Category Archives: Forex

Attracting ERISA Assets Event

Below is information on a 100 Women in Hedge Funds event in San Francisco later this month.


Underfunded and Over-solicited: How to Stand Apart to Attract ERISA Plan Assets

January 31, 2012 at 6 PM

San Francisco CA

Due to recent underperformance, many corporate and government pension fund managers actively seek to increase investment returns in order to pay underfunded benefits promised to retirees. According to the 2011 US Department of Labor, GAO Report, pension plan investment in hedge funds is on the rise. In 2010, 60% of large plans had made investments in hedge funds, compared to 11% in 2001. Moreover, these managers had allocated more than 5% of plan assets to hedge funds, on average.With 40% of large plans (>$5 billion) and 22% of midsize plans ($250 million to $500 million) already invested in hedge funds and private equity, the opportunities to attract even more pension plan assets could not be any better.Our panel will share insights and discuss:

* How to market your fund to find long-term partnerships and significant capital

* How to address pension plan managements’ concerns regarding the risks of hedge fund investments

* The legal, due diligence and operational challenges of managing pension plan assets


  • David Mattheson, Moderator, Drinker Biddle & Reath LLP
  • Stephen Wilkes, Drinker Biddle & Reath LLP
  • Deborah E. Gallegos, Strategic Investment Solutions
  • Ray Iler, Deloitte

Event Details

  • Date: January 31, 2012
  • Time: 5 PM Registration.  We will begin promptly at 6 PM; please arrive early. Since it is disruptive to everyone when latecomers enter the session, those arriving after an education session has begun will only be admitted at the discretion of 100WHF and the host. Please note the start time on this invite and plan to arrive early.
  • Networking and cocktails prior to session.
  • Hosts: Deloitte and Drinker Biddle
  • Location: 555 Mission Street, San Francisco, CA 94105
  • RSVP: RSVP Now

If you have any questions about this event, please contact [email protected]


Admission is free, but there is a $25 charge if you register and do not attend, even if you cancel in advance. No-show proceeds will be donated to the 2012 beneficiary of 100WHF’s US philanthropic initiatives.

If you have no-show fees in arrears, the system cannot register you for an event. You can view and pay for any outstanding no-show fees online from your Member Profile

Space is limited. No walk-ins will be permitted.


David Mattheson, Partner, Drinker Biddle & Reath LLP

David M. Matteson is a partner and member of the nationally ranked Investment Management Practice Group.

For more than 28 years, David has concentrated his practice in the area of private investment management, with an emphasis on derivatives. He has represented hedge funds, commodity pool operators (CPOs), commodity trading advisors (CTAs), investment advisers and offshore and onshore funds.

David has advised clients as to the various structures and strategies with respect to the formation of funds and their management companies, SEC and CFTC regulatory issues, offering memoranda, marketing materials and appropriate investment agreements and terms of specific investment funds. Prior to joining the firm, David was general counsel of a hedge fund manager. He was recently named one of the Best Lawyers in America® for his Hedge Fund/Investment Management practice.

Stephen Wilkes, Associate, Drinker Biddle & Reath LLP

Steve Wilkes is an attorney in the firm’s ERISA Financial Services Team. He has gained broad experience representing clients on matters involving employee benefits, taxation and securities law, from both a regulatory and transactional perspective, for over 30 years. Steve’s practice today focuses mostly on investment management issues faced by the law firm’s clients, where ERISA and related securities, corporate, or banking laws intersect with regard to the creation and delivery of financial products and services.

Clients include investment advisers, broker dealers, banks, registered funds and private funds.

Deborah E. Gallegos, Director of Manager Research, Strategic Investment Solutions

Deborah E. Gallegos, Director of Manager Research for Strategic Investment Solutions (SIS), has more than 20 years of experience in public fund administration, investment management, and plan sponsor consulting. She is responsible for the overall direction and supervision of SIS’s manager research effort, and oversees the conduct of manager search and selection projects in the public markets asset classes including hedge funds. Deborah served as New York City’s Chief Investment Officer, where she supervised the development of the overall investment policies, standards and guidelines for the City’s five pension systems totaling $90 billion in assets.

Previously, Deborah served as Deputy State Investment Officer for the New Mexico State Investment Council. She was a Vice President at JP Morgan Fleming Asset Management, where she worked for six years for its Global Emerging Markets Fund, and also worked for Morgan Stanley & Co. in its equity research group.

Deborah serves as the Treasurer for the Stern Grove Festival Foundation and sits on the investment committee for the City College of San Francisco.

Ray Iler, Partner, Deloitte

Ray J. Iler is Deloitte’s West Coast hedge fund leader responsible for hedge fund industry matters involving audit, tax, financial advisory and consulting. In addition to serving hedge fund clients, Mr. Iler provides professional services to private equity clients. Prior to joining Deloitte, Mr. Iler served as Chief Financial Officer and Corporate Secretary for Quadrise Canada Corporation, an oil and gas technology company. From 2001 to 2006, he founded the tax practice and served as Audit Partner for Deloitte’s Grand Cayman practice, where he advised clients on investment fund structuring, due diligence procedures, service provider selection and incentive fee structuring. From 2000 to 2001, Mr. Iler was the Manager for Bank of Bermuda Cayman Limited’s corporate banking team responsible for investment management, custody and brokerage services for investment funds and high net worth individuals. From 1998 to 2000, he was the Capital Markets Group Head for UBS (Cayman Island) Ltd., where he managed back office operations for UBS sponsored investment funds and client investment funds, as well as served as director for those funds. He began his career as an auditor with Deloitte in Canada in 1991 and moved to Deloitte’s Cayman practice in 1994.

Mr. Iler received a Bachelor of Commerce with distinction in finance and accounting from University of Alberta. He is a CFA charterholder and past President of the CFA Society of the Cayman Islands, a former Director, Treasurer and founding member of the Alternative Investment Management Association’s Cayman Chapter, a Canadian Chartered Accountant and a Certified Public Accountant.

