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Form CPO-PQR

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Proposed Form CPO-PQR Released

For your review, we have published the proposed Form CPO-PQR which can be found here: Form CPO-PQR

As recently proposed by the CFTC, registered commodity pool operators will be required to file proposed From CPO-PQR on either a quarterly or annual basis depending on assets under management and scope of business activities.  There are special rules for those managers who are also registered as an investment adviser with the SEC and who file Form PF.

This post will provide an overview of the major aspects of the Form COP-PQR as it is currently proposed.

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Who is required to file Form CPO-PQR?

All CPOs are required to file at least parts of Form CPO-PQR.

When do managers need to file Form CPO-PQR?

Most managers will need to file some parts of Form CPO-PQR on a quarterly basis.  Some managers, depending on assets under management, will need to file additional sections of the form on either an annual or quarterly basis.

The sections of the form will need to be filed within 15 days of the end of the quarter; however, for some managers, some sections will not need to be completed until 90 days after

the end of the quarter.

What are the sections of Form CPO-PQR?

Form CPO-PQR has 3 major sections.  F

  • Schedule A – must be filed by all CPOs which operate at least one pool during the quarter within 15 days of the end of the quarter.
  • Schedule B – must be filed by Mid-Sized CPOs annually within 90 days of the end of the year and Large CPOs quarterly within 15 days of the end of the quarter.
  • Schedule C – must be filed by Large CPOs quarterly within 15 days of the end of the quarter.

A Mid-Sized CPO is a CPO that had at least $150 million in pool AUM as of the close of business on any day during a quarter.

A Large CPO is a CPO that had at least $1 billion in pool AUM as of the close of business on any day during a quarter.

Note: Schedule B and Schedule C may not have to be filed with the CFTC if the CPO has completed certain sections of Form PF and meet other certain requirements.

Details of the Schedules

Schedule A

Part 1 – includes information with respect to the firm such as name, NFA ID #, contact person, chief compliance officer, # of employees, # of owners, # of pools

Part 2 – includes information on each pool which was operated during the quarter.  For each commodity pool this information includes:

  • Identifying information: mame of pool, NFA ID#, jurisdiction of organization, fiscal year end, structure
  • Outside Administrator: name, contact info, NFA ID#, start of relationship, services provided, % of pool assets valued by outside administrator
  • Broker – name, NFA ID #, contact info
  • Other service providers – carrying broker, trading manager, custodian, auditor, marketer
  • Information regarding assets over quarte
    • Beginning AUM & NAV
    • Ending AUM & NAV
    • Income over quarter
    • Additions, withdrawals and redemptions over quarter
  • Monthly ROR calculated in accordance with CFTC regulations
  • Schedule of investments – there is a drill down on cash, equities, alternatives, fixed income, derivatives, options, investment funds, longs/shorts, positive/negative OTE, long/short option value, pool positions exceeding 5% of NAV
  • Subscriptions & redemption information

Schedule B

Schedule B applies to both Mid-Sized and Large CPOs.  The information is essentially the same information as required in Sections 1.b and 1.c of Form PF.  The following information is required for each pool which is managed by the CPO:

  • Pool Information – name, NFA ID#, strategy,  % of assets traded using algorythim, investor information
  • Borrowings & types of creditors – total borrowings, listing of creditors
  • Counterparty credit exposure – aggregate counterparty exposure, listing of counterparties
  • Trading & clearing – for derivatives, securities and repos
  • Value of aggregate derivative positions

Schedule C

Schedule C is only completed by Large CPOs.  Schedule C will not need to be completed if the Large CPO has completed certain parts of Form PF.

Part 1 – the following information is required for each CPO:

  • Geographical breakdown of pools investments
  • Turnover rate of aggregate portfolio of pools
  • Duration of pools’ fixed income investments

Part 2 – the following information is required for each Large Pool:

  • Basic information – name, NFA ID#, unencumbered cash at end of month, monthly open positions
  • Liquidity of portfolio
  • Pool counterparty credit exposure
  • Pool risk metrics
  • Pool borrowing information
  • Pool derivative positions and posted collateral
  • Pool financing liquidity
  • Information on pool investors
  • Duration of fixed income assets

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Cole-Frieman & Mallon LLP provides comprehensive legal services for CPOs including completing Form CPO-PQR.  Bart Mallon can be reached directly at 415-868-5345.

