Chapter 7 Regulations Flashcards
1
Q
Who is the ultimate regulator of futures trading in the United States?
A
Commodity Futures Trading Commission (CFTC).
2
Q
Who has the authority to discipline futures industry professionals who violate and engage in activities that are not in the public interest?
A
CFTC and NFA
3
Q
Commodity Exchange Act of 1936
A
Expanded government regulatory powers, making additional commodities subject to federal oversight.
4
Q
2 things the Commodity Exchange Act of 1936 did
A
- Established criteria for licensing exchanges and designating contract markets.
- Mandated registration of firms and representatives , set rules for protecting customer funds, discouraged market manipulation, and limited excessive speculation.
5
Q
When was the CFTC created?
A
in 1974 by the CFTC act of 1974
6
Q
What does the commission of the CFTC consist of?
A
5 members appointed by the president to 5 year terms, subject to congressional appoval.
7
Q
can a commissioner of CFTC trade futures or options?
A
No, it is a felony
8
Q
Who regulates all Domestic Futures and Options?
A
CFTC
9
Q
What is meant by the CFTC having a sunset provision?
A
Unless Congress reauthorizes the CFTCs existence periodically, the Commission would cease to exist.
10
Q
What was the act passed by Congress in 2008 called and what did it do?
A
CFTC Reauthorization Act..
- Gave it additional duties to implement and enforce provisions under the Dodd-Frank Act.
11
Q
Dodd-Frank Act
A
Calls for the registration and regulation of entities wishing to serve as counterparties to, or to intermediate, retail foreign exchange transactions. Retail forex must register with CFTC as Foreign exchange dealers (RFEDS)
12
Q
RFED
A
Registered Foreign Exchange Dealer must be registered with the CFTC under the Dodd Frank Act
13
Q
Do FCMs have to register with CFTC as RFEDs
A
No, FCMs that are now primarily or substantially engaged in the activities of an FCM are permitted to engage in retail forex transactions without also registering as RFEDs.
14
Q
APs registration
A
All associated persons who solicit retail off-exchange forex business must pass both the series 3 and series 34.
15
Q
Who regulates Stock index futures or stock index futures options?
A
CFTC- Because they are futures.
16
Q
What does the CFTC require regarding ethical behavior in relationships involving customers? 4
A
- FCMS to supervise their associated persons
- Orders for FCMS, Associated Persons, and IBs not to be executed ahead of and at disadvantage to customer orders (front running)
- Confidentiality regarding customer orders to parties not involved with executing such orders (prohibits misusing inside information)
- Prohibitions against FCMs, IBs, and APs intentionally trading the other side of specific customer orders without prior permission from the customer.
17
Q
Who is responsible for the actions of exchange members relative to exchange matters?
A
Licensed futures exchanges.
18
Q
Who does the NFA regulate?
A
all persons conducting futures business with the public.
19
Q
The CFTC maintains exclusive rule over futures trading in the United States. The Commission seeks to prevent: 5
A
- Fraud
- Manipulation of futures prices
- Attempts to corner the market (buying or selling futures contracts in such volume as to gain control over price)
- Excessive speculating
- Disseminating false information
20
Q
How does the CFTC protect customers assets
A
FCMs must segregate customer assets from the firms assets, and firms cannot use customer funds to finance their own trades or business operations.
21
Q
The CFTC considers various factors in response to exchange proposals for contract market designation, including: 5
A
- Economic need for the futures contract
- Sufficient cash sales of the commodity to reflect fair market value
- The means to effectively prevent manipulation and maintain open markets
- Recordkeeping and filing ability, including prices, bids, offers, volume, open interest, and more, although certain data may be compiled by the clearing house.
- Access to official inspection facilities: the exchange need not provide inspection services directly, as long as inspection facilities are proximate to delivery locations and capable of determining delivery grade and other matters.
22
Q
Who clears trades
A
Trades typically clear through an associated clearing house.
23
Q
Who must register with CFTC?
A
All persons conduction futures business with public customers must register with the CFTC through membership in the NFA.
24
Q
What is required in the NFA form 8-R for APs to register
A
Employment history for 10 years and 5 years of residential history
25
Who ultimately oversees any exchange created rule
CFTCs
26
Can the CFTC imposed a desired change to rules on an exchange?
yes
27
How does the CFTC monitor activities of futures traders?
