NFA Increases Capital Requirements for Forex Dealers, Imposes New Risk Management Requirements (NFA Notice I-15-21)

The CFTC approved NFA amendments to its Financial Requirements, Sections 11 and 12, as well as to NFA Compliance Rule 2-36 and the related Interpretive Notice 9060 on NFA Compliance Rule 2-36.

The amendments to Section 11 of the NFA Financial Requirements require each forex dealer member ("FDM") to continue to maintain a minimum of $20 million in capital, and additional capital that is equal to 5 percent of all liabilities owed to customers (as defined in NFA Compliance Rule 2-36(o)) that exceed $10 million. The amendments to Section 11 also require an FDM to maintain additional capital for transactions with eligible contract participants ("ECPs"), including higher amounts for those that are acting as dealers.

The amendments to Section 12 of the NFA Financial Requirements stipulate that each FDM must (i) collect a security deposit for each forex transaction with an ECP in the same amount the FDM is required to collect for its forex transactions with customers, (ii) notify NFA's Compliance Department immediately via an electronic filing if the FDM begins requiring a security deposit amount that is higher than the amount required by NFA, (iii) act only as counterparty to an ECP acting as a dealer if that ECP dealer collects and maintains from its customers and ECP counterparties security deposit amounts for forex transactions that are equal or greater than the amount required by Section 12.

The NFA amendments to Compliance Rule 2-36 establish that each FDM must adopt a risk management program "that is designed to monitor and manage the risks associated with its forex activities," as outlined by NFA Interpretive Notice 9060. The amendments also mandate that each FDM designate one individual principal to serve as the firm's chief compliance officer ("CCO") (as opposed to the current requirement that permits multiple persons to act as CCOs) and must "make certain information readily available on its website and update the information as necessary."

The amendments to Sections 11 and 12 of the NFA Financial Requirements, as well as to NFA Compliance Rule 2-36, will become effective on January 4, 2016. The first quarterly risk exposure report will be due for the quarter ending on March 31, 2016.