Financial Regulation and Compliance: How to Manage Competing and Overlapping Regulatory Oversight, + Website

CHAPTER 6 How to Defend an NFA Examination

The CFTC is the independent Agency of the U.S. government that regulates futures and options markets and administers the CEA, 7 U.S.C. section 1, et seq., which prohibits fraudulent conduct in the trading of futures contracts. With a few exceptions, all individuals and firms that intend to do business as futures professionals must register under the CEA.

In addition, those individuals and firms that wish to conduct futures-related business with the public must apply for membership with the NFA, the SRO for the U.S. futures industry. The NFA states that it “strives every day to safeguard market integrity, protect investors and help our Members meet their regulatory responsibilities.”¹

6.1 TYPES OF ENTITIES UNDER THE JURISDICTION OF THE NFA

Many diverse types of entities are subject to regulation under the CEA and are required to register with the NFA. These include:

• FCMs, defined as an individual or organization that does both of the following:
  • Solicits or accepts orders to buy or sell futures contracts, options on futures, retail off-exchange forex contracts, or swaps;
  • Accepts money or other assets from customers to support such orders.²
• Swap dealers, defined as any person who holds themselves out as a dealer in swaps (meaning that they stand prepared to enter swap deals):
  • Makes a market in swaps;
  • Regularly enters into swaps with counterparties; or
  • Engages in any activity causing the person to be commonly known as a dealer or ...