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Notice I-23-02

January 10, 2023

Executive Representative Reminder and Proposed Amendments to NFA's Articles of Incorporation Relating to NFA's Governance

Executive Representative Reminder

As discussed more fully below, NFA's Board of Directors (Board) recently approved unanimously amendments to NFA's Articles of Incorporation (Articles). NFA's Articles require that these amendments be submitted to a vote of the Members and adopted upon the affirmative vote of the majority of those Members that cast a vote in each Member Category—FCM/IB, CPO/CTA, SD/MSP/RFED and Contract Market. NFA utilizes an electronic voting process for Member approval of amendments to NFA's Articles. NFA has engaged Corporate Election Services (CES) to administer the electronic voting process. To facilitate the electronic voting process, CES will send the voting materials to each Member's designated Executive Representative who has the Member's sole authority to sign and complete proxy cards and provide voting instructions and cast votes on behalf of the Member.

If a Member has already designated an Executive Representative, it is not necessary to do so again unless the person designated as the Executive Representative has changed. Any Member that needs to designate or change its Executive Representative should do so through NFA's website by accessing NFA's Executive Representative Contact form found on NFA's Electronic Filing Systems page. Only firm employees who are Security Manager(s) or are authorized to "View, Update, and File" information in ORS may complete this form. Any addition or change must be made by January 16, 2023.

If a Member does not have a designated Executive Representative by January 16, 2023, NFA will deem the Membership Contact listed on the Member's Form 7-R as the Member's Executive Representative, and that person will have the sole authority to cast votes on the Member's behalf. Votes submitted by any person other than the Executive Representative (or the Membership Contact if no Executive Representative is designated) will not be counted.

If you need help completing this form or have any questions, please contact NFA's Information Center (information@nfa.futures.org or 800-621-3570 or 312-781-1410).

Proposed Amendments to NFA's Articles of Incorporation

Introduction

On November 17, 2022, NFA's Board of Directors (Board) unanimously approved amendments to NFA's Articles, which were made at the recommendation of a Board-appointed Special Committee on NFA Governance (Special Committee). The amendments to the Articles reduce the size of the Board and modify its composition; provide that a newly created Nominating and Governance Committee1 will nominate individuals for election by the Board as NFA Public Representatives; provide that a Director must complete one full two-year term before being eligible to serve as Chair of the Board; eliminate the position of Board Vice Chair; reduce the size of the Executive Committee and modify its composition and the process for electing Directors to the Committee; move the Member Nominating Committee provisions currently in the Articles to the Bylaws; move the eligibility requirements for Public Representatives that are currently in the Articles to the Bylaws; and make other technical amendments. Set forth below is more detail on the Article amendments, which are attached to this online Notice.

Explanation of Amendments

Board Size and Composition

(Article VII, Section 2)

NFA's current Board consists of 29 Directors. The Board approved amendments to reduce its size to no more than 23 Directors. The exact number of Directors will be fixed from time to time by the Board by resolution but must include the following:

  • FCM representation will be reduced from five to no more than four and no less than three representatives. If there are four representatives, there must be two representatives of top ten FCMs and two representatives of non-top ten FCMs or LTMs based on the total amount of segregated funds, cleared swaps customer collateral and secured amounts held as of June 30 of the prior calendar year. If there are three representatives, there must be two representatives of top ten FCMs and one representative of a non-top ten FCM or LTM.

  • SD/MSP/RFED representation will be reduced from five to no more than four and no less than three representatives. If there are four representatives, there must be two representatives of SDs that are Large Financial Institutions and two representatives of SDs, MSPs or RFEDs that are not Large Financial Institutions as of June 30 of the prior calendar year. If there are three representatives, there must be two representatives of SDs that are Large Financial Institutions and one representative of an SD, MSP or RFED that is not a Large Financial Institution as of June 30 of the prior calendar year.

  • IB representation will be reduced from two to one representative. This representative may be either a guaranteed or independent IB.

  • CPO/CTA representation will be reduced from four to three representatives that are NFA Members reporting funds under management allocated to futures and swaps on NFA Form PQR and NFA Form PR as of June 30 of the prior year (Funds Under Management) as follows: one representative from CPOs or CTAs ranked within the top 10% based on Funds Under Management, one representative from CPOs or CTAs ranked within the top 20 percent based on Funds Under Management and one at-large representative from CPOs or CTAs with no restriction on its rank among CPOs or CTAs reporting Funds Under Management.

  • Contract Market representation will be reduced from no more than three to no more than two representatives with one representative being the Contract Market Member with the highest annual transaction volume during the prior calendar year.

  • Public Representatives will be reduced from 10 to no more than nine.