CFTC Proposes Increased Registration and Reporting for CPOs and CTAs

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Proposal to Rescind 4.13(a)(3) & 4.13(a)(4) CPO Exemptions

Pursuant to rulemaking required under the Dodd-Frank Act, the CFTC is jointly proposing with the SEC that CPOs and CTAs which are dually registered (that is with the CFTC and as an investment adviser with the SEC) file certain information on a new Form PF.   In addition, the CFTC is proposing to eliminate two widely used exemptions from CPO registration – the 4.13(a)(3) exemption (de minimis futures trading) and the 4.13(a)(4) exemption (the only investors are QEPs).  Another exemption applicable to mutual funds – the 4.5 exemption – may also potentially be rescinded under the proposed rulemaking.  The CFTC is proposing minor changes to regulations in addition to the more onerous registration and reporting requirements.

Rescinding CPO Registration Exemptions

We have discussed the requirements for these and other CFTC registration exemptions in a post on CPO registration.  The CFTC is proposing to rescind the following exemptions:

Regulation 4.13(a)(3) – this exemption is normally utilized by managers who use just a small amount of futures.  In the event that this exemption isrescinded, a large number of managers would be required to register.  This also means that managers could not trade any futures contracts in a fund structure without being registered as a CPO.  Obviously this will increase the regulatory burden for managers and will likely lead some managers to simply cease using futures.

Regulation 4.13(a)(4) – this exemption is normally utilized by those managers who only have investors who are qualified eligible persons.

Note: Rescinding both the (a)(3) and (a)(4) exemptions will likely mean the fund-of-fund managers will also be required to register as CPOs.  Form more information please see our post on fund-of-fund CPO exemptions.

Regulation 4.5 – this exemption applies to mutual funds that have funds which invest in futures.  In general, mutual fund managers who invest in futures do so indirectly and are able to escape registration as a commodity pool operator.  This means that mutual funds, while they must be approved by the SEC, receive no regulatory scrutiny from the CFTC.  Late last year, the NFA submitted a petition to the CFTC asking the CFTC to amend Regulation 4.5 to require those managers that indirectly invest in futures products to register as a CPO.

New Reporting Requirements

The CFTC is proposing that CPOs and CTAs face increased reporting requirements on new forms Form PF, Form CPO-PQR and Form CTA-PRQ.  The increased reporting requirements will apply to two groups of CFTC registrants: (i) dual registrants and (ii) CFTC-only registered firms.

New Forms

Form PF – Form PF was designed to provide government agencies with information about the basic operations and structure of private funds.  The creation of Form PF was required by Section 404 of the Dodd-Frank Act.  The SEC and CFTC are working together to develop Form PF Sections 1 and 2 as those sections are relevant to firms registered with both agencies.

Form CPO-PQR and Form CTA-PQR – these forms will require firms to provide similar information as will be required in Form PF, with appropriate modifications made so that the information is relevant with respect to commodity futures managers.

In general, all forms will allow some information to be treated as confidential.

Dual registrant reporting

Dual registrants are firms which are registered with the SEC (as an IA) and with the CFTC (as a CPO or CTA).  The following are the proposed filing requirements:

Dual registrants with less than $1 billion of AUM:

  • Annual filing of Form PF
  • Complete only Section 1 of Form PF

Dual registrations with less than $1 billion of AUM:

  • Quarterly filing of Form PF
  • Complete Sections 1 and 2 of Form PF

CFTC-Only Registrants

CFTC-only registrants are firms registered with only the CFTC

(as a CPO or CTA).  The amount of information to be required on the new CFTC only forms, and the timing of filing, will depend on the registered firm’s size and AUM.

Forms CPO-PQR and CTA-PQR will be filed directly with the NFA.

Other Proposed Changes

The CFTC is also proposing some other changes:

  • Managers using the Regulation 4.7 exemption will be required to have certified financial statements for any 4.7 exempt pool which they advise.  [Note: currently there is no certification requirement.]
  • Managers using any of the 4.5, 4.13 or 4.14 exemptions will need to annually certify the notice of exemption.  [Note: currently there is no requirement to certify the exemption on an annual basis.]
  • Risk disclosure language to be updated to include discussion of swaps, if appropriate for the manager.
  • Certain changes to make the regulations internally consistent.

The CFTC overview can be found here: CFTC Rescinding Exemption Overview

The CFTC Q&A sheet can be found here: CFTC Rescinding Exemption Q&A

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Cole-Frieman & Mallon LLP  provides comprehensive CFTC and NFA compliance and regulatory support for investment managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.