Commodity Futures and Options Rules and Regulations (CFTC and NFA)
Two rulebooks, one standard of conduct
The Commodity Exchange Act gives the CFTC exclusive jurisdiction over futures and options on futures, and the CFTC has delegated substantial registration and disciplinary authority to the NFA as the registered futures association. Members answer to both. Learn the registration categories - FCM, introducing broker (guaranteed or independent), CPO, CTA, associated person, floor broker and floor trader - because many violations begin with someone acting in a capacity for which no registration exists. NFA Bylaw 1101 forbids a Member from soliciting or accepting an order from anyone who must be registered but is not. CFTC Part 4 governs CPO/CTA offerings, including disclosure documents under 4.21 and 4.34; Part 150 sets speculative position limits and aggregation; Parts 17 and 18 cover large-trader reporting; and Part 1 carries the order, recordkeeping and risk-disclosure mandates, including the options risk disclosure statement under Regulation 1.55. CEA Section 4c(a) bans wash trades, fictitious sales and money passes.
Traps: assuming NFA rules apply only to FCMs (they bind every Member, including IBs and CTAs); forgetting that a guaranteed introducing broker still must register even though the guarantor assumes financial responsibility; overlooking aggregation of accounts under common control for position limits; and treating an exempt CPO or CTA as free of all obligations when notice filings and anti-fraud standards still apply.
Worked example: a branch AP is asked to take orders from an offshore entity directing trades for several U.S. customers. That entity is acting as an unregistered CTA or IB. The branch may not accept the orders until the entity registers or a valid exemption is documented.
Rule of thumb: registered or exempt - otherwise, no order.