While most of the attention in the futures industry has been focused upon the new swaps regulatory framework, the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association (“NFA”) have adopted several new rules governing a variety of other activities. This article discusses some of these new rules, as well as current and upcoming changes related to NFA audits of Member firms. CFTC Adopts Transaction Recordkeeping Rules The CFTC has adopted new recordkeeping rules for registered firms regarding: (1) oral communications that lead to the execution of transactions in commodity interests and (2) written communications that lead to the…...

Every five years, the Commodity Exchange Act must be “re-authorized” by Congress. The Senate is gearing up for that process now. We hope that strengthening customer protections will be the result of these Congressional deliberations. Re-authorization presents an opportunity to change the law which governs our industry. The primary goal of re-authorization of the Act this time around should be to remove any doubt that customers are first in line in a bankruptcy over everyone else. Congress intended to give commodity customers priority over all other creditors in a commodity broker bankruptcy. The reason for this is simple: if customers…...

After a busy audit season that included many new rules implemented by NFA and CFTC, we would like to share some reminders and insights. Use of Online Payment Systems If you are an IB trading Forex and use an online bill payment service such as Paypal, there is an accounting issue we have run into. Balances that are maintained in these accounts are not considered current. They must be considered a “non-current asset” on the balance sheet. Therefore, the balances in those accounts cannot be included in the Net Capital Computation. FCM Trading Accounts Balances maintained in a Futures Commission…...

FCM Responsibilities for the Review and Approval of their Guaranteed Introducing Brokers’ Communications with the Public Recently, NFA has experienced a sharp increase in the number of promotional material submissions to NFA’s Pre-review Program by Guaranteed Introducing Brokers (“GIBs”) that have not first submitted the material to their Guarantor FCM for review and approval. In some cases, the Guarantor FCM has specifically directed its GIB to forward the material to NFA prior to its own review. In other cases, the GIB has submitted the material to NFA without the Guarantor FCM’s knowledge. Since Guarantor FCMs are required to supervise the…...

Chief Compliance Officer Requirements Become Effective for All FCMs on March 29, 2013 As we notified Members in Notice I-12-21, the Chief Compliance Officer (CCO) requirements under CFTC Regulation 3.3 became effective on October 1, 2012 for FCMs that are regulated by a prudential regulator or that are also in some capacity registrants of the SEC. The compliance date for all other FCMs is March 29, 2013. Therefore, all FCMs not subject to the October 1, 2012 compliance date must designate a CCO and that person must be listed as a principal of the FCM by March 29, 2013. Those…...

**NIBA asked all three new NFA Board Members to answer the question “What is the first thing you will do at your first NFA Board Meeting?” John submitted the following in behalf of James and himself. Jeff indicated he preferred to reach out to NFA members directly. First, we would like to thank those who supported our bid to represent CTAs and CPOs on the NFA Board of Directors   We would also like to thank the outgoing members of the board for their years of service.  NFA staff has been extremely helpful in bringing us up to speed on…...

January 31, 2013 Dear Members, We wanted to send you a personal update on all that has happened in the months following the collapse of Peregrine Financial Group Inc. (PFG), and let you know that we have taken steps to refine and improve our regulatory practices and better protect you, your customers and the industry in the wake of this tragic situation. As you know, in July 2012, PFG filed for bankruptcy following the attempted suicide of its former president and CEO Russell Wasendorf, Sr., and subsequent discovery that he had defrauded PFG customers by using segregated funds for his…...

For years, the futures industry had an impeccable reputation for safeguarding customer funds deposited at FCMs.  Now, within a very short time frame, we are dealing with a shortfall in customer segregated funds at two FCMs, and their ensuing bankruptcies.  Customers at both firms suffered real harm, the type of harm that all regulators attempt to prevent.   The MF Global and Peregrine Financial Group customer losses are a painful reminder that regulators must continuously improve our surveillance, audit and fraud detection techniques to keep pace with changing technology and an ever-more-complicated financial marketplace.  We know that we can never…...

Notice to Members I-13-05 January 30, 2013 Effective Date of Amendments to NFA Financial Requirements Section 4 Regarding Use of Technology to Monitor FCM Segregation Requirements NFA recently amended NFA Financial Requirements Section 4 to require FCMs that hold customer segregated funds under CFTC Regulation 1.20, customer secured amount funds under CFTC Regulation 30.7 or cleared swaps customer collateral under CFTC Regulation 22.2 (collectively “customer segregated funds”) to instruct the depositories holding these funds to report the balances in these accounts on a daily basis to a third party designated by NFA. The amendments also provide that a depository must…...

In addition to the myriad of tax changes we’re facing as we go into the new year, here’s a reminder that CFTC Reg 4.27 requires all CTA’s to file a Form PR within 45 days of year end. This gives you a filing deadline of February 14, 2013 for the 2012 calendar year.  This report must be filed using the NFA’s EasyFile System. Keep in mind that there is a proposal pending that this be expanded to a quarterly filing requirement. Here is the link detailing how to establish an EasyFile account Here is a link to a Form PR…...