NFA Notice to Members I-09-07 February 26, 2009
Effective Date of NFA Forex Requirements
NFA has received notice that the Commodity Futures Trading Commission has approved amendments to existing NFA forex requirements as well as a new compliance rule regarding forex customer statements. The amendments and new rules will become effective as set forth below.
Hypothetical Performance, Weekly Reports, Rollover Charges, and Managing Customer Accounts: Effective April 1, 2009
Effective April 1, 2009, NFA Compliance Rule 2-36(i) will make clear that if a Member uses hypothetical results in forex promotional material it must comply with NFA Compliance Rule 2-29(c) and the related Interpretive Notice. Although the detailed requirements regarding hypothetical performance results do not become effective until April 1, Members are reminded that using hypothetical forex performance in a misleading manner has always violated NFA Compliance Rule 2-36.
As of April 1, the forex weekly reports must be submitted by a supervisory employee who is, or is under the ultimate supervision of, a listed principal who is also an NFA Associate. Section 13 already requires, and will continue to require, that the person filing the report have authority to bind the firm.
Also effective April 1, Forex Dealer Members ("FDMs") and their Associates are expressly prohibited from exercising trading authority over customer accounts for which the FDM acts as counterparty. The Interpretive Notice does not prohibit FDMs and their Associates from exercising discretion over customer accounts if another FDM is the counterparty.
Finally, as of April 1, an FDM must have a written policy detailing the procedures used to calculate rollover charges and payments. The Interpretive Notice does not dictate the calculation the FDM must use, nor does it require the FDM to use the same calculation in all market conditions. The procedures must, however, set forth the factors that the FDM takes into consideration when calculating the rollover charge, as well as the sources for such factors. The FDM must maintain the documentation of the underlying factors it looked at in calculating the charge so NFA can replicate the calculation during an audit.
Forex Customer Statements - New NFA Compliance Rule 2-44: Effective June 1, 2009
New NFA Compliance Rule 2-44, which becomes effective on June 1, 2009, describes the information that must be included in FDM confirmations and monthly statements. In addition to initiating and liquidating transactions, Compliance Rule 2-44 requires confirmations for rollovers and any adjustments to an account, including those that debit or credit the account rather than changing the price. The rule also requires that the monthly statement show all transactions for both forex options and non-options contracts, even if the position is closed by the end of the month. Rollovers do not have to be included on the monthly statement.
Compliance Rule 2-44 also requires FDMs to provide readily accessible daily statements that include the account equity in a customer's account. Compliance Rule 2-44 permits an FDM to meet its delivery requirements for confirmations and monthly statements by providing on-line access where the customer consents to that method.
The Supervision of the Use of Electronic Trading Systems: Effective June 1, 2009
The amendments to the Interpretive Notice to Compliance Rule 2-36(e) regarding Supervision of the Use of Electronic Trading Systems will also become effective on June 1, 2009. These amendments require each FDM to:
* notify NFA of the trading platform(s) it uses and of the owner of each platform;
* audit the trading system annually, with the initial and biannual audits conducted by an outside party;
* notify NFA as soon as reasonable, but no more than twenty-four hours, after it experiences operational difficulties with its trading platform;
* provide advance disclosure (when an account is opened and on the FDM's web site) of the factors that might affect the system's performance and an alternative means of contacting the FDM during system outages or slow-downs;
* provide customers with relevant time and sales information (upon request);
* provide customers with year-end reports showing realized profits and losses incurred during the year and unrealized profits and loses on open positions as of the end of the year;
* produce to NFA, upon request, a sortable report showing monthly and yearly realized and unrealized losses by customer; and
* maintain written procedures describing how settlement prices will be set using objective criteria.
Copies of the amendments and new Compliance Rule 2-44 can be viewed in NFA's submission letters to the CFTC. The rule submission letters contain more detailed explanations of the changes, and you can access electronic copies of those letters at
http://www.nfa.futures.org/news/PDF/CFTC/CR2_36_2_39_FRSec13_InterpNotc112408.pdf,
http://www.nfa.futures.org/news/PDF/CFTC/CR2-44_Forex_Interp_Notc_112408.pdf, and
http://www.nfa.futures.org/news/PDF/CFTC/IntNotc_CR2-36e_Elec_Trading_Systems_112408.pdf.
Questions concerning these changes should be directed to Sharon Pendleton, Director, Compliance (
[email protected] or 312-781-1401) or Lauren Brinati, Senior Manager, Compliance (
[email protected] or 312-781-1215
