Monthly Archives: February 2010

NFA CPO & CTA Regulatory and Compliance Seminar

NFA to Talk Directly to Futures & Commodities Community

On Tuesday March 2 the National Futures Association (“NFA”) is hosting a regulatory seminar for members of the commodity and futures markets.  The seminar will focus on a number of important issues including the following:

  • Overview and Discussion of Regulatory Changes
  • Disclosure Document and Performance Reporting
  • Financial Reporting for Commodity Pools
  • Sale Practices
  • NFA Audit Process

There are a number of items which I am particularly interested in hearing about from the NFA staff.  Specifically, I am interested to hear their thoughts on the disclosure document review process which is no where near uniform or expedient.  I am also eager to hear how the NFA views their audit process as I have seen a few of these lately and have many questions as to why the NFA pursued the matter in certain ways.  One of the biggest issues I believe is uniformity and I think this should be a focus for the NFA in the coming year.  It is always frustrating to have a so-called “moving target” and to not be able to provide clients with better guidance in terms of NFA timing.

Below is a more detailed outline of the seminar which can also be found here.


Registration for National Futures Association’s

Commodity Pool Operator/Commodity Trading Advisor Regulatory Seminar

Tuesday, March 2, 2010

UBS Conference Center

Chicago, Illinois

In light of the economic upheaval that has dramatically affected the financial markets, the regulatory landscape for Commodity Pool Operators and Commodity Trading Advisors is changing. To help our CPO and CTA Members stay current with their regulatory requirements, NFA will host a CPO/CTA Regulatory Seminar on Tuesday, March 2, 2010 in Chicago. The seminar will be held at the UBS Conference Center, One North Wacker Drive.

The seminar will focus on several CPO/CTA issues, including new and pending legislation, recent additions to financial reporting requirements and common errors made in promotional material and disclosure documents. The seminar will also outline the NFA audit process and discuss common audit deficiencies.

Seminar Agenda (subject to change)

7:30 – 8:30 a.m. Registration and Continental Breakfast

8:30 – 9:30 a.m. Session One: The Current State of CPO/CTA Regulation

A panel of NFA staff and other industry professionals will discuss the results of recent CFTC/SEC harmonization, hedge fund regulation, and the status of pending legislation.

  • Moderator: Tom Sexton, Senior Vice-President, General Counsel and Secretary, NFA
  • Panelists: Dan Driscoll, Executive Vice-President, Chief Operating Officer, NFA
  • David Kavanagh, President, Dearborn Capital Management
  • Lance A. Zinman, Partner, Katten Muchin Rosenman LLP

9:30 – 9:45 a.m. Refreshment Break

9:45 – 10:45 a.m. Session Two: Disclosure Document and Performance Reporting

NFA staff will discuss common errors CPOs and CTAs make when filing their Disclosure Documents with NFA, the deficiencies cited in most Disclosure Document comment letters and common performance reporting deficiencies.

  • Panelists: David Matteson, Partner, Drinker Biddle & Reath LLP
  • Amanda Olear, Attorney-Advisor, CFTC
  • Lisa Tamburini, General Counsel, AlphaMetrix LLC
  • Patricia Cushing, Associate Director, Compliance, NFA
  • Kaitlan Chi, Manager, Compliance, NFA

10:45 – 12:00 p.m. Session Three: Pool Financial Reporting

NFA staff will outline the new expanded reporting requirements and demonstrate how to file the additional information electronically with NFA. This session will also cover the prohibition on general partner loans, CFTC financial reporting rule changes and pool reporting requirements for forex CPOs and CTAs.

