CFTC PROPOSES RULE REGARDING MEMBERSHIP IN REGISTERED FUTURES ASSOCIATION

FROM:  U.S. COMMODITY FUTURES TRADING COMMISSION

CFTC Issues Proposed Rule to Require All Registered Introducing Brokers, Commodity Pool Operators, and Commodity Trading Advisors to Become and Remain Members of a Registered Futures Association

Washington, DC —The Commodity Futures Trading Commission (CFTC or Commission) proposed a rule today to amend its regulations to require that all persons registered with the Commission as introducing brokers (IBs), commodity pool operators (CPOs), and commodity trading advisors (CTAs) become and remain members of at least one registered futures association (RFA). Currently, the National Futures Association (NFA) is the only RFA.

The Commission is proposing new Section 170.17 to address recent changes to the Commodity Exchange Act (CEA) by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Commission’s authority to regulate swaps. Currently, under Sections 170.15 and 170.16 of the Commission’s regulations, all registered futures commission merchants (FCMs), swap dealers (SDs) and major swap participants (MSPs) are required to become members of NFA. However, there is no mandatory membership requirement for other registrants. Through the interaction of the Commission’s rules and NFA Bylaw 1101, any IB, CPO or CTA required to be registered with the Commission that desires to conduct business directly with an FCM, SD, or MSP must become a member of NFA, and derivatively, must ensure that it conducts business only with those IBs, CPOs or CTAs that also are NFA members. However, due to the unique nature of swap transactions, it may be possible for certain IBs, CPOs or CTAs to not be captured by the intersection of Sections 170.15 or 170.16 and NFA Bylaw 1101, and therefore, it may be possible for these Commission registrants to serve clients without becoming members of NFA. The Commission intends the proposed rule to avoid this possibility.

The comment period for the proposed rule will remain open for 60 days after publication in the Federal Register.

ALLEGED FALSE STATEMENTS BRING ABOUT CFTC COMPLAINT AGAINST BLUE SKY CAPITAL MANAGEMENT CORP.

The following is an excerpt from the CFTC website: "CFTC Charges Blue Sky Capital Management Corp. and Gregory M. Schneider with Making False Statements to the National Futures Association Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a complaint charging Blue Sky Capital Management Corp. (Blue Sky) of Lebanon, Tenn., and its principal, Gregory M. Schneider of Mount Juliet, Tenn. The CFTC alleges they made false statements to the National Futures Association (NFA), the futures industry self-regulatory organization, which operates under CFTC oversight. The CFTC complaint, filed in the U.S. District Court for the Middle District of Tennessee, alleges that Blue Sky and Schneider willfully concealed material facts from and/or made false, fictitious, or fraudulent statements or representations to the NFA in connection with an NFA audit of Blue Sky conducted on or about October 21-23, 2008. At the time, Blue Sky was registered with the CFTC as a Commodity Pool Operator and a Commodity Trading Advisor, and Schneider was registered as Blue Sky’s sole Associated Person. Specifically, the complaint alleges that the defendants falsely represented that Blue Sky had only managed 10 customer accounts with an aggregate equity of approximately $20,000, that Blue Sky had managed customer accounts only since March 2008, and that Blue Sky had received no customer complaints. However, according to the complaint, the defendants failed to disclose that Blue Sky had managed approximately 80 other customer accounts in 2007 with an aggregate equity of approximately $1.2 million, which had net losses of approximately 30 percent of invested equity. Defendants also allegedly failed to disclose that a customer had complained to defendants repeatedly about his Blue Sky account prior to, and even during, the NFA audit. When confronted by the NFA in January 2009, the defendants allegedly made additional false, fictitious, or fraudulent statements regarding their failure to disclose the 2007 accounts and the customer complaint. In its continuing litigation against the defendants, the CFTC seeks permanent trading and registration bans, a civil monetary penalty, and permanent injunctions against further violations of federal commodities law. The CFTC appreciates the assistance provided by the NFA. In November 2009, the NFA permanently barred Blue Sky and Schneider from NFA membership."