National Futures Association

From MarketsWiki

National Futures Association (NFA)
Founded	1982
Headquarters	Chicago
Key People	Daniel J. Roth, President, Chief Executive Officer; Daniel A. Driscoll, Executive Vice-President, Chief Operating Officer; Kenneth F. Haase, Senior Vice-President, Information Systems; Thomas W. Sexton, III, Vice-President, General Counsel and Secretary; Karen K. Wuertz, Senior Vice-President, Strategic Planning and Communications
Products	Registration, Compliance, Enforcement, Trade Practice and Market Surveillance, Dispute Resolution, Education
Web site	www.nfa.futures.org

National Futures Association (NFA) is the industrywide, self-regulatory organization for the U.S. futures industry. NFA's purpose is to safeguard market integrity, protect investors and help NFA Members meet their regulatory responsibilities. Individuals and firms that engage in futures business with the public are required to be members of NFA.^[1]

Contents 1 History 2 What NFA Does 2.1 Registration 2.2 Compliance rules and financial requirements 2.3 Enforcement 2.4 Trade practice and market surveillance 2.5 Dispute resolution 2.6 Educational outreach 2.7 BASIC 3 Who Makes Self-Regulation Work 4 News 5 References

History

The 1974 Commodity Futures Trading Commission Act, which established the CFTC, also contained a provision (Section 17) that gave the futures industry the opportunity to create a "futures association." The expectation was that such an organization would perform self-regulatory activities that would complement those of the newly created CFTC.

In 1976, a group of industry leaders, led by Leo Melamed, recognized the efficiencies that a national self-regulatory organization would bring to the futures industry and began the development process. This group, known as NFA's Organizing Committee, reflected a cross section of business activities and regional considerations. The Committee members, many of whom became members of NFA's initial Board of Directors, included Melamed, John J. Conheeney, David T. Johnston, George D. F. Lamborn, Warren W. Lebeck, Leslie Rosenthal and Howard A. Stotler.

In 1982, Robert K. Wilmouth, then president of the Chicago Board of Trade, signed on as NFA's first president and chief executive officer.

Wilmouth retired as president in 2002. He was succeeded by Daniel J. Roth who had served previously as NFA General Counsel.

What NFA Does

NFA delivers self-regulatory programs that contribute to the integrity of the futures industry.

Registration

With some exceptions, anyone who does futures business with the public has to be registered. The primary purposes of registration are to screen an applicant's fitness to engage in business as a futures professional and to identify individuals and organizations that are subject to federal regulation. Registration categories are:

• Futures Commission Merchant
• Introducing Broker
• Commodity Pool Operator
• Commodity Trading Advisor
• Associated Person
• Principal
• Floor Broker
• Floor Trader
• Agricultural Trade Option Merchant

Every registration applicant is subject to a fitness review, which includes a background check, and must meet proficiency testing requirements. Applicants use the web-based NFA Online Registration System to complete the registration process.

In addition to managing the registration system, NFA is responsible for denying, revoking, suspending, restricting or conditioning any firm's registration or membership. These decisions are made by the NFA Membership Committee, after a hearing.

Compliance rules and financial requirements

Over the years, NFA has developed sales practice rules that harmonize industry business practices covering such areas as advertising, telephone solicitations, risk disclosure, discretionary trading, disclosure of fees, minimum capital requirements, reporting and proficiency testing.

In addition to following sales practice rules, FCM and IB members are required to meet financial requirements patterned after CFTC and exchange standards. Forex Dealer Members of NFA are also subject to net capital requirements.

NFA staff perform audits and examinations of Members to monitor compliance with these rules and requirements.

Enforcement

When rule violations occur, NFA is authorized to take disciplinary actions. Sanctions range from Warning Letters for minor infractions to formal Complaints in cases where violations warrant prosecution.

Penalties including expulsion, suspension for a fixed period, prohibition from future association with any NFA Member, censure, reprimand and fines of up to $250,000 per violation are determined by a Business Conduct Committee comprised of NFA Members.

Trade practice and market surveillance

NFA performs regulatory services and programs for many of the newer electronic exchanges that help ensure orderly markets and make certain that customers of these exchanges receive the same protections as those of more traditional exchanges.

Dispute resolution

NFA's online arbitration and mediation programs provide informal and inexpensive alternatives to litigation.