They require daily position reporting when their futures position in a commodity exceeds a specified threshold.
28
What is a reporting limit?
the maximum net number of contracts that one trader or customer can hold on the same side of a given commodity without having to file daily reports.
29
Reporting limit features (6)
- Compares all customer long and short positions in a particular commodity
- Must file daily reports disclosing all holdings in the commodity and/or futures option until positions are less than the reporting limit.
- Position limit reports are required for both hedgers and speculators.
- Significant number of day trades or spread positions also may trigger the reporting requirement.
- FCMs must also file daily reports regarding customers with positions exceeding reporting levels.
- Exchanges must file weekly reports relative to accounts exceeding reporting levels.
30
What are special Accounts?
Accounts exceeding reporting limits
31
Speculative position limits
CFTC sets position limits to discourage manipulation and excessive speculation.
32
Bona Fide Hedge
a futures position substituting for a position at a later time in the physical commodity. To qualify, the futures position must be apporpriate to reduce risk. Bonafide hedge includes anticipatory hedging.
33
When must bonafide hedgers notify the CFTC of intent to exceed position limits.
At least thirty days before the establishment of the large position.
34
When did commissions become negotiable for all traders?
March 1978
35
What actions can the CFTC take under the Reparations Program? 3
- suspending or revoking registration
- impose civil penalties for each violation
- deny trading privileges on all exchanges
36
Decisions by the ALJ (admistrative law judge) can be appealed to:
the Commission and then through the U.S. Court of Appeals.
37
Matter requiring criminal proceedings may be referred to and what violations
the U.S. District Courth with Felony Violations punishable by a fine up to $1 million, 10 years imprisonment, or both.
38
What is the statute of limitations for complaints?
complaints must be filed within 2 years of the date the violation occurred or within 2 years of the date the offended party should have known about the violation.
39
What does the CFTC reparation provide?
an inexpensive, fair, and impartial forum to handle customer complaints and resolve disputes between futures customers and commodity futures trading professionals.
40
What happened in 1976
The CFTC designated the NFA as the SRO for supervising the activities of persons conducting futures business with public customers.
41
What is the NFAs primary responsibility
To enforce CFTC regulations
42
NFA membership is mandatory for: 5
- FCMs
- IBs
- CPOs
- CTAs
- APs of the above
43
Who can't a member conduct business with?
suspended members or registered commodities representatives (RCRs) unless otherwise authorized by an appropriate NFA committee.
44
How are NFA operating costs supported?
by membership dues and small assessments on both parties to each transaction in futures or futures options.
45
What is dual registration
an AP of a member may become associated with another member as long as the NFA is notified
46
How many days after a written notice by the NFAs business conduct committee to member respondent, must a copy be submitted to the CFTC
30 days after it becomes final
47
Are CFTC rules automatically rules of the SROs (including NFA)
yes
48
What are 8 fraudulent practices prohibited by the NFA?
- Cheat, defraud, or deceive any customer.
- Bucket (i.e., hold but not execute) orders;
- Make false reports to customers
- Disseminate false or misleading information that affects futures prices
- Engage in manipulative acts or practices
- Effect trades for prohibited persons
- Misuse customer assets or engage in excessive transactions (I.E., churning)
- willfully submit false information to the NFA
49
When can a member or associate share directly or indirectly in customer profits or losses
only if written consent has been obtained from the customer.
50
4 NFA membership restrictions
- Members may only share customer profits/losses only if written consent has been obtained from the customer.
- No member or associate may conduct business with a suspended member or associate.
- Members may not imply that they have been approved, recommended, or endorsed by the NFA
- An NFA member cannot terminate his membership if he is under investigation or faces disciplinary charges by the NFA.
51
Who does the NFA submit an investigation of a members findings too?
the appropriate Business Conduct Committee.
52
In what condition must a firm notify the NFA within 10 business days
if any RCR (or the member itself) has been found by a self-regulatory organization such as FINRA to have violated securities laws or regulations or was subject to a written customer complaint involving theft o forgery.
53
What is a discretionary account
a member or an associate (rather than the customer) determines one or more specific terms of a transaction.
54
A member or an associate is not exercising discretion when the customer specifies the: 4
- Commodity
- Delivery month and year
- Number of contracts
- Whether to buy or sell
55
What must a customer do for a member to be able to accept an account on a discretionary basis? 3
- Request a discretionary account in writing
- Grant power of attorney (trading authorization) in favor of the person to enter the orders
- The AP handling the account must have two years of experience as a registered commodities representative, unless the AP is also registered as a commodity trading advisor.
