Security Futures Products: A Regulatory Guide - National Futures ...

• Direct compliance personnel to investigate suspicious activity and
document the investigation.
Employee Training
• Ensure that each employee is provided with understandable information
about securities laws, NFA rules, and the firm’s own policies and
procedures regarding the use of material, non-public information.
• Require each employee to agree in writing that he or she will comply
with the securities laws, NFA rules, and the firm’s policies and
procedures regarding the use of material, non-public information.
Include this affirmation in a separate document, a confidentiality
agreement, or the firm’s code of conduct. For employees in the
research department, provide for periodic (e.g., annual) reaffirmations.
• Provide updates to employees regarding changes to the law, NFA
rules, and the firm’s policies and procedures.
• Instruct staff with access to material, non-public information not to
discuss the information in places where it can be overheard or using
communications systems that are not secure.
Firewalls
• Separate the research, trading, and sales departments. Use physical
barriers (e.g., separate rooms) where feasible.
• Restrict communications between the research, trading, and sales
departments.
• Limit access to files, databases, and facilities where material, non-public
information is kept.
Record-keeping
• Write clear procedures and include them in the firm’s procedures manual.
Procedures may be flexible but should not be vague.
• Maintain copies of employee affiliation lists, watch lists, and documentation
of reviews and investigations for the period required by CFTC
Regulation 1.31.
Enforcement
• Take appropriate disciplinary action for any violation.
• Report serious violations to NFA. Report violations of the securities laws
to both NFA and the SEC. Report potential violations to NFA and/or the
SEC, as appropriate, if investigation is still in progress but conduct may be
continuing or if findings are inconclusive.
Other
• Remind employees that they cannot ignore suspicious activities by
customers. 5 Include examples of suspicious activities and procedures
to follow in notifying appropriate personnel.
5
Although the intent of these procedures is to prevent the misuse of material, non-public
information by the firm and its employees, the firm should not ignore suspicious activity
by a customer. Section 20(f) of the Securities Exchange Act of 1934 provides that the
SEC can take an enforcement action against “any person that knowingly provides
substantial assistance to another person in violation of [the securities laws].” Any
Member or Associate that closes its eyes to illegal activity may also violate NFA Compliance
Rule 2-4.
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