Arbitration cases are heard by a panel of arbitrators. Claims for smaller amounts can be resolved by a single arbitrator based solely on written submissions. Claimants may choose to be represented by counsel, or they can represent themselves. Arbitration awards are final and can't be appealed.

Mediation gives participants a chance to negotiate a mutually agreed upon settlement.

Educational outreach

Helping investors make informed decisions about futures trading is one of NFA's core responsibilities. NFA publications^[2] discussing a variety of futures-related topics are available on the NFA Web site or can be requested from NFA's Information Center (800) 621-3570. NFA publications for investors include:

• Annual Review^[3]
• Background Affiliation Status Information Center (BASIC): An Information Resource for the Investing Public^[4]
• Introduction to National Futures Association^[5]
• NFA Arbitration: Resolving Customer Disputes^[6]
• NFA Mediation: Controlling the Outcome of Your Dispute^[7]
• Opportunity and Risk: An Educational Guide to Trading Futures and Options on Futures^[8]
• Scams and Swindles: An Educational Guide to Avoiding Investment Fraud^[9]
• Security Futures: An Introduction to Their Uses and Risks^[10]
• Trading in the Retail Off-Exchange Foreign Currency Market - What Investors Need to Know^[11]

NFA also is a member of the Alliance for Investor Education. ^[12]

BASIC

NFA also operates the Background Affiliation Status Information Center, or BASIC database, which contains registration information for all current and former CFTC registrants, as well as information about disciplinary actions taken by NFA, the CFTC and the U.S. futures exchanges.

All of NFA's programs are financed by membership dues and assessment fees paid by users of the futures markets.

Who Makes Self-Regulation Work

NFA is a member-run organization. Policy direction is provided by a 25-member Board. The NFA Board of Directors consists of 14 individuals from the FCM, IB, CPO and CTA communities. These directors are joined by six representatives from U.S. futures exchanges and five public representatives who have no association with the futures industry.

Members also comprise NFA's Business Conduct Committee, Advisory Committees and several special committees that engage Members in every aspect of NFA's regulatory efforts.

News

• In June of 2008, NFA was named to a list of the top companies in the large and medium-sized divisions, respectively, in the “Best Places To Work in Illinois in 2008” awards program presented by The Business Ledger.^[13]

• Early in December 2007, NFA announced that as of Jan. 1, 2008, it planned to cut in half the assesment fees it levies on futures and futures options contracts traded on behalf of public customers. The new rate, $0.01/side (from $0.02/side) is the lowest assessment fee in NFA's history and the eighth reduction in the fee in the last nine years.^[14]

References

1. ↑ Who has to register. National Futures Association. Retrieved on June 18, 2008.
2. ↑ NFA Publications. National Futures Association. Retrieved on December 7, 2007.
3. ↑ NFA Annual Review. National Futures Association. Retrieved on December 7, 2007.
4. ↑ Background Affiliation Status Information Center (BASIC) Guide. National Futures Association. Retrieved on December 7, 2007.
5. ↑ Introduction to National Futures Association. National Futures Association. Retrieved on December 7, 2007.
6. ↑ NFA Arbitration: Resolving Customer Disputes. National Futures Association. Retrieved on December 7, 2007.
7. ↑ NFA Mediation: Controlling the Outcome of Your Dispute. National Futures Association. Retrieved on December 7, 2007.
8. ↑ Opportunity and Risk: An Educational Guide to Trading Futures and Options on Futures. National Futures Association. Retrieved on December 7, 2007.
9. ↑ Scams and Swindles: An Educational Guide to Avoiding Investment Fraud. National Futures Association. Retrieved on December 7, 2007.
10. ↑ Security Futures: An Introduction to Their Uses and Risks. National Futures Association. Retrieved on December 7, 2007.
11. ↑ Trading in the Retail Off-Exchange Foreign Currency Market - What Investors Need to Know. National Futures Association. Retrieved on December 7, 2007.
12. ↑ Members. Alliance for Investor Education. Retrieved on February 13, 2008.
13. ↑ They're No. 1--Edward Jones and Tasty Catering. The Business Ledger. Retrieved on June 18, 2008.
14. ↑ National Futures Association to reduce assessment fees in 2008. www.nfa.futures.org. Retrieved on December 5, 2007.