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Series 3 tm > Chapter 7 #2 CFTC and NFA Regulations > Flashcards

Chapter 7 #2 CFTC and NFA Regulations Flashcards

1
Q

When did the commodity exchange act replace the grain futures act?

A

1936

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2
Q

What year was the Grain Futures Act?

A

1922

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3
Q

What did the Grain Futures Act of 1936 require?

A

Any Transaction in the commodity futures or commodity futures options take place on the floor of an exchange and not in the over-the-counter (OTC) market.

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4
Q

What happened in 1975?

A

The commodity Exchange act was amended and the CFTC was created by congress to oversee the trading in all futures contracts.

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5
Q

When was the CFTC created?

A

1975

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6
Q

What is the CFTC

A

a direct government agency and is the ultimate regulator in the futures industry.

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7
Q

What is an SRO (self regulatory organization)

A

one that regulates its own members such as the CME or the NFA.

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8
Q

Who must approve all the terms of all futures and options contracts set by futures exchanges?

A

CFTC

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9
Q

If the CFTC finds that its rules have been violated it may: 4

A
  1. Suspend the firm or individual
  2. Revoke the registration of a firm or individual
  3. suspend or revoke trading privileges.
  4. Fine a maximum amount of $140,000 per violation or three times the amount of the gain.
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10
Q

What does a criminal violation of the Commodity exchange act carry?

A

up to 10 years in prison and a fine up to $1M in addition to the suspension or revocation of registration.

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11
Q

What are the main areas of focus for the NFA: 7

A
  1. Ensure Ethical Behavior
  2. ensure individuals meet minimum training and knowledge standards
  3. Ensure firms meet minimum financial standards
  4. Conduct unannounced spot audits of members.
  5. Conduct full- scope member audits every 24 months
  6. review registrations
  7. provide a forum for dispute resolution.
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12
Q

Who must register with the NFA?

A

Any individual or organization that intends to transact futures business with members of the investing public.

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13
Q

How should NFA members deal with Non-NFA members or suspended members?

A

Treated as a member of the general public.

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14
Q

Who is an Associated Person (AP)

A

an individual who solicits orders, customers, or customer funds or who supervises persons engaged in these activities on behalf of a FCM, IB, CTA, or CPO. Effectively- and AP is anyone who is a salesperson or who supervises salespersons.

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15
Q

What are the 4 types of firms required to register with NFA?

A
  1. FCM
  2. IB
  3. CPO
  4. CTA
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16
Q

What is a FCM

A

Federal Commission Merchant- A firm that transacts futures business and executes orders for customer accounts. An FCM may also hold customer funds as margin to guarantee customer futures contracts.

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17
Q

What is the minimum net capital of an FCM?

A

$1M

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18
Q

When do FCMS need to file statement of financial condition?

A

Each month within 17 days of the end of the month.

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19
Q

What is a clearing firm?

A

An FCM that maintains the accounts of its customers and holds their cash and securities.

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20
Q

What are the 2 ways an FCM may choose to clear trades for their accounts

A

directly or omnibus

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21
Q

What happens to confirmations if FCM clears its trades on a fully disclosed basis?

A

All customer confirmations and statements will be sent by the clearing member.

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22
Q

What happens to confirmations if an FCM clears its trades on an OMNIBUS account

A

all transactions are cleared through one account and the clearing member does not know for whom the trade was executed.

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23
Q

Who must send confirmations and statements if a customer clears through an omnibus accountt

A

the Introducing member

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24
Q

Who and how often must an FCM inspect offices of

A

Any branch office as well as offices of any IB guranteed by the FCM. Annually

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25
Q

What is an Introducing Broker (IB)

A

an individual or or organization that solicits or accepts customer orders for futures and options on futures.

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26
Q

Can an IB accept a check made out in their name?

A

no

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27
Q

Who does the IB forward all cash and securities to?

A

the FCM for deposits into the customers accounts.

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28
Q

How must funds be deposited from an IB customer

A

must deposited into a qualified bank account entitled “segregated customer funds” on the day of receipt.

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29
Q

What is needed for an IB to directly deposit customer funds into the segregated account of the FCM?

