The National Futures Association (“NFA”) Self-Examination Questionnaire is designed to assist Commodity Futures Trading Commission (“CFTC”) registered, NFA Member firms in meeting their compliance obligations. NFA intends the checklist to aid commodity interest brokerage and trading firms in recognizing potential problems. They also have designed the Questionnaire to alert firms to potential compliance or operational procedural changes which may be required.  NFA’s expectation is that the Self-Exam Questionnaire be completed at least once annually.  Documentation related to the Questionnaire is almost always requested by NFA audit staff during regulatory reviews.

Use the Latest Questionnaire

Periodically, NFA updates the Self-Exam Questionnaire, which most recently occurred June 2, 2020.  When these updates are made NFA has the expectation that firms will use the most current version of the Questionnaire. As one of the leading CFTC and NFA consulting firms, Turnkey Trading Partners (“Turnkey”) pays close attention to these updates.  Without tracking and following these changes it can be nearly impossible to provide accurate advice regarding operations, written documentation, and regulatory requirements.  Turnkey’s viewpoint has long been that if NFA has included a change to the Self-Exam checklist, then it is important to address that change.   Often, it has been Turnkey’s experience that NFA may be signaling that the issue in question will become an audit focus or regulatory enforcement priority in future.

Regulation by Declaration

Often many of the changes included in the Self-Exam Questionnaire are unannounced or subtle. For June 2020 many of the additions and revisions reflect rule changes that NFA addressed in various “Notice to Members”.  The most notable modifications are the points incorporating amendments to NFA Interpretive Notice 9019 – Supervision of Branch Offices and Guaranteed IBs, and Interpretive Notice 9054 – CTA Performance Reporting and Disclosures.

Notice 9019 – Supervision of Branch Offices, the following points were added:

  • Does the Member have written policies and procedures designed to ensure that a robust due diligence review is performed before it establishes or modifies a branch office or GIB relationship?
  • Does the Member provide supervisory oversight for the commodity interest business of its branches and guaranteed IBs?
  • Does the Member ensure that all prospective employees at a branch office or GIB are screened and qualified, and have policies and procedures regarding the hiring and supervision of APs who have been or whose past employers have NFA or CFTC disciplinary history?
  • Does the Member require its branch offices and GIBs to create and maintain a record of all verbal and written complaints as set forth by the CFTC? (CFTC Regulation 1.31)
  • Does the Member ensure its APs are properly trained to perform their duties?

Member firms with branch offices should ensure that they are familiar with the amendments to the Interpretive Notice, as they include new requirements that necessitate updates to a firm’s written policies and procedures.  If your firm requires assistance in updating your Compliance Manual to incorporate compliant branch office supervision policies, please contact Turnkey.

Notice 9054: – Related to CTA Performance Reporting and Disclosures, included the following:

  • Does the Member present performance net of all commission, fees and expenses?
    • Performance information that is not calculated based upon nominal account size or uses an arbitrary leverage level that differs from how the account was actually traded; and
    • Claims regarding the performance of third-party managed futures or hedge fund indices without the disclosure of the basis and limitations of these indices and/or a statement that the customer is unable to invest directly in an index.

While there were some fundamental changes related to CTA performance reporting included in Interpretive Notice 9054 that went into effect at the beginning of February, the additions to NFA’s Self-Exam merely reiterate the rules that have been in effect for many years.  Also relevant to CTA’s and some IB’s are a couple of additional bullet points NFA added to the Discretionary Trading and Bunched Order section in the June 2020 update

Challenging Website and Social Media Guidance

In addition to the above revisions, NFA made several changes to the Website/Social Media section of the Questionnaire that are applicable to all Member firms.  The most notable of these was:

“Does the Member have written procedures to review electronic communications and supervisory procedures that are reasonably designed to ensure personnel are not using unauthorized electronic communications or platforms to conduct business on its behalf?”

This point requires a firm to have written policies for supervisory procedures that may prove a bit challenging. NFA seems to be calling on members to ensure personnel are NOT doing something.  While a firm should and can monitor electronic communications it has access to, monitoring unauthorized communications can be significantly more challenging.  Turnkey believes the best approach to these supervisory obligations involves AP training and periodic internet searches. Looking over the web for instances of the firm’s name and perhaps the names of certain APs may be the most appropriate course of action.

Turnkey Can Help

Turnkey recommends that written Policies and Procedures be updated annually, at a minimum.  Additionally, we encourage all of our Introducing Broker (“IB”), Commodity Trading Advisor (“CTA”), and Commodity Pool Operator (“CPO”) clients to stay informed about regulatory changes.  The NFA-Self-Examination Questionnaire is a valuable tool to ensure commodity interest operations, procedures, and written documentation are not only compliant with the current rules, but also meet the expectations NFA has when they conduct an examination of regulated firms. Turnkey is one of the industries oldest and most decorated consulting firms. Please contact us at any time to speak with one of our compliance specialists about how we might be able to assist in meeting regulatory, operational, or accounting needs.

The latest Questionnaire, dated June 2, 2020, is available on NFA’s website. Members must review the entire Questionnaire on an annual basis and should use this version when completing their next annual review.

Turnkey specializes in assisting our clients staying current with the expectations and guidelines of the NFA.  For more information on our Compliance Consulting solutions, please click here.

Not a subscriber to our newsletter? You’re missing out! Sign up and request to receive more information here.

About the Author

Susan Osmanski serves as the President of Turnkey Trading Partners.  She has been actively involved in the commodity futures industry for nearly thirty years. Her career began in fund management where she was responsible for the administration of eighteen affiliated public and private commodity funds. Susan has assisted hundreds of registered CFTC and NFA member firms.  Her reputation and insight was noted when she was selected to serve on the Advisory Board for the Commodity Customer Coalition (“CCC”).  With her assistance, the CCC was able to help thousands of every day commodity customers recover from both the MF Global and Peregrine Financial Group (“PFG”) collapses. Throughout her career Susan has authored a number of articles for industry publications, participated in numerous conferences as a speaker, and has been asked to be a panel participant on a variety of occasions.