  • Panelists: Eileen Chotiner, Senior Compliance Analyst, CFTC
  • James W. Laures, Director, Deloitte & Touche LLP
  • David Young, President, Spectrum Global Fund Administration, LLC
  • Tracey Hunt, Senior Manager, Compliance, NFA

12:00 – 1:45 p.m. Lunch

  • Keynote Speaker: Michael Dunn, Commissioner, CFTC
  • Introduced by: Dan Roth, President and CEO, NFA

1:45 – 2:45 p.m. Session Four: Sales Practices

NFA staff along with other experts will discuss common promotional material deficiencies and the new Social Networking interpretive notice.

  • Moderator/Panelist: John Lothian, President & CEO, John J. Lothian & Company, Inc.
  • Panelist: Natalie Peters, Director of Investor Relations, DigiLog Capital LLC
  • Alexandra Shipovskikh, Manager, Compliance, NFA
  • Dorothy Bobak, Senior Analyst, Compliance, NFA

2:45 – 3:00 p.m. Refreshment Break

3:00 – 4:30 p.m. Session Five: The NFA Audit Process

This session will provide an overview of the NFA audit process, highlighting new areas of focus such as FAS 157 hierarchy, valuation policies, side pocket investments, side letters/preferred redemptions and strategy promotion. The panel will also discuss common audit deficiencies.

  • Panelist: Roxanne Bennett, Director, Price Asset Management
  • Jennifer Sunu, Director, Audits, NFA
  • Matt Pendell, Manager, Compliance, NFA


The fee for attending this seminar is $100 per person for NFA Members and $150 for non-Members. The fee includes all seminar sessions, continental breakfast, refreshment breaks and lunch.


February 16, 2010

CFTC Commissioner Michael Dunn to be keynote speaker at NFA’s CPO/CTA Regulatory Seminar

CFTC Commissioner Michael Dunn will be the keynote speaker at NFA’s CPO/CTA Regulatory Seminar on Tuesday, March 2 in Chicago. The day-long seminar will focus on several CPO/CTA issues, including new and pending legislation, recent additions to financial reporting requirements and common errors made in promotional material and disclosure documents. The seminar will also outline the NFA audit process and discuss common audit deficiencies.

There’s still time to register to attend the seminar. The cost is $100 for NFA Members and $150 for non-Members. The fee includes all workshop materials, continental breakfast, refreshment breaks and lunch.


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.

New Forex Regulations: Overview of Public Comments

Leverage, Inaccessibility for Smaller Traders, and Offshore Threat are Focus of Public Comments

As we’ve discussed in related posts, the CFTC has proposed rules regulating the off-exchange spot forex industry (see Retail FOREX Registration Regulations Proposed).  The CFTC has requested comments from the public and there are currently about 100 public comments on CFTC’s website written in response to the new rule. The comments mainly focus on:

  • Leverage reduction rule (approx. 75/100 comments)
  • Forex industry becoming inaccessible to smaller traders (approx. 35/100 comments)
  • Threat of investors moving their money to offshore firms (approx. 25/100 comments)
  • Opposition to government interference/regulation (approx. 20/100 comments)

[Note: over the weekend the CFTC published some of the backlog of comments it received.  Much of this article was written prior to review of these extra comments (which total approximately 3,663).  We will provide an update on such comments in the future.]

To view all of the comments, click here.

The following is our summary of the comments which have been made thus far.


Leverage Reduction

Approximately 75 of the 100 comments mention a strong or very strong opposition to the new leverage proposal of 10:1. The issue with a reduction of leverage to 10:1 is that investors will have to invest much more money in order to trade what they can currently trade with less capital. Comments regarding leverage include phrases like “strongly object”, “terrible idea”, “unintelligent”, and “strongly oppose”.  The majority opinion is that people should have the freedom and the choice to trade with a higher amount of leverage, and that the federal government’s attempts to lower leverage to 10:1 are “unnecessary” and “intrusive”. John Yeatman Jr. writes,

Please DO NOT reduce leverage in US Forex trading to 10:1…THIS WOULD HAVE A MAJOR IMPACT ON TENS OF THOUSANDS OF TRADERS AND THEIR FAMILIES WHO RELY ON 100:1 LEVERAGE AVAILABILITY TO SUPPORT THEIR FAMILY AND THIS ECONOMY. Please do your part in helping to keep this country great and it’s [sic] freedoms true BY NOT ALLOWING ANYTHING LESS THAN 100:1.

