NFA Changes Compliance Rule for Forex CPOs and Forex CTAs
The NFA announced that they are repropsing NFA Compliance Rules 2-41 and 2-42 to make it harder for forex pools to be “eligible contract participants” and therefore out of the NFA purview. The proposed amendments will be effective upon 10 days notice to the CFTC unless the CFTC opposes the changes. The release is reprinted in full below and can also be found here. Please let us know if you have any questions on whether your forex hedge fund is affected.
November 26, 2008
Via Federal Express
Mr. David A. Stawick
Office of the Secretariat
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581
Re: National Futures Association: Disclosure by Forex Pool Operators and Trading Advisors - Technical Amendments to NFA Compliance Rules 2-41 and 2-42
Dear Mr. Stawick:
Pursuant to Section 17(j) of the Commodity Exchange Act, as amended, National Futures Association (“NFA”) hereby submits to the Commodity Futures Trading Commission (“CFTC” or “Commission”) the proposed amendments to NFA Compliance Rules 2-41 and 2-42. This proposal was approved by NFA’s Board of Directors (“Board”) on November 20, 2008.
NFA is invoking the “ten-day” provision of Section 17(j) of the Commodity Exchange Act (“CEA”) and will make these proposals effective ten days after receipt of this submission by the Commission unless the Commission notifies NFA that the Commission has determined to review the proposals for approval.
PROPOSED AMENDMENTS
(additions are underscored and deletions are stricken through)
COMPLIANCE RULES
* * *
Part 2 - RULES GOVERNING THE BUSINESS CONDUCT OF MEMBERS
REGISTERED WITH THE COMMISSION
* * *
RULE 2-41. FOREX POOL OPERATORS AND TRADING ADVISORS
(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 1(a)(12)(A)(v)(II) or (III) of the Act.
* * *
RULE 2-42. FOREX POOL REPORTING
(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.
EXPLANATION OF PROPOSED AMENDMENTS
At its February meeting, NFA’s Board approved new NFA Compliance Rules 2-41 and 2-42. These rules impose requirements on forex commodity pool operators (”CPOs”) and commodity trading advisors (”CTAs”) similar to those for CPOs and CTAs trading on-exchange products. The CFTC previously approved these rules and they will become effective on November 30, 2008.
NFA intended for both of these rules to apply to any forex pool that is not an eligible contract participant (”ECP”) as defined in Section 1a(12) of the Commodity Exchange Act (”Act”), except that a forex pool cannot claim to be an ECP solely by virtue of Section 1a(12)(A)(v)(II) or (III) of the Act. NFA Compliance Rule 2-41 includes this limitation, and this limitation should also apply to NFA Compliance Rule 2-42, which applies to forex pool reporting. The technical amendments conform NFA Compliance Rule 2-42’s application to that set forth in NFA Compliance Rule 2-41.
As mentioned earlier, NFA is invoking the “ten-day” provision of Section 17(j) of the Commodity Exchange Act. NFA intends to make the amendments to NFA Compliance Rules 2-41 and 2-42 effective ten days after receipt of this submission by the Commission, unless the Commission notifies NFA that the Commission has determined to review the proposal for approval.
Respectfully submitted,
Thomas W. Sexton
Vice President and General Counsel
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