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Bylaws
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CHAPTER 1. OFFICES
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[¶ 4011] BYLAW 101. REGISTERED OFFICE.
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The registered office of National Futures Association (hereinafter "NFA") shall be in the City of Wilmington, County of New Castle, State of Delaware.
[¶ 4017] BYLAW 102. OTHER OFFICES.
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NFA's principal office shall be in Chicago, Illinois. NFA shall maintain a regional office in New York, New York, and offices at such other locations as NFA's Board of Directors (hereinafter "Board of Directors" or "Board") designates.
CHAPTER 2. PURPOSES
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[¶ 4023] BYLAW 201. PURPOSES.
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NFA's purposes are as stated in Article III of NFA's Articles of Incorporation (hereinafter "Articles").
CHAPTER 3. MEMBERSHIP AND ASSOCIATION WITH A MEMBER
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[¶ 4029] BYLAW 301. REQUIREMENTS AND RESTRICTIONS.
(Click Here to Print this Rule) [Effective dates of amendments: April 11, 1983; July 28, 1983; September 16, 1983; June 4, 1985; August 1, 1985; January 28, 1986; December 30 1986; July 29, 1988; January 1, 1990; October 29, 1991; August 16, 1993; September 21, 1993; April 1, 1997; March 10, 1998; March 18, 2003; July 21, 2003; September 15, 2003 and December 15, 2004.]
[¶ 4029.1] (a) Eligibility for Membership.
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(i) No person, unless eligible for membership in the contract market category, shall be eligible to become or remain an NFA Member or associated with a Member unless such person is registered, temporarily licensed or exempt from registration under the Commodity Exchange Act (hereinafter "Act") or the rules of the Commodity Futures Trading Commission (hereinafter "Commission").
(ii) Except as provided in paragraph (e) below, no person shall be eligible to become or remain a Member or associated with a Member who:
(A) Has been and is suspended or expelled from a registered futures association or contract market for violating any rule of the association or contract market that:
(1) prohibits any act or transaction constituting conduct inconsistent with just and equitable principles of trade; or
(2) requires any act which, if omitted, constitutes conduct inconsistent with such principles;
(B) Has been and is barred or suspended from being associated with all members of a registered futures association or contract market for violating a rule described in paragraph (A) above;
(C) Is subject to an order of the Commission denying, suspending or revoking the person's registration under Section 6(b) of the Act; expelling or suspending the person from membership in a registered futures association or contract market; or barring or suspending the person from being associated with an FCM;
(D) Whether before or after becoming a Member or associated with a Member, was, by the person's conduct while associated with a Member, a cause of any suspension, expulsion or order described in paragraphs (a)(ii)(A)-(C) above that is in effect with respect to the person; or
(E) Has associated with the person any other person who is known to, or in the exercise of reasonable care should be known to, the person to be ineligible to become or remain a Member or associated with a Member under paragraphs (a)(ii)(A)-(D) above.
(iii) No person, unless eligible for membership in the contract market category, shall be eligible to become or remain a Member unless at least one of its principals is registered as an "associated person" under the Act and Commission Rules.
[¶ 4029.2] (b) Registration of Associates.
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No person may be associated with a Member of NFA unless the person is registered with NFA as an Associate or is an NFA Member. As used in these Bylaws, the term "associated with a Member" means any person who is associated with a Member of NFA within the meaning of the term "associated person" as used in the Act or Commission Rules and who is required to be registered as such with the Commission. Registration with NFA as an Associate is not registration as an associated person under the Act.
[¶ 4029.3] (c) Restrictions on Becoming or Remaining a Member or Associated with a Member.
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A person may be deemed disqualified to become or remain a Member or associated with a Member-
(i) If a prior registration under the Act of such person in any capacity has been suspended (and the period of such suspension has not expired) or has been revoked;
(ii) If registration of such person in any capacity has been refused within five years preceding the filing of the application for membership or at any time thereafter;
(iii) If such person is permanently or temporarily enjoined by order, judgment or decree of any court of competent jurisdiction, including an order entered pursuant to an agreement of settlement to which the Commission or any Federal or State agency or other governmental body is a party, from:
(1) acting as a futures commission merchant, introducing broker, floor broker, commodity trading advisor, commodity pool operator, leverage transaction merchant, associated person of any registrant under the Act, securities broker, securities dealer, municipal securities broker, municipal securities dealer, transfer agent, clearing agency, securities information processor, investment adviser, investment company or affiliated person or employee of any of the foregoing; or
(2) engaging in or continuing any activity involving any transaction in or advice concerning contracts of sale of a commodity for future delivery, concerning matters subject to Commission regulation under Section 4c or 19 of the Act, or concerning securities;
(iv) If such person has been convicted of any felony or if such person has been convicted within 10 years preceding the filing of the application for membership or at any time thereafter of any misdemeanor that:
(1) involves any transactions or advice concerning any contract of sale of a commodity for future delivery, or any activity subject to Commission regulation under Section 4c or 19 of the Act, or concerning a security;
(2) arises out of the conduct of the business of a futures commission merchant, introducing broker, floor broker, commodity trading advisor, commodity pool operator, leverage transaction merchant, associated person of any registrant under the Act, securities broker, securities dealer, municipal securities broker, municipal securities dealer, transfer agent, clearing agency, securities information processor, investment adviser, investment company, or an affiliated person or employee of any of the foregoing;
(3) involves embezzlement, theft, extortion, fraud, fraudulent conversion, misappropriation of funds, securities of property, forgery, counterfeiting, false pretenses, bribery, or gambling; or
(4) involves the violation of Section 152, 1341, 1342, or 1343, or Chapter 25, 47, 95, or 96 of Title 18, United States Code;
(v) If such person has been found by any court of competent jurisdiction, by the Commission or any Federal or State agency or other governmental body, or by settlement agreement to which the Commission or any Federal or State agency or other governmental body is a party:
(1) to have violated any provision of the Act, the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Securities Investors Protection Act of 1970, the Foreign Corrupt Practices Act of 1977, or any similar statute of a State or foreign jurisdiction, or any rule, regulation, or order under any such statutes, or the rules of the Municipal Securities Rulemaking Board; or
(2) to have willfully aided, abetted, counseled, commanded, induced, or procured such violation by any other person;
(vi) If such person is subject to an outstanding order denying trading privileges on any contract market to such person, denying, suspending, expelling or revoking such person's membership in any contract market, registered futures association or any other self-regulatory organization, or barring or suspending such person from being associated with a registrant under the Act or with a member of a contract market, registered futures association or other self-regulatory association;
(vii) If such person is a futures commission merchant or introducing broker and shall knowingly accept any order for the purchase or sale of any commodity for future delivery on or subject to the rules of any contract market from any person denied trading privileges on a contract market by order of the Commission under Section 6(b) of the Act and the period of denial specified in such order shall not have expired;
(viii) Such person failed reasonably to supervise another person, who is subject to such person's supervision, with a view to preventing violations of the Act, or of any of the statutes set forth in paragraph (c)(v) of this Bylaw or of any of the rules, regulations, or orders thereunder, and the person subject to supervision committed such a violation: Provided, however, that no person shall be deemed to have failed reasonably to supervise another person, within the meaning of this paragraph if:
(1) there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and
(2) such person has reasonably discharged the duties and obligations incumbent upon that person, as supervisor, by reason of such procedures and system, without reasonable cause to believe that such procedures and system were not being complied with;
(ix) Such person was debarred by any agency of the United States from contracting with the United States;
(x) Such person willfully made any material false or misleading statement or willfully omitted to state any material fact in any application of such person for registration under the Act or for membership in NFA, in any report required to be filed with the Commission by the Act or the regulations thereunder, in any proceeding before the Commission, in any report required to be filed with NFA or in any proceeding before any Committee of NFA;
(xi) Such person has pleaded nolo contendere to criminal charges of felonious conduct, or has been convicted in a State court or in a foreign court of conduct which would constitute a felony under Federal law if the offense has been committed under Federal jurisdiction;
(xii) In the case of an applicant for membership in any capacity to which NFA's Financial Requirements apply, such person has not established that such person meets NFA's Financial Requirements;
(xiii) Such person has been found by any court of competent jurisdiction or by any Federal or State agency or other governmental body, or by agreement of settlement to which any Federal or State agency or other governmental body is a party:
(1) to have violated any statute or any rule, regulation, or order thereunder which involves embezzlement, theft, extortion, fraud, fraudulent conversion, misappropriation of funds, securities or property, forgery, counterfeiting, false pretenses, bribery, or gambling; or
(2) to have willfully aided, abetted, counseled, commanded, induced or procured such violation by any other person;
(xiv) Such person has associated with any other person and knows, or in the exercise of reasonable care should know, of facts regarding such other person that are set forth as statutory disqualifications in Section 8a(2) of the Act, unless such person has notified the Commission or NFA, if NFA has been authorized or required to make the determination described in Section 4k(5) of the Act with respect to such other person, of such facts and the Commission or NFA, as the case may be, has determined that such other person should be registered or temporarily licensed;
(xv) There is other good cause; or
(xvi) Any principal has been or could be refused membership: Provided, however, that for the purposes of this Bylaw, "principal" shall mean any entity or individual defined as "principal" in NFA Registration Rule 101.
[¶ 4029.4] (d) Qualification.
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Except as provided in paragraph (e) below, no person may become or remain an FCM, CTA, CPO, IB or LTM Member or associated with such a Member unless qualified to do so in conformity with such standards of training and experience and proficiency testing requirements as NFA shall establish and such other qualification standards as NFA finds necessary or desirable.
[¶ 4029.5] (e) Exceptions from Ineligibility, Restrictions and Qualifications.
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A person who is ineligible or disqualified to become or remain a Member or associated with a Member under paragraphs (a) or (d) above may nevertheless become or remain a Member or associated with a Member:
[¶ 4029.6] (f) Application.
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(i) All applications to become a Member or to register as an Associate shall be filed electronically and provide such information as required by the Membership Committee. The Member or applicant for membership shall file all applications for itself and its Associates by accessing NFA's registration and membership database in the manner provided by NFA. Each Member or applicant for membership shall designate the person or persons authorized to file its application and the applications of its Associates. NFA may require any individual applying for registration as an Associate to electronically verify the information contained in the application. Applicants for registration as Associates may not authorize any other person to make such verification on their behalf. Each applicant for membership shall pay such application fee as the Membership Committee may prescribe from time to time.
(ii) The electronic filing of the application or verification of the information contained in the application shall constitute:
(A) a representation that the information supplied in the application is complete and accurate;
(B) a representation that the applicant or Member has authorized the person filing the application to make such filing and all representations and agreements required by this paragraph; and
(C) an express agreement by the applicant that, if admitted to NFA membership or registered as an Associate, the applicant shall become and remain bound by all NFA requirements as are then and thereafter in effect and that such agreement shall apply each time the applicant becomes a Member or Associate.
(iii) An application may be returned by the Secretary of NFA without action if it is materially incomplete or materially inaccurate.
(iv) Database Security.
(A) No applicant, Member or Associate may access NFA's electronic registration and membership database until NFA has assigned it a unique identifying code and password;
(B) Each applicant, Member and Associate is responsible for maintaining the security and confidentiality of its identifying code and password and those of the persons whom it authorizes, if permitted, to make electronic registration filings on its behalf. NFA's electronic registration and membership database shall record and store the identifying code of each person accessing NFA's database and shall logically associate in the database such identifying code with any electronic filing made by the person using such identifying code. The person whose identifying code is used to make an electronic filing will be deemed to have made such filing;
(C) Each FCM, IB, CPO or CTA applicant or Member shall make available any person it has authorized to make or actually performing duties related to electronic filings, for testimony in court or before the Commission, NFA or any contract market or DTF regarding the authentication, integrity or accuracy of any electronic filing; and
(D) The ability to electronically access NFA's registration and membership database is a privilege and not a right. NFA may disable any person's identifying code and password and terminate the person's ability to access the database at any time, without notice or a hearing, in NFA's sole discretion, if NFA believes that the person has not complied with this Bylaw or any procedures that NFA establishes to implement this Bylaw.
(v) Any required application fee shall be sent to the Secretary for processing, in accordance with such procedures as shall be adopted by the Membership Committee.
(vi) As soon as practicable after the application is received and reviewed, the Secretary shall notify the applicant of the action taken (See paragraph (g) below).
[¶ 4029.7] (g) Denial and Revocation.
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(i) If the President has reason to believe that: (1) an applicant for membership or registration with NFA as an Associate does not meet the qualifications set forth in this Chapter for NFA membership or association with a Member, as the case may be; (2) a Member or registered Associate does not meet the qualifications set forth in this Chapter for continuation as a Member or Associate; or (3) the person has submitted an intentionally incomplete, inaccurate or otherwise false application to NFA for membership or registration as an Associate, the President shall promptly so notify the person in writing and furnish a copy of the notice to the Membership Committee, setting forth the specific grounds for the determination. The person shall be given an opportunity to show to the President that the qualifications are met, or that the application is not intentionally incomplete, inaccurate or false. If the person requests, or if the Membership Committee orders, a hearing shall be held before the Membership Committee or its designated Subcommittee, and a record shall be kept. Such designated Subcommittee shall consist of at least three members of the Membership Committee. At least one-third of the members of the designated Subcommittee shall not be NFA Members or Associates or employees of an NFA Member. Each member of the designated Subcommittee shall be appointed by a majority of the Membership Committee. The person may be represented at the hearing, and submit evidence in the proceeding, call and examine witnesses, examine the evidence upon which the President's determination was based, and, in the discretion of the Membership Committee or its designated Subcommittee, present written or oral argument. No member of the Membership Committee or a designated Subcommittee shall participate in a membership action if the member, or any person with whom the member is connected, has a finanial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c).
(ii) If a hearing before the Membership Committee is held, the Committee or Subcommittee shall make a final, written determination upon the record before it, setting forth the specific grounds for its determination. Such determination shall include the specific grounds for the denial, bar, expulsion or restriction; the findings made concerning those grounds; and an explanation of the result reached in light of the grounds of ineligibility found and the findings made. A copy of the determination shall promptly be sent to the person.
(iii) (A) The Respondent may appeal any adverse decision of the Membership Committee or Subcommittee issued under Bylaw 301(g)(ii) to the Appeals Committee by filing a written notice of appeal with NFA within 15 days after the date of the decision. The notice must describe those aspects of the membership action to which exception is taken, and must contain any request by the Respondent to present written or oral argument.
(B) The Appeals Committee may also order review of any decision of the Membership Committee or Subcommittee issued under Bylaw 301(g)(ii). If such a review will be conducted, the Appeals Committee will give written notice to the Respondent within 15 days of the date of the decision. Such review may be conducted by the Appeals Committee:
(1) on its own motion, or
(2) pursuant to a petition filed by the Registration and Membership Department, the granting of which shall be discretionary with the Appeals Committee. The petition will state why the Registration and Membership Department is seeking review and must contain any request by the Registration and Membership Department to present written or oral argument.
(C) The Respondent's filing of a notice of appeal under paragraph (A) above or the institution by the Appeals Committee of its own review under paragraph (B) above shall operate as a stay of the effective date of the membership order, until the Appeals Committee renders its decision.
(D) No member of the Appeals Committee shall participate in the proceeding if the member participated in any prior stage of the membership proceeding (other than the review of a settlement offer submitted under Registration Rule 509) or if the member, or any person with which the member is connected, has a financial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c). Except for good cause shown, the appeal or review shall be conducted solely on the record before the Membership Committee or Subcommittee, the written exceptions filed under paragraph (a) above, and such written or oral arguments of the parties as the Appeals Committee may authorize.
(E) If the Appeals Committee authorizes written argument, briefs shall be filed as follows unless otherwise ordered by the Appeals Committee:
(1) the party required to submit the initial brief shall file it with NFA's Legal Docketing Department and serve it on the other parties to the appeal within 30 days after the Appeals Committee issues an order authorizing written argument;
(2) the responding party shall file its brief with NFA's Legal Docketing Department and serve it on the other parties to the appeal within 30 days after service of the initial brief;
(3) the party which filed the initial brief may file an answer to the responding brief with NFA's Legal Docketing Department and serve it on the other parties to the appeal within 10 days after service of the responding party's brief;
(4) the initial brief or responding brief of any party shall not exceed 35 pages and the answer to the responding brief shall not exceed 10 pages, exclusive of any table of contents, table of cases, index and appendix containing transcripts of testimony, exhibits, rules and regulations; and
(5) no other written argument on substantive issues raised on appeal will be accepted from the parties or considered by the Appeals Committee.
(F) Promptly after reviewing the matter, the Appeals Committee shall issue a written and dated decision, based on the weight of the evidence. The decision shall include:
(1) the specific grounds for the denial, bar, expulsion or restriction and its effective date;
(2) the finding made by the Appeals Committee concerning those grounds;
(3) an explanation for the results reached in light of the grounds for ineligibility found;
(4) a statement that any person aggrieved by the membership action may appeal the action pursuant to Commission Regulations, Part 171, within 30 days of service; and
(5) a statement that any person aggrieved by the membership action may petition the Commission for a stay of the effective date pursuant to Commission Regulations, Part 171, within 10 days of service.
(G) The decision of the Appeals Committee shall be final 30 days after the date of service.
[¶ 4029.8] (h) Suspension and Termination of Membership and Associate Membership.
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The membership or Associate membership of any person may be terminated or withdrawn as set forth below. Termination or withdrawal of a person's membership or associate membership shall not relieve the Member or Associate of any responsibility under the NFA Code of Arbitration, Member Arbitration Rules, Bylaws, Compliance Rules, Financial Requirements, Registration Rules, Interpretive Notices or Orders issued by the Executive Committee, Membership Committee, Appeals Committee, Hearing Committee or any designated Subcommittee or Panel of such Committees for activities prior to termination, or of the obligation to pay any dues, assessments, fines, penalties or other charges theretofore accrued and unpaid.
(i) Termination of Temporary License.
The termination of the temporary license of any Member or Associate shall also terminate such person's membership or associate membership unless such person remains otherwise eligible for membership under Bylaw 301(a).
(ii) Withdrawal of Registration.
The membership of any Member that withdraws all registrations under the Act shall be withdrawn without further prior notice.
(iii) Termination of Employment as Associate.
Each Member shall promptly file a Form 8-T, completed and filed in accordance with all pertinent instructions, notifying the Secretary of the termination of employment of any registered or pending Associate with the Member. Unless otherwise provided by these Bylaws or NFA Registration Rules, Members and applicants for membership must file their Form 8-Ts electronically by accessing NFA's registration and membership database in the manner provided by NFA. If such person is no longer listed as an Associate of any Member following such termination, the individual's registration with NFA as an Associate shall.
(iv) Withdrawal from Membership or Application for Membership.
A Member may request to withdraw its application for membership at any time before approval or request to withdraw from membership at any time by filing a Form 7-W, completed and filed in accordance with all pertinent instructions. Unless otherwise provided by these Bylaws or NFA Registration Rules, Members and applicants for membership must file their Form 7-Ws electronically by accessing NFA's registration and membership database in the manner provided by NFA. A request to withdraw an application for membership will become effective on the 30th day after the Member files the request, or earlier upon notice from NFA of the granting of such request. A request to withdraw from membership, including a deemed request to withdraw from membership, will become effective on the 30th day after the Member files or is deemed to have made the request, or earlier upon notice from NFA of the granting of such request, unless prior to the effective date NFA notifies the Member in writing that the request is denied because:
(1) NFA has instituted a proceeding under Bylaw 301(g) or Part 3 of the Compliance Rules;
(2) NFA is imposing or intends to impose terms or conditions upon such withdrawal from membership;
(3) The Member is currently the subject of an investigation to determine, among other things, whether the Member has violated, is violating, or is about to violate NFA Bylaws, Compliance Rules, Financial Requirements, Registration Rules, Interpretive Notices or Orders issued by the Executive Committee, Membership Committee, Appeals Committee, Hearing Committee or any designated Subcommittee or Panel of such Committees;
(4) NFA has requested, is requesting or intends to request from the Member further information pertaining to its request for withdrawal from membership; or
(5) NFA has determined that it would be contrary to NFA's Articles of Incorporation, Bylaws, Compliance Rules, Financial Requirements, Registration Rules, Interpretive Notices or Orders issued by the Executive Committee, Membership Committee, Appeals Committee, Hearing Committee or any designated Subcommittee or Panel of such Committees, or to the public interest to permit such withdrawal from membership.
(v) Failure to Notify of Address Change (See Bylaw 301(i)).
(vi) Default in Payment of Dues or Assessment or Audit Fees (See Bylaw 1303).
(vii) Suspension and Revocation.
The membership of any Member or any person associated with a Member whose registration under the Act is suspended shall be suspended for the term of the registration suspension without further prior notice. The membership of any Member or any person associated with a Member whose registration under the Act is revoked shall terminate without further prior notice.
(viii) Failure to Submit Annual Questionnaire.
On an annual basis, NFA shall provide each NFA Member FCM for which NFA is the Designated Self-Regulatory Organization, IB, CPO, CTA, and LTM with a questionnaire concerning its business activities. The Member shall complete the questionnaire and submit the completed questionnaire on the date specified thereon. NFA shall deem the failure to file the completed questionnaire within 30 days following such date a request to withdraw from NFA membership, and shall notify the Member accordingly.
[¶ 4029.9] (i) Name and Address.
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(a) Each Member shall at all times register and maintain with the Secretary its correct name and principal address, and the correct name and address of each registered Associate employed by the Member. Except as provided in subsection (b) of this Bylaw, the principal address of each Member and the address of each registered Associate currently on file with NFA shall be deemed by NFA the correct address for delivery to the Member or Associate of any written communication, document or notice from NFA. Delivery of any written communication, document or notice shall be complete upon mailing, delivery to a generally recognized overnight courier service or delivery to a messenger service. The failure of a Member to notify NFA of a change in the Member's principal address shall constitute grounds for summary suspension or termination of the NFA membership of such Member by order of the President on seven days' written notice.
(b) Each Member may provide to NFA, and if provided, shall maintain, in the manner required by NFA, one or more email addresses for the purpose of receiving communications, documents or notices from NFA. Unless a different method of delivery is specifically required, NFA may deliver any communication, document or notice to the email address or addresses currently on file. The email address or addresses currently on file shall be deemed by NFA the correct address or addresses for delivery to the Member of the communication, document or notice by email. Delivery of any communication, document or notice by email shall be complete upon sending.
[¶ 4029.10] (j) Notice.
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NFA may provide any notice required by Bylaw 301 electronically unless written notice is specifically required. Notices provided electronically shall be complete upon display in NFA's Online Registration System. Notices provided in writing shall be complete upon mailing.
[¶ 4030] BYLAW 302. ADMISSION TO MEMBERSHIP, OR REGISTRATION AS AN ASSOCIATE, ON A CONDITIONAL BASIS.
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The Membership Committee may admit an applicant to membership, or grant an applicant registration as an Associate, subject to such terms and conditions as the Committee deems appropriate.
[¶ 4031] BYLAW 303. RIGHTS AND LIABILITIES OF MEMBERS.
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The private property of the Members shall not be subject to the payment of NFA's debts or liabilities to any extent whatsoever, except that Members shall be liable to NFA for dues, assessments, fees, and similar charges imposed on them by NFA. With the Board's approval, a Member may receive compensation for services rendered to NFA and reimbursement for expenses, including overhead, reasonably incurred on behalf of NFA, and may be repaid for loans or other credit extended by the Member to NFA.
[¶ 4032] BYLAW 304. TRANSFER OF MEMBERSHIP.
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Membership in NFA shall not be transferable or assignable.
[¶ 4033] BYLAW 305. REGISTRATION RULES.
(Click Here to Print this Rule) [Adopted effective July 28, 1983. Effective dates of amendments: November 29, 1983; May 4, 1984; November 5, 1984; December 3, 1984; December 16, 1984; March 1, 1985; September 30, 1985; January 28, 1986; June 13, 1986; September 23, 1986; January 2, 1987; March 26, 1987; July 1, 1987; April 4, 1988 and August 1, 1994.]
Subject to Articles III and XI and Bylaw 1506, the Board shall adopt Registration Rules in accordance with which NFA shall perform the portion of the registration functions under the Act which it is required or authorized by the Commission to perform pursuant to Section 8a(10) or Section 17(o) of the Act and in accordance with which NFA shall determine proficiency for purposes of determining fitness to be registered under the Act (except with respect to floor brokers and floor traders) and for purposes of determining membership qualification under Bylaw 301(d), which rules shall be deemed a part of these Bylaws.
[¶ 4034] BYLAW 306. FOREX DEALER MEMBERS.
(Click Here to Print this Rule) [Adopted effective June 28, 2002. Effective dates of amendments: December 1, 2003; June 13, 2005; and February 13, 2007.]
(a) Except as provided in section (b), Members of NFA are Forex Dealer Members if they are the counterparty or offer to be the counterparty to forex transactions (as defined in Bylaw 1507(b)).
(b) The following Members are not Forex Dealer Members:
(i) Entities described in subsection (I) and subsections (IV) through (VI) of Section 2(c)(2)(B)(ii) of the Act;
(ii) Entities described in subsection (II) of Section 2(c)(2)(B)(ii) of the Act that are members of another futures association registered under Section 17 of the Act or of a national securities association registered under Section 15A(b) of the Securities Exchange Act of 1934; and
(iii) Entities described in subsection (III) of Section 2(c)(2)(B)(ii) of the Act based on their affiliation with an entity described in subsection (II) of Section 2(c)(2)(B)(ii) of the Act that is a member of another futures association registered under Section 17 of the Act or of a national securities association registered under Section 15A(b) of the Securities Exchange Act of 1934.
CHAPTER 4. MEMBER MEETINGS AND ELECTIONS
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[¶ 4053] BYLAW 401. PLACE OF MEETING.
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Meetings of NFA Members may be held at such place, either in Delaware or elsewhere, as may be designated by the Board or the officers calling the meeting. If no designation is made, the place of meeting shall be NFA's principal office in Chicago.
[¶ 4059] BYLAW 402. ANNUAL MEETINGS.
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Beginning with a calendar year of 1983, the annual meeting of the Members shall be in February of each year, for the transaction of such business as may come before the meeting. The meeting date shall be fixed and announced by the Board not less than 45 days before such date.
[¶ 4065] BYLAW 403. SPECIAL MEETINGS.
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Special meetings of the Members may be called by the Chairman, the President or the Board. Special meetings shall also be called by the President when requested in writing by at least 10 percent of the Members. This request must state the purpose or purposes for which the special meeting is called, and the business transacted at the meeting shall be limited to the purpose recited in the request.
[¶ 4071] BYLAW 404. NOTICE OF MEETINGS.
