Series 3 Regulations

NFA

1976 -Self regulatory regulates all persons conducting futures business with the public.

CFTC

Commodity Futures Trading Commission Act of 1974

independent agency of U.S government. 5 members 5 year term.

CFTC REAUTHORIZATION ACT

2008 enforce the Dodd-frank act - must register with the CFTC as "RFEDS"- retail foreign exchange dealers if you did retail forex transactions business. Registered FCMS are permitted to engage in forex without registering as RFEDS. AP must pass both Series 3 & 34.

Who regulates stock index futures & stock index futures options?

CFTC AND NOT THE SEC THEY ARE FUTURES

Front running

Putting orders ahead of customers

Customer protection procedure

FCM must separate customer assets from the firms & firm cannot use customer funds for business or own trades

Future exchanges

Must b licensed with CFTC. CFTC designates particular exchanges as contract markets for specific commodities

NFA Form 8-R

10yr Employment history 5yr residential 4 AP

Reporting limits

Max net number of contracts one trader or customer can hold on same side of a comd without having to file daily report(all long & short positions options also)

Special accounts

Weekly reports of accounts exceeding reporting levels

Position limits

Bona fide hedgers don't have position limits only to speculators

How many days does a bona hedger have to notify CFTC of intent exceed position limit?

At least 30days b4 establishing

commissions became negotiable?

March 1978

Cftc reparations program

Thru a 'Alj' preceding of 30k> wide vary if sanctions suspending! revoking !civil penalties & deny trading privileged all exchanges.

Inexpensive way to resolve disputes between future & options customers & registered trading professionals 2yr statue of limitation

Voluntary summery or formal

Decisions by ALJ appealed by?

Commission and then US court of Appeals

Criminal proceeding penalty?

Us district court felony punishable by fines or 5yrs prison or both . misdemeanor punishable up to 1yr prison.

Statue of limitation

Complaints must be filled within 2yrs of date violation occurred or 2yrs the offended party should have known about violation.

NFA membership?

FCMS,IBs,CPO,CTA,AP OF ALL

ALJ

Administrative law judge

Ap dual registration

Yes long as NFA is notified each member must certify they know of each other and supervise the AP

Appealed denial of registration to NFA ?

Must b filed within 30 days to the CFTC

Bucket orders

Hold but not execute

Churning

Excessive transactions

Members & Ap share customers profits& loss?

Yes with Written consent from the customer

Say the approved ,endorsed by NFA

No

Terminate membership while under investigation ?

No

Do business with suspended members?

No

Discretionary account

Must b in writing, grant power of attorney, Ap must have 2yrs experience as a RcR or b a CTA. Firms must supervise INTENSELY must b approved by a supervisor after order is FILLED. MUST REGULARLY review activity.MUST KEEP RECORD OF REVIEWS.

RcR

Registered commodities representative

Account transfer

FCM has 2days to confirm positions and 3days to transfer customers assets. 5days TOTAL AFTER WRITTEN REQUEST.

3rd party control

Not customer nor firm but a family member or some1 else makes trades for customer. EXTRA CARE AND ADDITIONAL RECORDS REQUIRED . WRITTEN PROOF & confirm disclosure documents received

NFA rule 2-29 promotional material

Sales literature ,seminars, advertising newspapers radio tv,newsletters,sales scripts ,internet material , performance charts & graphs

Approval of promo material?

Supervisory approval other than the employee who developed it. Main office must approve b4 branch& below locations distribute it.

Copy's of promo material maintained?

3yrs from date of use. May file copy's with the NFA

Timetable for promo material requirements

Each member keep file of promotional item and copy of supervisory review & approval .Readily assessible 3yrs from last used date & maintained total of 5yrs

Review of promo material

NFA does require to submit unless disciplinary action but will review takes up 2 21days.

2-29 fairness

Members provide customers with info they need writes of promo use standards and honesty as if it was you seeking investments

Disclaimers

Using hypothetical results, less than 1 yr exp trading customer accounts ,1year or less exp allocating assets

Responsibility of promo material

The member. The Ap prepare the AP & member

Truth & balance

Promo material Must b accurate probability of profit must have equal statement covering risk of loss

TV & radio promo

If you "pay" it's promo

Infomercials

Popular form of promo must have disclaimer at beginning & end of show

Misleading words

Proven & unlimited shouldn't b used

Options promo

Must disclose limited risk on long positions only must disclose can lose entire premium and uncover calls unlimited risk

Know your customer

Annual income, networth, investment exp & investment goals

Risk disclosure

Must b signed b4 trading. Explain risk of trading futures and potential loss of all and addition funds. They understand . Must b kept in customers files.

