The National Futures Association (NFA) is a self-regulatory organization for the futures industry established in 1976 in accordance with the provisions of Section 17 of the US Commodity Exchange Act. It is a non-profit membership organization. Section 17 of the Commodity Exchange Law originated from Chapter 3 of the Commodity Futures Trading Commission (CFTC) Act of 1974. This part stipulates the registration of futures associations and the CFTC's supervision of futures professional self-regulatory associations. On September 22, 1981, the CFTC accepted the NFA and officially became a "registered futures association". On October 1, 1982, the NFA officially began operations.
PART 1: NFA's responsibilities
Several regulatory responsibilities performed by NFA are:
●Audit and supervise members must meet NFA's financial requirements;
● Formulate and enforce rules and standards to protect the interests of customers;
● Arbitrate disputes related to futures;
●Approval of NFA membership, futures agents (FCMs), introducing brokers (IBs), commodity trading advisors (CTAs) and commodity joint fund managers (CPOs) can all become members of the NFA.
In addition, as authorized by Section 17, NFA performs some of the registration functions previously performed by the CFTC in the Commodity Exchange Law. Any organization or individual registered in the CFTC can become a member of the NFA, including all futures exchanges and any other futures business, as long as the applicant meets the membership qualifications of the NFA. In addition, since August 31, 1985, in accordance with the Commodity Exchange Act, employees of NFA members as "associated persons" are required to register as "associated members" of NFA. The CFTC also authorizes the NFA to process applications for registration of on-site brokers and on-site dealers. According to NFA rule 1101 and CFTC rule 170-15, all FCM, IB, CTA and CPO must take advantage of NFA membership.
PART 2: The purpose of NFA
From the very beginning, the leaders of the NFA believed that the NFA must do everything in its power to benefit the public and the futures industry. To this end, the NFA has set two basic goals and written them in the NFA rules approved by the CFTC:
The futures industry itself effectively manages those institutions and personnel outside the exchange standard and supervision system;
Taking into account the interests of all taxpayers, especially market users, by eliminating the overlapping, alternating and conflicting parts of the existing government and self-regulatory organization functions, and by reducing federal regulatory costs, a good control of regulatory costs is achieved.
PART 3: Preparatory work
Promoting the creation of the NFA is a preparatory committee established in 1976 and composed of futures industry officials from Chicago and New York. They have extensive experience in exchange operations, brokerage company management, commodity trading and trading association activities. (NFA Preparatory Committee (1976-1982) members: Leo Melamed (Chairman), David T. Johnston (Vice Chairman), John J. Conheeney, George DF Lamborn, Warren W. Lebeck, Leslie Rosenthal, Howard A. Stotler)? Committee members had full exchanges with other leaders in the futures industry, and held several preparatory meetings attended by industry representatives on different occasions. These meetings lasted until 1981 when NFA was formally approved by the CFTC.
In the early days, the preparatory committee reached some important consensus: First, in order to truly reduce costs, it is necessary to establish the only national organization representing all aspects of the futures industry, rather than a decentralized regional or local futures association; Second, unless they join the NFA, it is impossible for practitioners or personnel at all levels of the industry to successfully carry out self-discipline management, and at the same time cannot freely withdraw from the association to avoid complying with ethical and financial rules. On the other hand, the preparatory committee decided that NFA membership should be open to all institutions or individuals in the futures industry, and NFA membership should be mandatory for those institutions or individuals that directly handle investor transactions.
In February 1977, the preparatory committee went to the CFTC to report on some preliminary ideas. The CFTC believed that the NFA's vision was "a valuable step towards the goal of establishing a registered futures association." The CFTC proposed to "establish a joint venture with NFA representatives." Viable organization "and "seeking solutions to problems, seeking alternative solutions". In June 1977, the NFA Preparatory Committee provided the CFTC with a plan to unify membership requirements, requiring all institutions or individuals directly engaged in public business in the industry to become members of the NFA. The CFTC approved this mandatory NFA membership in principle. Qualification concept.
In 1978, the Preparatory Committee concentrated on revising the Commodity Exchange Act, and all three amendments of the NFA were adopted by Congress in the 1978 Futures Exchange Act. These amendments involve issues such as compulsory membership and simplifying high-cost procedures. The "Futures Trading Law" promulgated and implemented in 1982 has made more perfect amendments in this regard, including expanding the powers of the NFA and recognizing all the registration obligations stipulated by the "Commodity Exchange Law". In addition, Congress reaffirmed the principle of mandatory NFA membership.
During the preparatory period, NFA received financial support from the futures exchange and at the same time received tax exemption treatment in accordance with the Internal Revenue Law. The NFA has also published and distributed a booklet explaining the NFA situation in detail. A preliminary board of directors consisting of members of the preparatory committee was elected, and the NFA hired temporary officials to manage it. The formal registration application of the NFA was submitted to the CFTC on March 16, 1981. After a hearing and extensive examination of public opinions, the CFTC formally approved the registration of the NFA on September 22, 1981. In December 1981, an acting executive officer was appointed, and in January 1982, a temporary office was opened to the public.
