Independent IB Financial Requirements

Today’s Presenters Gregory Prusik Vice-President, Registration Jamila Piracci Vice-President, OTC Derivatives Copyright National Futures Association. All rights reserved.

Topics Covered NFA background NFA membership Regulation of SDs and MSPs Registration process Copyright National Futures Association. All rights reserved.

Topics Covered Due diligence 4s submission process 4s submission review Looking forward Copyright National Futures Association. All rights reserved.

NFAExchanges Regulatory Structure

Industrywide, self-regulatory organization for the U.S. futures industry Began in 1982 to strengthen the integrity of the U.S. futures industry and protect investors Independent regulatory organization with no ties to any specific marketplace National Futures Association Copyright National Futures Association. All rights reserved.

National Futures Association Not for profit; not a trade or lobbying association NFA regulates every firm or individual who conducts futures trading business with public customers and/or forex business with retail investors Copyright National Futures Association. All rights reserved.

Futures Commission Merchant (FCM) Forex Dealer Members (FDM known as RFED) Commodity Pool Operator (CPO) NFA Membership Categories Copyright National Futures Association. All rights reserved.

NFA Membership Categories Commodity Trading Advisor (CTA) Introducing Broker (IB) New Categories: –Swap Dealer (SD) –Major Swap Participant (MSP) Copyright National Futures Association. All rights reserved.

Registration and Membership –Screen firms and individuals –Ensure knowledge and fitness standards are met –Bar or condition unfit applicants Compliance/Enforcement –Conduct audits of our Members’ business operations –Take disciplinary action when needed NFA’s Core Functions Copyright National Futures Association. All rights reserved.

NFA’s Core Functions Dispute Resolution –Offer arbitration and mediation alternatives Education –Assist Members in understanding and meeting regulatory requirements –Help investors better understand trading opportunities and risks Copyright National Futures Association. All rights reserved.

Assure fair representation in the adoption of rules and selection of officers and directors NFA Board of Directors consist of every category of membership Rulemaking to rule enforcement Governance Copyright National Futures Association. All rights reserved.

Funding NFA typically receives its revenue from Membership dues, assessment fees, registration fees, outsourcing and investment income Copyright National Futures Association. All rights reserved.

Registration applications are filed via NFA’s Online Registration System (ORS) This system can be accessed via NFA’s website, NFA’s website has been updated to include a “Swap Information” Section Registration Process Copyright National Futures Association. All rights reserved.

Registration Process SDs and MSPs are required to file the following: –A completed online Form 7-R –A non-refundable application fee of $15,000 –NFA Membership Dues (amount to be determined and assessed at a later date by NFA's Board of Directors) –Documentation demonstrating compliance with any Section 4s Implementing Regulations with a compliance date that has passed Copyright National Futures Association. All rights reserved.

Registration Process SDs and MSPs are required to file the following for their principals: –A completed online Form 8-R –Fingerprint cards –A nonrefundable Principal application fee of $85 Copyright National Futures Association. All rights reserved.

After an SD or MSP is granted provisional registration, it will be required to submit documentation that demonstrates compliance with each of the 4s Implementing Regulations as of the compliance date of those regulations Registration Process Copyright National Futures Association. All rights reserved.

Registration Process The CFTC has adopted a rule requiring registered SDs and MSPs to be NFA Members Copyright National Futures Association. All rights reserved.

Copyright National Futures Association. All rights reserved. Associated Persons of SDs and MSPs Definition of SD/MSP AP parallels the definition of a futures AP Registration of SD/MSP APs is not required Cannot be subject to a statutory disqualification Due diligence SD/MSP AP background checks

Copyright National Futures Association. All rights reserved. 4s Submission Process In order to maintain its provisional registration, an SD or MSP must submit to NFA documentation that demonstrates compliance with each Section 4s Implementing Regulation as of the date of regulation compliance

Copyright National Futures Association. All rights reserved. 4s Submission Process On Feb. 17, the CFTC published the Business Conduct Standards for SDs and MSPs with Counterparties in the Federal Register

4s Submission Process On April 3, the CFTC published the Internal Business Conduct Standards for SDs and MSPs covering: –Recordkeeping, Reporting and Duties Rules (including Risk Management Program and Conflicts of Interest Rules) –Chief Compliance Officer Rules Copyright National Futures Association. All rights reserved.

4s Submission Process SDs and MSPs will be required to comply with certain final regulations at the time they are required to register based on the August 12 publication of product definitions

4s Submission Process As additional CFTC 4s Implementing Regulation rules become final, SDs and MSPs will be required to comply with those additional final rules on the specified compliance date Copyright National Futures Association. All rights reserved.

4s Review Process Once an applicant is provisionally registered, NFA will review its documentation to determine whether it demonstrates compliance with Section 4s Implementing Regulations

4s Review Process NFA expects to determine compliance with each of the 4s Implementing Regulations through a review of written materials and other documentation rather than onsite visits Copyright National Futures Association. All rights reserved.

4s Review Process Staff will conduct its review of 4s submissions as each rule becomes applicable to the particular firm Note that documents submitted pursuant to 4s are registration documents See our website regarding confidential treatment requests

Copyright National Futures Association. All rights reserved. 4s Review Process If NFA determines a provisionally registered SD’s or MSP’s documentation does not demonstrate facial compliance with one or more Section 4s Implementing Regulations, NFA staff will discuss the matter with the SD or MSP to try to resolve deficiencies

4s Review Process If the SD or MSP fails to remedy deficiencies after the Section 4s Implementing Regulation’s compliance date has passed, NFA will formally notify the SD or MSP that its submission is deficient and the SD or MSP will have 90 days from the date of the notification to correct the deficiencies or risk losing its provisional registration Copyright National Futures Association. All rights reserved.

4s Review Process Failure to submit the required Section 4s Implementing Regulation compliance documentation in a timely manner or failure to remedy deficiencies in the documentation may result in an SD’s or MSP's application being deemed withdrawn

Copyright National Futures Association. All rights reserved. 4s Review Process Provisionally registered SDs or MSPs will become fully registered when: –Compliance with all Section 4s Implementing Regulations is required –The SD or MSP demonstrates compliance with all such requirements

Copyright National Futures Association. All rights reserved. Forward Looking Onsite exams will be a part of ongoing monitoring of Members The foundation of exams will be built on the registration process and review of 4s submissions

Forward Looking Frequency of onsite visits and exams will be based on the size and complexity of Member’s operations and NFA’s determination in consultation with the CFTC Copyright National Futures Association. All rights reserved.

Questions?

Contact Information NFA Information Center (312) (800)