Proposed Rule
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INTERPRETIVE NOTICES
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FOREX TRANSACTIONS
INTERPRETIVE NOTICE
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B. COMPLIANCE RULE 2-36
5. Communications with the Public and Promotional Material - No Member or Associate shall make any communication with potential or current customers that operates as a fraud or deceit; uses a high-pressure approach; or implies that forex transactions are appropriate for all persons.
Every Member should adopt and enforce written procedures to supervise communications with potential and current customers and promotional material. A supervisory employee that is, or is under the ultimate supervision of, a listed principal who is also an NFA Associate should review and approve all promotional material and make a written record of such review and approval.12
7. Doing Business with non-Members - Forex Dealer members are subject to discipline for the activities of most non-Members who solicit or introduce forex customers to the Forex Dealer member or manage accounts for those customers.
The rule allows NFA to bring a disciplinary action even if the Forex Dealer Member acts diligently and has no knowledge of the third-party's conduct. As a practical matter, however, NFA will not take disciplinary action unless the Forex Dealer Member knew or should have known of the third-party's conduct or failed to exercise due diligence when establishing and maintaining the relationship with the third party.
A Forex Dealer Member should adopt and enforce written procedures to review the activities of non-Member third parties. The procedures should include, among other things, a regular review of the trading being conducted in the accounts solicited, introduced, or managed by these non-Members. The Member should also have procedures for following up on any customer complaints received by the firm, including a written description of the investigation made by the Member and any resolution of the complaint. Further, supervisory procedures should include a regular review of all promotional material used by any non-Member third-party. The member should maintain copies of all promotional materials reviewed, along with a written record of the review conducted and any deficiencies corrected, and make them available for examination for the periods specified in the recordkeeping section of this notice. A supervisory employee that is, or is under the ultimate supervision of, a listed principal who is also an NFA Associate should conduct the review of the non-Member's activities.
12 Under traditional legal principles, Members can also be liable for promotional material promoting forex trading systems developed by third-parties. For example, a Member has direct responsibility for misleading promotional material if the Member prepares or distributes it; has agency responsibility if the system developer is an agent of the Member under established principles of agency law; and has supervisory responsibility if the Member fails to supervise its own employees when linking to a third-party trading system developer's web site, recommending a third-party's trading system, or entering into a referral agreement with a third-party system developer. See Interpretive Notice titled "NFA Bylaw 1101, Compliance Rules 2-9 and 2-29: Guidelines Relating to the Registration of Third-Party Trading System Developers and the Responsibility of NFA Members for Promotional Material That Promotes Third-Party Trading System Developers and their Trading Systems," NFA Manual, paragraph 9055.