For the remainder of 1982, the full-time president of NFA was appointed, experienced management, legal, secretarial, supervisory and registration staff were hired, the NFA system began to operate, members began to register, a transitional board of directors was appointed, and Established permanent offices in Chicago and New York. On October 1, 1982, the NFA's first regulatory plan (for FCMs) began to be implemented. In February 1983, the NFA's first board of directors elected by members was announced, and the extraordinary preparatory work that had taken more than six years was finally ended.
PART 4: NFA's organizational structure
1) Board of Directors
The NFA Board of Directors consists of 45 directors:
In the board of directors, up to 11 NFA exchange members can participate in the board of directors. Exchanges that accounted for less than 20% (including 20%) of the total trading volume of the US futures market in the previous year can get a board seat, and the trading volume exceeds the year. Exchanges with 20% of the total trading volume can get two seats on the board of directors. Currently, NFA has 13 exchange representatives, including two representatives from the Chicago Board of Trade and the Chicago Mercantile Exchange.
The 17 directors are from the FCM and IB members of the NFA. The distribution method is: 3 directors are selected from FCMs with 1-15 offices, 3 directors are also selected from FCMs with 16-50 offices, and the other two seats are allocated to the above two categories Any type, but the total number does not exceed 8. Six directors were elected from FCMs with more than 50 offices. IBs can get 3 seats, one allocated to independent IBs, one allocated to guaranteed IBs and the other allocated to any of the above two categories. The 6 directors come from the category of "industry participants", and CPOs and CTAs can each have 3 seats on the board of directors. The last 9 seats are reserved for public directors.
2) Executive Committee
Although all relevant regulations, budgets, funds, plans and priorities are determined by the entire NFA board of directors, in order to handle the busy daily affairs, NFA has established an executive committee.
The executive committee has 10 members, two of which are the president and the chairman of the board of directors. In addition, there are 2 executive committee members representing exchange members, one from an exchange "over 20%" and the other from a market "below 20%" (but 2 members must come from exchanges in different places); 3 The executive committee members are from FCMs or IBs, but there cannot be two FCM members from the same region. The two executive committee members come from the industry participation category (such as commercial banks, etc.), and they must also come from different categories and different regions (for example, there cannot be two CPO members serving on the executive committee at the same time, and two from the industry participation category Members of the Executive Committee cannot be from the same region, even if they represent different categories). Finally, there must be a public director to serve on the committee.
Because the executive committee is organized by category, the members of the executive committee are elected by the directors in that category, but the public directors in the executive committee are elected by all the board members.
3) Board election
The board of directors is elected by NFA members in the annual elections held in January each year. Generally speaking, the directors of exchange members are appointed by the exchange. Director candidates other than public directors, commercial company directors and commercial bank directors can be selected through three ways: (1) the list of candidates proposed by the NFA nomination committee; (2) 50 or more NFAs from the same category Members can nominate candidates for that category by submitting applications; (3) Any association recognized by the NFA that can fairly represent a category of members can submit candidates for that category. Public directors, directors of commercial companies and directors of commercial banks are selected by the entire board of directors from a list of candidates compiled from members.
Candidates can be elected if they get the majority of votes in the category they represent (for example, FCM directors can only be elected by FCM members), unless the winning candidate conflicts with the above-mentioned region or category restrictions, in which case there are many eligible candidates Was elected. A dual NFA member (for example, a company that is both a CTA and a CPO) is only allowed to vote in the category associated with its most basic business.
Each elected director has a term of 3 years, but in order to maintain continuity, the terms of the first board of directors elected by members in 1983 are staggered. In the exchange category, the duration of the service of its director representative is determined by the exchange it represents. If an exchange with two seats cannot remain in the "over 20%" category, then one of the directors of the exchange will be deprived of directorship early next year. Similarly, if another exchange rises to the "over 20%" category, it will be able to obtain a second board seat early next year.
4) Mandatory membership
In 1978, the U.S. Congress amended Section 17 of the Commodity Exchange Act to allow the NFA to formulate a mandatory membership system. Article 1101 of the NFA rules stipulates that NFA members are prohibited from accepting futures orders from other institutions or individuals (except direct customers), unless the institution or individual has also joined the NFA or another registered futures association. This provision is designed to focus on the customer's instruction flow. In fact, if an unqualified institution or individual participates, this instruction flow will be interrupted.
However, there is an exception for the processing of orders from the floor brokers. The floor brokers and floor traders are supervised by the exchanges where they are engaged in trading, not by the NFA. Therefore, floor brokers and floor brokers are not forced to accept futures Order to join the NFA. However, from the source of this order (such as the first FCM, IB, CTA or CPO) until the order reaches the on-site broker for execution, only qualified institutions or individuals can participate in the order flow.
PART 5: NFA's regulatory operation
1) Financial requirements
One of the primary tasks of the NFA is to formulate minimum financial standards for FCM and IB members, audit and enforce them according to the standards, and obtain and analyze financial reports from these members. The current NFA rules have not made similar requirements for other members such as CPOs and CTAs. Although the NFA can audit the FCMs of exchange members, the NFA still delegates this function to the exchange to perform.