A

Written authorization to do so on file. The authorization must be maintained by the IB and only the FCM may make withdrawals.

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30
Q

What is a one way account?

A

an account where an IB can deposit funds into a segregated account and only the FCM can make withdrawals.

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31
Q

Who sends all customer statements and confirmations to the IB customers?

A

the FCM

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32
Q

What is the minimum net capital maintained by all Introducing Brokers.

A

At Least $45K

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33
Q

What is needed to operate as an IB guaranteed by an FCM

A

Written Gurantee agreement from an FCM and must only be guaranteed by one FCM

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34
Q

Can a guaranteed IB introduce trades to more than one FCM?

A

Yes, but if the IB is a guranteed IB (GIB), most FCMs that guarantee iIBs will require that the IB introduce all trades exclusively as a condition of the guarantee.

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35
Q

Is an FCM responsible of an IB once they guarantee them?

A

Yes, once the guarantee is in place, the FCM is responsible for all of the activities of the IB and can be found criminally and civilly liable for the actions of the IB.

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36
Q

How many IBs can an FCM guarantee?

A

an unlimited amount as long as it has the required net capital.

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37
Q

What is a CPO (Commodity Pool Operator)

A

an organization which invests money contributed by a group of participants to a single account for the purpose of investing the money in futures contracts, options on futures, retail off exchange forex contracts or swaps, or to invest in another commodity pool.

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38
Q

How must a CPO treat each pool if it operates more than one commodity pool?

A

it must operate each pool separately.

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39
Q

How must customer contributions be made out to for a cpo

A

made out in the name of the specific commodity pool. Investors in the commodity pool will own an interest in the specific pool.

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40
Q

Registration as a CPO is required for any CPO who: 2

A
  1. Manages a pool or a group of pools with more than $400,000 in total assets in all pools.
    Or
  2. Manages a pool with more than 15 investors, excluding the operator of the pool and their immediate family.
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41
Q

When are operators exempt from registering as a CPO? 5

A
  1. The operator does not receive compensation for operating the club.
  2. the operator manages only one commodity pool at any one time and they have under 400k and less than 15 investors.
  3. the operator does not advertise the club.
  4. Under $400k
  5. Less than 15 people
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42
Q

What is the operator entitled too when operating an investment club not registerd as a CPO

A

expenses

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43
Q

What must the operator of a CPO who exempt from registration do in regards to NFA

A

must file a notice with the NGA citing the reasons why the pool or club is exmpt from registring as a CPO. A cpy of this notice must be sent to each of the participants.

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44
Q

How often must participants in a commodity pool get statements if the value of the pool is greater than 500K?

A

Monthly

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45
Q

How often must participants in a commodity pool get statements if the value of the pool is less than 500K?

A

Quarterly

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46
Q

What must all statements to CPO investors show regarding NAV?

A
  • Changes in the Net Asset Value (NAV) of the pool inclusive of all fees and charges.
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47
Q

Where must a CPO disclose notice of upfront fees and/or pass along expense of formation or other expenses to investors?

A

must disclose the costs and fees prominently on the front cover of the CPOs disclosure document.

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48
Q

What is a CTA

A

an individual or business who, for compensation or profit, advises others on trading futures contracts or options on futures contracts.

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49
Q

Can a CTA accept customer funds or carry customer accounts?

A

No

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50
Q

Where are all CTA customer accounts held?

A

carried at an FCM on a fully disclosed basis and the FCM is required to send out customer confirmations and statements.

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51
Q

All advisors must register as a CTA unless: 6

A
  1. It has advised 15 or fewer clients in the last 12 months and does not hold itself out to the public as a commodity trading adviser.
  2. It is a commodity pool operator and only advises its own pools
  3. It is a publisher
  4. It is an investment club
  5. Individuals who transact business or advise others in the cash market only.
  6. Anyone who is registered as an AP, CPO, or floor broker and the advice given is incidental to their registered function.
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52
Q

Who must prepare risk disclosure documents to be filed with the NFA and to be given to all prospective investors? 2

A

CPO and CTAs

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53
Q

When must a CPO and CTA file disclosure documents with the NFA?

