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Independent IB Financial Requirements
Today’s Presenters
Gregory Prusik
Vice-President, Registration
Jamila Piracci
Vice-President, OTC Derivatives
Copyright 2012. National Futures Association. All rights reserved.
Topics Covered
• NFA background
• NFA membership
• Regulation of SDs and MSPs
• Registration process
Copyright 2012. National Futures Association. All rights reserved.
Topics Covered
• Due diligence• 4s submission process• 4s submission review• Looking forward
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
• Futures Commission Merchant (FCM)• Forex Dealer Members (FDM known as RFED)• Commodity Pool Operator (CPO)
NFA Membership Categories
Copyright 2012. National Futures Association. All rights reserved.
NFA Membership Categories
• Commodity Trading Advisor (CTA)• Introducing Broker (IB)• New Categories:
– Swap Dealer (SD)– Major Swap Participant (MSP)
Copyright 2012. National Futures Association. All rights reserved.
• 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
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
• 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
Copyright 2012. National Futures Association. All rights reserved.
Funding• NFA typically receives its revenue from
Membership dues, assessment fees, registration fees, outsourcing and investment income
Copyright 2012. National Futures Association. All rights reserved.
• 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
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
Registration Process
• 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
Copyright 2012. National Futures Association. All rights reserved.
• 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
Registration Process
Copyright 2012. National Futures Association. All rights reserved.
Registration Process
• The CFTC has adopted a rule requiring registered SDs and MSPs to be NFA Members
Copyright 2005. National Futures Association. All rights reserved.
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
4s Submission Process• On Feb. 17, the CFTC published the Business
Conduct Standards for SDs and MSPs with Counterparties in the Federal Register
4s Submission Process
• 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
Copyright 2012. National Futures Association. All rights reserved.
Copyright 2012. National Futures Association. All rights reserved.
4s Submission Process
• 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
4s Submission Process
• 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
Copyright 2012. National Futures Association. All rights reserved.
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
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
Copyright 2012. National Futures Association. All rights reserved.
Questions?
Contact Information
NFA Information Center(312) 781-1410(800) 621-3570
[email protected]@nfa.futures.org