The National Futures Association ("NFA") proposed amendments to NFA Compliance Rules and Interpretive Notices to cover transactions and counterparties involving swaps. The NFA stated that the amendments to the NFA Rules are designed to (i) incorporate references to swaps and counterparties, as well as other related concepts, (ii) clarify that certain rules apply to all commodity interests, defined as means futures, forex and/or swaps, and (iii) clarify that other rules only apply to certain membership categories.
Specifically, the NFA approved the following NFA Rule amendments:
- NFA Compliance Rule 1-1 ("Definitions") to add definitions for the terms commodity interest, major swap participant, swap dealer and swap;
- NFA Compliance Rule 2-2 ("Fraud and Related Matters") to include references to swaps, counterparties and related concepts;
- NFA Compliance Rule 2-3 ("Sharing in Profits") to expand it to include all commodity interests;
- NFA Compliance Rule 2-6 ("Expelled or Suspended Member or Associate") to expand the rule to apply to all commodity interests and to clarify the scope of the rule;
- NFA Compliance Rule 2-10 ("Recordkeeping") to list all member categories to clarify that English records and fluency requirements apply to swap dealer members;
- NFA Compliance Rule 2-38 ("Business Continuity and Disaster Recovery") to clarify the member categories that are subject to their coverage;
- NFA Compliance Rule 3-1 ("Department of Compliance") to get rid of the limited purpose definition of commodity interest; and
- NFA Compliance Rule 3-15 ("Member or Associate Responsibility Actions") to include references to commodity interest and counterparties.
In addition, the NFA approved amendments to the following Interpretive Notices to "integrate the applicable rule amendments":
- NFA Compliance Rule 2-4: "Guidelines for the Disclosure by FCMs and IBs of Costs Associated with Future Transactions";
- NFA Compliance Rule 2-6: "Conducting Commodity Futures Business with an Expelled or Suspended Member or Associate";
- NFA Compliance Rule 2-4: "Disclosure Guidelines for FCMs Offering Sweep Accounts"; and
- NFA Compliance Rules 2-4 and 2-36: "Prohibition on the Use of Certain Electronic Funding Mechanisms."
Commentary / Steven Lofchie
Firms should promptly review their compliance procedures to see how they match up against the new requirements. That said, none of the new requirements should meaningfully impair the business of any NFA registrant.
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