The National Futures Association, the self-regulatory organization of the U.S. futures industry that is assuming greater responsibilities to regulate swaps participants, is seeing a jump in Series 3 exams and registrations.
Test taking for the Series 3 are up over 250% in November versus the average monthly exams from January to July of this year, according to statistics NFA provided to John Lothian News. NFA statistics showed 822 exams were taken in November versus an average of 326 from January to July. In August 448 exams were taken, September 447 and October 756.
Also, the NFA’s statistics on fingerprint cards submitted and sent to the FBI showed an increase in October of over 250% from the January to August average. October saw 1229 fingerprint cards submitted to the FBI, versus an average of 436 per month from January to August of 2012. Cards submitted to the NFA in September totaled 789.
A Series 3 registration is required of any individuals engaged in selling futures contracts in the U.S. and who is going to act as an Associated Person, Commodity Trading Advisor, Commodity Pool Operator, Introducing Broker, or Futures Commission Merchant.
The increase in registrations has been driven by three main factors. The CFTC’s incorporation of the word “swap” into the definition of Commodity Pool Operator (“CPO”), Commodity Trading Advisor (“CTA”) and Introducing Broker (“IB”) is one factor. Also, the CFTC has narrowed the registration exemption for CPOs in rules 4.13 and 4.5. And there is the trend towards the futurization of swaps.
With futurization, derivatives contracts that formerly would have counted toward the de minimis threshold for swap dealer designation under the new regime mandated by the Dodd-Frank Act are now being listed and traded as futures contracts. With clearer rules and more relaxed margin requirements, futurization is quickly gaining traction at the CME Group and Intercontinental Exchange while the CFTC struggles to complete swap rules.
Individuals working for swaps dealers were not required to register with the CFTC, though firms were required to conduct background checks on their employees for anyone defined as an Associated Person.
Futurization could have implications for the NFA in terms of its governance structure and quash talk of a potential name change. In August, the NFA unanimously ratified a proposal to amend the NFA’s Articles of Incorporation to increase the size of the NFA board. That move was designed to provide representation for the swap dealer community. But the level of representation could change from what was recommended and ratified, if futurization drives more futures volume than swaps volume.
And if fewer swap dealers get registered, or fewer Swap Execution Facilities, or SEFs are formed, then the number of new swap related representatives on the NFA board could be reduced.
Likewise, if swap dealer volume and registrations are not what they were once forecast, and most swaps trade as futures, then a new name for the National Futures Association may well be less likely.