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CFTC Issues Proposed Rules on Mandatory Membership in a Registered Futures Association

On November 5, 2013, the CFTC proposed an amendment to 17 CFR part 170, which deals with registered futures associations ("RFAs"), to require all CFTC-registered introducing brokers ("IBs"), commodity pool operators ("CPOs"), and commodity trading advisors ("CTAs") to obtain and maintain membership with a RFA. Currently, there is only one RFA: the National Futures Association (the "NFA").

Under existing 17 CFR 170.15 and 170.16, the mandatory RFA membership requirement is only imposed upon CFTC-registered futures commission merchants ("FCMs"), swap dealers ("SDs") and major swap participants ("MSPs"), except for certain notice registered brokers or dealers. Currently, NFA Bylaw 1101 provides that no member of the NFA may "carry an account, accept an order or handle a transaction" in commodity futures contracts for, or on behalf of, any non-member NFA that is required to be registered with the CFTC. Certain commodity professionals may enter into swap transactions without having to interact with a firm that "carries an account", i.e., a CTA advising a special entity on swaps in the capacity of an independent advisor pursuant to CEA Section 4s(h)(5) or a CPO operating a pool that trades exclusively in swaps that are not cleared through a derivatives clearing organization, without the new proposed rule. As a result, such commodity professionals would not be captured by the intersection of 17 CFR 170.15 and 170.16 and NFA Bylaw 1101, and would consequently, not need to be registered with the NFA.

The purpose of the proposed amendment is to close this gap and streamline oversight of all CFTC-registered commodity professionals. CFTC believes that such mandatory membership requirement will ensure the consistent treatment of FCMs, SDs, MSPs, IBs, CPOs and CTAs, especially in light of the comprehensive overhaul of the regulatory framework for swaps promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The comment period ends on January 17, 2014.


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