Other comments regarding the leverage proposal include:

  • … strongly objects to new leverage of 10:1
  • … proposed reduction not consistent with futures, which allow a significantly higher leverage
  • … virtually no flexibility trading at 10:1 leverage unless trader has gigantic account balance
  • …reduction in leverage not fair to public…bad for America
  • … new leverage line “out of line with general idea of protecting consumers”
  • …limiting leverage to 10:1 is “a bad idea”
  • …current leverage limit is “more than enough”
  • … CFTC is “unintelligent” to change leverage to 10:1
  • … terrible idea to lower leverage
  • … leverage change is “perversion of the free markets”
  • …leverage restriction “grave injustice” for many who work to secure the American dream of prosperity for themselves and families
  • …leverage limits would delay achievement of financial independence
  • …leverage not dangerous; misuse is
  • …leverage decrease will kill forex business and worsen economic situation in states and worldwide
  • …amount of leverage needs to be at discretion of investors

Smaller Traders

Another argument is that lower leverage will making trading inaccessible for smaller traders but leave the door wide open for larger institutions, since lower leverage requires higher margin (meaning that more money needed to be invested in order to trade). Comments regarding this proposed rules potential affect on smaller traders include:

  • …will stamp out small-time investor
  • …drive smaller guys out of market or offshore
  • …anything lower would be insane for small-time traders
  • …gets rid of investors with small capital so rich can stay rich and poor can stay poor
  • …pushes out small-time investor
  • …denies small trader opportunity
  • …disparate and unintended impact on small traders with lower capital
  • …leave the small, independent traders alone
  • …small businesses are heart of US economy
  • …all small-scale actors will be stifled
  • …10:1 leverage will have unintended consequence of locking out hundreds or thousands of small traders
  • …quit treating the small guy like an idiot
  • …are you trying to allow only rich to trade forex?

Government Interference/Regulation

Many of the comments suggest anger with the government for interfering too much with the forex industry. Michael Thomas writes,

I do not live here in this “free” society to have someone from the government babysitting me. The message that your proposed rules send is that 1) we are not free to make our own choices. 2) The federal government believes that we the general public are too stupid to make decisions for ourselves….I don’t need you, or do I want you getting in the way of my being able to trade as I wish in the United States of America.

Other comments regarding an opposition to increased government interference include:

  • …don’t add more government
  • …not intention of our ancestors to create government which controlled/regulated all aspects of citizens’ lives
  • …the government has no right to control my ability to make profit
  • …unnecessary for Federal government to regulate against individual’s ability to take risks
  • …don’t need government protection; we’re adult traders
  • …not responsibility of government to take away choice from consumers
  • …”big brother” attempt to protect people from “evil” traders and forex hedge funds
  • …stay out of trying to run my personal life

Offshore Threat

In at least 25 of the comments, the public is arguing that the new rules, specifically lower leverage, will drive traders offshore to overseas brokers who may or may not be regulated. Further, a major argument is that the forex industry in the United States will essentially cease altogether as a result of traders moving their forex activities offshore. Comments regarding this offshore threat include:

  • …will send business to London and unregulated offshore markets
  • …consumers will take accounts offshore
  • …will drive smaller guys out of markets entirely or to offshore, unregulated brokers
  • …when traders move accounts offshore, CFTC and NFA will have no control of clients’ trading
  • …I’ve already moved my account offshore
  • …people will do business with offshore brokers

Government Regulation

In terms of the new regulation proposal as a whole, some people support more industry regulation while others are against the idea entirely. Bradford Smith writes,

I feel that regulation of firms is needed…regulation is needed to help people understand the risks such as risk disclosure. [Regulating] the  retail forex market in a similar fashion to how commodities and futures are regulated is a good idea. Stopping companies from trading against their clients is a high priority issue that needs to be stopped.

