1. Account Opening

2. Introduction Process of opening accounts still very similar Disclosure statement required Written approval/disapproval

3. Disclosure Statement Standardized Disclosure Statement –Drafted by NFA, NASDR, and other SROs NFA Compliance Rule 2-30(b) –Amended to require Member to provide it at or before approval of account to trade security futures (SF)

4. Disclosure Statement For existing clients –Member can give it before or when they approve account to trade security futures Member does not have to get acknowledgement of receipt –Must be able to demonstrate that Member has provided SF disclosure statement to the customer

5. Disclosure Statement Content of SF disclosure statement: –Risks of SF transactions –Description of security futures –Margins –Customer account protection –Other issues such as corporate events

6. Segregation vs. SIPC Final rules have not yet been issued Under currently proposed rules : –FCM Notice Registered Broker-Dealers: Customer will not have a choice as to the type of account Automatically defaults to a futures account –Fully Registered Broker-Dealer FCM: Customer will have a choice between futures and securities account

7. Segregation vs. SIPC Under the proposed rules a Fully Registered Broker-Dealer FCM would be required to: –Establish written policies stating how customer positions will be held, –Make certain disclosures to customers regarding the nature and applicability of the protections that may be available to customers, and

8. Segregation vs. SIPC –Obtain a signed acknowledgement from each customer stating that the customer understands Which regulatory scheme governs the account, and That the account will not be protected under the alternative regulatory scheme

9. Customer Account Information Additional customer information required under NFA Compliance Rule 2-30(c)(5)-(9) –(5) Whether the customer account is for speculative or hedging purposes –(6) Customer employment status (name of employer, self-employed, retired) –(7) Customer’s estimated liquid net worth (cash, securities, other)

10. Customer Account Information –(8) Customer’s marital status and number of dependents –(9) Other information used/considered by Member in making recommendations to customer

11. Customer Account Information Existing customer accounts: –Member can obtain the additional information required under 2-30(c) through an addendum to the account agreement Members must document the information or create a written record that the customer declined –Now required for non-U.S. customers who trade security futures

12. Account Approval New Compliance Rule 2-30(j) Under 2-30(j)(1) –The Member must exercise due diligence to learn essential facts relative to customer including: customer’s investment objectives, and financial situation –And based on those facts (and information obtained under 2-30(c)) a supervisory person must approve or disapprove the account for trading SF

13. Account Approval Under this rule a Member FCM/IB is required to: –Have the account approved/disapproved by a DSFP (under Compliance Rule 2-7(b) or equivalent for NASD Members) –Maintain a written record of the approval/disapproval –Identify the person approving/disapproving the account, and

14. Account Approval The customer account records must contain information about the account including: –The name of the Associate –How the customer’s information was obtained –The date the disclosure statement for SF was provided

15. Account Approval Must adopt and enforce procedures that require: –Specific criteria and standards to be used in evaluating the suitability of a customer to engage in security futures, –Specific procedures for approving accounts to engage in SF, including requiring approval by a DSFP,

16. Account Approval –The DSFP must explain in writing why he/she approved account that does not meet the specific criteria and standards set forth in procedures, and –Specific financial requirements for initial approval and maintenance of customers account that engage in SF

17. Account Approval For existing accounts: –The Member must establish the procedures and apply them to those accounts. –The Member must obtain the additional information and then, based on the criteria or standards it has adopted, approve/disapprove each account in accordance with those standards

18. Case Study

19. Account Approval Account documentation under Compliance Rule 2-30(j)(2) –Unless the customer account information was received in writing, Members must forward: The background and financial information upon which the customer’s account has been approved to each customer who is an individual for verification within 15 days after being approved And, within 15 days, for any material change in the customer information that the Member becomes aware of

20. Account Approval Absent any notification to the contrary from the customer, the information is deemed verified

21. QUESTIONS?