Pay the Piper or Remain Quiet!
-by Benjamin Kerpe
Notice to Members I-08-14
March 19, 2008
Amendment to Code of Arbitration
Explanation of Rule Change
On March 13, 2008, the Commodity Futures Trading Commission approved an amendment to Section 9 of NFA's Code of Arbitration. This rule change imposes a $525 fee on any party who requests an oral hearing for a claim that would otherwise be processed as a summary proceeding. The amendment will become effective for all claims filed on or after April 1, 2008.
The Code provides that all cases with claim amounts of $25,000 or under are administered by a summary proceeding where one arbitrator decides the case based on the parties' written submissions. However, for claims between $15,000.01 and $25,000, the Code allows the proceeding to be changed to the oral hearing if one of the party requests. NFA devotes significantly more resources to matter processed as an oral hearing and the costs associated with the matter increase.
In order to recover some of these increased costs, NFA will impose a $525 fee upon the party requesting an oral hearing in a case originally filed as a summary proceeding. This fee represents the additional fees NFA would have collected had the matter fallen in the oral hearing category at the time it was filed. NFA believes it is appropriate to assess the entire fee against the party requesting an oral hearing since that party is seeking to change the way the matter is administered.
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If you have any questions regarding this Notice or the changes to the arbitration rules, please contact NFA's Arbitration Department at (800) 621.3570.
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Now my view:
It’s sad to hear that the NFA is experiencing increased costs but let’s take a moment to think about things. Commodities are hotter than ever before and the industry is booming. Each trade that is executed the NFA collects a small fee. The more trades the more revenue received by the SRO and in this case the NFA can only have increased revenues.
The other thought is that it is the NFA who makes it a practice to conduct destructive audits. Don’t get me wrong, audits are necessary, but from my personal experience and others that have shared their stories, the audits have been extremely proactive rather than reactive where complaints would trigger and justify such an audit.
A proactive audit is one that the NFA attempts to lure the clients of a commodity brokerage in for arbitration. For example, in my situation the NFA had to call all my clients of the past to inquire about losing money and sales practice.
Furthermore, the One client who eventually decided to make a complaint 3 years later doesn't get a dime and all the Fines go directly in to the hands of the NFA.
Another popular tactic is where the NFA signs up for information from your company and waits for a commodity broker to call. When asked if the undercover NFA associate knows about commodities they play dumb and make no mention of their involvement with commodities. Now I can’t defend poor sales practice but,, on the same note, I cannot tolerate a regulator that demands its members to be above board when they are way below.
It is our belief that the big money maker of the NFA happens to be large payouts disciplined firms make in order to stay in the game. So if more firms are taken to arbitration isn’t it in the NFA’s best interest to make them pay the piper?
Benjamin Kerpe