John M. Bland, on the other hand, who views the proposal as “unfair”,  writes,

…the CFTC has done a lot in recent years to correct many of the problems in the industry…this decision is unfair and anti-competitive.

Other comments regarding opposition to the proposal and/or government interference include:

  • …new rules will destroy US financial firms business and lead to loss of thousands of jobs during the worst economy in decades
  • …regulation should be aimed at encouraging economic growth and innovation vs. restricting it
  • …against proposal
  • …how did forex regulation get in the Farm Bill?
  • …whoever initiated proposal has no knowledge of forex…this rule is utter nonsense…rules for forex in the USA are already quite strict
  • …you are busybody bureaucrats with intrusive minds…you are interested in only one thing: bureaucratic power and complete control of every microscopic aspect of life…you are monsters
  • …rules will harm people who make an honest living trading currency
  • …important to educate and inform, not regulate and ban
  • …proposal is a disaster-in-warning for traders
  • …if it ain’t broke, don’t fix it
  • …proposal is lunacy-communist-legislation
  • …I do not support the proposal…proposal closes doors for forex investors and will make forex market accessible to financial institutions only
  • …vehemently against new, narrow-sighted legislation

Agreement/Disagreement with Proposal

Many of the comments discuss that education about forex and trading risk is the best solution. On a similar note, many traders expressed the fact that anyone who trades in the forex market is aware of the inherent risks, so people who decide to trade are willing to take these risks. There is a general consensus that it is the individual’s, and not the government’s, responsibility to evaluate the level of risk that s/he is willing to take. Remember, higher leverage will be reflected in both your profits and your losses. Thus, if you have high leverage and profit, you will profit a lot more than if your trading had not been leveraged. But the same goes for losses; if you lose, you will lose a lot more based on the higher leverage.

Conclusions Thus Far

The biggest concern thus far is the proposed reduction in leverage to 10:1. Almost every comment mentioned a strong opposition to this rule. Furthermore, most people seem to be concerned that the new regulations will significantly decrease forex activity in the US—if not kill it off—and drive most investors overseas to offshore firms. We will continue to monitor comments received until the March 22 due date. Please leave us a comment below with your feedback. Should you feel inclined, you may submit your own comment to the CFTC through the methods listed above.

To view CFTC’s proposed rules, click here.

How to Comment

Comments must be received by March 22, 2010 and can be submitted the following ways:

  • Through the Federal eRulemaking Portal: Follow the instructions for submitting comments.
  • By e-mail: [email protected] Include “Regulation of Retail Forex” in the subject line of the message.
  • By fax: (202) 418-5521.
  • By mail: Send to David Stawick, Secretary, Commodity Futures Trading Commission, 1155 21st Street, NW., Washington, DC 20581.
  • Courier: Same as Mail above.

(Note that all comments received will be posted without change to, including any personal information provided.)


Other related CFTC articles include:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog and provides forex registration services to forex managers. Mr. Mallon also runs the Forex Law Blog.  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.

Securities Exam Changes in 2010

Series 63, Series 65 and Series 66 Changed as of January 1, 2010

In an earlier post, we discussed that the passing grades for the Series 65 and 66 have increased.  Below is further information from the Securities Training Corporation on the changes to the securities exams in 2010.


The Series 63, 65, and 66 Examinations Are Changing

The North American Securities Administrators Association (NASAA), the organization responsible for designing the Series 63, 65, and 66 Examinations, has informed us that the composition of these examinations will change as of January 1, 2010. The most significant impact will be on the Series 66 Examination, in which the balance of the questions will change significantly. In comparison, the changes to Series 63 and Series 65 are relatively minor.

