Tag Archives: futures

Recent Issues with NFA Annual Questionnaire

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As we discussed in an earlier post on NFA Annual Questionnaire, NFA Member Firms are required to complete the questionnaire on an annual basis.  The information helps the NFA in a variety of ways and the NFA encourages members to update their questionnaire on a regular basis, although firms are only required to complete it, at a minimum, on the anniversary of their NFA Membership date.

Number of Half-turn Trades Issue

One issue that we are seeing clients deal with is the last question which applies to commodity trading advisors (CTAs) and commodity pool operators (CPOs).   The question is as follows:

For CTAs and CPOs only: Provide the following information for accounts held by CTAs and/or CPOs:

How many total domestic futures and options trades (half-turns) did your firm place directly with an FCM in the last 12 months? Please include trades for customer, commodity pool (both regulated pools and pools exempt pursuant to CFTC Part 4 Regulations) and proprietary accounts, but do not include trades that were actually placed by another money manager on behalf of any of these accounts.

The issue is that the question asks for the total amount of half-turn trades were completed over the last 12 months.  This could be an absolutely huge number and it would be onerous for a CTA or a CPO to go back and actually count each trade (unless the broker/clearing firm was keeping track for the CTA or CPO).  Accordingly, I have now talked with the NFA twice about this issue and they have confirmed that an approximate or estimated number is sufficient for the purposes of the questionnaire.  While such informal guidance is not binding, it seems like the NFA wants to have a general idea of the trading volumes and is not going to “ding” a manager if the exact number is not determined.

Issues for Forex CTAs and Forex CPOs

Even before the forex registration regulations were proposed, many forex-only managers registered with the CFTC as either forex CTAs or CPOs.  I asked the NFA compliance department how such managers should answer the above question as would not make sense in the spot forex context.  The NFA said that such managers should answer the above question by placing a 0 (zero) in the appropriate box (assuming there was only spot forex trading).

If you have other questions or issues when you are completing the annual questionnaire, you can either call the NFA or your compliance professional.  Also, please let us know what your issues are so we can update this article accordingly.

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Other related NFA compliance articles 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.

FLOORED Film Peeks Inside Chicago Trading World

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Audience Reacts Positively to James Allen Smith’s Documentary on Chicago Floor Trading

On Thursday evening at the Roxie Theatre in San Francisco, the professional women’s organization 100 Women in Hedge Funds sponsored the showing of Floored, a documentary by ex-floor trader James Allen Smith that offers a peek inside the lives, successes, and struggles of former traders of the Chicago trading floor (a.k.a. the “pit”).

Those who showed up to watch the film made for the perfect audience–traders, hedge fund managers, and other financial industry professionals schmoozed over wine and cheese before the showing, during which boos, laughter, applause, and verbal comments erupted each time the audience could relate to traders’ stories or make fun of their often idiosyncratic comments. Upon leaving trading, one notable former trader (and quite the character) Mike Walsh took up the hobby of hunting lions, giraffes, and other wild animals.

Through interviews and live footage of pit trading, the documentary tells the story of the Chicago Board of Trade’s (now the Chicago Mercantile Exchange, CME) humble beginnings–it opened in 1898 as the Chicago Butter and Egg Board because it only traded butter and egg contracts!–to the roller coaster ride experienced by floor traders during the peak of futures and options floor trading in the mid-1990s.

Starting in 1992 and still in use today in the pit is the combination of open outcry, the system of loudly shouting over competitors often associated with floor trading, and GLOBEX, an electronic trading system which works alongside open outcry to make trading more efficient. The idea behind trading revolves around buying a commodity at one price and then trying to sell it for a better price in order to make a profit.  In the film, the traders described this system as a game–one trader stated that when the bell goes off (to initiate the opening of trading hours), he experiences an adrenaline rush as if he were playing a sports game.  Another trader commented, “Trading is not a normal job. When you are in there [the pit] from 8:30 to 3:15, it’s all about money!”

The main issue traders discussed was the shift from floor trading to electronic trading. The majority opinion was that computers changed the dynamic of trading in an unfavorable way and that trading in person helps make the price of commodities more efficient. One trader commented that open outcry was more “honorable”. There is also a generational issue, as older traders who did not grow up using computers had trouble figuring out complicated electronic trading platforms. Essentially, those traders who still had enough money to continue trading and who were able to use the electronic systems continued trading, while those who lost too much money in the pit were forced to leave trading altogether.

According to the CME, the options and futures trading floor remains grounded in floor trading, which accounts for 90% of trades with the remaining 10% occurring electronically. The futures pit, however, has seen the biggest crossover to electronic trading, with approximately 85% of trades taking place on the computer and the remaining ones in the pit.

After the film, Smith, who watched the film alongside his audience, stood at the front of the theatre for a Q&A session. He was asked about his background–he went to art school then found himself doing web design for finance businesses in Chicago, where a friend suggested he make a movie about floor traders. He even dabbled in trading and reached out to his network when casting traders for the film. When asked why former traders were willing to open up about their personal lives on film, he commented that less successful traders are often more likely to talk, while more successful traders remain tighter-lipped. Finally, when asked what impression of traders he wanted to leave with audiences, Smith replied that traders are usually stereotyped as “greedy a**holes”, and he wanted to show that traders are more “dynamic than just that part of their personalities” by offering a “more rounded impression [of traders]” through his film.

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For information about future Floored showings, click here.

Other related Floored and CME 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.

