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Proposed Amendments to NFA Interpretive Notice Compliance Rule 2-9: Supervision of Branch Offices and Guaranteed IBs

On May 21, the National Futures Association (NFA) submitted to the Commodity Futures Trading Commission proposed amendments to NFA Interpretive Notice Compliance Rule 2-9: Supervision of Branch Offices and Guaranteed IBs. The proposed amendments would replace and supersede an existing Interpretive Notice with the same title.

Interpretive Notice Compliance Rule 2-9: Supervision of Branch Offices and Guaranteed IBsestablishes minimum requirements that a member firm should implement to supervise its branch offices’ and guaranteed introducing brokers’ (IB) compliance with certain regulatory requirements. The updated Notice reflects advances in electronic trading, electronic communications and other technologies that have impacted both the ways NFA Members conduct their commodity interest business and the methods they use to perform supervision and surveillance. The updated Notice also provides NFA Members with increased flexibility, particularly regarding the on-site inspection that NFA Members are required to perform on their branch office(s) and guaranteed IB(s) each year, while ensuring that branch offices and guaranteed IBs remain subject to robust supervision, surveillance and annual inspection requirements. Because the Notice has been substantially restructured, NFA has elected to delete the existing Interpretive Notice in its entirety and replace it with the updated Interpretive Notice.

Among other things, the updated Interpretive Notice:

  • focuses on due diligence review that NFA Member firms should complete in evaluating whether to establish, and determining the appropriate supervisory oversight structure for, a branch office or guaranteed IB relationship;

  • establishes minimum requirements for a Member’s written supervisory policies and procedures for branch offices and guaranteed IBs; and

  • enforces training requirements and outlines policies and procedures that are required to ensure that branch office and guaranteed IB personnel receive adequate training to abide by industry rules and regulations.

NFA has invoked the “ten-day” provision of Section 17(j) of the Commodity Exchange Act and, subject to possible CFTC review for approval, plans to issue a Notice to Members establishing an effective date for this proposal as early as 10 days after receipt of this submission by the CFTC.

For more information, please see the CFTC Release, available here.

©2019 Katten Muchin Rosenman LLP

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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
Elise Michael, Katten Law Firm, New York, Finance Law Attorney
Associate

Elise Michael represents clients in the financial services industry. Prior to joining Katten, Elise was at J.P. Morgan Chase, where she supported the Private Bank’s advisory and alternatives businesses.

While in law school, Elise was a corporate scholar in the Samuel & Ronnie Heyman Center on Corporate Governance and the managing editor of the Cardozo Arts & Entertainment Law Journal. She also served as an intern with the US Commodity Futures Trading Commission (CFTC).

212-940-6610