Tag Archives: CPO

NFA May Impose Capital Requirements, Other Restrictions on CPOs and CTAs

NFA Suggests New Rules, Solicits Comments from CPOs and CTAs

The NFA recently issued a Notice to Members that included a Request for Comments on a proposal to subject CPOs and CTAs to new rules. These rules, which include a minimum capital requirement for CPOs and CTAs, would be intended to protect customer funds and ensure that CPOs and CTAs have sufficient assets to operate as a going concern.

The NFA justified the need for these rules by citing 26 Member Responsibility Actions that were taken over the past 3 years, mostly against CPOs and CTAs for misuse of customer funds and/or misstatements of net asset values and performance information. Comments are due to the NFA by April 15, 2014.

Rules Under Consideration

The NFA did not propose any language for the rules in its Request for Comments, nor did the NFA suggest any details on how the rules might be drafted. Instead, the NFA implied what rules are under consideration by posing questions to CPOs and CTAs on the utility of certain rules, and on what standards should be applied to implement them.

CPOs and CTAs

• Capital Requirements. CPOs and CTAs may be required to maintain a minimum amount of capital, and to file periodic reports with the NFA to demonstrate compliance. However, the NFA’s Request for Comments indicates a degree of flexibility. For example, the NFA asked for members who oppose a capital requirement to suggest alternatives for ensuring that CPOs and CTAs have sufficient funds to operate as a going concern.

• Inactive NFA Members. NFA members that are not actively trading futures or commodity interests may have their NFA membership withdrawn, so that the NFA can stop expending regulatory resources on these firms.

CPOs Only

• Gatekeeper for Pool Disbursements. CPOs may need to retain an independent third party to approve pool disbursements (a “gatekeeper”).

• NAV Valuation and Reporting. An independent third party may be required to prepare or verify a CPO’s pool NAV valuations, and such valuations may need to be submitted periodically to the NFA.

• Performance Results. An independent third party may have to prepare or verify a CPO’s pool performance results.

• Verification of Pool Assets. CPOs and the entities actually holding pool assets may both be required to report pool asset amounts to the NFA, so that the NFA can cross-reference the reports for consistency. This could be similar to rules currently in place for futures commission merchants.


The new rules being considered are in the earliest stages of development, but it is clear that the NFA is concerned about the misuse of customer funds and the risks posed by undercapitalized CPOs and CTAs. Any CPOs or CTAs interested in commenting on the rules under consideration should submit their comments to the NFA via email to CPOandCTAfeedback@nfa.futures.org by April 15, 2014.


Cole-Frieman & Mallon LLP provides legal advice to the managed futures industry and works with FCMs, IBs, CPOs, and CTAs.  Bart Mallon can be reached directly at 415-868-5345.

NFA Notice to CPOs with Assets at PFG

Managers Required to Provide Information to NFA Immediately

As has been widely reported, futures FCM PFG has filed for bankruptcy and the CFTC has filed an action against the firm.

Below is a reprinted notice to NFA Members who are commodity pool operators. CPOs must inform the NFA about any accounts held at PFG including information on amount of assets held at PFG and most recent pool NAV. CPOs will need to provide this information to the NFA immediately and there is contact information in the notice below if a CPO has specific questions for the NFA.

If you are a CPO, CTA or IB with assets held at PFG, please contact our firm if you have questions with respect to next steps.


Notice to Members I-12-13

July 10, 2012



On July 9, 2012, National Futures Association (NFA) took an emergency enforcement action against Peregrine Financial Group, Inc. (PFG) and Peregrine Asset Management, Inc. (PAM). NFA deemed this action necessary to protect customers because PFG is unable to demonstrate that it can meet its capital requirements and segregated funds requirements, and because NFA has reason to believe that PFG does not have sufficient assets to meet its obligations to its customers. The CFTC has also filed a complaint in the United States District Court for the Northern District of Illinois against PFG and its owner, Russell R. Wasendorf, Sr. alleging that PFG and Wasendorf committed fraud by misappropriating customer funds, violated customer fund segregation laws, and made false statements in financial statements filed with the Commission.

