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Notice I-15-15

May 29, 2015

Proposed amendments to NFA's Articles of Incorporation relating to NFA's Governance

Important: Ballot Enclosed - Must Be Received by June 19, 2015

INTRODUCTION

On May 21, 2015, NFA's Board of Directors (Board) unanimously approved amendments to NFA's Articles of Incorporation (Articles). These changes were made at the recommendation of the Board-appointed Special Committee on NFA Governance (Special Committee) and reduce the size of the Board; eliminate special voting rules for Board actions; allow the non-Member nomination of Public Directors and the election of Public Directors to the Executive Committee by the Public Directors; move the Director removal provisions currently in NFA's Bylaws to the Articles; and make other technical amendments.

EXPLANATION OF AMENDMENTS

Board Structure and Composition

(Article VII, Sections 2 and 2A)

NFA's current Board consists of 35 Directors and under the current Articles will have 37 Directors in February 2016. In February 2015, NFA's Board charged the Special Committee with conducting a review of the Board's structure and with making recommendations regarding reducing the size of the Board, incorporating Bylaw 503 relating to removal of a Director into NFA's Articles and such other governance issues as the Special Committee feels appropriate. The Special Committee made a report to the Board on May 21, 2015 and the Board approved to reduce its size to 29 Directors and made the following changes to accomplish this result:

  • Both FCM and SD/MSP/RFED representation will be reduced from 7 to 5 Directors, providing for two Directors from large firms, two from smaller firms and one at-large seat in each category. In addition, the requirement that one seat in the SD/MSP/RFED category be allocated to an MSP is eliminated. NFA currently has only one MSP and rather than continue to reserve a directorship for MSPs, the Nominating Committee will seek to nominate candidates for the at-large SD/MSP/RFED seat representing diverse business interests;

  • The number of CPO/CTA seats will be reduced from 5 to 4 Directors and allocated as follows: (i) at least one representative of CPOs or CTAs ranked within the top 5%; and (ii) at least one representative of CPOs or CTAs ranked within the top 10% of CPOs or CTAs reporting any funds under management allocated to futures and swaps;

  • The number of seats allocated to guaranteed and independent IBs remains at 1 each;

  • The number of seats allocated to Member exchanges remains at 3, with two larger and one smaller exchange; and

  • The number of Public Director seats will be reduced from 13 to 10.

The following chart compares NFA's Board in February 2016 and proposed restructured Board by category:

FCMSD/MSP/RFEDCPO/CTAIBContract MarketPublicTotal
Current Board775231337
Proposed Board554231029

NFA's Board plans to implement the new Board structure in February 2016 when all current Directors' terms will end and new Directors will be elected. The terms of the new Member Director positions will be staggered as determined by the Subcommittees of the Nominating Committee and by the Board for the election of Public Directors. (Article VII, Section 4)

Additionally, the Board voted to eliminate its special voting rules adopted in 2012 when the Board integrated Swap Participants into NFA's governance. The special voting rules require that to pass any measure the affirmative vote of a majority of (a) the Directors; (b) the combined SD, MSP and RFED Directors and Public Representatives; and (c) the combined Contract Market, FCM, LTM, IB, CPO and CTA Directors and Public Representatives present and voting at a meeting is required. By eliminating these special voting rules, the Board will return to its prior rule requiring passage of any measure, unless otherwise provided by the Articles, by the affirmative vote of a majority of Directors present and voting. (Article VII, Section 5)

Election Process for Public Directors

Over the years, NFA has consistently had Public Directors with outstanding credentials and their contributions to NFA have been enormous. A Public Director candidate must be knowledgeable of the markets and the Members regulated by NFA and sufficiently independent of NFA to provide impartial, objective analysis of the issues that come before the Board. Since Public Directors bring the perspective of non-Members to the Board, the Special Committee recommended and the Board approved revising the Articles to allow Public Directors to be nominated by non-NFA Members. (Article VII, Section 3)

Moreover, with the exception of Public Directors, each category on the Board elects it own representatives to NFA's Executive Committee. Public Directors on the Executive Committee are elected by the entire Board. The Board determined that there is no reason for this disparate treatment and approved the recommendation to allow the Public Director representatives on the Executive Committee to be elected by NFA's Public Directors rather than by the entire Board. (Article VIII, Section 4)

Removal of a Director

(Article VII, Sections 9 and 10)

Since NFA's inception, NFA Bylaw 503 has provided that the Board has the authority to remove a Director whenever, in the judgment of the Board, the best interests of NFA will be served thereby. Since 1990, Bylaw 503(b) has provided that upon the recommendation of the Executive Committee, any Director may be removed by two-thirds of the Directors present and voting at a duly convened meeting of the Board. NFA's outside Delaware corporate counsel has advised that this authority should be specified in NFA's Articles rather than in the Bylaws. The Board approved amendments to NFA's Articles that move the Director removal provisions currently found in NFA Bylaw 503 to Article VII. These amendments also provide that a Director removed by the Board is ineligible to serve as a Director in the future.

Miscellaneous Amendments

A number of technical amendments to the Articles are necessary.

THE PROPOSED AMENDMENTS

NFA's Board approved amendments to the following: Article III, Sections 1 and 2 (Purposes); Article VII, Sections 2, 2A, 3, 4, 5, 9, and 10 (Board of Directors); Article VIII, Sections 2, 3, and 4 (Executive Committee); Article X, Section 2 (Nominating Committee); Article XI, Section 1 (Bylaws); Article XVI, Section 1 (Miscellaneous); Article XVII (Adoption, Amendment and Repeal of Articles); and Article XVIII (Definitions) as described above.

To review the amendments to these Articles, NFA has posted this Notice to Members on its website, www.nfa.futures.org and for reference purposes attached to the online Notice are the proposed amendments to the Articles.

ACTION STEPS

Amendments to NFA's Articles require the affirmative vote of a majority of those Members actually voting in each Member category—Contract Market, FCM/IB, CPO/CTA, and SD/MSP/RFED.

All ballots must be completed and mailed to Grant Thornton LLC in the postage-paid, pre-addressed envelope that is enclosed. The ballot must be received by Grant Thornton no later than June 19, 2015. Ballots which are either received after June 19, 2015 or submitted in an envelope other than the one provided will be considered void.

If you do not have the return envelope or have any questions, please contact Christine Makino at (312) 781-1391 or Margaret Vandermyde at (312) 781-1435.

NATIONAL FUTURES ASSOCIATION

BALLOT

AMENDMENTS TO NFA'S ARTICLES OF INCORPORATION

The amendments to the following NFA Articles of Incorporation change the structure and composition of NFA's Board of Directors; eliminate the special voting rules for Board actions; allow the nomination of Public Directors by non-NFA Members; provide that Public Director representatives on the Executive Committee shall be elected by the Public Directors rather than by the entire Board; and add to the Articles the Director removal provisions which are currently found in NFA's Bylaws.

Article III, Sections 1 and 2
Article VII, Sections 2, 2A, 3, 4, 5, 9 and 10
Article VIII, Sections 2, 3, and 4
Article X, Section 2
Article XI, Section 1
Article XVI, Section 1
Article XVII
Article XVIII

APPROVE

DISAPPROVE

THIS BALLOT MUST BE MAILED TO GRANT THORNTON LLC IN THE PROVIDED PRE-ADDRESSED, POSTAGE PAID ENVELOPE.

THE BALLOT MUST BE RECEIVED BY GRANT THORNTON LLC NO LATER THAN JUNE 19, 2015.

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