CFTC Proposes Rule to Require All Registered Introducing Brokers, Commodity Pool Operators, and Commodity Trading Advisors to be Members of a Registered Futures Association

The CFTC has proposed a rule that would require all registered introducing brokers (“IBs”), commodity pool operators (“CPOs”), and commodity trading advisors (“CTAs”) to be members of a registered futures association (“RFA”).  The National Futures Association (“NFA”) is currently the only RFA under the Commodity Exchange Act.  Although registered futures commission merchants, swap dealers, and major swap participants are already required to be a member of an RFA, IBs, CPOs, and CTAs have generally had to become a member of the NFA only because NFA Bylaw 1101 prohibits NFA members from carrying accounts, accepting orders, or handling transactions in commodity futures contracts for or on behalf of any non-member of the NFA that is required to be registered with the CFTC as, among other things, an IB, CPO, or CTA.  In other words, NFA Bylaw 1101 indirectly required IBs, CPOs, and CTAs to join the NFA to conduct business with NFA members.

However, Dodd-Frank Act amendments to the Commodity Exchange Act expand the scope of regulated activities in such a way that it is now possible for IBs, CPOs, or CTAs that are not NFA members to serve clients without undertaking the activities that would require registration under NFA Bylaw 1101.  The release provides the examples of a CTA advising a “special entity” on swaps and a CPO operating a pool that trades only uncleared swaps; neither of these activities would not require interacting with an NFA registrant in such a manner that would implicate NFA Bylaw 1101.  The proposed rule is intended to require such entities to join the NFA.

Comments are due by January 17, 2014.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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