In light of these events, NFA is requiring all CPO Members with pool accounts held at PFG to provide NFA with a notice of the following information:

The name of each pool account held at PFG and its NFA Pool ID number;

  • The current dollar amount of pool assets held at PFG for each pool account and the corresponding date;
  • The most recent net asset value for each pool with funds at PFG and the date of the valuation;
  • Any withdrawal restrictions that the firm has implemented or plans to implement with respect to each pool.
  • CPO members must provide this information to NFA by sending an email to CPOInfo-PFG@nfa.futures.org within 48 hours of receiving this notice.

Any questions regarding this request should be directed to:

Tracey Hunt, Senior Manager, at (312) 781-1284 or at thunt@nfa.futures.org

Mary McHenry, Senior Manager, at (312) 781-1420 or at mmchenry@nfa.futures.org

You are receiving this message because you are either a Member of National Futures Association (NFA) or you subscribed to the email subscription list on NFA’s Website. To cancel or change your subscription at any time, visit the Email Subscriptions page on our Website at http://www.nfa.futures.org/news/subscribe.asp.


Bart Mallon is a partner with Cole-Frieman Mallon & Hunt LLP, an investment management law firm with a focus on managed futures law and regulations. Bart can be reached directly at 415-868-5345.

NFA Provides Guidance re: MF Global

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 mmchenry@nfa.futures.org

Tracey Hunt at (312)781-1284 or thunt@nfa.futures.org

Todd Maines at (312)781-1560 or at tmaines@nfa.futures.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.

CTA Expo 2011 Chicago

Ronnie Lott Keynote Speaker at CTA Conference

We are gearing up for the CTA Expo in Chicago next month. The CTA Expo, which is also held in New York and London, has become the go-to event for CTAs and others member of the managed futures industry. As always, the NIBA will be having its own conference the day before the CTA Expo and there will be a joint NIBA/CTA Cocktail Party.

The NIBA event will be September 12, 2011 and the agenda includes:

  • Rules, Regulations, Revenue: Round III with Moderator Steve Pherson from Schuyler Roche
  • Grow Your Business by Hiring the Right People by Pat Lunkes of Parkway Consulting Group
  • Marketing Strategy Makeover by Candyce Edelen & Phil Donaldson of Propel Growth
  • A Bubble in Commodities: What to Look for by Darin Newsom of Telvent DTN
  • Anatomy of an Online Marketing Campaign: Generating Leads Online by Shane Stiles of Gate 39 Media

The CTA Expo will be September 13, 2011 and the  agenda includes:

  • Welcoming Remarks by Bucky Isaacson and Frank Pusateri
  • Maximizing the Value of your Conference Attendance by Ron Suber of Merlin Securities
  • Successful Marketing in Asia by Rumi Morales of the CME Group
  • Reputation – Creating Power Through Personal Branding by Lida Citroen
  • Keynote Speach by Ronnie Lott of All Stars Helping Kids<

    /a> – Professional Sports and Business – Lessons Learned

  • Marketing Managed Futures in Europe –

    Tips from the Trenches by Simon Rostron of Rostron Parry

  • The Regulatory Environment in 2011 and Beyond by Dan Driscoll of the National Futures Association
  • The Role of Emerging Managers in a Portfolio by Joseph Schlater of Busara Advisors
  • Institutional Investors and What They Look For in a Manager by Keith Palzer of Bank of America Merrill Lynch
  • The Marketing Impact of a Professional Back Office by Dana Comolli of DMAXX
  • Promoting Managed Futures as an Investment by Mark Melin of High Performance Managed Futures

Cole-Frieman & Mallon LLP has been a sponsor of the CTA Expo since 2009 and this year we will be introducing Ron Suber of Merlin Securities on Tuesday morning.  For more information on the events, please see the CTA Expo program and NIBA Conference schedule.


Cole-Frieman & Mallon LLP provides legal advice to CTAs and CPOs, including NFA compliance and regulatory guidance.  For more information, please see our CTA and CPO Registration and Compliance Guide or call Bart Mallon directly at 415-868-5345.