About Deloitte

Challenging times call for new ideas and the evolving environment will require a more sophisticated and robust infrastructure to operate profitably. Whether it is product structuring, scenario planning for the new regulatory era, enhancing risk management processes, or adopting new technology and operating models to meet investor demands, Deloitte’s deep bench of professionals is well-positioned to assist the hedge fund industry. The breadth of our practice and our commitment to the industry means that you can count on Deloitte to deliver results that make a difference.

About Drinker Biddle

Drinker Biddle & Reath LLP, with 650 lawyers in 11 offices nationwide, provides clients with unparalleled service in matters ranging from billion-dollar deals to complex class actions, across a broad spectrum of industries. Our priorities are knowing our clients’ business and providing the value they need so that we can be an integral part of their success. Clients choose us for our sophisticated yet efficient approach to handling their most important business transactions, litigation and government affairs efforts. For more information on how we have been innovating for clients for more than 160 years, please visit

About 100 Women in Hedge Funds (

100 Women in Hedge Funds is a global, practitioner-driven non-profit organization serving over 10,000 alternative investment management investors and professionals through educational, professional leverage and philanthropic initiatives. Formed in 2001, 100 Women in Hedge Funds has hosted more than 300 events globally, connected more than 250 senior women through Peer Advisory Groups and raised over $25 million for philanthropic causes in the areas of women’s and family health, education and mentoring.

Give Back

100 Women in Hedge Funds provides a ‘Give Back’ program that enables members to match their resources (time, access, financial) to projects that will help us expand our successful initiatives. Visit 100WHF Give Back today and tell us how you can help.

100WHF Connect!

Get Connected today! Visit Connect! for details and to sign up.

100WHF Access Fee

Have you paid your access fee? If not please go to 100WHF Member Payment. We appreciate your continued support!


Cole-Frieman & Mallon LLP provides legal services for hedge fund managers and other groups within the investment management industry. Bart Mallon can be reached directly at 415-868-5345.

Compliance Issues for Forex IBs, CPOs and CTAs

NFA Produces Compliance Webinar for Retail Forex Firms

Since the CFTC passed its final rules on retail participation in off-exchange foreign currency markets back in October 2010, there has been an influx of newly registered introducing forex brokers (IBs), commodity pool operators (CPOs), and commodity trading advisors (CTAs).  On June 8, 2011, the NFA hosted a webinar that focused on common regulatory deficiencies that NFA staff members have found during compliance audits of these IBs, CPOs and CTAs.  The following is a brief overview of the common regulatory deficiencies the NFA staff found regarding registration issues, disclosure documents, recordkeeping requirements, promotional materials, and anti-money laundering programs.


Forex Registration Issues

Any entity intermediating retail forex transactions is required to be registered as forex IB, CPO, or CTA.  Common deficiencies for these

firms include having unlisted APs, failing to register supervisory APs, failing to withdraw APs, or failing to list branch offices.  Additionally, the following are areas emphasized in the webinar:

Listing All Principals – Criteria for being listed as a Principal of the firm generally are (1) job title, (2) ownership (direct or indirect), and (3) job duties and ability to control business activities.  More detail is available in NFA Rule 101.  Tips for ensuring the proper individuals are listed, include:

  • After any board of directors’ meetings, ensure any new directors/officers become listed as Principals of firm.
  • Periodically review the owners of any holding company of the firm to ensure indirect owners are listed if required.

Associated Person (AP) Registration – Essentially anyone who is a salesperson or supervises salespersons is required to be registered as an AP.  It is important to look at the supervisory chain of command–an individual must be registered, no matter how high he/she is on the supervisory chain of command.

  • Exam requirements – The APs must pass the Series 3 exam and the Series 34 exam.  If a person was registered as an AP, sole proprietor, or floor broker as of May 22, 2008 and there has not been more than a 2-year gap since that registration, the person is not required to pass the Series 34.
  • Tips for ensuring the proper individuals are registered:
    • Terminate an AP’s registration within 30 days of an AP leaving the firm.
    • After any shifts in control, ensure those with controlling influence are listed as Principals, and those that supervise APs are registered as APs themselves.

Branch Office Registration – Common deficiencies include:

  • Branch Office Address – Each branch office must be registered. Each branch office must use the name of the firm and hold itself out as a branch of the firm.  It cannot be a separate entity.
  • Payment of APs – Each AP in the branch office must be paid directly by the firm (payment by an intermediary would lead to the assumption the intermediary needs to be registered with the NFA).


Information in Customer File – This information is normally initially obtained upon account opening, but the firm must also maintain up-to-date and readily accessible information.   The firm shouldn’t rely on the FCM for this information unless it has been agreed upon before account opening.  The following information must be in the firm’s file for each customer and must be obtained before account opening:

  • name, address, date of birth, and principal occupation,
  • for individuals – current estimated annual income and net worth,
  • notes about the customer’s previous investment and trading experience and any other information that would assist the firm to accurately and fully disclose all the risks of trading,
  • signed customer acknowledgment that he/she has received all of the required risk disclosures, which include:
    • CFTC Regulation 5.5 risk disclosures (e.g. the FCM is the counterparty to all trades and forex trading is extremely risky and not suitable for all investors),
    • performance for the last 4 quarters for all non-discretionary accounts held at customer’s FCM (broken down by profitable/non-profitable accounts in percentage form), and
    • some customers need to receive additional risk disclosure statements based on age, trading experience, and net worth.

Business with Member Firms – Firms need to make sure they are not conducting business with any non-NFA member firms that are required to be registered (or are suspended).  Make sure counterparties are registered as FCMs or RFEDs, or solicitors are registered IBs.  The firm should also review their list of customers–if a customer’s name indicates he/she might be engaged in the trading business, inquire as to the customer’s registration/membership status.  The firm can also check on the NFA’s BASIC system to see if the customer is properly registered or operating under an exemption from registration.  The firm should document this process to show it did proper due diligence on the account.

Forex Disclosure Documents

All nonexempt CPOs operating a pool and CTAs that manage forex accounts for retail customers must distribute a forex disclosure document to their clients.  Three common problems are:

Risk Disclosures – The firm needs to make sure all risks associated with forex trading are disclosed.  This can include volatility, leverage, liquidity, counterparty creditworthiness, and others risks relevant to the program.

