Category Archives: Uncategorized

CFA Exam and CFA Charterholder Membership

1 Reply

CFA Exam Overview

The Chartered Financial Analyst (CFA) designation is a widely recognizable professional title for financial analysts in the investment management industry.  In order to earn the CFA Designation and become a CFA Charterholder, you must first enroll in the CFA Program at the CFA Institute and then pass the CFA exam.  The CFA exam is an important and difficult test that measures a candidate’s comprehension of the CBOK – the Candidate Body of Knowledge curriculum that is created by the CFA Institute.  A candidate will receive the CBOK curriculum upon registration so that studying can begin immediately.

Candidates will need to pass three distinct “levels” and will also need to have certain industry experience in order to receive the designation.  In order to take any level of the exam, a candidate must have a bachelor’s degree (or be enrolled in the final year of your bachelor’s program) or four years of related work and/or college experience.  This article will detail the requirements for each level and discuss other aspects of the designation.

Level I

The Level I is the first exam in the series and is the only exam that is offered twice a year (June and December).  The exam is multiple choice and has 10 main topics, with a slightly more concentrated focus on Ethical and Professional Standards, Investment Tools, and Asset Classes.

Major Items:

  • Test time: about 6 hours
  • December 2009 passing rate: 34%
  • June 2009 passing rate: 46%
  • Cost: Price varies depending on when you register –

9 months prior: $1020

4 months prior: $1110

3 months prior: $1435

  • When to take: June and December
  • Where to take: There is a list of CFA Exam locations on the CFA Institute website

Major Topics:

  • Ethical and Professional Standards
  • Quantitative Methods
  • Economics
  • Financial Reporting and Analysis
  • Corporate Finance
  • Investment Tools
  • Equity Investments
  • Fixed Income
  • Derivatives
  • Alternative Investments
  • Asset Classes
  • Portfolio Management and Wealth Planning

Level II

The Level II is the second exam in the series.  It consists of item-set questions and emphasizes the application of concepts that are introduced in Level I.  It tends to focus more on Investment Tools, Equity Investments, and Asset Classes.  Additionally, the exam presents ten hypothetical cases that include a series of multiple-choice questions to answer afterward.  In order to take this exam, you must have earned a passing grade on the Level I.

Major Items:

  • Test time: about 6 hours
  • June 2009 passing rate: 41%
  • Cost: Price varies depending on when you register:

9 months prior: $1020

4 months prior: $1110

3 months prior: $1435

  • When to take: June
  • Where to take: There is a list of CFA Exam locations on the CFA Institute website

Major Topics:

  • Ethical and Professional Standards
  • Quantitative Methods
  • Economics
  • Financial Reporting and Analysis
  • Corporate Finance
  • Investment Tools
  • Equity Investments
  • Fixed Income
  • Derivatives
  • Alternative Investments
  • Asset Classes
  • Portfolio Management and Wealth Planning

Level III

The Level III is the final exam in the series.  It consists of item-set questions and an essay, and tests a candidate on all concepts and applications introduced in each previous exam.  The exam’s predominant focus is on Portfolio Management and Asset Classes.   In order to take this exam, you must have earned a passing grade on the Level II.

Major Items:

  • Test time: about 6 hours
  • June 2009 passing rate: 49%
  • Cost: Price varies depending on when you register:

9 months prior: $1020

4 months prior: $1110

3 months prior: $1435

  • When to take: June
  • Where to take: There is a list of CFA Exam locations on the CFA Institute website

Major Topics:

  • Ethical and Professional Standards
  • Equity Investments
  • Fixed Income
  • Derivatives
  • Alternative Investments
  • Asset Classes
  • Portfolio Management and Wealth Planning

Grading and Exam Day

The exams are reported as “pass” or “fail” within 90 days after the exam is taken and the scores are only available online.  There is no minimum passing score for any of the exams.  Instead, the CFA determines the passing level each year after all exam scores are processed.  The CFA Institute suggests that successful candidates spend at least six months and 300 hours preparing for the exam, which had a combined average passing rate of 42.5% for 2009. However, the Institute also acknowledges that a significantly greater amount of preparation time may be required depending on each individual candidate.  The duration of the exam lasts around six hours, with a typical exam day beginning around 8 a.m. and ending around 5 p.m.  The day is broken up by morning and afternoon sessions and includes a lunch break in the afternoon.

