The National Futures Association (NFA) has proposed amendments to its Compliance Rule 2-30 and the associated Interpretive Notice, which set out “know your customer” and customer risk disclosure requirements for NFA member firms. The proposed amendments were prompted by the regulatory harmonization meetings between the Commodity Futures Trading Commission and Securities and Exchange Commission in late 2009, and would preserve NFA’s traditional view that customer “suitability” for purposes of trading futures is appropriately a customer-by-customer analysis (rather than trade-by-trade, as in the securities industry), while making several modifications intended to provide increased customer protection. Specifically, the amendments would (1) expand Compliance Rule 2-30 to cover all customers who do not qualify as “eligible contract participants” under CFTC rules (rather than covering only natural persons, as is currently the case); (2) require futures commission merchants (FCMs) to periodically request updated account information from their active customers; (3) require the NFA member that currently solicits and communicates with a customer (whether the clearing FCM, a separate introducing FCM, an introducing broker or commodity trading advisor) to determine, based on any updated account information received by the clearing FCM, whether additional risk disclosure to the customer is necessary; and (4) prohibit NFA members and associates from making individualized recommendations to customers who have been (or should have been) advised that futures trading is too risky for them.
NFA has submitted its proposed rules to the CFTC for review and approval. A copy of NFA’s proposal is available here.