Fee Description – The fee description must be complete and all defined terms must be fully explained.

Performance Results

  • CTA disclosure documents must include the actual performance of all clients directed by the CTA and each trading principal for the last 5 years to date (any past performance must be calculated net of all fees, including mark ups associated with bid/ask spread, etc.). If the CTA directed accounts prior to be being registered as a CTA, the disclosure document must still disclose those accounts.
  • The NFA has a guide on disclosure documents available here.

Forex Promotional Materials

Policies & Procedures – The firm must develop written procedures for how it creates and reviews promotional materials, as well as how the firm supervises employees on these matters.  Promotional materials:

  • must present a balanced discussion of the risk of loss (any discussion of profits should also discuss the risk of loss),
  • must provide a discussion of fees associated with trading forex,
  • must provide appropriate disclaimers for past performance, and
  • must not suggest forex trading is appropriate for everyone or guarantee success.
Social Media – Any communications with the public is considered promotional materials (e.g. emails, LinkedIn, Twitter, Facebook, etc.).  All information on social media must be in accordance with the NFA’s promotional materials rules.

  • If the firm hosts a blog, chat room, or other discussion forum that allows the general public to comment, those comments must be reviewed regularly to ensure they are not misleading or one-sided. Such comments must be removed immediately and the firm should also ban those users who repeatedly post comments that violate the rules.
  • Keep records of which posts are deleted, which users are blocked, how often a review is conducted, and how employees are supervised.
  • If employees have personal blogs, Facebook accounts, etc., the firm should monitor the posts periodically.  Any references to the firm can be seen as promotional materials.  If after monitoring employees’ personal pages, there are never any references to the firm’s business, then the procedures can change and require less frequent monitoring.
  • Special rules apply for the use of audio/visual ads.  If the firm provides trade recommendations or discuss past/potential profits through radio or webcasts (such as YouTube), the firm is required to submit them to the NFA for approval at least 10 days prior to use.

Anti-Money Laundering Program

An anti-money laundering program is required for IBs (guaranteed and independent), FCMs and RFEDs (even if they don’t hold customer funds).  These procedures are designed to guard against someone using the firm to facilitate money laundering or other terrorist financing.  The program should include:

  • written policies and procedures,
  • the appointment of a chief compliance officer,
  • ongoing training, and
  • an annual, independent audit.

The NFA has an Anti-Money Laundering webinar available on its website.

The NFA’s “Compliance Issues for Forex IBs, CPOs and CTAs” webinar is archived on the NFA’s website and can be found here .


Bart Mallon is an attorney with a practice focused on hedge funds managed futures and forex regulatory issues.  He can be reached directly at 415-868-5345.


NFA Forex Alert




OCTOBER 18, 2010

New Forex Rules Become Effective on October 18

On August 30, the Commodity Futures Trading Commission (CFTC) issued its final rules regarding retail off-exchange foreign currency (forex) trading in the United States. The rules, which become effective on October 18, 2010, have far-reaching implications for all forex investors in the United States.

The rules require, with certain exceptions, any firm acting as a counterparty to certain retail forex transactions to register as a Retail Foreign Exchange Dealer (RFED) or Futures Commission Merchant (FCM). In addition, the rules require, with certain exceptions, any individual acting as a forex solicitor, account manager or pool operator to register with the CFTC as Introducing Brokers (IBs), Commodity Trading Advisors (CTAs) or Commodity Pool Operators (CPOs) or as an associated usa pharmacy cheapest viagra person of one of these entities and become Members of NFA.

Effective October 18, all CFTC-registered forex firms and individuals will be subject to CFTC regulations and NFA rules covering every aspect of their business, including recordkeeping, promotional material and sales practices.

Investors can check the registration status of any forex firm through NFA’s Background Affiliation Status Information Center (BASIC) available on the Association’s website ( BASIC contains current and historical registration information concerning all current and former CFTC registrants, including name, business address and registration history.

BASIC also provides information concerning disciplinary actions taken by NFA, the CFTC and all the U.S. futures exchanges. If you are researching a firm, you should also conduct a background check of all the individuals listed as principals of the firm. Sometimes the firm will have no disciplinary history, but one or more of the principals may have been disciplined while working at other firms.

Forex investors can register complaints with NFA against any CFTC-registered firm or individual either by telephone or through NFA’s website.

In addition, investors who believe that they have been treated unfairly by their forex firm have the ability to file an arbitration claim with NFA. In most cases, arbitration is mandatory for all NFA Members and Associates required to be registered with the CFTC. NFA arbitration provides an effective and cost-efficient method for the settlement of futures and forex-related disputes.

For additional information, contact NFA’s Information Center at 1-800-621-3570 or (312) 781-1410.

NFA is a self-regulatory organization subject to oversight by the CFTC. NFA’s primary mission is to protect investors and safeguard market integrity.


Cole-Frieman & Mallon LLP is a law firm and provides legal support and forex registration and compliance services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

NFA Issues NTM Regarding Retail Forex

In a Notice to Members (NTM) issued today, the NFA provides guidance to certain players in the retail forex markets.  The NTM discusses some issues which the NFA levitra online cheap has received inquiries about.  The guidance by the NFA is based on consultations with the CFTC staff.

The NFA has done a nice job of helping forex managers with the registration process and has also held a forex registration and compliance workshop recently.  The full notice is reprinted below.


Notice to Members I-10-21

October 13, 2010

NFA offers guidance on CFTC’s final forex regulations

The Commodity Futures Trading Commission’s (CFTC) final Forex regulations are effective on October 18, 2010. NFA staff has received a number of inquiries from Members seeking further guidance and clarification on certain requirements. Based on further consultation with CFTC staff on Friday, October 8th, this Notice provides additional guidance on the following areas:

Risk Disclosure Statement Required by CFTC Regulation 5.5

CFTC Regulation 5.5 prohibits FCMs, RFEDs, and in the case of an introduced account, IBs from opening a retail Forex account until the FCM, RFED or IB has provided the customer with the required disclosure statement, along with the most recent quarterly customer account performance information, and obtained a signed acknowledgement of receipt of the disclosure document from the customer. Firms are not required to provide this disclosure statement to, or obtain the disclosure document acknowledgement from, a customer who opened an account prior to October 18, 2010 (existing customers). Additionally, firms are not required to provide the most recent quarterly customer account performance information to existing customers unless the customer requests the information.

