NFA (National Futures Association)

Together with the CFTC, the NFA is a cornerstone of regulation when it comes to US Forex brokers.

The NFA is a self-regulatory body, which complements the actions of the CFTC. The CFTC bill, which was passed in 1974, allowed the creation of such an organization. However, it took about eight years for the formation of NFA. The NFA enforces the rules created by the CFTC. The NFA also implements additional rules, as and when required, for the protection of investors. Considering the stringent standards, both the CFTC and the NFA are categorized as level 1 or level A jurisdictions according to Principles for Financial Market Infrastructure by the Bank for International Settlements.

Additional rules for Forex brokers

• Detailed risk disclosure (as advised by the CFTC) should be provided. The section should categorically state that the trading platform is not an exchange and there is no protection for the invested amount. Furthermore, the section should explain that the broker is a counterparty to the trade and there may be differences in prices offered to different customers. The NFA rules also demand that the IB should disclose that he earns a commission for introducing a client to the broker.
• A Forex broker should not claim that the client’s funds are segregated or have any special protection.
• Claims of ‘no slippage’ or ‘guaranteed filling’ is not allowed, unless it can be proven.
• Claims of hypothetical profit should also be accompanied by a statement of risk of loss.
• The marketing materials should never claim that Forex trading is suitable for everyone.
• Cancellation or adjustments to price should be done within 15 minutes of order execution. If changes are made at a later stage, then such a change should be in favor of the client.
• Rules governing slippage should be described clearly to the client.
• A Forex broker should have a net capital of $20 million plus 5% of the liabilities owed to clients in excess of $10 million. The annual membership fee is currently at $125,000 for brokers with gross annual revenue of $5,000,000 or less.
• NFA has banned the use of credit cards for funding the trading account. So, a Forex broker accepting a US client should not accept funding via a credit card (debit cards are still allowed though). Furthermore, the FIFO (first in — first out) order execution rule should be strictly followed.

How NFA monitors for frauds?

Apart from supervision, the NFA also conducts regular audits. If necessary, the NFA can bring enforcement actions against its member for violation of the rules. For minor violations, the NFA penalizes the concerned member straight away. For example, on April 1, 2021, the NFA ordered OANDA Corporation, Canadian retail foreign exchange dealer and futures commission merchant, to pay a fine of $200,000 due to a complaint alleging that the company failed to submit accurate daily forex reports to NFA and failed to supervise.

If the infraction is large, the NFA should seek the involvement of the CFTC, which would pursue civil actions against the individual or entity for the infringement of rules. The NFA is allowed to assist the CFTC but cannot file a case on its own.

The NFA has a power to bar persons and companies from membership, effectively banning them from professional participation in the industry. For example, on May 20, 2021, the Association barred Peter Chris Georgantones from membership due to utilizing unauthorized trades and fictitious trade transfer requests to improperly allocate winning trades to favored customer accounts, while allocating losing or unprofitable trades to non-favored customer accounts, as well as exercising discretion over customer accounts without written authorization.

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