Membership – Experience & Dues

In order to maintain your CFA charterholder membership after passing all three exams, you must have accrued at least 48 months of acceptable professional work experience either before or during the program, or after you have passed the exam.  This experience must be in a full-time position and 50 percent of the work must include direct involvement in the investment-decision making process and engagement in responsibilities and/or producing a work product that informs or adds value to that process.  Unacceptable work experience includes summer, part-time, and internship positions, and work that involves managing your own investments.  You can view sample work experience descriptions and titles on the CFA Institute website: http://cfainstitute.org/cfaprog/charterholder/membership/work_descriptions.html

In addition, you must also submit an annual Professional Conduct Statement and pay annual membership dues of $225.  The Professional Conduct Statement must be signed by all members and must disclose any professional-related litigation or arbitration, customer complaints, and/or disciplinary proceedings.  It can be signed online when you pay your membership dues.  As a member, you are also required to comply with the policies and procedures outlined in the Articles of Incorporation and Bylaws, Code of Ethics and Standards of Professional Conduct, Rules of Procedure for Proceedings Related to Professional Conduct, and any other conditions or requirements established by the Institute.  These policies can also be found on the CFA Institute’s website: http://cfainstitute.org/cfaprog/charterholder/maintain_status.html

Conclusion

While the preparation for the exam may be rigorous and the exam itself may be challenging, there are a number of benefits for earning the title of CFA Charterholder.  The CFA Institute cites the global networking opportunities that come with earning the CFA designation, as well as the mark of expertise and professionalism that will allow clients and colleagues to hold you in a higher regard.  Although the exams are suggested to be completed over a course of three years, there is no maximum length of time to complete all three levels.  Each exam can also be taken an unlimited number of times in the event that you do not pass.  There is also an extensive amount of study guide and review opportunities offered in print or online to ensure that you are well-prepared for the exam.

****

Please contact us if you have a question on this article or if you interested in starting a hedge fund.  Other related hedge fund law 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.

Cole-Frieman & Mallon LLP Comments on Proposed Retail Forex Regulations

Leave a reply

www.hedgefundlawblog.com

Text of the Cole-Frieman & Mallon LLP comment is provided below.

****

[Footnotes ommitted]

March 22, 2010

VIA ELECTRONIC MAIL
AND COURIER

Mr. David Stawick
Secretary
Commodity Futures Trading Commission
1155 21st Street, NW
Washington, DC 20581

Re: Request for Comment on Proposed Regulation of Off-Exchange

Retail Foreign Exchange Transactions and Intermediaries

Dear Mr. Stawick:

This letter is in response to the request of the Commodity Futures Trading Commission (the “Commission”) in RIN 3038–AC61 (the “Release”)  for comment on certain proposed regulations (the “Proposed Regulations”) under the Commodity Exchange Act (“CEA”)  as amended by the CFTC Reauthorization Act of 2008 (the “CRA”).  The Proposed Regulations as drafted would establish requirements for, among other things, registration, disclosure, recordkeeping, financial reporting, minimum capital, and other operational standards with respect to retail off-exchange foreign currency (“forex”) transactions.

Cole-Frieman & Mallon LLP is a law firm which represents a substantial number of clients who are domestic forex market participants and who would be directly affected by the Proposed Regulations. We appreciate the opportunity to comment on the Proposed Regulations, especially considering that the regulations, if adopted as proposed, would significantly affect the business of many of our clients. While we have discussed these views with our clients, and they share many of the same views, the comments expressed in this letter are our own.

Overview of Proposed Retail Forex Regulations

The Proposed Regulations would, among other things, (i) require certain retail forex market participants to register with the Commission, (ii) require counterparties dealing in retail forex to increase the security deposit for forex transactions, (iii) establish certain net capital levels for forex counterparties, and (iv) require introducing brokers to retail forex transactions to operate pursuant to a guarantee agreement with only one forex counterparty.

