1. National Futures Association

2. Agenda Introduction to NFA Compliance Department Responsibilities and Enforcement Activities www.nfa.futures.org FOR MORE INFO...

3. What is NFA? A Congressionally authorized self- regulatory organization for the United States Futures Industry NFA is a membership organization

4. NFA’s Core Values  Highest level of service for our customers.  Teamwork, competence, integrity, trust, respect and cultural diversity.  Continuous learning opportunities.  Recognition of team and individual achievements.  Open communication.  Active participation by all employees in fulfilling our mission.

5. NFA’s History NFA was formed in 1976 and commenced operations in 1982. The Commodity Futures Trading Commission (“CFTC”) oversees NFA’s activities and has delegated more and more responsibilities to NFA throughout NFA’s history.

6. NFA’s Four Primary Functions 4 Registration 4 Arbitration 4 Education 4 Compliance

7. NFA Membership Count 3,990 Member Firms* 47,600 Associate Members (individuals) *approximate number as of March 31, 2000

8. NFA Employees Total number of employees: 305* Headquartered in Chicago and a regional office in New York (Compliance employees only) *approximate number as of July 15, 2000

9. Compliance Responsibilities  Audit of Members to ensure compliance with NFA/CFTC Rules  Financial Analysis/Surveillance  Investigations  Disclosure Document Review  Advertising Regulation Surveillance  Enforcement/Disciplinary Action  Electronic Market Surveillance

10. Compliance Department Structure

11. New Staff Training 3 permanent trainers on staff 2 structured in-house training programs 1 on 1 training in the field On going training classes

12. Staff Auditor Responsibilities Audits Financial Analysis Phone Duty Investigations Recruiting

13. More on NFA’s Responsibilities Audits

14. NFA’s Audit Objectives 4 To determine whether a firm is maintaining records in accordance with NFA Rules. 4 To ascertain that each firm is operating in a professional manner. 4 To ensure customers are protected from unscrupulous activities, including misleading and high pressure sales practices. 4 To ensure proper maintenance of financial requirements.

15. Frequency of NFA Audits All NFA Member firms are subject to being audited. Based on routine cycles, judgement, and computerized priority system. NFA Members holding customer funds are audited annually.. NFA goal is to ensure that all active Members are audited within three years.

16. Frequency of NFA Audits Other factors that may prompt an audit: –Amount of funds under management –NFA’s monitoring of media advertising and disclosure documents –Receipt of customer complaints –Potential effects of market movements –Referrals from outside NFA

17. At the completion of an audit: NFA auditors conduct an exit interview with firm personnel. Firm receives an audit report of findings. Determination made regarding disciplinary action based on seriousness of findings.

18. More on NFA’s Responsibilities Financial Analysis

19. NFA’s Financial Analysis Objectives: To ensure that each firm is in compliance with its minimum net capital requirement. To review for proper accounting of customer funds (including commodity pools).

20. Review Consists of: Classification of assets Unusual fluctuations in balances from prior submission Review of footnotes for unusual explanations and required disclosures Daily review of fluctuations in customer funds to determine market exposure and effect on capital requirements

21. More on NFA’s Responsibilities Investigations

22. NFA’s Investigation Objectives 4 To analyze and resolve allegations of potential violations of NFA Requirements from a variety of sources. 4 To determine if pattern of misconduct by a firm or broker exists which would warrant further investigation of the firm’s activities.

23. Sources of information for Investigative Matters: Oral or written complaints from customers about a firm’s or broker’s conduct Registration forms indicating that an individual was terminated involuntarily Promotional material that is submitted for pre-view or is required to be submitted Other governmental and regulatory agencies

24. Investigative Steps: Based on type of allegations, conduct customer interview, analyze account documents, activity statements, etc. Contact firm for additional information. Determine disposition based on findings: –Close with no action. –Forward to appropriate agency. –Initiate audit. –Issue “staff letter”. –Recommend formal disciplinary action.

25. More on NFA’s Responsibilities Disciplinary Process

26. Disciplinary Matters Result From: Audits Promotional material review Investigative matters Financial analysis

27. Range of penalties (whether settled or adjudicated by Hearing Panel) Expulsion or suspension. Bar or suspension for specified period from association with NFA Member. Censure or reprimand. Monetary fine, not to exceed $250,000 per violation. Order to cease and desist. Other penalty or remedial action (e.g. pre- view and approval of promotional material or taping of sales solicitations, etc.)

28. More on NFA’s Responsibilities Recruiting

29. Newest Endeavor: Market Surveillance

30. Monitoring the Electronic Exchange Market –Corners –Squeezes –Manipulations Monitor Large Market Participants Effect on the Market –Positions –Deliveries –Exchange for Physicals

31. Trade Practice Surveillance Reviewing Exchange’s Daily Transaction Log Reviewing the Exchange’s Trading Standards

32. National Futures Association Interested in joining our team??

33. What we are looking for. Motivated individuals that are flexible and work well in a team setting. Individuals that have an interest in financial markets. Accounting and Finance majors that meet GPA and classwork requirements.

34. Benefits of NFA Young environment Excellent benefits--401(k), health, dental Flex time Travel Competitive salary

35. Questions???