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NFA Proposes Amendments to Bylaw 301, Compliance Rule 2-24 and Related Interpretive Notice

On March 5, the National Futures Association (NFA) submitted with the Commodity Futures Trading Commission proposed amendments to NFA Bylaw 301 and Compliance Rule 2-24. The proposed changes to NFA Bylaw 301(l) are intended to specify that any individual applying for approval as a futures commission merchant (FCM), introducing broker (IB), commodity pool operator (CPO) or commodity trading advisor (CTA) member swap firm or swap associated person of an FCM, IB, CPO or CTA must take and pass the NFA’s Swap Proficiency Requirements to be granted approval as a swap firm or swap associated person (AP). In connection with this change, the NFA also proposed amendments to Compliance Rule 2-24 which, among other changes, would prohibit an FCM, IB, CPO or CTA member from having associated with it an individual engaged in CFTC regulated swap activities, unless such individual has satisfied the aforementioned requirements.

In addition to the proposed amendments to NFA Bylaw 301 and Compliance Rule 2-24, the NFA issued a proposed interpretive notice entitled NFA Bylaw 301 and Compliance Rule 2-24: Proficiency Requirements for Swap APs (Interpretive Notice), which provides more detailed information regarding certain considerations related to such proficiency requirements. For example, the Interpretive Notice establishes two proficiency tracks (i.e., a Long Track and a Short Track). The track applicable to an individual will be based on the type of swaps activity performed by such individual, and whether such individual works as a swap dealer or an intermediary. The Interpretive Notice also describes a series of related requirements, which includes a new obligation for swap dealers (SDs) to maintain records demonstrating that covered individuals have satisfied the applicable proficiency requirements. Individuals acting as APs at SDs located outside the United States, including non-US branch offices of a US SD (Non-US APs), who solely solicit or accept swaps with counterparties that are non-US persons and/or non-US branch offices of US SDs, are excluded from these requirements. The compliance date to complete the proficiency requirements is January 31, 2021

The NFA filed the proposed amendments and the Interpretive Notice with the CFTC pursuant to Section 17(j) of the Commodity Exchange Act, which authorizes the NFA to make such amendments and the Interpretive Notice effective 10 days after receipt by the CFTC, unless the CFTC notifies the NFA that it intends to review the proposal for approval.

The text of the proposed amendments and the Interpretive Notice are available here.

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About this Author

Kevin M. Foley, Finance Lawyer, Katten Llaw Firm
Partner

Kevin M. Foley has extensive experience in commodities law and advises a wide range of clients, both in the United States and abroad, on compliance with the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission (CFTC) affecting traditional exchange-traded products, as well as the over-the-counter markets involving swaps and other derivative instruments. His clients include futures commission merchants, derivatives clearing organizations, designated contract markets, foreign boards of trade and an industry trade association.

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312-902-5372
Stanley V. Polit, Katten Muchin, Financial Services lawyer, Corporate Regulatory Matters Attorney
Associate

Stanley Polit concentrates his practice in transactional, corporate and regulatory aspects of financial services matters. Stan is able to provide legal services to a wide variety of clients including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Stan served as a council member for a national crisis management firm, where he specialized in crisis communication and merged media strategies. He has lectured extensively and conducted trainings related to these topics at numerous national and international conferences, including the National Communication Association's National Convention, the International Crisis and Risk Communication Conference and the Disaster Recovery Journal's World Business Continuity Conference.

312.902.5420