In November the National Futures Association (NFA) named the candidates its nominating committee proposed for the upcoming Jan. 20 NFA board of directors election. Below is a position paper written by NFA board members John Roe and James Koutoulas, founders of the commodity customer coalition, in support of their re-election. Futures welcomes and encourages other candidates for the NFA board to share their positions and thoughts on the upcoming election. Please send your position papers (or comments) to email@example.com with NFA Election in the subject line.
POSITION PAPER OF JOHN L. ROE AND JAMES L. KOUTOULAS, ESQ.
Fellow CTA/CPO NFA Members:
We write to ask you to cast your vote for us in the upcoming election for Board of Directors of the National Futures Association. While Board confidentiality rules limit us somewhat in what we can disclose in terms of our tenure at the Board level, we can honestly say that we have shown the same zeal for representing your interests as we did in our pro bono representation of thousands of MF Global and PFG bankruptcy victims, and will continue to do so once reelected.
Since our election, we have continued standing up for the industry, especially for CTAs and CPOs that struggle to deal with ever increasing and changing regulation. If you deem us worthy of second terms, we will continue to work hard to balance customer protections with regulatory efficiency and reduce unnecessary or burdensome regulations that benefit no one.
Why This Election Is Important
If our bid for reelection fails, CTA/CPO representation would be dominated by the largest firms in the industry. This would mean that the firms with assets under management in the bottom 80% of CTA/CPO members would have no representative in their range of AUM. Some of these top firms were only required to register in the last two years (due to changes in regulation) and their business bears no resemblance to 95% of NFA registered CTA/CPO firms. Large firms are guaranteed a Board seat through NFA rules; small firms have to compete for a seat and the big firms are allowed to run against us in additional categories. We need your support to continue to represent the interests of small and emerging CTA/CPO firm— the supermajority of NFA Members— in NFA’s affairs.
Increased Member Involvement in Rulemaking
In our two years on the Board, we have accomplished much. We have increased communication between the Board, Staff, and NFA Members through periodic virtual town hall meetings and social media. Our efforts have played a significant role in persuading NFA staff to send its CTA/CPO Capital Requirements Proposal back to the drawing board, saving registered CTAs and CPOs from the cost and hassle of two annual internal audits that would have resulted in very little real protection for customers.
Added Protections to Customer Segregated Funds
We proposed, and won Board approval for, a rule change permitting FCM customers to pursue arbitration against individual FCM principals in the event of a future FCM bankruptcy with a shortfall in segregated funds of at least $50M. This is an additional deterrent to FCM staff who may think about "Corzineing" funds in the future. Moreover, it is a much faster and more costeffective means to pursue damages from purloined customer funds than traditional litigation. Independently of NFA through the CCC, we have met with a large number of Congressional Members, their staffs, and Agriculture committee members in both the House and Senate, to push for increased customer protections in the event of future FCM bankruptcies. We have also worked with FIA and pushed the NFA to support such protections, which helped get a customer protection bill passed in the House of Representatives. We will continue to advise Members of the Senate and work with other industry groups to see this and other measures pass into law.
Provided Stringent Corporate Governance and Technical Expertise
While on the Board, we have prioritized acting in our fiduciary capacity as Directors above maintaining consensus and the status quo. While we have acted professionally, we have not hesitated to raise difficult issues to NFA staff and have advocated for changes to executive compensation, audit practices, due diligence and nomination procedures for public Directors, and tighter scrutiny for Members whose affiliates have committed crimes.
We have also provided technical expertise to NFA staff, such as in implementing treasury safeguards during the forced liquidation of firms following MRAs, and improving the cyber security of Member data stored by NFA.
Increased CTA/CPO Representation on Board
After the Board's structure was changed by the addition of the Swap Dealer Representatives to create a Board composition of 18 sellside firms versus 4 buyside firms, we have advocated relentlessly to balance that representation. Thus far, we have succeeded in having the Board approve a 5th CTA/CPO seat to provide for representation for firms in the top 5% of AUM. If you reelect us, we will continue to press for more equality for the buyside at the Board level, and ensure that CTAs and CPOs of all sizes have their interests represented, something NFA rules currently do not provide for.