The financial standards required by the NFA are basically the same as those required by the CFTC and futures exchanges, but special financial items such as the determination of the margin level are still determined by the exchange.
2) Industry ethics standards
The industry ethics standards implemented by the NFA include the content specified in Section 17 of the Commodity Exchange Act, such as prohibiting fraud, manipulation and deceptive behavior, as well as unfair and improper transactions. The NFA also bans black market transactions and requires members to establish a monitoring system for employees and free accounts. These are similar to the requirements of the CFTC and exchanges. In addition, the NFA requires CPO and CTA members to comply with the special regulations of the CFTC and exchanges. NFA has also formulated a "know your customer" rule, requiring members to have a comprehensive understanding of the situation of new customers and provide a futures trading risk disclosure statement before the customer opens a futures account.
3) Members and joint members
Any institution or individual and futures exchange registered with the CFTC can become a member of the NFA, unless the registrant or exchange fails to meet the membership requirements (for example, if the CFTC orders the cancellation of its registration qualification). According to the Commodity Exchange Act, employees of NFA members are also required to register as "joint members" of NFA. These individuals, like members, must meet the qualifications required by the NFA.
4) Membership review
First, the NFA staff will conduct a preliminary review, and finally the NFA Membership Committee will make a decision at the hearing. If the president has reason to believe that the applicant is not eligible for membership or is not suitable for registration as a joint member of the NFA, the applicant or the membership committee may request a hearing.
NFA has established a department responsible for financial audit and ethics supervision under the leadership of NFA's executive vice president and department chief executive officer. In the event of a violation of NFA rules, the department needs to prepare a report and submit it to the business steering committee. The committee takes action in accordance with the report, issues opinions or file formal complaints against members (or joint members). In the latter case, the defendant must respond and has the right to participate in the hearing of the hearing committee. If the problem cannot be resolved and a decision against the defendant has been made, the member or joint member can appeal to the appeal committee, and the result of the appeal is final.
The penalties that may be imposed on members include expulsion, temporary cancellation of membership, prohibition of contact with a member, admonition, reprimand, fines not exceeding US$250,000 per case, or other similar penalties. At the same time, in order to protect the market, customers or other members in a timely manner, the president and the executive committee can jointly take emergency measures. Before or after the event, members and joint members can go to the business steering committee to request a hearing.
Another important function of the NFA is to provide a fair, just and efficient procedure for resolving customer complaints in accordance with Section 17(b)(10) of the Commodity Exchange Act. The NFA arbitration method and member arbitration rules provide a framework for these procedures. The NFA's arbitration procedures were fully operational in 1983. Except for some specific exceptions, when a client files an arbitration against FCM, IB, CTA or CPO members or joint members, the NFA arbitration result is mandatory.
The arbitration is presided over by an arbitration committee composed of 1 or 3 arbitrators designated by the president. The client generally has the right to request an arbitration committee composed of a majority of arbitrators not related to NFA members or NFA. Smaller complaints are generally resolved by an arbitrator through written mediation. The arbitration process is informal, however, the parties should hire a defense lawyer.
In addition, in order to successfully implement the arbitration procedure and encourage the resolution of problems, the NFA began to incorporate mediation into the early stage of the arbitration procedure in June 1991, so as to make NFA's arbitration as cost-effective and more efficient as possible.
PART 6: Source of funding
NFA has formulated the following fund-raising plans:
The membership fee of exchange members shall be charged according to the futures contract traded on the exchange at USD 0.01 per contract (bilateral). At the same time, for an exchange with two directors on the NFA board of directors, its annual membership fee should not be less than 25,000 US dollars, but no more than 150,000 US dollars, and for an exchange that has one director on the NFA board, its annual membership fee should not exceed $100,000. In addition, when it comes to "micro contracts", appropriate adjustments should be made to make it equal to the value of a large contract of the same variety (for example, 5 contracts of 1000 ounces or bushels and a contract of 5000 units are treated equally). The exchange can provide additional funds for the NFA in any way.
The annual membership fee of FCMs consists of two parts:
i. The annual meeting fee for exchange member FCMs is USD 1,000, and for non-exchange member FCMs is USD 5,000.
ii. For a customer who is not a member of the exchange on which he is trading, each commodity futures contract (bilateral) (different from an option contract traded on an exchange) is charged USD 0.18, and every option contract traded on the exchange Zhang (one-sided) is charged 0.09 cents. According to the NFA's comprehensive financial objectives, the board of directors may suspend the collection of such fees or adjust the fees for a period of no more than 3 months. This fee standard does not apply to transactions in which settlement FCMs open customer mixed accounts for non-settlement FCMs, because the non-settlement FCM has already paid this fee (the non-settlement FCM must pay this fee in this case, because it is with The customer has a direct contact).
3) Other members
Generally speaking, other NFA members such as commodity joint venture fund managers, commodity trading consultants, introducing brokers (guarantees), introducing brokers (independent), etc., are all US$500/year.