NATIONAL FUTURES ASSOCIATION
Effective Date of New Requirements for Forex Dealer Members (“FDMs”)
The NFA announced the effective date of the new capital and compliance requirements for FDMs after the Commodity Futures Trading Commission (“CFTC”) approved the NFA’s amendments to NFA Financial Requirements Section 11, NFA Financial Requirements Section 12 and NFA Compliance Rule 2-36. The CFTC’s approval of changes to Rule 2-36 also included the interpretive notice titled NFA Compliance Rule 2-36: Risk Management Program for Forex Dealer Members. As of January 4, 2016, FDMs must comply with the new financial and compliance requirements.
NFA Financial Requirements Section 11
Section 11 addresses the financial requirements specific to FDMs. The amendments to Financial Requirements Section 11 impact the additional capital that an FDM must maintain. In addition to the base amount and 5% of all liabilities owed to customers that exceed $10 million, the amendments now also requires an FDM to maintain additional capital for transactions with eligible contract participants (“ECPs”), including higher amounts for those that are acting as dealers. The amended financial requirements to Section 11 have been published on the NFA’s website.
NFA Financial Requirements Section 12
Section 12 of NFA Financial Requirements covers security deposits for forex transactions with FDMs. The amendments to Section 12 will now require the collection of security deposits on all forex transactions, prohibit FMDs from acting as counterparties to an ECP in certain situations and FDMs will now be required to notify the NFA is the firm begins requiring higher security deposits than what is required by the NFA. The amended financial requirements to Section 12 have been published to the NFA’s website.
NFA Compliance Rule 2-36
Compliance Rule 2-36 details the requirements and prohibitions associated with forex transactions. As per the amendments to Rule 2-36, FDMs must now adopt a risk management program to monitor and manage the risks associated with forex activities; designate a single principal to serve as the firm’s chief compliance officer; and to make certain information readily available on the firm’s website. The NFA also issued an Interpretive Notice detailing the new risk management program requirements for FDMs. The amendments to Compliance Rule 2-36 have been published to the NFA’s website.
Board and Nominating Committee Members Whose Terms Will Expire at the Board’s 2016 Annual Meeting
In the September 23rd Notice to Members I-15-22 (“Notice”), the Secretary of the NFA (the “Secretary”) announced the Board and Nominating Committee members whose terms will expire at the Board of Directors Annual Meeting in February 2016. The Secretary is also requesting for the names of eligible persons to fill the positions to be submitted prior to the Annual Meeting, February 18, 2016.
Earlier this year, the NFA’s Articles of Incorporation (the “Articles”) were amended to reduce the size of the Board of Directors and set the term of all current Directors and members of the Nominating Committee to expire on the date of the 2016 Annual Meeting. As a result, the Secretary’s Notice included a list of all Board and Nominating Committee members whose term will expire in February 2016. The Notice also includes an explanation of the composition of the Board and Nominating Committee. In order to fill the vacancies, the Secretary is asking NFA members to recommend eligible persons to fill the positions. The Submission to NFA Nominating Committee form should be used to submit eligible persons for nomination. The form can be returned to the NFA by email, fax or mail. The Secretary is requesting the submissions to be returned to the NFA no later than October 16, 2015.
The Notice provides more details regarding the nomination process, positions and the current Directors/Committee Members.
Commodity Futures Trading Commission
The New Registration Deficient ‘RED List’ Identifies Companies Operating Illegally
On September 9th, the CFTC published a list of foreign entities that illegally solicit US residents to trade forex and binary options. The “RED List” is a new tool added to the CFTC’s SmartCheck program, which was launched last year to arm investors with tools to prevent fraud.
The RED List, which stands for Registration Deficient List, is compiled of unregistered foreign entities that the CFTC suspects may be illegally soliciting and/or accepting funds from US residents. Firms soliciting US customers to trade forex and/or binary options are required to the registered with the CFTC. As of the date of the CFTC published the RED List, nineteen firms have been identified as registration deficient and added to the RED List.
The SmartCheck program, which includes the RED List, is part of the tools developed by the CFTC to help investors identify and protect themselves against financial fraud.
For further information about any of the topics covered, please feel free to contact the Ruddy Law Office, PLLC (www.ruddylaw.com) or 202-797-0762.