Proposed Rule

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NFA is concerned that retail customers do not fully appreciate the nature of their transactions with Forex Dealer Members ("FDMs") and the inherent conflict that exists between the FDM's interests and those of its customers. NFA staff discussed this concern with the FCM Advisory Committee, whose members believed that FDMs should disclose the basic conflict of interest inherent in acting as a counterparty in these transactions - a conflict that may be heightened when the FDM fails to offset its own risk and the FDM or its solicitors recommend trades to customers. The Committee also recommended that the disclosure be prominently displayed and specifically acknowledged by customers.

Staff sent proposed disclosure language to FDMs and requested comments. NFA received five comments, all of which generally supported the proposal. A few of the comments said that the prescribed language does not apply to certain business models and might be misleading in those instances. Accordingly, the amendments to the Interpretive Notice give staff the authority to approve alternative language, where appropriate, based upon the individual FDM's business model.

The amendments to the Interpretive Notice require disclosure language that should make clear to customers that the FDM is acting as a counterparty in these transactions and may profit from the market moving against the customer, and they give NFA staff the authority to approve alternative language in certain circumstances. Finally, the proposed amendments require the disclosure to be prominently displayed in uppercase letters in at least 10 point size type and to be separately acknowledged by the customer. These additional disclosures will help better inform retail customers of the nature of these transactions.

At its August 16, 2007 meeting, NFA's Board adopted this requirement. After the Board's meeting in August, the proposal was submitted to the CFTC for approval. In the interim, however, NFA has determined that the disclosure language should more closely track the language contained in the Commodity Exchange Act with regard to the activities of FDMs. Accordingly, the modified proposal has been revised to refer to the FDM as acting as a "counterparty" rather than a "principal" in forex transactions.

NFA withdraws its submission of August 17, 2007, and respectfully requests that the Commission review and approve the resubmitted proposed amendments to the Interpretive Notice regarding Forex Transactions.

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