Compliancex

What economic downturn? Business is booming at the National Futures Association, where increased regulatory activities have caused the operating budget to swell by 27 percent in the new fiscal year, to $60.8 million.

The self-supporting NFA, an industry regulatory body, keeps watch over futures commission merchants and commodities traders, as well as foreign exchange traders. But now, there are additional duties at hand: The NFA’s Fiscal Year 2013 began July 1, with budget adjustments born of new regulations from the U.S. Commodity Futures Trading Commission.

The National Futures Association is now taking on the extra task of regulating swap dealers and major swap participants. About 80 percent of the NFA’s $12.8 million increase in operating expenses is directly tied to regulating those players.

Swap dealers include investment banks dealing in swaps, where securities are traded for others in investment portfolios. A major swap participant is an entity that is not a swap dealer, but does hold substantial positions in swaps, or falls into one of several other enforcement categories.

“We will need significantly more resources in order for us to process registration of swap dealers and major swap participants and monitor these new classes of NFA members for compliance with NFA rules and CFTC regulations,” NFA President Dan Roth said in a statement.

With the increased budget, the National Futures Association plans to add about 60 new jobs, expand its Chicago office, and move its New York operation to larger offices.

In addition, the NFA has come up with a new rule under its Section 16, placing stiffer requirements on futures commission merchants to assure the safety of segregated customer funds. That became a major issue recently when Iowa-based PFGBest unexpectedly folded with $200 million in customer assets missing.

Over-the-counter markets will also be receiving closer scrutiny this fiscal year, said David Hawrysz, the National Futures Association’s chief financial officer and treasurer.

“Preparing this budget was particularly challenging this year because much of the increased spending is contingent on the CFTC’s actions – namely, implementing final rules and definitions pertaining to the OTC markets,” Hawrysz said.

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James Welsh is a financial writer specializing in compliance and securities fraud issues. He also authors the “Top 10” column at www.thestreetsweeper.org, and has held staff editing and writing positions at newspapers including The Times-Picayune of New Orleans and the Orange County (Calif.) Register.

Photo by: Stephen J. Serio