NFA Reminds Its Members of Requirement to Observe High Standards (Notice I-15-01) (with Lofchie Comment)

The NFA issued a Notice reminding its members of the immediately effective amendment to NFA Compliance Rule 2-4 ("Just and Equitable Principles of Trade") regarding swap-related activities.

The amendment extends the NFA's ethical standards to NFA Member Swap Dealers and Major Swap Participants, as well as the swap activities of FCMs, IBs, CPOs and CTAs. These ethical standards require NFA members to observe "high standards of commercial honor" and "just and equitable principles of trade" in their conduct of the commodity futures business.

Lofchie Comment: The requirements to observe high standards of commercial honor and to follow just and equitable principles give the NFA (and FINRA, with regard to comparable requirements) significant latitude to declare conduct to be retroactively improper. That is, any conduct that the regulators deem to have constituted sharp dealing or otherwise to have been inappropriate can be deemed to have violated a rule, even in the absence of any specific rule relating to the conduct.

See: NFA Notice to Members I-15-01.Related news: NFA Proposes Amendment to Compliance Rule 2-4 (December 2, 2014).