Published On: Sun, Jun 17th, 2018

New NFA Regulations Compel Swaps Traders To Take Tests

A new set of regulations have been announced by the National Futures Association (NFA). The regulations are specifically targeting the swaps trading market in the futures market. This is not the first time that changes are being made to the rules. It has however been a long time since such changes were made to the Commodity Exchange Act. The new rules will regulate how the swaps trading will be performed going forward. They will include the introduction of a proficiency program as stated by the US regulator.

Other areas have previously been covered by the proposed law. Over the many years of its existence, the proficiency requirements program has managed almost every aspect of futures trading apart from the swaps trading. There have been numerous changes over the years on these regulations that were first introduced in 1936. While the initial rules that were instituted have been around for over 80 years, the proficiency requirements program itself has only been around for just over 30 years as it was introduced in 1988. The particular sections under review though have only been around for a number of months as there was an amendment made last year.

How the market operated without the regulations 

Before the amendments were made, the futures market had general proficiency requirements governing various areas of futures trading. The only exception was the swaps trading segment which was not explicitly covered by the requirements. Government regulations of futures trading are common all over the world. The CFD market covers a number of commodities. As reported by Admiral Markets, there is a great correlation between the market and the regulations that a government puts in place. The new proficiency requirements will demand that all individuals in the swaps trading take tests. This will mean that the whole futures trading market will now be covered by the proficiency tests.

Changes that will be brought by the new rules

The new regulation has some far-reaching effects on both traders and the market in general. For one, there will be more accountability on the part of traders. Other than that, the new regulations will also make it easier for the NFA to have a deeper insight and oversight over the market. While there have not been any major causes for the establishment of the new requirements, a gap always seemed to exist in the area before the regulations. The NFA will be giving approval to individuals only after they have taken the tests. As per the new rules, an individual must take the test and pass it within 2 years after making an application. 

The requirements are also quite broad and specific. Almost all the participants of the swaps trading market will take the test. This includes traders and brokers alike. The regulations have explicitly indicated that all the functions covered in the swaps trading are targeted and thus all the personnel involved in the areas must be tested and approved. Even those working under the main participants like the commodity pool operators and even futures commission merchants will take the test.

Even though the announcement about the new proficiency requirements is now out in the open, the specific details about the contents of the tests are yet to be known. This is because the regulatory authority is yet to craft the mechanisms, rules, and material that will characterize the tests. The specifics are still being discussed and the tests themselves are in the development stage. Much of the information concerning them will thus come at a later time. Even though the nitty-gritty of the content is not known, it is easy to guess which key areas will be covered. The futures market is all about what happens inside it. Areas like market knowledge and familiarity with its requirements will thus be the likely topics.

No cause of panic for swaps traders

Many participants in the swaps market who have received the news of the new requirements have had mixed feelings. This is expected though, as it is usually the case with most regulatory changes. There is no cause for panic though as there is a strong commitment by the NFA to engage with the participant in the market. This is at least what the agency itself has stated. The changes will also probably not be instituted anytime soon. There will be at least two years before they go live and market participants will have enough time to consult and make any necessary inquiries.

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