these balance reports from forex funds depositories via the SWIFT network. NFA has also developed an internal system to collect these reports from forex funds depositories that do not have access to the SWIFT network. Over the last several weeks, NFA has been working closely with FDMs and their bank depositories to ensure that those banks have established connectivity with CME, or NFA directly, to report the daily balances.
Although Financial Requirements Section 14 applies to all depositories holding assets used to cover retail forex customer liabilities, NFA is implementing the process in phases. The first phase, which requires bank depositories to report end-of-day cash balances, is effective for close of business October 15, 2014 beginning with reporting on October 16, 2014. As a result, FDMs must ensure that all banks holding funds to cover the amount owed to customers for forex transactions report the end-of-day balances in those accounts to CME or NFA directly beginning with October 15, 2014 balances in order to be considered an acceptable depository for assets used to cover retail forex customer liabilities. Any FDM with concerns regarding this requirement should contact NFA to resolve the matter.
Although the first phase is limited to banks, NFA intends to expand the requirements over the next several months to require all fund depositories, including prime brokers, to report all balances for accounts holding assets being used to cover an FDM's liability to its retail forex customers. NFA will provide FDMs with sufficient advance notice before phasing in other depositories and reporting requirements and will of course work with the FDM and depository communities in implementing the requirements.