56
What are CTAs exempt from?
the two year registration requirement for managing discretionary accounts.
57
How must a firm supervise discretionary accounts 5
- Orders must be identified as discretionary
- Must be approved by a supervisor within a reasonable time after each order is filled.
- Supervisory personnel must regularly review discretionary trading activity.
- The firm must document the proper method for conducting reviews in their manual.
- Members must keep written records of discretionary account reviews.
58
When is an account under third party control?
when the person entering the orders is neither the customer nor the member (firm) nor one of its APs.
59
Third party cannot exercise discretion unless: 2
- The member has written proof and evidence of the customers trading authorization
- The member has acknowledgement from the the customer that appropriate disclosure documents were received.
60
What is the exception to the third party rule?
if the third party is the customer's immediate family. Immediate family members include spouses, parents, children, grandparents, grandchildren, brothers, sisters, aunts, uncles, nephews, nieces, and in-laws.
61
Immediately after receiving a customers written notice to transfer account, the carrying member must: 2
- Provide the receiving member with information confirming open positions and assets in the customers account within two business days
- transfer positions and assets to the receiving member within 3 business days following the confirmation.
62
Account Transfers
The transferring FCM has 2 business days to confirm positions and three more business days to transfer the customers assets, the entire transfer process takes five business days (from receipt of the customers written transfer request).
63
NFA Rule 2-29 (Public communication) Promotional material must include: 6
- Promotional material must balance the possibility of profit with a statement regarding possible loss.
- References to track records must state that past performance does not indicate future results.
- Recommendations must be presented as opinions rather than facts.
- NFA members must be able to demonstrate a reasonable basis for their claims and may not mislead the public with unfounded statements of opinions.
- Any promotional material that uses statistical information can do so only if the information can be proven to the NFA.
- If the material uses rate of return information, the figures must be calculated by the method required by the CFTC.
64
What does promotional material include?
material presented to the public concerning a futures account.
65
What does NFA rule 2-29 consider as Promotional material: 8
1. Sales literature or other educational literature distributed to the public (whether prepared by the NFA member, AP, or another party.
2. Seminar presentations and meetings and any advertising or promotional activity to encourage attendance at a seminar or meeting
3. Advertising, including newspapers, magazines, radio, television, direct mail, and online computer delivery of promotional materials.
4. Telephone solicitations, either cold calls or follow-ups to responses to sales leads
5. Newsletters, reports, or circulars
6. Prepared sales scripts, regardless of whether they are used as the basis of actual sales calls or merely for training purposes.
7. Material transmitted on the internet (including email, websites, and chatroom conversations)
8. Performance charts and graphs.
66
Branch office or guaranteed IB locations can distribute promotional material only after the main office has approved the material. Written supervisory procedures that include the following actions must be enforced: 3
- Prior approval of all promotional material must be obtained from an officer, general partner, branch office manager, or supervisory employee other than the employee who developed the material.
- Copies of all promotional material and copies of all review of the material must be maintained for 3 years from the date of use.
- in addition, the compliance director may require any member to file copies of all promotional material with the NFA.
67
Each member must keep a file containing each promotional item and a copy of its supervisory review and approval for how long?
File must be maintained for a total of 5 years, with the last 2 years readily available.
68
What does fairness in promotional materials mean?
Trading in futures contracts and options on futures is risky and not appropriate for all investors. It is only after examining clear and balanced information- including a clear description of risk- that a customer should decide whether to trade futures or futures options contracts.
69
What does rule 2-29 require in regards of how promotional material is communicated
requires that members provide prospective (and active) customers with the information they need. In general, the rule requires that the writers of promotional materials use the same standards of honest communication they would seek before making their own investment decisions.
70
Each of the following situational uses of promotional material must include a specific disclaimer: 4
- A statement of hypothetical results using a members trading method
- Whether a member has less than one year of experience in trading proprietary or customer accounts
- Material that includes a hypothetical description of portfolio results that could have been achieved using particular advisors
- Whether a member has less than one year of experience allocating assets among specific trading advisors.
