Tag Archives: Forex CTA

CTA and CPO Registration and Compliance Guide

Practical guidance for CTA and CPO firms

Commodity Trading Advisors (CTAs) and Commodity Pool Operators (CPOs) have been contacting me with greater regularity and we have decided to provide those firms with more detailed information on their registration and compliance requirements. Over the course of the next few weeks we will be continually updating this page with more legal and business guidance for CTAs and CPOs. Specifically, we will be providing information on the following topics:

CTA and CPO Registration – this article discusses the how-to’s of registration with the CFTC. The article details the general requirements for firms, principals, and associated persons. Included in this discussion is information on CTA/CPO exam requirements and an overview of the registration process through the NFA’s electronic registration system.

CTA and CPO Registration Exemptions – while the Commodities Exchange Act will generally require CTA and CPO firms to register with the CFTC, there are some important exemptions from the registration provisions. Review this article to see if your firm might be able to claim an exemption from the registration provisions.

CTA and CPO Compliance Overview – CTAs and CPOs are subject to a number of laws, regulations and rules. Not only must CTAs and CPOs follow CFTC laws and regulations, but as Members of the NFA, these groups must also follow all of the rules developed by the NFA. We will be discussing compliance best practices, major examination issues, major deadlines and the CTA/CPO compliance manual. Being prepared for an NFA examination is of great importance.

Recent NFA Actions against CTA and CPO Managers – the NFA and the CFTC have been quite active lately. In this article we will be discussing some of the most recent actions against NFA member firms. This article will also provide common-sense advice on what managers can do the protect themselves from examination deficiencies.

Important NFA Rules for CTA and CPO Firms – there are a number of rules which the NFA has regarding the conduct of CTAs and CPOs. In general CTAs and CPOs must hold themselves out with the utmost professionalism. This article will detail this and other important NFA rules.

CTA and CPO advertising – there are a number of important rules regarding advertising for CTAs and CPOs. CPOs, especially, must be careful about advertising because of the restrictions under Rule 506 of Regulation D, an exemption that many CPOs utilize in offering their fund interests. Websites will be touched upon in this post and will also be discussed in greater depth in a subsequent posting.

CTA and CPO websites – many CTA firms utilize the internet to advertise their services. CPO firms will also sometimes have a (minimal) internet presence. This article will detail the considerations that both CTA and CPO firms face when creating and maintaining an internet presence and how to deal with internet based inquiries from potential investors.

NFA Exam Requirements for CTAs and CPOs – individuals of NFA member firms will generally need to have a Series 3 exam license and potentially a Series 30 exam. Some individuals may need to have a Series 31 exam license and, potentially in the future, forex CTAs and CPOs will need to have a Series 34 exam license. This article will discuss these exams and the process an individual will go through in order to register to take the exams.

CTA Expo Blog – the unofficial blog of the CTA Expo most recently held in October of 2009.  Information for CTA managers on business, legal and compliance issues.  Included is a directory of CTA firms and service providers.

Forex CTAs and CPOs – the regulatory light has been focused on retail spot forex managers recently. Read this article to get up to speed on recent CFTC and NFA pronouncements regarding this area of the industry. We will also provide information on Forex IBs and Forex FCMs.

In addition to the above topics we are hoping to add others over time. We welcome all feedback and encourage you to leave comments below. We will also attempt to answer CTA and CPO frequently asked questions.

If you are a manager or firm that needs to register as a CTA or CPO, or if you are contemplating registration, please contact Bart Mallon, Esq. of Cole-Frieman & Mallon LLP at 415-868-5345.

Discussion with CFTC Regarding Forex Registration


No New Information on Forex Regulations

I have been getting more and more questions regarding forex registration and unfortunately I have not had much to say because there has been little information coming from the CFTC.  The NFA has done a good job of anticipating what those rules will generally look like, but the NFA (like us) must wait for the CFTC to propose (and then adopt) regulations requiring the registration of forex managers.  Accordingly any preliminary guidance from the NFA should be taken as that – preliminary guidance.  The fact that the regulations are coming obviously puts pressure on legal professionals and forex managers alike as we all try to figure out what will need to be done, when and how.

For this reason I have been calling the CFTC to try to figure out when we might hear something.  After calling the CFTC daily for over a week now, today I finally received a call back from a representative of the CFTC’s Division of Clearing and Intermediary Oversight.  Unfortunately, the representative was as tight-lipped about the future regulations as the CFTC has been up to this point.