A

21 days prior to being given to any potential investor.

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54
Q

Where must the effective date of a CPO and CTA disclosure document be displayed? What is the earliest time before NFA filing that the date can be?

A

must be published on the front cover and the effective date may be no earlier than 21 days from the date the documents were filed with the NFA.

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55
Q

What is the oldest the financial information in a disclosure document of a CPO and CTA can be?

A

3 months old

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56
Q

how often must risk disclosure documents be updated

A

9 months

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57
Q

What must be displayed on CTA risk disclosure cover page

A

Cautionary statement in capital letters

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58
Q

What does the cautionary statement of a CTA say?

A

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

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59
Q

Where must the risk disclosure statement be displayed?

A

immediately after the cover page of the document.

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60
Q

What must a CTA include with the Risk Disclosure Statement if it trades foreign futures or options

A

YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISER MAY ENGAGE IN TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDEING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHROTIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE EFFECTED. BEFORE YOU TRADE YOU SHOULD INCQUIRE ABOUT ANY RULES RELAVENAT TO YOUR PARTICULAR CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH YOU INTEND TO TRADE FOR DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE IN BOTH YOUR LOCAL AND OTHER RELEVANT JURISDICTIONS.

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61
Q

If CTA engages in retail forex transactions pursuant to the offered trading program, the risk disclosure must state:

A

ON AN ANNUAL BASIS THE NFA WILL SEND EACH NFA MEMBER FCM RFED, IB, CPO, CTA, AND LTM A BUSINESS PROFILE QUESTIONNAIRE RELATING TO THE MEMBERS BUSINESS ACTIVITIES. THE MEMBER MUST COMPLETE THE QUESTIONNAIRE ON TEH DATE SPECIFIED THEREON. NFA SHALL DEEM THE FAILURE TO THE FILE THE COMPLETED QUESTIONAIRE WITHIN 30 DAYS FOLLOWING SUCH DATE A REQUEST TO WITHDRAW FROM NFA MEMBERSHIP, AND SHALL NOTIFY THE MEMBER ACCORDINGLY.

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62
Q

CPO Risk Disclosure Cover Page

A

THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.

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63
Q

CTAs and CPOs are required to disclose the background of? and for how long back?

A

the business history of the firm and its principals for the preceding 5 years.

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64
Q

What must a CTA and CPO disclose? 5

A
  • The business history of its Firm and its principals for the preceding 5 years
  • any regulatory action taken against the firm or its principals in the preceding 5 years as well as for the current year.
  • The entire performance history of the adviser if the CTA has less than 5 years of data available.
  • If the advisor is just starting out and has not previously directed or advised accounts that fact must be disclosed to prospects.
  • CTAs must disclose the method under which it will charge fees to clients in addition to the amount and timing of when the fees will be deducted.
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65
Q

All disclosure document must be made available for inspection by the CFTC within how long

A

72 hour notice

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66
Q

In addition to what CTAs must disclose, what must CPOs disclose in disclosure document? 9

A
  1. Principal office for the CPO
  2. Principal office for each commodity pool
  3. Types of contracts and options traded
  4. Restrictions on liquidation or liquidation procedures
  5. Name of all CTAS who manage 10% or more of a pool
  6. Name of any participant who owns 10% or more of a pool.
  7. Name of executing FCM
  8. Minimum of maximum size of each pool
  9. Breakeven analysis for each pool showing what the fund must return for the investor to breakeven net of all fees.
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67
Q

How long must established CPOs make performance disclosures for?

A

the current year and the preceding 5 years.

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68
Q

How much history must be disclosed if a CPO has existed between 3-5 years

A

the entire history must be disclosed

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69
Q

What must a CPO disclose for its performance if a pool has operated under 3 years

A

the performance for all other pools for the last 3 years in addition to the complete performance history of the pool in question.

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70
Q

What is the exact language that needs to be said if a pool has no history

A

“This pool has not commenced and does not have any performance history.”

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71
Q

When must all disclosure documents for CTAs and CPOs be given to clients?

A

48 hours prior to investing or at the time the account is opened if clients are given 5 days to terminate.

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72
Q

What does NFA rule 2-30 “Know your customer” state?

A

an AP should obtain all vital information relating to the customer.

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73
Q

for an AP, What must happen prior to opening an account for any new customer in terms of the process? 3

A
  • An AP must complete and sign a commodities account form and the account must be accepted by a manager or principal of the firm.
  • The manager will acknowledge the acceptance of the account by signing a new account card.
  • All customers must be given the commodities risk disclosure statement to be signed and dated by all parties to the account at or before the time the account is opened and before any trade can be executed.
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74
Q

Who must maintain a copy of the signed risk disclosure document?

A

the IB as well as by the FcM

75
Q

Can the risk disclosure for trading options on futures contacts be on a separate document?

A

yes, but it must be combined in a combined risk disclosure document detailing the risks of trading futures and the risks of trading options on futures.

76
Q

What are the 5 types of account ownership?

A
  1. Individual
  2. Joint
  3. Corporate
  4. Trust
  5. Partnership
77
Q

What information should an AP obtain about a potential customer? 14

A
  1. Full name and address
  2. Home and work phone numbers
  3. Social Security or Tax ID
  4. Employer, occupation, and employers address
  5. net worth
  6. Investment and futures trading experience
  7. estimated annual income
  8. bank/brokerage firm reference
  9. whether they are employed by a bank or broker dealer
  10. any third-party trading authority
  11. Citizenship
  12. Legal Age
  13. How account was obtained
  14. Whether client is officer, director, or 10% stockholder of a publicly traded company.
78
Q

All APs should update the customers information regularly and note any changes in the following: 5

A
  1. Address
  2. Phone number
  3. Employer
  4. Investment objectives
  5. Marital status
79
Q

Is the information provided by the customer required to be verified by a third party to the AP?

A

No. The customer is the sole source of information relating to their financial profile.

80
Q

What is an individual account

A

An account that is owned by one person. They determine what futures contracts or options are purchased/sold and receive all distributions from the account.

81
Q

what is a Joint account

A

an account that is owned by two or more adults. Each party may enter orders and request distributions.

82
Q

Why don’t joint accounts require instructions/authorization from all parties to enter/exit trades?

A

Joint accounts require the owners to sign a joint account agreement prior to opening of the account and the commodities risk disclosure document.

83
Q

How are distribution checks written out in joint accounts

A

must be made in the names of all of the parties.

84
Q

What is needed for an AP to maintain a joint account with another customer? 4

A
  • as long as it is approved by the firm
  • the exchange must be notified of the existence of the joint account and the associated persons percentage ownership and participation in the account.
  • Confirmations must be sent to the customer with whom the AP maintains the account.
  • An IB must give written permission to an FCM to carry the account of an associated person and the IB must receive duplicate confirmations and statements for the associated persons account.
85
Q

What is Joint Account with Rights of Survivorship (JTWROS)

A

All the assets are transferred into the name of the surviving party in the event of one tenants death. The surviving party becomes the sole owner of all of the assets in the account. Both parties on the account have an equal and undivided interest in the assets in the account.

86
Q

What happens in a Joint Tenants in Common account (JTIC)

A

if one party dies all the assets of the tenant who has died become the property of the decedents estate. They do not become the property of the surviving tenant. this account allows the assets in the account to be divided unequally. One party on the account could own 60% of the accounts assets.

87
Q

What happens during a Transfer on Death account

A

allows the account owner to stipulate to whom the account is to go in the event of their death… Beneficiary. The beneficiary may only enter order for the account if they have power of attorney for the account. Unlike a JTWROS account, the account will not be at risk should the beneficiary be the subject of a lawsuit, such as in a divorce or proceeding.

88
Q

What is a partnership account?

A

When a professional organization, such as a law partnership, opens an account, the associated person must obtain a copy of the partnership agreement. The partnership agreement will state who may enter orders for the account of the partnership. The purchase of futures contracts must not be prohibited by the agreement.

89
Q

How to open a Corporate account 3

A
  • In order to open an corporate account, the associated person must obtain a corporate resolution that states which individuals have the power to enter orders for the corporation.
  • The associated person must obtain a corporate charter and the by-laws that state that the corporation may trade futures.
  • Finally a certificate of incumbency must be obtained for the officers who are authorized to transact business for the corporation within 60 days of the account opening.
90
Q

A discretionary account allows an AP to determine the following without consulting the client first: 3

A
  1. The asset to be purchased or sold
  2. The amount of contracts to be purchased or sold
  3. The action to be taken in the account, whether buy or sell.
91
Q

How long does a principal of a firm have to approve all discretionary trades

A

within 1 business day of execution.

92
Q

What happens to a discretionary agreement if the AP with discretion leaves the firm

A

it is terminated

93
Q

When can APs deposit and withdraw cash from a discretionary account

A

When full power of attorney is given

94
Q

What paperwork must be kept in an account file for a discretionary account 5

A
  1. Every order entered marked discretionary, if discretion was exercised by the associated person.
  2. Every order approved promptly by a principal no later than the day after the trade date
  3. A designated principal to review the account
  4. A record of all transactions
  5. An associated person must have a minimum of 2 years experience to exercise discretion over a customers account
95
Q

Discretionary authority will not be deemed to have been exercised if the customer provides the following:

A
  • The action to buy or sell futures
  • the specific commodity
  • The specific delivery month and year
  • The number of contracts
96
Q

Can an AP determine the best time and price without having written power of attorney?

A

no

97
Q

What is a benefit of NFAs arbitration process?

A

provides a cost-effective alternative to dispute resolution and many disputes will be resolved much sooner than they otherwise may have been in court.

98
Q

Who is required to settle disputes through arbitration

A

all industry members

99
Q

When can a public customer settle a dispute through NFA arbitration?

A

when the agree in writing to do so.

100
Q

When does a customer typically agree to settle disputes via arbitration

A

when a customer opens an account with a commodities firm, the firm will often have the customer sign a customer agreement, although not required by industry standards. The customer agreement usually contains a pre-dispute arbitration clause where the customer agrees to settle any dispute that may arise in arbitration rather than in court.

101
Q

What is the arbitration process? 3 steps

A
  1. Claiment files a statement of claim, along with a submission agreement with the NFA.
  2. The alleged to have caused the claimant harm must respond to the statement of claim promptly and is known as the respondent.
    a. 45 days if over $50K
    b. 20 days if less than $50k
  3. A hearing will take place and evidence and testimony will be presented to the pane.
102
Q

How long does the party bringing a claim to arbitration have to take action?

A

2 years

103
Q

How long does the defendant have to respond if the claim is $50K-100K?

A

45 days

a panel up to 3 arbitrators

104
Q

How long does the defendant have to respond if the claim is under $50K? How many arbitrators?

A

20 Days

1 arbitrator

105
Q

Dispute resolution through arbitration is available for matters involving: 7

A
  1. Member vs member
  2. Bank vs. member
  3. member vs. bank
  4. member vs associated person
  5. Associated person vs member
  6. Customer vs. member
  7. Member vs. customer.
106
Q

How many arbitrators for a claim over $100K?

A

3

107
Q

Who will oversee a claim of a potential violation of the commodities exchange act or CFTC rule

A

will be heard by an administrative judge and decided according to the type of procedure initiated.

108
Q

What are the 3 different proceedings for determining CFTC reparation process

A
  1. Voluntary Decision Procedure
  2. Summary Decisional Procedure
  3. Formal Decisional Procedure
109
Q

When would Voluntary Decision Procedure occur

A

requires the agreement of both parties. a judgement officer will render an expedited decision that is final and binding and cannot be appealed.

110
Q

when would summary decisional procedure occur

A

if the amount in question does not exceed $10K, a decision may be made with or without a hearing. a hearing will be held only if requested. Parties agree to have a decision rendered through the submission of papers.

111
Q

When would a Formal Decisional Procedure occur

A

If the amount in question exceeds 10K, either party may elect to resolve the dispute through a formal hearing.

112
Q

How long after CFTC proceeding will the parties be notified of the decision

A

30 days

113
Q

can you appeal findings and awards under CFTC arbitrage>

A

no

114
Q

If a monetary payment has been awarded under CFTC reparation process, how long does the party required to pay have to comply with the decision

A

30 days

115
Q

What happens to a member or AP who fails to pay an award under arbitration

A

subject to suspension

116
Q

What is the reporting limit for currency receipts in a single day

A

$10K or over.

117
Q

What must a firm do if they receive a currency receipt of $10k or over?

A

They must fill out and submit a currency transaction report, also known as Form 4789, to the IRS within 15 days of the receipt of the currency. Multiple deposits that total $10k or more will also require the firm to file a Currency Transaction Report (CTR). Additionally, the firm is required to maintain a record of all international wire transerfers of $3,000 or greater

118
Q

How long does a firm have to file a form 4789 (currency transaction report) after receiving a deposit of 10k or 3k international wire transfer?

A

15 Days

119
Q

What does the Patriot Act require 4

A
  • firms to have written policies and procedures designed to detect suspicious activity.
  • designate a principal to ensure compliance with the firms policies and to train firm personnel
  • required to file a Suspicious Activity Report for any transaction of more than $5k that appears questionable.
  • Firms implement a customer identification program to ensure that the firm knows the true identity of their customers.
120
Q

Who must approve a firms anti-money-laundering program?

A

Senior management.

121
Q

What is the OFAC List

A

Department Office of Foreign Assets Control maintains a list of known and suspected terrorist, criminals, and members of pariah nations.

122
Q

What is the punishment for APs who aid in laundering of money?

A

Face prison time up to 20 years and a $500K fine per transaction. The AP does not have to be involved in the scheme or even know about it to be prosecuted.

123
Q

Every member must obtain from U.S. Customers: 4

A
  1. Social Security number/ documentation number
  2. Date of birth
  3. Address
  4. Place of business
124
Q

All non-U.S customers must provide at lease one of the following:4

A
  1. A passport number and country of issuance
  2. An alien ID number
  3. A U.S. Tax ID number
  4. A number from another form of government issued ID and the name of the issuing country.
125
Q

What does the FTC require banks and broker dealers establish to recognize identity theft?

A

Identity theft prevention program

  • Must detect red flags relating to the known suspicious activity employed during and attempt at identity theft.
  • Should be designed to allow the firm to respond quickly to any attempted identity theft to mitigate any potential damage.
126
Q

How often does the NFA send each NFA member FCM, RFED, IB, CPO, CTA, and LTM a business profile questionnaire relating to the members business activities.

A

On an annual basis

127
Q

How long does the member have to complete the NFAs Annual Compliance Questionnaire and file it?

A

30 days from the date within

128
Q

When does the NFA deem a failure to file the completed Annual Compliance Questionnaire? What is the punishment

A

within 30 days following the required submission date given in the questionnaire. may request to withdraw from NFA membership.

129
Q

What is NFA Compliance rule 2-9

A

requires that every NFA member establish and administer an ethics training program for its employees as part of the members ongoing supervisory responsibility.

130
Q

What are the CTFC guidelines that every NFA member ethics training program should include: 7

A
  1. An explanation of the rules and regulations
  2. Ethical obligations owed to the public
  3. How to assess customer suitability
  4. How to make proper disclosures to customers
  5. How to handle conflicts of interest
  6. How the program will be administered
  7. Who will administer the program
131
Q

How often is every member subject to a full audit by the NFA?

A

every 24 months.

132
Q

Who may originate complaints of NFA rule violations to the NFA? 4 examples (4 from one entity)

A
  • The NFA
    • staff during routine examinations of member firms
    • during periodic unannounced on site reviews
      - NFA can conduct full audit every 24 months
  • Customer or another member- If NFA receives a complaint that alleges a violation of NFA regulations, it is up the the NFA to determine if the complaint has merit.
133
Q

Who may initiate a “Member responsibility Action”?

A

the president of the NFA with the agreement of the board of directors.

134
Q

What is the most severe action that the Member Responsibility Action can take?

A

Require member who is in violation of NFA regulations to immediately cease business.

135
Q

Does the Member Responsibility Action require a hearing to force a cease of business?

A

no

136
Q

Possible penalties after a member is to have been found to have violated one or more of the associations rules are: 5

A
  1. Censure or reprimand
  2. Suspension from association with a member for a specified time
  3. Expelled from membership for a period of time (2/3 vote required to impose)
  4. Fined $250,000 per violation
  5. Any other penalty deemed appropriate, such as restitution.
137
Q

Who has original jurisdiction over disciplinary proceedings for member firms?

A

NFAs Regional Business Conduct Committee

138
Q

Who may initiate a request for proceedings for the Regional Business Conduct Committee? 2

A
  • CFTC

- NFAs Department of Compliance

139
Q

Can the respondent hire an attorney for disciplinary proceeding in front of the Regional Business Conduct Committee?

A

Yes

140
Q

Can the respondent appeal the decision from the regional Business Conduct Committee?

A

Yes

141
Q

How long does the respondent have to appeal the decision of the NFAs Regional Business Conduct Committee? Who do they appeal to?

A

-To the appeals committee within 15 days of the decision

142
Q

What can a respondent do if they wish to Appeal the decision of the Appeal Committee and how long do they have to file?

A

appeal the decision to the CFTC within 30 days

143
Q

Who can a respondent appeal to if they wish to appeal the decision of the CFTC?

A

U.S. Court system and the U.S. court of appeals

144
Q

Why have the exchanges set both reporting and maximum limits for the size of a position established on the same side of the market?

A

to prevent large investors from manipulating thr price of a commodities futures or the value of the underlying cash commodity.

145
Q

Who must report certain large positions to the CFTC? 2

A

Individuals and Member Firms carrying the accounts are required to report certain large positions to the CFTC that are established for any account, or for any group of accounts acting in concert.

146
Q

When must a firm and investor file large position report

A

Once the position established exceeds the threshold

147
Q

what is the typical filing threshold for most contracts

A

200 contracts

148
Q

What must firms and investors do once a large position threshold is broken?

A

file an initial LPR data, as well as any changes in reportable positions to the CFTC via a submission report.

149
Q

When must Large Position Reports be updated from the investor and the firm? 3

A
  1. An increase in a reported position
  2. A decrease in a reported position
  3. A reported position is back below threshold
150
Q

When a firm is calculating a large position it must calculate the following

A

its aggregate long or short positions on all exchanges for all delivery months to determine if the firm is in compliance with the speculative position limit.

151
Q

What needs to be filed by the firm after a large position falls below the reporting limit?

A

the report only needs to be filed on the day the number of contracts falls below the speculative position limit. No subsequent reports are needed

152
Q

Who may be exempt to position limits?

A

Bonafide Hedgers if they can demonstrate a business need for the exemption.

153
Q

What are anticipatory hedgers and what are they exempt from

A

someone who hedges to offset a potential risk on assumed future demand or production. They are exempt from position limit reporting

154
Q

Does an investor who regularly engages in spread transaction qualify as a bona fide hedger?

A

no

155
Q

What is governed by the standards of rule 2-29

A

all communications to the public

156
Q

Basics summary of NFA rule 2-29

A

All communications must adhere to fair and equitable trade practices and may not contain any false or misleading statements. Any opinions contained in the communications must be clearly indicated as opinions and not stated as facts. All communications must be approved by a principal prior to first use.

157
Q

Can branch offices of guaranteed IB brokers create their own promotional material?

A

Yes, as long as they are approved by the main office

158
Q

What must be disclosed if a member cites hypothetical calculations in communications

A

a special disclosure regarding the hypothetical calculation

159
Q

What must be disclosed if a member cites the rankings it has received from an outside business service for its managed accounts

A

must disclose the limitations of the ranking service. Any ranking system that does not adhere to CFTC guidelines must be clearly explained.

160
Q

If a member uses material that has been prepared by an outside firm, what must the member do?

A

ensure the content adheres to all NFA and CFTC regulations.

161
Q

How long must all written communication be maintained for by the member?

A

5 years from the date of last use.

162
Q

How long must a member keep a separate onsite advertising file containing all promotional material for?

A

the material readily accessible for 3 years and for 5 years from the date the material was last used.

163
Q

does all promotional material need to be filed with the NFA

A

no, but it should follow guidelines

164
Q

NFA regulations state that promotional items must contain risk disclosures that are “equally conspicuous”, what does that mean?

A

the font and the number of times the word reward and risk appear in the materials or are said during seminars must be equally balanced.

165
Q

Any mention of limited risk in option trading must clearly state this fact:

A

Only certain long option positions have limited risk equal to the amount of the premium paid

166
Q

When must trade confirmations be sent to customers

A

no later than the business day following the transaction

167
Q

what must the confirmation include: 10

A
  1. Name of FCM and name of IB if applicable
  2. Customer’s name and account number
  3. Account executive number
  4. Description of the transaction, that is buy or sell
  5. trade and settlement date
  6. number of contracts
  7. contract delivery month
  8. Price
  9. Amount due or owed
  10. Option specifics (open, closing, covered, uncovered)
168
Q

How often must customers receive account statements if they are innactive?

A

quarterly

169
Q

How often must a customer receive account statements if they are active?

A

every month that there is activity in the account or there is an open contract position.

170
Q

What is considered account activity for customer account statements 3

A
  1. Purchase and sales
  2. Dividend and interest received
  3. addition or withdrawal of cash or securities
171
Q

Customer account statements must show: 3

A
  1. All positions in the account
  2. All activity since the last statement
  3. All credit and debit balances
172
Q

what must be done and timeline if a customer wishes to transfer his/her account to another merchant?

A
  1. Firm receiving the account will submit the transfer instructions to the firms current merchant.
  2. The firm carrying the customers account has 2 business days to validate the instructions
  3. The firm carrying the customers account has an additional 3 business days to complete the transfer.
173
Q

the transfer of a customers open futures contract position from one FCM to another requires what?

A

an ex-pit transaction take place between the carrying firm and the receiving firm. The clearinghouse recognizes the FCM as having the open futures contract position, not the customer. As such the FCMs must engage in an EX Pit Transaction. This Transaction will close the open future contract position at the carrying firm and open a futures contract position at the receiving firm. This transaction will be executed without any impact to the customer.

174
Q

Are FCMs required to maintain all costumer confirmations and statemens for each account carried by the FCM

A

yes

175
Q

Is an IB required to to maintain all customer confirmations and statements?

A

No, but may elect to do so

176
Q

Who is required to maintain a daily journal of all orders received and placed?

A

both IB and FCM

177
Q

What should the daily journal of all orders recieved and placed kept by IB and FCM include? 3

A

Specifics about the order
Customers name
Account number.

178
Q

Who must maintain customer account forms and signed risk disclosure statements?

A

FCMs and IB

179
Q

How long are most records required to be kept for by the FCM and IB

A

kept for 2 years readily accessible and for 5 years total.

180
Q

What must CPOS maintain a record of? 3

2 years readily accessible and for 5 years total

A
  • all transactions executed for each pool it operates
  • all statements received from an FCM
  • records of all transactions executed for the account of its principals
181
Q

CTAs must maintain the following records at the main office: 5
2 years readily accessible and for 5 years total

A
  1. Names and address of each client
  2. Copies of all powers of attorney
  3. A list of all positions
  4. Copies of all statements and confirmations of all clients
  5. All communication with the public.
182
Q

What are the 5 events during the life of an order that must be time stamped?

A
  1. When the Customer enters the order with his AP
  2. When the order is routed to the market or is called to the floor.
  3. When the order is executed
  4. When the execution of the order is reported to the customer
  5. When the order expired, was canceled or changed.
183
Q

What is NFA Rule 2-38?

A

requires NFA member firms to develop and maintain plans and backup facilities to ensure that the firm can meet its obligations to its customers and counterparties in the event that its main facilities are damaged, destroyed, or are inaccessible.

184
Q

What must the plan accomplish under rule 2-38

A

provide the firm with the ability to operate with minimal disruption to its business. The plan should also include the name and contact information for one or two firm representatives who may be contacted in the even of an emergency effecting the firm.

Series 3 tm (7 decks)

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