The National Futures Association (NFA), based in Chicago and New York City, is in charge of supervising and regulating the derivatives industry in the United States. NFA was established by Congress and through the Commodity Futures Trading Commission (CFTC) legislation in 1981; however, its regulatory operations began in 1982. The purpose behind the creation of this organization was to oversee the activities of derivatives Markets and make sure that the registered members are doing everything by the book so the investors are protected against any fraud or financial misconduct. The establishment of this organization led to the continuous growth of the markets in terms of reducing the costs, much-achieved self-regulation, and more efficiency given the fact that one organizing committee was now responsible for all the segments of the futures industry.
In the years 2000 and 2008, Congress enacted that it is mandatory for retail forex brokers, forex pool operators, introducing brokers and the like to be registered members of the CFTC as well as NFA. A similar law, the Dodd-Frank Wall Street Reform and Consumer Protection Act, also gave the CFTC and NFA more control over swap dealers and major swap participants in 2010. One of the key factors in NFA membership is that its members are required by the NFA Bylaw 1101 to handle business affairs only with those that are registered members of the CFTC as futures commission merchants (FCM), introducing brokers (IB), commodity pool operators (CPO), and commodity trading advisors (CTA). Therefore, the NFA members are to make sure that the parties that they are doing business with are complying with the NFA Bylaw 1101. NFA is also a member of the Joint Audit Committee (JAC) which is responsible for overseeing the supervisory examinations and financial audits of FCM. NFA’s Service Organization Control (SOC) 2 shows how much this organization cares about the protection of its systems as well as customers’ information since this certification is in accord with the Trust Services Principles and Criteria of the American Institute of Certified Public Accountants (AICPA). NFA also releases periodical update videos by the board and annual reviews to keep the public aware of its mission, future direction, and so on.
NFA is in charge of registering and regulating all the firms and individuals including Commodity Pool Operators, Commodity Trading Advisors, Futures Commission Merchants, Introducing Brokers, Associated Persons, Floor Brokers, and Floor Traders that want to be involved in the derivatives industry. It should be noted that this responsibility was given to NFA by the CFTC and under the Commodity Exchange Act (CEA). NFA, under the supervision of the CFTC, makes laws and regulations and then tries to apply the best practices to the entire industry in the hope of further development. Moreover, as a part of its responsibilities, NFA does background checks, policy reviews, as well as proficiency requirements for those who wish to register as a member.
Another part of NFA’s job description is to step in and set certain unruly members straight when they forget to toe the line by engaging in e.g., Ponzi Schemes or Abusive trading. The disciplinary actions are taken when members manifest risky behavior detrimental to customers, the futures markets, and so on. NFA realizes that good education could make a whole lot of difference in terms of regulatory responsibilities, and therefore, offers several opportunities to its members such as Workshops, FAQs, and Webinars. If the registered members or their customers are not able to resolve their issues related to futures or forex, they could always use the arbitration program offered by NFA as an alternative. Other noteworthy duties of NFA include investor protection (helping the investors make the best decision regarding their investment) and outreach programs (which basically trains regulators to be more efficient). On top of everything, NFA is to ensure that all of its staff do their regulatory responsibilities according to the regulations.