Commodity Firms Need to Complete Annual Regulatory Information

The NFA recently released a regulatory reminder to firms which are registered as commodity pool operators and/or commodity trading advisors.  The reminder reminds CPOs and CTAs that there are certain annual regulatory items which a firm must complete in order to remain in good standing with the NFA.  I have reprinted these two releases below.  As a summary, the reports emphasize:

1. Firms must complete an annual update and questionnaire.  Firms must pay of yearly dues to the NFA (which can be done online).  Firms should also make sure that all employees are appropriately registered as Associated Persons, as necessary.
2. Firms should review the NFA Self Exam checklist to ensure compliance.
3. Firms should send Privacy Policy to all investors/ clients.
4. Firms should review and test the Disaster Recovery Plan.  If necessary, adjustments should be made.
5. Firms should review Ethics Training Procedures.   If necessary, appropriate ethics training should be provided.
6. Firms should file any new exemption notices with the NFA, if necessary.
7. Firms should review their Disclosure Document.  As a reminder, the Disclosure Document must be no more than 9 months old and reviewed by the NFA.  If the CPO or CTA firm also trades in the off-exchange forex markets, the Disclosure Document must incorporate the new forex rules which were adopted on November 30, 2008 (see NFA Compliance Rule 2-41 on post regarding NFA to Begin Regulating Forex).
8. (For CTAs) If the firm places bunched orders, the firm must conduct (and document) quarterly analysis of the of order allocation method.  The order allocation method must be fair and equitable.
9. (For CPOs)  Firms must distribute the pool’s Annual Report to investors; Annual Report must also be submitted to the NFA.

Many of the above items can be done online.  Many of the above items should be overseen by a hedge fund/ securities attorney or an experienced NFA compliance consultant.  Please contact us if you would like more information on our annual NFA compliance packages which can be modified based on your needs.  We can also provide compliance support on an hourly basis.

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January 15, 2009

Annual Regulatory Reminder for Commodity Trading Advisors

National Futures Association has always been committed to providing our Members with the resources they need to meet their regulatory obligations as efficiently as possible. Therefore, we are providing you with an annual reminder regarding certain requirements that are not part of your day-to-day operations. This list does not capture all of your responsibilities for the upcoming year, but it should help remind you of certain non-routine requirements.

Within the next 12 months you will be required to:

1. Complete the Annual Update process on the anniversary date of your firm’s registration. This process includes (1) completing the electronic Annual Registration Update; (2) electronically submitting the firm’s Annual Questionnaire on NFA’s Web site and (3) paying your annual registration fees and NFA dues.

Failure to satisfy all of the requirements in the annual update process within 30 days of your anniversary date will result in the withdrawal of your firm’s NFA registration and/or Membership. Carefully check your registration record including address, contact information, and listed principals. Ensure any individual in a line of supervisory authority over Associated Persons (“APs”) is also registered as an AP. For additional information on who has to register as an AP, see NFA’s Notice to Members I-07-38 at http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=1963.

2. Complete NFA’s Self-Examination Checklist located on NFA’s Web site at http://www.nfa.futures.org/compliance/selfexam.asp.

3. Send your firm’s Privacy Policy to every current client (in addition to sending it to every new client when the client enters into an advisory agreement or purchases a subscription). For guidance in preparing your policy, please consult NFA’s Privacy Policy questionnaire (Appendix D of the Self-Exam Checklist).

4. Test your Disaster Recovery Plan and make any necessary adjustments. For guidance in preparing your plan, please consult NFA’s Business Continuity and Disaster Recovery Plan questionnaire (Appendix B of the Self-Exam Checklist).

5. Provide Ethics Training as outlined in your firm’s written Ethics Training Procedures. For guidance in developing your procedure, please consult NFA’s Ethics Training Policy questionnaire (Appendix C of the Self-Exam Checklist).

6. File any new exemption notices electronically through NFA’s EasyFile system.

7. If soliciting new clients, distribute a Disclosure Document that is no more than 9 months old and that has been reviewed by NFA. CTAs trading forex transactions as described in NFA Bylaw 1507(b)(2) must prepare a Disclosure Document in accordance with NFA Compliance Rule 2-41 adopted on November 30, 2008.

8. If placing bunched orders, analyze each trading program at least quarterly to ensure that the order allocation method has been fair and equitable and document this analysis.