The landscape in which the Proposed Regulations were developed is important. Prior to the CRA, the Commission did not have an explicit grant of jurisdiction over the off-exchange spot forex markets  and there was, accordingly, little regulatory oversight of certain market participants. Without a mandate to require registration of such market participants, run-of-the-mill common law fraud proliferated  as regulators were impotent to stop these scams. While state laws were able to address many of these cases after the fact, the Commission sought to regulate the industry as a proactive means to prevent fraud. At the same time, many legitimate domestic forex businesses sought ways to distinguish themselves from the fraudulent players in the industry by voluntarily registering with the Commission as commodity pool operators (“CPOs”), commodity trading advisers (“CTAs”), introducing brokers (“IBs”) and futures commission merchants (“FCMs”).  These businesses, like many of the firms and individuals who have responded to the Commission’s request for comments, fully appreciate the important role that regulatory bodies play in “cleaning up” the industry and making sure that bad actors do not continue to tarnish the names of hard working individuals who have helped to create a competitive and robust industry in the United States.

We agree with many of the Proposed Regulations and believe they serve important investor protection functions, however we are concerned that some of the Proposed Regulations will not protect investors and will have a deleterious effect on the United States forex industry. It is within this context, and with the goal of helping to create a considered regulatory regime that emphasizes both investor protection and the continued economic viability of the domestic retail forex industry, we make the following comments.

Registration of Forex Market Participants

Registration of Forex CPOs, CTAs and IBs

The Proposed Regulations require persons to register with the Commission as forex CPOs, forex CTAs, and forex IBs, as appropriate.  The Proposed Regulations also create a new registration category for retail foreign exchange dealers (“RFEDs”) and require RFEDs to register as such with the Commission.  Certain employees of the foregoing registrants would be required to register with the Commission as associated persons (“APs”), as appropriate.  The registered firms and APs would also be required to become members of a registered futures association.  In addition to registration, Proposed Regulation 5.4 would require certain disclosure, recordkeeping and reporting requirements for forex CPOs and CTAs.

We broadly believe that requiring forex CPOs, CTAs, and IBs to register with the Commission is reasonable.  It is clear that the standards to operate as a Commission registered firm and National Futures Association (“NFA”) Member Firm are high. In order to complete registration, each firm needs to designate at least one person as an AP/Principal, and that person needs to meet certain proficiency requirements,  background checks, and other investigations into the person’s fitness to provide services to customers.  Once registered, forex CPOs and CTAs are generally required to have their disclosure documents reviewed by the NFA prior to soliciting customers.  These measures provide both the Commission and the NFA with ample opportunity to review firms and individual applicants. Once registered, Member Firms will be required to implement recordkeeping and compliance programs under both Commission regulations and NFA Rules.  In addition to self-examination and compliance mandates, NFA Member Firms are subject to routine audit and the NFA has made it clear that it intends to heavily monitor Member Firms involved in the retail forex industry.  It is our belief the foregoing measures are sufficient to achieve the goal of investor protection while remaining within with the Commission’s statutory duty to utilize the least anti-competitive means possible.

Lower Leverage Requirement

The heavily criticized Proposed Regulation 5.9 requires RFEDs and FCMs engaging in retail forex transactions to collect from the retail customer a security deposit of ten percent of the notional value of the transaction. The regulation would also require the RFED or FCM to collect an additional security deposit or liquidate the position if the account value drops below the 10:1.  The Release cites a number of reasons for limiting leverage including: (i) extreme volatility of the forex markets; (ii) potential customer liability for losses if positions are not closed out; (iii) counterparty risk; and, (iv) current and proposed margin requirements by other regulatory bodies, including FINRA.  It is unknown if the Commission spoke with any industry participants such as FCMs or forex customers when considering this provision.

