stochastic
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Registration Required by October 18, 2010 http://www.forexlawblog.com/
The central question I had was whether managers (forex CTAs, CPOs) and introducing brokers would need to be actually registered (i.e. completes fingerprints and forex exams) by the time that the regulations are effective. The NFA representative that I spoke with said that yes, forex managers would need to be registered by October 18, 2010. This means that firms who provide investment advice with respect to retail forex will need to cease providing such advice unless the managers are registered with the NFA. Even if a firm is registered, no APs of the firm may provide advice with respect to retail forex unless such APs have passed the Series 34 exam. However, APs which were registered as such with the NFA on May 22, 2008 do not have to pass the Series 34.
Logistical Issues
If this is the case — and we will find out tomorrow — the requirement for forex managers and IBs to be registered by October 18 presents a number of logistical issues.
The first issue is that these managers will need to have passed both the Series 3 and Series 34 exams. As many forex managers are not currently APs of a CFTC registered firm, they will generally not have the Series 3 exam. The Series 3 exam has nothing to do with retail forex trading so persons without futures/commodities industry experience will need to take special care to prepare accordingly. Managers will also need to have passed the Series 34 exam. Studying for and passing both of these exams in the next 6 weeks or so is going to be very difficult.
The second issue will be whether the NFA staff can handle the increased amount of applications from forex managers. The NFA has previously said that they specifically updated their systems to handle an increase in applications (because of forex registration requirements). However, when I asked the NFA representative whether the NFA has hired additional staff to deal with the extra registrations, the NFA representative could not answer me - I suspect the answer is “no” the NFA has not hired additional examiners.
A second part of this issue involves the review and approval of disclosure documents. Both forex CTAs and forex CPOs will need to have their disclosure documents reviewed by the NFA. While registration can be completed fairly quickly if a manager has completed the forex exams and the fingerprint requirement, the disclosure document review process is not short. Typically the review process will last anywhere from 4-8 weeks from the time that the disclosure documents are submitted to the NFA for review (which cannot be sooner than the date a firm is registered). [Note: it is most common for the review process to take around 6-8 weeks depending on the nature of the forex firm.] This means that even if a manager is able to complete the registration process by October 18, it is likely that the manager would not be able to conduct business if the disclosure documents were not approved, which could probably not happen by October 18 even if the manager completed registration tomorrow! It is unclear whether the CFTC and NFA recognize this reality or whether they will grant an exception for managers who have made a good faith effort to comply with the registration requirements.
[Note: the NFA takes much longer to approve the applications for forex IBs - generally it will take anywhere from 4-8 months for a forex IB to become registered.]
The central question I had was whether managers (forex CTAs, CPOs) and introducing brokers would need to be actually registered (i.e. completes fingerprints and forex exams) by the time that the regulations are effective. The NFA representative that I spoke with said that yes, forex managers would need to be registered by October 18, 2010. This means that firms who provide investment advice with respect to retail forex will need to cease providing such advice unless the managers are registered with the NFA. Even if a firm is registered, no APs of the firm may provide advice with respect to retail forex unless such APs have passed the Series 34 exam. However, APs which were registered as such with the NFA on May 22, 2008 do not have to pass the Series 34.
Logistical Issues
If this is the case — and we will find out tomorrow — the requirement for forex managers and IBs to be registered by October 18 presents a number of logistical issues.
The first issue is that these managers will need to have passed both the Series 3 and Series 34 exams. As many forex managers are not currently APs of a CFTC registered firm, they will generally not have the Series 3 exam. The Series 3 exam has nothing to do with retail forex trading so persons without futures/commodities industry experience will need to take special care to prepare accordingly. Managers will also need to have passed the Series 34 exam. Studying for and passing both of these exams in the next 6 weeks or so is going to be very difficult.
The second issue will be whether the NFA staff can handle the increased amount of applications from forex managers. The NFA has previously said that they specifically updated their systems to handle an increase in applications (because of forex registration requirements). However, when I asked the NFA representative whether the NFA has hired additional staff to deal with the extra registrations, the NFA representative could not answer me - I suspect the answer is “no” the NFA has not hired additional examiners.
A second part of this issue involves the review and approval of disclosure documents. Both forex CTAs and forex CPOs will need to have their disclosure documents reviewed by the NFA. While registration can be completed fairly quickly if a manager has completed the forex exams and the fingerprint requirement, the disclosure document review process is not short. Typically the review process will last anywhere from 4-8 weeks from the time that the disclosure documents are submitted to the NFA for review (which cannot be sooner than the date a firm is registered). [Note: it is most common for the review process to take around 6-8 weeks depending on the nature of the forex firm.] This means that even if a manager is able to complete the registration process by October 18, it is likely that the manager would not be able to conduct business if the disclosure documents were not approved, which could probably not happen by October 18 even if the manager completed registration tomorrow! It is unclear whether the CFTC and NFA recognize this reality or whether they will grant an exception for managers who have made a good faith effort to comply with the registration requirements.
[Note: the NFA takes much longer to approve the applications for forex IBs - generally it will take anywhere from 4-8 months for a forex IB to become registered.]
