Financial Industry Entry Qualification Processes Overview Part I

Overview of Financial Industry Entry Qualification Processes Part I Gibson Hull Associate Corporate Counsel CWG/MCWG June 19, 2019

Introduction ERCOT has reviewed registration/qualification requirements/processes for the following organizations within the financial sector: U.S. Commodity Futures Trading Commission (CFTC) National Futures Association (NFA) U.S. Securities and Exchange Commission (SEC) Financial Industry Regulatory Authority (FINRA) Texas State Securities Board (TSSB) Chicago Mercantile Exchange (CME) Chicago Board of Trade (CBOT) New York Mercantile Exchange (NYMEX) Commodity Exchange (COMEX) ERCOT will be conducting similar reviews for: The Nasdaq Stock Market (NASDAQ) The Intercontinental Exchange (ICE) London Metal Exchange (LME) Private application process; not able to conduct thorough review 2 PUBLIC

National Futures Association (NFA) Designated by CFTC to oversee registration of firms and individuals that trade derivatives Registration: General information gathering Criminal, financial, regulatory, bankruptcy, and civil judicial disclosures Qualifications: National Commodity Futures Examination (NCFE), Series 3, Series 30-32 Financial statements certified by an independent public accountant Application Review: Background check: education records, military status, employment status, foreign activities, RAP sheet, etc. Timeline: As long as necessary to complete background checks Authority to reject an application based on standards of fitness Appeals: NFA Appeals Committee CFTC 3 PUBLIC

Financial Industry Regulatory Authority (FINRA) Designated by SEC to oversee registration of securities brokers/dealers, and investment advisors Registration: General information gathering Criminal, financial, regulatory, bankruptcy, and civil judicial disclosures Qualifications: (FINRA rule 1014(a)) Pass Securities Industry Essentials (SIE) exam and appropriate Series qualification exam (Series 7, etc.) Capable of complying with the law; has appropriate financial controls, net capital, communication and operational systems, supervisory systems, records keeping system, etc. Application Review: (FINRA rule 1014(b) and (c)) Background Check: education records, military status, employment status, foreign activities, RAP sheet, etc. Timeline: Firms have 30 days to submit form to register new hires, and FINRA has 15 days to complete the background checks If applicant does not meet qualifications, a presumption exists that the application should be denied Appeals: Process set out in FINRA rules 1015-1019 4 PUBLIC

Texas State Securities Board (TSSB) Responsible for administering and enforcing the Texas Securities Act (TSA); Oversees registration of brokers, dealers, and investment advisors that operate in Texas Registration: Substantially similar requirements to FINRA Uses FINRA forms and online application program Not required to be FINRA member; Would have to submit forms directly to the TSSB Required to reregister once a year Qualifications: Substantially similar to FINRA Application Review: Background Check: education records, military status, employment status, RAP sheet, bankruptcy, etc. Timeline: 14 days 5 PUBLIC

Chicago Mercantile Exchange (CME) A derivatives marketplace that includes the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX), and the Commodity Exchange (COMEX); Membership provides reduced rates and fees when trading specific products Registration: General information gathering Criminal, financial, regulatory, bankruptcy, and civil judicial disclosures Qualifications: Application includes consent to a background check Must register with the NFA as a Floor Trader or Floor Broker to access the trading floor Review of Application: Timeline: Minimum of four weeks 6 PUBLIC