We strongly oppose Proposed Regulation 5.9. We believe that reducing leverage for retail forex transactions to 10:1 will not serve to protect customers and will likely, instead, harm the domestic forex industry. Many of the reasons cited by the Commission for the reduction of leverage are simply ill-founded and have previously been examined by the NFA.  We believe that the Commission should not pass the proposed regulation as written because the NFA’s current leverage requirement adequately protects investors and it is clear that there are serious anti-competition issues with the proposed regulation.

NFA Section 12 Provides Greater Leverage

Proposed Regulation 5.9 was promulgated notwithstanding that the NFA just recently implemented a rule, approved by the Commission on November 30, 2009, requiring leverage for Forex Dealer Members (“FDMs”) of 100:1 for major currencies and 25:1 for non-major currencies.  In proposing the rule change (in which the NFA actually increased the leverage allowances), the NFA took a considered approach to the issue. The NFA (i) researched then current FCM and FDM practices with respect to leverage, (ii) researched the practices of other industry groups, (iii) solicited comments from FDMs on proposed rules, (iv) discussed the issue with an FDM advisory committee, and (v) independently investigated the issue.  In proposing the leverage rule, the NFA stated that it “believes that the amendments [100:1 and 25:1 leverage] are the best way to address NFA’s customer protection concerns with certain FDMs’ use of leverage.”  The NFA further stated that:

Based on our experience with FDM practices, including that most FDMs use systems that liquidate customer positions before they reach a negative balance, NFA believes that the 1% and 4% security deposit requirement amounts remain sufficient at this time to protect against financial harm to FDMs and their customers even though they are significantly lower than margin requirements for on-exchange equivalents.  [emphasis added]

We strongly agree with the NFA’s current leverage requirements. We believe that the NFA took the appropriate time and care necessary to properly research this issue and that significant deference should be given to the NFA’s margin requirements for Commission registrants.

Unprecedented Industry Resistance to Lower Leverage

As of March 22, 2010, the Commission published on its website almost 9,000 comments. These comments were prepared and submitted by all types of participants within the retail forex industry including: forex investors, market participants such as forex CPOs, forex CTAs, forex IBs, FCMs, FDMs, and two newly formed coalitions – the Forex Exchange Dealers Coalition and the IB Coalition. The comments were overwhelmingly against leverage reduction and a majority have cited a number of reasons including: (i) liberty/freedom to contract; (ii) job loss from trading going overseas;  and, (iii) lack of protections to domestic investors in offshore jurisdictions.

We share the views expressed in many of the comments, especially with respect to the viability of the forex industry in the United States if lower leverage is required. As many comments noted, if lower leverage is instituted, customers will simply move their accounts to offshore brokers who provide leverage of 200:1 or more. It is common knowledge that these offshore brokers can be unreputable and may actually provide investors with fewer safeguards than domestic brokers who are (and will continue to be) subject to oversight by both the Commission and the NFA.

Net Capital Requirements

Proposed Regulation 5.7 requires each FCM engaged in retail forex transactions and each RFED to maintain a certain minimum net capital. The net capital requirement would require firms to maintain the greater of: $20 million; $20 million plus 5% of the total retail forex obligation in excess of $10 million; any amount required under Commission Regulation 1.17; or amounts required by a self regulatory organization of which the FCM or RFED is a member.  The purpose of these requirements is to protect retail customers in the absence of bankruptcy protection for segregated funds by making sure that FCMs and RFEDs will be able to remain solvent.

We believe that absent bankruptcy protection for segregated funds, high net capital requirements are the best way to protect the assets of retail investors. We do note, however, that high net capital requirements limit the groups who are able to participate as principals in these markets.

Introducing Broker Guarantee Agreement

Proposed Regulation 1.10 requires forex IBs to enter into a guarantee agreement with a RFED or FCM in connection with retail off-exchange forex transactions.  The Commission will prepare a new Part C guarantee agreement to the Form 1-FR-IB which, according to the Release, will make FCMs and RFEDs jointly and severally liable for all obligations of the IB with respect to the solicitation of, and transactions involving, all retail forex customer accounts of the IB entered into on or after the effective date of the guarantee agreement. The Commission believes that the guarantee requirement serves the public’s interest by creating a marketplace where improper practices by IBs are discouraged while still permitting FCMs and RFEDs to make use of outside salespeople.

