How to register as a CPO or a CTA

Many hedge fund managers choose to utilize futures and/or commodities in their trading purposes. Generally such managers will need to register as commodity pool operators (“CPO”) and as commodity trading advisors (“CTA”). The hedge fund itself will be deemed to be a commodity pool. For purposes of the Commodities Exchange Act (“CEA”), a future and commodity are functionally equal as it relates to hedge fund manager registration. Registration as a CPO or a CTA is an often overlooked part of the hedge fund formation process. Your attorney should discuss the requirements for registration and whether any exemptions from registration are available.

In addition to hedge fund managers, retail foreign exchange (“Forex”) managers may very soon be required to register because of the recently passed “Farm Bill.” The retail Forex markets have been very loosely regulated and the CFTC and NFA have been clamoring for authority to regulate this are of the markets. Accordingly, this article will give you the basics on how to register as a CPO and/or a CTA.

A very general outline of the CPO registration process is as follows:

Prerequisite – the Series 3 exam

Each CPO or CTA firm will need to have at least one Associated Person (AP). Generally an AP will be anyone in the firm who has contact with clients in something more than a purely administrative or clerical role. All managers and non-clerical employees will be APs. All APs must have passed the Series 3 exam. Information on the Series 3 exam:

  • Series 3 (National Commodity Futures Examination)
  • Cost: $95
  • Number of Questions: 120 True/False and Multiple Choice
  • Subject Matter: (part 1) Market knowledge and (part 2) U.S. regulations
  • Time: 2 hours 30 minutes
  • Passing Score: 70% for each part

Like the Series 65 exam, I highly recommend you spend plenty of time studying for the exam. If you would like some suggestions on various study guides, please let me know.

Filing the application forms with the NFA

During this process your compliance professional will: gain access to the NFA’s registration system on your behalf, input certain basic information on the Form 7-R (for your CPO/CTA firm) and Form 8-R (for the initial AP) – generally you will provide this information to your compliance professional prior to completing these forms, and submit the 7-R and 8-R on your firms behalf.

After the Form 7-R and 8-R have been submitted you will need to pay for registration ($200 registration fee for the CPO or CTA; $85 for each associated person or principal; $750 for NFA membership (this is an annual fee)). After payment has been submitted, the NFA will review your application. Typically registration should be complete within about 3-5 weeks. The next step will be to have your disclosure document approved by the NFA – your compliance professional can help you with this process.

You will be able to check on your registration through the NFA’s BASIC system.

Definitions

According to the CFTC website, the definition of CPO and CTA are as follows:

Commodity Pool Operator (CPO): A person engaged in a business similar to an investment trust or a syndicate and who solicits or accepts funds, securities, or property for the purpose of trading commodity futures contracts or commodity options. The commodity pool operator either itself makes trading decisions on behalf of the pool or engages a commodity trading advisor to do so.

Commodity Trading Advisor (CTA): A person who, for pay, regularly engages in the business of advising others as to the value of commodity futures or options or the advisability of trading in commodity futures or options, or issues analyses or reports concerning commodity futures or options.

Associated Person (AP): An individual who solicits or accepts (other than in a clerical capacity) orders, discretionary accounts, or participation in a commodity pool, or supervises any individual so engaged, on behalf of a futures commission merchant, an introducing broker, a commodity trading advisor, a commodity pool operator, or an agricultural trade option merchant.

37 thoughts on “How to register as a CPO or a CTA

  1. Pingback: Hedge Fund Podcast (August 18, 2008) at Hedgefund Podcasts

  2. Pingback: What licenses do you need to start or manage a hedge fund? | Hedge Fund Law Blog

  3. Pingback: | Hedge Fund Law Blog

  4. Pingback: NFA sends request for financials to Commodity Hedge Funds | Hedge Fund Law Blog

  5. Pingback: Hedge Fund CPO Exemptions | Hedge Fund Law Blog

  6. Pingback: Forex Disclosure Documents Overview Part I | Hedge Fund Law Blog

  7. Pingback: Submitting Forex Disclosure Documents to the NFA | Hedge Fund Law Blog

  8. Pingback: CFTC and NFA and Hedge Fund Regulation: Report by the GAO | Hedge Fund Law Blog

  9. Frank Morgan

    Regarding the question of “holding oneself out as a CTA”, I understood that there are somewhat different and less rigid requirements when dealing with a QEC(qualified eligible client). Please comment on this. Thanks

  10. Luke Spencer-Wilson

    We are a Cayman listed fund and were wondering what was the best route for our firm to go to reach out to US investores to feed into our already existing master feeder structure?
    We trade al listed future and commodities and forex in a macro Fund.
    So would it be best to for us to be
    CTA vs CPO vs LC ?
    What are the tax implications ?
    Burdens on us the Firm ?
    Costs to register ?
    How do investors view these entities ?
    SEC/ NFA/CFTC rules ?
    the speed at which you can set up /register ?
    I believe there are exemptions to registration .

  11. Pingback: NFA Rule Compliance Rule 2-45 Approved — Hedge Fund Law Blog

  12. Pingback: CTA and CPO Registration and Compliance Guide — Hedge Fund Law Blog

  13. Pingback: Disclosure Document Guidance for CTAs and CPOs — Hedge Fund Law Blog

    1. Hedge Fund Lawyer Post author

      Tim,

      Yes, both managers will need to pass the Series 3 exam. Additionally, if there is a branch office (that is, if the two managers have two different places of business), then one of the managers will need to be the “branch office manager” and pass the Series 30 exam.

      I will also be writing an article about “silent” owners as well.

      Hope this helps.

      Regards,
      Bart

  14. Pingback: CFTC Issues Report on NFA Registration Process — Hedge Fund Law Blog

  15. Pingback: NFA Changes Post CFTC Audit — Hedge Fund Law Blog

  16. Pingback: Litigation Statement for CTA and CPO Disclosure Documents — Hedge Fund Law Blog

  17. Pingback: Important Hedge Fund Articles — Hedge Fund Law Blog

  18. Pingback: Exemptive Relief from CPO Annual Audit Requirement — Hedge Fund Law Blog

  19. Pingback: NFA Petitions CFTC to Amend Rule 4.5 — Hedge Fund Law Blog

  20. Pingback: CTA Expo 2010 | November 3, 2010 — Hedge Fund Law Blog

  21. Pingback: Bunched Orders and Separately Managed Accounts — Hedge Fund Law Blog

  22. Pingback: NFA Provides Guidance for CPOs on Performance Fees — Hedge Fund Law Blog

  23. Pingback: CTA and CPO Foreign Language Disclosure Documents — Hedge Fund Law Blog

  24. Pingback: CTA and CPO Registration Form 8-R Changes — Hedge Fund Law Blog

  25. Pingback: NFA CPO/CTA Regulatory Seminar Recap — Hedge Fund Law Blog

  26. Pingback: NFA Adopts CPO Quarterly Reporting Rule — Hedge Fund Law Blog

  27. Pingback: NFA CPO & CTA Regulatory and Compliance Seminar — Hedge Fund Law Blog

  28. Roger Johnson

    Just found out from the National Futures Association, that if you’re a hedge fund with less than 15 people invested in the fund, you don’t need to be certified or to pass a series 3.

  29. Pingback: San Francisco Futures Professionals March Meeting | March 16, 2010 — Hedge Fund Law Blog

  30. Pingback: CFTC Regulation 4.8 for Commodity Pool Operators — Hedge Fund Law Blog

Leave a Reply