NATIONAL FUTURES ASSOCIATION
On January 15, 2015 the National Futures Association (“NFA”) released Notice to Members I-15-02 (“Notice”) regarding commodity pool operators (“CPOs”) and commodity trading advisers (“CTAs”) exempt from registration and their obligations under NFA Bylaw 1101 and Compliance Rule 2-36(d). Members operating pursuant to an exemption are required to annually affirm the applicable notice of exemption. The Notice provides details pertaining to Commodity Futures Trading Commission (“CFTC”) Regulations, which require the annual affirmation to be completed within 60 days of each calendar year end. NFA Members are required to file the affirmation notice by March 2, 2015. Failing to file the affirmation by the due date will be deemed a notice to withdrawal the exemption thus prompting registration with the CFTC.
NFA Bylaw 1101 and Compliance Rule 2-36(d) are also issues in regards to the notice of exemption. A Member will lose its exempt status if the NFA Member fails to affirm the notice of exemption, thus resulting in an entity/person operating without proper registration. This then creates an issue for any NFA Member doing business with said entity/person. The NFA Member doing business with another Member that failed to affirm its notice of exemption is violating NFA Bylaw 1101 and Compliance Rule 2-36(d). NFA Bylaw 1101 prohibits Members from doing business with non-NFA Members, or suspended Members, that are required to be to be registered with the CFTC. Compliance Rule 2-36(d) prohibits forex dealer Members from doing business with non-NFA Members.
To ensure compliance with NFA Bylaw 1101 and Compliance Rule 2-36(d), Members must take reasonable steps determine the registration status of the people/entities for which they are conducting business. As per the Notice, Members have from January 1 through March 31, 2015 to determine the registration and Membership status of previously exempted Members to avoid violating NFA Bylaw 1101 or Compliance Rule 2-36(d). The Notice provides detailed instructions for Members on how to proceed and thus ensure compliance:
NFA expects any Member transacting customer business with that person to promptly contact the person to determine whether the person intends to file a notice affirming the exemption. If the Member learns that the person does not intend to file a notice affirming the exemption or the person does not file a notice affirming the exemption by March 2, 2015, then the Member must promptly obtain a written representation as to why the person is not required to register or file a notice exemption, and evaluate whether the representation appears adequate based upon the information that the Member knows about the person. If the Member ultimately determines that the person's written representation is inadequate and the person is required to be registered, then the Member must put a plan in place (e.g., liquidation-only trades) to cease transacting customer business with the person or risk violating NFA Bylaw 1101 or Compliance Rule 2-36(d).
The NFA has placed the burden of confirming registration and Membership status on Members. Members are required to use reasonable steps to identify and determine the registration status of persons/entity which come they conduct business. The NFA provides a detailed list of exempt persons/entities and their affirmation date in the ORS system. Members are encouraged to review the list as part of the process.
Members that use reasonable steps to determine registration/exemption status and follow the procedures outlined in the Notice will not be charged with violating NFA Bylaw 1101 or Compliance Rule 2-36(d). The NFA warns that the guidance contained in the Notice does not in any way relieve a Member of their obligations pursuant to the Commodity Exchange Act or CFTC Regulations.
COMMODITY FUTURES TRADING COMMISSION
On January 13, 2015 the Commodity Futures Trading Commission’s Division of Market Oversight (the “DMO”) issued a letter providing a time-limited extension of the relief granted in CFTC Letter 13-41, regarding the masking of identifiable information some of which is required to be reported. In July 2014, the DMO extended the relief provided in Letter 13-41 until January 16, 2015. As per CFTC Release PR7101-15, the relief has been further extended until January 16, 2016. To be exact, the DMO has extended the expiration of the relief provided by CFTC Letter 13-41, until the earlier of the reporting party no longer holding the requisite reasonable belief regarding the privacy law consequence of reporting or 12.01 am (EST) on January 16, 2016.
The excludable identifying information covered in Letter 13-41 pertained to part 45 and 46 reporting counterparties. As per the Letter, part 45 and 46 reporting counterparties were permitted to mask legal entity identifiers, other enumerated identifiers and other identifying terms, and it permitted part 20 reporting entities to make identifying information in certain enumerated jurisdictions. The extension of the relief granted in the Letter allows reporting parties that have previously met the terms of Letter 13-41 to continue fulfilling their reporting requirements while recognizing applicable secrecy, privacy and blocking laws of certain non-US jurisdictions.
For further information about any of the topics covered, please feel free to contact the Ruddy Law Office, PLLC (www.ruddylaw.com) or 202-797-0762.
