CFTC Requires Membership in NFA
Commentary by Bob Zwirb
The CFTC approved Rule 170.17, which requires all registered introducing brokers and commodity pool operators, as well as certain commodity trading advisors, to be members of a registered futures association; i.e., the National Futures Association.Persons who are subject to the rule must comply with it by December 31, 2015.
Commentary
There is both more and less here than meets the eye. Membership in a "futures association" - i.e., the NFA - is mandatory already for any registered commodity pool operator ("CPO") or commodity trading advisor ("CTA") who manages or exercises discretion over futures customer accounts. See CFTC Staff Letter 01-92 (Dec. 11, 2001) (a registered CTA must become an NFA member before directing client accounts). However, because NFA Bylaw 1101 prohibits NFA members from conducting customer business with any entity that is not an NFA member (unless that nonmember is exempt from CFTC registration requirements) but relates only to commodity futures contracts, those CTAs and CPOs that deal only in swaps can avoid becoming members of the NFA even though they are registered with the CFTC. New CFTC Rule 170.17 is directed at those kinds of CTAs and CPOs (along with introducing brokers).
The CFTC rules in this area are designed to require mandatory membership in the NFA. NFA Bylaw 1101 in turn seeks to prevent NFA members from undermining this requirement by prohibiting them from conducting business with nonmembers. Thus, the new CFTC rule fills a gap in the current regulatory scheme. Complying with these requirements involves a lot of due diligence, and that burden remains unchanged.