Proposed Form CPO-PQR Released

For your review, we have published the proposed Form CPO-PQR which can be found here: Form CPO-PQR

As recently proposed by the CFTC, registered commodity pool operators will be required to file proposed From CPO-PQR on either a quarterly or annual basis depending on assets under management and scope of business activities.  There are special rules for those managers who are also registered as an investment adviser with the SEC and who file Form PF.

This post will provide an overview of the major aspects of the Form COP-PQR as it is currently proposed.


Who is required to file Form CPO-PQR?

All CPOs are required to file at least parts of Form CPO-PQR.

When do managers need to file Form CPO-PQR?

Most managers will need to file some parts of Form CPO-PQR on a quarterly basis.  Some managers, depending on assets under management, will need to file additional sections of the form on either an annual or quarterly basis.

The sections of the form will need to be filed within 15 days of the end of the quarter; however, for some managers, some sections will not need to be completed until 90 days after

the end of the quarter.

What are the sections of Form CPO-PQR?

Form CPO-PQR has 3 major sections.  F

  • Schedule A – must be filed by all CPOs which operate at least one pool during the quarter within 15 days of the end of the quarter.
  • Schedule B – must be filed by Mid-Sized CPOs annually within 90 days of the end of the year and Large CPOs quarterly within 15 days of the end of the quarter.
  • Schedule C – must be filed by Large CPOs quarterly within 15 days of the end of the quarter.

A Mid-Sized CPO is a CPO that had at least $150 million in pool AUM as of the close of business on any day during a quarter.

A Large CPO is a CPO that had at least $1 billion in pool AUM as of the close of business on any day during a quarter.

Note: Schedule B and Schedule C may not have to be filed with the CFTC if the CPO has completed certain sections of Form PF and meet other certain requirements.

Details of the Schedules

Schedule A

Part 1 – includes information with respect to the firm such as name, NFA ID #, contact person, chief compliance officer, # of employees, # of owners, # of pools

Part 2 – includes information on each pool which was operated during the quarter.  For each commodity pool this information includes:

  • Identifying information: mame of pool, NFA ID#, jurisdiction of organization, fiscal year end, structure
  • Outside Administrator: name, contact info, NFA ID#, start of relationship, services provided, % of pool assets valued by outside administrator
  • Broker – name, NFA ID #, contact info
  • Other service providers – carrying broker, trading manager, custodian, auditor, marketer
  • Information regarding assets over quarte
    • Beginning AUM & NAV
    • Ending AUM & NAV
    • Income over quarter
    • Additions, withdrawals and redemptions over quarter
  • Monthly ROR calculated in accordance with CFTC regulations
  • Schedule of investments – there is a drill down on cash, equities, alternatives, fixed income, derivatives, options, investment funds, longs/shorts, positive/negative OTE, long/short option value, pool positions exceeding 5% of NAV
  • Subscriptions & redemption information

Schedule B

Schedule B applies to both Mid-Sized and Large CPOs.  The information is essentially the same information as required in Sections 1.b and 1.c of Form PF.  The following information is required for each pool which is managed by the CPO:

  • Pool Information – name, NFA ID#, strategy,  % of assets traded using algorythim, investor information
  • Borrowings & types of creditors – total borrowings, listing of creditors
  • Counterparty credit exposure – aggregate counterparty exposure, listing of counterparties
  • Trading & clearing – for derivatives, securities and repos
  • Value of aggregate derivative positions

Schedule C

Schedule C is only completed by Large CPOs.  Schedule C will not need to be completed if the Large CPO has completed certain parts of Form PF.

Part 1 – the following information is required for each CPO:

  • Geographical breakdown of pools investments
  • Turnover rate of aggregate portfolio of pools
  • Duration of pools’ fixed income investments

Part 2 – the following information is required for each Large Pool:

  • Basic information – name, NFA ID#, unencumbered cash at end of month, monthly open positions
  • Liquidity of portfolio
  • Pool counterparty credit exposure
  • Pool risk metrics
  • Pool borrowing information
  • Pool derivative positions and posted collateral
  • Pool financing liquidity
  • Information on pool investors
  • Duration of fixed income assets


Cole-Frieman & Mallon LLP provides comprehensive legal services for CPOs including completing Form CPO-PQR.  Bart Mallon can be reached directly at 415-868-5345.

