NFA: Member Obligations under NFA Bylaw 1101 with Respect to Certain IBs Afforded Temporary Registration No-Action Relief

The NFA released the attached regulatory notice detailing NFA member obligations under NFA Bylaw 1101, including the prohibition of an NFA Member from carrying an account, accepting an order or handling a transaction in commodity futures contracts for or on behalf of any non-Member of the NFA that is required to be registered with the CFTC as an FCM, IB, CPO, CTA or LTM. According to the Notice, "Bylaw 1101 by its terms imposes strict liability [emphasis supplied] on any Member conducting business with a non-Member that is required to be registered."

The notice also refers to a very limited exemption from liability under Bylaw 1101 that is provided by CFTC Letter 12-15, which provides that certain firms are not required to be registered by December 31 as long as they have filed an application for registration by that date.

Lofchie Comment: Because of the numerous additional firms that are required to be registered with the CFTC as of the end of this year, compliance with Bylaw 1101 will be a major undertaking for firms' compliance departments in the new year. Each NFA member firm should consider how it will comply with this requirement, which is likely to become something of a moving target, as firms' customers/counterparties may become subject to registration during the year.

I note that the Bylaw references the exemption provided by CFTC Letter 12-15. More recently, the CFTC issued a similar Letter 12-68. See related news item. I assume that 12-68 was not mentioned because it is so recent.

Click here to view notice in full (links externally to NFA website).