National Futures Association Updates and Expands Member Reporting Requirements

The National Futures Association (NFA) recently approved new Compliance Rule 2-52¹ and a related Interpretive Notice,² which create new reporting requirements via the NFA Member Questionnaire (Questionnaire) applicable to all NFA Members (Members), including those registered as commodity pool operators and/or commodity trading advisors. The Questionnaire, which must be submitted on at least an annual basis, collects important information about a Member’s activities and operations, supporting NFA’s overall risk monitoring and oversight responsibilities. Among other new requirements, Members, other than swap dealers and major swap participants, must have their Questionnaires and any required updates reviewed, signed, and submitted by an individual who is both a principal and an associated person (AP). This will require procedural changes for many member firms, as members of compliance departments typically do not satisfy this requirement. The new Rule and Interpretive Notice will take effect on October 15, 2024.

1. The Form, Manner, and Timing of Filing

Compliance Rule 2-52(a) requires each Member to file the Questionnaire on at least an annual basis. If requested, a Member must submit the Questionnaire, or specified portions, on a semiannual basis within the time period required by NFA.

Form and Manner: All Members are required to complete the “General Information” section of the Questionnaire, which covers, among other things, whether a Member (i) engages in commodity interest activities; (ii) currently solicits customers to trade commodity interests; (iii) has direct electronic access to a designated contract market (DCM) or utilizes trading algorithms; (iv) has other U.S. or non-U.S. regulators; (v) is a member of a DCM, swap execution facility, or designated clearing organization; or (vi) engages in activities relating to digital assets or micro-contract products.

Timing: Each Member must complete and submit the Questionnaire to NFA on an “at least annual basis” and more frequently if there are material changes (see below). However, Members that do not conduct commodity interest business and are subsequently classified by NFA as “Inactive” must complete and submit the Questionnaire on a semiannual basis. Members are classified as “Inactive” if they answer “no” to all the questions under the “General Information” section regarding their involvement in activities relating to commodity interest products. Failure to complete and submit the Questionnaire to NFA within the required time period (whether annual or semiannual) will be deemed by NFA as a request to withdraw from NFA membership.³

2. Material Changes

Compliance Rule 2-52(b) requires a Member to promptly update any provisions in the Questionnaire where there are “material changes” to the Member’s business operations that would make information previously submitted via the Questionnaire inaccurate or incomplete.

NFA generally relies on Members to make individual determinations as to what changes may be “material,” recognizing that each Member is in the “best position to determine what constitutes a material change in its operations based on the type, size and complexity of the Member’s business.”⁴ However, in the related Interpretive Notice, NFA notes that the Questionnaire should be updated where there are changes relating to engaging or disengaging in activities related to (i) commodity interest products, micro-contracts, retail forex or digital assets, algorithmic trading activities, or cloud computing; (ii) a significant increase or decrease in customer accounts; (iii) an increase in an introducing broker’s revenue to exceed the designated threshold that would require it to comply with the Commodity Futures Trading Commission Regulation 1.35(a)(1)(iii); or (iv) the commencement of operations of a pool operated by a commodity pool operator.

3. Submission Responsibility

For Members other than swap dealers and major swap participants, Compliance Rule 2-52(c) requires the Questionnaire and all updates to the Questionnaire to be reviewed, signed, and submitted by an individual who is both a registered AP and a listed principal of the Member.⁵ This requirement may require changes from current compliance practices, as the individual who is generally in the best position to ensure the accurate and timing filing of the Questionnaire is usually a firm’s chief compliance officer (CCO). While CCOs are required to be listed as principals, it is uncommon for them to also be registered as APs. In many firms, the only individual who is both a principal and an AP is the CEO or president of the firm. It will be burdensome for these individuals, who may have little day-to-day involvement in the matters covered by the Questionnaire, to review, sign, and submit the Questionnaire, which is meant to be a fairly routine regulatory filing.

¹ NFA Rulebook: Rules Governing the Business Conduct of Members Registered with the Commission. Rule 2-52. NFA Member Questionnaire Requirements, available at https://www.nfa.futures.org/rulebooksql/rules.aspx?Section=4&RuleID=RULE%202-52.
² NFA Interpretive Notice 9082 – NFA Compliance Rule 2-52: Requirements in Connection with NFA’s Member Questionnaire, available at https://www.nfa.futures.org/rulebooksql/rules.aspx?Section=9&RuleID=9082 [hereinafter NFA Interpretive Notice 9082].
³ NFA Bylaw 301(h).
⁴ NFA Interpretive Notice 9082.
⁵ Swap dealers and major swap participants do not have registered APs; therefore these Members will not need to have an AP review, sign, and submit the Questionnaire.