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:
- NFA Self-Examination Checklist 2010 | FCMs, IBs, CPOs and CTAs
- CFTC Provides Annual Guidance to CPOs
- CTA Regulatory and Compliance Discussion
- CTA and CPO Registration and Compliance Guide
- Series 34 Exam
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.