71
Who is responsible for material prepared by the following:
- Prepared by others
- Prepared by employees
- Rankings from outside services
- Article reprints
- Prepared by others - NFA member is responsible for materials prepared by outside firms. They must make sure the material doesn't violate NFA rules
- Prepared by employees- If an AP of a member prepares promotional material, both the employee and the member are responsible.
- Rankings from outside services- If members cite such rankings, they must disclose the limitations of such rankings. The member is responsible for the information if they point to the rankings
- Article reprints- Must include risk of futures, disclose results are not typical if thats the case, and/or hypothetical.
72
"Equally Consipicuous" under 2-29
when mentioning profits in promotional materials, risk should be mentioned in a balanced porportion.
73
Charts and Graphs under 2-29
Charts and Graphs of performance results showing gains are considered as mentioning the possibility of profit- and must be accompanied by a balancing disclaimer disclosing the risk of loss.
74
Spoken and Videotaped presentations under 2-29
Spoken and videotaped presentations present unique challenges in achieving a balance of the time allocated to discussing profit and loss. A brief canned disclaimer at the end of ta video presentation may not satisfy the NFAs Notion of balance, nor is balance achieved in a telephone presentation in which 15 minutes are devoted to the excellent performance of a particular managed futures program, but the AP merely offers to mail information covering account opening procedures and risks.
75
Radio and Television Interviews under 2-29
If the member pays for the appearance, the appearance will be considered as a promotional activity and falls under 2-29. If the member appears on an independently produced interview during which the member repeatedly presents performance, offers a phone number, or promotes services is also considered to be promotion.
76
Infomercials
risk needs to be discussed at bot the beginning and closing of the infomercial and the member who pays to produce a promotional appearance must clearly disclose such fact to viewers. if questions are prepared in interviews, that must be disclosed.
77
Fairness in advertising leverage.
Appropriately inform about higher leverage = higher risk
78
Member firms cant use radio or tv advertisement that refers to performance unless they submit the material to the NFA promotional material team for how long?
10 days
79
Misleading wording under 2-29
misleading terms like Proven and unlimited are considered misleading additionally terms like Most or least are subject to scrutiny too. Members should avoid using misleading words.
80
Special Cautions about options promotions
promotions that market options trading and state that options have limited risk and involve no margin calls may be misleading. Not all options (e.g., uncovered call writing) have limited risk.
If a member presents risk limitations in the context of a futures options promotional piece, he must disclose that limited risk applies only to long options positions. Furthermore, if the member advertises that long options carry limited risk, he must also disclose that the futures options investors can lose their entire premium if the position moves adversely or runs out of time.
81
NFA Rule 2-30
Requires a firm, through its RCRs and principals, to determine the suitability of commodity trading for each prospective customer.
82
Under rule 2-30, the representative introducing the account must use due diligence to learn what regarding the customer? 4
their financial status including;
1. annual income
2. net worth
3. investment experience
4. investment objectives
83
What does the CFTC required risk disclosure statement that is sent to all customers before trading state? 3
"Risk of loss in commodity futures trading is substantial. Careful consideration should be given as to whether such trading is suitable in light of financial condition, objectives, and temperament (the "know your customer" rule). In considering whether to trade, an investor should, at a minimum, be aware of the following:
- A trader may sustain total loss of initial margin funds and additional funds deposited to establish or maintain a position in the commodity futures market.
- If the market moves against a traders position, he may be called upon by his broker to deposit additional, substantial margin funds on short notice to maintain the position.
- If a trader does not provide the required funds with the prescribed time, his position may be liquidated at a loss, and he will be liable for any resulting deficit in his account.
84
What does the futures options disclosure state
Customers intending to trade futures option contracts must acknowledge the risk that buyers risk their entire premium. Sellers face greater, possibly unlimited, risk. FCMs may disclose risks associated with trading futures option contracts on a separate option risk disclosure document, or they may present prospective customers with a generic disclosure document covering risks associated with both futures and futures options.
85
Risk Disclosure Statement
Before a firm can accept a customer account, it must receive signed acknowledgement that the customer received, read, and understands the risk disclosure statement; this acknowledgement must be kept by the firm in the customer's file.
86
Confirmations
Firms are generally required to sent confirmations and account statements to customers. Written confirmation must be sent after each transaction in futures or options on futures no later than the next business day following the trade date. Confirmations detail the terms of the trade (EG, Commodity, Month and year of delivery, quantity).
87
Customer account statements
monthly statements of accounts must be sent to customers unless no trades were executed during the month and the account holds no open positions. With no trades or open positions, statements are required every three months (quarterly). Account statements show the beginning balance, debits, credits, deposits, withdrawals, and ending balance.
88
Firms are required to keep records of their customers accounts, including: 4
- Ledger for each customer transaction showing gains, losses, debits, and credits.
- Record or journal for each trading day identifying the customer or trader for whom each trade was executed
- Description of property or securities (other than money) deposited by customers to meet margin requirements
- Account card with each customers name, address, principal occupation or business, account guarantors, and account controller (if applicable).
89
What do Customer (margin) Agreements do?
Customer margin agreements allow the firm to close (liquidate) customer positions under certain circumstance or to cancel open orders when a customer dies. Through the customer agreement, the customer gives the firm the right to immediately liquidate a portion or all of the customers positions if a margin or maintenance call is not satisfied.
90
The supplemental agreement (funds transfer form)
allows the customers representative to move money between the customers securities and commodities accounts or between class 1 (domestic) and class 2 (foreign) commodity accounts. Regulations require firms to segregate assets intended for these different purposes.
91
Full Discolsure
FCMs and IBs are required to disclose costs associated with futures transactions fully, including fees and service charges that may be assessed. If fees and charges are assessed on a basis other than per trade or per round turn, firms must disclose in writing the nature of fees and service charges and how and when they apply. The customers confirmations must detail all fees, costs, and charges associated with each transaction.
92
Typically, fees and charges other than transaction commissions include:
- Front-end load
- front-end load, monthly commission
- Profit sharing
93
Front-end load
either a flat dollar or a set percentage amount deducted from the customers capital before trading begins
94
Front0end load, monthly commission
A monthly flat amount deducted from the customers capital that entitles the customer to unlimited trading
95
Profit Sharing
An arrangement whereby the company shares in trading profits that accrue to the customers account usually including a minimum service charge covering unprofitable months.
96
Disclosure Exceptions: 3
- Account is directed by a CTA and the CTA discloses all costs to the customer in writing.
- Customer is an NFA member
- Customer is not an individual (i.e., is a corporation or partnership)
97
Commodities trading advisor
anyone paid to give advice on trading commodities or on the value of commodities and any person paid for analyses or reports concerning commodities.
98
What are 3 types of CTAs
- some CTAs merely sell advice and reports
- Some operate via newsletters or per-minute hotlines
- Some trade on behalf of one or more clients with power of attorney over the accounts.
99
When can a CTA hold customer assets?
When the organization is an FCM also registered as a CTA.
100
When does a CTA have to register as a CPO?
When it engages in forming or operating commodity pools; this applies regardless to how many poos a CTA advises.
101
parties that are exempt from registration as a CTA: 8
1. Dealers or processors whos trading advice affects cash market business
2. Associated person (commodity representative) acting in that capacity.
3. One not holding himself out as a CTA who has provided advice to 15 or fewer clients during the previous 12 months.
4. accountant, attorney, or teacher whose advice is incidental to their primary occupation.
5. Introducing broker acting in that capacity
6. CPO acting in that capacity
7. LTM acting in that capacity
8. non profit farm or trade association.
102
Where are client account funds held for CTAs?
FCMs
103
CTAs provide disclosure through a document that identifies the: 8
-Name, address, and telephone number of the CTA
- Date the document is first used
- Form of the CTAs business (eg, partnership or corporation)
- Name of each principal or trading adviser (if applicable)
-Description of advisers trading program, including
- Program starting date
- Number of accounts and total assets trading
under the program
- types of commodities traded under the program
- Statement that the CFTC does not "pass on the merits" of the trading program
- Name of the IB or FCM through which the account will trade or a statement that the client selects the firm
- disclosure of risk
- whether the CTA or his principals trade or intend to trade
104
How long must CTAs disclose their business experience for?
the previous 5 years and the current year must be published.
105
A disclosure document used by a CTA to persuade prospective customers to open an account must be no older than
the CTA may not use a disclosure document that is older than 12 months
106
How often must performance records and disclosure documents be updated and indicate asset or account values older than
9 months and 3 months
107
Advisors must maintain records relative to their advisory business that are available for inspection within
72 hours of CFTC request.
108
CPOs
Organize and operate commodity pools to speculate in futures.
