NFA Provides Further Guidance on Bylaw 1101 Obligations of Members Who Do Business with CPOs/CTAs Relying on an Exemption or Exclusion from CFTC Registration

The National Futures Association (the “NFA”) issued Notice I-14-06 providing guidance to its members regarding their Bylaw 1101 obligation to determine the CFTC registration and NFA membership status of persons with whom they engage in certain transactions to the extent those persons have previously filed a notice of exemption or exclusion from CPO or CTA registration under certain CFTC regulations.  Such persons are subject to a March 3, 2014 deadline to reaffirm their notices of exemption/exclusion (as discussed in the December 10, 2013 Financial Services Alert).  The Notice addresses how an NFA member may comply with its Bylaw 1101 obligation with respect to CPOs or CTAs who have previously filed a notice of exemption/ exclusion but have not yet completed the affirmation process.  Specifically, the Notice provides that NFA members that take reasonable steps to determine the registration and membership status of such CPOs or CTAs in accordance with the guidance provided in the Notice will not be in violation of NFA Bylaw 1101 (or a similar rule pertaining to forex transactions) if they transact customer business between January 1 through March 31, 2014 with a previously exempt CPO or CTA that fails to either (a) become registered and an NFA member, (b) file a notice affirming its exemption/exclusion, or (c) provide a written representation as to why the person is not required to register or file the notice affirming the exemption/exclusion (in each case, an “Outstanding Affirmant”). 

The Notice instructs NFA members to promptly contact each Outstanding Affirmant to determine whether the person intends to file a notice affirming the applicable exemption/exclusion.  The Notice directs members to consult information being made available by the NFA to assist in their Bylaw 1101 due diligence, specifically (i) information on the NFA's BASIC System and (ii) a spreadsheet, which is updated nightly, that includes a list of all persons that have exemptions on file with the NFA that must be affirmed on an annual basis.  The Notice specifies procedures to be followed if a member learns that an Outstanding Affirmant does not intend to file a notice affirming its exemption/exclusion, or if it does not actually file the notice affirming the exemption/exclusion by March 3, 2014, which procedures may require the member to put a plan in place to cease transacting customer business with that person.

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.

Topics:  CFTC, Compliance, CPO, CTA, Exclusions, Exemptions, NFA, Registration

Published In: General Business Updates, Finance & Banking Updates, Securities Updates

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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