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Compliance Rules

Part 2 - Rules Governing the Business Conduct of Members Registered with the Commission


[Adopted effective June 28, 2002. Effective dates of amendments: December 1, 2003; November 30, 2005; February 13, 2007; October 25, 2007; April 1, 2009; October 18, 2010; October 1, 2011; January 4, 2016; March 29, 2017; March 31, 2017; April 5, 2018; September 30, 2019 and January 1, 2020]

(a) General Prohibition

No Forex Dealer Member shall engage in any forex transaction that is prohibited under the Commodity Exchange Act.

(b) Fraud and Related Matters

No Forex Dealer Member or Associate of a Forex Dealer Member engaging in any forex transaction shall:

    (1) Cheat, defraud or deceive, or attempt to cheat, defraud or deceive any other person;

    (2) Willfully make or cause to be made a false report, or willfully to enter or cause to be entered a false record in or in connection with any forex transaction;

    (3) Disseminate, or cause to be disseminated, false or misleading information, or a knowingly inaccurate report, that affects or tends to affect the price of any foreign currency;

    (4) Engage in manipulative acts or practices regarding the price of any foreign currency or a forex transaction;

    (5) Willfully submit materially false or misleading information to NFA or its agents with respect to forex transactions;

    (6) Embezzle, steal or purloin or knowingly convert any money, securities or other property received or accruing to any person in or in connection with a forex transaction.

(c) Just and Equitable Principles of Trade

Forex Dealer Members and their Associates shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their forex business.

(d) Doing Business with Non-Members

No Member may carry a forex account for, accept a forex order or account from, handle a forex transaction for or on behalf of, receive compensation (directly or indirectly) for forex transactions from, or pay compensation (directly or indirectly) for forex transactions to any non-Member of NFA, or suspended Member, that is required to be registered with the Commission as an FCM, RFED, IB, CPO, or CTA in connection with its forex activities and that is acting in respect to the account, order, or transaction for a forex customer, a forex pool or participant therein, a forex client of a commodity trading advisor, or any other person unless:

    (1) the non-Member is a member of another futures association registered under Section 17 of the Act or is exempted from this prohibition by Board resolution; or

    (2) the suspended Member is exempted from this prohibition by the Appeals Committee.

(e) Supervision

    (1) Each Forex Dealer Member shall diligently supervise its employees and agents in the conduct of their forex activities for or on behalf of the Forex Dealer Member. Each Associate of a Forex Dealer Member who has supervisory duties shall diligently exercise such duties in the conduct of that Associate's forex activities for or on behalf of the Forex Dealer Member.

    (2) NFA's Board of Directors may require Forex Dealer Members that meet specific criteria established by the Board relating to the employment history of its APs or principals or to the total commissions, fees and other charges paid by their customers to adopt enhanced supervisory requirements specified by the Board. This requirement may, in NFA's discretion, be waived upon a showing by the Forex Dealer Member that the Forex Dealer Member's current supervisory procedures provide effective supervision over its employees and agents. Any Forex Dealer Member seeking such a waiver may submit a written request to a three-member panel consisting of three members of the Business Conduct Committee and/or the Hearing Committee, said members to be appointed by the Board from time to time. Within 30 days after a Forex Dealer Member submits a waiver request, the Compliance Department will submit a written response to the panel. The decision of the panel shall be final and shall be based upon the written submissions of the Forex Dealer Member and of the Compliance Department.

(f) BASIC Disclosure

When a customer first opens an account and at least once a year thereafter, each Forex Dealer Member shall provide each customer with written information regarding NFA's Background Affiliation Status Information Center (BASIC), including the web site address.

(g) Communications with the Public and Promotional Material.

Forex Dealer Members and, as applicable, Associates of Forex Dealer Members must comply with sections (a) through (h) of NFA Compliance Rule 2-29 and the Interpretive Notices related to these provisions. The Compliance Department may require any Forex Dealer Member for any specified period to file copies of all promotional material with NFA for its review and approval at least 10 days prior to its first use or such shorter period as NFA may allow.

(h) Reserved

(i) Customer Accounts

A Forex Dealer Member must notify NFA prior to commencing customer business.

(j) FDM Chief Compliance Officer

Each Forex Dealer Member shall designate one principal to serve as Chief Compliance Officer (CCO). Each CCO must prepare an annual report that meets the requirements of CFTC Regulation 3.3(e) and must provide the annual report to the Forex Dealer Members Board of Directors or Senior Officer. Each Forex Dealer Member must submit the annual report to NFA within 90 days after the Forex Dealer Member's fiscal year end. The annual report must include a certification by the Forex Dealer Member's CCO or chief executive officer that to the best of his or her knowledge and reasonable belief, and under penalty of law, the information contained in the annual report is accurate and complete.

