When You Mess with the CFTC, You Mess with NFA; NFA Proposes Adoption of Compliance Rule 2-49 (with Lofchie Comment and YouTube Video)

The National Futures Association proposed new NFA Compliance Rule 2-49 ("Swap Dealers and Major Swap Participants Regulations") regarding the conduct of swaps dealers and major swap participants. If approved, the amendment would specially provide that any violation by an NFA member of CFTC Regulation 3.3 (Chief Compliance Officer requirements) or Part 23 of the CFTC Regulations (regulations applicable to SDs and MSPs) would be deemed a violation of an NFA requirement. Proposed NFA Compliance Rule 2-49 would also require an NFA member SD or MSP to promptly submit to NFA, upon request, "any reports, documents or notices, including those required under CFTC Regulation 3.3 or Part 23 of the CFTC's Regulations" (emphasis added).

Lofchie Comment: The explanation of the proposed amendment indicates that the CFTC expected the NFA to adopt compliance rules applicable to swap dealers and major swap participants that "were at least as stringent as the Commission’s [rules]."While these rules are not particularly novel (the NFA has substantially similar requirements incorporating CFTC Regulations applicable to futures commission merchants, commodity pool operators, introducing brokers, and others), the issue raises some interesting questions about the nature of the system of self-regulation. First, what does it say about the nature of "self"-regulation if the government instructs a "self"-regulatory organization to adopt even tougher rules than the government? This seems to make the SRO a mere extension of the government. Second, if the SRO is just an extension of the government, shouldn’t the same rules (e.g., notice-and-comment rulemaking and cost/benefit analysis) apply to NFA rulemaking?

See: Text of Proposed Amendment.See also: YouTube Video.