National Futures Association (NFA) - USA

NFA's primary task is to establish minimum financial standards for FCM and IB members, conduct audits based on these standards, and enforce them. NFA requires financial reports from these members and analyzes them. While NFA can audit FCMs, it often delegates this responsibility to exchanges.

NFA's financial standards are generally the same as those required by the CFTC and futures exchanges. Special financial items such as determining margin levels are still decided by the exchanges.

NFA's industry ethical standards include content specified in Section 17 of the Commodity Exchange Act, such as prohibiting fraudulent, manipulative, and deceptive practices, as well as unfair and inequitable trading. NFA also prohibits off-exchange trading, requires members to establish supervisory systems for employees and discretionary accounts. These are similar to requirements from the CFTC and exchanges. Additionally, NFA requires CPO and CTA members to comply with specific regulations from the CFTC and exchanges. NFA has a "Know Your Customer" rule, requiring members to thoroughly understand new clients' situations and provide a risk disclosure statement before opening futures accounts for clients.

Any individual or entity registered with the CFTC or a futures exchange can become an NFA member, unless the registrant or exchange fails to meet the membership requirements (e.g., the CFTC orders the cancellation of its registration). Under the Commodity Exchange Act, employees of NFA members are also required to register as "associated members" of NFA, and these individuals must meet NFA's qualification requirements.

Applications are first reviewed by NFA staff, and the final decision is made by the NFA Membership Committee at a hearing. If the President has reason to believe that an applicant does not meet the membership or is not suitable for registration as an associated NFA member, either the applicant or the Membership Committee can request a hearing.

NFA has established a department responsible for financial audits and ethical supervision, led by the Vice President of Enforcement and the Chief Executive Officer of each department. If an event violating NFA rules occurs, the department needs to prepare a report and submit it to the Business Conduct Committee. The committee takes action, issues opinions, or formally accuses a member (or associated member) based on the report. In the latter case, the accused has the right to respond and participate in a hearing before the Hearing Committee. If the issue cannot be resolved and a decision against the accused has been made, the member or associated member can appeal to the Appeals Committee, and the appeal result is final.

Possible penalties that may be imposed on members include expulsion, temporary suspension of membership, prohibition from contacting a specific member, admonishment, reprimand, fines not exceeding $250,000 per violation, or other similar punishments. Meanwhile, to promptly protect the market, customers, or other members, the President and the Executive Committee can jointly take emergency measures. Before or after such measures are taken, members and associated members can request a hearing before the Business Conduct Committee.

Another important function of NFA is to provide a fair, just, and efficient process for resolving customer complaints under Section 17(b)(10) of the Commodity Exchange Act. NFA's arbitration rules and member arbitration rules provide a framework for these procedures. NFA's arbitration procedures began full operation in 1983. Except for certain specific exceptions, when a customer initiates arbitration against an FCM, IB, CTA, or CPO member or associated member, NFA's arbitration decision is binding.