(k) CFTC Forex Regulations

Any Member or Associate that violates any of CFTC Regulations 5.2, 5.5, 5.10 through 5.19 or 5.23, as applicable, shall be deemed to have violated an NFA Requirement.

(l) Customer Information and Risk Disclosure

    (1) Each Member or Associate shall, in accordance with the provisions of this subsection, obtain information from all customers and provide such customers with disclosure of the risks of forex trading.

    (2) The Member or Associate shall exercise due diligence to obtain the information and shall provide the risk disclosure at or before the time a customer first opens a forex trading account with or introduced by the Member or first authorizes the Member to exercise discretionary trading authority in a forex trading account. For an active customer who is an individual, the Member acting as the counterparty to the customer shall contact the customer, at least annually, to verify that the information obtained from the customer under paragraph (3) remains materially accurate, and provide the customer with an opportunity to correct and complete the information. Whenever the customer notifies the Member acting as the counterparty to the customer of any material changes to the information, a determination must be made as to whether additional risk disclosure is required to be provided to the customer based on the changed information. If an FCM or IB Member introduces the customer’s account or a CTA Member exercises discretionary trading authority over the account, then the Member acting as the counterparty to the customer must notify that FCM, IB or CTA Member of the changes to the customer’s information. The Member or Associate who currently solicits and communicates with the customer is responsible for determining if additional risk disclosure is required to be provided based on the changed information. In some cases, this may be the Member introducing or controlling the account; in other cases, it may be the Member acting as the counterparty to the customer account.

    (3) The information to be obtained from the customer shall include at least the following:

    (i) The customer's true name and address, and principal occupation or business;

    (ii) For customers who are individuals, the customer's current estimated annual income and net worth. For all other customers, the customer's net worth or net assets and current estimated annual income, or where not available, the previous year's annual income;

    (iii) For individuals, the customer's approximate age or date of birth;

    (iv) An indication of the customer's previous investment, futures trading and forex trading experience; and

    (v) Such other information deemed appropriate by such Member or Associate to disclose the risks of forex trading to the customer.

(4) The risk disclosure to be provided to the customer shall include at least the following:

    (i) the Risk Disclosure Statement required by CFTC Regulation 5.5, if the Member is required by that Regulation to provide it; and

    (ii) the Risk Disclosure Statement required by CFTC Regulation 4.34, if the Member is required by that Regulation to provide it.

(5) In the case of an account introduced by a Member or an account for which a Member CTA exercises discretionary trading authority, and except as otherwise provided in paragraph (2), it shall be the responsibility of the Member soliciting the account to comply with this Rule. However, if the account is introduced or managed by a non-NFA Member, it shall be the sole responsibility of the Member acting as a counterparty to the transaction to comply with this rule.

(6) A Member or Associate shall be entitled to rely on the customer (as the sole source) for the information obtained under paragraph (3) and shall not be required to verify such information.

(7) Each Member or Associate shall make or obtain a record containing the information obtained under paragraph (3) at the time the information is obtained. If a customer declines to provide the information set forth in paragraph (3), the Member or Associate shall make a record that the customer declined, except that such a record need not be made in the case of a non-U.S. customer. Each Member shall keep copies of all records made pursuant to this Rule in the form and for the period of time set forth in CFTC Regulation 1.31.

(8) Each Member shall establish and enforce adequate procedures to review all records made pursuant to this Rule and to supervise the activities of its Associates in obtaining customer information and providing risk disclosure.

(9) Nothing herein shall relieve any Member from the obligation to comply with all applicable CFTC Regulations and NFA Requirements.

    (m) Risk Management Program

    Each Forex Dealer Member must establish, maintain and enforce a Risk Management Program as prescribed by NFA's Board of Directors.

    (n) Public Disclosure by Forex Dealer Members

    Each Forex Dealer Member must make the following information readily available on its website and update such information as is necessary, but no less frequently than on an annual basis:

      (i) The name, title, business background, areas of responsibility, and the nature of the duties of each person that is a listed principal of the Forex Dealer Member;

      (ii) A discussion of the significant types of business activities and product lines engaged in by the Forex Dealer Member, and the approximate percentage of the Forex Dealer Member's assets and capital used in each type of activity;

      (iii) A discussion of the Forex Dealer Member's business on behalf of its customers, including types of customers, markets and currencies traded, international businesses, prime brokers and/or liquidity providers used, and the Forex Dealer Member's policies and procedures concerning the choice of bank depositories, custodians and counterparties to permitted transactions under CFTC Regulation 1.25;