Series 66

The Series 66 Examination currently consists of 100 questions, 80 of which test the candidate’s knowledge of Legal and Regulatory Issues (including Unethical Business Practices). The remaining 20 questions cover Investment Analysis, Recommendations, and Strategies.

The revised Series 66 will still contain 100 questions. As of January 1, 2010, however, there will be 50 questions covering Legal and Regulatory Issues and 50 questions testing Investment Recommendations, Strategies, and Products.

NASAA is also adding new topics to the Series 66 outline concerning specific Investment Products and Strategies, such as Annuities, much of which we already cover in our materials. NASAA stated that these changes are “based on responses to the survey indicating that dually licensed individuals should have enhanced testing in the areas of Economic Factors and Business Information, Investment Vehicle Characteristics and Client Investment Recommendations and Strategies.”

Series 65

The Series 65 Examination currently has 130 questions.  Of these questions, 45 test Legal and Regulatory Issues, while 80 questions cover Economic Concepts, as well as Investment Products, Recommendations, and Strategies. The new examination will still have a total of 130 questions, but the number of questions devoted to Legal and Regulatory Issues will decrease from 45 to 40. In addition, there will be a few questions on Capital Markets Theory and specific types of accounts, such as College Savings Plans.

Series 63

NASAA has not added new topics to the Series 63 Examination, and the test will continue to contain 60 questions. The distribution of these questions, however, will change on January 1, 2010.  There will be 3 more questions covering business practices (now called Ethical Practices and Fiduciary Obligations). There will also be an additional 6 questions devoted to the Registration and Regulation of Broker-Dealers, Agents, Investment Advisers, and Investment Adviser Representatives. The number of questions covering the Registration and Issuance of Securities will be decreased correspondingly.

STC will have supplemental material available in late November for students who anticipate taking one of these examinations in January. Our online practice examinations will be updated by January 1.


Other related hedge fund law articles:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog.  He can be reached directly at 415-868-5345.

California Investment Advisor Annual Compliance Reminder | 2010


State registered investment advisory firms usually have annual compliance requirements.  The following discusses the major issues for investment advisors (both hedge fund and separately managed account managers) who are registered in California.  In general, there is (i) an annual updating requirement and (ii) an annual financial filing requirement.

Annual ADV Updating Amendment

Registered investment advisers will need to update Form ADV (including Part II and Schedule F) on an annual basis.  For California registered investment advisers the annual update is due within 90 days after the end of the firm’s fiscal year end (which will normally end on December 31).  In general the advisor should review the entire ADV, Part II and Schedule F to make sure everything is accurate as of the date of filing.  The advisor may want to make this filing itself (usually the chief compliance officer of the firm will complete) or the advisor may want to have its law firm or compliance firm complete the update for them.

Note: in additional to annual update, each advisor will need to make sure that certain information is updated on a continuous basis.  If the information contained in Part I, Items 1, 2, 3, 4, 5, 8, 11, 13A, 13B, 14A and 14B of Form ADV, Form U-4 or any representation or undertaking contained in any affidavit filed with the state securities division, changes in any respect, or if the information contained in Part I, Items 9 and 10 and all items of Part II of Form ADV changes in any material respect, an amendment shall be filed promptly with the state securities division. Such amendment must be filed in writing no more than ten business days after the registrant has knowledge of the circumstances requiring such notification.

Annual Financial Filing Requirement

California registered advisors will also need to submit annual financial reports to the California Securities Regulation Division.  Such advisors must submit the following to the division:

The above items should be sent directly to the California Securities Regulation Division at:

California Financial Services Division
1515 K Street
Suite 200
Sacramento, CA 95814

Note: in general both hedge fund managers and separately managed account advisors (who directly debit fees from client brokerage accounts) will be deemed to have “custody” of client assets and would need to make sure that, among other requirements, the balance sheet above is audited.  Most advisors, however, will institute certain procedures (including a gatekeeper arrangement) which will allow them to submit unaudited financials.  If you have questions, please contact your lawyer or compliance professional.

Other Compliance Issues

In California, like most of the states, there are a number of items that advisors will need to do a continuous basis.  The most important is probably to properly maintain their books and records.  California has also provided an overview of important issues for California investment advisor and has also provided an overview of the post-effective requirements.


Please contact us if you have any questions or would like to start an investment advisory business.  Other related hedge fund law articles include:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs Hedge Fund Law Blog and has written most all of the articles which appear on this website.  Mr. Mallon’s legal practice is devoted to helping emerging and start up hedge fund managers successfully launch a hedge fund. Cole-Frieman & Mallon LLP will also help state based Investment Advisors to register with their state securities division.  If you are a hedge fund manager who is looking to start a hedge fund or an investment advisor looking to register, please call Mr. Mallon 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.

Conifer Securities Hosts Hedge Fund Panel Discussion on February 11, 2010

Panel to Focus on Operational & Fundraising Issues

On Thursday February 11, 2010 Conifer Securities will host a panel discussion at the The City Club of San Francisco starting at 3pm.  For more information, please see the flyer on the Conifer website.  I’ve also posted more information on this event below.  For a listing of other hedge fund events this month, please see our February Hedge Fund Events page.


The New Paradigm:  2010 Best Practices for Managing Your Business & Successfully Raising New Assets

Date: February 11, 2010

Time: 3:00pm to 4:30 panel discussion.  Cocktails will be served following the discussion.

***New Location:     The City Club of San Francisco

155 Sansome Street, 11th Floor

San Francisco, Ca. 94104

Featured Panelists:

  • Rachel Minard, previously President and Partner of Cogo Wolf Asset Management, LLC
  • Travis Shore, Director of Hedged Strategies at The University of Florida
  • John Broadhurst, Partner at Shartsis Friese, LLP
  • Jack McDonald, President and CEO of The Conifer Group, LLC will moderate the discussion

Important topics that will be covered:

  • What are the most important factors from an allocator’s perspective?
  • How do you effectively market your fund to institutions and family offices?
  • Tailoring your presentation to the target audience
  • Third party marketers vs. in-house team
  • o       Trends in Asset Flows: What strategies? Is AUM a determining factor to winning a mandate?
    o       Building an infrastructure in the post-Lehman/Madoff era

  • Outsourcing
  • Counter-party diversification
  • Due Diligence requirements
  • o       Best Practices:  Operational and Investment Integrity
    o       Investor considerations:  Fee structures, Transparency, Liquidity, Control

  • Separately Managed Accounts: Current & future regulatory environment


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.

NFA Self-Examination Checklist 2010 | FCMs, IBs, CPOs and CTAs

Easy Step by Step Guide for NFA Member Firms

NFA Member Firms are all required to complete a yearly self-examination checklist to ensure that the Member Firm is complying with all the NFA Rules (as well as the CFTC Regulations and other applicable laws).  The NFA has provided some resources on their website.  We believe that the resources are good, but they are not easy to use for NFA Member Firms.  Accordingly, Mallon P.C. has reworked the forms into a more easy-to-use format.  Below is a description on how you should proceed with this process along with the various checklists that each Member Firm should print off and complete.

All of the checklists below are based on, and contain the same information, as the NFA checklists which can be found here.

Overview of Process

The whole process should take anywhere from 1 to 3 hours (or more) depending on the exact structure of the NFA Member Firm.  Firm authorized personnel should complete the following steps:

  1. Print off the General Checklist
  2. Print off the Registration Specific Checklist
  3. Print off the Attestation Sheet
  4. Go through the checklists step by step and write notes and initial the appropriate areas.  If a certain area is not applicable, write N/A.
  5. Sign the Attestation Sheet
  6. File the Checklists according to the Firm’s internal compliance procedures

If there are compliance issues which arise during the course of the self-examination process, please record the issue and how the issue has been or will be addressed.  Do not try to cover up the issue – the NFA is more interested in the fact that a firm identifies and appropriately deals with compliance issues than a firm that has a perfect self-exam checklist (through a cover-up).  Do not be afraid to take ample notes in the appropiate places on the checklist – this will show the NFA examiners that the Firm is committed to thinking about the relevant compliance issues.