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A written or printed notice stating the place, day and hour of the meeting and, in the case of a special meeting requested by Members, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 40 days before the date of the meeting, either personally or by mail, by or at the direction of the Secretary, to each Member who appears on the rolls of NFA as of the date of the notice. If mailed, the notice shall be deemed delivered when deposited in the United States mail, addressed to the Member at his or her address as it appears on NFA records, with postage prepaid. Appearance at a meeting by a Member shall constitute waiver of any objection relating to the issuance, receipt or content of the meeting notice.
[¶ 4077] BYLAW 405. VOTING; QUORUM.
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All voting by Members shall be conducted by written ballot, either mailed or delivered to the Secretary. A Member may withdraw a written ballot before the counting of ballots by instructing the Secretary to withdraw the ballot and by furnishing the Secretary with a new ballot. The Board shall establish procedures for the submission, verification and counting of ballots. Voting by proxy shall not be permitted. One hundred (100) Members shall constitute a quorum at any meeting of the Members. If a quorum is not present at a meeting, the Members in attendance may act to adjourn the meeting.
[¶ 4083] BYLAW 406. ELECTIONS.
(Click Here to Print this Rule) [Effective dates of amendments: February 7, 1986; January 1, 1990; August 3, 1990; October 16, 1992; October 15, 2001; and October 9, 2007.]
The Annual Election shall be held on the third Tuesday in January, at which the contested vacancies on the Board and Nominating Committee shall be filled. Before the October 15 preceding the election, the Secretary shall:
(1) notify all Members in the FCM and LTM, IB, CPO and CTA categories of the elected Directors and the members of the Nominating Committee whose terms will expire at the Annual Election, and
(2) request the submission to the Nominating Committee of the names of eligible persons to fill those positions.
Before the November 20 preceding the election, the Nominating Committee shall submit its list of nominees for the positions to the Secretary, who shall promptly notify the Members of the nominations. Other nominations may be made by petition, as prescribed in the Articles. Each petition must identify the position to which the nomination pertains. Petitions must be received by the Secretary within 21 days of the issuance of the Secretary's notification of the candidates proposed by the Nominating Committee. Promptly after the expiration of the period within which petitions may be submitted, the Secretary shall notify the Members of all of the candidates for Director and member of the Nominating Committee. In the event of a contested election in any of the FCM and LTM, IB, or CPO and CTA categories, the Secretary shall cause written ballots to be sent to all Members in that category by December 15. Promptly after December 31 of the year immediately preceding the election, the Secretary shall notify the contract market Members that shall have representatives on the Board during the current calendar year. Provided, however, that if an election is held pursuant to Article VII, Section 2(a)(ii)(b), then the Secretary shall request the contract market Members eligible to have a representative in accordance with Article VII, Section 2(a)(ii)(b) to nominate eligible persons to represent such contract market Members. In the event of a contested election in the contract market category, the Secretary shall cause written ballots to be sent to all contract market Members eligible to vote in accordance with Article VII, Section 2(a)(ii)(b) by January 10.
[¶ 4089] BYLAW 407. INTERIM BOARD AND INTERIM COMMITTEES.
(Click Here to Print this Rule) [Effective dates of amendments: October 15, 2001.]
The Directors holding office and all members of the Executive Committee, Nominating Committee, Appeals Committee and Membership Committee ("Committees") as of September 1, 2001 shall constitute an interim Board of Directors and interim Committees. The terms of all interim Directors and interim Committee Members shall end on the date of the Board's regular annual meeting in 2002. The interim Board and interim Committees shall have all the powers of the Board of Directors and Committees, respectively except the power to adopt, amend or repeal Articles.
CHAPTER 5. BOARD OF DIRECTORS
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[¶ 4095] BYLAW 501. GENERAL POWERS AND DUTIES.
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NFA's property, business and affairs shall be managed by its Board, and the Board may exercise all such powers of NFA as are directed, required or permitted by law, the Articles or these Bylaws to be exercised by the Board.
[¶ 4101] BYLAW 502. TERM OF OFFICE.
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Each Director shall hold office for the term prescribed in the Articles and until his successor shall have been duly elected and qualified, or until the Director's death, resignation or removal. Directors need not be Delaware residents.
[¶ 4107] BYLAW 503. REMOVAL OF DIRECTORS.
(Click Here to Print this Rule) [Effective dates of amendments: February 7, 1986; January 1, 1990; July 30, 1990; October 15, 2001 and October 9, 2007.]
Notwithstanding the provisions of Bylaw 515, Directors may be removed from office as follows:
(a) Any Director representing a contract Market Member described in Article VII, Section 2(a)(ii)(b) and any FCM and LTM, IB or CPO and CTA Director may be removed by a majority of the Members eligible to elect the Director whenever, in their judgment, the best interests of NFA will be served thereby.
(b) Upon recommendation of the Executive Committee, any Director may be removed by two-thirds of the Directors present and voting at a duly convened meeting of the Board whenever, in their judgment, the best interests of NFA will be served thereby.
[¶ 4113] BYLAW 505. RESIGNATIONS.
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Any Director may resign at any time by giving written notice to the Chairman, President or Secretary. The resignation shall take effect at the time set forth therein, and, unless otherwise specified therein, the acceptance of the resignation shall not be necessary to make it effective.
[¶ 4119] BYLAW 506. REGULAR MEETINGS.
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The Board's regular annual meeting shall be held in February, for the election of Officers and the appointment of Committee members. The date, time and place of the meeting shall be fixed by the Board. The Board may by resolution specify the time and place, either in Delaware or elsewhere, for the holding of additional regular meetings without notice other than such resolution.
[¶ 4125] BYLAW 507. SPECIAL MEETINGS.
(Click Here to Print this Rule) [Effective dates of amendments: August 16, 1993 and October 15, 2001.]
[¶ 4125.1] (a) General.
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Special meetings of the Board shall be held at the request of the Chairman, the President, or any 10 Directors. The date and place of the meeting shall be determined by the Chairman and specified in the notice of the meeting.
[¶ 4125.2] (b) Notice of Emergencies.
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Notice of each special meeting shall be provided in accordance with such procedures as the Board may specify by resolution. The Chairman shall cause notice of the meeting to be given at the earliest practicable time, and, except in unusual circumstances, at least two days before the date on which the meeting is to be held.
Attendance of a Director at the meeting shall constitute a waiver of notice of the meeting, except where a Director attends a meeting exclusively for the limited purpose of objecting to the transaction of any business thereat on the ground that the meeting shall be limited to the matters specified in the notice of such meeting.
In the event of an emergency (as defined herein), the Chairman or President may call a meeting on one-hour notice to all Directors. Such notice may be given by telephone, telegraph or other means. The business of the meeting shall be limited to the emergency. A quorum shall consist of 14 8 Directors, provided there is present at least one contract market Director, one FCM Director and one CPO, CTA or Public Representative Director (See Article VII, Sections 2(a)-(c)). For purposes of this Bylaw, an emergency shall exist when the Chairman or President determines that, because of an unusual, unforeseeable and adverse circumstance, it is necessary to hold a meeting on one hour notice.
[¶ 4131] BYLAW 508. ADJOURNMENT; LACK OF QUORUM.
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In the absence of the quorum, a majority of the Directors present and voting may adjourn the meeting to a day certain and, except in emergencies or other unusual circumstances, the Secretary shall give all absent Directors five days' notice of such adjourned date.
[¶ 4137] BYLAW 509. MANNER OF VOTING BY DIRECTORS.
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The Directors who are physically present at a regular or special Board meeting may adopt for that meeting a procedure whereby, for quorum purposes or otherwise, any Director not physically present may be deemed present if the Director is able to communicate with each other Director who is deemed to be present, and to participate in the proceedings of the meeting, by telephone or otherwise.
[¶ 4143] BYLAW 510. INFORMAL ACTION BY DIRECTORS.
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Any action that must or may be taken at a Board meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all Directors then in office. This consent shall constitute a waiver of notice and meeting and shall have the same effect as a unanimous vote of all Directors.
[¶ 4149] BYLAW 511. INTERPRETATION OF NFA REQUIREMENTS.
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The Board shall have authority to interpret any NFA requirement. Any such interpretation of the Board shall be final and conclusive.
[¶ 4151] BYLAW 512. VOTING ON FLOOR BROKER OR FLOOR TRADER REGISTRATION RESPONSIBILITIES.
(Click Here to Print this Rule) [Adopted effective September 23, 1986. Effective dates of amendments: April 26, 1993.]
NFA will not seek or accept any authority in connection with the registration of floor brokers or floor traders that exceeds the authority granted to NFA in the initial Commission orders authorizing NFA to perform certain floor broker and floor trader registration functions or any other authority sought or accepted by NFA under the terms of this Bylaw, without the consent of contract market directors representing two-thirds of contract market Members.
[¶ 4152] BYLAW 513. DIRECTORS ACTING AS COUNSEL IN NFA PROCEEDINGS.
(Click Here to Print this Rule) [Adopted effective July 1, 1987.]
No Director shall represent or appear as counsel on behalf of any person involved in an NFA investigation or a registration, membership or disciplinary proceeding undertaken by NFA.
[¶ 4153] BYLAW 514. PROHIBITION AGAINST USE OF NON-PUBLIC INFORMATION.
(Click Here to Print this Rule) [Adopted effective June 15, 1988. Effective dates of amendments: December 4, 2000.]
No Director or functional equivalent thereof shall use or disclose material, non-public information, obtained as a result of participation on the Board of Directors or any subcommittee of the Board of Directors, for any purpose other than the performance of official duties as a Director or subcommittee member.
[¶ 4154] BYLAW 515. QUALIFICATIONS OF DIRECTORS.
(Click Here to Print this Rule) [Adopted effective June 2, 1990. Effective dates of amendments: December 10, 1993.]
(a) No individual shall be eligible to serve as a Director if such person:
(i) is subject to any of the disqualifications set forth in CFTC Regulation 1.63(b);
(ii) has been convicted of a felony within the prior 10 years; or
(iii) is subject to a Member Responsibility Action or Associate Responsibility Action which is currently in effect.
(b) In the event that a Director becomes disqualified after election to the Board, the vacancy shall be filled as prescribed by Article VII, Section 8. If the sanction is stayed or overturned on appeal before the vacancy is filled, the Director shall be entitled to resume his seat on the Board.
(c) NFA shall publish a list of those Rules which, if violated, would constitute a disciplinary offense as defined in CFTC Regulation 1.63(a)(6)(i).
(See Interpretive Notice NFA Bylaws 515, 708 and 802: NFA Requirements which Constitute Disciplinary Offenses.)
[� 4155] BYLAW 516. VOTING BY INTERESTED DIRECTORS
(Click Here to Print this Rule) [Adopted effective March 12, 1999.]
No Director may deliberate or vote on any matter that the Director is prohibited from voting on by CFTC Regulation 1.69(b)(1)(i). A director who is prohibited from deliberating or voting on a matter must disclose to NFA staff both the prohibition and the reason for the prohibition before the Board considers the matter.
CHAPTER 6. OFFICERS
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[¶ 4160] BYLAW 601. OFFICERS.
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The officers of NFA shall consist of a Chairman of the Board, a Vice Chairman of the Board, a President, a Secretary, and a Treasurer. The Chairman and Vice Chairman shall be elected by the Board at its regular annual meeting in each year, to hold office until the next regular annual meeting of the Board or until their respective successors are elected and qualified. The Board shall appoint a President, a Secretary, and a Treasurer. Vacancies occurring in any office by death, resignation, removal or otherwise shall be filled by the Board, and such replacement officers shall serve, in the case of the Chairman and Vice Chairman, until their successors are elected, or, in the case of other officers, until their successors are appointed. No single individual may hold any two of the following positions concurrently: Chairman, Vice Chairman, President and Secretary. The Board may provide for such other offices and may appoint incumbents thereto, and assign their respective duties to them, from time to time, as the Board may deem advisable. In its discretion, the Board may execute, on behalf of NFA, contracts of employment with appointed officers.
[¶ 4161] BYLAW 602. CHAIRMAN AND VICE CHAIRMAN.
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The Chairman, and in the Chairman's absence the Vice Chairman, shall preside at all meetings of the Members and of the Board. In the absence of both, the Members or the Board, as the case may be, shall elect a presiding officer for the meeting.
[¶ 4167] BYLAW 603. PRESIDENT.
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The President shall be Chief Executive Officer. As Chief Executive Officer, the President shall have general and active management of NFA business. The President shall see that all orders and resolutions of the Board are carried into effect and may execute bonds, mortgages, and other contracts. The President shall have general superintendence of all other appointed NFA officers and all employees, and shall see that their duties are properly performed. The President shall submit a report of the operations of NFA for the preceding fiscal year to the Members at the annual meeting, and from time to time shall report to the Board all matters which the interests of NFA may require to be brought to its notice.
[¶ 4173] BYLAW 604. SECRETARY.
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The Secretary shall keep or cause to be kept full minutes of all meetings of the Members, the Board and Committees and shall attend the sessions of the Board and act as clerk thereof and record all the acts and votes and the minutes of all proceedings in a book to be kept for that purpose. The Secretary shall see that all notices are duly given in accordance with these Bylaws or law, and shall perform such other duties as may be from time to time assigned. The Secretary shall have custody of the corporate seal and shall affix the same to all papers and documents whenever the seal shall be required to be so affixed. The Secretary shall have custody of and properly keep or cause to be kept all the records and books of NFA.
[¶ 4179] BYLAW 605. TREASURER.
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The Treasurer shall keep full and correct account of receipts and disbursements in the books belonging to NFA, and shall deposit all moneys and equivalents to the credit of NFA, in such financial institutions as may be designated by the Board. The Treasurer shall dispose of NFA funds as may be ordered by the Board by general resolution or in specific instances, taking proper vouchers for such disbursements, and shall render to the President and the Board, whenever they may require it, an account of all transactions as Treasurer and of NFA's financial condition.
[¶ 4185] BYLAW 606. RESIGNATIONS.
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Any officer may resign at any time by giving written notice to the Board or the Secretary. Any such resignation shall take effect at the time set forth therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
[¶ 4191] BYLAW 607. REMOVAL.
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The Chairman, Vice Chairman, President, Secretary and Treasurer may be removed by the Board whenever in its judgment the best interests of NFA will be served thereby. Removal of the Chairman and Vice Chairman shall be by the vote of a majority of the total number of Directors then in office. Removal of the President shall be by the vote of not less than two-thirds of the total number of Directors then in office. Removal of the Secretary and Treasurer shall be by a majority vote of the Directors present and voting at any meeting where a quorum is present. Other officers may be removed in the same manner as the Secretary or Treasurer, or by any superior officer upon whom such removal power has been conferred by Board resolution.
CHAPTER 7. COMMITTEES
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[¶ 4197] BYLAW 701. MEMBERSHIP COMMITTEE.
(Click Here to Print this Rule) [Effective dates of amendments: July 1, 1987; October 15, 2001; and February 15, 2005.]
There shall be a Membership Committee, consisting of five Directors and six other persons. At least one of the Directors shall be a public Director and at least three of the six other persons shall not be an NFA Member or an Associate or an employee of an NFA Member. A majority of the Committee members eligible to participate in a proceeding shall constitute a quorum, except that in cases in which a Subcommittee has been designated a quorum shall consist of a majority of such Subcommittee members but no fewer than three. The Committee members shall be proposed by the President and appointed by the Board. The President and the Board shall endeavor to propose and appoint Directors and persons who reflect the various categories of Members described in the Articles. The Committee or its designated Subcommittee shall review actions taken by the President pursuant to the President's authority under Chapter 3 to make the initial determination regarding: (a) applicants for membership in NFA or registration as Associates, and (b) continued eligibility for such membership or registration. Each Committee member shall serve for two years or until the member's successor is appointed and qualified, or until the member's death, resignation, ineligibility or removal. A Committee vacancy shall be filled in the manner prescribed in Bylaw 601 for officers. A Committee member may be removed by the Board for cause.
[¶ 4203] BYLAW 702. APPEALS COMMITTEE.
(Click Here to Print this Rule) [Effective dates of amendments: July 1, 1987; March 15, 1994; October 15, 2001; and January 1, 2005.]
There shall be an Appeals Committee, consisting of five Directors, at least one of whom shall be a Public Director and not more than three of whom shall represent FCMs, IBs, and CPO/CTAs. A majority of the Committee members eligible to participate in a proceeding shall constitute a quorum. The Committee members shall be proposed by the President and appointed by the Board. The President and the Board shall endeavor to propose and appoint Directors who reflect the various categories of Members described in the Articles. The Committee shall hear and decide appeals from and reviews of decisions in disciplinary cases by the Business Conduct Committee or the Hearing Committee under the Compliance Rules. Each Committee member shall serve for two years, or until the member's successor is appointed and qualified, or until the member's death, resignation, ineligibility or removal. A Committee vacancy shall be filled in the manner prescribed in Bylaw 601 for officers. A Committee member may be removed by the Board for cause.
[¶ 4209] BYLAW 703. ADVISORY COMMITTEES.
(Click Here to Print this Rule) [Effective dates of amendments: January 28, 1986 and November 9, 1988.]
The Board shall appoint Advisory Committees, not having or exercising the authority of the Board, including a Committee to advise the Board on FCM matters and a Committee to advise the Board on matters relating to CPOs and CTAs. No person then serving as a member of the Board shall simultaneously serve as a member of any NFA Advisory Committee. Each member of an Advisory Committee shall serve for three years, except that the terms initially established shall be staggered, or until the member's successor is appointed and qualified, or until the member's death, resignation, ineligibility or removal. A vacancy in an Advisory Committee shall be filled in the manner prescribed in Bylaw 601 for officers. A Committee member may be removed by the Board whenever in its judgment the best interests of NFA will be served thereby. No member of an Advisory Committee shall use or disclose material, non-public information, obtained as a result of participation on the Advisory Committee, for any purpose other than the performance of official duties as a member of the Advisory Committee.
[¶ 4215] BYLAW 704. BUSINESS CONDUCT COMMITTEE.
(Click Here to Print this Rule) [Effective dates of amendments: July 1, 1987; June 15, 1988; March 15, 1994; and January 1, 2005.]
There shall be a Business Conduct Committee, consisting of nine individuals who shall be Members, persons connected therewith or members of the public. A majority of the Business Conduct Committee members eligible to participate in a proceeding shall constitute a quorum, except that in cases in which a Panel has been appointed (See Compliance Rule 3-11) a quorum shall consist of a majority of such Panel members but no fewer than three. The members of the Business Conduct Committee shall be proposed by the President and appointed by the Board. The President and the Board shall propose and appoint individuals who reflect the various categories of NFA Members and members of the public. At least three members of the Business Conduct Committee shall not be NFA Members or Associates or employees of NFA Members. Each member of the Business Conduct Committee shall serve for three years, or until the member's death, resignation, ineligibility or removal. A vacancy in the Business Conduct Committee shall be filled in the manner prescribed in Bylaw 601 for officers. A Business Conduct Committee member may be removed by the Board for cause. No Business Conduct Committee member shall use or disclose material, non-public information, obtained as a result of participation on the Business Conduct Committee, for any purpose other than the performance of official duties as a member of the Business Conduct Committee.
[¶ 4217] BYLAW 705. FINANCE COMMITTEE.
(Click Here to Print this Rule) [Adopted effective March 12, 1984. Effective dates of amendments: June 13, 1986 and January 1, 1990.]
There shall be a Finance Committee not having or exercising the authority of the Board, to advise the Executive Committee on matters of NFA financial policy including the establishment of major plans and priorities regarding the commitment and expenditure of NFA funds and the establishment of dues, assessments, fees and other charges upon Members and others. The Finance Committee shall consist of six members as follows:
(a) NFA's President;
(b) NFA's Vice Chairman (who shall act as Chairman of the Finance Committee); and
(c) Four (4) other Directors as follows who shall not also be members of the Executive Committee and who shall be proposed by the Executive Committee and appointed by the Board at the first Board meeting in each fiscal year:
(i) One (1) Director representing contract markets;
(ii) One (1) Director representing FCMs, LTMs or IBs;
(iii) One (1) Director representing CPOs or CTAs; and
(iv) One (1) Director who is a public representative.
[¶ 4218] BYLAW 706. NOMINATING COMMITTEE.
(Click Here to Print this Rule) [Adopted effective November 9, 1988.]
No member of the Nominating Committee or any subcommittee thereof shall use or disclose material, non-public information, obtained as a result of participation on the Committee or any subcommittee thereof, for any purpose other than the performance of official duties as a member of the Committee or any subcommittee thereof.
[¶ 4219] BYLAW 707. HEARING COMMITTEE.
(Click Here to Print this Rule) [Adopted effective March 15, 1994. Effective dates of amendments: January 1, 2005.]
There shall be a Hearing Committee, consisting of at least 15 individuals who shall be Members, persons connected therewith or members of the public. A majority of the Hearing Committee members eligible to participate in a proceeding shall constitute a quorum, except that in cases in which a Panel has been appointed (See Compliance Rule 3-7) a quorum shall consist of a majority of such Panel members but no fewer than three. The members of the Hearing Committee shall be proposed by the President and approved by the Board. The President and the Board shall propose and appoint individuals who reflect the various categories of NFA Members and members of the public. At least one-third of the members of the Hearing Committee shall not be NFA Members or Associates or employees of NFA Members. Each member of the Hearing Committee shall serve for three years, or until the member's death, resignation, ineligibility or removal. A vacancy in the Hearing Committee shall be filled in the manner prescribed in Bylaw 601 for officers. A Hearing Committee member may be removed by the Board for cause. No Hearing Committee member shall use or disclose material, non-public information, obtained as a result of participation on the Hearing Committee, for any purpose other than the performance of official duties as a member of the Hearing Committee.
[¶ 4220] BYLAW 708. QUALIFICATIONS AND OBLIGATIONS OF MEMBERS OF NFA COMMITTEES.
(Click Here to Print this Rule) [Adopted effective June 2, 1990. Effective dates of amendments: December 10, 1993; March 21, 1994; March 12, 1999 and December 4. 2000.]
(a) No individual shall be eligible to serve as a member of any NFA Committee or any subcommittee thereof if such person:
(i) is subject to any of the disqualifications set forth in CFTC Regulation 1.63(b);
(ii) has been convicted of a felony within the prior 10 years; or
(iii) is subject to a Member Responsibility Action or Associate Responsibility Action which is currently in effect.
(b) No member or functional equivalent thereof of any NFA Committee or subcommittee shall use or disclose material, non-public information, obtained as a result of participation on the Committee or subcommittee, for any purpose other than the performance of official duties as a member of the Committee or subcommittee thereof.
(c) No member of any NFA Committee or subcommittee may deliberate or vote on any matter that the member is prohibited from voting on by CFTC Regulation 1.69(b)(1)(i). A member who is prohibited from deliberating or voting on a matter must disclose to NFA staff both the prohibition and the reason for the prohibition before the Committee or subcommittee considers the matter.
(See Interpretive Notice NFA Bylaws 515, 708 and 802: NFA Requirements which Constitute Disciplinary Offenses.)
CHAPTER 8. ARBITRATION
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[¶ 4221] BYLAW 801. CODE OF ARBITRATION.
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Subject to Articles III and XI and Bylaw 1506, the Board shall adopt rules constituting a Code of Arbitration which rules shall be deemed a part of these Bylaws.
[¶ 4222] BYLAW 802. QUALIFICATIONS OF MEMBERS OF ARBITRATION PANELS.
(Click Here to Print this Rule) [Adopted effective June 2, 1990.]
(a) No individual shall be eligible to serve as a Panel member if such person:
(i) is subject to any of the disqualifications set forth in CFTC Regulation 1.63(b);
(ii) has been convicted of a felony within the prior 10 years; or
(iii) is subject to a Member Responsibility Action or Associate Responsibility Action which is currently in effect.
(b) The Secretary may disqualify an individual from serving on a Panel for conditions other than those set forth in paragraph (a) of this Bylaw and may adopt eligibility standards in addition to those set forth in paragraph (a) of this Bylaw.
(c) Service on a Panel by an individual who is ineligible for service pursuant to this Bylaw shall not constitute grounds to challenge an award rendered by the Panel.
(See Interpretive Notice NFA Bylaws 515, 708 and 802: NFA Requirements which Constitute Disciplinary Offenses.)
CHAPTER 9. ENFORCEMENT AND DISCIPLINE
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[¶ 4227] BYLAW 901. COMPLIANCE RULES.
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Subject to Articles III and XI and Bylaw 1506, the Board shall adopt compliance rules for the enforcement of NFA requirements and the disciplining of Members and Associates for violating those requirements, which rules shall be deemed a part of these Bylaws.
CHAPTER 10. FINANCIAL REQUIREMENTS
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[¶ 4233] BYLAW 1001. FINANCIAL REQUIREMENTS.
(Click Here to Print this Rule) [Effective dates of amendments: July 27, 1983.]
Subject to Articles III and XI and Bylaw 1506, the Board shall adopt minimum financial and related reporting requirements, which rules shall be deemed a part of these Bylaws.
CHAPTER 11. DOING BUSINESS WITH NON-MEMBERS
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[¶ 4239] BYLAW 1101. PROHIBITION.
(Click Here to Print this Rule) [Effective dates of amendments: July 27, 1983; January 1, 1990; and August 21, 2001.]
No Member may carry an account, accept an order or handle a transaction in commodity futures contracts for or on behalf of any non-Member of NFA, or suspended Member, that is required to be registered with the Commission as an FCM, IB, CPO, CTA or LTM, and that is acting in respect to the account, order or transaction for a customer, a commodity pool or participant therein, a client of a commodity trading advisor, or any other person, unless:
(a) such non-Member of NFA is a member of another futures association registered with the Commission under Section 17 of the Act, or is exempted from this prohibition by Board resolution;
(b) such non-Member of NFA is registered with the Commission as an FCM or IB under Section 4f(a)(2) of the Act and the account, order, or transaction involves only security futures products; or
(c) such suspended Member is exempted from this prohibition by the Appeals Committee.
No Member may accept orders in commodity futures contracts to cover leverage transactions, for or on behalf of any non-Member of NFA, or suspended Member, that is required to be registered with the Commission as an LTM, unless:
(a) such non-Member is a member of another futures association registered under Section 17 of the Act, or is exempted from this prohibition by Board resolution; or
(b) such suspended Member is exempted from this prohibition by the Appeals Committee.
(See Interpretive Notice Compliance with NFA Bylaw 1101.)
[¶ 4245] BYLAW 1102. EFFECTIVE DATE OF PROHIBITION.
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The Board may establish such effective date or dates for Section 1101, as to any category or subcategory of persons or programs, as it deems appropriate in light of NFA resources and the prudent initiation of particular NFA operations and programs.
CHAPTER 12. PROPERTY AND INVESTMENTS
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[¶ 4251] BYLAW 1201. PROPERTY.
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All property, whether real, personal or mixed, received by NFA shall be held by NFA or disposed of by it on such terms and conditions not inconsistent with the Articles as the Board shall determine.
[¶ 4257] BYLAW 1202. INVESTMENTS.