Exemptive Relief from CPO Annual Audit Requirement

Managers starting a commodity fund at the end of the year may seek relief from annual audit requirement

CFTC Regulations 4.22(c) and (d) require that each registered CPO file a certified annual report with the CFTC and distribute copies to pool participants within 90 calendar days after the pool’s fiscal year (“audit requirement”).  The principal purpose of these requirements is to ensure that pool participants (fund investors) receive accurate, fair, and timely information on the overall trading performance and financial condition of the pool.  In a situation where a futures/commodities hedge fund was established only a few months or so before the end of the fiscal year, conducting a certified audit at the end of the fiscal year may not be desirable due to costs.  Relief may be available to managers in this situation.  The CPO can request an exemption from the audit requirement from the CFTC.

This article explains how a manager can go about requesting and obtaining an exemption.

Exemptions on a Case-by-Case Basis

The CFTC’s Division of Clearing and Intermediary Oversight (“DCIO”) will grant or deny exemptive relief from the audit requirement on a case-by-case basis, based on each individual CPO’s factual circumstances.  When we spoke informally to a staff member at DCIO, he said that there is no prescriptive list of conditions that will automatically result in exemptive relief but the main factors they seem to take into account are:

  1. the pool has only a handful of participants,
  2. the pool has only a nominal amount of capital contributed and a nominal amount of total net assets, and
  3. each of the participants in the pool has provided a written waiver consenting to the CPO’s exemption from the audit requirement.

In many cases where the exemption was granted, DCIO still placed the following conditions on the CPO:

  1. the CPO must distribute unaudited annual reports to each of the pool’s participants (these unaudited annual reports must otherwise comply with the provisions of CFTC Regulations 4.22(c) and (d)–reprinted in full below), and
  2. at the close of the following fiscal year, the CPO must file an audited annual report that includes the previous unaudited period.

Requesting the Exemption by Email or Letter

DCIO seems to grant exemptions from the audit requirement in response to email or letter  requests from CPOs.  In a 2009 DCIO letter granting exemptive relief, the CPO sent an email to DCIO requesting the exemption.  DCIO found that granting relief in the CPO’s situation was not contrary to Regulation 4.22 nor the public interest.  In particular, it focused on the following facts:

  • the pool began operations in September of 2008,
  • the pool only had 8 participants,
  • the pool had total capital contributions between $300,000-$400,000 as of December of 2008,
  • the pool’s net asset value was between $60,000-$70,000, and
  • the CPO attached waivers from the 8 participants indicating their consent to the exemption.

In a 2010 DCIO letter, DCIO granted the exemption after a CPO sent DCIO a letter requesting the relief and attaching the client waivers.  DCIO reviewed the facts and found granting the exemption was not contrary to Regulation 4.22 nor the public interest.

It is important to note that exemptive letters bind DCIO only with respect to the specific fact situation and persons addressed by the letter and third parties may not rely upon it.  For a full explanation of the CFTC’s exemptive letters, visit the CFTC’s discussion on this topic.  If you are interested in filing for such exemptive relief with respect to your commodity pool, please contact Mallon P.C.


Other related hedge fund law articles:

Cole-Frieman & Mallon LLP provides comprehensive hedge fund start up and regulatory support for commodity pool operators.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

CPO Quarterly Filing Reminder

NFA Rule 2-46 Filing Due Monday May 17th

NFA Rule 2-46 requires most registered CPOs to submit certain information to the NFA on a quarterly basis.  The filing is due within 45 days of the end of each quarter.  The filing date for CPOs which were active in the first quarter is Monday May 17th.

Mallon P.C. provides comprehensive services for CPO managers and can help with the quarterly Rule 2-46 filing.  Please contact us if you have any questions.


Other related hedge fund law blog posts include:

Cole-Frieman & Mallon LLP can provide CPOs with comprehensive support during the filing process.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

CFTC Regulation 4.8 for Commodity Pool Operators

CFTC Regulation 4.8 (“Rule 4.8”) is a little known regulation which allows CPOs to distribute disclosure documents and accept investor money prior to the NFA’s approval of the CPO’s disclosure document.  In order to take advantage of Rule 4.8, the CPO must make sure that pool interests are only offered or sold to accredited investors, in a Regulation D 506 offering.  The CPO will also need to initially file the disclosure document with the NFA prior to distribution to potential investors.  Rule 4.8 also applies to managers using the 4.12(b) exemption (futures/commodities trading is solely incidental to securities trading and margin does not exceed 10% of pool’s NAV).