We strongly disagree with Proposed Regulation 1.10. We believe it will effectively eliminate almost all forex IBs and put a number of honest and ethical forex IBs out of business. While it would be true that RFEDs and FCMs would still be able to utilize outside sales agents, in practice RFEDs or FCMs are not going to take on the risk of guaranteeing forex IBs.

We also cannot support this proposal because we believe that there is strong oversight of forex IBs and that registration will further weed out unscrupulous players. As we discussed above, the NFA is tasked with significant oversight responsibilities and does not take this mandate lightly. While a forex CPO or CTA may be able to become initially registered within a matter of weeks (assuming the firm and principals have clean regulatory histories), a forex IB application may take three to six months or longer to be approved. Also, unlike forex CPOs and CTAs, the NFA requires forex IBs to have robust Anti-Money Laundering procedures, Business Continuity Plans and other compliance policies and procedures in place prior to registration. During the IB registration process the NFA examiners thoroughly review an applicant’s background and operating procedures. Additionally, the NFA requires independent IBs to maintain a $45,000 net capital requirement and to submit financial information on a semi-annual basis.  In our opinion this existing regulatory framework of review procedures and net capital rules is more than sufficient to ensure investor protection.

Furthermore, we concur with a number of commenters who have noted that there are fairness concerns vis-a-vis introducing brokers to on-exchange traders. We believe that the Commission can achieve its goal of investor protection through less anti-competitive means.

Grandfathering Provision Should be Added

In the event the Commission adopts the proposed regulation as drafted, we believe the Commission should provide a grandfathering provision for current forex IBs who would be put out of business if the proposed regulation was passed as currently written. Additionally, the Commission should clarify the manner in which independent IBs are treated if they make introductions to both exchange traded futures products in addition to retail forex.

Other Issues

Technical Revisions

The Proposed Regulations include a number of revisions to current Commission regulations which are necessary from a technical perspective to ensure the new regulations are properly implemented within the Commission’s statutory framework. We agree that technical adjustments to current rules are necessary and applaud the Commission for trying to streamline regulation as much as possible.  Certain technical aspects of the rules, however, should be revised with appropriate industry input.  Additionally, any adopted leverage regulation will likely necessitate a change to certain provisions which currently reference the NFA leverage rule.

Disclosure Document Risk Statements

Proposed Regulations 4.24 and 4.34 provide certain risk disclosure statements which must be included at the beginning of forex CPO and CTA disclosure documents. We completely understand the purpose of this requirement and we also understand that this practice would mirror the current requirements for CPOs and CTAs. However, we do not believe that consumers actually read long paragraphs of legal disclaimers in large capital letters. In the future, the Commission should consider a succinct bullet point list. We believe that consumers are more likely to read and understand information in such format.

Regulation 5.5(e)

Proposed Regulation 5.5 would require FCMs, RFEDs and forex IBs to provide retail forex customers with a risk disclosure statement similar to the statement currently required for customers engaging in on-exchange trading. Proposed Regulation 5.5(e) would additionally require these firms to disclose additional information which is not required to be disclosed for on-exchange trading.  We believe that Proposed Regulation 5.5(e) should not be deleted because it would not further any true investor protection and would likely be anti-competitive.

Conclusion

The proposed rules seek to develop a comprehensive regulatory structure for the off-exchange retail forex industry. We have provided the Commission with these comments in the hope of helping to create a robust but appropriate regulatory environment while preserving the industry’s ability to succeed in a global forex marketplace. We appreciate the opportunity to comment on the Release. If you have any questions regarding this letter, please contact the undersigned at 415-868-5345.

