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
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NFA background
NFA membership
Regulation of SDs and MSPs
Registration process
Copyright 2012. National Futures Association. All rights reserved.
Topics Covered
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Due diligence
4s submission process
4s submission review
Looking forward
Copyright 2012. National Futures Association. All rights reserved.
Regulatory Structure
NFA
Exchanges
National Futures Association
• 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
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.
NFA Membership Categories
• Futures Commission Merchant (FCM)
• Forex Dealer Members (FDM known as RFED)
• Commodity Pool Operator (CPO)
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.
NFA’s Core Functions
• 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
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.
Governance
• 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
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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 Process
• 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
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.
Registration Process
• 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
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.
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
Copyright 2012. National Futures Association. All rights reserved.
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.
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
Copyright 2012. National Futures Association. All rights reserved.
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.
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
Copyright 2012. National Futures Association. All rights reserved.
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.
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
Copyright 2012. National Futures Association. All rights reserved.
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.
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
Copyright 2012. National Futures Association. All rights reserved.
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
information@nfa.futures.org
jpiracci@nfa.futures.org
gprusik@nfa.futures.org