NFA to Amend Eligibility and Proficiency Requirements for Swaps

8월 31, 2012


On August 22, 2012, the National Futures Association (“NFA”) proposed amendments to its Bylaw 301 and Registration Rules 401 and 402 regarding eligibility to engage in swaps activities and in proficiency requirements related to such activities. A summary of the NFA’s proposed amendments is offered below.

NFA Bylaw 301

The proposed amendments to NFA Bylaw 301 require any CFTC-registered futures commission merchant (“FCM”), introducing broker (“IB”), commodity pool operator (“CPO”), or commodity trading advisor (“CTA”) who engages in swaps activities to be approved by the NFA as a “Swaps Firm.”[1] Concomitantly, pursuant to these amendments, persons associated with an NFA member who is registered with the CFTC as an FCM, IB, CPO, or CTA and engages in swaps activities must be approved by the NFA as a Swaps Associated Person (“Swaps AP”). To obtain NFA approval as a Swaps Firm, at least one of the firm’s listed principals must be registered as an AP and designated as a Swaps AP. Requests for approval as a Swaps Firm or Swaps AP must be filed electronically with NFA through its Online Registration System. Under the proposed rules, a Swaps Firm could terminate its designation as such by requesting, via the Online Registration System, that the NFA withdraw its approval.

NFA Rule 401

The NFA has proposed an exception to the National Commodity Futures Examination (Series 3) proficiency examination requirement for APs seeking to become Swaps APs who engage solely in swaps activities, as well as for APs who act on behalf of CPOs whose pools either engage exclusively in swaps activities or engage in de minimis non-swaps-related activities. The particular conditions for satisfying the exception are outlined below.

  • Automatic Exception Where AP and Sponsor Activities Limited Exclusively to Swaps Activity. Under the proposed rule, an AP who limits his CFTC-regulated activities solely to swaps activities would qualify for the exception. In addition, an AP associated with a CPO who manages a commodity pool that exclusively trades swaps would qualify for the exception. Reliance on the exception in such instances would be automatic and would not require affirmative action on the part of the Swaps AP or Swaps Firm with which the AP is associated.
  • Waiver-Based Exception Where AP’s Sponsor Engages in De Minimis Non-Swaps Activities. An AP may also qualify for an exception to the Series 3 requirement if the CPO is required to register with the CFTC solely because of swaps activities, even if the CPO’s commodity pool engages in a de minimis amount of non-swaps-related activity. Specifically, the proposed rule would except a Swaps AP associated with a CPO who, but for his swaps activities, would qualify for the exemption from CFTC registration under Regulation 4.13(a)(3) or the exclusion from the definition of a commodity pool under Regulation 4.5(c).[2] Before an AP may rely on this exception, however, the CPO must seek a waiver of their AP’s Series 3 requirement from the NFA.
  • AP Supervisors. Under the proposed rule, the exception to the Series 3 proficiency requirement would also be available to supervisory APs whose sole activity is the supervision of APs whose activities are limited to the swaps-related activities discussed above. A waiver from the NFA must be obtained for any supervisory AP who oversees APs associated with a CPO who engages in a de minimis amount of non-swaps activities who must register with the CFTC solely because of those activities. In contrast, reliance on the exception by a supervisory AP where the activities of the supervised APs are limited exclusively to swaps would be automatic and would not require affirmative action on the part of the Swaps AP or Swaps Firm with which the AP is associated.

NFA Rule 402

The proposed amendments to NFA Rule 402 require a CPO who obtains a waiver for his APs to notify the NFA promptly in writing if the CPO becomes ineligible for the waiver (e.g., when the CPO’s futures trading activity exceeds the de minimis trading limits specified in Regulations 4.13(a)(3) and 4.5(c)).


The proposed amendments become effective on September 1, 2012, unless the CFTC notifies the NFA that the CFTC has determined that it will conduct a review of the proposal.

O’Melveny & Myers is available to advise Swaps Firms and Swaps APs regarding compliance with the proposed amendments to NFA’s Bylaw and Registration Rules once they become effective. For questions, please contact the attorneys listed above or any other O’Melveny & Myers attorneys with whom you ordinarily work on related matters. 

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[1] The NFA proposed the amendments to its Bylaw and Rules in order to address the amended definitions of FCM, IB, CPO, and CTA, which the Dodd-Frank Wall Street Reform and Consumer Protection Act modified to include swaps.
[2] Regulation 4.13(a)(3) and Regulation 4.5(c) both contain de minimis tests based on an entity’s commodity futures, commodity options contracts, or swaps positions.


This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Heather Traeger, an O'Melveny partner licensed to practice law in the District of Columbia and Texas, Kris Easter, an O'Melveny counsel licensed to practice law in Texas, and Lilit Voskanyan, an O'Melveny associate licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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