Account statements time

Monthly statements unless no trades or open positions then quarterly

Future option disclosure

Must mention loss of entire premium. Seller unlimited risk, separate option document or generic disclosure document with both

Confirmations time

Written confirms of trades no later than next business day

Firm Records

Copy of monthly statements, daily record,property/securities deposited, account card,

Firm records time

5yrs and must b easily accessible for 2yrs

Customer agreement

Gives right to liquidate portion or all positions if margin is not met. & if customer dies

Supplemental agreement

Fund transfer form - transfer between securities account & futures account

FCM &IB fees

Must b made to customer b4 account is open. All fees cost and charges. In writing how & when they apply and amounts

Disclosure exceptions

CTA disclosed all cost to customer "writing"

Member of NFA

Not an individual "corp,partnership"

CTA

Any1 paid to give advice on trading commodities paid to analyses or reports on commodities. Trades futures on behalf of clients

Disclosure - CTA

Business activity last 5years

Past trading perfm

If has no trading experience as a cta

Hold customers assets-CTA

No unless organizations is a FCM register as a CTA

Register as a CPO -CTA

Not required unless engaged in forming or operating commodity pools

Exempt CTA

Advice affect cash market,Ap acting 4 CTA ,advice less than 15 clients during 12mths. IB, Ltm, non profit farm/trade

CTA disclosures

Business exp 5years trading perfm 5years & current year.

Criminal ,civil, adm action 5years.

Perfm record & disclosure updates

Every 9 months no value older than 3months must b submitted to CFTC at least 21 days b4 public

Available time for inspection of records

72 hours of CFTC request

CPO

Organize commodity pools to speculate in futures , general partner or general manager receives cash security / property to trade futures or options

CPool

Monies from many investors pooled distributes profits & losses based on there investment interest invested . Limited partnership

Sec or CFTC regulations

Both sec and state regulations as well as CFTC

CPO disclosure list

Main office of pool & CPO know CPO & CTA APs trade decision maker, executing FCM ,what comd traded, 1st date doc will b used ,disclaimer of CFTC approval.

Business activities of CPO

5years

CPO disclosure

10% CTA holding & any parties holding 10% or greater must identified . Must disclose the size of pool

CPO disclosure 2

Min funds required to begin trading, max funds pool take, max time for holding funds b4 trading, how deposits r returned if pool doesn't receive enough funds to open

CPO prior perfm

Must not b older than 3mths,

Most recent 5yrs

&year to date

Cpool less that 5years

Year to date for anything less than 5yrs

Less than 12moths cpool

Entire operating history ,CPO history of all other pools past 3yrs. Separate pool perfm

Hypothetical trading is a pool track record must b disclosed

CPO not previously traded disclaimer

Pool has not commenced trading & does not have any perfm history

CPO perfm update

Monthly begin & end value, current #units held by clients, +&- from capital . Worst drawdown & peak for current year, & 5yr current & 5yr net asset value, ROR.

CPO reporting times

500k >Monthly less

CPO disclosure

Criminal / adm action against CPO ,CTA, AP & FCM disclosed .

Cost of pool , commissions, or fees paid ,

Amount trading profit required to break even

How often distribute profits & capital

Fed income tax consequence for type of distribution

Redeem interest & restrictions ex end of year or quarterly

Can commingle assets of different pools

No each pool on entitles can't combine assets

Disclosure appearance

Tabular form columns on Front page -title DILUTION TABLE with base figure for comparison purposes =net proceeds minus fees to show capital available for trading

Dilution table factor management fees

No not charged by CTA for initial operating period.

Department of compliance

Conducts member audits & examinations investigate complaints & violations of NFA regulations handles firm surveillance and rule enforcement

Seek injunctive relief

CFTC only not NFA

Regional business conduct committees

Conducts investigations by CFTC request ,discovery of NFA , or by order of NFA director of compliance that a violations has occurred ,may have occurred, or about to.

Respondent

Party charged

Respondent response time to complaint

Written answer to NFA within 30days of date or admission of guilt & waive hearing

Who to file appeal with after decision? Time

Appeals committee within 15days

Review appeals committee action

Through CFTC within 30days of any action by committee a

Appeals made

Ultimately in US courts of Appeals

Regional business conduct committee penalties

Expulsion

Suspension

Barring 4ever

Reprimand

Fines up to 250k

Cease & desist action

Member responsibility action

Act immediately certain violations detrimental to public interest

Code of arbitration

Settle claims without court

Generally people who are not exchange members

#of arbitrators

100> 3

No more 50 and more 25 = written submission

25k less summary proceeding "no hearing "

Arbitration time frame

2 years date complaining party knew ( should have known)

Arbitration findings

Binding NO APPEAL

Failure to pay awards or fines suspension of NFA membership

Arbitration claim form

35days receiving notice of intent to arbitrate abandonment

Mediation

Settlement process no1 wins cheaper

Indy 3rd party works to find solution

No solution proceed to arbitration

Floor gov committee

Observes trading from pulpits to ensure open market

Execute trades on exchange floor

Only floor traders ,brokers registered with CFTC

Exchange trade executions

Open outcry bid ,offers

Wash sales

No change of ownership