national futures association. agenda introduction to nfa compliance department responsibilities and...

National Futures AssociationNational Futures Association

AgendaAgenda

Introduction to NFA Compliance Department Responsibilities

and Enforcement Activities

www.nfa.futures.org

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What is NFA?What is NFA?

A Congressionally authorized self-regulatory organization for the United States Futures Industry

NFA is a membership organization

NFA’s Core ValuesNFA’s Core Values

Highest level of service for our customers. Teamwork, competence, integrity, trust,

respect and cultural diversity. Continuous learning opportunities. Recognition of team and individual

achievements. Open communication. Active participation by all employees in

fulfilling our mission.

NFA’s HistoryNFA’s History

NFA was formed in 1976 and commenced operations in 1982.

The Commodity Futures Trading Commission (“CFTC”) oversees NFA’s activities and has delegated more and more responsibilities to NFA throughout NFA’s history.

NFA’s Four Primary Functions NFA’s Four Primary Functions

Registration

Arbitration

Education

Compliance

NFA Membership CountNFA Membership Count

3,990 Member Firms*

47,600 Associate Members (individuals)

*approximate number as of March 31, 2000

NFA EmployeesNFA Employees

Total number of employees: 305*

Headquartered in Chicago and a regional office in New York (Compliance employees only)

*approximate number as of July 15, 2000

Compliance ResponsibilitiesCompliance Responsibilities

Audit of Members to ensure compliance with

NFA/CFTC Rules

Financial Analysis/Surveillance

Investigations

Disclosure Document Review

Advertising Regulation Surveillance

Enforcement/Disciplinary Action

Electronic Market Surveillance

Compliance Department StructureCompliance Department Structure

Staff Auditors(0-2 years)

Field Supervisors(2-5 years)

Team M anagers(5+ years)

Associate Director

Director of Com pliance

New Staff TrainingNew Staff Training

3 permanent trainers on staff2 structured in-house training

programs1 on 1 training in the fieldOn going training classes

Staff Auditor ResponsibilitiesStaff Auditor Responsibilities

Audits Financial Analysis Phone Duty Investigations Recruiting

More on NFA’s ResponsibilitiesMore on NFA’s Responsibilities

AuditsAudits

NFA’s Audit ObjectivesNFA’s Audit Objectives

To determine whether a firm is maintaining records in accordance with NFA Rules.

To ascertain that each firm is operating in a professional manner.

To ensure customers are protected from unscrupulous activities, including misleading and high pressure sales practices.

To ensure proper maintenance of financial requirements.

Frequency of NFA AuditsFrequency of NFA Audits

All NFA Member firms are subject to being audited.

Based on routine cycles, judgement, and computerized priority system.

NFA Members holding customer funds are audited annually.

NFA goal is to ensure that all active Members are audited within three years..

Frequency of NFA AuditsFrequency of NFA Audits

Other factors that may prompt an audit:– Amount of funds under management– NFA’s monitoring of media advertising

and disclosure documents– Receipt of customer complaints– Potential effects of market movements– Referrals from outside NFA

At the completion of an audit:At the completion of an audit:

NFA auditors conduct an exit interview with firm personnel.

Firm receives an audit report of findings.

Determination made regarding disciplinary action based on seriousness of findings.

More on NFA’s ResponsibilitiesMore on NFA’s Responsibilities

Financial AnalysisFinancial Analysis

NFA’s Financial Analysis Objectives:NFA’s Financial Analysis Objectives:

To ensure that each firm is in compliance

with its minimum net capital requirement.

To review for proper accounting of

customer funds (including commodity

pools).

Review Consists of:Review Consists of:

Classification of assetsUnusual fluctuations in balances from

prior submissionReview of footnotes for unusual

explanations and required disclosuresDaily review of fluctuations in customer

funds to determine market exposure and effect on capital requirements

More on NFA’s ResponsibilitiesMore on NFA’s Responsibilities

InvestigationsInvestigations

NFA’s Investigation ObjectivesNFA’s Investigation Objectives

To analyze and resolve allegations of

potential violations of NFA Requirements

from a variety of sources.

To determine if pattern of misconduct by a

firm or broker exists which would warrant

further investigation of the firm’s

activities.

Sources of information for Sources of information for Investigative Matters:Investigative Matters:

Oral or written complaints from customers about a firm’s or broker’s conduct

Registration forms indicating that an individual was terminated involuntarily

Promotional material that is submitted for pre-view or is required to be submitted

Other governmental and regulatory agencies

Investigative Steps:Investigative Steps:

Based on type of allegations, conduct customer interview, analyze account documents, activity statements, etc.

Contact firm for additional information. Determine disposition based on findings:

– Close with no action.

– Forward to appropriate agency.

– Initiate audit.

– Issue “staff letter”.

– Recommend formal disciplinary action.

More on NFA’s ResponsibilitiesMore on NFA’s Responsibilities

Disciplinary ProcessDisciplinary Process

Disciplinary Matters Result From:Disciplinary Matters Result From:

Audits Promotional material review Investigative matters Financial analysis

Range of penalties Range of penalties (whether settled or adjudicated by Hearing Panel)(whether settled or adjudicated by Hearing Panel)

Expulsion or suspension. Bar or suspension for specified period from

association with NFA Member. Censure or reprimand. Monetary fine, not to exceed $250,000 per

violation. Order to cease and desist. Other penalty or remedial action (e.g. pre-view

and approval of promotional material or taping of sales solicitations, etc.)

More on NFA’s ResponsibilitiesMore on NFA’s Responsibilities

RecruitingRecruiting

More on NFA’s ResponsibilitiesMore on NFA’s Responsibilities

Newest Endeavor:

Market Surveillance

Market SurveillanceMarket Surveillance

Monitoring the Electronic Exchange Market– Corners– Squeezes– Manipulations

Monitor Large Market Participants Effect on the Market– Positions– Deliveries– Exchange for Physicals

Trade Practice SurveillanceTrade Practice Surveillance

Reviewing Exchange’s Daily Transaction Log

Reviewing the Exchange’s Trading Standards

National Futures AssociationNational Futures Association

Interested in joining our team??

What we are looking for.What we are looking for.

Motivated individuals that are flexible and work well in a team setting.

Individuals that have an interest in financial markets.

Accounting and Finance majors that meet GPA and classwork requirements.

Benefits of NFABenefits of NFA

Young environmentExcellent benefits--401(k), health,

dentalFlex timeTravelCompetitive salary

Questions???Questions???