Very truly yours,

Cole-Frieman & Mallon LLP

Bart Mallon

Health Care and Hedge Funds

1 Reply

Obama Health Care Bill Increases Capital Gains Rate to 23.8%

According the this story by Bloomberg, the tax on dividends and long term capital gains under the Obama Health Care Bill will spike to 23.8% when the tax increases are fully implemented.  The article states:

Obama’s budget proposes to allow the existing 15 percent tax rate on dividends and capital gains to rise to 20 percent in 2011 for the same high-earners. Layering a 3.8 percent Medicare tax on top of that would mean a new top rate on dividends and capital gains of 23.8 percent. The top tax rates on interest and rental income would rise to as high as about 44 percent, assuming other Obama tax increases on high-earners are enacted.

It will be interesting to see how the investment management industry will react to this 50% increase in taxes on dividends and capital gains.

NFA Adopts CPO Quarterly Reporting Rule

6 Replies

The NFA recently adopted new Rule 2-46 which will require commodity pool operators to make a quarterly report to the NFA.  This quarterly reporting requirement is in addition to the annual audit financial statement filing requirement and must be completed through the NFA’s online filing system.

We have provided an overview of the major requirements of the new rule and have posted the complete text of the new rule below.

Overview of NFA Rule 2-46

Who has to file?

Generally all registered CPOs will need to file the report with respect to the pools which they manage.  This includes CPOs to both 4.7 and 4.12 funds.  Operators of 4.13 funds will not need to file.

What needs to be filed?

The CPO will need to make a filing which includes the following information:

  1. Key Relationships – pool administrators, carrying brokers, trading managers, custodians
  2. Statement of Changes in NAV
  3. Monthly Rates of Return
  4. Schedule of Investments – all pool investments greater than 10% of fund NAV need to be disclosed (even if the positions are not futures/commodities)

When do quarterly reports need to be filed?

The filing must be made within 45 days of the end of each quarter.  The rule is now effective and as such the first filing will be due within 45 days after March 31, 2010.

Where do CPOs file the reports?

The CPO must file on the NFA’s EasyFile system.

Why the new rule?

The NFA wants more information on the trading which is going on, especially with respect to Regulation 4.7 pools which are not required to submit disclosure documents to the NFA.  In the adopting release, the NFA stated:

NFA recently developed a new risk management system designed to assess risks, identify trends and assign audit priorities. NFA is concerned, however, that the current information that we have relating to commodity pools – particularly CFTC Regulation 4.7 exempt pools – may not provide sufficient information for NFA to fully utilize the risk system’s capabilities. The additional limited performance and operational data NFA desires to collect is necessary so that the new risk system can provide an optimal benefit.

The full rule can be found here.

The notice of adoption of the new rule can be found here.

****

Rule 2-46. CPO Quarterly Reporting Requirements

Each CPO Member must report on a quarterly basis to NFA, for each pool that it operates and for which it has any reporting requirement under CFTC Regulation 4.22, the following information in a form and manner prescribed by NFA within 45 days after the end of each quarterly reporting period:

(a) The identity of the pool’s administrator, carrying broker(s), trading manager(s); and custodian(s);

(b) A statement of changes in net asset value for the quarterly reporting period;

(c) Monthly performance for the three months comprising the quarterly reporting period;

(d) A schedule of investments identifying any investment that exceeds 10% of the pool’s net asset value at the end of the quarterly reporting period.

****

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.

New Connecticut Hedge Fund Laws Proposed

Leave a reply

Wants Greater Disclosure & Transparency

A bill was recently introduced into the Connecticut General Assembly which would require investment advisers to hedge funds to provide an overview of any conflicts of interests of such investment adviser with respect to its duties to the fund (or its investors).  This new bill comes about a year after another bill was proposed (but not passed) in Connecticut (see New Connecticut Hedge Fund Laws Proposed).

The text of bill is below and can also be found here.

****

General Assembly

Raised Bill No. 5053

February Session, 2010

LCO No. 540

*00540_______BA_*

Referred to Committee on Banks

Introduced by: (BA)

AN ACT CONCERNING TRANSPARENCY AND DISCLOSURE.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective October 1, 2010) (a) As used in this section, “hedge fund” means any investment company, as defined in Section 3(a)(1) of the Investment Company Act of 1940, located in this state (1) that claims an exemption under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940; (2) whose offering of securities is exempt under the private offering safe harbor criteria in Rule 506 of Regulation D of the Securities Act; and (3) that meets any other criteria as may be established by the Banking Commissioner in regulations adopted under subsection (c) of this section. A hedge fund is located in this state if such fund has an office in this state where employees regularly conduct business on behalf of the hedge fund.

