NFA Arbitration

Boca Raton, Florida Commodity and Commodity Futures Attorney, Russell Forkey, Esq.

The National Futures Association (NFA) is an industry wide, self-regulatory organization overseeing the United States future markets. It is an independent regulatory organization with no ties to any specific market place. Membership, in the NFA, is mandatory for everyone conducting business with the public on the U.S. futures exchanges.

One of the services provided by the NFA is the administration of a dispute resolution forum, which is subdivided into mediation and arbitration services. The significance of this is that, as a member of the NFA, members are subject to mandatory arbitration if the customer so elects. Section 2 of the NFA Rules, labeled "Arbitrable Disputes" provides as follows:

(a) Mandatory Arbitration.

(1) Claims. Except as provided in Sections 5 and 6 of this Code with respect to timeliness requirements, the following disputes shall be arbitrated under this Code if the dispute involves commodity futures contracts:

(i) a dispute for which arbitration is sought by a customer against a Member or employee thereof, or Associate, provided that:

(A) the customer is not an FCM, floor broker, Member or Associate;

(B) the dispute does not solely involve cash market transactions that are not part of or directly connected with a commodity futures transaction; and

(C) if brought against a Member or employee thereof, the Member is an FCM, an RFED, an IB, a CPO, a CTA or an LTM.

(ii) a customer claim that is required to be arbitrated by NFA under a lawful agreement that complies with Commission Rule 166.5.

(iii) a customer claim whose resolution has been delegated to NFA by a contract market.

(2) Counterclaims, Cross-claims and Third-party Claims. Except as provided in Sections 5 and 6 of this Code with respect to timeliness requirements, a counterclaim, cross-claim or third-party claim may be asserted in an arbitration brought under this Code if the counterclaim, cross-claim or third-party claim arises out of an act or transaction that is the subject of the Arbitration Claim.

(b) Disputes Which May Be Arbitrated in the President's Discretion.

(1) At the option of any party, the securities portion of a dispute involving unrelated futures and securities claims may, in the President's discretion, be arbitrated under this Code if the timeliness requirements of Sections 5 and 6 of this Code are met.

(2) Except as required by the Member Arbitration Rules, other disputes involving commodity futures contracts between or among customers, Members, or Associates may, in the President's discretion, be arbitrated under this Code if the parties agree or have agreed to such arbitration and the timeliness requirements of Sections 5 and 6 of this Code are met.

In addition to the mandatory arbitration requirements set forth above, the agreements that a customer executes with an introducing broker may contain an arbitration agreement. If it does, the arbitration agreement must comply with Commission Rule 166.5, which is too lengthily to set forth herein. .

Important distinction between NFA and FINRA arbitrations: As an investor, you will notice that there are many attorneys that advertise in the newspaper and on television and radio seeking clients that have disputes with securities firms. These disputes are usually arbitrated before the Financial Industry Regulatory Authority (FINRA), a self-regulatory authority overseeing securities broker/dealers and account executives. One of the big differences between an NFA arbitration and a FINRA arbitration is eligibility period of time that an investor has to file his or her claim.

Pursuant to FINRA Rule 12206, a FINRA arbitration claim can be commenced within six years from the event or occurrence giving rise to the claim. This is in contrast to the NFA eligibility rule (Section 5), which provides in relevant part that

"No Arbitration Claim may be arbitrated under this Code unless an Arbitration Claim or notice of intent to arbitrate (see Sections 6(a) and (c)) is received by NFA within two years from the date when the party filing the Arbitration Claim knew or should have known of the act or transaction that is the subject of the controversy...NFA shall reject any claim that is not timely filed. If, in the course of any arbitration, the Panel determines that the requirements of this section have not been met as to a particular claim, the Panel shall thereupon terminate the arbitration of the claim without decision or award."

Please keep in mind that there is a difference between a claim being eligible for submission to arbitration and statute of limitation issues.

Because of the eligibility distinction between NFA and FINRA arbitrations, it is important to contact a qualified attorney to discuss your complaint as soon as possible as it may take some time to reconstruct what actually happened to you so that the legal basis of your complaint can be determined, put forth in a claim and filed. Although, with NFA proceedings, if you are approaching the two-year time limit for filing a claim, you may submit what is called a "Notice of Intent to Arbitrate". A Notice of Intent does not obligate you to file a claim, however, it does temporarily toll (or stop) the two-year time limit to provide you with a little extra time to file your claim. NFA must receive the Notice within the two-year time limitation period in order to extend the time period allowed to file a claim.

Another distinction between a NFA and FINRA arbitration is that: (1) in a FINRA arbitration. the client must sign a submission agreement agreeing to submit the matter in controversy to arbitration and to abide by the FINRA arbitration rules: and, (2) in an NFA arbitration submission the following attestation must be included in the claim or answer "The undersigned certifies that, to the best of his/her knowledge, information and belief, formed after a reasonable inquiry, the statements set forth in this pleading are true and correct."

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