The CFTC recently proposed a mandate that Commodity Trading Advisors, Commodity Pool Operators and Introducing Brokers register with a Registered Futures Association.

CFTC

CFTC’s new proposal is intended to align with the recent changes made to the Commodities Exchange Act by the Dodd-Frank Wall Street Reform and Consumer Protection Act as well as the Commission’s authority to regulate swaps.

Futures and swap intermediaries already registered with NFA

Under Sections 170.15 and 170.16 of the Commodity Futures Trading Commission’s regulations, all registered futures commission merchants (FCMs), swap dealers (SDs) and major swap participants (MSPs) are already required to become members of the NFA. Presently, the National Futures Association is the only Registered Futures Association.

Incidentally, there is no mandatory membership requirement for other registrants.

Earlier, through a member responsibility action, NFA ordered AlphaMetrix LLC to satisfy its obligations to certain pool participants by November 1, failing which NFA would suspend the member, restrict its operations or direct it to take “other remedial action”.

Recently, CFTC approved the finalization of new rules proposed a year earlier to improve the futures industry. The new rules prohibit brokers from using the excess margin of a particular customer to guarantee the shortfalls of another client.

New proposal from CFTC

The CFTC is proposing new Section 170.17 to address recent changes to the Commodity Exchange Act and Consumer Protection Act.

Thus, through the interaction of CFTC’s rules and NFA’s Bylaw 1101, any Commodity Trading Advisors (CTA), Commodity Pool Operators (CPO) and Introducing Brokers (IB) desiring to conduct business directly with an FCM, SD or MSP must become a member of NFA, ensuring that it conducts business only with IBs, CPOs or CTAs that are also members of NFA.

However, due to the unique nature of swap transactions, the CFTC believes it may be possible for certain IBs, CPOs or CTAs to not be captured by the intersection of Sections 170.15 or 170.16 and NFA Bylaw 1101. Hence the CFTC thinks it may be possible for these registrants to serve clients without becoming members of NFA.

Through the proposed rule, CFTC intends to avoid this possibility.

Comments to the proposed rule can be submitted for 60 days after publication in the Federal Register.