The National Futures Association (NFA) yesterday addressed a letter to Christopher J. Kirkpatrick, Deputy Secretary Office of the Secretariat at the US Commodity Futures Trading Commission, notifying the regulator’s intention to affect proposed amendments to NFA Financial Requirements Sections 10 and 13 and NFA Compliance Rule 2-48, in which an increase to fees for late financial and regulatory filings would be imposed on Forex Dealer Members (FDMs).
Underlining of Responsibility
In the letter, Senior Vice President and General Counsel to the NFA Thomas W. Sexton outlined the action which FDMs must take under existing rulings with relation to compliance with rule 2-48, in that all FDMs must file a daily electronic report with the NFA using the electronic filing method required by NFA.
Senior Vice President and General Counsel to the NFA Thomas W. Sexton
The report must contain the data and be in the format prescribed by NFA. Each FDM must prepare the report as of 5:00 P.M. Eastern Time and file it with NFA by 11:59 P.M. Eastern Time the same day.
Once submitted, the FDM certifies that the report is true and complete, and late submission is subject to a fiscal penalty per late report, which until now stood at $200 per late filing.
Significant Increase In Late Fee
NFA is increasing the late fee for FDM and IB required financial filings to make the fee consistent with the fee charged to FCMs. By way of background, in 2003, NFA Financial Requirements Section 10 was adopted to impose a late filing fee on its members who file required financial reports after the due date. The current fee of $200 was established at that time.
Mr. Sexton’s letter to Mr. Kirkpatrick details that the proposed raising of the late fee was approved by the NFA’s Board of Directors on August 15, 2013, and that the fee for late filings of financial reports should be increased to $1000, and similarly, the late filing of FDM reports should also be subject to a $1000 penalty for each business day that either report is late. This represents a substantial increase over the previous tariff.
Certain previous amendments to Section 10 have taken place in recent years, one of which was to include a late fee for financial reports as well as FDM reports in 2010, which at the time was set at $200 for each business day after the due date, hence the alignment of this fee to $1000 has also been included.
Not A Sufficient Deterrent
During reviews of the existing rulings which in 2012, it was determined that a $200 per day late fee was not a sufficient deterrent for filing information beyond its due date. Therefore, Section 16 imposes a late fee of $1,000 upon FCMs for each business day that a FCM Financial Report is late rather than Section 10's $200 fee. In other words, FCMs are currently charged $1,000 per day for late financial filings, while IBs and FDMs currently pay $200 per day.
To explain the importance of how timeliness should be enforced, Mr. Sexton detailed to the CFTC in his letter that the NFA believes that the $1,000 late fee amount imposed by Financial Requirements Section 16 should be imposed on all late financial and regulatory filings.
This issue was presented to NFA's Futures Commission Merchant (FCM) and Introducing Broker (IB) Advisory Committees. The IB Advisory Committee felt that a fee of $1,000 per business day for IBs was not appropriate since they are a smaller operation than a FCM, and they do not hold customer funds.
The Committee suggested that IBs be subject to a $500 per business day late fee. The FCM Advisory Committee, however, felt that the fine amount should be the same for all late filings regardless of membership category, and late financial and regulatory filings may be indicative of other problematic issues at an NFA Member IB or FDM.
Mr. Sexton signed off by stating that the NFA intends to make the proposed amendments to Financial Requirements Sections 10 and 13 and NFA Compliance Rule 2-48 effective ten days after receipt of the letter, unless the CFTC notifies NFA that it has determined to review the proposal for approval.