During the conversation, I asked several questions and did not receive any responses other than what you would expect from a government agency.  The gist of the conversation was that the CFTC is working on the regulations and the reason that it is taking so long is that there are many aspects to the regulations which must be thoroughly reviewed be many different members and parts of the CFTC.   It sounded like the regulations could be quite detailed – the representative stated that it is not just simply these managers with this amount of assets must register, that the regulations will be comprehensive.  Another issue which remains unanswered is whether there will be exemptions from the registration provisions, similar to the current CPO exemptions and CTA exemptions from registration.

So with that being said, there is not much new to report.  Forex managers are still in a bit of a limbo until the CFTC promulgates the proposed regulations.  Until that happens it would be wise for forex managers to consider getting ready for registration by discussing the issue with a forex attorney.  Managers may also decide to move forward and begin taking the Series 3 exam and the Series 34 exam.  Managers (especially forex hedge fund managers) are especially encouraged to talk with their attorney about potential registration requirements under their state commodity codes – I will be posting more on this issue tomorrow.

I know this does not tell you very much, but please feel free to contact me if you have any specific questions or if you would like to find out more about forex CPO, CTA or Introducing Broker registration.

For more articles related to forex law and registration, please visit our forex hedge fund articles page.

NFA Fingerprint Cards

Information on Requesting and Submitting NFA Fingerprint Cards

Those persons who are registering with the CFTC in any capacity (Associated Person of a CPO, CTA, IB) will need to submit fingerprint cards to the NFA prior to their registration being effective. It is also likely that the new forex registration rules will require fingerprint cards from Associated Persons of Forex CPOs, Forex CTAs and Forex IBs.  Below are two announcements from the NFA regarding fingerprint cards.

You can request fingerprint cards from the NFA by calling: 312-781-1410 or 800-621-3570.

You can have the fingerprints done at any local police station.

You will send the fingerprint cards to this address:

Attn: Registration
300 South Riverside Plaza
Suite 1800
Chicago, Illinois 60606

Please note: recently we have seen clients who have had issues with having their fingerprint cards read by the NFA.  If you do not have a local police station take your prints (i.e. you have a notary or other group take the prints), you risk the prints being illegible which will slow down the registration process.  We recommend you always have your prints taken at a police station.


Fingerprint Cards

Fingerprint cards are sent by NFA to the Federal Bureau of Investigation (FBI) to determine if the applicant has a criminal record. To conduct a check of its records the FBI must be able to analyze the print pattern of all 10 fingers. The FBI will reject fingerprint cards that do not have legible patterns for all 10 fingers. For this reason it is very important that you have your fingerprints taken by a person properly trained in rolling fingerprints.

NFA has issued a Registration Advisory [HFLB note: please see below] that provides guidance concerning fingerprinting to assist those who submit applications via the Online Registration System.

NFA can only accept and process a complete FBI “applicant card”. Applicants are encouraged to submit more than one set of fingerprints with their application to avoid delays in obtaining additional sets if necessary for processing.

We will return any fingerprint cards we receive which are incomplete or not an applicant card to the registrant and request new cards be sent as soon as possible.

NFA offers a fingerprinting service for NFA applicants at the Chicago office (300 South Riverside Plaza, Suite 1800) between the hours of 8:30 a.m. and 4:00 p.m. for $15 (cash, check or money order). In order to use NFA’s fingerprint service, visitors must be pre-registered in the building’s visitor registry. Visitors should contact NFA’s Information Center (either by phone at 312-781-1410 or send an email to [email protected]) to register their name and date of visit so they can receive access to NFA’s offices on the 18th floor. NFA recommends that visitors pre-register at least a day prior to their visit.

All individuals being fingerprinted will be required to present two forms of identification, one of which is a valid picture ID issued by a government agency, in order to verify the identity of the person being fingerprinted. NFA now submits digital images of fingerprints to the FBI for criminal background checks. Results are received in three days or less, and in some cases within several hours, resulting in a faster and more efficient registration process. If you have any questions regarding the fingerprint process, please contact NFA’s Information Center at 312-781-1410 or 800-621-3570.


Registration Advisory – Fingerprinting
July 29, 2005

As part of a 2003 Report to Congress (GAO-03-795), the United States Government Accountability Office identified potential weaknesses in controls with respect to the fingerprinting of individuals who submit fingerprints in connection with registration applications in the futures and securities industries. NFA is providing the following guidance to assist Members who submit applications via NFA’s Online Registration System (ORS).

