INSIGHT: Understanding New NFA Swaps Proficiency Requirements

One year ago, the National Futures Association’s Board of Directors determined that associated persons engaging in swaps activities at futures commission merchants, introducing brokers, commodity pool operators, and commodity trading advisers (collectively, Swap APs), as well as individuals acting as APs at swap dealers, should be required to meet a minimum proficiency standard testing both their market knowledge and knowledge of regulatory requirements.

The Swaps Proficiency Requirements became available online on Jan. 31, and must be completed by all required persons by Jan. 31, 2021 (the compliance date).

The Swaps Proficiency Requirements are comprised of two tracks: long and short. Each track is module-based and contains a learning component and a testing component. The learning component of the modules must be viewed prior to entering the test for each module. Modules will appear in the order set forth in their assigned/chosen track (long or short), with the learning component of the module followed by the testing component.

No pre-test studying is required, as all relevant information is provided in the learning component. Once the AP enters the testing component, he or she may not re-enter the learning component. There is no time limit, and an AP may exit and re-enter the exam module at any time and the system will automatically save the person’s progress.

A score of 70% or greater is required to pass each module. An individual who receives a score of less than 70% on any module will be prompted to retake the failed module after the individual has completed the remaining modules in the track.

APs at SDs (and persons supervising such APs) must complete the long track, which consists of eight modules and a total of 100 test questions. Swap APs, on the other hand, must complete the short track, which consists of four modules and a total of 60 test questions. In addition to the modules included in the short track, the long track contains additional materials and related questions which are required pursuant to CEA rules for SDs such as: transactional disclosures, trade execution, clearing and margin requirements, risk management and supervision.

Applicability of the Swaps Proficiency Requirements to APs at non-U.S. SDs tracks the Commodity Futures Trading Commission’s cross-border interpretive guidance, and thus, the requirements applicable to an individual AP is dependent upon the type and location of an SD’s counterparty.

Thus, those individuals who limit their swap related activities to counterparties that are non-U.S. persons and/or non-U.S. branch offices of a U.S. SD are not required to satisfy NFA’s Swaps Proficiency Requirements.

NFA Swaps Proficiency Requirements Administrator

Each NFA member with APs required to take NFA’s Swaps Proficiency Requirements must designate at least one Swaps Proficiency Requirements Administrator (SPR Admin) who is required to coordinate enrollment and track progress. An SPR Admin must also be an online registration system (ORS) security manager, with primary responsibility and authority to establish and maintain security accounts for other users at the firm

The NFA has provided useful information regarding enrollment and reporting for SPR Admins on its website. An SPR Admin will have access to two types of reports in the system:

1. individual status by firm (identifies each Swap AP who is enrolled in the proficiency requirement, each attempt that the individual has made to pass the exam and the status of that attempt (pass or fail)); and
2. completion date by individual (reflecting each Swap AP’s date of successful completion of the proficiency requirement).

Guidance for Advisers to NFA Registrants

Individuals who are Swap APs or work as an AP at an SD must have satisfied NFA’s Swaps Proficiency Requirements by the compliance date to remain approved as a Swap AP or continue working as an AP at an SD after this date.

Although the deadline for successful completion of the Swaps Proficiency Requirements is still a number of months away, law firm advisers and compliance consultants should remind the SPR Admin at their clients to actively monitor and ensure compliance by all APs by the compliance date, particularly for large firms with numerous APs, where tracking and monitoring compliance may prove to be more challenging.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Akshay N. Belani is a partner at Stroock & Stroock & Lavan LLP and focuses his practice on the application of derivatives in trading, structured products, and capital markets. He is actively involved in the development of standardized documentation in the OTC and cleared derivatives markets, and regularly advises clients on issues related to Dodd-Frank derivatives reform.