Hedge Fund Law Blog in DC
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Annual Reminder for CPOs and CTAs
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:
- 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.
- Firms should review the NFA Self Exam checklist to ensure compliance.
- Firms should send Privacy Policy to all investors/ clients.
- Firms should review and test the Disaster Recovery Plan. If necessary, adjustments should be made.
- Firms should review Ethics Training Procedures. If necessary, appropriate ethics training should be provided.
- Firms should file any new exemption notices with the NFA, if necessary.
- 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).
- (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.
- (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. Continue reading
Hedge Fund Best Practices – Full Report
Full Report of Best Practices for the Hedge Fund Industry
As we discussed in an earlier article on Hedge Fund Best Practices, the President’s Working Group outsourced the creation of best practices for the hedge fund industry. The report below, reprinted in its entirety, provides a comprehensive review of the major issues which hedge fund managers should be aware of when they are establishing their business. I personally believe that all of the best practices below are reasonable and will, over time, become standard within the industry.
The report is broken up into five sections: (1) valuation, (2) risk management, (3) risk management, (4) trading and business operations, and (5) compliance. Because the report is so long we will be providing a daily detailed analysis of each section. If anyone reads through the report and has comments, we would be happy to publish those comments as well. Continue reading
Secondary Hedge Fund Market
Company Promotes Secondary Hedge Fund Trading
Some hedge funds, for a number of potential reasons, are closed for further investment by outside investors. In these cases outside investors can try to get into the funds organically or they can enter the fund through the secondary hedge fund market. In the secondary market, interests in a hedge fund are sold by withdrawing investors to investors who want to get into the fund. There are many reasons why an investor would choose to sell through the secondary market instead of simply redeeming. The most obvious is that the investor needs immediate liquidity. While there is a small secondary market in hedge fund interests, it is not always easy to find investors wishing to sell on the secondary market. Continue reading
Hedge Fund Best Practices
Private Group Promulgates Hedge Fund Best Practices
Under direction from the President’s Working Group on Financial Markets, a private sector group comprised of financial industry professionals and regulators released a finalized set of best practices for hedge funds and hedge fund investors. Continue reading
Revising Hedge Fund Offering Documents
It is very important that hedge fund managers always provide potential investors with hedge fund offering documents which are current and up to date.* Because of certain changes to the various hedge fund laws within the past few months (and because of the increased likelihood of future rules/regulations changes) a hedge fund private placement memorandum which was current 3 months ago will likely need to be revised.
*As always, hedge fund offering documents should only be drafted by a knowledgeable hedge fund attorney.
Specifically, there are two changes which will need to be implemented immediately – the change of the new issue rule (applicable to most funds) and the abolition of Section 409 (applicable to a small number of hedge funds). This article will detail the changes that will need to be made and will discuss how your hedge fund attorney will go about this. Continue reading
New York Hedge Fund Law
Starting a Hedge Fund in New York
It is no secret that New York is the center of the investment management universe and the home of a large majority of hedge funds. For both small and large managers New York offers many befits, namely a proximity to Wall Street and many of the investment banks and also an exemption from investment advisor registration (see discussion below). This article discusses the New York investment advisor exemption, the Form 99 filings and New York investment advisor FAQs. Continue reading
What is a Ponzi Scheme?
Definition of a Ponzi Scheme
With all of the talk recently about the Madoff scandal and various other ponzi scheme’s affecting the hedge fund and investment management industry, we have decided to post a definition of a Ponzi scheme. The definition below comes from the SEC and can be found here. Continue reading
Nevada Hedge Fund Law
Starting a Hedge Fund in Nevada
While Nevada may be the favorite place for hedge fund managers to spend their money, it is not necessarily a place where hedge fund managers want to be located. The reason is that Nevada requires hedge fund managers with a place of business in Nevada to be registered as an investment advisor with Nevada. If a start up hedge fund manager does not want to register as an investment advisor, they should not establish a place of business within Nevada. Continue reading
CFTC Uses New Enforcement Authority to Police Forex
Forex Firm Caught Operating a Ponzi Scheme
The CFTC just announced that it charged a group out of Atlanta with operating a Ponzi scheme. This is the first action the CFTC has brought against a forex firm for fraud. At the beginning of last year Congress passed the Farm Bill which provided the CFTC with more authority for regulating the off-exchange foreign currency markets (also known as the spot forex markets). This action indicates that the CFTC is serious about cleaning up the forex markets. As we’ve detailed before, forex registration will be coming shortly. Continue reading