Members are responsible for performing due diligence and establishing appropriate procedures in the hiring process. Members are required to submit fingerprint cards for each of their applicants for registration as associated persons or for approval as a principal. Members should use all available information gathered in the hiring process (both from the ORS application information and from any other hiring due diligence procedures such as background checks and employment references) to confirm that the person being fingerprinted is the same person submitting an application via ORS.

Members should consider incorporating the following fingerprinting practices in connection with filing registration applications in the futures industry. These recommended practices are intended to enhance the integrity of the fingerprinting process and complement Members’ existing procedures used to verify that the fingerprint card contains the fingerprints of the person whose application has been filed.

Members that use their own personnel to take fingerprints should consider:

  • Establishing and communicating internal fingerprinting procedures, and periodically reviewing and updating them;
  • Limiting the number of employees who are responsible for the fingerprinting process;
  • Training those employees to roll high-resolution fingerprints that will be accepted by the FBI; and
  • Training those employees to require the person being fingerprinted to present two forms of identification, one of which is a valid picture ID issued by a government agency, in order to verify the identity of the person being fingerprinted.

Members that use third parties to take fingerprints should consider requiring individuals to be fingerprinted at a location where the persons taking the fingerprints are likely to verify identity as well as the authenticity of identification cards presented, such as law enforcement offices and NFA’s Chicago office. Other locations that may provide fingerprinting services and that would be appropriate include military bases, government agencies and self-regulatory organizations.

If you have any questions regarding the information contained in this Advisory, please contact NFA’s Information Center at (800) 621-3570.

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:

  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. Continue reading

Forex Managers and Managed Forex Funds

Many forex managers use a product called a managed forex fund, which is the equivalent to a mutual fund hedge fund.  In a “managed forex fund,” the manager will invest the assets under the POA with the forex dealer member in the managed fund.  The a trader or traders for the forex dealer member will then manage the pool of assets.  Typically the forex dealer member will receive both a forex management fee as well as a performance allocation.  Many managers will then charge a management fee and a performance allocation (or only one or the other) to the underlying clients. Continue reading

NFA Continues to Pursue Forex Regulation for Current Forex Dealer Members

Two new releases indicate that the NFA is serious about regulating the off-exchange foreign currency markets

On our sister website, www.forexlawblog.com, we have detailed the continued regulatory actions by the NFA with regard to the current regulation of the off-exchange forex markets.  The two notices, described in further detail below, apply to Forex Dealer Member and their interactions with their clients. While the CFTC has been slow to promulgate rules regarding the expected new Forex regulations, the NFA has acted swiftly and addressed many important issues.  However, forex managers should still get ready for coming forex regulations – a collegue of mine has recently discussed forex registration with a CFTC compliance person and that person expects that proposed rules will be promulgated within the first quarter of next year.  As always, stay tuned as we will continue to stay on top of this issue.

A summary of the two NFA actions is included below.  Continue reading

CPOs and CTAs have Until November 30 to update Disclosure Documents if they trade Forex

As we announced earlier, the NFA promulgated rules which were approved by the CFTC which gave the NFA jurisdiction over retail off-exchange foreign exchange trading by its member firms.  What this essentially means is that if:

(i) you are currently a NFA member (e.g. you have a commodity/ futures pool or direct commodity/ futures accounts) and

(ii) you trade forex in the pool or account, or have an outside pool or account devoted to forex trading,

then you will need to update your disclosure documents with the NFA. The disclosure documents will need to contain all of the information required for non-forex disclosure documents and the update must be completed by November 30.  Please see NFA to Begin Regulating Forex. Continue reading

Submitting Forex Disclosure Documents to the NFA

As we have mentioned before the CFTC and the NFA have not released the information regarding the forex registration requirements, but in the interest of preparing forex managers for the coming registration, we are providing an overview of the likely requirements and the process to become a fully compliant Forex CPO or Forex CTA.  Pursuant to that objective we have previously outlined the likely requirements for Forex Disclosure Documents and now discuss the process of submitting those documents to the NFA.

Continue reading

Forex Disclosure Documents Overview Part I


Article by Bart Mallon (www.forexregistration.com)

This is part one of a two part discussion.  This article will provide an overview of the likely requirements for Forex Disclosure Documents.  The items in this Forex Disclosure Document Overview are based on the items discussed in “Disclosure Documents – A Guide for CPOs and CPAs” provided by the NFA and based on CFTC rules and regulations.

Please note that these are only likely requirements as proposed and final rules have not yet been released.  For those managers which will be managing forex hedge funds, the disclosure document requirements are in addition to the requirements imposed by other securities laws (please see hedge fund offering documents or a more detailed explanation of the forex hedge fund offering document requirements).  Additionally, if the Forex CPO or CTA also trades other instruments besides spot forex then the document will need to address those items as well – your hedge fund forex attorney will be able to help you draft these items.

Who must prepare a Forex Disclosure Document?

The NFA has discussed a new category of CPO and CTA whose business involves retail off-exchange foreign exchange (forex) contracts.  These new categories of registered persons, as provided by the NFA, are called “Forex CPOs” and “Forex CTAs.”  Like the CPO and CTA disclosure documents, it is likely that both Forex CPOs and Forex CTAs will need to deliver a disclosure document to prospective investors.  The Forex CPO or Forex CTA will need to make delivery at the same time or before the delivery of the Forex Pool’s offering documents or the Forex Program’s advisory agreement.  The Forex CPO or CTA will need to receive signed acknowledgement by the investor that they have received the disclosure document.

We do not yet know if there are any exceptions to Forex Disclosure Document delivery requirements.  One question that the CFTC will need to answer is whether Forex CPOs and CTAs will be able to fall within the 4.7 exemption like traditional CPOs and CTAs.

The Basics of the Forex Disclosure Document

Cover Page.  The Forex Disclosure Document will probably need to have a CFTC mandated disclaimer which basically states that the CFTC has not reviewed the disclosure document for the merits of the trading program.

Front Cover Disclaimer. Inside the front cover the Forex disclosure document there will need to be a few paragraphs that serve as a general disclaimer of risk disclosure statement. This disclaimer will be based on a uniform template for all Forex disclosure documents.

Table of Contents. A basic table of contents will be required.

Basic Background Information. The beginning part of the document will need to include such basic information as name of the Forex CPO or CTA, addresses, phone numbers, etc.  The business background of each principal (each a “Forex Associated Person” or “Forex AP”) as well as the officers and directors of the firm will need to be provided.  The information each of the people will need to provide includes: date of NFA membership, date of CFTC registration, and dates of employment for last five years.

Forex Dealer Member. For Forex CTAs, if the program requires an investor to maintain an account with a Forex Dealer Member (“FDM”) then the name of the FDM must be disclosed.  For Forex CPOs, the document should disclose who will be the fund’s FDM.

Forex Introducing Brokers. For Forex CTAs, if the program requires an investor to have an account introduced by a Forex Introducing Broker (“Forex IB”), then the name of the Forex IB must be disclosed.

Principal Forex Risk Factors. For both Forex CPOs and Forex CTAs the document must include a discussion of the main risks involved in the Forex program.  Such risks are expected to include: country or sovereign risk, credit risk, exchange rate risk, interest rate risk, liquidity risk, market risk, operational risk, settlement risk and Herstaat risk.  In addition, for Forex CPOs, there are other risks involved in the structure of the investment vehicle which will need to be disclosed.

Forex Trading Program. All aspects of the proposed trading program must be disclosed and discussed.  A Forex trading program will usually include information on the investment object and the investment strategies as well as a discussion of the risk management procedures the Forex manager will utilize.  This area of the program may also discuss the Forex manager’s investment philosophy.
Forex Fees.  All aspects of the fee structure of the Forex hedge fund or Forex separately managed account must be discussed.  This will include both management fees and performance fees (if applicable) as well as the methods for calculating the fees.  The rules require specificity here so this will be one area where precise information is required.

Conflicts of Interest. This will be very important information and the Forex manager will want to discuss this section thoroughly with its attorney or compliance professional.  All actual or potential conflicts of interest must be disclosed.  All fee and business arrangements must be disclosed.  For example, if the forex manager will have any sort of pip sharing arrangement with the Forex Dealer Member, this will need to be disclosed.

Litigation. If any of the persons or entities involved in the trading program have been subject to “material administrative, civil or criminal” actions within the past five years, all information regarding the action must be disclosed.  Disclosure is required for the Forex CTA, Forex CPO, Forex IB, Forex Dealer Member or FCM, and any principles of the Forex CPO or CTA.  Oftentimes the FCM (with regard to CPO and CTA disclosure documents) must disclose a lengthy list of actions.

Trading Forex for Own Account. The disclosure document must disclose whether the Forex manager and/or any employees will be trading for their own accounts.  If the Forex manager and/or any employees will be trading for their own accounts then the document must disclose whether the manager or employees will allow investors to review the trading records of the manager or employees.

Forex Disclosure Documents Overview Part II will be released tomorrow and will cover the following items: Performance Disclosures, Other General Items, Material Information and Supplemental Information.

Please see other related HFLB articles: