NFA (National Futures Association)

Chris Lee

The NFA (National Futures Association) is an organization within the U.S futures market that was created in 1982. It is industry-wide and is self regulated. The NFA fills many roles and purposes within the commodities and futures market, but its main role is the protection of investors. This is accomplished by the many programs, services, and rules that have been developed over the years by the organization.

Any person or entity conducting business with investors within the futures exchange market is required to register as a member with the NFA. This ensures that all firms and associates adhere to the stringent set of rules of professional conduct that have been mandated. Members are required to pay membership dues, and users are required to pay assessment fees. This allows the NFA to remain completely independent, and prevents any costs to taxpayers.

Once registered as a member, a background screen will be performed before the member can conduct business with the public. The NFA uses this information to ensure that members are up to the high standards of regulation, and not out to prey upon investors. Fingerprint cards are required to be on file as well. In addition to the background screening, members must also pass a series of proficiency testing requirements. All these factors are taken into consideration, and the NFA has the right to bar registration if any information proves unsatisfactory.

The stringent rules and regulations are not just for the benefit of the investors. This also allows for market integrity, and the NFA is more than willing to help members meet the standards of the regulatory responsibilities. They also have developed new programs to ensure that markets are maintained as the futures market and Forex market are changing to a more electronic format.

The National Futures Association monitors registered members, and performs audits to make sure that all rules are being abided by. If individuals lodge complaints against a company, this is taken into consideration and investigated. The NFA has the authority to take action against any member who violates the rules or regulations, including prosecution for major rule infractions. If prosecution is necessary, the NFA works hand in hand with the FBI and CFTC(Commodity Futures Trading Commission) to ensure that the prosecution is successful.

In addition to monitoring and auditing members, the National Futures Association also provides dispute resolution. To resolve any futures related issues, the NFA began an arbitration program in 1983. This is the current primary resolution for the futures industry. In 1991, the NFA developed a mediation program as a faster, more cost effective alternative. To move even farther forward in this arena, they began accepting claims online in October of 2001. The NFA was the first in the financial services industry to take this step.

The National Futures Association has also taken other steps forward to make the process more efficient. In 2002, they launched a program called ORS (Online Registration System), so that members could register online. To make the process even faster, the NFA started submitting digital images of fingerprint cards to the FBI in 2004. This vastly shortened the background process, sometimes background checks can be received in as little as several hours. Later in 2004, another program was launched so that members could file financials online.

The NFA is the self regulator of the futures and commodities market. They are the watchdog for the public investor, and are making forward progress in this arena.

Chris Lee

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