(b) Any investment adviser to a hedge fund shall disclose to each investor or prospective investor in such hedge fund, not later than thirty days before any such investment, any financial or other interests the investment adviser may have that conflict with or are likely to impair the investment adviser’s duties and responsibilities to the fund or its investors.

(c) The Banking Commissioner may adopt regulations, in accordance with chapter 54 of the general statutes, to implement the provisions of this section.

This act shall take effect as follows and shall amend the following sections:

Section 1

October 1, 2010

New section

Statement of Purpose:

To ensure transparency by requiring investment advisers to a hedge fund to disclose any potential conflicts of interest or interests that are likely to impair the investment adviser’s duties and responsibilities to the fund or its investors.

[Proposed deletions are enclosed in brackets. Proposed additions are indicated by underline, except that when the entire text of a bill or resolution or a section of a bill or resolution is new, it is not underlined.]

****

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.

Hedge Fund Databases | Survey of Databases

Leave a reply

Hedge fund databases are online databases that collect and publish information and performance results from hedge fund managers who list their fund.  Usually these databases are open to accredited investors who subscribe to the website.

Aside from providing basic information on the hedge fund, including the name of the fund, the manager, and contact information, the database will usually include performance results, fees, and other additional strategy and structure information.  The extensiveness of the listing, as well as the amount of funds available for viewing, depends on the database.

For hedge fund managers, databases serve as a way to obtain investors and publish their fund’s information to a wider audience.  Most websites require that the manager update their performance reports on a monthly or quarterly basis, and the cost to both list and update information is free.  Often there are also additional requirements for a manager to list a fund, such as a minimum track record or minimum length of active performance, but this also depends on the individual database.

We have compiled a list of popular online databases, which are listed below.  Information on these databases will be updated appropriately as the websites’ policies and fees change throughout the year.

****

Database: Hedgefund.net

Leading Source for Hedge Fund Performance, News and Information

UPDATE: Information from below has been deleted because it was not up to date according to a representative at hedgefund.net.

For Managers:

  • Requirements (to list fund):
  • Minimum Track Record:

For Investors:

  • Number of Funds:
  • Updated:
  • Fee Structure:
  • Who Can Subscribe:

Database: Hedgeco.net

The Leading Free Online Hedge Fund Database and Source of News on Hedge Funds

For Managers:

  • Requirements: Offering Documents, PPM Documents
  • Minimum Track Record: No

For Investors:

  • Number of Funds: Around 7,000
  • Updated: Daily
  • Fee Structure: Offers free Basic Membership and Diamond Membership for $10,000 per year
  • Who Can Subscribe: Pension plans, family offices, consultants, funds of funds, banks, insurance companies, foundations, endowments, and qualified private investors

Database: Hedgefundresearch.com

For Analysts and Investors Who Demand Access to the Broadest Universe of Hedge Funds

For Managers:

  • Requirements: One month of active performance
  • Minimum Track Record: None

For Investors:

  • Number of Funds: Over 6,500 funds and fund of funds
  • Updated: Bi-weekly
  • Fee Structure: Offers HFR Manager Access Package, which includes access to HFR’s five main strategy databses for $2,500, or one year subscription to HFR Database for $7,000
  • Who Can Subscribe: Accredited investors

Database: Barclayhedge.com

Research on Hedge Funds, Fund of Funds, and Managed Futures/Alternative Investments

For Managers:

  • Requirements: One active month of performance
  • Minimum Track Record: None

For Investors:

  • Number of Funds: 5,723 (Global); 4,675 (Hedge Fund); 2,846 (Single Manager)
  • Updated: Bi-monthly
  • Fee Structure: $6,000 for annual subscription (Global); $4,500 (Hedge Fund); $3,500 (Single Manager); and accredited investors or those who work for an accredited institution can use the Barclay DataFinder for Free
  • Who Can Subscribe: Accredited investors