FLOORED Screening in San Francisco | 100 Women in Hedge Funds

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Movie on Traders to be Screened in San Francisco

On January 28 the San Francisco investment management community will come together to watch the movie “FLOORED” which documents the issues facing floor traders as the industry continues its march away from traditional floor trading.  Please see the release below for more information.

Additionally, on an unrelated note, I would like to invite all futures/commodities professionals in the Bay Area to join the San Francisco Futures Professionals LinkIn Group.  The first meeting of this group will be sometime in February and will include traders/managers, service providers and (potentially) investors.

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100whflogo

San Francisco Special Screenings of “FLOORED”
Followed by Director Q&A

January 28, 2010 at 5:00 and 7:30 PM
San Francisco, CA

Join us for sneak peek screenings of “Floored,” a feature-length documentary about the up and down lives of floor traders. Screenings will be followed by Q&A with Director James Allen Smith. (Run time: 80 minutes)

About the film: FLOORED is a gripping, honest look behind the curtain of the trading floor that few have ever seen. Like many aspects of our economy, computerized trading is changing the dynamics on the actual trading floors. FLOORED offers a unique window to this lesser-known world of finance.

To view the trailer and get more information on the film, please go to: www.FLOOREDmovie.com

Screening 1:
Time: 5:00pm wine reception/registration
Screening: 5:30- 6:45pm
Discussion: 6:45 – 7:15pm
Tickets cost $16 per person. Tickets can be purchased online at:
http://www.acteva.com/booking.cfm?bevaid=196294

Screening 2:
Time: 7:30 – 8:00pm registration
Screening: 8:00 – 9:15pm
Discussion: 9:15 – 9:45pm
Tickets cost $12 per person. Tickets can be purchased online at:
http://www.acteva.com/booking.cfm?bevaid=196297

We will begin promptly at screen times; please arrive early.

Location: The Roxie Theater
3117 16th Street, San Francisco, CA 94103

Directions
The Roxie Theater is located in the heart of San Francisco’s Mission District, at 3117 16th Street between Valencia and Guerrero. Local Muni are the 22 and 53 (both at 16th & Valencia), 33 (18th & Valencia), 14 (16th & Mission), 49 (16th & Mission). Bart stops one block east at 16th & Mission.

Public Parking is available on Hoff Street, off of 16th between Valencia and Mission. Very reasonable rates.
Click here for more directions

About 100 Women in Hedge Funds (www.100womeninhedgefunds.org)
100 Women in Hedge Funds is a global, practitioner-driven non-profit organization serving over 10,000 alternative investment management investors and professionals through educational, professional leverage and philanthropic initiatives. Formed in 2001, 100 Women in Hedge Funds has hosted more than 160 events globally, connected more than 150 senior women through Peer Advisory Groups and raised in excess of $17 million for philanthropic causes in the areas of women’s health, education and mentoring. For more information about 100 Women in Hedge Funds, please visit www.100womeninhedgefunds.org.

For questions, please email
Diane Schrader
Northern CA Chair, 100WHF
[email protected]

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Bart Mallon, Esq. of runs the Hedge Fund Law Blog and provides hedge fund manager registration service through Cole-Frieman & Mallon LLP. He can be reached directly at 415-868-5345.

CFTC Head Addresses Futures Industry in Chicago

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Futures Industry Association Annual Expo

CFTC Chairman Gary Gensler today spoke at the Futures Industry Association’s annual expo in Chicago. While most of the Chairman’s speech  focused on the proposed regulation of the OTC derivatives markets, Chairman Gensler also discussed the recent SEC and CFTC Harmonization report. As you can imagine, Gensler is for increasing regulation of the entire financial markets. Below I have included some of the more interested quotes which can be found in the text of the speech text of Chairman Gensler’s speech.

The CTA Expo was going on as well during this time and I will be writing more articles on the speakers at this conference over the next few days.

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Both of the committees’ bills include three important elements of regulatory reform: First, they require swap dealers and major swap participants to register and come under comprehensive regulation. This includes capital standards, margin requirements, business conduct standards and recordkeeping and reporting requirements. Second, the bills require that dealers and major swap participants bring their clearable swaps into central clearinghouses. Third, they require dealers and major swap participants to use transparent trading venues for their clearable swaps.

The challenge remains, though, determining which transactions should be covered by these reforms. I believe that we must bring as many transactions under the regulatory umbrella as possible. This will best accomplish the two principal goals of reform: lowering risk to the American public and promoting transparency of the markets.

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To promote market transparency, all standardized OTC products should be moved onto regulated exchanges or trade execution facilities. This is the best way to reduce information deficits for participants in these markets. Transparency greatly improves the functioning of the existing securities and futures markets. We should shine the same light on the swaps markets. Increasing transparency for standardized derivatives should enable both large and small end-users to obtain better pricing on standard and customized products.

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Some have articulated a false choice between stronger regulation on the one hand and a free market on the other. Rules improve markets, however, by enhancing efficiency and integrity. Traffic lights require you to stop your car, but they also ensure that traffic is orderly and efficient. They reduce risks for every person on the highway. Similarly, this country’s markets work best with clear rules of the road.

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Last year’s crisis also highlighted the need for regulators to change. In that regard, the CFTC last week released a joint report with the SEC to bring greater consistency, where appropriate, to our regulatory approaches. While the missions of the CFTC and the SEC may differ, our goal is the same: to protect the public, enhance market integrity and promote transparency. In preparing our report, we set turf aside and focused on those changes that would best benefit the markets and the American people.

We jointly made 20 recommendations where we can change our statutes and regulations to enhance both agencies’ enforcement powers, strengthen market and intermediary oversight and facilitate greater operational coordination.

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Other related hedge fund law articles include: