Tag Archives: NFA registration

NFA Annual Compliance Overview 2011

CTA and CPO firms which are registered with the CFTC will need to make sure that they are completing all necessary annual compliance items in accordance with CFTC regulations and NFA rules.

Below we have provided a list of the major items which registered firms should address with respect to annual compliance.  Many registered CTA and CPO firms have compliance manuals which address (or should address) these items.


Rule 2-46 Quarterly Report (CPO only)

  • Due 2/14/2011
  • The following information must be submitted to the NFA:
    • Summary of Itemized Balances
    • Key Relationships
    • NAV
    • