CPOs Must Provide Information to Fund Investors
Below is guidance just provided by the NFA regarding MF Global. Commodity Pool Operators must provide investors with a disclosure regarding the fund’s assets held at MF Global. Additionally, if the CPO is soliciting new investors for the fund, the CPO will need to amend their disclosure document and have the disclosure document reviewed by the NFA prior to first use.
Please contact us if you need help with respect to any of the items discussed in the NFA memo below.
November 1, 2011
Proposed Guidance for CPOs with Pool Funds Held at MF Global, Inc.
NFA recognizes the need for our CPO Members to keep their pool participants informed as to what has occurred with MF Global, Inc. (MF Global) and how it may affect future operations. In this regard, NFA, in consultation with the CFTC, is providing guidance on disclosures that CPO Members with pool funds held at MF Global must make to their participants. At a minimum, CPO Members must provide their pool participants with a disclosure statement that includes the disclosures summarized below. Members are also encouraged to provide any additional disclosures that are necessary given their specific business operations.
If you are a Member operating a pool that has pool funds held at MF Global, you must make the following disclosures:
- On October 31, 2011, MF Global reported to the SEC and CFTC possible deficiencies in customer segregated accounts held at the firm. As a result, the SEC and CFTC determined that a SIPC-led bankruptcy proceeding would be the safest and most prudent course of action to protect customer accounts and assets, and SIPC initiated the liquidation of MF Global under the Securities Investor Protection Act.
- As of (insert date) approximately $XXX of (Name of Pool)’s assets were on deposit in an account(s) at MF Global. These assets represent XX% of the (Name of Pool)’s net asset value of $XXX.
- The General Partner does/does not believe that these actions will have a material impact upon the operations of (Name of Pool) and its ability to:
- Satisfy redemptions requests;
- Adequately value redemption requests and the manner in which they will be handled;
- Accept new subscriptions in (Name of Pool) and properly value the net asset value for new subscribers; and
- Provide for accurate valuation in the (Name of Pool)’s account statements provided to participants.
- Participants are cautioned that there can be no assurances:
- That (Name of Pool) will have immediate access to any or all of its assets in accounts held at MF Global; and
- As to the amount or value of those assets in the context of the bankruptcy.
- Participants should also be aware that future actions involving MF Global may impact (Name of Pool)’s ability to value the portion of its assets held at MF Global and/or delay the payment of a participant’s pro-rata share of such assets upon redemption.
The above disclosures must be provided to current pool participants through a separate written communication. In addition, Members who have a current disclosure document and plan to solicit new participants must ensure that they have updated their disclosure document to include these disclosures. In this regard, please remember that all amended disclosure documents must be submitted to NFA for review prior to use.
Further, with respect to the valuation of pool assets and redemptions, each Member is urged to consult with its CPA to ensure these items are reported in accordance with generally accepted accounting principles or international financial reporting standards, as applicable.
If you have any questions, please do not hesitate to contact the following individuals:
Mary McHenry at (312)781-1420 or at firstname.lastname@example.org
Tracey Hunt at (312)781-1284 or email@example.com
Todd Maines at (312)781-1560 or at firstname.lastname@example.org
Cole-Frieman & Mallon LLP is an investment management law firm which provides CPO registration and compliance services. Bart Mallon can be reached directly at 415-868-5345.