NFA Comments on Proposed Expansion of NFA Membership Requirement to CTAs, CPOs and IBs Engaged in Swaps

The National Futures Association ("NFA") submitted comments to the CFTC regarding the proposed amendment to CFTC Rules Part 170 ("Registered Futures Associations"), which would require all persons registered with the CFTC as introducing brokers ("IBs"), commodity pool operators ("CPOs"), and commodity trading advisors ("CTAs") to become members of a registered futures association ("RFA"); i.e., the NFA.

According to the comment letter, NFA agreed with the CFTC's analysis that given the unique nature of the swaps markets, IBs, CPOs, and CTAs engaging in swap transactions with clients may not be "captured" by NFA Bylaw 1101 ("Prohibition") or NFA Compliance Rule 2-36 ("Requirements for Forex Transactions") and therefore may not be required to become an NFA Member, although the NFA believes that these entities should be subject to the NFA's oversight.

NFA does not believe, however, that it is necessary to extend the NFA membership requirement to CTAs that qualify for an exemption from registration under CFTC Rule 4.14(a)(9) ("Exemption From Registration as a Commodity Trading Advisor"). According to its letter, the NFA Rules primarily focus on the intermediary's conduct with respect to its clients and have little applicability to CTAs that do not direct client accounts or otherwise exercise discretion. Additionally, NFA stated that the risks to the markets and public associated with the business activities of these types of CTAs is significantly less than the risks related to CTAs that actually manage customer accounts.

See: NFA Comment Letter.Related news: CFTC Proposed Rule: Membership in a Registered Futures Association (Fed. Reg. Version) (with Lofchie Comment)(November 8, 2013); CFTC Issues Proposed Rule to Require IBs, CPOs and CTAs to Become Members of a Registered Futures Association (November 5, 2013).