Rule 4.8 should be used sparingly, if ever.  Managers should note that if Rule 4.8 is used prior to approval of the disclosure document the NFA will require the manager to provide investors in the fund with the approved disclosure document and an overview of the revisions which were made.  This creates a potentially awkward situation for both the manager and the investor and may, under certain circumstance, provide the investor with a right of rescission.  As with all maters in the securities industry, it is vital for a manager to provide the investor with all material information and the manager may not make any material omissions.

The full rule is reprinted below and can be found here.

Note: please see disclaimer.  Mallon P.C. is not providing legal advice through this post.


§ 4.8   Exemption from certain requirements of rule 4.26 with respect to pools offered or sold in certain offerings exempt from registration under the Securities Act.

(a) Notwithstanding paragraph (d) of §4.26 and subject to the conditions specified herein, the registered commodity pool operator of a pool offered or sold solely to “accredited investors” as defined in 17 CFR 230.501 in an offering exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 505 or 506 of Regulation D, 17 CFR 230.505 or 230.506, may solicit, accept and receive funds, securities and other property from prospective participants in that pool upon filing with the National Futures Association and providing to such participants the Disclosure Document for the pool.

(b) Notwithstanding paragraph (d) of §4.26 and subject to the conditions specified herein, the registered commodity pool operator of a pool offered or sold in an offering exempt from the registration requirements of the Securities Act of 1933 pursuant to Rule 505 or 506 of Regulation D, 17 CFR 230.505 or 230.506, that is operated in compliance with, and has filed the notice required by §4.12(b) may solicit, accept and receive funds, securities and other property from prospective participants in that pool upon filing with the National Futures Association and providing to such participants the Disclosure Document for the pool.

(c) The relief provided under §4.8 is not available if an enforcement proceeding brought by the Commission under the Act or the regulations is pending against the commodity pool operator or any of its principals or if the commodity pool operator or any of its principals is subject to any statutory disqualification under §§8a(2) or 8a(3) of the Act.

[57 FR 34865, Aug. 7, 1992; 57 FR 41173, Sept. 9, 1992, as amended at 60 FR 38182, July 25, 1995; 72 FR 1662, Jan. 16, 2007]


Other related hedge fund law blog posts include:

Bart Mallon, Esq. runs the Hedge Fund Law Blog and provides hedge fund information and manager registration services through Cole-Frieman & Mallon LLP. He can be reached directly at 415-868-5345.

CPO Annual Financial Report Filing

Information on Filing Annual Report with NFA

Commodity Pool Operators (“CPOs”) are required to distribute an Annual Report, certified by an independent public accountant, to each participant in each pool it operates (i.e. the investors in the commodity/futures hedge fund) within 90 days after the pool’s fiscal year-end (normally December 31).  CPOs are also required under the Commodity Exchange Act and commission regulations to file this report electronically with the National Futures Association (“NFA”) through the NFA’s EasyFile system.  Alternate due dates exist for pools that are operated as a “fund of funds“.  CPOs can monitor their filings and review their due dates for each pool in the EasyFile system.  We have included an overview of the requirements and process below and Cole-Frieman & Mallon LLP would be able to help CPOs to make this filing as well.

Filing Overview

  • Who – all CPOs must file the annual financial report unless they are exempt under the CFTC Regulation 4.13.
  • What – a certified financial statement (PDF of the exact statement distributed to the pools limited partners) from an auditor needs to be filed with the NFA.  (Please note that CPOs who are exempt under the CFTC Regulation 4.7 does not need to have their statements audited.)
  • When – commodity pool annual reports must be distributed to pool participants and filed with the NFA within 90 calendar days of the pool’s fiscal year end.  (Mallon P.C. can also check the due date by logging into the EasyFile system on the Filing Index page.)
  • How – CPOs must submit annual reports to NFA electronically in accordance with NFA’s EasyFile electronic filing system and procedures.

NFA EasyFile System

Pool operators should have their NFA login and password to access the EasyFile system.  Submitting pool financial statements using EasyFile involves a three step process:

  1. The CPO (or compliance group) will upload a PDF of the identical pool financial statement provided to the pool’s limited partners, including the balance sheet, income statement, schedule of investments, footnotes, and the Independent Auditor’s Opinion, if applicable.
  2. The CPO (or compliance group) will then enter approximately 30 key financial balances into an electronic schedule. These balances will be pulled directly from the balance sheet, income statement and statement of changes in net asset value included in the pool’s PDF filing.
  3. The CPO (or compliance group) will finally submit the electronic filing, the system will run some basic edit checks. It will also prompt the CPO to read and agree to an electronic oath or affirmation. This oath or affirmation will apply to the information included in the PDF, as well as, the information entered into the schedule of key financial balances.

A common pitfall with this process include miscalculations with the key financial balances. In order to prevent this from occurring, the CPO should make sure the values/balances input into the system correspond with the PDF certified financial statement.  After submission, the CPO should ensure the updated status of the filing becomes “Received” by logging into Pool Index page the in the EasyFile system.  This status should show up within a few days after the filing has been submitted.


In addition to the various yearly compliance measures, such as the NFA Self-Examination Checklist, CPOs should be aware that they need to file their audited reports with the NFA.  This is especially important because the NFA has fined large firms for failing to file on time (see previous NFA Action).  If you need help with filing your annual financials, please contact Cole-Frieman & Mallon LLP for further information on our commodities and futures compliance services.


Other related NFA compliance articles include:

Bart Mallon, Esq. runs the Hedge Fund Law Blog and provides hedge fund information and manager registration services through Cole-Frieman & Mallon LLP. He can be reached directly at 415-868-5345.

Recent Issues with NFA Annual Questionnaire

As we discussed in an earlier post on NFA Annual Questionnaire, NFA Member Firms are required to complete the questionnaire on an annual basis.  The information helps the NFA in a variety of ways and the NFA encourages members to update their questionnaire on a regular basis, although firms are only required to complete it, at a minimum, on the anniversary of their NFA Membership date.

Number of Half-turn Trades Issue

One issue that we are seeing clients deal with is the last question which applies to commodity trading advisors (CTAs) and commodity pool operators (CPOs).   The question is as follows:

For CTAs and CPOs only: Provide the following information for accounts held by CTAs and/or CPOs:

How many total domestic futures and options trades (half-turns) did your firm place directly with an FCM in the last 12 months? Please include trades for customer, commodity pool (both regulated pools and pools exempt pursuant to CFTC Part 4 Regulations) and proprietary accounts, but do not include trades that were actually placed by another money manager on behalf of any of these accounts.

The issue is that the question asks for the total amount of half-turn trades were completed over the last 12 months.  This could be an absolutely huge number and it would be onerous for a CTA or a CPO to go back and actually count each trade (unless the broker/clearing firm was keeping track for the CTA or CPO).  Accordingly, I have now talked with the NFA twice about this issue and they have confirmed that an approximate or estimated number is sufficient for the purposes of the questionnaire.  While such informal guidance is not binding, it seems like the NFA wants to have a general idea of the trading volumes and is not going to “ding” a manager if the exact number is not determined.

Issues for Forex CTAs and Forex CPOs

Even before the forex registration regulations were proposed, many forex-only managers registered with the CFTC as either forex CTAs or CPOs.  I asked the NFA compliance department how such managers should answer the above question as would not make sense in the spot forex context.  The NFA said that such managers should answer the above question by placing a 0 (zero) in the appropriate box (assuming there was only spot forex trading).

If you have other questions or issues when you are completing the annual questionnaire, you can either call the NFA or your compliance professional.  Also, please let us know what your issues are so we can update this article accordingly.


Other related NFA compliance articles include:

Bart Mallon, Esq. runs the Hedge Fund Law Blog and provides hedge fund information and manager registration services through Cole-Frieman & Mallon LLP He can be reached directly at 415-868-5345.