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Unless otherwise specified by the terms of a particular gift, bequest, devise, grant or other instrument, NFA funds may be invested, from time to time, in such manner as the Board may deem advantageous without regard to restrictions applicable to trustees or trust funds.
CHAPTER 13. DUES AND ASSESSMENTS
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[¶ 4263] BYLAW 1301. SCHEDULE OF DUES AND ASSESSMENTS.
(Click Here to Print this Rule) [Effective dates of amendments: January 10, 1983; July 27, 1983; November 29, 1983; February 27, 1984; April 1, 1984; June 4, 1985; January 28, 1986; July 1, 1988; May 22, 1989; July 1, 1989; January 1, 1990; July 1, 1991; July 1, 1993; January 1, 1994; July 1, 1994; January 1, 1995; January 1, 1998; July 1, 1999; July 1, 2001; October 15, 2001; January 1, 2002; April 1, 2002; July 1, 2002; September 9, 2002; January 1, 2003; September 15, 2003; December 1, 2003; July 1, 2004; January 1, 2005; April 30, 2006; December 4, 2006; October 1, 2007; and January 1, 2008.]
Subject to the provisions of Article XII, dues and assessments of Members shall be as follows:
[¶ 4263.1] (a) Contract Markets.
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Each contract market Member shall pay to NFA an assessment calculated on the basis of $.005 for each round-turn transaction in a commodity futures contract (purchase and sale or sale and purchase) executed on the contract market, except that in any NFA fiscal year, the total of such assessments paid by a contract market Member that had transaction volume of more than 20 percent of aggregate contract market transaction volume during that fiscal year shall not be more than $150,000 and the total of such assessments paid by a contract market Members that had transaction volume of 20 percent or less of aggregate contract market transaction volume during that fiscal year shall not be more than $100,000. A specific contract market's transaction volume shall be the number of commodity futures contracts entered into on the contract market. The aggregate contract market transaction volume shall be the number of such contracts entered into on all U.S. contract markets. The number of contracts entered into on a contract market shall be adjusted where necessary because of differences in sizes of contracts (e.g., one 5,000 oz. contract for a particular commodity would equal five 1,000 oz. contracts for that commodity for purposes of the computation).
[¶ 4263.2] (b) FCM Members.
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(i) Each FCM Member shall pay to NFA an assessment equal to:
(A) $.02 for each commodity futures contract traded on or entered into subject to the rules of a contract market (other than an option contract) on a round-turn basis;
(B) $.01 for each option contract traded on or entered into subject to the rules of a contract market on a per trade basis;
(C) $.02 for each security futures contract, as defined in Section 1a(31) of the Act, traded on a round-turn basis, carried by it in a commodity futures account,
carried by it for a customer other than: (1) a person having privileges of membership on a contract market where such contract is entered (except that this exemption does not apply to transactions by commodity pools operated by NFA Member CPOs); (2) a business affiliate of such FCM that directly or indirectly owns 100 percent of or is owned 100 percent by or has 100 percent ownership in common with such FCM provided such FCM has privileges of membership on the contract market where such contract is entered; or (3) an omnibus account carried for another FCM Member for which assessments are payable to NFA by the other FCM;
(D) $.02 for each commodity futures contract traded on or entered into subject to the rules of a foreign board of trade (other than an option contract) on a round-turn basis;
(E) $.01 for each option contract traded on or entered into subject to the rules of a foreign board of trade on a per trade basis,
carried by it for a customer other than on an omnibus account basis for another FCM Member for which assessments are payable to NFA by the other FCM; and
(F) $.01 for each dealer option contract on a per trade basis carried by it for a customer other than a business affiliate of such FCM that directly or indirectly owns 100 percent of or is owned 100 percent by or has 100 percent ownership in common with such FCM Member:
Provided, however, such assessments shall be suspended or adjusted by the Board for a period not to exceed three months when in the judgment of the Board such action is appropriate in light of NFA's overall financial goals. The FCM Member shall invoice these assessments to its customer and shall remit the amount due to NFA; and
(ii) Each FCM for which NFA serves as the DSRO, as defined in NFA Financial Requirements Section 2, shall pay to NFA annual dues of $5,625 and each FCM for which NFA does not serve as the DSRO as defined in NFA Financial Requirements Section 2, shall pay to NFA annual dues of $1,500.
[¶ 4263.3] (c) LTM Members.
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[¶ 4263.4] (d) Other Members.
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Annual dues for the other membership categories shall be as follows:
(i) Commodity Trading Advisor-$750
(ii) Commodity Pool Operator-$750
(iii) Introducing Broker-$750
Subject to the two-thirds majority voting requirements contained in Article XI, Section 1, the Board may in its discretion waive or establish lower annual dues for particular Members.
[¶ 4263.5] (e) Forex Dealer Members.
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(i) Each Forex Dealer Member shall pay to NFA annual dues in the amount provided under section (b)(ii) of this bylaw plus a surcharge of $44,375 if its gross annual revenue from the activities described in Bylaw 306(a) is $500,000 or less, a surcharge of $69,375 if its gross annual revenue from those activities is more than $500,000 but not more than $2,000,000, a surcharge of $94,375 if its gross annual revenue from those activities is more than $2,000,000 but not more than $5,000,000, and a surcharge of $119,375 if its gross annual revenue from those activities is more than $5,000,000. These dues replace the dues that would otherwise be payable based on the Forex Dealer Member's registration category.
(ii) Each Forex Dealer Member that is subject to discipline for the activities of solicitors and account managers shall pay a separate annual fee as follows payable on the firm's annual renewal date — for 1 to 4 solicitors and account managers, the fee is $5,000; for 5 to 19 solicitors and account managers the fee is $10,000; for 20 to 99 solicitors and account managers the fee is $25,000; and for 100 or more solicitors and account managers the fee is $50,000. In determining whether this fee applies, a Forex Dealer Member must calculate the highest number of solicitors and account managers it was responsible for at any one point of time during the year. This number does not include solicitors and account managers that are Members of NFA, meet the criteria in Bylaw 306(b), or would be exempt from Commission registration if they were acting in the same capacity in connection with exchange-traded futures contracts.
(iii) Each Forex Dealer Member shall pay an assessment of .0001% on the notional value of each initiating (non-rollover) forex transaction (as forex is defined in Bylaw 1507(b)). For transactions with a notional value less than $10,000, the Forex Dealer Member may aggregate separate transactions and pay $.01 on each multiple of $10,000.
Subject to the two-thirds majority voting requirements contained in Article XI, Section 1, the Board may in its discretion waive or establish lower annual dues for particular Members.
(See Interpretive Notice NFA Bylaw 1301: NFA Assessment Fee Questions and Answers for FCMs and Interpretive Notice NFA Bylaw 1301: Forms and Procedures for Assessment Fee Computation.)
[¶ 4269] BYLAW 1302. PAYMENT OF DUES AND ASSESSMENTS.
(Click Here to Print this Rule) [Effective dates of amendments: April 11, 1983; July 27, 1983; November 29, 1983; December 30, 1986; January 1, 1990; July 1, 1991 and October 1, 2007.]
Annual dues and fees shall be payable in advance on the first day of January of each year, or at such other time or times as the Board shall determine. Members paying dues or fees after the date they are payable shall be subject to a late payment charge of $25 per month or portion thereof. Assessments based upon futures or forex transactions shall be payable to NFA within 30 days after the end of each month for transactions effected during that month. In addition to such assessments each FCM, Forex Dealer Member, and LTM shall pay to NFA an amount equal to one month's interest at an annual rate of 10 percent (or such other rate of interest as the President, with the concurrence of the Executive Committee, may determine from time to time) on the amount of any such assessment payable by that Member for every month or fraction thereof such assessment payment is late. If a Member claims overpayment of its assessments based upon futures or forex transactions, the Member may request a refund at any time prior to the end of the 18th calendar month following the due date for payment of assessments for the month with respect to which such claimed overpayment was made. After that time, no refunds, adjustments or offsets will be made or allowed. Except as the Board may otherwise provide by resolution, each Member shall pay dues and assessments, as applicable, for each category in which the Member — or an affiliate thereof, unless such affiliate is a Member in its own right — is registered with the Commission and conducts business.
[¶ 4275] BYLAW 1303. DEFAULT AND DEEMED REQUEST TO WITHDRAW MEMBERSHIP.
(Click Here to Print this Rule) [Effective dates of amendments: June 4, 1985; January 1, 1990; January 1, 2001; March 18, 2003 and October 1, 2007.]
When any Member shall be in default in the payment of dues or annual fees for a period of 30 days or assessments or audit fees for a period of three months after such dues, annual fees, assessments or audit fees became payable, NFA shall deem that Member's non-payment of dues, annual fees, assessments or audit fees to be a request to withdraw from NFA membership and shall notify that Member accordingly. NFA may provide the notice required by this Bylaw electronically.
[¶ 4276] BYLAW 1304. AUDIT FEES FOR LTMS.
(Click Here to Print this Rule) [Adopted effective January 1, 1990.]
Each LTM Member shall pay an audit fee to NFA each year within 30 days of the date the invoice is mailed by NFA. The Board of Directors shall determine the audit fee each year based on the anticipated cost of such
audits. If the fee paid is less than the actual cost of auditing the LTM during the calendar year for which it was paid, NFA will invoice the LTM for the difference, and the LTM Member shall pay the invoiced amount within 30 days. If the fee paid is greater than the actual costs of auditing the LTM, the excess will be applied to the fee of the following year. In addition to such audit fee, each LTM shall pay to NFA an amount equal to one month's
interest at an annual rate of 10 percent (or such other rate of interest as the President, with the concurrence of the Executive Committee, may determine from time to time) on the amount of any such audit fee payable by that LTM for every month or fraction thereof such audit payment is late.
CHAPTER 14. INDEMNIFICATION AND LAWSUITS AGAINST NFA.
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[¶ 4281] BYLAW 1401. INDEMNIFICATION.
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NFA shall, to the fullest extent permitted by law, indemnify any person who is, or is threatened to be, made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a Director, officer, employee or agent of NFA, or member of a committee of NFA, or is or was serving at NFA's request as a Director, officer, employee, agent or committee member of another entity, against all reasonable expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement, actually incurred by the person in connection with such action, suit or proceeding.
[¶ 4282] BYLAW 1402. LAWSUITS AGAINST NFA.
(Click Here to Print this Rule) [Effective date of amendment: November 12, 2004.]
Any current or former Member or Associate who fails to prevail in a lawsuit or any other type of legal proceeding instituted in a court of law or otherwise against NFA or any of its officers, directors, committee members, volunteers, arbitrators, employees or agents shall pay to NFA any and all reasonable expenses and disbursements, including reasonable attorney's fees, incurred by NFA to defend such lawsuit or proceeding.
CHAPTER 15. MISCELLANEOUS PROVISIONS
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[¶ 4287] BYLAW 1501. CORPORATE SEAL.
(Click Here to Print this Rule) [Effective dates of amendments: August 21, 2001.]
The corporate seal of NFA shall be circular in form bearing the name of the corporation and the word "DELAWARE" in the marginal circle, and the words "Corporate Seal" in the inner circle. This seal may be used by causing it, or a facsimile or equivalent thereof, to be impressed, affixed or reproduced.
[¶ 4293] BYLAW 1502. DEPOSITORIES.
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All NFA moneys and equivalents not otherwise employed shall be deposited from time to time to the credit of NFA in such financial institutions as may be designated by the Board.
[¶ 4299] BYLAW 1503. CHECKS, DRAFTS, NOTES, ETC.
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All checks, drafts or other orders for the payment of money, and all notes or other evidences of indebtedness issued in the name of NFA, shall be signed by such person or persons and in such manner as the Board shall determine from time to time by resolution.
[¶ 4305] BYLAW 1504. FISCAL YEAR.
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The fiscal year of NFA shall begin on the first day of July and end on the last day of June in each year.
[¶ 4311] BYLAW 1505. EFFECTIVE DATES.
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The Board shall determine the effective dates for the Code of Arbitration, Compliance Rules and Financial Requirements.
[¶ 4317] BYLAW 1506. AMENDMENTS TO BYLAWS.
(Click Here to Print this Rule) [Effective dates of amendments: April 11, 1983; January 1, 1990; August 16, 1993 and October 15, 2001.]
No Bylaw may be adopted, amended or repealed except as specified in a written notice sent to each Director at least two weeks prior to the meeting at which the Board considers the same: Provided, however, that such prior notice is not required in an emergency as defined by Bylaw 507, or where a two-thirds majority of all Directors present and voting approves.
[¶ 4323] BYLAW 1507. DEFINITIONS.
(Click Here to Print this Rule) [Effective dates of amendments: February 1, 1988; January 1, 1990; and February 13, 2007.]
Except as provided in this Bylaw, the terms used in these Bylaws shall have the same meaning as in the Articles.
(a) The term "futures" as used in these Bylaws shall include:
(1) option contracts granted by a person that has registered with the Commission under Section 4c(d) of the Act as a grantor of such option contracts or has notified the Commission under the Commission's rules that it is qualified to grant such option contracts;
(2) foreign futures and foreign options transactions made or to be made on or subject to the rules of a foreign board of trade for or on behalf of foreign futures and foreign options customers as those terms are defined in the Commission's rules;
(3) leverage transactions as that term is defined in the Commission's rules; and
(4) security futures products, as that term is defined in Section 1a(32) of the Act.
(b) The term "forex" means:
(1) foreign currency futures and options and any other agreement, contract, or transaction in foreign currency that is offered or entered into on a leveraged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis;
(2) offered to or entered into with persons that are not eligible contract participants as defined in Section 1a(12) of the Act; and
(3) not executed on or subject to the rules of a contract market, a derivatives transaction execution facility, a national securities exchange registered pursuant to Section 6(a) of the Securities Exchange Act of 1934, or a foreign board of trade.
Provided, however, that the term does not include any security that is not a security futures product, any contract of sale that results in actual delivery within two days, or any contract of sale that creates an enforceable obligation to deliver between a seller and buyer that have the ability to deliver and accept delivery, respectively, in connection with their line of business, unless the transaction involves a futures contract or an option.
Such contracts are hereby declared to be proper subjects of NFA regulation and oversight (see Article XVIII, paragraph (k)).
[¶ 4324] BYLAW 1508. SECURITY FUTURES AGREEMENTS.
(Click Here to Print this Rule) [Effective dates of amendments: September 17, 2004.]
Staff may, with the approval of the Executive Committee, enter into one or more agreements with one or more designated contract markets to provide regulatory services to NFA to assist NFA in discharging its obligations under Sections 15A(k) and 19(g) of the Securities Exchange Act of 1934. Any action taken by a designated contract market, or its employees or authorized agents, acting on behalf of NFA pursuant to a regulatory services agreement shall be deemed to be an action taken by NFA; provided, however, that nothing in this provision shall affect the oversight of the designated contract market by the Commodity Futures Trading Commission. Notwithstanding the fact that NFA may enter into one or more regulatory services agreements regarding security futures, NFA shall retain ultimate legal responsibility for, and control of, its self-regulatory responsibilities under the Securities Exchange Act of 1934, and any such regulatory services agreement shall so provide.
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Compliance Rules
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PART 1-DEFINITIONS
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[¶ 5011] RULE 1-1. DEFINITIONS.
(Click Here to Print this Rule) [Effective date of amendments: April 7, 1982; July 27, 1983; January 14, 1988; September 29, 1989; July 24, 2000; August 21, 2001; May 1, 2004; February 13, 2007.]
[¶ 5011.1] (a) "Act" -means the Commodity Exchange Act.
[¶ 5011.2] (b) "Actual Funds" - means the equity in a commodity trading account over which a CTA has trading authority and funds that can be transferred to that account without the client's consent to each transfer.
[¶ 5011.3] (c) "Appeals Committee" -means the Appeals Committee established under NFA Bylaw 702.
[¶ 5011.4] (d) "Associate" -means a person who is associated with a Member within the meaning of the term "associated person" as used in the Act and Commission Rules and who is required to be registered as an "associated person" with the Commission.
[¶ 5011.5] (e) "Business Conduct Committee" -means the Business Conduct Committee established under NFA Bylaw 704.
[¶ 5011.6] (f) "Commission" or "CFTC" -means the Commodity Futures Trading Commission.
[¶ 5011.7] (g) "Commodity Pool Operator" or "CPO" - means a person who is required to register or is registered as a commodity pool operator under the Act and Commission Rules.
[¶ 5011.8] (h) "Commodity Trading Advisor" or "CTA" - means a person who is required to register or is registered as a commodity trading advisor under the Act and Commission Rules.
[¶ 5011.9] (i) "Contract Market" -means an exchange designated by the Commission as a contract market in one or more commodities or licensed by the Commission for the trading of options.
[¶ 5011.10] (j) "Exchange Act" - means the Securities Exchange Act of 1934.
[¶ 5011.11] (k) "Foreign Board of Trade" -means a board of trade, exchange, or market located outside the United States, its territories or possessions.
[¶ 5011.12] (l) "Foreign Futures" and "Foreign Options" -means futures and options transactions made or to be made on or subject to the rules of a foreign board of trade.
[¶ 5011.13] (m) "Foreign Futures or Foreign Options Customer" -means any person located in the United States, its territories or possessions who trades in foreign futures or foreign options.
[¶ 5011.14] (n) "Forex" - has the same meaning as in Bylaw 1507(b).
[¶ 5011.15] (o) "Forex Dealer Member" - has the same meaning as in Bylaw 306.
[¶ 5011.16] (p) "Futures" includes-
(1) futures and option contracts traded on a contract market;
(2) option contracts granted by a person that has registered with the Commission under Section 4c(d) of the Act as a grantor of such option contracts or has notified the Commission under the Commission's rules that it is qualified to grant such option contracts;
(3) foreign futures and foreign options made or to be made on or subject to the rules of a foreign board of trade for or on behalf of foreign futures or foreign options customers as those terms are defined in the Commission's rules;
(4) leverage transactions as that term is defined in the Commission's rules; and
(5) security futures products, as that term is defined in Section 1a(32) of the Act.
[¶ 5011.17] (q) "Futures Commission Merchant" or "FCM" -means a person who is required to register or is registered as a futures commission merchant under the Act and Commission Rules.
[¶ 5011.18] (r) "Hearing Committee" - means the Hearing Committee established under NFA Bylaw 707.
[¶ 5011.19] (s) "Introducing Broker" or "IB" -means a person who is required to register or is registered as an introducing broker under the Act and Commission Rules.
[¶ 5011.20] (t) "Leverage Transaction Merchant" or "LTM" -means a person who is required to register or is registered as a leverage transaction merchant under the Act and Commission Rules.
[¶ 5011.21] (u) "Member" -means a Member of NFA other than a contract market.
[¶ 5011.22] (v) "Nominal Account Size" - means the account size agreed to by the client that establishes the level of trading in the particular trading program.
[¶ 5011.23] (w) "Partially-Funded Account" - has the same meaning as in CFTC Regulation 4.10(m).
[¶ 5011.24] (x) "Person" - includes individuals, corporations, limited liability companies, partnerships, trusts, associations and other entities.
[¶ 5011.25] (y) "Qualified Eligible Person" or "QEP" - has the same meaning as in CFTC Regulation 4.7(a).
[¶ 5011.26] (z) "Requirements" -includes any duty, restriction, procedure or standard imposed by a charter, bylaw, rule, regulation, resolution or similar provision.
[¶ 5011.27] (aa) "Security Futures Products" - has the same meaning as in Section 1a(32) of the Act.
PART 2-RULES GOVERNING THE BUSINESS CONDUCT OF MEMBERS REGISTERED WITH THE COMMISSION
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[¶ 5017] RULE 2-1. CONTRACT MARKET JURISDICTION.
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No Member or Associate shall be charged with an offense under these Rules if the specific conduct alleged to constitute the offense is governed or otherwise regulated by the requirements of a contract market and such Member or Associate is subject to the disciplinary jurisdiction of the contract market for such conduct. The foregoing shall not apply if the contract market has expressly delegated enforcement responsibility to NFA, or if the offense under these Rules is a violation of NFA Financial Standards requirements adopted pursuant to Section 1(b) of Article III or NFA Customer Protection requirements adopted pursuant to Section 1(e) of Article III of the NFA Articles of Incorporation.
[¶ 5023] RULE 2-2. FRAUD AND RELATED MATTERS.
(Click Here to Print this Rule) [Effective date of amendments: March 21, 1983 and July 24, 2000.]
No Member or Associate shall:
(a) Cheat, defraud or deceive, or attempt to cheat, defraud or deceive, any commodity futures customer;
(b) Bucket a customer's commodity futures order or engage in a business that is of the nature of a bucket shop;
(c) Willfully make or cause to be made to a customer a false report, or willfully to enter or cause to be entered for a customer a false record, in or in connection with any commodity futures contract;
(d) Disseminate, or cause to be disseminated, false or misleading information, or a knowingly inaccurate report, that affects or tends to affect the price of any commodity that is the subject of a commodity futures contract;
(e) Engage in manipulative acts or practices regarding the price of a commodity futures contract;
(f) Willfully submit materially false or misleading information to NFA or its agents;
(g) Effect a commodity trade on a contract market for a person who is subject to a Commission prohibition from trading on any contract market, unless the Member or Associate did not know or have reason
to know of the prohibition; or
(h) Embezzle, steal, purloin or knowingly convert any money, securities or other property received from or accruing to a customer, client or pool participant in or in connection with commodity futures contracts.
(i) Act in any capacity requiring registration under the Act unless the Member or Associate is either registered in that capacity or exempt from registration.
[¶ 5029] RULE 2-3. SHARING IN PROFITS.
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No Member or Associate shall share, directly or indirectly, in the profits or losses accruing from commodity futures trading in any account of a customer carried by the Member, or another Member, unless the customer's prior written authorization therefor is obtained.
[¶ 5035] RULE 2-4. JUST AND EQUITABLE PRINCIPLES OF TRADE.
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Members and Associates shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their commodity futures business.
[See Interpretive Notice Interpretation of NFA Compliance Rule 2-4: Guideline for the Disclosure by FCMs and IBs of Costs Associated with Futures Transactions and Interpretive Notice NFA Compliance Rule 2-4:Confidentiality Language in Release Agreements.]
[¶ 5041] RULE 2-5. COOPERATION IN NFA INVESTIGATIONS AND PROCEEDINGS.
(Click Here to Print this Rule) [Effective date of amendments: July 24, 2000.]
Each Member and Associate shall cooperate promptly and fully with NFA in any NFA investigation, inquiry, audit, examination or proceeding regarding compliance with NFA requirements or any NFA disciplinary or arbitration proceeding. Each Member and Associate shall comply with any order issued by the Executive Committee, the Membership Committee, the Business Conduct Committee, the Appeals Committee or any NFA hearing or arbitration panel.
[¶ 5047] RULE 2-6. EXPELLED OR SUSPENDED MEMBER OR ASSOCIATE.
(Click Here to Print this Rule) [Effective date of amendments: July 20, 2005; and June 5, 2007.]
No person who has been expelled or suspended or is subject to a similar sanction by NFA in a proceeding brought pursuant to Part 3 of NFA's Compliance Rules that temporarily or permanently prohibits the person from NFA membership or affiliation in any capacity with an NFA Member shall hold himself out as a Member in good standing of NFA, or as affiliated with a Member, as the case may be, during the period during which the sanction is in effect. No Member or Associate shall conduct commodity futures or forex business with such a person during the period the sanction is in effect unless authorized by the Business Conduct Committee, Hearing Committee or the Appeals Committee.
[See Interpretive Notice NFA Compliance Rule 2-6: Conducting Commodity Futures Business With an Expelled or Suspended Member or Associate
[¶ 5053] RULE 2-7. BRANCH OFFICE MANAGERS AND DESIGNATED SECURITY FUTURES PRINCIPALS.
(Click Here to Print this Rule) [Adopted effective September 30, 1992. Effective date of amendments: January 28, 1994; August 21, 2001; December 9, 2005; and December 17, 2007.]
(a) No Member shall allow an Associate to be a branch office manager unless:
(1) The Associate has taken and passed the "Branch Manager Exam-Futures": Provided, however, that any Associate who subsequently ceases acting as a branch manager will not be required to retake and pass the examination in order to resume acting as a branch manager unless after acting as a branch manager the Associate was not registered in any capacity for a period of more than two years; or
(2) The Associate is sponsored by a registered broker-dealer and is qualified to act as a branch office manager under the rules of either the New York Stock Exchange or the Financial Industry Regulatory Authority.
(b) Each Member registered as a broker-dealer under Section 15(b)(11) of the Exchange Act must have at least one designated security futures principal. No such Member shall designate a person as a security futures principal unless:
(1) The person is a partner, officer, director, branch office manager or supervisory employee of the Member;
(2) The person is a Member or an Associate of the Member as defined in Bylaw 301(b); and
(3) The person has taken and passed the "Branch Manager Exam-Futures."
[¶ 5059] RULE 2-8. DISCRETIONARY ACCOUNTS.
(Click Here to Print this Rule) [Effective date of amendments: July 28, 1983; January 24, 1985; January 14, 1988; March 15, 1994; August 29, 1996; April 23, 1998; July 24, 2000 and August 21, 2001.]
[¶ 5059.1] (a) Grant of Discretion Must Be in Writing.
(Click Here to Print this Rule)
No Member or Associate shall exercise discretion over a customer's commodity futures account unless the customer or account controller has authorized the Member or Associate, in writing (by power of attorney or other instrument) to exercise such discretion. No Member or Associate shall exercise discretion with regard to foreign futures or foreign options transactions on behalf of a foreign futures or foreign options customer unless the customer or account controller has specifically authorized the Member or Associate, in writing, to exercise discretion with regard to foreign futures or foreign options transactions. The Member or Associate does not need written authorization to exercise discretion with regard to time and price only. Each Member must maintain records which clearly identify which of the Member's accounts are accounts over which the Member or any Associate thereof has discretionary authority.
[¶ 5059.2] (b) Review of Discretionary Trades.
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Each futures trade initiated in an account that a Member or Associate has written authorization to trade shall be presumed to have been made pursuant to that trading authorization unless otherwise indicated, in writing, at the time the trade was placed. Each Member initiating such trades (other than a Member who employs only one individual having discretionary authority if that individual is also the only principal who supervises futures activity) must adopt and enforce written procedures:
(1) Which ensure that a partner, officer, director, branch office manager or supervisory employee of the Member (other than any individual who exercises discretion in trading the account) regularly reviews discretionary trading activity and that a designated security futures principal regularly reviews discretionary security futures trading activity if the Member is registered as a broker-dealer under Section 15(b)(11) of the Exchange Act; and
(2) Which require such partner, officer, director, branch office manager or supervisory employee or designated security futures principal to make a written record that such review procedures were performed.
Discretionary trading activity must be regularly reviewed, and a written record of the review must be made, as required above.
[¶ 5059.3] (c) Minimum Experience Requirement.
