19 terms

National Futures Association

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Authority
-NFA has authority to regulate activities of all persons doing futures business with the public
Financial Oversight
-NFA has financial oversight over industry participants
-NFA requires firms to audit its own branches annually
-NFA requires both FCMs and IBs to file annual certified financial statements and quarterly non certified financial statements
-FCMs and IBs are subject to a full score audit every 2 years and unannounced spot audits
Enforces Ethical Conduct Rules
-the NFA prohibits any fraud, deception, or false reporting
-also requires firms to provide ethics training
Sharing in Customer Accounts
-AP and customer sharing account only allowed with consent of customer and proportionate to each individuals contribution
Registration Requirements
-required registration and tests for all APs
-FINRA administers examinations
-requirements require foreign brokers in US offices tor register
-exemptions include
-floor traders and floor brokers bc they register directly with exchange
-exchange members also register in addition to the NFA with the CFTC
Disclosures to clients by CPOs (performance history)
-requires CPOs to disclose performance history
-If CPO has been in business at least 3 years, it must disclose it's performance history for the most 3 recent years
-If CPO has been in business less than 3 years, it must disclose it's entire history
-If CPO has been is business less than 12 months in addition to disclosing its history, it must also include the performance of any other pools it has operate for the last 3 years.
Disclosures to clients by CPOs (business continuity)
-NFA requires businesses to have business continuity and disaster readiness plan
-That plan must include at least 1 emergency contract that has been identified to FINRA
Disciplinary Process (report of infractions)
-infractions reported to regional NFA business conduct committee
Disciplinary Process (subsequent actions)
-NFA Compliance director can require statements under oath and can subpoena witnesses and can subpoena testimony
-During this process a requiring testimony issuing subpoenas and requiring statements, the respondent can still operate
-the NFA president can initiate member responsibility action which can only be initiated by NFA President
-under a member responsibility action the NFA President can require the firm to cease operating...
-this can be done without a hearing, although eventually a hearing is required to be granted
Disciplinary Actions (censure)
letter of writing, firm neither admits or denies wrongdoing but agrees not to do it again
Disciplinary Actions (Fine up to $250,000)
Fine up to $250,000
Disciplinary Actions (Cease & Desist order)
-if it believes fraud occurred or is about to occur
Disciplinary Actions (Suspension or revocation of membership)
-disciplinary action can be appealed
1. First appeal to NFA committee
2. 2nd appeal to CFTC
3. Subsequent appeals go to Federal Courts
Arbitration (to settle disputes between members)
to settle disputes between members
Arbitration (Statute of Limitations)
-Within 2 years of discovery of incident one party has to bring arbitration to other party
Arbitration (process depends of size of dispute)
-Up to $50,000: summary procedure, no hearing, one arbitrator who reviews all documents
-Disputes over $50,000: hearing
-either with one arbitrator or three arbitrators depening on what the parties want, unless dispute is in excess of $100K
-disputes over $100K always have 3 arbitrators
-award must be paid from one party to another within 3 days of the decision
-If a person fails to pay it, their membership is suspended
Advertising & Sales Literature (Officer Approval)
-All advertising sales literature must be approved by officer before it goes out
Advertising & Sales Literature (Record Retention)
-Firm must keep copy of all advertisement and sale literature for 5 years from final use
Advertising & Sales Literature (Regulatory requirements)
-Can't make false statements
-Can't over emphasize profits
-Cannot use unsubstantial statistics
-any hypothetical performance figures must state disclosure
-eg past or hypothetical performance won't indicate future results
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