Notices to Members

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Notice I-19-09

March 25, 2019

NFA Amends Rules and Adopts Interpretive Notice Implementing Swaps Proficiency Requirements

NFA recently amended NFA Bylaw 301 and NFA Compliance Rule 2-24 and adopted a new Interpretive Notice entitled NFA Bylaw 301 and Compliance Rule 2-24: Proficiency Requirements for Swap APs to implement NFA's Swaps Proficiency Requirements.

Applicability to Swap APs at FCMs, IBs, CPOs and CTAs

NFA Bylaw 301(l) currently requires futures commission merchant (FCM), introducing broker (IB), commodity pool operator (CPO) and commodity trading advisor (CTA) Members engaged in CFTC regulated swaps activities, and registered associated persons (AP) of those Members whose activities involve CFTC regulated swaps, to be approved by NFA as a swap firm or swap AP, respectively. NFA amended NFA Bylaw 301(l) to specify that any individual seeking approval as an FCM, IB, CPO or CTA Member swap firm or as a swap AP of an FCM, IB, CPO or CTA Member must take and pass NFA's Swaps Proficiency Requirements.

NFA also amended NFA Compliance Rule 2-24 to prohibit an FCM, IB, CPO or CTA Member from having any person engaging in CFTC regulated swaps associated with it that has not satisfied NFA's Swaps Proficiency Requirements.

Applicability to SDs

Individuals acting as APs at NFA Member swap dealers (SD) are not NFA Associate Members subject to NFA's jurisdiction. Therefore, NFA is not imposing these requirements directly on individuals acting as APs at SDs. However, NFA amended NFA Compliance Rule 2-24 to prohibit an SD Member from having any person associated with it who is acting as an AP (as defined by CFTC Regulation 1.3) that has not satisfied NFA's Swaps Proficiency Requirements.

Applicability to Non-U.S. APs

The Interpretive Notice excludes certain individuals acting as APs at SDs located outside the U.S., including non-U.S. branch offices of U.S. SDs, from NFA's Swaps Proficiency Requirements. Specifically, those individuals who limit their swap related activities to counterparties that are non-U.S. persons and/or non-U.S. branch offices of a U.S. SD are not required to satisfy NFA's Swaps Proficiency Requirements.

Effective Date and Timing

These new requirements will become effective on January 31, 2020. The Interpretive Notice sets out the implementation schedule for NFA's Swaps Proficiency Requirements. In particular, individuals who are approved as swap APs at an FCM, IB, CPO or CTA Member firm or acting as an AP at an SD on January 31, 2021 (the Compliance date) must have satisfied NFA's Swaps Proficiency Requirements to remain approved as a swap AP or continue working as an AP at an SD after this date. Since NFA intends to allow individuals to begin satisfying the Swaps Proficiency Requirements in January 2020, this will provide current registered APs engaging in swaps activities and individuals acting as APs at SDs an entire year to complete the requirements. Subsequent to January 31, 2021, any individual who wants to engage in swaps activity will need to satisfy NFA's Swaps Proficiency Requirements prior to being approved as a swap AP at an FCM, IB, CPO or CTA Member or acting as an AP at an SD.

Two-Track Approach

The Interpretive Notice establishes two proficiency tracks—a Long Track, which is designed for APs at SDs, and a Short Track, which is primarily designed for APs at FCMs, IBs, CPOs and CTAs. The Interpretive Notice also acknowledges that some individuals acting as APs at SDs may perform more limited functions and provides guidance on when an AP at an SD would adequately satisfy NFA's Swaps Proficiency Requirements by completing the Short Track. NFA is not in any way expanding or altering the definition of AP under CFTC Regulation 1.3. SD Members should refer to that definition when identifying individuals that must satisfy NFA's Swaps Proficiency Requirements.

Frequently Asked Questions and Member Education

NFA developed Frequently Asked Questions (FAQ) regarding the implementation of the Swaps Proficiency Requirements. NFA will continue to update the FAQs as additional operational and technical information is finalized.

In addition, NFA discussed these amendments and the new Interpretive Notice during Member workshops held in February. Access the workshop materials. NFA will provide further Member education on these requirements to ensure that Members understand their obligations.

More information on the amended rules and the Interpretive Notice is available in NFA's March 5, 2019 submission letter to the CFTC. If you have any questions regarding these amendments please contact Lauren Brinati, Managing Director, Market Regulation (lbrinati@nfa.futures.org or 312-781-1495), Sudhir Jain, Director, OTC Derivatives (sjain@nfa.futures.org or 212-513-6080), or Julia Wood, Senior Attorney (jlwood@nfa.futures.org or 312-781-7459).

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