NFA has just published set of new rules it has been working on lately. The result is a daily, monthly and quarterly reporting requirement from brokers regarding client positions. NFA also reminds its members of certain key responsibilities and finally published set of rules governing situations of forex M&As – what happens when a US forex broker buys another one and there’s a bulk transfer of accounts. This of course missed quite a few such deals we’ve witnessed this year such as Gain/CMS and Gain/dbFX.
Effective Date of Amendments to NFA Financial Requirements Section 13 and the Interpretive Notice entitled Forex Transactions
Amendments to NFA Financial Requirements Section 13 and the related Interpretive Notice entitled Forex Transactions will become effective on January 2, 2012. The amendments to Financial Requirements Section 13 requires an FDM to file daily electronic reports with NFA that show the firm’s liabilities to customers and any other financial or operational information required by NFA. The amendments to NFA’s Interpretive Notice entitled Forex Transactions specify the other financial and operational information currently required by NFA. Specifically, the Interpretive Notice requires FDMs to provide the following:
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- Daily report of the net aggregate notional value for all open futures and options Forex positions;
- Monthly operational reports that provide specific information on the firm’s customer base and the firm’s risk management of its market exposure; and
- Quarterly reports containing the most updated performance disclosures required by CFTC Regulation 5.5(e)(1)(i)(iii).
The first monthly operational report and first quarterly updated performance disclosure report will be due on January 17, 2012.
NFA Compliance Rule 2-40 and Related Interpretive Notice Regarding Procedures for Assignment and Liquidation of Forex Positions and Cessation of Customer Business
NFA Compliance Rule 2-40 and its related Interpretive Notice entitled NFA Compliance Rule 2-40: Procedures for the Assignment or Liquidation of Forex Positions; Cessation of Customer Business describes the procedures an FDM must follow when it enters into a bulk assignment, transfer, or liquidation of forex positions for a retail forex customer. NFA amended the rule to clarify that forex IBs are also subject to the requirements and to provide that IBs and FDMs engaging in these transactions must comply with CFTC Regulation 5.23, as well as certain additional requirements imposed by NFA and outlined in the Interpretive Notice, including:
- The transferee/assignee FDM or IB must obtain (from either the customer or the transferring FDM or IB) the customer’s personal and financial information required under Compliance Rule 2-36 before the FDM or IB accepts an order to initiate a new position.
- The assignee/transferee FDM or IB must provide each retail forex customer with the disclosures required under CFTC Regulation 5.5(e)(1)(i)-(iii) regarding the percentage of profitable and unprofitable accounts maintained by the assignee/transferee FDM during the prior calendar quarter. The only exception to this requirement occurs in cases where the transferee IB introduces the customers to the same FDM as the transferor IB since that customer would have already received the FDM’s performance information from the transferor IB.
- The assignee/transferee FDM or IB must provide CFTC Regulation 5.5(e)(1)(i)-(iii)’s disclosures even when the customer requests the transfer.