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No Member FCM or IB shall allow an Associate to exercise discretion over a customer's commodity futures account unless that Associate has been continuously registered under the Act for a minimum of two years and has worked in such registered capacity for that period of time. This requirement shall not apply to any individual registered as a CTA. This requirement may, in NFA's discretion, be waived upon a showing that the Associate has equivalent experience. Any Member seeking such a waiver may submit a written request to the Compliance Director and all such requests shall be ruled upon by a three-member panel consisting of three members of the Business Conduct Committee and/or the Hearing Committee, said members to be appointed by the Board from time to time. The decision of the panel shall be final and shall be based upon the written submissions and the views of the Compliance Director. The panel shall communicate its decision to the Compliance Director or a person designated by the Compliance Director, who shall then inform the Member seeking the waiver. An Associate who has been determined to have equivalent experience pursuant to the rules of any contract market Member of NFA having a similar minimum experience requirement shall be deemed to have satisfied the requirement of this Rule.
[¶ 5059.4] (d) Third-Party Account Controllers.
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No FCM or IB shall accept an order from a third party, not an Associate of the FCM or IB, without first obtaining a copy of the account controller's written trading authorization or a written acknowledgment from the customer that such authorization has been given.
[¶ 5059.5] (e) Exception.
(Click Here to Print this Rule)
The provisions of sections (b), (c) and (d) of this Rule shall not apply when the individual who owns the account and the individual exercising discretion are members of the same family (a spouse, parent, child, grandparent, grandchild, brother, sister, aunt, uncle, nephew, niece or in-law).
[¶ 5065] RULE 2-9. SUPERVISION.
(Click Here to Print this Rule) [Effective date of amendments: October 29, 1991; January 19, 1993; March 15, 1994; April 23, 2002; and November 1, 2007.]
(a) Each Member shall diligently supervise its employees and agents in the conduct of their commodity futures activities for or on behalf of the Member. Each Associate who has supervisory duties shall diligently exercise such duties in the conduct of that Associate's commodity futures activities on behalf of the Member.
(b) NFA's Board of Directors may require Members which meet specific criteria established by the Board relating to the employment history of its APs or principals or to the total commissions, fees and other charges paid by their customers to adopt supervisory procedures specified by the Board for the supervision of telemarketing. This requirement may, in NFA's discretion, be waived upon a showing by the Member that the Member's current supervisory procedures provide effective supervision over its employees and agents. Any Member seeking such a waiver may submit a written request to a three-member panel consisting of three members of the Business Conduct Committee and/or the Hearing Committee, said members to be appointed by the Board from time to time. Within 30 days after a Member submits a waiver request, the Compliance Director will submit a written response to the panel. The decision of the panel shall be final and shall be based upon the written submissions of the Member and of the Compliance Director.
(c) Each FCM and IB Member shall develop and implement a written anti-money laundering program approved in writing by senior management reasonably designed to achieve and monitor the Member's compliance with the applicable requirements of the Bank Secrecy Act (31 U.S.C. 5311, et. seq.), and the implementing regulations promulgated thereunder by the Department of the Treasury and, as applicable, the Commodity Futures Trading Commission. That anti-money laundering program shall, at a minimum,
(1) Establish and implement policies, procedures, and internal controls reasonably designed to assure compliance with the applicable provisions of the Bank Secrecy Act and the implementing regulations thereunder;
(2) Provide for independent testing for compliance to be conducted by Member personnel or by a qualified outside party;
(3) Designate an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program; and
(4) Provide ongoing training for appropriate personnel.
[See Interpretive Notice NFA Compliance Rule 2-9:
FCM And IB Anti-Money Laundering Program and Interpretive Notice NFA Compliance Rule 2-29: Review of Promotional Material Prior to its First Use and Interpretive Notice Compliance Rule 2-9: Self-Audit Questionnaires and Interpretive Notice Compliance Rule 2-9: Supervision of Telemarketing Activity and Interpretive Notice Compliance Rule 2-9: Supervisory Procedures for E-Mail and the Use of Web Sites and Interpretive Notice Compliance Rule 2-29 and 2-9: NFA's Review and Approval of Certain Radio and Television Advertisements]
[¶ 5071] RULE 2-10. RECORDKEEPING.
(Click Here to Print this Rule) [Effective date of amendments: April 11, 1983; April 1, 2006 and July 1, 2007.]
(a) Each Member shall maintain adequate books and records necessary and appropriate to conduct its business including, without limitation, the records required to be kept under CFTC Regulations 1.18 and 1.32 through 1.37 for the period required under CFTC Regulation 1.31.
(b) Each FCM Member must either:
(1) Maintain an office in the continental United States, Alaska, Hawaii, or Puerto Rico responsible for preparing and maintaining financial and other records and reports required by CFTC and/or NFA rules under the supervision of a listed principal and registered associated person of the FCM who is resident in that office; or
(2) Maintain an office in a jurisdiction that the CFTC has found to have a comparable regulatory scheme for purposes of Part 30 of the CFTC's rules and be subject to that regulatory scheme. This foreign office must be responsible for preparing and maintaining financial and other records and reports required by CFTC and/or NFA rules under the supervision of a listed principal and registered associated person of the FCM who is resident in that office, and the Member must agree to reimburse NFA for any travel, translation, telephone, and similar expenses incurred in connection with inquiries, examinations and investigations of the Member that exceed the normal expenses incurred by NFA in examining an FCM Member located at the closest point in the continental United States, Alaska, Hawaii, or Puerto Rico.
(c) Each Member subject to minimum capital requirements must:
(d) Each Member must:
(1) file reports, requests for extensions, and other documents required to be filed with the CFTC and/or NFA in English;
(2) maintain English translations of all foreign-language promotional material, including disclosure documents and Web sites, distributed to or intended for viewing by customers located in the United States, its territories, or possessions;
(3) maintain written procedures required by CFTC or NFA rules in English (as well as in any other language if necessary for them to be understood by the Member's employees and agents);
(4) provide English translations of other foreign-language documents and records and file financial information in U.S. dollars when requested by NFA; and
(5) make available to NFA (during an examination or to respond to other inquiries) an individual who is authorized to act on the Member's behalf, is fluent in English, and is knowledgeable about the Member's business and about financial matters.
[See Interpretive Notice NFA Compliance Rule 2-10: The Allocation of Block Orders for Multiple Accounts. and Interpretive Notice Compliance Rule 2-10: Orders Eligible For Post-Execution Allocation]
[¶ 5077] RULE 2-11. CUSTOMER ACCOUNTS.
(Click Here to Print this Rule) [Adopted effective September 30, 1982. Effective date of amendments: July 24, 2000.]
No Member FCM, unless a member of a contract market, shall carry customer accounts without prior notice to NFA.
[¶ 5083] RULE 2-12. [RESERVED].
(Click Here to Print this Rule)
[¶ 5089] RULE 2-13. CPO/CTA REGULATIONS.
(Click Here to Print this Rule) [Adopted effective September 29, 1982. Effective date of Amendments: April 11, 1983; July 5, 1984; April 4, 1988; August 24, 1995; October 10, 1996; July 24, 2000 and December 14, 2003.]
(a) Any Member who violates any of CFTC Regulations 4.1, 4.7, 4.12 and 4.16 through 4.41 shall be deemed to have violated an NFA requirement.
(b) Each Member CPO which delivers or causes to be delivered a Disclosure Document under CFTC Regulation 4.21 must include in the Disclosure Document a break-even analysis which includes a tabular presentation of fees and expenses. The break-even analysis must be presented in the manner prescribed by NFA's Board of Directors and must be accurate as of the date of the Disclosure Document.
(c) Each Member required to file any document with or give notice to the CFTC under CFTC Regulations 4.7, 4.12, 4.22, 4.26 or 4.36 shall also file one copy of such document with or give such notice to NFA at its Chicago office no later than the date such document or notice is due to be filed with or given to the CFTC. Any CPO Member may file with NFA a request for an extension of time in which to file the annual report required by CFTC Regulation 4.22(c) or a request for approval of a change to its fiscal-year election.
[See Interpretive Notice Interpretation of NFA Compliance Rule 2-13: Guideline for the Disclosure by CPOs and CTAs of "Up Front" Fees and Organizational and Offering Expenses and Interpretive Notice Compliance Rule 2-13: Break-Even Analysis (Board of Directors).]
[¶ 5095] RULE 2-14. COMPLIANCE JURISDICTION.
(Click Here to Print this Rule) [Effective date of amendments: September 29, 1982 and July 24, 2000.]
Any Member or Associate who violates or fails to comply with any NFA requirement shall be subject to appropriate Member or Associate Responsibility Action or disciplinary action, or both, in accordance with these rules.
[¶ 5101] RULE 2-15. [RESERVED]
(Click Here to Print this Rule)
[¶ 5107] RULE 2-16. [RESERVED]
(Click Here to Print this Rule)
[¶ 5113] RULE 2-17. [RESERVED]
(Click Here to Print this Rule)
[¶ 5119] RULE 2-18. [RESERVED]
(Click Here to Print this Rule)
[¶ 5125] RULE 2-19. [RESERVED]
(Click Here to Print this Rule)
[¶ 5131] RULE 2-20. [RESERVED]
(Click Here to Print this Rule)
[¶ 5137] RULE 2-21. [RESERVED]
(Click Here to Print this Rule)
[¶ 5143] RULE 2-22. PROHIBITED REPRESENTATIONS.
(Click Here to Print this Rule) [Adopted effective April 22, 1983. Effective date of amendments: August 1, 1985 and August 21, 2001]
No Member or Associate shall represent or imply in any manner whatsoever that such Member or Associate has been sponsored, recommended or approved, or that such Member's or Associate's abilities have in any respect been passed upon, by NFA or any federal or state regulatory body: Provided, however, that this Rule shall not prohibit a Member from stating the fact of membership, or an Associate from stating the fact of registration as an Associate if the effect of NFA membership or registration as an Associate is not misrepresented, or from discussing or explaining the functions and purposes of NFA.
[¶ 5149] RULE 2-23. FCM RESPONSIBILITY FOR GUARANTEED MEMBER IBs.
(Click Here to Print this Rule) [Adopted effective February 27, 1984.]
Any Member FCM which enters into a guarantee agreement, pursuant to CFTC Regulation 1.10(j), with a Member IB, shall be jointly and severally subject to discipline under NFA Compliance Rules for acts and omissions of the Member IB which violate NFA requirements occurring during the term of the guarantee agreement.
[¶ 5155] RULE 2-24. QUALIFICATION TESTING OF ASSOCIATED PERSONS OF FCMs.
(Click Here to Print this Rule) [Adopted effective May 4, 1984. Effective date of Amendments: January 1, 1990 and September 9, 2002.]
(a) Testing Requirement.
Subject to the provisions of paragraphs (d) and (e) of Bylaw 301, no FCM, IB, CPO, CTA or LTM Member of NFA shall have associated with it (See Bylaw 301(b)) any person who has not satisfied the applicable proficiency requirements set forth in Registration Rule 401.
(b) Limitations on Activities.
(i) No person registered with NFA as an Associate of an NFA Member (See Bylaw 301(b)) who has satisfied the requirements of Registration Rule 401 by the use of an alternative to the National Commodity Futures Examination (Series 3) that requires the person to limit their futures-related activities may exceed such limits.
(ii) No Member of NFA shall have associated with it (See Bylaw 301(b)) any person who has satisfied the requirements of Registration Rule 401 by the use of an alternative to the National Commodity Futures Examination (Series 3) that requires the person to limit their futures-related activities and who exceeds such limits.
[¶ 5161] RULE 2-25. REQUIREMENTS FOR DEALER OPTIONS TRANSACTIONS OF FCMs.
(Click Here to Print this Rule) [Adopted effective November 5, 1984]
Any Member who violates any of the CFTC Part 32 Regulations shall be deemed to have violated an NFA requirement. Each Member required to file any documents with or give notice to the CFTC under the CFTC Part 32 Regulations shall also file one copy of such document with or give such notice to NFA at its Chicago office no later than the date such document or notice is due to be filed with or given to the CFTC.
[¶ 5167] RULE 2-26. FCM AND IB REGULATIONS.
(Click Here to Print this Rule) [Adopted effective January 24, 1985. Effective date of Amendments: February 1, 1996; August 29, 1996; July 24, 2000 and August 21, 2001.]
Any Member or Associate who violates any of CFTC Regulations 1.33, 1.55, 1.56, 1.57, 1.65, 155.3, or 155.4, as applicable, shall be deemed to have violated an NFA Requirement.
[¶ 5173] RULE 2-27. TRANSFER OF CUSTOMER ACCOUNTS.
(Click Here to Print this Rule) [Adopted effective January 24, 1985.]
(a) Upon receipt of a signed instruction from a customer to transfer an account from one Member to another, and provided that such instruction contains the customer's name, address and account number (and, if the transfer is not of the entire account, a description of which portions are to be transferred) and the name and address of the receiving Member, the carrying Member shall confirm to the receiving Member all balances in the account, whether money, securities or other property, and all open positions, within two business days or within such further time as may be necessary in the exercise of due diligence. Within three business days of the day such confirmation is due, or within such further time as may be necessary in the exercise of due diligence, and provided that the receiving Member agrees to accept the account, the carrying Member shall effect the transfer of the balances and positions to the receiving Member.
(b) This rule shall apply only to transfers made at the request of a customer.
(c) This rule shall not prohibit transfers based upon oral requests.
[¶ 5179] RULE 2-28. [RESERVED]
(Click Here to Print this Rule)
[¶ 5185] RULE 2-29. COMMUNICATIONS WITH THE PUBLIC AND PROMOTIONAL MATERIAL.
(Click Here to Print this Rule) [Adopted effective November 19, 1985. Effective date of Amendments: February 1, 1996; August 29, 1996; March 28, 2000; July 24, 2000; December 4, 2000; August 21, 2001 and May 1, 2004.]
(a) General Prohibition.
No Member or Associate shall make any communication with the public which:
(1) operates as a fraud or deceit;
(2) employs or is part of a high-pressure approach; or
(3) makes any statement that futures trading is appropriate for all persons.
(b) Content of Promotional Material.
No Member or Associate shall use any promotional material which:
(1) is likely to deceive the public;
(2) contains any material misstatement of fact or which the Member or Associate knows omits a fact if the omission makes the promotional material misleading;
(3) mentions the possibility of profit unless accompanied by an equally prominent statement of the risk of loss;
(4) includes any reference to actual past trading profits without mentioning that past results are not necessarily indicative of future results;
(5) includes any specific numerical or statistical information about the past performance of any actual accounts (including rate of return)
(i) unless such information is and can be demonstrated to NFA to be representative of the actual performance for the same time period of all reasonably comparable accounts and,
(ii) in the case of rate of return figures, unless such figures are calculated in a manner consistent with CFTC Regulation 4.25(a)(7) for commodity pools and with CFTC Regulation 4.35(a)(6), as modified by NFA Compliance Rule 2-34(a), for figures based on separate accounts, or
(6) includes a testimonial that is not representative of all reasonably comparable accounts, does not prominently state that the testimonial is not indicative of future performance or success, and does not prominently state that it is a paid testimonial (if applicable).
(c) Hypothetical Results.
(1) Any Member or Associate who uses promotional material which includes a measurement or description of or makes any reference to hypothetical performance results which could have been achieved had a particular trading system of the Member or Associate been employed in the past must include in the promotional material the following disclaimer prescribed by NFA's Board of Directors:
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.
If a Member or Associate has either less than one year of experience in directing customer accounts or trading proprietary accounts, then the disclaimer must also contain the following statement:
(THE MEMBER) HAS HAD LITTLE OR NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR ITSELF OR FOR CUSTOMERS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE TO THE HYPOTHETICAL PERFORMANCE RESULTS CUSTOMERS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE HYPOTHETICAL PERFORMANCE RESULTS.
(2) Any Member or Associate who uses promotional material which includes a measurement or description of or makes any reference to a hypothetical composite performance record showing what a multi-advisor account portfolio or pool could have achieved in the past if assets had been allocated among particular trading advisors must include in the promotional material the following disclaimer prescribed by NFA's Board of Directors instead of the disclaimer prescribed by Section (c) (1) of this Rule:
THIS COMPOSITE PERFORMANCE RECORD IS HYPOTHETICAL AND THESE TRADING ADVISORS HAVE NOT TRADED TOGETHER IN THE MANNER SHOWN IN THE COMPOSITE. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY MULTI-ADVISOR MANAGED ACCOUNT OR POOL WILL OR IS LIKELY TO ACHIEVE A COMPOSITE PERFORMANCE RECORD SIMILAR TO THAT SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN A HYPOTHETICAL COMPOSITE PERFORMANCE RECORD AND THE ACTUAL RECORD SUBSEQUENTLY ACHIEVED.
ONE OF THE LIMITATIONS OF A HYPOTHETICAL COMPOSITE PERFORMANCE RECORD IS THAT DECISIONS RELATING TO THE SELECTION OF TRADING ADVISORS AND THE ALLOCATION OF ASSETS AMONG THOSE TRADING ADVISORS WERE MADE WITH THE BENEFIT OF HINDSIGHT BASED UPON THE HISTORICAL RATES OF RETURN OF THE SELECTED TRADING ADVISORS. THEREFORE, COMPOSITE PERFORMANCE RECORDS INVARIABLY SHOW POSITIVE RATES OF RETURN. ANOTHER INHERENT LIMITATION ON THESE RESULTS IS THAT THE ALLOCATION DECISIONS REFLECTED IN THE PERFORMANCE RECORD WERE NOT MADE UNDER ACTUAL MARKET CONDITIONS AND, THEREFORE, CANNOT COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FURTHERMORE, THE COMPOSITE PERFORMANCE RECORD MAY BE DISTORTED BECAUSE THE ALLOCATION OF ASSETS CHANGES FROM TIME TO TIME AND THESE ADJUSTMENTS ARE NOT REFLECTED IN THE COMPOSITE.
If a Member or Associate has less than one year of experience allocating assets among particular trading advisors, then the disclaimer must also contain the following statement:
(THE MEMBER) HAS HAD LITTLE OR NO EXPERIENCE ALLOCATING ASSETS AMONG PARTICULAR TRADING ADVISORS. BECAUSE THERE ARE NO ACTUAL ALLOCATIONS TO COMPARE TO THE PERFORMANCE RESULTS FROM THE HYPOTHETICAL ALLOCATION, CUSTOMERS SHOULD BE PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE RESULTS.
(3) Any Member or Associate who uses promotional material which includes a measurement or description of or makes any reference to hypothetical performance results which could have been achieved had a particular trading system of the Member or Associate been employed in the past must include in the promotional material comparable information regarding:
(i) past performance results of all customer accounts directed by the Member pursuant to a power of attorney over at least the last five years or over the entire performance history if less than five years;
(ii) if the Member has less than one year of experience in directing customer accounts, past performance results of his proprietary trading over at least the last five years or over the entire performance history if less than five years.
(4) No Member or Associate may use promotional material which includes a measurement or description of or makes any reference to hypothetical performance results which could have been achieved had a particular trading system of the Member or Associate been employed in the past if the Member or Associate has three months of actual trading results for that system.
(5) Any Member or Associate utilizing promotional material containing hypothetical performance results must adhere to all the requirements contained in the Board's Interpretive Notice relating to this issue.
[See Interpretive Notice Compliance Rule 2-29: Use of Promotional Material Containing Hypothetical Performance Results.]
(6) These restrictions on the use of hypothetical trading results shall not apply to promotional material directed exclusively to persons who meet the standards of a "Qualified Eligible Person" under CFTC Regulation 4.7.
(d) Statements of Opinion.
Statements of opinion included in promotional material must be clearly identifiable as such and must have a reasonable basis in fact.
(e) Supervisory Requirements
Every Member shall adopt and enforce written procedures to supervise its Associates and employees for compliance with this Rule. Prior to its first use, all promotional material shall be reviewed and approved, in writing, by an officer, general partner, sole proprietor, branch office manager or other supervisory employee other than the individual who prepared such material (unless such material was prepared by the only individual qualified to review and approve such material). If the Member is registered as a broker-dealer under Section 15(b)(11) of the Exchange Act and the promotional material specifically refers to security futures products, the individual reviewing and approving the promotional material must be a designated security futures principal.
(f) Recordkeeping.
Copies of all promotional material along with a record of the review and approval required under paragraph (e) of this Rule and supporting materials for any results described under paragraphs (b)(5)-(6) or (c) of this Rule must be maintained by each Member and be available for examination for the periods specified in CFTC Regulation 1.31, measured from the date of the last use. Each Member who uses promotional material of the types described in paragraph (b)(5)-(6) or (c) of this Rule shall demonstrate the basis for any reported results to NFA upon request.
(g) Filing with NFA.
The Compliance Director may require any Member for any specified period to file copies of all promotional material with NFA promptly after its first use.
(h) Radio and Television Advertisements.
No Member shall use or directly benefit from any radio or television advertisement that makes any specific trading recommendation or refers to or describes the extent of any profit obtained in the past or that can be achieved in the future unless the Member submits the advertisement to NFA's Promotional Material Review Team for its review and approval at least 10 days prior to first use or such shorter period as NFA may allow in particular circumstances.
(i) Definitions.
(1) For purposes of this Rule "promotional material" includes: (i) Any text of a standardized oral presentation, or any communication for publication in any newspaper, magazine or similar medium, or for broadcast over television, radio, or other electronic medium, which is disseminated or directed to the public concerning a futures account, agreement or transaction; (ii) any standardized form of report, letter, circular, memorandum or publication which is disseminated or directed to the public; and (iii) any other written material disseminated or directed to the public for the purpose of soliciting a futures account, agreement or transaction.
(2) "Futures account, agreement or transaction" includes futures accounts and orders, commodity pool participations, agreements to direct or guide trading in futures accounts, and agreements and transactions involving the sale, through publications or otherwise, of non-personalized trading advice concerning futures.
(j) Security Futures Products
In addition to the other requirements of this Rule, Members registered as broker-dealers under Section 15(b)(11) of the Exchange Act and their Associates shall not use any promotional material that specifically refers to security futures products unless the promotional material:
(1) prominently identifies the Member;
(2) includes the date that the material was first used;
(3) provides contact information for obtaining a copy of the disclosure statement for security futures products;
(4) states that security futures products are not suitable for all customers;
(5) does not include any statement suggesting that security futures positions can be liquidated at any time;
(6) does not include any cautionary statement, caveat, or disclaimer that is not legible, that attempts to disclaim responsibility for the content of the promotional material or the opinions expressed in the material, that is misleading, or that is otherwise inconsistent with the content of the material;
(7) discloses the source of any statistical tables, charts, graphs, or other illustrations from a source other than the Member, unless the source of the information is otherwise obvious;
(8) states that supporting documentation will be furnished upon request if it includes any claims, comparisons, recommendations, statistics or other technical data;
(9) if soliciting for a trading program that will be managed by an FCM or IB or Associate of an FCM or IB, it includes the cumulative performance history of the Member's customers who have used the trading program; provided, however, that if the Member does not have customers who have traded the program through the Member, the promotional material must state that the trading program is unproven and must include all of the information required by section (c) of this Rule and the Interpretive Notice on the Use of Promotional Material Containing Hypothetical Performance Results (9025);
(10) refers to past recommendations regarding security futures products, the underlying securities, or a derivative thereof only if it sets forth all recommendations as to the same type, kind, grade, or classification of securities (including security futures products and other security derivatives) made by the Member or Associate within the last year; which information must include the name of each security recommended with the date and nature of each recommendation (e.g., whether to buy or sell), the price at the time of the recommendation, the price at which or the price range within which the recommendation was to be acted upon, and the general market conditions during the period covered if the promotional material refers to past recommendations regarding security futures products, the underlying securities, or a derivative thereof;
(11) includes current recommendations regarding security futures products only if: (i) the Member has a reasonable basis for the recommendation; (ii) the material discloses all material conflicts of interest created by the Member's or Associate's activities in the underlying security; and (iii) the material contains contact information for obtaining the list of prior recommendations described in subsection (10);
(12) includes only a general description of the security futures products for which accounts, orders, trading authorization, or pool participations are being solicited; the name of the Member; and contact information for obtaining a copy of the current disclosure statement for security futures products; provided, however, that this subsection does not apply if the promotional material is accompanied or preceded by the disclosure statement for security futures products; and
(13) has been submitted to NFA for review and approval at least ten days prior to first use if it reaches or is designed to reach a public audience through mass media (e.g., newspapers, magazines, radio, television, or other electronic media). This requirement does not apply to any promotional material in which the only reference to security futures products is contained in a listing of the Member's services.
[See Interpretive Notice NFA Compliance Rule 2-29: Communications with the Public and Promotional Material and Interpretive Notice NFA Compliance Rule 2-29: Review of Promotional Material Prior to its First Use and Interpretive Notice Compliance Rule 2-29: Use of Promotional Material Containing Hypothetical Performance Results and Interpretive Notice NFA Compliance Rule 2-29: Deceptive Advertising (1996) and Interpretive Notice NFA Compliance Rule 2-29: Deceptive Advertising (1998) and Interpretive Notice Compliance Rule 2-29: High Pressure Sales Tactics and Interpretive Notice NFA Compliance Rules 2-29 and 2-9: NFA's Review and Approval of Certain Radio and Television Advertisements]
[¶ 5191] RULE 2-30. CUSTOMER INFORMATION AND RISK DISCLOSURE.
(Click Here to Print this Rule) [Adopted effective June 1, 1986. Effective date of amendments: January 1, 1990, August 21, 2001 December 10, 2002, December 17, 2007]
(a) Each Member or Associate shall, in accordance with the provisions of this Rule, obtain information about its futures customers who are individuals and provide such customers with disclosure of the risks of futures trading.
(b) The Member or Associate shall exercise due diligence to obtain the information and shall provide the risk disclosure at or before the time a customer first opens a futures trading account to be carried or introduced by the Member, or first authorizes the Member to direct trading in a futures account for the customer. A Member registered as a broker or dealer under Section 15(b)(11) of the Exchange Act shall provide a copy of the disclosure statement for security futures products at or before the time the Member approves the account to trade security futures products.
(c) The information to be obtained from the customer shall include at least the following:
(1) the customer's true name and address, and principal occupation or business;
(2) the customer's current estimated annual income and net worth;
(3) the customer's approximate age; and
(4) an indication of the customer's previous investment and futures trading experience;
In addition, Members that are not also members of the Financial Industry Regulatory Authority and their Associates must obtain the following information from each customer who is an individual if the customer trades security futures products:
(5) whether the customer's account is for speculative or hedging purposes;
(6) the customer's employment status (e.g., name of employer, self-employed, retired);
(7) the customer's estimated liquid net worth (cash, securities, other);
(8) the customer's marital status and number of dependents;
(9) such other information used or considered to be reasonable by such Member or Associate in making recommendations to the customer.