Qualifying Institutions for Holding Assets Equal to Retail Forex Obligation

CFTC Regulation 5.8 identifies the financial entities that may be used to hold assets equal to the total amount owed to U.S. customers for Forex transactions. Assets may only be held in the U.S. or a money center country defined in Regulation 1.49. Qualifying institutions in the U.S. are limited to U.S. regulated banks or trust companies, SEC registered broker-dealers that are also members of FINRA and CFTC registered FCMs that are also members of NFA. Qualifying Institutions in a money center country are limited to banks or trust companies with regulatory capital in excess of $1 billion; broker-dealer or FCM equivalents with regulatory capital in excess of $100 million; and FCMs registered with the CFTC and members of NFA. RFEDs are not a qualifying entity for holding these assets. However, pursuant to CFTC Regulation 5.7, funds held at an RFED may be included as a current asset for minimum net capital purposes.

IB, CPO and CTA Registration

Otherwise regulated entities set forth in Section 2(c)(2)(B)(ii)(II)(aa), (bb), (ee) or (ff) of the Commodity Exchange Act do not have to be registered in the appropriate capacity with the CFTC in order to solicit retail Forex orders, manage retail Forex accounts or operate a retail Forex pool. This includes an otherwise regulated entity, such as a broker-dealer, that introduces retail Forex business to an FCM or RFED.

Other Registration Issues

Every firm that is required to be registered as an FCM, RFED, IB, CPO or CTA in connection with its Forex activity must be approved by NFA as a Forex firm. NFA Members are prohibited from engaging in retail Forex transactions with these firms unless the firm has received this designation. In addition, Forex firms must have at least one principal who is registered as an Associated Person (AP) and is approved as a Forex AP. All individuals who solicit retail Forex business or who supervise that activity must have taken and passed two exams — the National Commodity Futures Examination (Series 3) and the Retail Off Exchange Forex Examination (Series 34), which is a new exam focusing exclusively on Forex-related questions. However, individuals who were registered as APs, sole proprietors or floor brokers on May 22, 2008, do not need to take the Series 34 exam unless there has been a two year gap in their registration since that date.

Anyone needing additional information on these regulations should contact Sharon Pendleton (312-781-1401 or [email protected]) or Lauren Brinati (312-781-1215 or [email protected]).


Other related hedge fund law articles:

Bart Mallon, Esq. runs the hedge fund law blog and provides forex registration and compliance services to forex managers through Cole-Frieman & Mallon LLP.  He can be reached directly at 415-868-5345.

NFA Forex Registration/Compliance Workshop | Las Vegas September 25, 2010


Overview of Forex Registration & Compliance Issues

By Bart Mallon, Esq.

In preparation for the implementation of the new retail forex regulations, the NFA recently conducted a retail forex registration and compliance workshop in Las Vegas at the Trader’s Expo.  The workshop covered a number of topics which the NFA views as especially important for forex managers.  I attended the workshop and the following discussion is based on my notes of the conference as well as collateral material provided by the NFA.

This overview will cover the various sessions throughout the day including:

  • Registration
  • General Compliance
  • Net Capital, Recordkeeping & Reporting Requirements
  • Discussion/ Individual Consultations

[Note: this article currently only has the summary of the registration session.  I will be adding the additional summaries directly to this page over the next few days.]


Registration Session

Firm Registration & Exemption Requirements

This first part discusses the various registration categories and the potential exemptions and other pertinent information.


  • These are entities which execute forex trades for managers.  We will not go into the registration and compliance requirements for these groups in this overview and will instead focus on forex managers and introducing brokers.

Commodity Trading Adviser (CTA)

  • Definition: a firm which is compensated for providing advice with respect to forex transactions, usually by having power of attorney (POA) to trade a client’s account held at an FCM or RFED.  Groups that provide individualized advice without a POA may also be considered to be a CTA.
  • Exemptions: a firm is exempt from CTA registration if the firm (i) provides advice to less than 15 people over the past 12 months and (ii) does not generally hold itself out to the public as a CTA. Managers should note that this exemption is narrowly construed by the CFTC and that very few forex managers will  fit within the exemption.  This exemption is self-executing and so the firm will not need to make a filing with the CFTC or NFA if they are claiming this exemption.  There are additional exemptions which are available but not often used by most forex managers.
  • Costs:
    • Firm – $200 non-refundable registration fee
    • APs/Principals – $85 registration fee (for each individual)
    • NFA Membership Fee – $750 (yearly)
    • Exam Fess – varies with respect to exam
  • Principal/AP Requirement: each firm must have at least one Principal listed and at least one Associated Person registered with the firm (see discussion below).  Each Principal and AP will need to have (i) fulfilled the proficiency (exam) requirements and (ii) provided the NFA with fingerprint cards for the FBI background check.
  • Disclosure Documents: CFTC regulations require each forex CTA disclosure document to include the following information:
    • Basic Background Information on the CTA
    • Information on the Trading Program
    • Discussion of the Risk Factors
    • Discussion of Conflicts of Interest
    • Litigation Information (see NFA Litigation Statement Requirement)
    • Certain Performance Reports
    • Supplemental information
  • Timing: with respect to the actual registration of the entity and the Principals/APs, this can usually be done quickly.  In most cases, after all fees have been paid and a Principal has submitted fingerprint cards and has completed all necessary exam requirements, the registration will be complete in about two days.  While the registration is done quickly, the disclosure document acceptance process can be lengthy.  For a normal CTA it will usually take about 5-10 weeks to get the document accepted, however this will depend on a number of items including the NFA examiner you are assigned and the work load of the NFA.

Commodity Pool Operator (CPO)

  • Definition: a firm which is compensated for providing advice to a pooled investment vehicle.  The investment vehicle (colloquially known as a “hedge fund”) is deemed to be a “commodity pool” and the firm providing advice is the operator or CPO.
  • Exemptions: there are a number of CPO exemptions which are potentially available for forex managers.  We have detailed these requirements before in our list of CPO exemptions.
  • Costs:
    • Firm – $200 non-refundable registration fee
    • APs/Principals – $85 registration fee
    • NFA Membership Fee – $750 (yearly)
    • Exam Fess – varies with respect to exam
  • Principal/AP Requirement: same as above.
  • Disclosure Documents: the requirement is generally the same as for CTAs.  However, CPO disclosure documents are usually much longer and deal with a number of other federal laws.  CPO disclosure documents must be drafted by an attorney.
  • Timing: generally timing will be similar to the above.

Guaranteed Introducing Broker

  • Definition: generally a firm which introduces client accounts to an FCM or RFED.  These brokers might include groups that license EA software and receive per trade compensation from a broker.  A guaranteed IB is a firm which only introduces to one FCM or RFED and who enters into a guarantee agreement with the FCM or RFED.
  • Exemptions: generally there are no exemptions.  Firms should note that the exact manner in which the firm is compensated (e.g. for use of the EA software) may make a difference in whether the firm will need to be registered wellbutrin buy as an introducing broker with the NFA.
  • Costs:
    • Firm – $200 non-refundable registration fee
    • APs/Principals – $85 registration fee
    • NFA Membership Fee – $750 (yearly)
    • Exam Fess – varies on exams (see below)
    • Other – written guarantee agreement with the FCM or RFED must be executed prior to registration
  • Principal/AP Requirement: same as above.

Independent Introducing Broker

  • Definition: definition is same as above, except an independant IB may introduce to any number of FCMs or RFEDs and does not need to enter into a guarantee agreement.  The independent IB will need to maintain a certain net capital.
  • Exemptions: generally there are no exemptions.  As above, the manner of compensation will determine whether the firm is an IB.
  • Costs:
    • Firm – $200 non-refundable registration fee
    • APs/Principals – $85 registration fee
    • NFA Membership Fee – $750 (yearly)
    • Exam Fess – varies on exams (see below)
  • Other: must maintain net capital of $45,000 subject to CFTC regulations.  NFA rules require an extra $5,000 buffer.
  • Principal/AP Requirement: same as above.

Discussion of Principals and Associated Persons


Principals generally mean persons who meet any of the following:

  • Certain title: Director, President, usually any “Chief” role
  • Ownership: generally owners with 10% or more interest, including owners which are entities and owners of those entities (there are also look-through rules for entities)
  • Other: Individuals with management and supervisory authority

Associated Person

Generally any partner, officer, employee, consultant, or agent (or any natural person occupying a similar status or performing similar functions), in any capacity which involves:

  • the solicitation of funds, securities, or property for participation in a commodity pool or
  • the supervision of any person or persons so engaged.

Firms should note that while the definition of AP does not include a person who acts solely as a trader, the NFA highly recommends that such persons become registered as APs.  If a firm decides that such person does not need to register with the NFA, the firm must be extra careful that the trader does not perform any functions of an AP.  This will likely be an issue which the NFA will examine closely during any audit.

Other Important Discussion Items

Soliciting Clients after October 18, 2010

Forex managers who currently are managing client accounts but are not registered with the NFA, will need to be registered by the October 18th deadline and continue to manage accounts for current clients.  However, these managers will not be able to accept new money from existing clients or new clients until the disclosure document is accepted by the NFA.

Managers with a Disciplinary History

Individuals who have certain criminal or regulatory issues in their background will need to make sure that they are able to produce records of the issue.  For persons with these issues, the NFA will require full records and will review those records prior to deciding whether to allow the person to register as an AP.  For more information, please see our discussion of registration issues for managers with disciplinary history.

Heightened Supervisory Procedures

Many forex managers and introducing brokers will need to implement heightened supervisory procedures because they will have Principals/APs which were either subject to prior NFA disciplinary actions or worked for firms subject to NFA disciplinary actions.  Almost every single forex broker has been subject to NFA disciplinary actions so persons who come from these firms will need to be aware of this fact and firms may need to augment their employee base to fit within certain guidelines.  This issue will most likely be identified by NFA staff during the registration process and may delay a registration.

Branch Office

Firms which have more than one office must designate a main office.  All of the other offices will be deemed to be banch offices and each of these branch offices will need to have a branch office manager (who has passed the Series 30 exam).

Firms often wonder whether a home office will count as a branch office.  Generally, it will depend on the exact facts of the situation, but if any person is acting as an AP at the home office, then it will be deemed to be a branch office.

While it does not cost extra to have a branch office, firms must make sure that they institute certain oversight procedures with respect to the branch office.  This means that compliance policies and procedures must be implemented.  This is likely to be another issue which the NFA will examine closely during an audit.

For more information, please see our article on the NFA Branch Office Designation.

Forex Exams

Overview – we have discussed the various exam requirements for forex managers a number of times.  For full information, please see our overview of the forex exams.  We also have specific information on the Series 3 exam, Series 30 exam, and how to pass the Series 34 exam.

Grandfather Provisions – For persons who were registered on May 22, 2008 as an AP (and have remained continuously registered as an AP with the CFTC), such persons will not be required to pass the Series 34 exam prior to providing advice to customers with respect to forex transactions.

Discretionary Waiver – some persons who would normally be required to complete the proficieny requirements may be able to apply for a waiver of the requirements from the NFA.  Such waiver is rarely granted.  For more information, please see NFA Rule 402.

Overview of Registration Process

At this point during the presentation the NFA staff took us completely through the registration process on the NFA’s online registration system.  In general the process is fairly straightforward and the NFA has provided a number of resources on their website which are designed to help managers navigate the process.  In general the process includes the following steps:

  • Obtain Security Manager Access
  • Pay Registration Fees
  • Complete Form 7-R for Firm Application
  • Complete Form 8-R for all Principals and APs

General Compliance Session

[To be forthcoming…]


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Bart Mallon, Esq. runs the hedge fund law blog and provides forex registration and compliance services to forex managers through Cole-Frieman & Mallon.  He can be reached directly at 415-868-5345.

NFA Provides Guidance on Forex Registration Requirements

Bart Mallon, Esq. – Mallon P.C.

NFA Releases Notice Regarding Forex Registration

As we discussed in our post yesterday about outstanding issues with retail forex regulations, the NFA posted guidance regarding the final retail forex regulations passed by the CFTC earlier this week.  In general, the notice answers a few of the questions regarding implementation of the regulations, but many questions are left unanswered.

The central take-aways from the notice below include the following:

  • NFA will begin taking registration applications from forex firms on September 2
  • Retail forex firms not registered by October 18, 2010 must cease conducting retail forex business until registration is finalized
  • Forex only FCMs will need to register as an RFED even though they are already registered as a FCM
  • Forex APs will need to pass both the Series 3 and Series 34 exams (with certain exceptions)
  • Forex IBs, if guaranteed, can only have a guarantee agreement with one FCM/RFED

The release below is silent on the following issues:

  • Disclosure documents for Forex CTAs and CPOs – do these need to be reviewed and approved by the NFA prior to use by the registered forex firm?  If so, is the NFA providing expedited review for these forex applications?
  • Currently registered CTAs and CPOs who conduct a small amount of retail forex transactions – do APs at these firms also need to take and pass the Series 34 exam?  Are there additional items in the NFA online registration system which need to be completed?
  • Open positions on October 19, 2010 – what happens if a forex CTA or CPO is not registered by October 19, 2010?

Other questions deal with issues which we will seek clarification from the CFTC – the big open question is whether individuals will be able to open accounts at offshore forex firms.

It is also currently unknown what sort of paperwork or procedures the forex dealers will be requiring from the forex CTAs and CPOs in order to comply with the provisions of the CEA.

The following notice can be found here.


Notice I-10-17

September 01, 2010

NFA to begin accepting registration applications from forex firms and individuals on September 2

The Commodity Futures Trading Commission has issued final forex rules which become effective on October 18, 2010. NFA will begin accepting registration applications from forex firms and individuals beginning Thursday, September 2.

Any retail forex entity that does not complete the registration process by October 18, 2010 will be unable to conduct retail forex business until registration and all necessary approvals and designations are granted.

As part of the reauthorization of the CFTC in May 2008, Congress amended the Commodity Exchange Act to require, with certain exceptions, including a Futures Commission Merchant (FCM) acting primarily or substantially as a traditional FCM, any firm acting as a counterparty to certain retail forex transactions to register as a Retail Foreign Exchange Dealer (RFED).

Consequently, any existing Forex Dealer Member of NFA that is currently registered as an FCM must register as an RFED unless the firm’s business is primarily or substantially that of a traditional FCM. Moreover, even if the firm’s business is primarily or substantially that of a traditional FCM, the firm must access NFA’s Online Registration System (ORS) and request approval as a Forex Firm and designation as a Forex Dealer Member.

The Commodity Exchange Act was also amended to require any individual acting as a forex solicitor, account manager or pool operator to register with the CFTC as Introducing Brokers (IBs), Commodity Trading Advisors (CTAs) or Commodity Pool Operators (CPOs) and become Members of NFA. Also, any Associated Person (AP) soliciting or supervising persons soliciting business on behalf of a forex firm must request approval as a Forex AP.

If you are not currently registered, you must comply with all registration and forex requirements.

If you are currently registered as an IB, CPO, CTA or AP that is conducting forex business, you must still apply for Forex Firm or Forex AP approval.

All individuals who solicit retail off-exchange forex business or who supervise that activity must take and pass two exams. One is the National Commodity Futures Examination (Series 3) and the other is the Retail Off-Exchange Forex Examination (Series 34), a new exam focusing exclusively on forex-related questions.

Individuals who were registered as APs, sole proprietors or floor brokers (FBs) on May 22, 2008 will not need to take the Series 34 exam unless there has been a two-year gap in their registration since that date.

Every approved Forex Firm (RFED, FCM, IB, CPO or CTA) must have at least one principal who is registered as an AP or FB and who is approved as a Forex AP.

In addition, any RFED branch office must have a branch office manager who has taken the Series 30 exam and is an approved Forex AP.

The Commission’s final forex rules do not require Forex Firm IBs to be guaranteed. However, if a Forex Firm IB is guaranteed, the IB can only have one guarantor. In other words, an IB cannot be guaranteed by an FCM for futures business and a different RFED for forex business.

NFA has prepared a “Registration Overview for Retail Foreign Exchange Dealers and Forex IB, CTA and CPO Applicants” that provides additional registration information. You can also find information and guidance on NFA’s website.

Additionally, NFA’s Information Center (800-621-3570) is available from 8:00 a.m. – 5:00 p.m. CT, Monday through Friday.


Cole-Frieman & Mallon LLP is a law firm and provides legal support and forex registration and compliance services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

Clarification on CFTC Final Retail Forex Regulations Forthcoming

Bart Mallon, Esq.

NFA to Issue Guidance on Regulations

Now that the CFTC has finalized the retail Forex regulations the Forex community will now set forth to figure out exactly what will be happening next.  Today I called the NFA to get clarification on a couple of items with respect to the new regulations and I was surprised to hear that the NFA is planning to release guidance on the new regulations tomorrow.  The representative that I spoke with did not know much about tomorrow’s release.  Below I discuss the issues which were the subject of the conversation as well as some general thoughts and questions that we will be working on over the next 6-8 weeks with respect to the new regulations.

Registration Required by October 18, 2010

The central question I had was whether managers (forex CTAs, CPOs) and introducing brokers would need to be actually registered (i.e. completes fingerprints and forex exams) by the time that the regulations are effective.  The NFA representative that I spoke with said that yes, forex managers would need to be registered by October 18, 2010.  This means that firms who provide investment advice with respect to retail forex will need to cease providing such advice unless the managers are registered with the NFA.  Even if a firm is registered, no APs of the firm may provide advice with respect to retail forex unless such APs have passed the Series 34 exam.  However, APs which were registered as such with the NFA on May 22, 2008 do not have to pass the Series 34.

Logistical Issues

If this is the case — and we will find out tomorrow — the requirement for forex managers and IBs to be registered by October 18 presents a number of logistical issues.

The first issue is that these managers will need to have passed both the Series 3 and Series 34 exams.  As many forex managers are not currently APs of a CFTC registered firm, they will generally not have the Series 3 exam.  The Series 3 exam has nothing to do with retail forex trading so persons without futures/commodities industry experience will need to take special care to prepare accordingly.  Managers will also need to have passed the Series 34 exam.  Studying for and passing both of these exams in the next 6 weeks or so is going to be very difficult.

The second issue will be whether the NFA staff can handle the increased amount of applications from forex managers.  The NFA has previously said that they specifically updated their systems to handle an increase in applications (because of forex registration requirements).  However, when I asked the NFA representative whether the NFA has hired additional staff to deal with the extra registrations, the NFA representative could not answer me – I suspect the answer is “no” the NFA has not hired additional examiners.

A second part of this issue involves the review and approval of disclosure documents.  Both forex CTAs and forex CPOs will need to have their disclosure documents reviewed by the NFA.  While registration can be completed fairly quickly if a manager has completed the forex exams and the fingerprint requirement, the disclosure document review process is not short.  Typically the review process will last anywhere from 4-8 weeks from the time that the disclosure documents are submitted to the NFA for review (which cannot be sooner than the date a firm is registered).  [Note: it is most common for the review process to take around 6-8 weeks depending on the nature of the forex firm.]  This means that even if a manager is able to complete the registration process by October 18, it is likely that the manager would not be able to conduct business if the disclosure documents were not approved, which could probably not happen by October 18 even if the manager completed registration tomorrow!  It is unclear whether the CFTC and NFA recognize this reality or whether they will grant an exception for managers who have made a good faith effort to comply with the registration requirements.

[Note: the NFA takes much longer to approve the applications for forex IBs – genrally it will take anywhere from 4-8 months for a forex IB to become registered.]

Other Issues

There are a number of other questions and issues which have arisen.  The following are some questions we are getting and our current responses:

How long will 100:1 leverage (majors) and 25:1 leverage (non-majors) be applicable? The NFA is now tasked with creating new leverage levels which cannot be exceed 50:1 (majors) or 20:1 (non-majors).  It would make sense if the current leverage levels remain in force until October 18, 2010.  The NFA is likely to propose rules with respect to leverage prior to October 18.

How will the Series 34 exam change? The current Series 34 exam is based on current NFA rules and bylaws which are currently in flux after the CFTC final forex regulations.  Test takers should note that certain questions may be asked on the exam which do not comport with current law and other rulemaking.  The NFA should be addressing this issue shortly.

Can managers manage accounts from the U.S. for only offshore investors at offshore forex dealers without registration? Probably not.  We are still trying to figure out how the final regulations deal with this issue.

Can traders move their forex trading to SEC registered broker dealers to get higher leverage? Probably not.  While the SEC will have jurisdiction over broker-dealers who want to offer retail forex, it is unlikely that the SEC will (under its own rulemaking) allow more leverage than the CFTC.  The SEC would likely defer to the CFTC with respect to the leverage requirements.  Also, FINRA recently proposed a leverage requirement for its member firms which was much lower than the current CFTC regulations.

Can individuals create accounts (either individually or through offshore companies) at offshore forex dealers in order to access higher leverage overseas? Probably not.  The major intent of Dodd-Frank and the final CFTC regulations was to keep U.S. citizens from trading with overseas brokers.  It is likely that the CFTC and NFA are going to take a hard stance on this issue.


Other related hedge fund law articles:

Cole-Frieman & Mallon LLP. is a law firm and provides legal support and forex registration and compliance services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

Commissioner Chilton Speaks on Retail Forex Regulations

The CFTC just released a statement by Commissioner Chilton regarding the new retail Forex regulations.  The full statement is reprinted below and can also be found here.


“Rules to Rein in a Racket”

Statement by Commissioner Bart Chilton on the Release of New Retail Forex Rules

In recent years, mini-Madoff ponzi scams have proliferated, targeting unsuspecting investors with good hearts and limited incomes. Many of these fraudulent schemes have involved “forex” trading, that is, derivatives trading foreign currency. Operating in the shadows of the legitimate forex market, regulators have focused on the types of illegal trading in this area that targets unsuspecting consumers, and bilks them out of millions of dollars annually. New rules will rein in this racket.

Toward that end, the CFTC has worked to craft rules that will protect American investors, and at the same time provide for the operation of legitimate business activity. With these new rules, the agency is ensuring that people investing in forex are protected from fraud and abuse. These rules put the sidelines on the field so that traders know the boundaries and investors can be more assured that their money is not being traded out of bounds.

Last Updated: August 31, 2010


Other related hedge fund law articles:

Cole-Frieman & Mallon LLP is a forex law firm and provides legal support and forex registration services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

CFTC Releases Final Retail Forex Rules

New Regulations Effective as of October 18, 2010

The final retail Forex regulations (which requires registration for forex CTAs, CPOs and IBs) have been published in the Federal Register.  The final regulations will be effective as of October 18, 2010.  The regulations were adopted essentially as written with the execption of two major issues:

  • Leverage – while the proposed rules called for a maximum leverage of 10:1, the final rules allow the NFA to determine the margin requirements for the currencies within a defined set of CFTC parmeters.  Currently the parameters include 50:1 leverage for major currencies and 20:1 leverage for all other currencies.
  • Forex Introducing Brokers – the proposed rules called for all forex introducing brokers to be guaranteed by a single FCM or RFED.  The final rules allow a forex introducing broker to be either guaranteed or independent, consistent with other regulated futures IBs.

We have not yet had a chance to talk with the NFA or the CFTC about the new rules, but we recommend that all groups who may have to register with the NFA to begin the forex registration process as soon as possible (which includes taking the Series 34 exam) because of the large amount of applications the NFA will receive because of the final regulations.

The full CFTC press release is reprinted below.


August 30, 2010

CFTC Releases Final Rules Regarding Retail Forex Transactions

Washington, D.C. – The U.S. Commodity Futures Trading Commission (CFTC) today announced the publication in the Federal Register of final regulations concerning off-exchange retail foreign currency transactions. The rules implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Food, Conservation, and Energy Act of 2008, which, together, provide the CFTC with broad authority to register and regulate entities wishing to serve as counterparties to, or to intermediate, retail foreign exchange (forex) transactions.

