Term
| Commodity Futures Trading Commission. |
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Definition
| Established by Congress 1974 and enacted in1975, as part of revisions to the Commodity Exchange Act. Independent federal agency to protect market users and public form fraud and abusive practices in the sale of commodity futures and options on futures. Delegates part of its responsibilities to Self Regulatory Organizations. |
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Term
| Self Regulatory Organizations. |
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Definition
| Responsible for creating regulations to ensure a fair market for all participants. Carries out responsibilities under the supervision and review of CFTC. eg. NFA and exchanges. |
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Term
| National Futures Association. |
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Definition
| Futures markets that are not regulated by an exchange, are governed by NFA. NFA is responsible for holding up financial, proficiency and ethical standards in members and member firms. Also responsible for arbitrating disputes between members, member firms and customers. NFA compialnce director can require statments under oath of a member of member firms and has the ability to subpoena documents. |
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Term
| Futures Commission Merchant |
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Definition
| An individual or business entity that solicits or accepts orders for futures or options contracts traded on an exchange and accepts money from a customer to margin, guarantee, or secure the option or futures transaction. Must maintain adjusted net capital equal to, or in excess of, $1,000,000. Must furnish a monthly statement to each customer on a regular monthly date selcted by the FCM. |
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Term
| Clearing vs. Non-clearing FCMs |
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Definition
| A clearing FCM is able to clear their customers trades in house, meaning that it satisfies all exchange capital requirements and agrees to abide by exchange rules. A non-clearing Exchange musy use an outside clearing firm to process their exchange executed trains. The non-clearing FCM must open an omnibus account at a clearing house. |
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Term
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Definition
| Non-clearing FCMs must open an omnibus account with a clearing member to have trades cleared. The account contains trades belonging to all of the customers in the clearing house. Trades occur on a non-disclosed basis, meaning that only the name of the FCM appears on the trade, not the name of the customer. |
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Term
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Definition
| An individual or business entity that solicits or accepts orders for futures or option contracts traded on an exchange but does not accept money, securities or property, or extend credit to its customers. |
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Term
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Definition
| An account in the name of the FCM and titled " Customer Segregated Funds". An IB that solicits customers will deposite the customer's check on the day recieved in the qualified bank account of their FCM. |
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Term
| Introducing Broker Net Capital Requirement |
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Definition
| An IB must maintain adjusted net capital equal to or in excess of $30,00. If an IB chooses not to maintain its own net capital, it may satisfy the minimum financial requirement by entering into a guarantee agreement with a registered FCM. This guarantee does not expire, until one or both parties terminate it, and may be entered into with one one FCM. |
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Term
| Commodity Trading Advisor. |
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Definition
| An individual or business entity that, for compensation or profit, advises others on the trading of futures or options contracts. It may include persons or firms who regularly issues reports analyzing commodities. CTAs may not accept customer funds in their own name or the name of their firm. |
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Term
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Definition
| An individual or business entity which pools the funds of several customers into one trading account. May accept customer funds for the purpose of trading futures or options contracts. |
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Term
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Definition
| An individual who executes futures or options orders on the floor of an exchange. Exempt from NFA membership and registration as an AP. |
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Term
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Definition
| Also known as a Registered Commodity Representative. A natural person who is associated with a FCM or an IB as a partner, officer, or employee and solicits customer orders, or supervises any person so engaged. May only be associated with one FCM. An AP may also be a partner, officer or employee of a CPO who solicit funds or supervise persons who do. |
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Term
| Customer Background Information |
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Definition
| The customer's name, address, occupation, income, net worth age, investment experience should be acquired to by the associated person before trading begins. This information is reviewed by a superior in the member firm and their approval recorded before trading begins. Only the name address and occupation are required if the customer does not wish to reveal more, but their refusal must be noted and approved. |
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Term
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Definition
| Only applicable if the customer has a securities account as well as a commodities account. Allows the member to transfer funds from the commodities account to the securities account without contacting the customer. |
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Term
| Risk Disclosure Statement |
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Definition
| Required by all members of the NFA for futures trades before trading begins. The member must obtain a signed, acknowledgement that the customer understands the risks before opening an account for the customer. |
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Term
| Joint Accounts- Right of Survivorship |
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Definition
| A Joint account where if a party dies the surviving party recieves the full interest of the account. |
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Term
| Joint Accounts- Tenants in common |
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Definition
| A joint account where if a party dies the deceased person's estate inherits his or her interest in the account |
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Term
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Definition
| An account that requires, in addition to the regular forms, a partnership agreement to open an account, authorizing one or more partners to act for the account. |
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Term
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Definition
