What is the National Futures Association?

The National Futures Association (NFA) is a self-regulatory organization for the futures and derivatives market in the United States. The NFA is a registered futures association designated by the Commodities Futures Trade Commission. The organization promotes the integrity of the derivatives market, protects the interest of the investors and makes sure that its members are adhering to the regulations. The membership dues, fees, and assessments paid by the members and other users are used for funding the operations of the organization. All the firms, intermediaries and associates engaged in futures market business in the U.S. are required to take the NFA membership.

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What Does the National Futures Association Do?

The National Futures Association was established in 1982. The NFA is responsible for registration, compliance, and arbitration in the derivatives market. The organization aims at restricting fraud and abuse in the derivatives market. They implement rigorous registration requirements, strict compliance rules, real-time market surveillance, and strong enforcement authority in order to prevent fraud and abuse. According to the Commodity Futures Trading Commission (CFTC) regulation, all the CFTC registered firms need to be a member of the NFA. Although, there some exceptions to this rule. During the registration, a thorough background check is done by the NFA. The futures professionals are categorized into the following divisions.

• Commodity Pool Operators (CPO)
• Commodity Trading Advisors (CTA)
• Futures Commission Merchants (FCM)
• Introducing Brokers (IB)
• Forex Dealer Members
• Swap Dealers

Apart from the categories mentioned above the following non-U.S. firms and individuals must register themselves. Retail Foreign Exchange Dealer (RFED): According to the NFA, a REED is an organization that acts, or offers to act, as a counterparty to an off-exchange non-U.S. currency transaction with a person who is not an eligible contract participant and the transaction is either a futures contract, an option on a futures contract or an option contract (except options traded on a securities exchange); or offered or entered into, on a leveraged or margined basis, or financed by the offeror, counterparty or person acting in concert with the offeror or counterparty on a similar basis. Exempt Non-U.S. Firm: A non-U.S. firm that conducts business directly with the U.S. customers solely in future contracts and options traded on non-U.S. exchanges. There are some exemptions for certain Non-U.S. firms from the requirement of CFTC registration. Floor Broker: The NFA defines a floor broker as, an individual who purchases or sells any futures contracts, options on futures or swaps on any contract market for any other person. Floor Trader: According to the NFA, a floor trader (FT) is a person who purchases or sells any futures contracts, options on futures or swaps on any contract market for such person's own account.