July 5, 2020

Volume X, Number 187

July 03, 2020

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NFA Proposes Amendments to Interpretive Notice Regarding AML Programs and Interpretive Notice on Disclosures for Security Futures Contracts

NFA Proposes Amendments to Interpretive Notice Regarding AML Programs

On May 28, the National Futures Association (NFA) submitted to the Commodity Futures Trading Commission (CFTC) proposed amendments to NFA Interpretive Notice 9045 (Interpretive Notice) regarding the anti-money laundering (AML) Programs that introducing brokers (IBs) (and futures commission merchants) are required to implement. The Interpretive Notice provides that the AML programs adopted by IBs must include, inter alia, written customer identification program (CIP) procedures designed to allow the IB to form a reasonable belief that it knows the true identity of each customer.

The proposed amendment to the Interpretive Notice incorporates recent guidance from the CFTC, found in CFTC Letter No. 19-18, which provides that voice broker IBs that negotiate/facilitate block futures and cleared swap transactions do not have customers or accounts for purposes of the CIP requirements. The limited relief from maintaining CIP procedures does not otherwise relieve IBs from the requirement to adopt and implement an AML program. In particular, these IBs are required to conduct suspicious activity reviews and comply with all other applicable NFA requirements using the information available to them.

Absent additional review by the CFTC, the NFA may establish an effective date for the amendments as early as 10 days after receipt of the submission by the CFTC.

A copy of the proposed amendments is available here.

NFA Proposes Amendments to Interpretive Notice on Disclosures for Security Futures Contracts

On May 28, the National Futures Association (NFA) submitted to the Commodity Futures Trading Commission (CFTC) proposed amendments to NFA Interpretive Notice 9050 regarding risk disclosure statements for security futures contracts. NFA Compliance Rule 2-30(b) and Interpretive Notice 9050 require NFA Members and Associates, who are registered as brokers or dealers under Section 15(b)(11) of the Securities Exchange Act of 1934, to provide a uniform disclosure statement for security futures products (SFPs) to a customer at or before the time the Member approves the account to trade SFPs. The proposed amendments update the Risk Disclosure Statement section of the Interpretive Notice to account for a recent amendment to CFTC Regulation 41.25, which, among other things:

  • increases the default maximum level of equity-based SFP limits and provides guidance as to when a designated contract market (DCM) may adopt position limits for non-equity based SFPs;

  • modifies the criteria for setting a higher position limit and position accountability level based on estimated deliverable supply;

  • adjusts the time during which position limits or position accountability must be in effect; and

  • provides that a DCM may exercise discretion in applying limits to either a trader’s net position or a trader’s position on the same side of the market.

Absent additional review by the CFTC, the NFA may establish an effective date for the amendments as early as 10 days after receipt of the submission by the CFTC.

A copy of the proposed amendments is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 157

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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
Jack West Financial Attorney Katten
Associate

Jack West is an associate in the Financial Markets and Funds practice.

312-902-5463