NFA recently commenced and settled a business conduct committee complaint against a retail foreign exchange dealer ("RFED") for doing business with a CPO that was required to be registered but was not, in violation of NFA Compliance Rule 2-36(d), and for failure to report trade data for eight months in violation of NFA Compliance Rule 2-48. Both violations resulted in a fine of $200,000.
In its Complaint, NFA alleged that the RFED had opened an account for a fund managed by a fund manager who had filed a notice of exemption from registration as a CPO in reliance on CFTC Reg. 4.13(a)(3). The 4.13(a)(3) exemption from registration permits a fund manager to manage a fund that trades a de minimis amount of commodity interests (i.e., futures, swaps or retail forex) without registering as a CPO provided the amount of commodity interests traded by the fund is below the calculated de minimis threshold and the fund is not marketed as an investment vehicle for commodity interests.
In its Complaint, NFA further alleged that had the RFED questioned the fund manager, it would have determined that the fund traded exclusively retail forex, was promoted as an investment vehicle for commodity interests, and the fund manger could not have relied up CFTC Reg. 4.13(a)(3). NFA Compliance Rule 2-36(d) is the forex equivalent of NFA Bylaw 1101 which also provides that no NFA Member shall do business with another person who is required to be registered with the CFTC, but is not. The Decision does not indicate how much of the fine resulted from the Rule 2-36(d) violation, but both NFA Compliance Rule 2-36(d) and NFA Bylaw 1101 continue to be areas of focus for NFA.