Authorized by Congress in 1974 and designated by the CFTC in 1982 as a “registered futures association,” NFA is the industry wide self–regulatory organization of the futures industry. The NFA regulates the trading of futures, foreign currency and swaps. The organization began in 1982 after such self-regulatory groups were sanctioned by the Commodity Futures Trading Commission Act, the same legislation that created the Commodity Futures Trading Commission (CFTC).
The NFA aims to preserve the integrity of and investor confidence in the derivatives market by regulating the individuals and firms that operate in the market. It functions independently and does not engage in trading activities. The NFA is a non-profit organization funded by membership-related fees; the association receives no public funds. Under the Commodity Exchange Act, most individuals and firms who trade in the derivatives market, including those who work with public investments in futures exchanges, swaps and retail off-exchange foreign currency, are required by law to register with the NFA. Current NFA membership includes over 4,000 companies and nearly 60,000 individuals.
The NFA’s regulation of the derivatives industry starts with member registration. The organization screens prospective members to establish their competence with measures like FBI background checks and thorough proficiency exams. Each NFA member must adhere to strict compliance regulations related to bookkeeping, public disclosures, capital requirements and sales procedures. The NFA conducts routine audits of its members to ensure compliance. Non-compliant members are subject to penalties from the NFA, which can include fines, suspension or revocation of membership and bans on future trading activities.
In addition to overseeing member activity, the NFA monitors overall trade and market practices. Merchants are required to submit periodic reports disclosing operational details such as balances, draw downs, capital requirements and investment methods to the NFA, other self-regulatory bodies and the CFTC. The NFA further protects investors through an arbitration program and public education. The organization publishes informational investment and finance documents and maintains the Background Affiliation Status Information Center (BASIC), a public database of financial, membership and disciplinary information about merchants.