NFA Updates Regulatory Requirements

The NFA updated its regulatory requirements for futures commission merchants ("FCMs"), introducing brokers ("IBs"), commodity pool officers ("CPOs") and commodity trading advisors ("CTAs"). The NFA's January 2016 revisions include new material that reflects (i) amendments to the NFA's Financial Requirements Sections 1 and 16, which relate to FCMs' financial requirements, and to FCMs' handling of excess segregated funds and funds of foreign futures and cleared swaps customers; and (ii) the NFA's issuing of a related Interpretive Notice on conforming the NFA's requirements with those of the CFTC's rulemaking: "Enhancing Protections Afforded Customers and Customer Funds Held by FCMs and DCOs" (i.e., derivatives clearing organizations).

In particular, the updated version (i) clarifies the due diligence obligations of an FCM's senior management when establishing a target amount (either a percentage or dollar amount) to maintain as its residual interest in customer-segregated and customer-secured amount funds, as well as in its cleared swaps customer collateral accounts; (ii) requires each FCM to prepare a daily segregation calculation as of the close of business on the previous business day whenever the FCM withdraws, transfers or otherwise disburses funds from any customer-segregated or secured amount fund, or cleared swaps customer collateral account, that exceeds 25% of its residual interest; and (iii) allows an FCM to hold customer-segregated or secured amount funds in cash at an acceptable depository or to invest those funds in one of several investments permitted under CFTC Regulation 1.25(a).