109
What does a CPO do
entrusts monies from many investors to a trading professional and distributes profits and losses among its participants in proportion to their interests.
110
Who enforces compliance of commodity pools
NFA
111
How does the CPO conduct business in regards to its relationship with and investor?
conducts business as an investment trust, a syndicate, or a similar form of enterprise. In conjunction with the business, the CPO solicits or receives funds or both, occasionally securities or property, for the purpose of trading commodity futures or options.
112
Before accepting funds, customers of CPOs must identify in writing that they have received the following information in disclosure documents: 10
1. Main office of the commodity pool
2. main office of the CPO
3. Identity of the CPOs principals
4. Commodity pools trading advisers
5. Principals of the trading advisor
6. Trade decision maker
7. Executing FCM
8. Commodities that will be traded by the pool (including foreign futures contracts)
9. First date the disclosure document will be used
10. Disclaimer of CFTC approval.
113
What percentage ownership of a CPO must a CTA disclose?
10% or greater in the pool. The CTA must also disclose the size.
114
All performance data in CPOs performance data must be no older than:
3 months from the date of the document
115
Performance data must be presented for the most recent
5 calendar years or the life of the CPO if less than 5 years.
116
If a CPO has not previously operated a commodity pool, this also must be stated in the disclaimer
"This pool has not commenced trading and doesn not have any performance history"
117
How often and what must a CPO performance be updated? 5
monthly
- Performance record with beginning and ending balance
- additions and withdrawals from capital
- Worst Drawdown relative to best performance (Peak to drawdown) for the current trading year and previous 5 years.
- Current net asset vale and rate of return for the current and previous 5 years
118
monthly statements must be distributed if the commodity pools net assets are greater than ?
500K
119
How often do pools with net assets of 500k or less have to send reporting statements?
quarterly
120
What is a dilution table?
a tabular form (columns) on the front cover of the CPOs disclosure document. The CPO must establish a base investment figure (such as an investment of $1,000) for comparison purposes. Deductions (including organizational, offering, legal, and accounting fees) must be subtracted from the base figure to reveal net proceeds available for trading. If the CPO advertises the performance (track record), he is required to use net proceeds.
121
NFAs Department of Compliance
conducts member audits and examinations and investigates complaints and violations of NFA regulations.
122
Who conducts investigations, which can be initiated by CFTC request, by discovery of the NFA, or by order of the NFAs director of compliance that a violation has occured, may have occured, or is about to occure (customer complaint) or at the compliance directors own intitiative
Regional business conduct committees
123
Following the investigation, a formal complain is issued by the business conduct committee if appropriate., The formal complaint must: 3
1. state each alleged violation
2. advise the party charged (the respondent) that he is entitled to a hearing if requested.
3. State that the respondent must file a written answer to the complaint with NFA within 30 days from the date of the complaint and that failure to answer charges is deemed to be an admission of guilt and a waiver of hearing.
124
The business conduct committee or the appeals committee, may impose one or more of the following penalties: 6
1. Expulsion
2. Suspension for a specified period
3. Barring association with a member
4. Censure
5. Monetary fines no to exceed $250,000 per violation
6. An order to cease and desist specified actions
125
Code of arbitration
operates to settle claims and adjust disputes arising from futures, commodity options, and forex transaction.
126
When is arbitration usually done
when a claim involving one or more persons who are not exchange members
127
What determines the number of arbitrators and whether a hearing is needed
the size of the claim
128
either party may request a hearing if claims: 3
1. exceed $50,000 but are less than $100,000, a hearing occurs before a panel of one arbitrator (however, if the claim exceeds $50,000 but is not more than 100k, then there may be three arbitrators if all parties request the greater number in writing; claims of over 100k will have three arbitrators).
2. are no more than $50k and more than 25k generally conducted through written submissions or
3. do not exceed $25k, summary proceeding (no hearing) based on written submissions or evidence applies.
129
How long does a respondent have to file following service of arbitration claim of 50k or less? or if higher than 100k
20 days
| 45 days
130
Floor Trader prohibitions: 3
1. Executing a trade for an account over which the floor trader holds discretionary authority
2. Executing trades for his own account while holding an unexecuted customer order for the same trade
3. Withholding a trade for the benefit of another member.
131
Who enforces rules on the floor to prevent manipulation?