(d) The risk disclosure to be provided to the customer shall include at least the following:
(1) the Risk Disclosure Statement required by CFTC Regulation 1.55, if the Member is required by that Regulation to provide it;
(2) the Disclosure Document required by CFTC Regulation 4.31, if the Member is required by that Regulation to provide it;
(3) the Options Disclosure Statement required by CFTC Regulation 33.7, if the Member is required by that Regulation to provide it; and
(4) the Disclosure Document required by CFTC Regulation 31.11, if the Member is required by that Regulation to provide it.
(e) In the case of an account which is introduced by an FCM or IB or for which a CTA directs trading, and except as otherwise provided in subsections (b) and (j), it shall be the responsibility of the Member soliciting the account to comply with this Rule.
(f) A Member or Associate shall be entitled to rely on the customer [as the sole source] for the information obtained under Section (c) of this Rule and shall not be required to verify such information, except as provided in section (j)(2) of this rule.
(g) Each Member or Associate shall make or obtain a record containing the information obtained under Section (c) of this Rule at the time the information is obtained. If a customer declines to provide the information set forth in Section (c) of this Rule, the Member or Associate shall make a record that the customer declined, except that such a record need not be made in the case of a non-U.S. customer unless such customer trades security futures products. Subject to the provisions of Section (i) of this Rule, a Member may open, introduce or agree to direct a futures trading account for a customer only upon the approval of a partner, officer, director, branch office manager or supervisory employee of the Member. Each Member shall keep copies of all records made pursuant to this Rule in the form and for the period of time set forth in CFTC Regulation 1.31.
(h) Each Member shall establish and enforce adequate procedures to review all records made pursuant to this Rule and to supervise the activities of its Associates in obtaining customer information and providing risk disclosure.
(i) Nothing herein shall relieve any Member from the obligation to comply with all applicable CFTC and SEC Regulations and NFA Requirements.
(j) Members that are not also members of the Financial Industry Regulatory Authority and their Associates shall adhere to the following additional requirements relating to accounts for customers that trade security futures products:
(1) A Member shall exercise due diligence to learn the essential facts relative to the customer, including the customer's investment objectives and financial situation and, based upon those facts (including any information obtained under subsection (c) of this Rule, if applicable), a partner, officer, director, branch office manager, or supervisory employee of the Member shall approve or disapprove the customer's account for security futures transactions. If the Member is an FCM or IB, the account must be approved or disapproved by a designated security futures principal. The approval or disapproval shall be in writing and shall identify the person approving or disapproving the account. Additionally, the customer's account records shall contain information about the account, including the name of the Associate, how the customer's information was obtained, and the date that the disclosure statement for security futures products was provided.
(2) A Member or Associate shall forward the background and financial information upon which the customer's account has been approved for trading security futures products to each customer who is an individual, unless the information has been obtained in writing from the customer, for verification of accuracy within fifteen days after the customer's account has been approved. A copy of the background and financial information on file with the Member shall also be sent to each customer who is an individual for verification within fifteen days after the Member becomes aware of any material change in the customer's financial status. In all cases, absent notice to the contrary from the customer, the information is deemed verified.
(3) No FCM or IB Member or Associate thereof shall recommend to a non-institutional customer a transaction in security futures products or a particular trading strategy relating to such products without making reasonable efforts to obtain current information regarding the customer's financial status and investment objectives; provided, however, that this requirement does not apply to transactions in discretionary accounts. For purposes of this requirement, a non-institutional customer is any customer who is not:
(i) a bank, savings and loan association, insurance company, registered investment company, a registered commodity pool operator, or a commodity pool operated by a registered commodity pool operator;
(ii) an investment advisor registered either with the Securities and Exchange Commission under Section 203 of the Investment Advisers Act of 1940 or with a state securities commission (or any agency or office performing like functions) or a registered commodity trading advisor;
(iii) an investment company exempt from registration under the Investment Company Act of 1940, a commodity pool operator exempt from registration under the Commodity Exchange Act, a commodity pool operated by a commodity pool operator exempt from registration under the Commodity Exchange Act, an investment advisor exempt from both federal and state registration under the Investment Advisers Act of 1940, or a commodity trading advisor exempt from registration under the Commodity Exchange Act;
(iv) a registered broker-dealer or futures commission merchant; or
(v) any other entity (whether a natural person, corporation, partnership, trust, or otherwise) with total assets of at least $50 million.
(4) No FCM or IB Member or Associate thereof shall recommend to any customer a transaction in security futures products or a particular trading strategy relating to such products without reasonable grounds for believing that the recommendation or strategy is not unsuitable for the customer on the basis of the customer's current investment objectives, financial situation and needs, and any other information known by the Member or Associate.
(5) No FCM or IB Member or Associate shall recommend a security futures transaction to a customer unless the person making the recommendation has a reasonable basis for believing, at the time of making the recommendation, that the customer has such knowledge and experience in financial matters that the customer may reasonably be expected to be capable of evaluating the risks of the recommended transaction, and is financially able to bear the risks of the recommended transaction.
(6) No Member or Associate exercising discretion over an account may effect security futures transactions that are excessive in size or frequency in view of the customer's investment objectives and financial situation.
[See Interpretive Notice NFA Compliance Rule 2-30: Customer Information and Risk Disclosure (Board of Directors) and Interpretive Notice NFA Compliance Rule 2-30: Customer Information and Risk Disclosure (Staff).]
[¶ 5197] RULE 2-31. FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS.
(Click Here to Print this Rule) [Adopted effective February 1, 1988.]
Any Member who violates any of the CFTC Part 30 Regulations shall be deemed to have violated an NFA Requirement.
[¶ 5203] RULE 2-32. LEVERAGE TRANSACTIONS.
(Click Here to Print this Rule) [Adopted effective January 1, 1990.]
Any Member or Associate who violates any of the CFTC Part 31 Regulations shall be deemed to have violated an NFA Requirement.
[¶ 5209] RULE 2-33. FCM RECEIPT OF FUNDS FROM OMNIBUS ACCOUNTS.
(Click Here to Print this Rule) [Adopted effective July 24, 1990.]
Each FCM must give notice to its DSRO or, if so directed by its DSRO, to NFA whenever the FCM accepts other than immediately available funds from an FCM doing business on an omnibus basis. Notice must be received within 24 hours of such acceptance. For purposes of this Rule, wire transfers and certified checks shall be considered immediately available funds for which notice is not required.
[¶ 5215] RULE 2-34. CTA PERFORMANCE REPORTING AND DISCLOSURES
(Click Here to Print this Rule) [Adopted effective May 1, 2004.]
(a) Performance Information
(1) Member CTAs must calculate rate of return according to CFTC Regulation 4.35(a)(6) using nominal account size as the denominator.
(2) Draw-down information reported under CFTC Regulation 4.35(a)(1)(v) and (vi) must be based on rate of return figures using nominal account size as the denominator.
(3) In calculating net performance, Member CTAs may include interest earned on actual funds but may not impute interest on other funds.
(b) Written Confirmation for Partially-Funded Accounts
(1) For partially-funded accounts, a Member CTA must either receive from a client or deliver to a client a written confirmation that contains the following information:
(2) For new clients, the written confirmation must be received from or delivered to the client before the CTA places the first trade for the client.
(3) For existing clients, the written confirmation must be received from or delivered to the client before the CTA places the first trade after any of the information required under Section (b)(1) of this rule changes. The written confirmation must include the new information and the effective date of the change but need not include any information that will remain the same.
(c) Additional Disclosures for Partially-Funded Accounts
CTAs must provide the following information to clients with partially-funded accounts if the clients are not QEPs:
(1) A statement of how management fees will be computed relative to the nominal account size,
(2) An explanation of how cash additions, cash withdrawals, and net performance will affect the nominal account size,
(3) A brief explanation regarding the effect of partial funding on margin and leverage,
(4) A statement that partial funding increases the fees and commissions as a percentage of actual funds but does not increase the dollar amount of those fees, and
(5) A description, by example or formula, of the effect of partial funding on rate of return and drawdown percentages.
(d) CPO Use of CTA Performance Information
Member CPOs who are required by CFTC Regulation 4.25(c) to disclose CTA performance must report the CTA performance on the same basis as the CTA is required to report it.
[¶ 5221] RULE 2-35. CPO/CTA DISCLOSURE DOCUMENTS.
(Click Here to Print this Rule) [Effective dates of amendments: November 1, 2000 and December 14, 2003.]
(a)Required Delivery of Pool Disclosure Document and Statement of Additional Information
(1) The Disclosure Document required by CFTC Regulation 4.21(a) must be as clear and concise as possible, using plain English principles, and must contain only the information required or allowed by subsection (b).
(2) In addition to the Disclosure Document, the CPO of a commodity pool required to register its securities under the Securities Act of 1933 must deliver (or cause to be delivered) a separate Statement of Additional Information to a prospective participant prior to accepting or receiving funds from the prospective participant. The information that may be included in the Statement of Additional Information is described in subsection (c).
(3) The CPO of a commodity pool that is not required to register its securities under the Securities Act of 1933 may, but is not required to, prepare and distribute a Statement of Additional Information containing any or all of the information described in subsection (c). The Statement of Additional Information may be bound together with the Disclosure Document as long as the Disclosure Document comes first. If the Statement of Additional Information is separately bound, the CPO is not required to provide it to a prospective participant unless the prospective participant requests it.
(4) If a Statement of Additional Information is required under paragraph (2) of this section, the cover page of the Disclosure Document required under paragraph (1) of this section and the Statement of Additional Information required under paragraph (2) of this section shall state that the Disclosure Document is in two parts, both of which must be provided to a prospective participant prior to investing in the offered pool. If a Statement of Additional Information is prepared and separately distributed under paragraph (3) of this section, the cover page of the Disclosure Document required under paragraph (1) of this section shall state that the Statement of Additional Information is available free of charge and shall indicate how to obtain a copy of the Statement of Additional Information.
(b) Disclosures Required in the Disclosure Document
(1) The Disclosure Document required under subsection (a)(1) of this Rule must include the following:
(i) The information required by CFTC Regulation 4.24, and the performance disclosures required by CFTC Regulation 4.25, provided, however, that a CPO may provide the performance information required under CFTC Regulation 4.25(c)(5) in the Statement of Additional Information; and
(ii) Any other information necessary to understand the fundamental characteristics of the pool or keep the Disclosure Document from being misleading.
(2) The Disclosure Document required under subsection (a)(1) for pools required to register their securities under the Securities Act of 1933 shall include any other information that the Securities and Exchange Commission or state securities administrators require to be included in Part I of a two-part disclosure document. For all other pools, Disclosure Documents required under subsection (a)(1) may include such information.
(c) Information Included in the Statement of Additional Information
(1) If the CPO of a commodity pool prepares a Statement of Additional Information, the cover page must include the following:
(i) The name of the commodity pool;
(ii) A brief statement that the Statement of Additional Information is the second part of a two-part document and that it should be read in conjunction with the pool's Disclosure Document, with instructions on how to obtain a free copy of the Disclosure Document;
(iii) The date of the most recent Disclosure Document for the pool; and
(iv) The date of the Statement of Additional Information.
(2) The cover page must be immediately followed by a table of contents.
(3) The Statement of Additional Information may also include:
(i) Disclosures, not included in the Disclosure Document, that are required by the Securities and Exchange Commission or state securities administrators;
(ii) Statements that expand on or explain the disclosures in the Disclosure Document, provided that the statements are not misleading or inconsistent with applicable statutes, rules, or regulations; and
(iii) Any other information about the commodity pool; its investments; its CPO, CTA(s), service providers, and their principals and employees; the commodity futures markets; or any other markets, including cash markets, that affect the value of the pool's investments, provided that the information is not misleading or otherwise inconsistent with applicable statutes, rules, or regulations.
[¶ 5227] RULE 2-36. REQUIREMENTS FOR FOREX TRANSACTIONS
(Click Here to Print this Rule) [Adopted effective June 28, 2002. Effective dates of amendments: December 1, 2003; November 30, 2005; February 13, 2007; October 25, 2007; and April 1, 2009.]
(a) General Prohibition
No Forex Dealer Member shall engage in any forex transaction that is prohibited under the Commodity Exchange Act.
(b) Fraud and Related Matters
No Forex Dealer Member or Associate of a Forex Dealer Member engaging in any forex transaction shall:
(1) Cheat, defraud or deceive, or attempt to cheat, defraud or deceive any other person;
(2) Willfully make or cause to be made a false report, or willfully to enter or cause to be entered a false record in or in connection with any forex transaction;
(3) Disseminate, or cause to be disseminated, false or misleading information, or a knowingly inaccurate report, that affects or tends to affect the price of any foreign currency;
(4) Engage in manipulative acts or practices regarding the price of any foreign currency or a forex transaction;
(5) Willfully submit materially false or misleading information to NFA or its agents with respect to forex transactions;
(6) Embezzle, steal or purloin or knowingly convert any money, securities or other property received or accruing to any person in or in connection with a forex transaction.
(c) Just and Equitable Principles of Trade
Forex Dealer Members and their Associates shall observe high standards of commercial honor and just and equitable principles of trade in the conduct of their forex business.
(d) Doing Business with Non-Members
A Forex Dealer Member that is the counterparty, or offers to be the counterparty, to forex transactions for customers shall be subject to discipline for the activities of any person that solicits or introduces a customer to the Member or that manages such customer's accounts, unless such person is a Member or Associate of NFA, meets the criteria in Bylaw 306(b), or would be exempt from Commission registration if it were acting in the same capacity in connection with exchange-traded futures contracts.
(e) Supervision
Each Forex Dealer Member shall diligently supervise its employees and agents in the conduct of their forex activities for or on behalf of the Forex Dealer Member. Each Associate of a Forex Dealer Member who has supervisory duties shall diligently exercise such duties in the conduct of that Associate's forex activities for or on behalf of the Forex Dealer Member.
(f) Affiliates
Each Forex Dealer Member that has an affiliate that is authorized to engage in forex transactions solely by virtue of its affiliation with the Forex Dealer Member shall supervise its affiliate's forex activities for compliance with the same requirements that apply to the Forex Dealer Member, including section (a) of this rule. The Forex Dealer Member shall make the affiliate's books and records available to NFA staff upon request and shall be subject to discipline for acts and omissions of the affiliate that violate the standards imposed by NFA requirements.
(g) BASIC Disclosure
When a customer first opens an account and at least once a year thereafter, each Forex Dealer Member shall provide each customer with written information regarding NFA's Background Affiliation Status Information Center (BASIC), including the web site address.
(h) Filing Promotional Materials with NFA.
The Compliance Director may require any Forex Dealer Member for any specified period to file copies of all promotional material with NFA for its review and approval at least 10 days prior to its first use or such shorter period as NFA may allow. The Compliance Director may also require a Forex Dealer Member to file for review and approval copies of promotional material prepared or used by some or all of the non-Members it is responsible for under Section (d).
(i) Hypothetical Results
Any Member who uses promotional material that includes a measurement or description or makes any reference to hypothetical forex transaction performance results that could have been achieved had a particular trading system of the Member or Associate been employed in the past must comply with Compliance Rule 2-29(c) and the related Interpretive Notice as if the performance results were for transactions in on-exchange futures contracts.
(j) Scope
This rule governs forex transactions as defined in Bylaw 1507(b).
(k) Definition of Customer
For purposes of this rule, the term "customer" means a counterparty that is not an eligible contract participant as defined in Section 1a(12) of the Act.
[¶ 5233] RULE 2-37. SECURITY FUTURES PRODUCTS.
(Click Here to Print this Rule) [Adopted effective August 21, 2001. Effective dates of amendments: April 16, 2002.]
This rule applies to Members registered as broker-dealers under Section 15(b)(11) of the Exchange Act and their Associates.
(a) No Member or Associate shall violate Sections 9(a), 9(b), or 10(b) of the Exchange Act or any applicable regulation thereunder in connection with any security futures product.
(b) In addition to the supervisory requirements contained in NFA Compliance Rule 2-9, Members must establish, maintain and enforce written procedures reasonably designed to achieve compliance with applicable securities laws, including Sections 9(a), 9(b), and 10(b) of the Exchange Act and any applicable regulation thereunder.
(c) Members who carry security futures accounts Act shall, not less than once a year, provide each security futures customer with written information regarding NFA's Background Affiliation Status Information Center (BASIC), including the web site address.
(d) In addition to complying with Registration Rules 204(a) and 210(a), each Member shall notify NFA within 10 business days after the Member knows or should know that the Member or its associated person:
(1) has been found by a self-regulatory organization or professional association in the accounting, banking, finance, insurance, law, real estate, or securities fields to have violated any provision of the securities laws or regulations or any rule or standard of conduct of the organization or association in connection with security futures transactions or to have engaged in conduct inconsistent with just and equitable principles of trade in connection with security futures transactions;
(2) is the subject of a written customer complaint involving allegations of theft or misappropriation of funds or securities or of forgery in connection with security futures transactions;
(3) is named as a defendant or respondent in any proceeding brought by a self-regulatory organization in the securities or insurance industry in connection with security futures transactions;
(4) is a defendant or respondent in any civil litigation or arbitration proceeding or is subject to any other claim for damages involving security futures transactions that has been disposed of by judgment, award, or settlement for an amount exceeding $15,000 if the claim is against an associated person or $25,000 if the claim is against the Member;
(5) is associated in any business or financial activity involving security futures products with any person who is subject to a statutory disqualification under either Section 8a of the Commodity Exchange Act or Section 15(b)(4) of the Exchange Act; or
(6) is the subject of a disciplinary action taken by the Member for activities involving security futures products if it results in suspension, termination, the withholding of commissions or imposition of fines in excess of $2,500, or any significant limitation on the Associate's activities on a temporary or permanent basis.
(e) In addition to complying with Registration Rules 206(a) and 210(b), each Associate shall promptly notify its sponsor of:
(f) Each Member shall file a quarterly report with NFA containing statistical and summary information regarding written customer complaints involving security futures products. The report must be filed with NFA, in the form NFA requires, by the 15th day of the month following the calendar quarter in which the complaints are received. A Member is not required to file a quarterly report for any quarter in which no complaints were received.
(g) Members shall not charge customers more than a fair commission or service charge for transactions in security futures products, taking into consideration all relevant circumstances, including the expense of executing the order and the value of any service the Member may have rendered by reason of its experience in and knowledge of the security futures product and the market in that product.
[¶ 5239] RULE 2-38. BUSINESS CONTINUITY AND DISASTER RECOVERY PLAN.
(Click Here to Print this Rule) [Adopted effective April 7, 2003.]
(a) Each Member must establish and maintain a written business continuity and disaster recovery plan that outlines procedures to be followed in the event of an emergency or significant business disruption. The plan shall be reasonably designed to enable the Member to continue operating, to reestablish operations, or to transfer its business to another Member with minimal disruption to its customers, other Members, and the commodity futures markets.
(b) Each Member must provide NFA with the name of and contact information for an individual who NFA can contact in the event of an emergency, and the Member must update that information upon request. Each IB, CPO, and CTA Member that has more than one principal and each FCM Member must also provide NFA with the name of and contact information for a second individual who can be contacted if NFA cannot reach the primary contact, and the Member must update that information upon request. These individuals must be authorized to make key decisions in the event of an emergency.
[¶ 5245] RULE 2-39. SOLICITING, INTRODUCING, OR MANAGING FOREX TRANSACTIONS OR ACCOUNTS.
(Click Here to Print this Rule) [Adopted effective September 15, 2005. Effective dates of amendments: February 13, 2007; June 5, 2007; September 21, 2007; October 25, 2007; and April 1, 2009.]
(a) Except for members who meet the criteria in Bylaw 306(b) and Associates acting on their behalf, Members and Associates who solicit customers, introduce customers to a counterparty, or manage accounts on behalf of customers in connection with forex transactions shall comply with Sections (a),(b),(c),(e),(h), and (i) of Compliance Rule 2-36.
(b) No Member except a Forex Dealer Member or a Member who meets the criteria in Bylaw 306(b) may accept forex orders or accounts or receive compensation-directly or indirectly-for forex transactions from any person unless that person is a Member or Associate of NFA, meets the criteria in NFA Bylaw 306(b), or would be exempt from Commission registration if it were acting in the same capacity in connection with exchange-traded futures products.
(c) For purposes of this rule, the term "customer" means a person that is not an eligible contract participant as defined in Section 1a(12) of the Act and includes persons who participate in pooled accounts.
[¶ 5251] RULE 2-40. BULK ASSIGNMENT OR LIQUIDATION OF FOREX POSITIONS; CESSATION OF CUSTOMER BUSINESS.
(Click Here to Print this Rule) [Adopted effective February 16, 2007. Effective dates of amendments: June 5, 2007.]
(a) Bulk Assignment, Transfer, or Liquidation. A Forex Dealer Member may not enter into a bulk assignment, transfer, or liquidation of forex positions or accounts unless the assignment, liquidation, or transfer complies with procedures established by NFA.
(b) Obligation of Assignees. If forex positions or accounts are assigned or transferred to a Forex Dealer Member, the Member may not accept orders initiating new positions until it has either:
(1) obtained personal and financial information from the customer and provided the disclosures required under Compliance Rule 2-36; or
(2) if the assignor was a Forex Dealer Member, obtained the necessary personal and financial information pertaining to the customer from the assignor and obtained reliable written evidence (which may include electronic records) that the assignor provided the required disclosures.
(c) Ceasing Business. A Forex Dealer Member must notify NFA by e-mail or facsimile seven calendar days prior to ceasing its forex business.
(d) Definitions. For purposes of this rule, the term "forex" has the same meaning as in Bylaw 1507(b) and the term "customer" has the same meaning as in Compliance Rule 2-36(i).
[See Interpretive Notice of NFA Compliance Rule 2-40: Procedures for the Bulk Assignment or Liquidation of Forex Positions; Cessation of Customer Business.]
[¶ 5257] RULE 2-41. FOREX POOL OPERATORS AND TRADING ADVISORS
(Click Here to Print this Rule) [Adopted effective November 30, 2008. Effective date of amendments: December 8, 2008.]
(a) Pool Operators. Except for Members who meet the criteria in Bylaw 306(b) and Associates acting on their behalf, any Member or Associate operating or soliciting funds, securities, or property for a pooled investment vehicle that is not an eligible contract participant as defined in Section 1a(12) of the Act must comply with this section (a) if it enters into or intends to enter into any transaction described in NFA Bylaw 1507(b)(1) except as described in NFA Bylaw 1507(b)(3). For purposes of this section, a pooled investment vehicle may not claim to be an eligible contract participant by virtue of Section 1a(12)(A)(v)(II) or (III) of the Act.
(1) For each such pooled investment vehicle, the Member or Associate must prepare a Disclosure Document and must file it with NFA at least 21 days before soliciting the first potential pool participant that is not an eligible contract participant.
(2) The Member or Associate must deliver the Disclosure Document to a prospective pool participant who is not an eligible contract participant no later than the time it delivers the subscription agreement for the pool. Any information delivered before the Disclosure Document must be consistent with the information in the Disclosure Document.
(3) The Disclosure Document must comply with the requirements in CFTC Regulations 4.24, 4.25, and 4.26 as if operating a pool trading on-exchange futures contracts. The term "commodity interest" in those regulations should be read to include forex transactions, and the Risk Disclosure Statement required by CFTC Regulation 4.24(b)(1) must be replaced by the following if the pool does not trade on-exchange contracts and must be added as a separate statement if the pool trades both on-exchange contracts and forex.
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A POOLED INVESTMENT VEHICLE. IN SO DOING, YOU SHOULD BE AWARE THAT THIS POOL ENTERS INTO TRANSACTIONS THAT ARE NOT TRADED ON AN EXCHANGE, AND THE FUNDS THE POOL INVESTS IN THOSE TRANSACTIONS MAY NOT RECEIVE THE SAME PROTECTIONS AS FUNDS USED TO MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTIONS CONTRACTS. IF THE COUNTERPARTY BECOMES INSOLVENT AND THE POOL HAS A CLAIM FOR AMOUNTS DEPOSITED OR PROFITS EARNED ON TRANSACTIONS WITH THE COUNTERPARTY, THE POOL'S CLAIM MAY NOT RECEIVE A PRIORITY. WITHOUT A PRIORITY, THE POOL IS A GENERAL CREDITOR AND ITS CLAIM WILL BE PAID, ALONG WITH THE CLAIMS OF OTHER GENERAL CREDITORS, FROM ANY MONIES STILL AVAILABLE AFTER PRIORITY CLAIMS ARE PAID. EVEN POOL FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE FROM ITS OWN OPERATING FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF OTHER GENERAL AND PRIORITY CREDITORS.
FOREX TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.
INVESTMENTS IN THE POOL MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT, ADVISORY, AND BROKERAGE FEES, AND THE POOL MAY NEED TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETING OR EXHAUSTING ITS ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE (SEE PAGE [insert page number]) AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT (SEE PAGE [insert page number]).
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE YOU SHOULD CAREFULLY REVIEW THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT (SEE PAGE [insert page number]).
NATIONAL FUTURES ASSOCIATION HAS NEITHER PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
(b) Trading Advisors. Except for Members who meet the criteria in Bylaw 306(b) and Associates acting on their behalf, any Member or Associate managing, directing or guiding, or soliciting to manage, direct, or guide, accounts or trading on behalf of a client that is not an eligible contract participant as defined in Section 1a(12) of the Act by means of a systematic program must comply with this section (b) if it intends to manage, direct, or guide the client's account or trade in transactions described in NFA Bylaw 1507(b).
(1) The Member or Associate must prepare a Disclosure Document and must file it with NFA at least 21 days before soliciting the first potential client that is not an eligible contract participant.
(2) The Member or Associate must deliver the Disclosure Document to a prospective client who is not an eligible contract participant no later than the time it delivers the agreement to manage, direct, or guide the client's account or trading. Any information delivered before the Disclosure Document must be consistent with the information in the Disclosure Document.
(3) The Disclosure Document must comply with the requirements in CFTC Regulations 4.34, 4.35, and 4.36 as if managing, directing, or guiding accounts or trading in on-exchange futures contracts. The term "commodity interest" in those regulations should be read to include forex transactions, and the Risk Disclosure Statement required by CFTC Regulation 4.34(b)(1) must be replaced by the following if the managed, directed, or guided account or trading will not include transactions in on-exchange contracts and must be added as a separate statement if it will include transactions in both on-exchange contracts and forex.