NFA's Board plans to implement the new Board structure in February 2024. At that time, all current Directors' terms will expire, and Directors will be elected for all positions on the Board for a one- or two-year term to ensure that going forward Director terms are staggered. Upon their election, the Board will determine by resolution which Directors have a one- or two-year term. (Article VII, Section 4)

Additionally, the Board approved amendments to eliminate the position of Vice Chair of the Board (Article VII, Section 7), provide that a newly created Nominating and Governance Committee will nominate individuals for election by the Board as NFA Public Representatives (Article VII, Section 3(b), and provide that a Director must serve one full two-year term before being eligible to serve as Board Chair. (Article VII, Section 7)

Executive Committee Size and Composition

(Article VIII, Section 3)

NFA's Executive Committee currently consists of 14 Directors allocated among the various Board categories. The Board approved an amendment to reduce the size of the Executive Committee to eight Directors allocated among the Board categories as follows, with the Chair of the Board acting as the representative from their Board category:

  • One (1) FCM/LTM Director representative;
  • One (1) SD/MSP/RFED Director representative;
  • One (1) CPO/CTA Director representative;
  • One (1) IB Director representative;
  • One (1) Contract Market Director representative; and
  • Three (3) Public Director representatives.

NFA's President/CEO will continue to serve as an ex officio, non-voting member, and the Chair will continue to be a non-voting member except in the case of a tie vote. (Article VIII, Section 3)

Executive Committee representatives are currently elected by the Directors in their respective Board categories. The Board amended the Articles to provide that NFA's Nominating and Governance Committee will recommend to the Board the Directors (other than the Chair of the Board who will be elected by the entire Board) to serve on the Executive Committee, and the Board will appoint the Directors to the Executive Committee by majority vote. (Article VIII, Section 4)

Nominating Committee

(Article X)

NFA's Nominating Committee, which is comprised of an FCM/LTM Subcommittee, an IB Subcommittee, a CPO/CTA Subcommittee and an SD/MSP/RFED Subcommittee is responsible for annually nominating at least one individual for each open position on the Board in the Subcommittee's category. The Board approved an amendment to move the provisions relating to the Nominating Committee to Chapter 7 of NFA's Bylaws entitled "Committees," which contains provisions relating several other important NFA Committees.

The Board has not revised the process for nominating individuals for Member Board seats or, except for the CPO/CTA Nominating Committee2, the composition of the individual subcommittees.

Definition of Public Representative

(Article XVIII)

The definition of Public Representatives is set forth in Article XVIII and references the term as it is defined in Section (b)(2) of Core Principle 16 in Appendix B to Part 38 of the Commodity Futures Trading Commission's (CFTC) rules for Designated Contract Markets. NFA's Board determined to modify the eligibility requirements for Public Representatives on NFA's Board to lengthen from one year to three years the look back period for certain disqualifying circumstances based on relationships with NFA and to modify the disqualification related to compensation received from NFA to also include compensation received from an NFA Member for legal, accounting or consulting services related to an NFA Member's CFTC regulated activities. The Board also determined to remove the reference to Part 38 and specifically set forth the definition and eligibility requirements in Chapter 5 of NFA's Bylaws entitled "Board of Directors."

Miscellaneous Amendments

The Board also approved a few non-substantive technical amendments to the Articles.

The Proposed Articles Amendments

NFA's Board approved amendments to the following: Article VII, Sections 2, 2A, 3, 4, 6, 7 and 9 (Board of Directors); Article VIII, Sections 2, 3, and 4 (Executive Committee); Article X (Nominating Committee); Article XVII (Adoption, Amendment and Repeal of Articles); and Article XVIII (Definitions) as described above.

Action Steps

Each Member will receive voting materials from CES via email (or regular mail if the Member has not provided an email address).

Electronic voting on the Article Amendments will commence on January 17, 2023 and will end at 11:59 PM Central Standard Time on February 10, 2023. Each Member will receive voting materials from CES via email (or regular mail if the Member has not provided an email address).

Hardcopy ballots must be completed and received by Corporate Election Services by February 10, 2023 according to the instructions provided.

If you have any questions, please contact Margaret Vandermyde (mvandermyde@nfa.futures.org or 312-781-1435).

Read the proposed amendments to NFA's Articles of Incorporation.

1 The Board also unanimously approved an amendment to Bylaw 706 to form a Nominating and Governance Committee to advise the Board on corporate governance matters and practices, nominate individuals to the Board for the election of Public Representatives, provide direction to the various Member Category Nominating Subcommittees relating to the nomination of Member Category Directors for election to the Board and other duties as prescribed in the Nominating and Governance Committee's Charter as adopted by resolution of the Board or as otherwise provided by resolution of the Board.

2 The Board modified the composition of the CPO/CTA Nominating Committee to mirror the composition of the CPO/CTA Board category seats.

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