NFA Adopts Series 3 Exemption and Waiver for Certain Associated Persons who Engage in Swap Activities and Adopts Swaps Designation for Members

October 10, 2012

Exemption From Series 3 Exam Requirement

Registration with the Commodity Futures Trading Commission (“CFTC”) as a Commodity Pool Operator (“CPO”) or Commodity Trading Advisor (“CTA”) includes a requirement that a firm’s Associated Persons (“APs”) satisfy the proficiency requirements set forth in the National Futures Association (“NFA”) Registration Rules. The proficiency requirements may be fulfilled by passing the Series 3 exam or obtaining an exemption or waiver from the exam. The NFA recently amended its Registration Rules1 to add (i) an exemption from the Series 3 exam requirement for APs whose activities are limited to swaps, and (ii) an additional waiver from the Series 3 exam requirement for certain APs of CPOs and CTAs who engage in swap activity.2 These amendments, which are effective immediately, are described below:

  • An AP of a CPO whose commodity interest trading is limited to swaps and who would otherwise be required to fulfill the exam proficiency requirement solely due to his firm’s swap trading activity will be automatically exempt from the proficiency requirement.
  • The amendments also provide a waiver from the proficiency requirement for APs of a CPO that would be exempt from registration under CFTC Regulation 4.13(a)(3) or excluded from the definition of commodity pool operator under CFTC Regulation 4.5(c)(2)(iii)(A) or (B) but for its swaps activities (i.e., the firm would meet the de minimis requirements if swaps were not included). A CPO that meets this requirement must request the waiver by submitting a signed request to the NFA. It is our understanding that these waiver requests will be routinely granted. When completing the proficiency requirements page of Form 8-R, the applicant should select the option that indicates that it intends to satisfy an “Alternative Proficiency Requirement” on behalf of its APs.

These exemptions also apply to an AP whose activities are limited to supervising other APs who are exempt from the Series 3 exam requirement. A similar exemption is provided for the APs of CTAs.

The NFA also amended its Registration Rules to clarify that a CPO that obtains a waiver on behalf of its APs must notify the NFA if it becomes ineligible for the waiver (e.g., commodity interest trading activity other than swaps exceeds the thresholds permitted under CFTC Regulation 4.13(a)(3) or CFTC Regulation 4.5(c)(2)(iii)(A) or (B)).

Required Approval as a “Swaps Firm” and “Swaps Associated Person”

The NFA also amended its Bylaw provision3 that governs NFA membership criteria and eligibility requirements to require that a registered CPO or CTA that engages in swap activity subject to CFTC jurisdiction be approved by the NFA as a “Swaps Firm”.4 The amendment also requires each AP of such firms to be approved as a “Swaps Associated Person”. These amendments are effective January 1, 2013, however, an NFA Member may request the swap designations for itself and its APs to be effective immediately. CPOs and CTAs that are already registered will need to obtain these approvals by January 1, 2013.

The amended Bylaw will require that in order for an NFA Member to be approved and maintain its status as a Swaps Firm, the NFA Member must have at least one principal that is registered as an AP and designated as a Swaps Associated Person. If the firm only has one such principal and that principal withdraws, the firm must have another principal register as an AP and be designated as a Swaps Associated Person or the NFA will deem the firm to have requested to have its swaps designation withdrawn.

Requesting approval as a Swaps Firm or Swaps Associated Person can be done electronically through the NFA’s online registration system.

See the NFA’s Notice to Members.

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If you have any questions regarding the changes described above or the CPO or CTA registration process, please contact an attorney in the Investment Management Group at Seward & Kissel.


1 NFA Registration Rules 401 and 402.

2 The exemption also applies to Futures Commission Merchants and Introducing Brokers.

3 NFA ByLaw 301.

4 Also includes Futures Commission Merchants and Introducing Brokers.