RISK DISCLOSURE STATEMENT
THE RISK OF LOSS IN FOREX TRADING CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD ALSO BE AWARE OF THE FOLLOWING:
FOREX TRANSACTIONS ARE NOT TRADED ON AN EXCHANGE, AND THOSE FUNDS DEPOSITED WITH THE COUNTERPARTY FOR FOREX TRANSACTIONS MAY NOT RECEIVE THE SAME PROTECTIONS AS FUNDS USED TO MARGIN OR GUARANTEE EXCHANGE-TRADED FUTURES AND OPTIONS CONTRACTS. IF THE COUNTERPARTY BECOMES INSOLVENT AND YOU HAVE A CLAIM FOR AMOUNTS DEPOSITED OR PROFITS EARNED ON TRANSACTIONS WITH THE COUNTERPARTY, YOUR CLAIM MAY NOT RECEIVE A PRIORITY. WITHOUT A PRIORITY, YOU ARE A GENERAL CREDITOR AND YOUR CLAIM WILL BE PAID, ALONG WITH THE CLAIMS OF OTHER GENERAL CREDITORS, FROM ANY MONIES STILL AVAILABLE AFTER PRIORITY CLAIMS ARE PAID. EVEN CUSTOMER FUNDS THAT THE COUNTERPARTY KEEPS SEPARATE FROM ITS OWN OPERATING FUNDS MAY NOT BE SAFE FROM THE CLAIMS OF OTHER GENERAL AND PRIORITY CREDITORS.
THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FOREX TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.
MANAGED ACCOUNTS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES AND THE ACCOUNT MAY NEED TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETING OR EXHAUSTING ITS ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE ACCOUNT MANAGER. (SEE PAGE [insert page number]).
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND SIGNIFICANT ASPECTS OF THE FOREX MARKETS. THEREFORE, YOU SHOULD CAREFULLY REVIEW THIS DISCLOSURE DOCUMENT BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT (SEE PAGE [insert page number]).
NATIONAL FUTURES ASSOCIATION HAS NEITHER PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
[¶ 5263] RULE 2-42. FOREX POOL REPORTING
(Click Here to Print this Rule) [Adopted effective November 30, 2008. Effective date of amendments: December 8, 2008.]
(a) Except for Members who meet the criteria in Bylaw 306(b), any Member operating a pool that is not an eligible contract participant as defined in Section 1a(12) of the Act and that trades forex must comply with the requirements in CFTC Regulation 4.22 in the same manner as would be applicable to the operation of a pool trading on-exchange futures contracts. The term "commodity interest" in that regulation should be read to include forex transactions. For purposes of this section, a pool may not claim to be an eligible contract participant by virtue of Section 1a(12)(A)(v)(II) or (III) of the Act.
(b) A Member may file with NFA a request for an extension of time in which to file the annual report in the same form as provided for in CFTC Regulation 4.22(f).
As of May 15, 2009, new Compliance Rule 2-43 will read:
[¶ 5269] RULE 2-43. FOREX ORDERS
(Click Here to Print this Rule) [Adopted effective May 15, 2009.]
(b) Offsetting Transactions
Forex Dealer Members may not carry offsetting positions in a customer account but must offset them on a first-in, first-out basis. At the customer's request, an FDM may offset same-size transactions even if there are older transactions of a different size but must offset the transaction against the oldest transaction of that size.
As of June 12, 2009, Compliance Rule 2-43 will read:
[¶ 5269] RULE 2-43. FOREX ORDERS
(Click Here to Print this Rule) [Adopted effective May 15, 2009. Effective dates of amendments: June 12, 2009.]
(a) Price Adjustments
(1) A Forex Dealer Member may not cancel an executed customer order or adjust a customer account in a manner that would have the direct or indirect effect of changing the price of an executed order except when:
(i) the cancellation or adjustment is favorable to the customer and is done as part of a settlement of a customer complaint; or
(ii) if a Forex Dealer Member's platform exclusively uses straight-through processing such that the Forex Dealer Member automatically (without human intervention and without exception) enters into the identical but opposite transaction with another counterparty (creating an offsetting position in its own name) and that counterparty cancels or adjusts the price at which the position was executed.
(2) With regard to cancellations or adjustments made pursuant to section (a)(1)(ii), a Forex Dealer Member must:
(i) provide written notification to the customer within fifteen (15) minutes of the customer order having been executed that it is seeking to cancel the executed order or adjust the customer's account to reflect the adjusted price provided by the Forex Dealer Member's counterparty, as applicable, and the written notification must include documentation of the cancellation or adjustment from the Forex Dealer Member's counterparty; and
(ii) either cancel or adjust all executed customer orders executed during the same time period and in the same currency pair or option regardless of whether they were buy or sell orders.
(3) Notwithstanding section (a)(2)(ii), a Forex Dealer Member may choose to honor transactions in which customer orders resulted in profits for the customers but must do so with regard to all similarly situated customers.
(4) Cancellations and adjustments to executed customer orders must be reviewed and approved by a listed principal that is also an NFA Associate. Such review and approval must be documented by a written record, must include any supporting documentation, and must be provided to NFA in the manner requested by NFA.
(5) A customer order is considered executed upon the earlier of the customer receiving notification of the execution price from the Forex Dealer Member or when the position established by such order is identified in the customer's account, whether electronically or otherwise.
(6) If a Forex Dealer Member may cancel or adjust an executed order under the circumstances provided for in section (a)(1)(ii), the FDM must provide customers with written notice that the Forex Dealer Member may cancel or adjust executed customer orders based upon liquidity provider price changes prior to the time they first engage in forex transactions with the Forex Dealer Member. The notice may be included in a customer agreement.
(7) Any provision in a customer agreement or any contract between a Forex Dealer Member and a customer that reserves to the Forex Dealer Member the right to make price or equity adjustments to a customer account except as allowed by this Rule is prohibited.
(b) Offsetting Transactions
Forex Dealer Members may not carry offsetting positions in a customer account but must offset them on a first-in, first-out basis. At the customer's request, an FDM may offset same-size transactions even if there are older transactions of a different size but must offset the transaction against the oldest transaction of that size.
As of June 1, 2009, new Compliance Rule 2-44 will read:
[¶ 5275] RULE 2-44. FOREX CUSTOMER STATEMENTS
(Click Here to Print this Rule) [Adopted effective June 1, 2009.]
Forex Dealer Members must provide customers with confirmations, daily statements, and monthly statements as provided in this rule.
(a) Confirmations
Written confirmations must be provided to customers within one business day after any activity in the customer's account, including offsetting transactions, rollovers, deliveries, option exercises, option expirations, trades that have been reversed or adjusted, and monetary adjustments. The confirmations must contain the following information regarding the transaction and the funds in the account:
(1) Transaction date;
(2) Transaction type (e.g., new position, offsetting position, rollover, adjustment);
(3) Currency pair
(4) Buy or sell (if a new or offsetting position);
(5) Size
(6) Price or premium (for new or offsetting positions or price adjustments);
(7) Price or premium change (for price adjustments);
(8) Monetary adjustments (debit or credit);
(9) Net profit or loss for offsetting positions; and
(10) Charges for each transaction (e.g., rollover interest and/or fees).
(b) Daily Statements
Daily statements must show the account equity as of the end of the previous day. The daily statements may be provided electronically as long as they are readily accessible to customers. The daily statements may be combined with the confirmations but, in that event, they may not be provided electronically without the customer's consent.
(c) Monthly or Quarterly Statements
Monthly statements are required for all accounts that have open positions at the end of the month or changes in the account balance or equity since the prior statement. Quarterly statements are required for all other open accounts. The monthly or quarterly statements must contain the following information regarding the transactions during the reporting period and the funds in the account:
(1) The account equity at the beginning of the reporting period;
(2) All initiating or offsetting transactions, deliveries, option exercises, or option expirations that occurred during the reporting period, with the following information for each: date, currency pair, buy or sell, size, and price or premium (with any price or premium adjustment noted);
(3) All open positions in the account, with the following information for each position: date initiated, currency pair, long or short, size, price or premium at which it was initiated (with any price or premium adjustment noted), and the unrealized profit or loss;
(4) All deposits and withdrawals during the reporting period;
(5) All other monetary adjustments (debits and credits) to the account;
(6) The amount of cash in the account (excluding non-cash collateral and unrealized profits and losses);
(7) A breakdown by type of all fees and charges during the period, including commissions and interest expense or rollover fees; and
(8) The account equity at the end of the reporting period.
(d) Options
For options transactions, Forex Dealer Members must provide the following additional information:
(1) On confirmations and monthly or quarterly statements, strike price and expiration date; and
(2) For open positions on monthly or quarterly statements, the value of the option marked to the market.
(e) Account Equity
Each daily, monthly, or quarterly statement must prominently display the account equity. The account equity is the sum of all realized profits and losses, all unrealized profits and losses, and any other cash and collateral in the account.
(f) Electronic Delivery
Daily statements may be provided on-line or by other electronic means as long as they are readily accessible to customers. Confirmations and monthly/quarterly statements may be provided on-line or transmitted by other electronic means if the customer consents to the specific method used.
(g) Adjustments
For purposes of this Rule, the term "adjustment" means any change to the price or premium of an initiating or offsetting transaction and any debit or credit to the account that has the same effect (monetary adjustment).
PART 3-COMPLIANCE PROCEDURES
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[¶ 5500] RULE 3-1. DEPARTMENT OF COMPLIANCE.
(Click Here to Print this Rule) [Effective date of amendments: March 18, 1994.]
[¶ 5500.1] (a) Duties.
There is hereby established a Department of Compliance (hereinafter "Compliance Department"), under the direction and control of a Director of Compliance (hereinafter "Compliance Director"), which shall conduct audits and examinations, and shall investigate violations of NFA requirements, prepare reports and conduct prosecutions, as provided in this Part. The Compliance Department shall commence investigations at the direction of the Commission; upon the discovery or receipt of information by NFA (such as complaints from customers or Members) that, in the Compliance Director's opinion, indicates a possible basis for finding that a violation has occurred; on the Compliance Director's own initiative. The Compliance Director shall have the authority to compel testimony, subpoena documents and require statements under oath from any Member, Associate or person connected therewith.
[¶ 5500.2] (b) Prohibitions.
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Neither the Compliance Director nor any employee or agent of the Compliance Department (including persons hired on a contract basis to perform compliance duties) may be a Member or Associate or have any connection, direct or indirect, with a Member or Associate, except as approved by the President. Except with the President's approval, the Compliance Director and any employee of the Compliance Department shall not trade, directly or indirectly, any commodity interest. A commodity interest shall be defined as any commodity futures or commodity option contract traded on or subject to the rules of a contract market or linked exchange, or cash commodities traded on or subject to the rules of a board of trade which has been designated as a contract market.
[¶ 5506] RULE 3-2. INVESTIGATION.
(Click Here to Print this Rule) [Effective date of amendments: June 13, 1986; March 15, 1994 and March 12, 1999.]
[¶ 5506.1] (a) Initiation; Report.
(Click Here to Print this Rule)
In each case in which the Compliance Director has reason to believe that any NFA requirement is being, has been or is about to be violated, the Compliance Director shall submit a written report of the matter to the Business Conduct Committee. (See NFA Bylaw 704.) The report shall include:
(i) the reason the investigation was begun;
(ii) a summary of the complaint, if the investigation was begun as the result of a complaint;
(iii) the relevant facts; and
(iv) the Compliance Director's conclusion whether the Business Conduct Committee should proceed with the matter.
[¶ 5506.2] (b) Termination.
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If upon completing the investigation the Compliance Director concludes that there is no reason to believe that an NFA requirement is being, has been or is about to be violated, the Compliance Director shall submit a report to the Business Conduct Committee, containing the information specified in paragraph (a) above and, if applicable, recommending whether the Business Conduct Committee should issue or authorize the Compliance Director to issue a warning letter. The report, and any warning letter issued, shall become part of the investigation file, which may thereafter be closed as the Compliance Director deems appropriate. Investigations shall be completed within four months of commencement except for good cause.
[¶ 5506.3] (c) Review of Report.
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Each investigation report shall be reviewed by the Business Conduct Committee. If, upon review of the report, the Business Conduct Committee finds that additional investigation or evidence is necessary, it shall so instruct the Compliance Director. Within 30 days after receiving a completed report the Business Conduct Committee shall either:
(i) close the matter, if it finds (A) no reasonable basis that a violation has occurred, is occurring or is about to occur; or (B) that prosecution is otherwise unwarranted (in which case the Business Conduct Committee may issue or cause to be issued a warning letter). The closure order shall be in writing and briefly state the reasons therefor, and a copy of the order shall be promptly furnished to the President. Such order shall become final 10 days after the President's receipt thereof unless, within such time, the President refers the matter to the Appeals Committee (See NFA Bylaw 702) for its review. In such case, the closure order shall become final 30 days after the date of referral by the President unless, within such time, the Appeals Committee directs the Business Conduct Committee to issue a complaint; or
(ii) serve a written and dated Complaint, if it finds reason to believe that an NFA requirement is being, has been or is about to be violated and that the matter should be adjudicated.
No member of the Business Conduct Committee or its designated Panel shall participate in the matter if the member, or any person with which the member is connected, has a financial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c).
[¶ 5512] RULE 3-3. SERVICE.
(Click Here to Print this Rule) [Adopted effective March 15, 1994. Effective date of amendments: June 3, 1997; June 8, 2007; and December 10, 2007.]
For purposes of any proceeding brought under Part 3 of these Rules:
(a) service of a Complaint will be sufficient if mailed to the person charged ("the Respondent") by first class and overnight mail, to the last address provided by the Respondent on record with NFA, or the address of his duly authorized agent for service;
(b) one copy of all pleadings, motions and briefs filed with NFA subsequent to the Complaint shall be served by the party upon all parties not in default (including the attorney of record in NFA's General Counsel's Office), unless otherwise provided. Service on a party's representative shall be service on the party. Service shall be made either by personal service (effective upon delivery), mail (effective upon deposit), facsimile (effective upon receipt of a readable document), or e-mail (effective upon receipt of a readable document): provided, however, that service by facsimile or e-mail shall only be permitted on Parties who have consented to service by that means. Proof of service of a document shall be made by attaching thereto an affidavit or certificate of service. To mail means to deposit in the U.S. Mail, first-class postage prepaid, or with an overnight delivery service, delivery fee prepaid; and
(c) documents filed with NFA under this Part must be delivered or mailed to:
National Futures Association
300 South Riverside Plaza
Chicago, IL 60606
Attn: Legal Docketing Department
or sent by facsimile to the attention of the Legal Docketing Department at a facsimile number provided in the original complaint or by e-mail to Docketing@nfa.futures.org. Filing by delivery or mailing is effective upon receipt. Filing by electronic means is effective upon receipt of a readable document; and
(d) parties who file documents by electronic means thereby consent to accept service of pleadings in the proceedings by same method and waive any objection based on authenticity and genuineness to the use and admissibility into evidence in the proceeding of any document that they file by electronic means. The first document that a party files by electronic means must identify that party's facsimile number or e-mail address at which other parties may serve pleadings in the proceeding. Parties who provide a facsimile number or an e-mail address must advise Legal-Docketing and all other parties not in default of any change to the facsimile number or e-mail address.
[¶ 5518] RULE 3-4. NOTICE OF CHARGES.
(Click Here to Print this Rule) [Adopted effective March 15, 1994, amendments effective September 17, 1999.]
(a) A Complaint issued by the Business Conduct Committee under these Rules must:
(i) state each NFA requirement alleged to be, to have been or about to be violated; and
(ii) state each act or omission that constitutes, constituted or will constitute the alleged violation.
(b) NFA shall advise the Respondent in writing:
(i) that the Respondent must file a written Answer to the Complaint with NFA, within 30 calendar days of the date of the Complaint;
(ii) that failure to file an Answer as provided in Part (i) above shall be deemed an admission of the facts and legal conclusions contained in the Complaint;
(iii) that failure to respond to any allegation shall be deemed an admission of that allegation; and
(iv) that failure to file an Answer as provided in Part (i) above shall be deemed a waiver of hearing.
[¶ 5524] RULE 3-5. RIGHT TO COUNSEL.
(Click Here to Print this Rule) [Effective date of amendments: December 8, 1987, March 15, 1994 and March 12, 1999.]
The Respondent may be represented by an attorney-at-law or other person at any stage of the investigation or disciplinary proceeding.
[¶ 5530] RULE 3-6. ANSWER.
(Click Here to Print this Rule) [Effective date of amendments: March 15, 1994 and March 12, 1999.]
(a) The Respondent must file a written Answer to the Complaint with NFA within 30 days from the date of the Complaint.
(b) Failure to file a timely Answer shall be deemed an admission of the facts and legal conclusions contained in the Complaint, and a waiver of hearing. The Answer shall respond to each allegation in the Complaint by admitting, denying or averring that the Respondent lacks sufficient knowledge or information to admit or deny the allegation. An averment of insufficient knowledge or information may be made only after a diligent effort has been made to ascertain the relevant facts, and shall be deemed to be a denial of the pertinent allegation. The failure to respond to any allegation shall be deemed an admission of that allegation.
(c) For good cause shown, the Business Conduct Committee, or a Hearing Panel may waive the effects of failure to file a timely or complete Answer.
(d) On motion of the Respondent for good cause shown, then Chairman of the Business Conduct Committee, or another member of the Business Conduct Committee designated by the Chairman may grant an extension of time in which to comply with this Rule.
[¶ 5536] RULE 3-7. APPOINTMENT OF HEARING PANEL.
(Click Here to Print this Rule) [Effective date of amendments: March 15, 1994; March 12, 1999; and December 10, 2007.]
The Respondent shall be afforded a hearing on the charges and possible sanctions. The hearing shall be before a designated Hearing Panel of the Hearing Committee ("Hearing Panel"). A Hearing Panel shall consist of no fewer than three members of the Hearing Committee. The Chairman and the remaining members of the Hearing Panel shall be appointed by the Chairman of the Hearing Committee or his designee. If a Hearing Panel member's term on the Hearing Committee expires while the member is serving on a Hearing Panel, the member may continue to serve on that Hearing Panel until the matter is concluded. The hearing shall be held at such location as the Chairman of the Hearing Panel shall determine.
[¶ 5542] RULE 3-8. PRE-HEARING PROCEDURES.
(Click Here to Print this Rule) [Effective date of amendments: March 15, 1994 and March 12, 1999.]
(a) The Respondent shall be entitled to a reasonable pre-hearing examination of all evidence in the Compliance Department's possession or under its control that is to be relied upon by the Compliance Department or that is relevant to the Complaint. Such pre-hearing examination:
(i) must be requested by the Respondent in writing;
(ii) can be conducted either by the Respondent examining all such evidence at the offices of NFA, or by the Respondent requesting that all such evidence be copied and sent to him with any transportation and copying costs borne by the Respondent making the request;
(iii) is subject to the Compliance Department's right to withhold any privileged material (including, but not limited to, the investigation report), pursuant to all common law and statutory privileges it has available to it.
(b) Within 30 days after the Chairman of the Hearing Panel is appointed, the Chairman shall schedule and hold a pre-hearing conference with the parties. The order scheduling the pre-hearing conference shall specify the issues to be covered in the pre-hearing conference, including setting discovery and motion deadlines and scheduling the hearing. Such conferences may be conducted by telephone.
(c) The Chairman of the Hearing Panel shall schedule pre-hearing conferences and hearing sessions and shall decide all pre-hearing motions concerning discovery, motion deadlines, location of the hearing, continuances, and requests for telephonic or video testimony. All other motions shall be decided by the Hearing Panel.
(d) A motion for continuance shall be supported by an affidavit that provides a detailed description of the circumstances that form the basis for the continuance request.
[¶ 5548] RULE 3-9. HEARING.
(Click Here to Print this Rule) [Effective date of amendments: January 28, 1986; April 30, 1986; March 15, 1994; February 2, 1995 and March 12, 1999.]
If a hearing is held:
(a) The formal rules of evidence need not apply;
(b) Telephonic testimony shall be permitted if ordered by the Hearing Panel;
(c) The Respondent may appear personally, examine any witnesses, call witnesses and present relevant testimony and other evidence;
(d) Any party to a hearing may move for an order or the Hearing Panel, on its own motion, may issue an order requiring an NFA Member, Associate, or person connected therewith to testify or produce documents at a hearing at the moving party's expense. Such an order is discretionary with the Hearing Panel and shall be issued only for good cause shown; and
(e) A substantially verbatim record of the hearing shall be made (i.e., one that can be accurately transcribed). The cost of transcription shall be borne by the Respondent only if it requests the transcript, appeals the decision under Rule 3-13 below, or applies for Commission review and review is granted (See paragraph (f)(iii) of Rule 3-13). Otherwise, any transcription costs shall be borne by NFA.
No member of the Hearing Panel shall participate in the matter if the member, or any person with which the member is connected, has a financial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c).
[¶ 5554] RULE 3-10. DECISION.
(Click Here to Print this Rule) [Effective date amendments: December 8, 1987 and March 15, 1994.]
After the hearing or other consideration of the matter, the Hearing Panel shall render a written decision, based upon the weight of the evidence, containing:
(a) the charges or a summary of the charges;
(b) the Answer, if any, or a summary of the Answer;
(c) a brief summary of the evidence produced at the hearing, or, where appropriate, incorporation by reference of the investigation report;
(d) a statement of findings and conclusions as to each allegation, including a statement setting forth: each act or practice the Respondent was found to have committed or omitted, is committing or omitting, or is about to commit or omit; each NFA requirement that such act or practice violated, is violating, or is about to violate; and whether the act or practice is deemed to constitute conduct inconsistent with just and equitable principles of trade;
(e) a declaration of any penalty imposed (See Rule 3-14) and the penalty's effective date; and
(f) a statement that the Respondent may appeal an adverse decision to the Appeals Committee by filing a written notice of appeal with NFA within 15 days after the date of the decision.
The decision shall be dated and promptly furnished to the Respondent and the Appeals Committee and shall be final upon expiration of time for appeal or review of the decision. (See Rule 3-13.)
[¶ 5560] RULE 3-11. SETTLEMENT.
(Click Here to Print this Rule) [Effective date of amendments: December 8, 1987; March 15, 1994 and March 24, 1998.]
[¶ 5560.1] (a) Offer.
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(i) A subject of an investigation in which the investigation report has been completed, or a Respondent in a disciplinary proceeding, shall submit any proposed settlement of the matter to the Business Conduct Committee or its designated Panel ("BCC Panel") at any time up until a Chairman of the Hearing Panel has been appointed. A BCC Panel shall consist of no fewer than three members of the Business Conduct Committee, each of whom shall be appointed by the Chairman of the Business Conduct Committee. After that date, any proposed settlement offer shall be submitted to the Hearing Panel. Settlement offers may also be submitted to the Appeals Committee if the matter is before it on appeal or review. The Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee may accept or reject the settlement offer as it deems appropriate. The Compliance Director shall be afforded an opportunity to express the Compliance Department's views with respect to the proposed settlement;
(ii) The Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee may in its discretion accept an offer in which the person neither admits nor denies violating NFA requirements; and
(iii) Every settlement offer:
(a) shall contain the following language:
[Respondent] acknowledges that the Compliance Department will present the settlement offer and its views on the proposed settlement orally, in writing or both;
(b) presented to the Business Conduct Committee or BCC Panel shall also contain the following language:
[Respondent] acknowledges that any settlement offer rejected by the Business Conduct Committee or BCC Panel will be forwarded to the Hearing Panel for its information in the event that [Respondent] subsequently submits a settlement offer to the Hearing Panel;
(c) presented to the Hearing Panel shall also contain the following language:
[Respondent] waives any objection to the Hearing Panel's participation in the hearing in the event that [Respondent's] settlement offer is rejected; and
(d) presented to the Appeals Committee shall also contain the following language:
[Respondent] acknowledges that any settlement offer rejected by the Appeals Committee will be forwarded to the Business Conduct Committee, BCC Panel or Hearing Panel for its information in the event that [Respondent] subsequently submits a settlement offer to the Business Conduct Committee, BCC Panel or Hearing Panel. [Respondent] waives any objection to the Appeals Committee's participation in the review in the event that [Respondent's] settlement offer is rejected; and
(e) shall also contain the following language:
[Respondent] acknowledges that this settlement offer may not be withdrawn by the [Respondent] after it has been submitted to the Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee. In the event the settlement offer is rejected by the appropriate Committee or Panel, the settlement offer shall become null and void.
[¶ 5560.2] (b) Decision.
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If the Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee accepts the offer, it shall issue a written decision specifying each NFA requirement it has reason to believe is being, has been or is about to be violated, any penalty imposed and whether the settling party has admitted or denied any violation.
A decision on settlement by the Business Conduct Committee, BCC Panel or Hearing Panel shall be promptly furnished to the President. A decision on settlement by the Business Conduct Committee, BCC Panel or Hearing Panel shall become final and binding 15 days after the date of the decision unless the President, with notice to all parties, refers the matter to the Appeals Committee for review. The Appeals Committee shall approve or disapprove the settlement within 30 days after the date of such referral. Its decision to approve or disapprove the settlement shall become final and binding 15 days after the date of that decision.
A decision on settlement by the Appeals Committee shall become final and binding 15 days after the date of the decision.
[¶ 5560.3] (c) Withdrawal of Settlement Offer Is Prohibited.
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A settlement offer may not be withdrawn by a Respondent after it is submitted to the Business Conduct Committee, BCC Panel, Hearing Panel or Appeals Committee. An offer that is rejected by the appropriate Committee or Panel shall be null and void and shall not be deemed to have been an admission of any matter.
[¶ 5566] RULE 3-12. NOTICE AND PUBLICATION OF DECISION.
(Click Here to Print this Rule) [Effective date of amendments: March 15, 1994.]
Written notice of any action taken under Rule 3-10 or Rule 3-11 that is adverse to the Respondent, including reasons, findings, and conclusions, shall be furnished to the Commission within 30 days after it becomes final.
[¶ 5572] RULE 3-13. APPEAL; REVIEW.
(Click Here to Print this Rule) [Effective date of amendments: December 8, 1987; October 29, 1991; March 15, 1994; February 2, 1995 and March 12, 1999.]
[¶ 5572.1] (a) Appeal.
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The Respondent may appeal any adverse decision of the Hearing Panel issued under Rule 3-10 to the Appeals Committee by filing a written notice of appeal with NFA within 15 days after the date of the decision. The notice must describe those aspects of the disciplinary action to which exception is taken, and must contain any request by the Respondent to present written or oral argument.
[¶ 5572.2] (b) Review.
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The Appeals Committee may also order review of any decision of the Hearing Panel issued under Rule 3-10. If such a review will be conducted, the Appeals Committee will give written notice to the Respondent within 15 days of the date of the decision. Such review may be conducted by the Appeals Committee:
(i) on its own motion, or
(ii) pursuant to a petition filed by the Compliance Department, the granting of which shall be discretionary with the Appeals Committee. The petition will state why the Compliance Department is seeking review and must contain any request by the Compliance Department to present written or oral argument.
[¶ 5572.3] (c) Stay.
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The Respondent's filing of a notice of appeal under paragraph (a) above or the institution by the Appeals Committee of its own review under paragraph (b) above shall operate as a stay of the effective date of the disciplinary order, until the Appeals Committee renders its decision.
[¶ 5572.4] (d) Conduct of Proceeding.