Database: Corporate.morningstar.com

A Leading Provider of Independent Investment Research in North America, Europe, Australia, and Asia

For Managers:

  • Requirements: Questionnaire, PPM/Offering Documents/DDQ or other fund documents
  • Minimum Track Record: None

For Investors:

  • Number of Funds: Offers access to 8,000 U.S. and international funds
  • Updated: Monthly
  • Fee Structure: $179 annual membership, $19.95 monthly membership
  • Who Can Subscribe: Fund of funds, family offices, consultants, mutual fund companies, other investment managers

Database: Lipperweb.com

The Leading Independent Industry Source of Hedge Fund Performance Data

For Managers:

  • Requirements: Lipper TASS Questionnaire, latest version of Prospectus/Offering Document/PPM, most recent Audited Financial Statements
  • Minimum Track Record: None

For Investors:

  • Number of Funds: 6,300
  • Updated: Daily
  • Fee Structure: $8,040 annual subscription
  • Who Can Subscribe: Accredited investors

Database: Casamhedge.com

The Oldest CTA and Hedge Fund Database in the Market and the Source of Data for the CASAM and CISDM Indices

For Managers:

  • Requirements: None
  • Minimum Track Record: None

For Investors:

  • Number of Funds: Offers access to 4,500 hedge funds, fund of funds, and CTAs
  • Updated: Monthly
  • Fee Structure: Free
  • Who Can Subscribe: Accredited institutional investors, registered investment advisors

Database: Eurekahedge.com

Provides the Greatest Breadth and Depth of Information on the Global Alternative Fund Industry

UPDATE: Information from below has been deleted because Eurekahedge has problems with how our information was presented.

For Managers:

  • Requirements:
  • Minimum Track Record:

For Investors:

  • Number of Funds:
  • Updated:
  • Fee Structure:
  • Who Can Subscribe:

Database: Hedgefundintelligence.com

The Most Extensive Database of Single-Manager Hedge Funds and Fund of Funds Available

For Managers:

  • Requirements: Proof of active performance, signed terms of agreement
  • Minimum Track Record: None

For Investors:

  • Number of Funds: Over 11,000
  • Updated: Daily
  • Fee Structure: $3,050 annual subscription for Americas Database
  • Who Can Subscribe: Qualified accredited investors

Database: Cogenthedge.com

Intelligent Tools for Informed Decisions

For Managers:

  • Requirement: None
  • Minimum Track Record: None

For Investors:

  • Number of Funds: 6,100 active investments
  • Updated: Daily, Real-time basis
  • Fee Structure: Free for online research use, $5,000 annual to take off-line and use elsewhere
  • Who Can Subscribe: Accredited and qualified investors

Database: Informa Investment Solutions

The Investment World’s Compass

For Managers:

  • Requirements: CC Registered
  • Minimum Track Record: None

For Investors:

  • Number of Funds: Over 12,000 investment products
  • Updated: Monthly
  • Fee Structure: Free
  • Who Can Subscribe: Plan sponsors, investment consultants and brokerages

****

Other related hedge fund law articles include:

  • Hedge Fund Managers
  • Hedge Fund Investors
  • Hedge Fund Marketing

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.

Hedge Fund Events March 2010

Leave a reply

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.

****

March 1-3

March 2

March 2

March 3

March 3

March 3

March 4

March 7-10

March 10

March 10

March 10-12

March 10-13

March 15

  • Sponsor: Eureka Financial Ltd.
  • Event: UCITS Funds
  • Location: London

March 16

March 17-18

March 18

March 18

March 18

March 18

March 19

March 19

March 22-23

March 23-24

March 23-24

March 23-24

March 24

March 24

March 24-25

March 25

March 25-26

March 25-26

****

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 CPO & CTA Regulatory and Compliance Seminar

2 Replies

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

Registration

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

Leave a reply

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: http://www.regulations.gov/search/index.jsp. 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 http://www.cftc.gov, 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.