| Require the copy of the corporations charter and bylaws, specifying that the corporation is authorized to trade in commodity futures, and a statement from the board to authorizing an individual to act for the corporation. |
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Term
| Investment Company Accounts |
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Definition
| An account that requires the approval of the exchange before the member firm may accept them. The purpose of the approval is to insure the financial stability of the investment company and to insure that the person who is handling the trading in the account is qualified to do so. |
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Term
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Definition
| An account that allows a broker to buy and sell securities without the client's consent. The client must sign a discretionary disclosure with the broker as documentation of the clients consent. An AP must have a minimum of two consecutive years of working experience as a registered AP in order to exercise discretion over a customer account |
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Term
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Definition
| All futures contracts require a good faith deposit, to reduce risk that one or both parities will default on their obligation. This deposit is known as a margin. All futures accounts must be margin accounts. |
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Term
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Definition
| The amount that must be deposited when buying or selling a new contracts. Also known as original margin |
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Term
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Definition
| The amount of money the clearing member firm is required to have on deposit with the clearingouse will change as the market price of the futures contract fluctuates. The clearing house may call for additional margin, known as the variation margin. |
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Term
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Definition
| NFA requires that member firms diligently supervise their employees and agents. A large portion of this is the overseeing of all commercial and promotional material disseminated to the public |
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Term
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Definition
| Any communication directed to the public for the purpose of soliciting any futures accounts, agreement or transaction. Advertising and promotional materials must honest and straightforward. All advertising is regulated by the NFA, and includes, text of standardized oral presentations, publications in newspapers etc., broadcasts on an electronic medium, standardized forms of reports letters and other publications. |
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Term
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Definition
| NFA rule require all promotional material be approved,prior to dissemination, by a supervisor. All copies of promoational material and records of approval must be stored for five years from the date of last use and are subject to NFA inspection. |
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Term
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Definition
| A thorough record must be kept of all customer complaints. If complaint is made, the FCM or IB must record the complaint and the send a copy of the complaint to their designated Self Regulatory Organization. |
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Term
| Position Reporting Requirements |
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Definition
| CFTC require a person who owns or controls one or more accounts to report their gross long or short positions in each commodity once it reaches a specified threshold level. The FCM holding the account must also report it to the CFTC and again report it on the day it drops below the threshold. The reporting levels applies to both speculators and hedgers. |
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Term
| Speculative Position Limits |
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Definition
| These limits set the maximum number in a particular futures contract that may be held by one account or a group of accounts under common control. The purpose of position limits is to prevent price manipulation and distortion of futures prices. These limits can be set by the exchange on which the contract trades or by the CFTC. |
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Term
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Definition
| At least once every 24 months a "full scope" audit is conducted by the NFA, covering every facet of a firm's business activities. the NFA also conducts "limited scope" unannounced audits |
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Term
| NFA disciplinary proceedings |
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Definition
| If an audit or investigation reveals a potential violation of the NFA rules , the infraction is reported to the Regional Committee where the member is located. If the regional committee decides that there are facts to justify a formal complaint, the respondent must answer and is entitled to a hearing before the Committee. Until a decision is made there are no trading restrictions. a decision can be appealed to the Appeals Committee, and there decision is final and may only be reviewed by the CFTC |
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Term
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Definition
| the CFTC maintains disciplinary jurisdiction over FBs and exchanges. They als have power to bring adminstravtive or federal court actions against any registered person or entity for any violations of the CEA or the CFTC |
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Term
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Definition
| A forum for disputes between members, between customers and members, and between members and their associates. Proceedings must be initiated within 2 years of the event. If the claim is less than $5000 no hearing is required, just written submissions. If the claims is between $5000 and $10,000 a hearing is held only if requested by one of the parties. Decissions of abritrators are not subject to appeal. |
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Term
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Definition
| Amended in 4/23/2002 to include anti-money Laundering as required under the Patriot Act. Rule 2-9 requires FCMs and IBs to establish internal control to comply with the Bank Secrecy Act. The firm should employ independent testing for compliance, and designate an individual to be responsible for the day to day monitoring of internal controls and ensure the individuals have appropriate training. |
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Term
| Customer Identification Program |
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Definition
| As Part of the Rule 2-9 IBs and FCMs are required to use this program to verify the identity of the customers who open accounts and check the US Treasury Department Office of Foreign Assets Control list. OFAC is responsible for maintaining a list of suspected terrorists and other criminals. If a client is on the OFAC list, the clients name must be turned in immediately to the appropriate law enforcement and all transactions blocked. |
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Term
