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Interpretive Notices


9075 - NFA BYLAW 301 and COMPLIANCE RULE 2-24: PROFICIENCY REQUIREMENTS FOR SWAP APS

(Board of Directors, March 5, 2019, effective January 31, 2020.)

Section 17(p) of the Commodity Exchange Act (Act) requires NFA "to establish training standards and proficiency testing for persons involved in the solicitation of transactions subject to the provisions of the Act, supervisors of such persons…" This provision of the Act is not limited to those who are required to be registered as associated persons (AP).

NFA requires that APs engaging in commodity futures and forex activities take and pass a proficiency examination that tests both their market knowledge and their knowledge of regulatory requirements. NFA's Board of Directors has determined that APs engaging in swaps activities at FCMs, IBs, CPOs and CTAs, as well as individuals acting as APs at SDs and MSPs1, should be required to meet a minimum proficiency standard that tests both their market knowledge and their knowledge of regulatory requirements involving swaps activities. Accordingly, NFA is imposing proficiency requirements on individuals approved as swap APs at FCMs, IBs, CPOs and CTAs in NFA Bylaw 301(l). NFA is also requiring that SD and MSP Members ensure that individuals acting as APs have satisfied these proficiency requirements in NFA Compliance Rule 2-24 (NFA's Swaps Proficiency Requirements).

Specifically, NFA Bylaw 301(l) requires an individual to satisfy NFA's Swaps Proficiency Requirements in order to be approved as a swap associated person at an FCM, IB, CPO or CTA (intermediary swap AP).2 Additionally, Compliance Rule 2-24 prohibits an SD or MSP from having associated with it any individual who is acting as an associated person as defined in subsection 6 of the Associated Person definition under CFTC Regulation 1.3 who has not satisfied NFA's Swaps Proficiency Requirements.3 NFA's Swaps Proficiency Requirements referenced in Bylaw 301(l) and Compliance Rule 2-24 are detailed in this Interpretive Notice.

NFA's Swaps Proficiency Requirements

NFA's Swaps Proficiency Requirements cover the topics included in the content outline developed by NFA, which is available on NFA's website at www.nfa.futures.org. NFA's Swaps Proficiency Requirements will be administered via the internet through a number of individual modules covering specific topic areas, each of which contains both a training and testing component.

NFA recognizes that there are differences in the type of swaps activity performed by an individual based on whether the individual works for an SD or an intermediary. NFA also recognizes that some individuals acting as APs at SDs perform more limited functions than others. Accordingly, NFA has developed two proficiency tracks—a Long Track and a Short Track.

  • SDs must ensure that individuals designated as APs in the sales and trading areas who negotiate, price and/or execute swaps with counterparties on behalf of the SD and/or manage the SD's swaps related risks satisfy the Long Track. The SD must ensure that designated APs who are responsible for supervising APs acting in this capacity at the SD satisfy the Long Track.

  • An SD that has designated APs who perform functions other than those described above has the option of permitting those individuals to satisfy either the Long Track or the Short Track. SDs also have the option to allow designated APs who are responsible for supervising these APs to satisfy the Long Track or the Short Track. However, if the responsibilities of any AP who has satisfied the Short Track expands to the sales and trading areas as described above, the SD must ensure that the AP satisfies the remaining modules in the Long Track before engaging in these new activities.

  • Intermediary swap APs are required to satisfy the Short Track. Individuals responsible for supervising intermediary swap APs are also required to satisfy the Short Track.

Additional information regarding the two tracks can be found in the FAQs at www.nfa.futures.org.

Obligations of SDs

Individuals acting as APs at SDs are not required to register with the CFTC and are not NFA Associate Members.  Therefore, SDs are responsible for ensuring that any individual acting as an AP as defined in subsection 6 of the Associated Person definition under CFTC Regulation 1.3 has satisfied NFA's Swaps Proficiency Requirements prior to engaging in the defined activities on behalf of the SD. For individuals who satisfied NFA's Swaps Proficiency Requirements prior to joining the SD, the SD will meet its obligation if it ensures:

  • The individual satisfied the track of NFA's Swap Proficiency Requirements (i.e., Long Track or Short Track) required by the functions of the AP within the prior two years; or

  • The individual satisfied the track of NFA's Swaps Proficiency Requirements required by the functions of the AP and since the date of doing so, there has been no period of two consecutive years during which the individual has not been employed by an SD (or its affiliated entity) that is a Member of NFA, approved as a swap AP of an FCM, IB, CPO or CTA or approved as a swap firm that is a Member of NFA.

SDs are not required to (nor should they) notify NFA when an individual satisfies NFA's Swaps Proficiency Requirements. However, each SD must maintain records that demonstrate that the individuals have satisfied NFA's Swaps Proficiency Requirements applicable to the person's functions as an AP and be able to provide those records to NFA during an examination or otherwise upon request. Examples of adequate documentation include a log identifying individuals and dates of completion or copies of the certificate of completion that an individual will receive upon successfully completing NFA's Swaps Proficiency Requirements.

Individuals acting as APs at SDs located outside of the U.S. (including non-U.S. branch offices of a U.S. SD) who solely solicit or accept swaps with counterparties that are non-U.S. persons and/or non-U.S. branch offices of U.S. SDs are excluded from NFA's Swaps Proficiency Requirements. The framework for the exclusion of certain Non-U.S. APs is described in more detail in the FAQs at www.nfa.futures.org.

Implementation

The Compliance Date to complete NFA's Swaps Proficiency Requirements is January 31, 2021. All individuals who are approved as swap APs at an FCM, IB, CPO or CTA Member firm or are acting as APs at SDs on the Compliance Date are required to satisfy the applicable NFA Swaps Proficiency Requirements (i.e., no grandfathering provision) by that date in order to remain approved as a swap AP or continue acting as an AP at an SD after the Compliance Date. Any individual seeking approval as a swap AP at an FCM, IB, CPO or CTA after January 31, 2021 must satisfy NFA's Swaps Proficiency Requirements prior to being approved as a swap AP and engaging in swaps activities. SDs must ensure that any individual seeking to act as an AP after January 31, 2021 satisfy the applicable track of NFA's Swaps Proficiency Requirements required by the functions of the AP prior to engaging in swaps activity at the SD.

Additional information on these requirements can be found in the FAQs located on NFA's website at www.nfa.futures.org.


1 Under Commodity Futures Trading Commission Regulation 1.3, subsection (6) of the Associated Person definition, an individual acts as an AP of an SD or MSP if the person solicits or accepts swaps (other than in a clerical or ministerial capacity) or supervises any person engaged in those activities.

2 NFA Bylaw 301(l) also requires individuals applying for approval as an FCM, IB, CPO or CTA Member swap firm to satisfy the Swaps Proficiency Requirements.

3 Although not necessary to impose the Swaps Proficiency Requirements on intermediary swap APs, Compliance Rule 2-24 also prohibits an FCM, IB, CPO or CTA from having a swap AP who has not satisfied the Swaps Proficiency Requirements.