NFA proposes changes to compliance rules for Forex Dealer Members
The National Futures Association (NFA) proposes changes to compliance rules for Forex Dealer Members (FDMs) that exclusively straight through process.
In 2009, NFA’s Board had concerns that FDMs were changing prices on orders after they had been executed and reported to customers. After considering this issue, the Board adopted NFA Compliance Rule 2-43 to prohibit an FDM from cancelling or adjusting a customer account in a manner that would directly or indirectly change the price of the executed order except under two limited circumstances.
Currently, the first exception under Compliance Rule 2-43(a)(1)(i), permits a cancellation or adjustment if it is favorable to the customer and is done as part of settling a customer complaint, provided the FDM adjusts all customer orders adversely affected. The second exception, under Compliance Rule 2-43(a)(1)(ii), permits an FDM to adjust or cancel if the FDM exclusively uses straight-through processing, and the counterparty to the offsetting position with the FDM cancels or adjusts that order.
NFA recently identified an FDM that intended to use an affiliate as its straight-through processing counterparty and that further intended to cancel or adjust customer orders when this affiliate canceled the FDM’s offsetting positions, relying on the exception found in Compliance Rule 2-43(a)(1)(ii).
NFA’s Board does not believe that this type of arrangement comports with its intent when it adopted Compliance Rule 2-43, which is premised on the FDM not having control over any price change to its offsetting transaction and that the offsetting transaction with the straight-through processing counterparty is an arm’s length transaction. Therefore, the Board is amending NFA Compliance Rule 2-43 to specify that the exception under NFA Compliance Rule 2-43(a)(1)(ii) is limited to FDMs that exclusively use straight-through processing with a counterparty that is not an affiliate of the FDM.
NFA says it discussed this amendment with each of NFA’s FDMs. All of the FDMs, except for the FDM that intended to use an affiliate as a straight-through processing counterparty and rely on Compliance Rule 2-43(a)(1)(ii), supported the proposed rule change.
As mentioned earlier, NFA is invoking the “ten-day” provision of Section 17(j) of the CEA. NFA intends to make the proposed amendments to NFA Compliance Rule 2-43 effective as soon as ten days after the receipt of this submission by the Commission, unless the Commission notifies NFA that the Commission has determined to review the proposal for approval.