Independent IB Financial Requirements. Today’s Presenters Gregory Prusik Vice-President,...

Independent IB Financial Requirements

Today’s Presenters

Gregory Prusik

Vice-President, Registration

Jamila Piracci

Vice-President, OTC Derivatives

Topics Covered

• NFA background

• NFA membership

• Regulation of SDs and MSPs

• Registration process

Topics Covered

• Due diligence• 4s submission process• 4s submission review• Looking forward

NFA Exchanges

Regulatory Structure

• Industrywide, self-regulatory organization for the U.S. futures industry

• Began in 1982 to strengthen the integrity of the U.S. futures industry and protect investors

• Independent regulatory organization with no ties to any specific marketplace

National Futures Association

• Not for profit; not a trade or lobbying association• NFA regulates every firm or individual who

conducts futures trading business with public customers and/or forex business with retail investors

• Futures Commission Merchant (FCM)• Forex Dealer Members (FDM known as RFED)• Commodity Pool Operator (CPO)

NFA Membership Categories

• Commodity Trading Advisor (CTA)• Introducing Broker (IB)• New Categories:

– Swap Dealer (SD)– Major Swap Participant (MSP)

• Registration and Membership– Screen firms and individuals– Ensure knowledge and fitness standards are met– Bar or condition unfit applicants

• Compliance/Enforcement– Conduct audits of our Members’ business operations– Take disciplinary action when needed

NFA’s Core Functions

• Dispute Resolution

– Offer arbitration and mediation alternatives

• Education

– Assist Members in understanding and meeting regulatory requirements

– Help investors better understand trading opportunities and risks

• Assure fair representation in the adoption of rules and selection of officers and directors

• NFA Board of Directors consist of every category of membership

• Rulemaking to rule enforcement

Governance

Funding• NFA typically receives its revenue from

Membership dues, assessment fees, registration fees, outsourcing and investment income

• Registration applications are filed via NFA’s Online Registration System (ORS)

• This system can be accessed via NFA’s website, www.nfa.futures.org

• NFA’s website has been updated to include a “Swap Information” Section

Registration Process

Registration Process• SDs and MSPs are required to file the following:

– A completed online Form 7-R – A non-refundable application fee of $15,000– NFA Membership Dues (amount to be determined

and assessed at a later date by NFA's Board of Directors)

– Documentation demonstrating compliance with any Section 4s Implementing Regulations with a compliance date that has passed

• SDs and MSPs are required to file the following for their principals:

– A completed online Form 8-R

– Fingerprint cards

– A nonrefundable Principal application fee of $85

• After an SD or MSP is granted provisional registration, it will be required to submit documentation that demonstrates compliance with each of the 4s Implementing Regulations as of the compliance date of those regulations

• The CFTC has adopted a rule requiring registered SDs and MSPs to be NFA Members

Associated Persons of SDs and MSPs

• Definition of SD/MSP AP parallels the definition of a futures AP

• Registration of SD/MSP APs is not required• Cannot be subject to a statutory disqualification• Due diligence SD/MSP AP background checks

4s Submission Process

• In order to maintain its provisional registration, an SD or MSP must submit to NFA documentation that demonstrates compliance with each Section 4s Implementing Regulation as of the date of regulation compliance

4s Submission Process• On Feb. 17, the CFTC published the Business

Conduct Standards for SDs and MSPs with Counterparties in the Federal Register

• On April 3, the CFTC published the Internal Business Conduct Standards for SDs and MSPs covering:– Recordkeeping, Reporting and Duties Rules

(including Risk Management Program and Conflicts of Interest Rules)

– Chief Compliance Officer Rules

• SDs and MSPs will be required to comply with certain final regulations at the time they are required to register based on the August 12 publication of product definitions

• As additional CFTC 4s Implementing Regulation rules become final, SDs and MSPs will be required to comply with those additional final rules on the specified compliance date

4s Review Process• Once an applicant is provisionally registered,

NFA will review its documentation to determine whether it demonstrates compliance with Section 4s Implementing Regulations

4s Review Process• NFA expects to determine compliance with each

of the 4s Implementing Regulations through a review of written materials and other documentation rather than onsite visits

4s Review Process• Staff will conduct its review of 4s submissions as

each rule becomes applicable to the particular firm

• Note that documents submitted pursuant to 4s are registration documents

• See our website regarding confidential treatment requests

4s Review Process

• If NFA determines a provisionally registered SD’s or MSP’s documentation does not demonstrate facial compliance with one or more Section 4s Implementing Regulations, NFA staff will discuss the matter with the SD or MSP to try to resolve deficiencies

4s Review Process

• If the SD or MSP fails to remedy deficiencies after the Section 4s Implementing Regulation’s compliance date has passed, NFA will formally notify the SD or MSP that its submission is deficient and the SD or MSP will have 90 days from the date of the notification to correct the deficiencies or risk losing its provisional registration

4s Review Process• Failure to submit the required Section 4s

Implementing Regulation compliance documentation in a timely manner or failure to remedy deficiencies in the documentation may result in an SD’s or MSP's application being deemed withdrawn

4s Review Process

• Provisionally registered SDs or MSPs will become fully registered when: – Compliance with all Section 4s Implementing

Regulations is required

– The SD or MSP demonstrates compliance with all such requirements

Forward Looking

• Onsite exams will be a part of ongoing monitoring of Members

• The foundation of exams will be built on the registration process and review of 4s submissions

Forward Looking• Frequency of onsite visits and exams will be

based on the size and complexity of Member’s operations and NFA’s determination in consultation with the CFTC

Questions?

Contact Information

NFA Information Center(312) 781-1410(800) 621-3570

information@nfa.futures.org

jpiracci@nfa.futures.orggprusik@nfa.futures.org

Independent IB Financial Requirements. Today’s Presenters Gregory Prusik Vice-President,...

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