We recommend that you keep this email as a reference guide to ensure that all requirements are completed on time throughout the year. As always, if you need assistance with these or any other NFA requirements, please contact NFA’s Information Center at (800) 621-3570.

[The above release can be found here.]

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Notice I-09-02
January 15, 2009

Annual Regulatory Reminder for Commodity Pool Operators

National Futures Association has always been committed to providing our Members with the resources they need to meet their regulatory obligations as efficiently as possible. Therefore, we are providing you with an annual reminder regarding certain requirements that are not part of your day-to-day operations. This list does not capture all of your responsibilities for the upcoming year, but it should help remind you of certain non-routine requirements.

Within the next 12 months you will be required to:

1. Complete the Annual Update process on the anniversary date of your firm’s registration. This process includes (1) completing the electronic Annual Registration Update; (2) electronically submitting the firm’s Annual Questionnaire on NFA’s Web site and (3) paying your annual registration fees and NFA dues.
Failure to satisfy all of the requirements in the annual update process within 30 days of your anniversary date will result in the withdrawal of your firm’s NFA registration and/or Membership. Carefully check your registration record including address, contact information, and listed principals. Ensure any individual in a line of supervisory authority over Associated Persons (“APs”) is also registered as an AP. For additional information on who has to register as an AP, see NFA’s Notice to Members I-07-38 at http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=1963.

2. Complete NFA’s Self-Examination Checklist located on NFA’s Web site at http://www.nfa.futures.org/compliance/selfexam.asp.

3. Send your firm’s Privacy Policy to every current participant (in addition to every new participant when the participant invests in a fund). For guidance in preparing your policy, please consult NFA’s Privacy Policy questionnaire (Appendix D of the Self-Exam Checklist).

4. Test your Disaster Recovery Plan and make any necessary adjustments. For guidance in preparing your plan, please consult NFA’s Business Continuity and Disaster Recovery Plan questionnaire (Appendix B of the Self-Exam Checklist).

5. Provide Ethics Training as outlined in your firm’s written Ethics Training Procedures. For guidance in developing your procedure, please consult NFA’s Ethics Training Policy questionnaire (Appendix C of the Self-Exam Checklist).

6. File any new exemption notices electronically through NFA’s EasyFile system.

7. If soliciting new pool participants, distribute a Disclosure Document that is no more than 9 months old and that has been reviewed by NFA. CPOs trading forex transactions as described in NFA Bylaw 1507(b)(2) must prepare a Disclosure Document in accordance with NFA Compliance Rule 2-41 adopted on November 30, 2008.

8. Update your CPO Questionnaire on NFA’s Web site for any pools that have liquidated.

9. Submit to NFA through NFA’s EasyFile system, and distribute to current participants, a certified Annual Report for each pool as of the close of the pool’s fiscal year. CFTC Regulations require Commodity Pool Operators to follow strict deadlines and filing requirements, and failing to meet those deadlines may result in a disciplinary action against a CPO. To learn more about EasyFile, go to NFA’s Web site and access the seminar at http://www.nfa.futures.org/member/indexArchive.asp.

Since NFA acts as the CFTC’s delegate when NFA receives and reviews Annual Reports, the reports are subject to requests under FOIA. CPOs may request confidential treatment of Annual Reports but must strictly follow the CFTC procedures contained in CFTC Regulation 145.9 for filing such requests. For information on how to request confidential treatment of Annual Reports filed with NFA, consult the information on NFA’s Web site at http://www.nfa.futures.org/compliance/CPO_confidentialTreatmentRequests.asp.

When preparing pool Annual Reports, refer to the CFTC’s annual letter for useful tips. This letter can be found at http://www.cftc.gov/industryoversight/intermediaries/guidancecporeports.html.
Please note, as of November 30, 2008, CPOs whose pools trade forex transactions as described in NFA Bylaw 1507(b)(2) have the same financial reporting and filing requirements as traditional commodity pools. For further information, see NFA Compliance Rule 2-42 and CFTC Regulation 4.22.
We recommend that you keep this email as a reference guide to ensure that all requirements are completed on time throughout the year. As always, if you need assistance with these or any other NFA

requirements, please contact NFA’s Information Center at (800) 621-3570.

[The above release can be found here.]