What Is NFA Compliance Rule 2-43b?
NFA Compliance Rule 2-43b, implemented in 2009 by the National Futures Association (NFA), states that forex dealer members (FDM) and retail foreign exchange dealers (RFED) can't allow clients to hedge and must offset positions on a first-in-first-out (FIFO) basis.
Key Takeaways
- NFA Compliance Rule 2-43b, implemented in 2009 by the National Futures Association (NFA), states that forex dealer members (FDM) and retail foreign exchange dealers (RFED) cannot allow clients to hedge and must offset positions on a first-in-first-out (FIFO) basis.
- Rule 2-43b bans price adjustments to executed customer orders, except to resolve a complaint that is in the customer's favor.
- Rule 2-43b supporters say it increases transparency for customers and brings forex trading practices in line with those of the equities and futures markets.
Understanding NFA Compliance Rule 2-43b
Rule 2-43b was implemented by the U.S. forex (FX) industry's self-regulatory organization, the National Futures Association (NFA). It's known as the "FIFO rule" and, essentially, eliminates hedging. Hedging in forex trading is where a trader will have both a long and a short position in a single currency pair at the same time, offsetting each other.
Rule 2-43b prohibits the dealers from allowing this practice by requiring that multiple positions held in the same currency pair be offset on a first-in, first-out (FIFO) basis. It also bans price adjustments to executed customer orders, except to resolve a complaint that is in the customer's favor. The rule also limits changesto certain straight-through processing transactions. These changes must be reviewed, approved, and documented by the NFA.
The National Futures Association (NFA) implemented the rule in 2009. It applies to all brokers and traders who fall under the NFAs jurisdiction. The NFA is a self-regulating organization, and mandatory membership is critical to allowing the organization to enforce its rules and policies. Its membershiprequirement applies to virtually all registered forexprofessionals working in roles which include all registered:
In Dec. 2017, the NFA approved an amendment to Rule2-43b. Under the amendment, price adjustment prohibition doesn't apply when a forex dealer member adjusts all orders in customers’ favor to rectify situations that are beyond the customers' control. An example would include incidents where there are issues with third-partyvendors.
The passage of 2-43b saw a mass exodus of trading capital to offshore forex dealers that still allowed "hedging." While this might be a viewed as a boon by the forex customers that utilize this as part of their trading strategies, they run the risk of being more susceptible to fraudulent practices at the brokerage level, given that the offshore firms aren't held to the same regulatory requirements as their U.S.-based counterparts.
Traders refer to 2-43b as the FIFO rule. This first-in, first-outpolicy means that traders must close the earliest trades first in situations where several open trades-in-play involve the same currency pairsand are of the same position size.The rule's supporters say it increases transparency for customers and brings forex trading practices in line with those of the equities and futures markets.
This involvedsome initial adjustments on a practical level for the affected firms. The forced many forex firms to change their trading platforms because older software allowed users to choose which orders they wanted to close out. By empowering customers, the older software didn't comply with the FIFO rule. Under the new rules, stop and limit orders can be placed, but they must now be input differently.
FAQs
Traders refer to 2-43b as the FIFO rule. This first-in, first-out policy means that traders must close the earliest trades first in situations where several open trades-in-play involve the same currency pairs and are of the same position size.
What is the NFA compliance rule 2 43b? ›
(b) Offsetting Transactions
Forex Dealer Members may not carry offsetting positions in a customer account but must offset them on a first-in, first-out basis.
What is NFA compliance Rule 2 34 A? ›
Compliance Rule 2-34(a) provides that Member CTAs may include interest earned on actual funds but may not impute interest on other funds when calculating net performance. The CTA must be able to verify the amount of interest earned on the funds if the CTA includes that interest as part of its net performance.
Who does NFA compliance rule 2 4 apply to? ›
NFA Compliance Rule 2-4 requires all Members and Associates to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their commodity futures business. This includes a requirement to deal fairly with customers and other market participants at all times.
What is NFA compliance Rule 2 37 A? ›
This rule applies to Members registered as broker-dealers under Section 15(b)(11) of the Exchange Act and their Associates. (a) No Member or Associate shall violate Sections 9(a), 9(b), or 10(b) of the Exchange Act or any applicable regulation thereunder in connection with any security futures product.
What does NFA rules apply mean? ›
The National Firearms Act of 1934 (NFA) requires the registration, with the federal government, of fully-automatic firearms (termed “machineguns”), rifles and shotguns that have an overall length under 26 inches, rifles with a barrel under 16 inches, shotguns with a barrel under 18 inches, and firearm sound suppressors ...
What is the rule 2 3 of the NFA compliance? ›
RULE 2-3.
No Member or Associate shall share, directly or indirectly, in the profits or losses accruing from commodity interest trading in any account of a customer carried by the Member, or another Member, unless the customer's prior written authorization is therefore obtained.
What is the NFA compliance rule 2 36? ›
NFA Compliance Rule 2-36(e) places a continuing responsibility on every Forex Dealer Member (FDM) to diligently supervise its employees and agents in all aspects of its forex activities, and Compliance Rule 2-39 applies this same requirement to Members who solicit, introduce, or manage forex customer accounts.
What is the NFA compliance rule 2 46? ›
NFA Compliance Rule 2-46 requires NFA Member CPOs and CTAs (with reporting requirements under CFTC Regulation 4.27) to file NFA Forms PQR and PR, respectively, on a quarterly basis.
What is NFA compliance Rule 2 24? ›
Additionally, Compliance Rule 2-24 prohibits an SD or MSP from having associated with it any individual who is acting as an associated person as defined in subsection 6 of the Associated Person definition under CFTC Regulation 1.3 who has not satisfied NFA's Swaps Proficiency Requirements.
NFA has the authority to take disciplinary actions against any Member or Associate that violates its rules. If an NFA Member or Associate engages in conduct that puts customers, the futures markets, or other Members at risk, immediate action will be taken accordingly.
Who fills out Form 4 for suppressor? ›
The ATF Form 4 is one of the most common forms that NFA firearms and silencer buyers will encounter. It's the form that has to be filled out to transfer an NFA item from the owner to the buyer. Oftentimes, this will be a dealer selling to a customer.
What is the NFA compliance rule 2 23? ›
Additionally, NFA Compliance Rule 2-23 provides that a guarantor FCM or RFED (i.e., FDM) is jointly and severally subject to discipline by NFA for violations of NFA Requirements committed by an IB guaranteed by the FCM or FDM, and NFA's Business Conduct Committee has initiated disciplinary action under Rule 2-23 in ...
What is NFA compliance Rule 2 43b? ›
NFA Compliance Rule 2-43b, implemented in 2009 by the National Futures Association (NFA), states that forex dealer members (FDM) and retail foreign exchange dealers (RFED) cannot allow clients to hedge and must offset positions on a first-in-first-out (FIFO) basis.
What is NFA Rule 2 34? ›
NFA Rule 2-34 requires a CTA that advises partially funded accounts to have a written agreement with each relevant client detailing the trading program and the nominal size of the account (i.e., the account size that will be used to establish the level of trading in a particular trading program).
What is NFA compliance Rule 2 45? ›
Therefore, NFA Compliance Rule 2-45 prohibits CPOs from permitting a commodity pool to use any means to make a direct or indirect loan or advance of pool assets to the CPO or any other affiliated person or entity.
What is the NFA compliance rule 2 45? ›
Therefore, NFA Compliance Rule 2-45 prohibits CPOs from permitting a commodity pool to use any means to make a direct or indirect loan or advance of pool assets to the CPO or any other affiliated person or entity.