      (iv) A discussion of the material risks associated with the Forex Dealer Member acting as a counterparty to eligible contract participants (ECP) as defined in Section 1a(18) of the Act, including any risks created by the Forex Dealer Member's affiliates and other ECPs acting as dealers;

      (v) A discussion of any pending or completed material administrative, civil, enforcement or criminal complaints or actions filed against the Forex Dealer Member during the last three years;

      (vi) A summary schedule of the Forex Dealer Member's adjusted net capital; net capital and excess net capital; all computed in accordance with CFTC Regulation 5.7 and reflecting balances as of the month-end for the most recent 12 months;

      (vii) The Statement of Financial Condition and all related footnotes that are part of the Forex Dealer Member's most current certified annual report pursuant to CFTC Regulation 1.16;

      (viii) The total customer liability as reported each day to NFA on the Forex Financial Report for the last 12 months; and

      (ix) The disclosure, displayed in a prominent manner, required by CFTC Regulation 5.5(e) for each of the most recent four calendar quarters during which the Forex Dealer Member maintained retail forex customer accounts.

    If any of the financial information required under (iv)-(vii) is amended, the Forex Dealer Member must clearly notate that it has been amended.

    (o) Disclosure of Transaction Data to Customers

      (1) Upon the request of an FDM's customer with respect to a particular executed forex transaction of that customer, an FDM must provide the customer, within 30 minutes of the customer's request, with the following transaction data for the 15 forex transactions that occur immediately before and after in the same currency pair of the customer's transaction:

        (i) Execution date and time (to the nearest millisecond in Eastern time);

        (ii) Customer side (i.e., buy or sell);

        (iii) Quantity;

        (iv) Currency pair;

        (v) Execution price (including any mark-up);

        (vi) Commission and other charges assessed by the FDM (if applicable); and

        (vii) Currency denomination of commission or other charges.

      Provided, however, that an FDM only has to provide transaction data pursuant to this subsection for any transactions that occur within 15 minutes before and after the execution of the customer's transaction.

      (2) Each FDM must provide NFA with a copy of any customer request made under subsection (1) above and the FDM's response in the form and manner prescribed by NFA.

      (3) Each FDM must inform customers of their ability to request this information by a notice prominently displayed on the FDM's website, each customer's trading platform and each customer transaction confirmation statement.

    (p) Transaction Disclosures

    Each Forex Dealer Member shall:

      (1) Disclose the following, if applicable, to each customer on a per-trade basis in the same currency as the base currency of the account on the customer transaction confirmation statement:

        (i) Commission and any other fees;

        (ii) For transactions where a Forex Dealer Member is using straight-through processing, any mark-up or mark-down the Forex Dealer Member imposes on the price the Forex Dealer Member received for the offsetting position to the customer's order; and

        (iii) For transactions where a Forex Dealer Member is not using straight-through processing, the mid-point spread cost.

      (2) Forex Dealer Members not using straight through processing must provide customers with a description of the mid-point spread cost in a form and manner required by NFA.

    (q) Scope

    This rule governs forex transactions as defined in Bylaw 1507(b).

    (r) Exemptions for Certain Transactions

    Transactions entered into through a Member to hedge currency exposure from positions on regulated exchanges are exempt from all forex requirements except sections (b) and (c) of this rule if the on-exchange transactions are handled by the same Member.

    (s) Definitions

    For purposes of this rule:

      (1) "Affiliate" means any person that controls, is controlled by, or is under common control with the Forex Dealer Member;

      (2) "Customer" means a counterparty that is not an eligible contract participant as defined in Section 1a(18) of the Act; and

      (3) "Dealer" means any person that (i) holds itself out as a dealer in forex or in retail commodity transactions as defined in 2(c)(2)(D) of the Act; (ii) makes a market in forex or in retail commodity transactions as described in 2(c)(2)(D) of the Act; (iii) regularly enters into forex or in retail commodity transactions as described in 2(c)(2)(D) of the Act with counterparties as an ordinary course of business for its own account; or (iv) engages in any activity causing the person to be commonly known in the trade as a dealer or market maker in forex or in retail commodity transactions as described in 2(c)(2)(D) of the Act. Dealer includes other FDMs, as well as any entity acting in this manner that is not required to be an FDM.

      (4) "Mid-point spread cost" means the difference between the price at which the Forex Dealer Member executes a customer's order and the mid-point of the bid/offer spread at the time the Forex Dealer Member receives the customer's order for market orders, and at the time the order's execution is triggered for conditional orders.

      (5) "Straight-through processing" means when a Forex Dealer Member automatically executes (without human intervention and without exception) an offsetting position to a customer order with another counterparty prior to providing an execution to the customer order.