* Note: there are other yearly compliance procedures that a firm will need to complete in addition to the self-examination checklist.  For more information, please see the Mallon P.C. NFA Compliance Guide or contact your compliance consultant.  Please note that the compliance guide may not cover all compliance requirements.


Each Member Firm will need to complete at least two checklists – (1) a general NFA Member Firm checklist and (2) a specific registration category checklist (i.e. FCM, IB, CPO, CPA).

General Checklist

Registration Specific Checklist


Each Member Firm will need to complete an attestation sheet which acknowledges that the Firm has completed the annual self-examination checklists.


Each of the checklists makes reference to certain appendices.  Below we have created links to those appendices.


Each of the checklists include acronyms.  We have listed them below for your convenience.

  • AML – Anti-Money Laundering
  • AP – Associated Person
  • BASIC – Background Affiliation Status Information Center
  • BSA – Bank Secrecy Act
  • CIP – Customer Identification Program
  • CRD – Central Registration Depository
  • DSRO – Designated Self-Regulatory Organization
  • FATF – Financial Action Task Force
  • FIFO – First-in, First-out
  • FinCEN – Financial Crimes Enforcement Network
  • NAV – Net Asset Value
  • NCCT – Non-Cooperative Countries and Territories
  • OFAC – Office of Foreign Assets Control
  • SAR – Suspicious Activity Report
  • SDN – Specially Designated Nationals
  • SPAN – Standard Portfolio Analysis

Rules & Regulations

Some of the checklists have references to certain CFTC Regulations and NFA Rules.  We have listed them below for your convenience.

  • CFTC Part 4 Regulations
  • CFTC Regulation 160
  • CFTC Interpretation #10
  • NFA Compliance Rule 2-7
  • NFA Compliance Rule 2-29
  • NFA Compliance Rule 2-30
  • NFA Bylaw 1301
  • Securities Exchange Act of 1933 – Sections 9(a), 9(b), 10(b)


Some of the checklists have references to forms and these are included below.

  • CFTC Form 40
  • CFTC Form 8-T
  • Form U5


Other related NFA compliance articles include:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog.  He can be reached directly at 415-868-5345

Hedge Fund Events February 2010

The following are various hedge fund events happening this month.  Please email us if you would like us to add your event to this list.


February 1-2

February 2

February 2

February 2

February 2

February 2-5

February 3-4

February 4

February 7-10

February 8-9

February 8-10

February 9

February 10

February 10-12

February 11

  • Sponsor: Conifer Securities
  • Event: 2010 Best Practices for Managing Your Business & Successfully Raising New Assets
  • Location: The City Club of San Francisco
  • Panelists: Rachel Minard (previously of Cogo Wolf Asset Management, LLC), Travis Shore (The University of Florida), John Broadhurst (Shartsis Friese, LLP)
  • Moderator: Jack McDonald (The Conifer Group, LLC)
  • Topics: effectively marketing your fund to institutions and family offices, third party marketers vs. in-house team, most important factors from an allocator’s perspective

February 16

February 17

  • Sponsor: Portland Alternative Investment Association
  • Event: Networking Event
  • Location: Portland

February 18

February 18

February 19

  • Sponsor: The Fordham Journal of Corporate and Financial Law
  • Event: The Regulation of Investment Funds
  • Location: Fordham Law School, New York
  • Panelists: Andrew J. Donohue (SEC), Paul N. Roth (Schulte Roth & Zabel, LLP), Matthew B. Siano (Two Sigma Investments, LLC), J.W. Verret (George Mason University School of Law), M. Holland West (Shearman & Sterling, LLP)
  • Moderator: James Jalil, Moderator (Thompson Hine, LLP; Fordham Law School)
  • Topics: a symposium analyzing current proposals to regulate investment funds and their advisors

February 23

February 23

February 23

February 24

February 25

February 25

February 25-26

February 25-26

February 26


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

FLOORED Film Peeks Inside Chicago Trading World

Audience Reacts Positively to James Allen Smith’s Documentary on Chicago Floor Trading

On Thursday evening at the Roxie Theatre in San Francisco, the professional women’s organization 100 Women in Hedge Funds sponsored the showing of Floored, a documentary by ex-floor trader James Allen Smith that offers a peek inside the lives, successes, and struggles of former traders of the Chicago trading floor (a.k.a. the “pit”).

Those who showed up to watch the film made for the perfect audience–traders, hedge fund managers, and other financial industry professionals schmoozed over wine and cheese before the showing, during which boos, laughter, applause, and verbal comments erupted each time the audience could relate to traders’ stories or make fun of their often idiosyncratic comments. Upon leaving trading, one notable former trader (and quite the character) Mike Walsh took up the hobby of hunting lions, giraffes, and other wild animals.

Through interviews and live footage of pit trading, the documentary tells the story of the Chicago Board of Trade’s (now the Chicago Mercantile Exchange, CME) humble beginnings–it opened in 1898 as the Chicago Butter and Egg Board because it only traded butter and egg contracts!–to the roller coaster ride experienced by floor traders during the peak of futures and options floor trading in the mid-1990s.

Starting in 1992 and still in use today in the pit is the combination of open outcry, the system of loudly shouting over competitors often associated with floor trading, and GLOBEX, an electronic trading system which works alongside open outcry to make trading more efficient. The idea behind trading revolves around buying a commodity at one price and then trying to sell it for a better price in order to make a profit.  In the film, the traders described this system as a game–one trader stated that when the bell goes off (to initiate the opening of trading hours), he experiences an adrenaline rush as if he were playing a sports game.  Another trader commented, “Trading is not a normal job. When you are in there [the pit] from 8:30 to 3:15, it’s all about money!”

The main issue traders discussed was the shift from floor trading to electronic trading. The majority opinion was that computers changed the dynamic of trading in an unfavorable way and that trading in person helps make the price of commodities more efficient. One trader commented that open outcry was more “honorable”. There is also a generational issue, as older traders who did not grow up using computers had trouble figuring out complicated electronic trading platforms. Essentially, those traders who still had enough money to continue trading and who were able to use the electronic systems continued trading, while those who lost too much money in the pit were forced to leave trading altogether.

According to the CME, the options and futures trading floor remains grounded in floor trading, which accounts for 90% of trades with the remaining 10% occurring electronically. The futures pit, however, has seen the biggest crossover to electronic trading, with approximately 85% of trades taking place on the computer and the remaining ones in the pit.

After the film, Smith, who watched the film alongside his audience, stood at the front of the theatre for a Q&A session. He was asked about his background–he went to art school then found himself doing web design for finance businesses in Chicago, where a friend suggested he make a movie about floor traders. He even dabbled in trading and reached out to his network when casting traders for the film. When asked why former traders were willing to open up about their personal lives on film, he commented that less successful traders are often more likely to talk, while more successful traders remain tighter-lipped. Finally, when asked what impression of traders he wanted to leave with audiences, Smith replied that traders are usually stereotyped as “greedy a**holes”, and he wanted to show that traders are more “dynamic than just that part of their personalities” by offering a “more rounded impression [of traders]” through his film.


For information about future Floored showings, click here.

Other related Floored and CME articles include:

Bart Mallon, Esq. of Cole-Frieman & Mallon LLP runs the Hedge Fund Law Blog.  He can be reached directly at 415-868-5345.