On September 14, 2015, the Commodity Futures Trading Commission (CFTC) published a final rule requiring introducing brokers (IBs), commodity pool operators (CPOs), and most commodity trading advisors (CTAs) to become members of a registered futures association (RFA).
A limited exception to this requirement applies to CTAs that qualify for an exemption from registration under CFTC Regulation 4.14(a)(9) (i.e., those who do not direct client accounts or provide advice tailored to a particular client) but who nonetheless chose to register. All persons subject to the regulation will be required to become members of the National Futures Association (NFA), the only RFA, by December 31, 2015. To comply with the requirement, each registered IB, CPO, and CTA (subject to the limited exception for CTAs) must update its existing registration forms on NFA’s online registration system and pay initial and NFA annual membership dues.
For many years, IBs, CPOs, and CTAs that facilitated trading in futures contracts were required to become members of NFA, not because of a CFTC regulation, but due to NFA Bylaw 1101, which prohibits NFA members from dealing with non-members that are required to be registered with the CFTC and who provide services with respect to futures contracts. The Dodd-Frank Act required IBs, CPOs, and CTAs that provide services with respect to swap contracts to register as a result of amendments to the Commodity Exchange Act adding “swaps” to the definitions of these registration categories.
Post Dodd-Frank, registered IBs, CTAs, and CPOs that provided services with respect to swaps only were not subject to NFA Bylaw 1101, which only applies to futures contracts, and thus did not have to become NFA members. The final rule now requires all IBs, CPOs, and CTAs, including those who provide services with respect to swaps, to become and remain NFA members. This requirement subjects these registrants to NFA rules and ongoing NFA oversight, including NFA audits. While most registrants in these categories have become NFA members in any event or are exempt because they have claimed exemption from registration (e.g., under the CFTC Reg. 4.13(a)(3) de minimis exemption for CPOs), the CFTC estimates that approximately 296 persons registered with the CFTC as a CPO, CTA, or IB will be required to become and remain NFA members.