Upcoming NFA Rule Changes and Swaps Proficiency Requirements
If your firm is a registered Commodity Pool Operator or Commodity Trading Advisor, you may recently have received a reminder email notification from the National Futures Association (NFA). (Click here to see an example.) In connection therewith, below is a summary of things your firm should consider.
NFA’s Swaps Proficiency Requirements must be successfully completed by individuals registered as associated persons (APs) at futures commission merchants, introducing brokers, commodity pool operators and commodity trading advisors who engage in swaps activity subject to the CFTC’s jurisdiction (Swap APs) as well as individuals acting as APs at swap dealers. The Swaps Proficiency Requirements will become available online on January 31, 2020, and must be completed by the Compliance Date of January 31, 2021.
All CPO/CTA Swap APs must complete the “Short Track” of the swaps proficiency requirements. We have summarized the pertinent information about the Swap AP proficiency requirements below.
- As an initial step, starting on November 1, 2019, NFA required NFA members to designate an ORS security manager as a “Swaps Proficiency Requirements Administrator” (you can designate more than one) to coordinate enrollment in the examination and to track the progress of each Swap AP.
- NFA will provide each Swap AP with an enrollment code after the firm enrolls the Swap AP or the Swap AP individually enrolls for the exam.
- Swap APs will be subject to a proficiency examination that can be completed from any location (there is no designated testing center like there is for other examinations). A Swap AP may attempt to complete the examination as many times as necessary to successfully pass the exam, and all current Swap APs have until January 31, 2021 to do so.
- Unlike other NFA exams, there is no grandfathering (e.g., a Series 3 waiver).
- Having a Series 3 or any other series designation does not excuse Swap APs from this requirement.
- Swap APs of CPO/CTAs must complete the “Short Track,” which consists of the following four modules:
- Swap Products and Applications (20 questions)
- Regulation of the swaps market (20 questions)
- Supervision (10 questions)
- Compliance, Anti-Fraud and Other Requirements (10 questions)
- The Short Track requires approximately four hours, and consists of a “learning component” that must be viewed before proceeding to the testing component. No pre-test studying is required as all relevant information is provided in the learning component. Once the Swap AP enters the testing component, he or she may not re-enter the learning component. There is no time limit, and a Swap AP may exit and re-enter the exam module at any time and the system will automatically save the Swap AP’s progress (and will do so if the system logs out due to inactivity).
- A score of 70% or more is required to pass each module.
NFA Swaps Proficiency Requirements Administrator
Each NFA Member with APs required to take NFA’s Swaps Proficiency Requirements must designate at least one Swaps Proficiency Requirements Administrator (SPR Admin) who will coordinate enrollment and track progress. An SPR Admin must also be an ORS Security Manager. NFA recently hosted a webinar to explain NFA’s process for enrolling Swap APs in the swap proficiency requirement examination. In addition, on November 1, NFA launched a dedicated SPR Administrator webpage and has provided FAQs and instruction guides on its website. NFA will also be providing a webinar for Swap APs starting in January 2020.
We have summarized the key points from the webinar below.
- The ORS Dashboard will include a link to identify the SPR Admin and to enroll the Swap APs for the proficiency requirement. NFA will not provide an SPR Admin with log-on credentials to the system to enroll Swap APs until late January. An SPR Admin will have access to two types of reports in the system: (1) individual status by firm (identifies each Swap AP who is enrolled in the proficiency requirement, each attempt that the individual has made to pass the exam and the status of that attempt (pass or fail)); and (2) completion date by individual (reflects each Swap AP’s date of successful completion of the proficiency requirement).
- Generally, only the SPR Admin may enroll the Swap APs. However, where privacy laws restrict the information a firm may provide about its APs, NFA will provide an enrollment code to enable each individual AP to enroll in the examination himself/herself.
- NFA will provide an excel file that an SPR Admin may use to enroll multiple Swap APs at the same time. (NFA will not grant SPR Admins with access to the system for uploading the file until late January.) The file includes nine files, six of which are required. The three optional fields include social security number, NFA ID of the AP and NFA ID of the firm. The required fields include things like name and email. One field is titled “profile field” and an SPR Admin must enter the number “1” in this field (NFA did not explain what purpose this serves). Another field is titled “products field.” In the products field, you will enter “Short Track.”
- NFA described common errors that it experienced when testing the enrollment function. An SPR Admin will see an error when a unique email for a Swap AP has not been used or when the Swap AP is already enrolled and in the system.
- To the extent that the SPR Admin is a Swap AP, the SPR Admin may not enroll himself/herself in the proficiency requirement. NFA will provide special instructions for this scenario at a later date.
- After enrolling Swap APs for the proficiency requirement, the firm will receive an email with further steps.
If you have any questions on the foregoing, please feel free to reach out to us or your regular Stroock contact.
This article is for general information purposes only. It is not intended as legal advice, and you should not consider it as such.