Exchanges
132
What are consider price manipulation violations 4
1. fictitious transactions
2. transactions involving no change of ownership (wash sales)
3. circulating sensational rumors
4. making trades, bids or offers intended to upset market equilibrium and causes prices to reflect artificial market value.
133
Exchange margin requirements under the Commodity Exchange Act of 1936
Exchanges set margin requirements for speculators and hedgers. Under extraordinary circumstances, the CFTC sets margin requirements. Exchanges must report activity on their trading floors daily.
134
What percentage do margin requirements, both initial and maintenance, increase to when the CBOT expands price limits?
50%
135
What are exchange committees
Standing committees to protect the interests of members and customers.
136
Business conduct committee
investigates transactions of member firms and their customers. investigators audit member compliance with regulations and financial requirements. Investigators may uncover manipulation.
137
The arbitration committee
Hears disputes between exchange members. If the dispute involves two members of the same exchange, the matter goes to the arbitration committee of that exchange. If the dispute involves any other parties, it goes to the NFA arbitration.
138
Fish meal is used as a substitute for soy meal to fee chickens, what typically isnt
Wheat
139
A farmer can grow soybeans, corn, cotton, on the same acreage, but cannot grow what on the same land?
Wheat
140
What can be assumed to be too expensive for animal feed?
Wheat
141
What is the crop year for wheat
June 1st to may 31st
142
The crop year for Soybeans is
9/1 to 8/31
143
When are most cattle and Hogs slaughtered
Autumn
144
what are the two forms of sugar?
raw (domestic and world) or refined white
145
The CRB index is based on
a market basket of several commodities
146
Barley and cocoa contracts specify what
metric tons
147
Commodities that are deliverable frozen include:
lean hogs
iced broiler chickens
OJ
148
Heating oil is used primarily for
residential heating
149
NFA rule 2-9 refers to:
Money laundering
150
Money Laundering
a serious crime that involves an effort to conceal the source of illegally obtained funds from illegal activities and attempting to make those funds appear legitimate .
151
What is the Bank Secrecy Act (BSA) require
all member firms to identify money laundering risks by developing, implementing, and monitoring an effective anti-money laundering (AML) program designed to achieve compliance with the BSA and related regulations and thwart the aims of criminals and terrorists.
152
FCMs and IBs must do the following in regards to money laundering (5)
- Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions that raise suspicion and by identifying red flags that signal money laundering.
- Establish and implement policies, procedures, and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act.
- Designate an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program and escalate suspicious activity to appropriate compliance officials.
- Provide ongoing training for appropriate personnel
- provide annual independent testing for compliance by someone qualified to perform the test. if a member firm engages solely in proprietary trading or conducts business only with other broker-dealers, an independent test is required only every two years on a calendar year basis. There is no standard language or template for the AML independent test.
153
FCMs and IB do not generally accept cash; nevertheless, the BAnk Secrecy Act requires futures firms to report, on form 112 what?
any currency received in the amount of more than 10k on a single day.
154
Failure to report currencies received by an FCM and IB on form 112 will result in:
Fines up to 500k, 10 years in prison, or both
155
how long must records relating to form 112 be retained for
5 years
156
How many days after receipt of currency must form 112 be filled
15 days after receiving funds.
157
What 2 federal agencies are empowered to handle abuse of form 112
Federal reserve and Department of treasury
158
What does the US Patriot Act require
firms to report to Financial Crimes Enforcement Network (FinCEN) when there is an event, transaction, or series of events or transactions that appear to be questionable.
159
Who files and who is a SAR filed too
Firms, through their supervisory user, file suspicias activity reports to FinCen on any transaction that alone or in the aggregate involves at least $5k in funds.
160
file suspicious activity report (SAR) to FinCEN on any transaction that alone or in the aggregate involves at least $5,000 in funds or other assets if the firm suspects that it falls within one of the following four classes:
- The transaction involves funds derived from illegal activity
- The transaction is designed to evade the requirements of the Bank Secrecy Act.
- The Transaction appears to serve no business or lawful purpose.
- The transaction involves the use of the firm to facilitate criminal activity.
161
Who has regulatory authority over all domestic futures and futures options activity.
CFTC
162
What is the CFTCs role?
to ensure the futures markets are operated in the public interest and that futures market participants behave in an ethical manner.
163
Who has been designated by the CFTC as the self regulatory organization for the futures industry.
The NFA. The NFA may impose a variety of penalties upon parties found to be guilty of rule violations.