“These rules of the road will help protect the American public in the largest area of retail fraud that the CFTC oversees: retail foreign exchange,” CFTC Chairman Gary Gensler said. “All CFTC registrants involved in soliciting and selling retail forex contracts to consumers will now have to comply with rules to protect the investing public. This is also the first final rule that the Commission has published to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act. We look forward to publishing additional rules to protect the American public.”

The final forex rules put in place requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital and other business conduct and operational standards. Specifically, the regulations require the registration of counterparties offering retail foreign currency contracts as either futures commission merchants (FCMs) or retail foreign exchange dealers (RFEDs), a new category of registrant. Persons who solicit orders, exercise discretionary trading authority or operate pools with respect to retail forex also will be required to register, either as introducing brokers, commodity trading advisors, commodity pool operators (as appropriate) or as associated persons of such entities. “Otherwise regulated” entities, such as United States financial institutions and SEC-registered brokers or dealers, remain able to serve as counterparties in such transactions under the oversight of their primary regulators.

The final rules include financial requirements designed to ensure the financial integrity of firms engaging in retail forex transactions and robust customer protections. For example, FCMs and RFEDs are required to maintain net capital of $20 million plus 5 percent of the amount, if any, by which liabilities to retail forex customers exceed $10 million. Leverage in retail forex customer accounts will be subject to a security deposit requirement to be set by the National Futures Association within limits provided by the Commission. All retail forex counterparties and intermediaries will be required to distribute forex-specific risk disclosure statements to customers and comply with comprehensive recordkeeping and reporting requirements.

The final rules become effective October 18, 2010.

Last Updated: August 30, 2010


Other related hedge fund law articles:

Cole-Frieman & Mallon LLP is a forex law firm and provides legal support and forex registration services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

NFA Registration for Forex Managers with a Disciplinary Record

In January 2010, the CFTC proposed rules regarding regulation of retail off-exchange foreign currency (forex) products.  It received over 9,000 comments relating to the forex rules and will start publishing final rules this fall. One component of the proposed rules requires all forex account managers and pool operators to register with the CFTC as forex CTAs and CPOs and to become NFA Members.  For those forex managers with criminal disclosures, a concern is how long it will take to get through the registration process and what registration will entail.

This article describes the registration process for forex managers with disciplinary disclosures and the issues they will likely face.

Anticipated Forex Registration Process

The forex registration procedures are likely going to be the same as those currently in place for regular CPOs and CTAs.  CPOs and CTAs must file the following:

  • a completed online Form 7-R (including NFA membership sections)
  • a non-refundable application fee
  • CPO/CTA Membership Dues

Principals and Associated Persons of a CPO or CTA must also file the following:

  • a completed online Form 8-R
  • Fingerprint Cards
  • Proficiency Requirements (e.g. Series 3)
  • a non-refundable Principal Application Fee
  • a non-refundable Associated Person Application Fee

In addition to providing the application materials discussed above, forex managers will likely have to meet regulatory exam requirements–the Series 34 and Series 3 exams.

Disciplinary Disclosures on Forms 7-R and 8-R

On Forms 7-R and 8-R, the manager must provide disciplinary information for the firm, the Principals, and the Associated Persons.  This includes criminal disclosures, regulatory disclosures, and financial disclosures.  The NFA has indicated that if any of the disciplinary information disclosed is a disqualification from registration under Sections 8a(2) or 8a(3) of the Commodity Exchange Act, the application will probably be reviewed by an internal NFA committee.

Disqualifications under Sections 8a(2) and (3) include, for example:

  • suspension or revocation of prior NFA registration
  • a permanent or temporary injunction from (i) acting as an FCM, IB, floor broker, floor trader, CTA, CPO, associated person, securities broker, etc.; or (ii) activity involving embezzlement, theft, extortion, fraud, misappropriation of funds, etc.
  • a conviction within 10 years for a felony that (i) involves transactions or advice concerning futures contracts; (ii) arises out of the conduct of the business of an FCM, IB, floor broker, CTA, CPO, etc.; or (iii) involves embezzlement, theft, extortion, fraud, misappropriation of funds, securities or property, forgery, etc.
  • a finding, by a federal or state regulatory body, that the manager has violated various securities and commodities laws

It is important to disclose all disciplinary matters.  Failure to disclose such matters could be an additional ground for disqualification from registration.  It is also important that if the forex manager answers “Yes” to any of the disciplinary information questions, he or she provides a written explanation detailing the events and conduct involved.  In addition to this explanation, other documents may also be required by the NFA (e.g. court records).  Failure to provide the additional documentation will inevitably delay the registration process.

Providing Additional Documents for Criminal Matters

If a criminal matter is disclosed, the NFA will want documents that reflect the following information:

  • the complaint;
  • the entry of a plea or plea agreement, or judgement/conviction;
  • the sentence;
  • proof that you completely satisfied your sentence; and
  • the final outcome of the court’s action .

It is probably best to request your entire court file so that the documents are available for the NFA.

Review by an Internal NFA Committee or Scheduling a Hearing

Upon receiving the application materials listed above (and any required supplemental documents (e.g. court records)), the reviewer will forward the case on to the internal NFA committee.  We spoke informally to an NFA reviewer who stated that the committee hears cases once a week, on a first-in, first-out basis.  That committee will review the circumstances of each disqualification independently and decide whether to approve registration or to recommend a proceeding to deny registration.  The NFA reviewer we spoke to said that a decision by this committee is generally made within 24 hours.  Upon approval, the firm will appear on the NFA’s BASIC search engine.  If the application is denied, a denial letter is sent to the manager.  A hearing can then be scheduled with the legal department and additional information regarding the registration may be provided.

At the end of the hearing, the registration is essentially either denied, approved, or approved with conditions.  It is difficult to predict the amount of time it would take for a forex manager with a criminal record to get through the NFA registration process.  If supplemental documents (e.g. court records) are missing, the reviewer will have to send deficiency letters to the manager, which will delay the registration process.


Other related hedge fund law articles:

Cole-Frieman & Mallon LLP provides legal support and forex registration services to forex managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.