National Futures Association

1. National Futures Association

2. Agenda • Introduction to NFA • Compliance Department Responsibilities and Enforcement Activities www.nfa.futures.org FOR MORE INFO...

3. What is NFA? • A Congressionally authorized self-regulatory organization for the United States Futures Industry • NFA is a membership organization

4. NFA’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.

5. NFA’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.

6. NFA’s Four Primary Functions • Registration • Arbitration • Education • Compliance

7. NFA Membership Count • 3,990 Member Firms* • 47,600 Associate Members (individuals) *approximate number as of March 31, 2000

8. NFA 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

9. Compliance 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

10. Compliance Department Structure

11. New Staff Training • 3 permanent trainers on staff • 2 structured in-house training programs • 1 on 1 training in the field • On going training classes

12. Staff Auditor Responsibilities • Audits • Financial Analysis • Phone Duty • Investigations • Recruiting

13. More on NFA’s Responsibilities Audits

14. NFA’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.

15. Frequency 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.

16. Frequency 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

17. 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.

18. More on NFA’s Responsibilities Financial Analysis

19. 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).

20. Review Consists of: • Classification of assets • Unusual fluctuations in balances from prior submission • Review of footnotes for unusual explanations and required disclosures • Daily review of fluctuations in customer funds to determine market exposure and effect on capital requirements

21. More on NFA’s Responsibilities Investigations

22. NFA’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.

23. Sources of information for 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

24. 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.

25. More on NFA’s Responsibilities Disciplinary Process

26. Disciplinary Matters Result From: • Audits • Promotional material review • Investigative matters • Financial analysis

27. Range of penalties (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.)

28. More on NFA’s Responsibilities Recruiting

29. More on NFA’s Responsibilities Newest Endeavor: Market Surveillance

30. Market Surveillance • Monitoring the Electronic Exchange Market • Corners • Squeezes • Manipulations • Monitor Large Market Participants Effect on the Market • Positions • Deliveries • Exchange for Physicals

31. Trade Practice Surveillance • Reviewing Exchange’s Daily Transaction Log • Reviewing the Exchange’s Trading Standards

32. National Futures Association Interested in joining our team??

33. 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.

34. Benefits of NFA • Young environment • Excellent benefits--401(k), health, dental • Flex time • Travel • Competitive salary

35. Questions???