NFA to Incorporate CFTC Risk Management Program Requirement for FCMs

The National Futures Association (“NFA”) submitted to the CFTC proposed amendments to NFA Compliance Rule 2-26 (“FCM and IB Regulations”) to incorporate the CFTC’s Risk Management Program Requirement for futures commission merchants (“FCMs”). 

CFTC Rule 1.52(c)(1) (“Self-Regulatory Organization Adoption and Surveillance of Minimum Financial Requirements”) requires the NFA to adopt rules prescribing risk management requirements for FCMs that “are the same or more stringent” than the requirements in CFTC Rule 1.11 (“Risk Management Program for FCMs”).  To comply with CFTC Rule 1.52(c)(1), NFA is amending Compliance Rule 2-26 to specify that any Member who violates CFTC Rule 1.11 will be deemed to have violated an NFA requirement. FCMs are currently required to file their initial risk management program with the CFTC and the FCM’s designed self-regulatory organization (“DSRO”) by July 12, 2014.

The NFA invoked the “ten-day” provision of CEA Section 17(j) (“Registered Futures Associations”), indicating that the proposal will become effective ten days after the receipt of the submission by the CFTC, unless the CFTC determines that it will review the proposals for approval.

Lofchie Comment:  There is a fair amount of attention paid in the securities law literature to the relationship between the SEC and the securities industry self-regulatory organizations.  Less attention has been paid to such a relationship in commodities laws, in part because the CFTC has exercised less authority over the futures SROS than the SEC has exercised over the securities SROs, and, in part, because the futures SROs have exercised less authority over members than the securities SROS.  These differences are diminishing as the CFTC/SRO/member-firm relationship comes to resemble more closely the SEC/SRO/member-firm relationship.  Accordingly, this may be a good time to examine some basic questions and assumptions, such as (i) to what extent can the CFTC properly exercise authority over member firms through the futures SROs and (ii) is there a point at which the futures SROs effectively become agents of the government?

See:  NFA Letter to the CFTC.