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No member of the Appeals Committee shall participate in the proceeding if the member participated in any prior stage of the disciplinary proceeding (other than the review of a settlement offer submitted under Rule 3-11) or if the member, or any person with which the member is connected, has a financial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 708(c). Except for good cause shown, the appeal or review shall be conducted solely on the record before the Hearing Panel, the written exceptions filed under paragraph (a) above, and such written or oral arguments of the parties as the Appeals Committee may authorize.
[¶ 5572.5] (e) Briefs.
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If the Appeals Committee authorizes written argument, briefs shall be filed as follows unless otherwise ordered by the Appeals Committee:
(i) the party required to submit the initial brief shall file it with NFA's Legal Docketing Department and serve it on the other parties to the appeal within 30 days after the Appeals Committee issues an order authorizing written argument;
(ii) the responding party shall file its brief with NFA's Legal Docketing Department and serve it on the other parties to the appeal within 30 days after service of the initial brief;
(iii) the party which filed the initial brief may file an answer to the responding brief with NFA's Legal Docketing Department and serve it on the other parties to the appeal within 10 days after service of the responding party's brief;
(iv) the initial brief or responding brief of any party shall not exceed 35 pages and the answer to the responding brief shall not exceed 10 pages, exclusive of any table of contents, table of cases, index and appendix containing transcripts of testimony, exhibits, rules and regulations; and
(v) no other written argument on substantive issues raised on appeal will be accepted from the parties or considered by the Appeals Committee.
[¶ 5572.6] (f) Decision.
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Promptly after reviewing the matter, the Appeals Committee shall issue a written and dated decision, based on the weight of the evidence. The decision shall include:
(i) the findings and conclusions of the Appeals Committee as to each charge and penalty reviewed, including the specific NFA requirement the Respondent was found by the Hearing Panel to have violated, to be violating, or to be about to violate;
(ii) a declaration of any penalty imposed by the Appeals Committee, the basis for its imposition, and its effective date;
(iii) a statement that any person aggrieved by the disciplinary action may appeal the action pursuant to Commission Regulations, Part 171, within 30 days of service; and
(iv) a statement that any person aggrieved by the disciplinary action may petition the Commission for a stay of the effective date pursuant to Commission Regulations, Part 171, within 10 days of service.
[¶ 5572.7] (g) Finality.
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The decision of the Appeals Committee shall be final 30 days after the date of service.
[¶ 5578] RULE 3-14. PENALTIES.
(Click Here to Print this Rule) [Effective date of amendments: December 8, 1987; July 30, 1990 and March 15, 1994.]
[¶ 5578.1] (a) Types of Penalties.
(Click Here to Print this Rule)
The Business Conduct Committee, BCC Panel or Hearing Panel, or the Appeals Committee on appeal or review, may at the conclusion of the disciplinary proceeding impose one or more of the following penalties:
(i) Expulsion, or suspension for a specified period, from NFA membership; a two-thirds vote of the members of the Hearing Panel or the Appeals Committee present and voting shall be required for expulsion. A suspended Member shall be liable for dues and assessments but shall have no membership rights during the suspension period nor shall a suspended Member hold itself out as an NFA Member during the suspension period;
(ii) Bar or suspension for a specified period from association with an NFA Member;
(iii) Censure or reprimand;
(iv) A monetary fine, not to exceed $250,000 per violation;
(v) Order to cease and desist; and
(vi) Any other fitting penalty or remedial action not inconsistent with this rule.
[¶ 5578.2] (b) Authority of Appeals Committee to Alter Penalty.
(Click Here to Print this Rule)
The Appeals Committee may increase, decrease or set aside the penalties that were imposed by the Hearing Panel, or may impose other and different penalties, as it sees fit, subject to the requirements and limitations in paragraph (a) above.
[¶ 5578.3] (c) Payment of Fines.
(Click Here to Print this Rule)
All fines shall be paid to the NFA Treasurer within 30 days of the date of the decision or within the time prescribed in the decision, and may be used for general NFA purposes. A person who fails to pay a fine on time may, after seven days written notice, be summarily suspended from membership or association with a Member, by order of the President, until the fine is paid.
[¶ 5584] RULE 3-15. MEMBER OR ASSOCIATE RESPONSIBILITY ACTIONS.
(Click Here to Print this Rule) [Effective date of amendments: December 8, 1987; October 29, 1991; September 30, 1992; March 15, 1994; February 2, 1995; March 12, 1999 and November 30, 2001.]
[¶ 5584.1] (a) Nature of Action.
(Click Here to Print this Rule)
A Member or Associate may be summarily suspended from membership, or association with a Member, may be required to restrict its operations (e.g., restrictions on accepting new accounts), or may otherwise be directed to take remedial action, (e.g., may be ordered to immediately infuse additional capital or to maintain its adjusted net capital at a level in excess of its current capital requirement), where the President, with the concurrence of the NFA Board of Directors or Executive Committee, has reason to believe that the summary action is necessary to protect the commodity futures markets, customers, or other Members or Associates. No member of either the Board of Directors or the Executive Committee shall participate in a summary action if the member, or any person with whom the member is connected, has a financial, personal or other direct interest in the matter under consideration or is disqualified under Bylaw 516 or Bylaw 708(c). Notice of such summary action shall be given promptly to the Commission.
[¶ 5584.2] (b) Procedure.
(Click Here to Print this Rule)
The following procedures shall be observed in actions under this Rule:
(i) The subject of the action (the "Respondent") shall, whenever practicable, be served with a notice before the action is taken. If prior notice is not practicable, the Respondent shall be served with a notice at the earliest opportunity. This notice shall (A) state the action taken or to be taken; (B) briefly state the reasons for the action; (C) state the time and date when the action became or becomes effective and its duration; and (D) state that any person aggrieved by the action may petition the Commission for a stay of the effective date of the action pending a hearing pursuant to Commission Regulations, Part 171, within 10 days of service. Service may be made by personal delivery (effective upon receipt), by telefax (effective upon transmission), or by mail (effective upon deposit). When service is effected by mail, the time within which the person served may respond shall be increased by five days.
(ii) The Respondent shall be given an opportunity for a hearing promptly after the summary action is taken. Any such hearing shall be conducted before a Hearing Panel under the procedures of Rule 3-9.
(iii) The Respondent shall have the right to be represented by an attorney-at-law or other person in all proceedings after the summary action is taken, but the Hearing Panel may bar from the proceeding any representative for dilatory, disruptive, or contumacious conduct.
(iv) Promptly after the hearing, the Hearing Panel shall issue a written and dated decision affirming, modifying or reversing the action taken, based upon the evidence contained in the record of the proceeding. A copy of the decision shall be furnished promptly to the Respondent, the Appeals Committee and the Commission. The decision shall contain:
(A) A description of the action taken and the reasons for the action;
(B) A brief summary of the evidence received at the hearing;
(C) Findings and conclusions;
(D) A determination as to whether the summary action that was taken should be affirmed, modified or reversed; a declaration of any action to be taken against the Respondent as the result of that determination; the effective date and duration of that action; and a determination of the appropriate relief based on the findings and conclusions;
(E) A statement that any person aggrieved by the action may have a right to appeal the action pursuant to Commission Regulations, Part 171, within 30 days of service; and
(F) A statement that any person aggrieved by the action may petition to the Commission for a stay pursuant to Commission Regulations, Part 171, within 10 days of service.
[¶ 5584.3] (c) Appeal.
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The Respondent shall have no right to appeal a final action taken under this Rule to the Appeals Committee.
[¶ 5584.4] (d) Review.
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The Appeals Committee may on its own motion review a decision of the Hearing Panel issued under paragraph (b)(iv) above, by giving written notice to the Respondent of its decision to review within 15 days of the date of the decision. The review shall be conducted in accordance with paragraphs (d), (e), (f) and (g) of Rule 3-13.
[¶ 5590] RULE 3-16. RELATIONSHIP BETWEEN MEMBER OR ASSOCIATE RESPONSIBILITY ACTION AND DISCIPLINARY ACTION.
(Click Here to Print this Rule) [Effective date of amendments: March 15, 1994.]
The institution of a Member or Associate Responsibility Action (See Rule 3-15) shall not preclude the institution, at the same or any other time, of a disciplinary action (See Rule 3-2) involving the same matters or persons, nor shall any pending or completed disciplinary action involving the same matters or persons preclude a proceeding under Rule 3-15.
[¶ 5596] RULE 3-17. COMPOSITION OF COMMITTEES.
(Click Here to Print this Rule) [Adopted effective December 10, 1993. Effective dates of amendments: January 1, 2005.]
The Business Conduct Committee, Hearing Committee, Appeals Committee, Executive Committee, BCC Panel and Hearing Panel conducting a proceeding under these Part 3 rules shall include at least one member who is not an NFA Member or Associate or an employee of an NFA Member. When selecting Hearing Panels, the Chairman of the Hearing Committee or his designee shall endeavor to appoint panelists with diverse interests.
[¶ 5602] RULE 3-18. SANCTIONS FOR CONTUMACIOUS CONDUCT
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If a party, attorney for a party, or other representative of a party violates an order of the Business Conduct Committee, Hearing Panel, Chairman of the Business Conduct Committee or Hearing Panel, or Appeals Committee or engages in dilatory, disruptive, or contumacious conduct during a proceeding, the Business Conduct Committee, Hearing Panel, or Appeals Committee may impose those sanctions that are just under the circumstances. In particular, the Business Conduct Committee, Hearing Panel, or Appeals Committee may -
(a) Find that matters covered by the order or any other designated facts shall be taken as established against the noncomplying party;
(b) Refuse to allow the noncomplying party to support or oppose designated claims or defenses or prohibit the noncomplying party from introducing designated witnesses or documents into evidence;
(c) Strike portions of the noncomplying party's Complaint or Answer;
(d) Stay further proceedings until the noncomplying party complies with the order;
(e) Dismiss the Complaint if the Compliance Department is the noncomplying party or find the relevant facts and legal conclusions in the Complaint to be admitted if a Respondent is the noncomplying; or
(f) Bar an attorney or other representative from the proceeding if the attorney or representative has engaged in dilatory, disruptive, or contumacious conduct.
Part 4 - PROCEDURES GOVERNING ACCESS TO AND CERTIFICATION OF CFTC RECORDS, OTHER THAN REGISTRATION RECORDS, MAINTAINED BY NFA
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[¶ 5800] RULE 4-1. DISCLOSURE OF INFORMATION FROM CFTC RECORDS, OTHER THAN REGISTRATION RECORDS, MAINTAINED BY NFA.
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(a) Definitions.
(1) CFTC Records. For purposes of Rules 4-1 and 4-2, the term "CFTC records" shall be defined to include only those records that are in the custody of or maintained by NFA because such records were transferred from the Commission to NFA or because the Commission has delegated to NFA the authority to receive, generate, compile or maintain such records in performance of functions which NFA is authorized or required by the Commission to perform pursuant to Sections 8a(10) or 17(o) of the Act: Provided, however, that for purposes of Rules 4-1 and 4-2, the term "CFTC records" shall not include registration records subject to Part 700 of NFA's Registration Rules.
(b) Disclosure of Public Information.
(1) If any member of the public requests access to CFTC records, or portions thereof, and the requested record, or portion, is "public" or "publicly available" under CFTC Regulations 1.10(g) or 145.0, then NFA will release that record or portion to the requester.
(2) NFA may charge any member of the public a copying fee, not to exceed the fee charged by the Commission, for any copies of CFTC records provided by NFA directly to the requester.
(c) Disclosure of Non-Public Information. Requests for access to CFTC records, or portions thereof, not subject to disclosure as public or publicly available under paragraph (b)(1) of this Rule shall be referred or transmitted to the Commission for response; except that, NFA will disclose such records or portion thereof:
(1) otherwise with the authorization of the Assistant Secretary of the Commission for FOI, Privacy and Sunshine Act Compliance or his or her designee, or the General Counsel of the Commission or his or her designee, in accordance with CFTC Regulations 145.7(b), (h) and (i); the Freedom of Information Act, 5 U.S.C. � 552; and the Privacy Act, 5 U.S.C. � 552a; and
(2) to any individual or firm, or person acting on behalf of the individual or firm, who seeks access to his, her or its CFTC records: Provided, however, that NFA receives proper verification of the identity and authority of the party requesting the records.
[¶ 5806] RULE 4-2. CERTIFICATION OF THE AUTHENTICITY OF CFTC RECORDS MAINTAINED BY NFA.
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(a) Designation of Custodian and Deputies. The President shall designate an NFA employee to serve as the NFA Record Custodian ("Custodian"). The President also may designate one or more NFA employees to serve as Deputy NFA Record Custodians ("Deputies"). The Custodian and the Deputies shall be responsible for maintaining all CFTC records in NFA's possession and shall be the legal custodians of these CFTC records.
(b) Authority of Custodian and Deputies. The Custodian, each of the Deputies, or in their absence, any NFA employee designated by the President, the Custodian or one of the Deputies, is authorized to certify in writing the authenticity of CFTC records in NFA's possession for purposes of any judicial or administrative proceeding. The Custodian, each of the Deputies or any designated employee also is authorized to certify in writing as to the maintenance and completeness of the CFTC records in NFA's possession, as well as the thoroughness of NFA's search for requested documents, for purposes of any judicial or administrative proceeding.
(c) Effectiveness of Certification. This written certification shall be effective when executed by the Custodian, one of the Deputies or any designated employee.
(d) Content of Certification. The written certification shall include that, pursuant to Commission authorization, the Custodian has and maintains legal custody of the official CFTC records that are the subject of the certification.
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Code of Arbitration
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[¶ 6011] SECTION 1. DEFINITIONS.
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[Effective dates of amendments: April 11, 1983; July 27, 1983; February 1, 1988; November 9, 1988; January 1, 1990; February 18, 1992; May 1, 1994; March 1, 2002; September 9, 2002; December 1, 2003; August 30, 2006; February 13, 2007; and June 5, 2007.]
As used in this Code:
[¶ 6011.1] (a) "Aggregate Claim" - means an Arbitration Claim plus any counterclaim, cross-claim and third-party claim filed in the same matter under this Code.
[¶ 6011.2] (b) "Arbitration Claim" - means a claim filed by the person instituting the Arbitration proceeding.
[¶ 6011.3] (c) "Associate" - means a person who is registered with NFA as an Associate or was so registered when the acts or transactions that are the subject of dispute occurred. (Under NFA Bylaws every person who is associated with a Member within the meaning of the term "associated person" as used in Section 4k of the Commodity Exchange Act, and who is required to be registered as such with the Commission, must register with NFA as an Associate.)
[¶ 6011.4] (d) "Claim" - means an Arbitration Claim, counterclaim, cross-claim or third-party claim filed under this Code.
[¶ 6011.5] (e) "Claimant" - means a person making a proper and timely claim under this Code.
[¶ 6011.6] (f) "Commission" - means the Commodity Futures Trading Commission.
[¶ 6011.7] (g) "Commodity Pool Operator" or "CPO" - means a commodity pool operator as that term is used in the Commodity Exchange Act, and that is required to be registered as such under the Commodity Exchange Act and Commission Rules.
[¶ 6011.8] (h) "Commodity Trading Advisor" or "CTA" - means a commodity trading advisor as that term is used in the Commodity Exchange Act, and that is required to be registered as such under the Commodity Exchange Act and Commission Rules.
[¶ 6011.9] (i) "Contract Market" - means an exchange designated by the Commission as a contract market in one or more commodities.
[¶ 6011.10] (j) "Cross-claim" - means a claim filed by one Respondent against a co-Respondent.
[¶ 6011.11] (k) "Futures Commission Merchant" or "FCM" - means a futures commission merchant as that term is used in the Commodity Exchange Act, and that is required to be registered as such under the Commodity Exchange Act and Commission Rules.
[¶ 6011.12] (l) "Floor Broker" - means a floor broker as that term is used in the Commodity Exchange Act.
[¶ 6011.13] (m) "Forex" - has the same meaning as in Bylaw 1507(b).
[¶ 6011.14] (n) "Forex Dealer Member" - has the same meaning as in Bylaw 306.
[¶ 6011.15] (o) "Futures" - includes:
(1) futures and options contracts traded on a Commission-licensed exchange;
(2) options contracts granted by a person that has registered with the Commission under Section 4c(d) of the Act as a grantor of such option contracts or has notified the Commission under the Commission's Rules that it is qualified to grant such option contracts;
(3) foreign futures and foreign options transactions made or to be made on or subject to the rules of a foreign board of trade for or on behalf of foreign futures and foreign options customers as those terms are defined in the Commission's rules;
(4) leverage transactions as that term is defined in the Commission's Rules;
(5) security futures products, as that term is defined in Section 1a(32) of the Act; and
(6) for purposes of jurisdiction under this Code:
(i) forex transactions when the claim is brought against a Member or Associate who is subject to Compliance Rule 2-39; and
(ii) forex transactions that are between a Forex Dealer Member and a person that is not an eligible contract participant as defined in Section 1a(12) of the Act. Forex Dealer Members, their employees, and Members and Associates who solicit transactions on behalf of, introduce customers to, or manage accounts for customers that enter into transactions with a Forex Dealer Member are all subject to mandatory arbitration in connection with those transactions.
[¶ 6011.16] (p) "Introducing Broker" or "IB"-means an introducing broker as that term is used in the Commodity Exchange Act, and that is required to be registered as such under the Commodity Exchange Act and Commission Rules.
[¶ 6011.17] (q) "Leverage Transaction Merchant" or "LTM"-means a leverage transaction merchant as that term is used in Commission Rules, and that is required to be registered as such under the Commodity Exchange Act and Commission Rules.
[¶ 6011.18] (r) "Member" - means a Member of NFA or a person that was a Member at the time the acts or transactions that are the subject of the dispute occurred.
[¶ 6011.19] (s) "NFA" - means National Futures Association.
[¶ 6011.20] (t) "Panel" - means the arbitration panel appointed pursuant to Section 4(a) of this Code.
[¶ 6011.21] (u) "Person" - includes individuals, corporations, partnerships, trusts, associations and other entities.
[¶ 6011.22] (v) "Pleading" - means an Arbitration Claim, counter-claim, cross-claim, third-party claim, Answer or Reply filed under this Code.
[¶ 6011.23] (w) "President" - means the President of NFA.
[¶ 6011.24] (x) "Respondent" - means a person against whom a claim is asserted under this Code.
[¶ 6011.25] (y) "Secretary" - means the Secretary of NFA.
[¶ 6011.26] (z) "Third-party Claim" - means a claim filed by a Respondent against a person not a party to the action.
[¶ 6017] SECTION 2. ARBITRABLE DISPUTES.
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[Effective dates of amendments: April 11, 1983; June 28, 1985; November 9, 1988; June 12, 1989; January 1, 1990; February 18, 1992; September 8, 1992; May 17, 1993; May 1, 1994; March 1, 2002; September 9, 2002 and December 15, 2003.]
[¶ 6017.1] (a) Mandatory Arbitration.
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(1) Claims. Except as provided in Sections 5 and 6 of this Code with respect to timeliness requirements, the following disputes shall be arbitrated under this Code if the dispute involves commodity futures contracts:
(i) a dispute for which arbitration is sought by a customer against a Member or employee thereof, or Associate, provided that:
(A) the customer is not an FCM, floor broker, Member or Associate;
(B) the dispute does not solely involve cash market transactions that are not part of or directly connected with a commodity futures transaction; and
(C) if brought against a Member or employee thereof, the Member is an FCM, an IB, a CPO, a CTA or an LTM.
(ii) a customer claim that is required to be arbitrated by NFA under a lawful agreement that complies with Commission Rule 166.5.
(iii) a customer claim whose resolution has been delegated to NFA by a contract market.
(2) Counterclaims, Cross-claims and Third-party Claims. Except as provided in Sections 5 and 6 of this Code with respect to timeliness requirements, a counterclaim, cross-claim or third-party claim may be asserted in an arbitration brought under this Code if the counterclaim, cross-claim or third-party claim arises out of an act or transaction that is the subject of the Arbitration Claim.
[¶ 6017.2] (b) Disputes Which May Be Arbitrated in the President's Discretion.
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(1) At the option of any party, the securities portion of a dispute involving unrelated futures and securities claims may, in the President's discretion, be arbitrated under this Code if the timeliness requirements of Sections 5 and 6 of this Code are met.
(2) Except as required by the Member Arbitration Rules, other disputes involving commodity futures contracts between or among customers, Members, or Associates may, in the President's discretion, be arbitrated under this Code if the parties agree or have agreed to such arbitration and the timeliness requirements of Sections 5 and 6 of this Code are met.
[¶ 6023] SECTION 3. PRE-DISPUTE ARBITRATION AGREEMENTS.
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[Effective dates of amendments: June 13, 1986; November 9, 1988; January 1, 1990 and September 9, 2002.]
Any pre-dispute arbitration agreement between a customer and an FCM, IB, CPO, CTA or LTM Member or Associate thereof that does not comply with Commission Rule 166.5 shall be unenforceable under this Code.
[¶ 6029] SECTION 4. ARBITRATION PANEL.
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[Effective dates of amendments: November 24, 1982; January 28, 1986; November 9, 1988; July 12, 1989; October 29, 1990; February 18, 1992; May 1, 1994; June 23, 1997 and May 1, 2001]
[¶ 6029.1] a) Appointment of Panel.
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NFA shall conduct all arbitration proceedings under this Code before an arbitration Panel consisting of the following:
(1) Where the aggregate claim amount does not exceed $50,000, NFA shall appoint one arbitrator. However, if the aggregate amount of the claim exceeds $25,000 but is not more than $50,000, NFA shall appoint three arbitrators if one of the parties serves a written request on NFA for three arbitrators by no later than 30 days after the last pleading is due or the sole arbitrator asks NFA to appoint two additional arbitrators.
(2) Where the aggregate claim amount exceeds $50,000, NFA shall appoint three arbitrators.
All arbitration Panels shall be appointed by the Secretary and consist of individuals who are NFA Members or individuals connected therewith (one such Member or individual designated as Panel Chairperson). Provided, however, if a customer so requests in a timely filed pleading, the Chairperson and at least one other arbitrator, and the sole arbitrator where there is a single-person Panel, shall not be connected with an NFA Member or NFA (except as NFA arbitrators). For purposes of this section, any individual who performs a significant amount of work on behalf of NFA Members or Associates and any individual who was a Member or Associate or was an employee of a Member within the past three years shall be considered to be connected with an NFA Member.
[¶ 6029.2] (b) Disclosures Required.
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Prior to being appointed to the Panel, each arbitrator under consideration shall disclose to NFA any circumstances that might prevent the arbitrator from acting impartially.
[¶ 6029.3] (c) Appointment of Panel; Disclosure and Challenge.
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The Secretary shall thereupon appoint, pursuant to Section 4(a), an arbitration Panel to resolve the dispute. No arbitrator shall have acted as the mediator in the same dispute. NFA shall promptly notify the parties of the names, business affiliations and other information relevant to the classification of the arbitrator as a Member or non-Member panelist. Any objection of a party to such appointment shall be specific and for cause and submitted to NFA in written form. Each party or their representative shall disclose to NFA any circumstances likely to affect an arbitrator's impartiality, including any bias or any financial interest in the result of the arbitration or any past or present relationship with the arbitrator. Any party who fails to disclose such information shall be deemed to have waived any objection to that arbitrator based on such information. Each arbitrator appointed shall disclose to NFA any circumstances likely to affect impartiality, including any bias or any financial interest in the result of the arbitration or any past or present relationship with the parties or their representative. Upon receipt of such information from an arbitrator or other source, NFA shall communicate such information to the parties, and if NFA deems it appropriate to do so, to the Panel and others. Thereafter, NFA shall determine whether the arbitrator should be disqualified and shall inform the parties of the decision, which shall be conclusive.
[¶ 6029.4] (d) Arbitrator's Oath.
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Before proceeding with the hearing, each arbitrator shall execute an oath whereby the arbitrator promises to faithfully and fairly determine the matter before the Panel.
[¶ 6029.5] (e) Replacement.
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If an arbitrator becomes ineligible or otherwise unable to serve on the Panel, the Secretary shall (unless the parties request otherwise) appoint a replacement to the Panel. In the event an arbitrator is excused or recuses himself after the commencement of the hearing because a party failed to disclose information which may be grounds for objecting to the arbitrator, the party withholding the information shall be deemed to have waived his right to object to proceeding with the remaining two arbitrators. If a replacement is appointed after the commencement of the hearing, the Panel shall determine whether all or any part of any prior hearing sessions shall be repeated.
[¶ 6029.6] (f) Ex Parte Contacts.
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No party to the arbitration, or a representative thereof, shall communicate with any Panel member regarding the arbitration, other than inquiries concerning the status thereof, except at the hearing or in writing on notice to the other parties.
[¶ 6035] SECTION 5. TIME PERIOD FOR ARBITRATION.
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[Effective dates of amendments: February 18, 1992; May 1, 1994; June 7, 1996; June 23, 1997 and March 1, 2002.]
No Arbitration Claim may be arbitrated under this Code unless an Arbitration Claim or notice of intent to arbitrate (see Sections 6(a) and (c)) is received by NFA within two years from the date when the party filing the Arbitration Claim knew or should have known of the act or transaction that is the subject of the controversy. Except as is provided in Sections 6(f) and (h) below, no counterclaim, cross-claim or third-party claim may be arbitrated under this Code unless it is asserted in a timely filed Answer in accordance with Section 6(e) below. NFA shall reject any claim that is not timely filed. If, in the course of any arbitration, the Panel determines that the requirements of this section have not been met as to a particular claim, the Panel shall thereupon terminate the arbitration of the claim without decision or award.
[¶ 6041] SECTION 6. INITIATION OF ARBITRATION.
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[Effective dates of amendments: June 28, 1985; January 28, 1986; November 9, 1988; July 12, 1989; June 12, 1991; February 18, 1992; May 17, 1993; May 1, 1994; March 12, 1996; June 7, 1996; June 23, 1997; June 1, 1999; March 1, 2002; June 13, 2005 and June 5, 2007.]
An arbitration proceeding under this Code shall be initiated as follows:
[¶ 6041.1] (a) Notice of Intent to Arbitrate.
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If the two-year time limit under Section 5 of this Code is close to expiring, a person wanting to file an Arbitration Claim may notify NFA, either in writing or orally, of such person's intent to arbitrate. NFA shall maintain a record of the receipt of each such notice and shall promptly provide such person with a copy of this Code and an Arbitration Claim form.
[¶ 6041.2] (b) Arbitration Claim Pursuant to a Notice of Intent to Arbitrate.
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If a person who files a notice of intent to arbitrate decides to proceed with NFA arbitration, such person shall, within 35 days after the date NFA provided the person with a copy of the Code and an Arbitration Claim form under Section 6(a) above, serve a completed Arbitration Claim on NFA.
