Series 34 Exam
Study Guide

NFA Interpretive Notice Regarding Forex Transactions

→ See NFA Bylaw 306 at: www.nfa.futures.org/nfamanual/NFAManual.aspx?RuleID=BYLAW%20306&Section=3

Forex Dealer Member (FDM) is an NFA member who acts a counterparty to forex transaction. It is a self-executing title, meaning that an NFA member is an FDM solely by nature of acting as a counterparty to forex transactions. No applications or approvals are required to be considered an FDM. If you do not act as a counterparty to a forex transaction (IB, CTA, or CPO), then you are not considered an FDM, but you may be subject to parts of NFA Rule 2-36 pursuant to NFA Rule 2-39.

The following are not FDMs and not subject to NFA Rule 2-36:

• financial institutions (e.g., banks and savings associations);
• certain insurance companies and their regulated subsidiaries or affiliates;
• financial holding companies;
• investment bank holding companies;
• registered broker-dealers that are members of FINRA; and
• Material Associated Persons of registered broker-dealers that are members of FINRA.

→ General Disclosures:

• Disclosure of characteristics and risks of forex transactions (members and associates should know what information has been provided to the customer)

→ Specific Disclosures:

• disclaimer regarding non-protection under the Bankruptcy Code
• manner in which member will be compensated for services
• 2 paragraph uppercase disclaimer re: trading not conducted on exchange, conflict of interest, trading exposure
• disclose bid and offer when customer enters an order
• duty to update information if a material change would make prior information misleading (member)

Reporting: NFA is concerned that the customer receives timely and accurate notice of account status:

• Confirmations: Written confirmation must be submitted within one business day of any account activity (including offsetting transactions, rollovers, deliveries, etc.). Information should include all costs, fees, commission, third party fees, etc.
• Monthly/Quarterly Summaries: If (1) there has been activity in an account during the month or (2) there are any open positions in the account at the end of the month, the FDM will need to provide a monthly summary of all forex transactions and other account activity to the customer. For customer accounts not fitting within the above, summaries should be provided quarterly.
• Delivery:  both confirmation and summaries may be transmitted by electronic means.

Supervision:

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