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Definition
| Under Rule 2-9 NFA member must have an Ethics Training Program. CFTC has a "Statement of Acceptable Practices" which list the topics that should be addressed in the training program. The company has discretion on how and when these programs are executed, but should keep records of materials used and who participated |
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Term
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Definition
| Members are required to have in place a plan that enables them to operate their business with minimal disruption to its customers and other NFA members in the event of a disaster |
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Term
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Definition
| Prior to trading costs associated with futures trading must be made available to all IB and FCM customers. If fees are not calculated on a per trade or round trade basis, the customer must receive a written explanation for all fees. |
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Term
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Definition
| Orders received by IBs and FCMs must be time-stamped upon receipt and must include account number and order number. |
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Term
| Suspicious Activity Reports (SARs) |
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Definition
A report to be filed with the Financial Crimes Enforcement Network, a department of the US Treasury, regarding suspicious behaviour outlined by the NFA. Includes customers unusual concern for secrecy, corporate customers lack of general knowledge of industry, a customer appearing to act as an agent for another, the presence of accounts from countries identified as a have for money laundering and narcotics production, engagement in extensive and sudden wire activity etc. |
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Term
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Definition
| any NFA member FCM entering into a guarantee agreement with an IB is jointly and severely subject to discipline under NFA compliance rules for acts and omission of the guarenteed d IB |
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Term
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Definition
| the Background Affiliation Information Center. Contains information of member firms and APs, which are open to the public contains all actions of the NFA, CFTC, and exchanges |
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Term
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Definition
| NFA requires members to observe high standards of commercial honor and just equitable principals of trade in conduct of their business. NFA business conduct committee may create specific requirements to ensure this. |
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Term
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Definition
| Members or APs may not share in profits or losses accruing from commodity futures trading in a customer account without customer's prior consent. |
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Term
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Definition
| The written consent of the customer is required for trading authorization |
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Term
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Definition
| no member may carry an account, accept an order, or handle a transaction on for, or on behalf of a non member of the NFA. |
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Term
| NFA Department of Compliance |
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Definition
| Conducts all NFA audits and investigation of apparent violations. May compel testimony, subpoena documents and require statements under oath. All information is then reported to the BCC |
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Term
| NFA Business Conduct Committee |
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Definition
| Determines if reports made by DoC warrant a Notice of Charges. If no charges are made a warning letter may still be sent to member. In the case of charges the member has 30 days to settle or the matter is heard by a designated Hearing Panel. The respondent may be represented by an attorney or any person of their choosing |
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Term
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Definition
| The respondent may appeal any decision of the BCC Hearing Panel within 15 days of decission. the Appeals committee has the right to completely alter or disregard the decision and penalties of the Hearing Panel. |
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Term
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Definition
| the loss experience by a pool or account over a specified period of time |
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Term
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Definition
| any pool in which another pool invests at least 10% of the net asset value of the pool |
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Term
| Member Responsibility Action |
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Definition
| Summary action take by the president of the NFA in concurrence with the Board of Directors to suspend, restrict operations, or direct remedial action when deemed necessary to protect markets, customers or any other NFA members. |
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Term
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Definition
| Requires CPO disclosure documents to contain a break even analysis that includes tabular presentation of fees and expenses. this should demonstrate how much trading profit is needed in the first year to break even. |
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Term
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Definition
| when a member chooses only one component of its overall past trading results to highlight to customers |
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Term
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Definition
| a percentage of the trading profits in the client's managed account, generally at the end of the quarter, only on profits that exceed the all time high of the previous quarter |
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Term
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Definition
| Paid whether a client gains or loses money and usually calculated as a percentage of assets the CTA manages |
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Term
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Definition
| a pool designed to limit the loss of the initial investments of participants |
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Term
| Qualified Eligible Persons |
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Definition
| Investors who hold 2 million or a person who has deposited 200,000 in an exchange specified initial margin at an FCM at any time in the past 6 months, or a combination of the two. they may also be investment professionals or companies with assets greater that 5 million. Requirements for pools only contains QEPs are greatly reduced |
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Term
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Definition
| CFTC 166.2 requires FCMs, IBs and their APs to have either specific authorization for each order or written trading authorization to effect transactions on behalf of the customer |
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