National Futures Association

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National Futures Association (NFA)
Image:Nfalogo1.jpg
Founded 1982
Headquarters Chicago
Key People Daniel J. Roth, President, CEO; Daniel A. Driscoll, Executive Vice-President, COO; David L. Hawrysz, Vice-President, CFO; 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 industry-wide, 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]

There are currently more than 4,200 NFA Member firms and 55,000 NFA Associate Members.[2]

Contents

What NFA Does

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

NFA advisory committees work with staff to craft NFA Sales practice rules that ensure members meet high ethical standards in their dealings with customers.

History

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The 1974 Commodity Futures Trading Commission Act, which established the Commodity Futures Trading Commission (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.

Business Conduct Committee

NFA's Business Conduct Committee (BCC) is composed of nine individuals, three of whom must have no affiliation with any NFA Member. These individuals are appointed by NFA's board to serve three-year terms.

The committee is responsible for reviewing audit and investigative reports prepared by NFA compliance staff. Typically, reports are reviewed by BCC panels, three-person subsets of the larger group.[1] If the reports allege violations of NFA rules, the BCC has the option of issuing either:

1) A Warning Letter to the firm that identifies remedial actions, or

2) A formal complaint that charges the Member with specific rule violations. When the BCC issues a Complaint, the Member has the right to respond to the allegations in the Complaint and request a hearing before the members of the NFA Hearing Committee.

Membership Committee

There are 11 individuals on NFA's Membership Committee. Five members are selected from the NFA's board. One of the board members is required to be a public director, and at least three of the non-board members must represent organizations that are not members of NFA. These individuals are appointed by NFA's board to serve two-year terms.

The committee reviews decisions NFA's president makes about whether applicants can either 1) become members of NFA or register as Associates, or 2) continue to be eligible for NFA membership or registration. The committee can designate a subcommittee to act on its behalf.

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:

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.

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.

Membership Details

All registered FCMs, IBs, CPOs and those registered CTAs who manage or exercise discretion over customer accounts must be members of the NFA in order to conduct futures business with the public.

Persons acting as Associated Persons of NFA Members must become NFA Associate Members.

NFA Members have to meet rigorous registration requirements, including fitness screening and proficiency testing. Once they become members, they have to continue to follow NFA's standards because NFA has the authority to deny, revoke, suspend, restrict or condition any firm's or individual's registration.

Mandatory membership is the cornerstone of NFA's regulatory structure, and effective industry wide self regulation is not possible without it. NFA Bylaw 1101 very clearly prohibits the conduct of customer business with non-NFA Members.

Members have to be especially diligent not to violate Bylaw 1101. They must examine the relationships they have with other registrants, with customers, with third-party account controllers, with branch offices and so on, to determine that they are in compliance.

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 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:

NFA also is a member of the Alliance for Investor Education.[9]

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.

Podcasts

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.

The board is responsible for managing NFA's property, business and affairs, and exercising any powers that are directed, required or permitted by law, or by NFA articles or bylaws.[10]

The board's annual meeting, at which officers are elected and committee appointments are made, is held in February. NFA's board typically meets on a quarterly basis. The 25-member board includes:

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.[11]
  • Early in December 2007, NFA announced that as of Jan. 1, 2008, it planned to cut in half the assessment 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.[12]

Resources

References

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