[¶ 6041.3] (c) Arbitration Claim
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NFA shall promptly review each Arbitration Claim for completeness. Any Arbitration Claim which NFA deems to be incomplete, or which is not accompanied by the appropriate fee, shall be returned to the filing party by NFA. In that event, the filing party shall serve a completed Arbitration Claim on NFA, together with any unpaid fee, within 20 days following service by NFA. NFA shall reject any Arbitration Claim which has not been timely filed, or for which the appropriate fee has not been paid.
[¶ 6041.4] (d) Notice to Respondent.
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(1) NFA shall promptly serve a copy of the completed Arbitration Claim on each person named therein as a Respondent, and a copy of any agreement to arbitrate.
(2) If a guaranteed IB is named in the Arbitration Claim as a Respondent, NFA shall promptly serve a copy of the completed Arbitration Claim on the Member FCM that guaranteed the IB during the time of the acts or transactions involved in the claim. That Member FCM may intervene in the arbitration proceeding if it chooses to.
[¶ 6041.5] (e) Answer to an Arbitration Claim.
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A Respondent shall serve its Answer on NFA and concurrently serve a copy on the Claimant within the time period provided below. Any Member FCM served with the Arbitration Claim under Section 6(d)(2) above that wishes to intervene in the arbitration proceeding must serve an Answer and written notice of intervention on NFA and concurrently serve a copy on the Claimant within the time period provided below for filing the Answer. An allegation in the Arbitration Claim that is not denied in the Answer shall be deemed by the Panel to be admitted.
(1) Claims of $25,000 or Less. Where the Arbitration Claim amount does not exceed $25,000, the Answer shall be served within 20 days following service of the Arbitration Claim by NFA.
(2) Claims of more than $25,000 through $50,000. Where the Arbitration Claim amount exceeds $25,000 but is not more than $50,000, the Answer shall be served within 45 days following service of the Arbitration Claim by NFA. An arbitration service fee of $275.00 shall accompany each Answer. Any Answer which is not accompanied by the appropriate fee shall be returned to the filing party by NFA. In that event, the filing party shall serve a completed Answer on NFA, together with any unpaid fee, within 20 days following service by NFA. NFA shall reject any Answer for which the appropriate fee has not been paid. Each Respondent who files an Answer but does not pay the service fee will have waived its right to an oral hearing and to otherwise participate in the proceeding. However, the Panel may, for good cause shown, accept the Answer and allow the Respondent to participate.
(3) Claims of more than $50,000. Where the Arbitration Claim amount exceeds $50,000, the Answer shall be served within 45 days following service of the Arbitration Claim by NFA. An arbitration service fee of $675.00 shall accompany each Answer. Any Answer which is not accompanied by the appropriate fee shall be returned to the filing party by NFA. In that event, the filing party shall serve a completed Answer on NFA, together with any unpaid fee, within 20 days following service by NFA. NFA shall reject any Answer for which the appropriate fee has not been paid. Each Respondent who files an Answer but does not pay the service fee will have waived its right to an oral hearing and to otherwise participate in the proceeding. However, the Panel may, for good cause shown, accept the Answer and allow the Respondent to participate.
[¶ 6041.6] (f) Counterclaim and Cross-claim.
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Any counterclaim or cross-claim under Section 2(a)(2) must be asserted in the Answer, unless the person against whom the counterclaim or cross-claim is asserted consents to a later assertion of the counterclaim or cross-claim. If any counterclaim or cross-claim is asserted, the party asserting the counterclaim or cross-claim shall promptly remit the appropriate fee to NFA. (See Sections 11 and 18.) Any counterclaim or cross-claim which NFA deems to be incomplete, or which is not accompanied by the appropriate fee, shall be returned to the filing party by NFA. In that event, the filing party shall serve a completed counterclaim or cross-claim on NFA, together with any unpaid fee, within the time period provided below. NFA shall reject any counterclaim or cross-claim which has not been timely filed, or for which the appropriate fee has not been paid.
(1) Claims of $25,000 or Less. Where the aggregate claim amount does not exceed $25,000, the completed counterclaim or cross-claim shall be served within 10 days following service of the incomplete counterclaim or cross-claim by NFA.
(2) Claims of more than $25,000. Where the aggregate claim amount exceeds $25,000, the completed counterclaim or cross-claim shall be served within 20 days following service of the incomplete counterclaim or cross-claim by NFA.
[¶ 6041.7] (g) Reply to Counterclaim or Cross-claim.
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The person against whom the counterclaim or cross-claim is asserted shall serve its Reply to the counterclaim or cross-claim on NFA and concurrently serve a copy on the counterclaiming or cross-claiming Respondent within the time period provided below. Any allegation in the counterclaim or cross-claim that is not denied in the Reply shall be deemed by the Panel to be admitted.
(1) Claims of $25,000 or Less. Where the aggregate claim amount does not exceed $25,000, the Reply shall be served within 10 days following service of the Answer, counterclaim or cross-claim by NFA.
(2) Claims of more than $25,000. Where the aggregate claim amount exceeds $25,000, the Reply shall be served within 35 days following service of the Answer, counterclaim or cross-claim by NFA.
[¶ 6041.8] (h) Third-party Claim.
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Any third-party claim under Section 2(a)(2) must be asserted in the Answer, unless the third party consents to a later assertion of the claim. If the third party is not a Member or Associate, such person must agree or have agreed to submit to arbitration. If any third-party claim is asserted, the Respondent asserting the third-party claim shall promptly remit the appropriate fee to NFA. (See Sections 11 and 18 below.) Any third-party claim which NFA deems to be incomplete, or which is not accompanied by the appropriate fee, shall be returned to the filing party by NFA. In that event, the filing party shall serve a completed third-party claim on NFA, together with any unpaid fee, within the time period provided below. NFA shall reject any third-party claim which has not been timely filed, or for which the appropriate fee has not been paid.
(1) Claims of $25,000 or Less. Where the aggregate claim amount does not exceed $25,000, the completed third-party claim shall be served within 10 days following service of the incomplete third-party claim by NFA.
(2) Claims of more than $25,000. Where the aggregate claim amount exceeds $25,000, the completed third-party claim shall be served within 20 days following service of the incomplete third-party claim by NFA.
[¶ 6041.9] (i) Notice to Third-party Respondent.
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NFA shall promptly serve a copy of the completed third-party claim on each person named therein as a Respondent, and a copy of any agreement to arbitrate.
[¶ 6041.10] (j) Answer to Third-party Claim.
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A third-party Respondent shall serve its Answer on NFA and concurrently serve a copy on the third-party Claimant within the time period provided below. An allegation in the third-party claim that is not denied in the Answer shall be deemed by the Panel to be admitted.
(1) Claims of $25,000 or Less. Where the aggregate claim amount does not exceed $25,000, the Answer shall be served within 20 days following service of the third-party claim by NFA.
(2) Claims of more than $25,000. Where the aggregate claim amount exceeds $25,000, the Answer shall be served within 45 days following service of the third-party claim by NFA.
[¶ 6041.11] (k) Amendments to Claims.
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After the appointment of a Panel, no new or different claim may be filed except with the Panel's consent.
[¶ 6041.12] (l) Late Answer, Reply or Notice of Intervention.
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NFA shall accept any Answer or Reply filed prior to the hearing. However, NFA or any party may present an objection to the Panel with regard to the timeliness of any filing. NFA will not accept a late notice of intervention unless the party filing the late notice explains in writing its reasons for the lateness and obtains the Panel's consent to file the late notice.
[¶ 6041.13] (m) Consolidation and Joinder.
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(1) When Arbitration Claims involving common questions of fact or arising from the same act or transactions are received by the Secretary, the Secretary may, whether or not at the request of any party, order any or all of the proceedings to be consolidated for hearing in the interest of providing a fair, equitable and expeditious procedure and may take such action concerning the proceedings herein as may tend to avoid unnecessary or unreasonable delay.
(2) A party may join multiple claims in a single Arbitration Claim involving common questions of fact or arising from the same act or transactions if the claims involve common questions of fact, arise from the same act or transactions, are filed by the same person against the same Respondents (even if the person filing the Arbitration Claim is acting in different capacities) or are filed on behalf of an individual and a corporation against the same Respondents if the individual is the sole shareholder of the corporation. The Secretary may, whether or not at the request of any party, order any or all joined claims to be separated in the interest of providing a fair, equitable or expeditious procedure or to avoid unnecessary or unreasonable delay.
[¶ 6041.14] (n) Dismissal Without Prejudice.
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The Panel may, at the written request of a party or on its own motion, dismiss without prejudice any claim which it determines is not a proper subject for NFA arbitration.
[¶ 6041.15] (o) Attestation.
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Any claim, answer, counterclaim, cross-claim, reply to counterclaim or cross-claim, third-party claim, or answer to third-party claim must include the following attestation: "The undersigned certifies that, to the best of his/her knowledge, information and belief, formed after a reasonable inquiry, the statements set forth in this pleading are true and correct."
[¶ 6047] SECTION 7. RIGHT TO COUNSEL.
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[Effective dates of amendments: November 9, 1988; July 12, 1989; June 12, 1991; June 23, 1997; December 17, 1999; and June 1, 2006.]
(a) A party may be represented at any time throughout the arbitration proceeding, including a mediation proceeding, by an attorney-at-law licensed to practice law in the highest court of any state, by a family member or other person who is representing the party without compensation and who does not have an interest in the outcome of the proceeding, or by an officer, partner or employee of the party. The attorney or other representative shall serve timely notice in writing on NFA and the other parties of the name and address of any such representative. The Panel may bar from the proceeding any representative for dilatory, disruptive or contumacious conduct.
(b) A representative of a party may withdraw upon submitting to NFA an affidavit that the party represented has actual knowledge of the withdrawal or that the representative has made a good faith effort to provide such notice.
[¶ 6048] SECTION 8. PRE-HEARING.
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[Adopted effective June 28, 1985. Effective dates of amendments: July 12, 1989; June 12, 1991; May 1, 1994; March 12, 1996; June 23, 1997; June 1, 1999; March 1, 2002; and June 1, 2006.]
[¶ 6048.1] (a) Exchange of Documents and Written Information.
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(1) The parties shall cooperate, without resort to issuance of subpoenas, in the voluntary exchange of material and relevant documents and written information which may serve to facilitate a fair, equitable and expeditious hearing.
(2) When a claim is accepted by NFA and served on each person named as a Respondent, NFA shall identify, from a list approved by NFA's Board of Directors, documents to be automatically exchanged between the parties. The parties shall exchange those documents no later than 15 days after the last pleading is due.
[See Interpretive Notice Standard List of Documents to be Exchanged Under Section 8 of NFA's Code of Arbitration.]
(3) All other requests for documents and written information shall be served as follows:
(i) Where the aggregate claim amount does not exceed $25,000, the requesting party shall serve its requests for documents and written information on the responding party no later than 20 days after the last pleading is due. The responding party shall serve the documents and written information, including written objections, no later than 20 days after the request is due.
(ii) Where the aggregate claim amount exceeds $25,000, the requesting party shall serve its request for documents and written information on the responding party no later than 30 days after the last pleading is due. The responding party shall serve the requesting party with the documents and written information, including written objections, no later than 30 days after the request is due.
(4) Written requests to compel production of documents and written information must be served on NFA and all parties no later than 10 days after the written objections are due. Written responses to the request to compel must be served on the Secretary and all parties no later than 10 days after the request to compel was served.
(5) A request to compel must include a written certification by the filing party or its representative. The certification must state that the filing party or its representative has made a good faith effort to resolve the matters forming the basis for the request through either a telephone conference or in-person meeting with the other party or its representative.
(6) Unless the Panel directs otherwise, requests to compel will be decided on the written submission of the parties.
(7) A request to compel that is not timely filed under Section 8(a)(4) above will not be allowed except for good cause shown as to why it was late.
(8) Evidence that is otherwise discoverable or admissible in an arbitration proceeding shall not be rendered non-discoverable or inadmissible as a result of its use in connection with a mediation proceeding. However, documents and written information in the mediator's possession are not subject to discovery and may not be subpoenaed for use in the subsequent arbitration hearing.
[¶ 6048.2] (b) Documents to be Introduced into Evidence.
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(1) Unless a Panel directs otherwise, each party shall serve on every other party all documents in such party's possession which the party intends to introduce into evidence at the hearing as part of its direct case and shall concurrently serve sufficient copies of the documents on NFA at least 10 days prior to the date assigned for an oral hearing.
(2) At least 15 days before the date assigned for a summary proceeding to commence, each party shall serve on NFA sufficient copies of all documents in such party's possession which are to be submitted to the Panel as part of the party's case and shall concurrently serve copies on every other party. At least five days before the date assigned for a summary proceeding to commence, each party shall serve on NFA sufficient copies of all documents in such party's possession which are to be submitted to the Panel to rebut the documents previously served by another party and shall concurrently serve copies on every other party.
[¶ 6048.3] (c) Hearing Plan.
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The parties shall cooperate with NFA in the formulation of a written hearing plan. A hearing plan is a written document that summarizes each claim, Answer and Reply; identifies any facts the parties have agreed to; identifies the factual and legal issues in dispute; and lists the witnesses and exhibits that will be presented at the hearing. The parties shall serve on NFA and all parties a joint hearing plan, or separate hearing plans if they cannot agree on a joint one, no later than 30 days before the oral hearing date, unless the Panel directs otherwise.
[¶ 6048.4] (d) Failure to Comply.
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The failure of any party to comply with Sections 8(a) through 8(c) or any order of the Panel may be brought to the attention of the Panel by NFA or the party seeking such documents or information. The Panel may take such actions in regard to the failure as are just, including, among other things, the following:
(1) finding that the matters regarding which the request was made or any other designated facts shall be taken to be established for the purpose of the action in accordance with the claim of the party making the request;
(2) refusing to allow the nonresponsive party to support or oppose designated claims or defenses or prohibiting him from introducing designated matters in evidence;
(3) striking out pleadings or portions thereof, staying further proceedings until the nonresponsive party complies with the request, dismissing the action or proceeding or any part thereof, or rendering an award by default against the nonresponsive party.
(4) refusing to hear testimony of any witness or to accept any document into evidence if the witness or document was not listed in the hearing plan.
[¶ 6048.5] (e) Other Pre-Hearing Motions.
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(1) Motions to dismiss for failing to state a claim will not be heard by the Panel. Other motions to dismiss must be included in a timely filed Answer or Reply. Motions for summary judgment may be raised at any time. Motions for directed verdict may be raised at the hearing.
(2) Except as provided in Section 8(a)(4) above, a party has 10 days from the date a pre-hearing motion is received in which to serve a written response on NFA and all other parties. However, where a motion is received less than 20 days in advance of the date the hearing or summary proceeding is scheduled to commence, NFA may, in its discretion, require a written response within less than 10 days. No written replies to a party's response to a motion will be allowed except in the Panel's discretion.
(3) NFA shall assess a motion fee as follows:
(i) In cases involving one arbitrator, a party filing a motion shall include a $125 motion fee for each motion filed more than 80 days after the last pleading is due. This fee may be subsequently waived at the discretion of the arbitrator, or the arbitrator may assess the motion fee against the party causing the filing of the motion. However, this fee shall not apply to a request for a preliminary hearing under Section 9(a) or a request for a postponement under Section 11(c) below.
(ii) In cases involving three arbitrators, any party filing a motion shall include a $425 motion fee for each motion filed more than 100 days after the last pleading is due. This fee may be subsequently waived at the discretion of the arbitrators, or the arbitrators may assess the motion fee against the party causing the filing of the motion. However, this fee shall not apply to a request for a preliminary hearing under Section 9(a) or a request for a postponement under Section 11(c) below.
[¶ 6048.6] (f) Pre-Hearing Decisions by the Arbitrators.
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(1) For cases that will be decided through a summary proceeding, the Panel will decide all motions as part of the summary review, except for those related to discovery or postponement requests.
(2) With the consent of the other Panel members, one or more of the arbitrators may act on behalf of the Panel to decide any pre-hearing motions from the parties or to conduct any pre-hearing conference with the parties. However, the Panel may not postpone the hearing or impose sanctions, dismiss a party, or dismiss all or any portion of a claim without a majority decision.
[¶ 6048.7](g) Pre-Hearing Conference.
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For cases that will be decided through an oral hearing, NFA may schedule a pre-hearing conference with the Panel and the parties. The notice scheduling the pre-hearing conference will specify the issues to be covered at the conference, including identifying outstanding discovery disputes, setting deadlines for other motions and scheduling the hearing. The conference will be conducted by telephone within 30 days after the motion to compel due date, unless the Panel directs otherwise.
[¶ 6048.8](h) Depositions.
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The Panel may, upon the motion of a party, order evidence depositions for good cause shown.
[¶ 6053] SECTION 9. HEARING.
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[Effective dates of amendments: November 24, 1982; December 30, 1983; June 28, 1985; January 28, 1986; November 9, 1988; July 12, 1989; June 12, 1991; February 18, 1992; December 1, 1992; May 1, 1994; June 23, 1997; May 1, 2001; March 1, 2002; June 1, 2006; October 15, 2007; and April 1, 2008.]
[¶ 6053.1] (a) Preliminary Hearing.
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The Panel may, at the written request of a party or on its own motion, schedule a preliminary hearing in extraordinary circumstances. Such hearing may be conducted orally, by telephone conference, or by written submissions.
[¶ 6053.2] (b) Place, Time and Notice of Hearing.
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Except as provided in Section 8(g) or Paragraph (i) of this Section, the place and time of the hearing shall be determined in the sole discretion of the Secretary, who shall endeavor to accommodate, if possible, the preferences of all parties as indicated in a timely-filed pleading. Upon setting the initial hearing date, NFA shall serve notice on each party at least 45 days before the hearing of the date, time and place. NFA shall give reasonable notice of any rescheduled oral hearing date.
[¶ 6053.3] (c) Failure to Prosecute or Defend.
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At the written request of any party or on its own motion, the Panel may review the procedural history of the proceeding and any written submissions and may find that a party has failed to prosecute or defend the proceeding. Any party found to have failed to prosecute or defend the proceeding will be deemed to have waived his right to an oral hearing.
[¶ 6053.4] (d) Procedure.
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(1) Each party may appear personally at the hearing to testify and produce evidence.
(2) Each party (or the party's representative) may present opening and closing arguments, and may examine any other party or witness at the hearing and any evidence produced at the hearing.
(3) The Panel need not apply the technical rules of evidence.
(4) Unless waived by the parties, the Panel shall cause a verbatim record to be made of the hearing, but no party shall be required to bear the costs of making the record unless the party requests a transcript, in which case a transcript must be furnished.
(5) All testimony at the hearing shall be given under oath.
(6) The Panel may allow stipulations and establish other procedures as appropriate to expedite the proceeding. The Panel may consider affidavits but shall give them such weight as it deems appropriate after considering objections to them.
(7) The Panel may order Members and employees thereof, and Associates to testify and produce documentary evidence. The Panel may issue subpoenas to non-Members as authorized by law. The parties must submit all subpoena requests to the Panel and serve those requests in accordance with Section 16(b) below. Subpoenas issued by the Panel may be enforced in a court of competent jurisdiction.
(8) The party requesting the appearance of a non-party witness shall bear all reasonable costs of such appearance. For purposes of this section, an employee or an Associate of any party shall be considered a party witness.
(9) All conduct and statements, offers and promises, whether oral or written, made by the parties or their representatives in connection with a mediation proceeding shall be confidential and shall not be admissible for any purpose, including impeachment, in any pending or subsequent arbitration proceeding. The mediator may not be called as a witness in a pending or subsequent arbitration proceeding.
(10) In all other respects, the hearing procedure shall be determined by the Panel. The Panel shall afford the parties every reasonable opportunity to present their case completely.
[¶ 6053.5] (e) Extensions and Postponements.
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Extensions of time or postponements of the hearing may be granted by the Panel when the interests of justice so require, but a hearing in progress shall not be adjourned or interrupted except in compelling circumstances.
[¶ 6053.6] (f) Failure to Comply.
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The failure of any party to appear at any hearing or any session thereof, or to comply with any notice, order, or procedure in connection therewith, may subject the party to such adverse action as the Panel deems appropriate, including the entry of an award or the dismissal of a claim.
[¶ 6053.7] (g) Reopening the Record.
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The record may be reopened by the Panel on its own motion or on the motion of a party for good cause at any time prior to the Panel rendering its award. A motion to reopen the record shall stay automatically the time period in which the award shall be rendered.
[¶ 6053.8] (h) Waiver of Defects.
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Where appropriate, the Panel may excuse any failure to comply with any provision of this section, or any Panel notice, order or procedure.
[¶ 6053.9] (i) Summary Proceeding.
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The proceeding shall be conducted entirely through written submissions when:
(1) the aggregate amount of the claims (exclusive of interest and costs) does not exceed $15,000, unless the Secretary or the Panel directs otherwise;
(2) the aggregate amount of the claims (exclusive of interest and costs) is more than $15,000 but not more than $25,000, unless the Secretary or the Panel directs otherwise or one of the parties to the proceeding serves a written request for an oral hearing on NFA, accompanied by a fee of $525.00, no later than 30 days after the last pleading is due; or
(3) the Panel has consented to the written agreement of the parties to waive the oral hearing. A written agreement is not required of any party which has waived its rights to an oral hearing under any other provision of this Code.
[¶ 6059] SECTION 10. AWARD, SETTLEMENT AND WITHDRAWAL.
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[Effective dates of amendments: July 27, 1983; June 28, 1985; June 13, 1986; November 9, 1988; July 12, 1989; July 30, 1990; June 12, 1991; October 29, 1991; February 18, 1992; May 17, 1993; May 1, 1994; March 12, 1996; June 23, 1997; June 1, 1999; March 21, 2001; March 10, 2005; June 1, 2006; and October 1, 2006.]
[¶ 6059.1] (a) Issuance of Award.
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The Panel shall notify NFA of its decision within 30 days after the record is closed. NFA shall then prepare a written award form, to be dated and signed by the Panel members. NFA shall promptly serve a copy of the award on each party or its representative. The award shall be that of the Panel majority.
[¶ 6059.2] (b) Relief.
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The award may grant or deny any of the monetary relief requested, and may include an assessment of interest, costs or fees (See Sections 11 and 12). A request for declaratory relief will only be heard by the arbitrators if the Respondent agrees to have the arbitrators hear the claim.
[¶ 6059.3] (c) Finality.
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The Panel's award shall be final on the date thereof. The award may be modified by the Panel if a party submits a written request for modification which is received by NFA within 20 days from the date of service of the award on the parties, and the Panel deems modification necessary because:
(1) there is an evident material miscalculation of figures or an evident material mistake in the description of any person, thing or property referred to in the award;
(2) the arbitrators have awarded upon a matter not submitted to them, unless it is a matter not affecting the merits of the decision upon the matter submitted; or
(3) the award is imperfect in matter of form not affecting the merits of the controversy.
NFA will not forward a modification request to the Panel unless it is based on one of the grounds listed above. The timely filing of a request for modification shall stay automatically the finality of any award until NFA rejects the request or the Panel either modifies the award or denies the request for modification.
[¶ 6059.4] (d) Appeal.
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There shall be no right of appeal of the award.
[¶ 6059.5] (e) Award Binding.
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All parties shall be bound by the award and any modification thereof.
[¶ 6059.6] (f) Judgment.
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Judgment on the award may be entered in any court of competent jurisdiction.
[¶ 6059.7] (g) Failure to Comply.
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(1) The President may, on 30 days written notice, summarily suspend a Member or Associate when the Member, or employee thereof, or Associate:
(i) fails to comply with an award within 30 days from the date of service of the award by NFA or such other period as specified in the award unless
(A) a request to modify the award is pending under Section 10(c) or
(B) the Member, or employee thereof, or Associate who failed to comply has a pending application to vacate, modify or correct the award in a court of competent jurisdiction and has posted a bond with NFA equal
to 150% of the amount of the award against that person or such lesser amount as NFA shall require in a particular case, but not less than 110% unless a satisfactory bond has been posted with the court; or
(ii) fails to comply with a settlement agreement within 30 days after NFA terminates the arbitration proceeding pursuant to Section 10(h) or such other period as specified in the settlement agreement; or
(iii) fails to comply with a settlement agreement executed in connection with an NFA-sponsored pre-arbitration mediation proceeding within 30 days after the time stated in the settlement agreement; or
(iv) fails to pay any fee assessed within the time so ordered by the Panel.
The suspension shall remain in effect until such award, settlement agreement, or order of the Panel has been satisfied.
(2) A Member which guaranteed an IB during the relevant time may, on 30 days written notice, be summarily suspended by the President if the guarantor fails to pay an award issued against the IB under Section 10(c) or a settlement agreement entered into by the IB under Section 10(h) within 30 days after the guarantor has received actual notice that the IB has failed to comply with the award or settlement agreement. The suspension shall be lifted if the award or settlement agreement is satisfied.
(3) In lieu of or in addition to suspending any Member or Associate for failing to comply with an award, settlement agreement or Panel order to pay a fee or monetary sanction, NFA may initiate disciplinary action under its Compliance Rules for the failure of any Member or employee thereof or Associate to comply with the award, settlement agreement or Panel's order.
[¶ 6059.8] (h) Satisfaction of Demand.
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At any time during the course of an arbitration, a party may satisfy a claim by payment or settlement, including settlement through mediation. The arbitration proceeding will terminate upon receipt of written notice of satisfaction and withdrawal of the claim duly executed by the parties and submitted to NFA. If NFA is notified that the claim has been settled, but the notification is not in writing or is not duly executed by the parties, NFA shall send written notice to the parties that the arbitration proceeding will terminate within 20 days of service of such notice unless NFA receives written notice that the claim has not been settled.
[¶ 6059.9] (i) Consent Award.
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If parties agree to satisfy a claim at any time during the arbitration, the Panel may, at the request of such parties, set forth the terms of the satisfied claim in a consent award.
[¶ 6059.10] (j) Withdrawal of Claim.
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(1) At any time during the course of the arbitration, a party may withdraw a claim against any Respondent who has not filed an Answer. A written notice of withdrawal must be filed with NFA. The withdrawal will be without prejudice unless the notice states otherwise.
(2) After a party has filed a pleading, a party may not withdraw a claim against that party unless the party consents. The notice and the consent must be in writing and filed with NFA. The withdrawal will be without prejudice unless the notice or the consent states otherwise.
[¶ 6065] SECTION 11. ARBITRATION FEES.
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[Effective dates of amendments: June 28, 1985; December 8, 1987; November 9, 1988; July 12, 1989; February 18, 1992; May 1, 1994; December 12, 1995; June 23, 1997; February 1, 2000; May 1, 2001 and March 1, 2002.]
[¶ 6065.1] (a) Filing and Hearing Fees.
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(1) Except as provided in Section 18 of this Code, each party filing a claim under this Code shall pay a filing and hearing fee based on the amount claimed, including punitive and treble damages but exclusive of interest and costs, as follows: