Chapter 7 #2 CFTC and NFA Regulations Flashcards
When did the commodity exchange act replace the grain futures act?
1936
What year was the Grain Futures Act?
1922
What did the Grain Futures Act of 1936 require?
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.
What happened in 1975?
The commodity Exchange act was amended and the CFTC was created by congress to oversee the trading in all futures contracts.
When was the CFTC created?
1975
What is the CFTC
a direct government agency and is the ultimate regulator in the futures industry.
What is an SRO (self regulatory organization)
one that regulates its own members such as the CME or the NFA.
Who must approve all the terms of all futures and options contracts set by futures exchanges?
CFTC
If the CFTC finds that its rules have been violated it may: 4
- Suspend the firm or individual
- Revoke the registration of a firm or individual
- suspend or revoke trading privileges.
- Fine a maximum amount of $140,000 per violation or three times the amount of the gain.
What does a criminal violation of the Commodity exchange act carry?
up to 10 years in prison and a fine up to $1M in addition to the suspension or revocation of registration.
What are the main areas of focus for the NFA: 7
- Ensure Ethical Behavior
- ensure individuals meet minimum training and knowledge standards
- Ensure firms meet minimum financial standards
- Conduct unannounced spot audits of members.
- Conduct full- scope member audits every 24 months
- review registrations
- provide a forum for dispute resolution.
Who must register with the NFA?
Any individual or organization that intends to transact futures business with members of the investing public.
How should NFA members deal with Non-NFA members or suspended members?
Treated as a member of the general public.
Who is an Associated Person (AP)
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.
What are the 4 types of firms required to register with NFA?
- FCM
- IB
- CPO
- CTA
What is a FCM
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.
What is the minimum net capital of an FCM?
$1M
When do FCMS need to file statement of financial condition?
Each month within 17 days of the end of the month.
What is a clearing firm?
An FCM that maintains the accounts of its customers and holds their cash and securities.
What are the 2 ways an FCM may choose to clear trades for their accounts
directly or omnibus
What happens to confirmations if FCM clears its trades on a fully disclosed basis?
All customer confirmations and statements will be sent by the clearing member.
What happens to confirmations if an FCM clears its trades on an OMNIBUS account
all transactions are cleared through one account and the clearing member does not know for whom the trade was executed.
Who must send confirmations and statements if a customer clears through an omnibus accountt
the Introducing member
Who and how often must an FCM inspect offices of
Any branch office as well as offices of any IB guranteed by the FCM. Annually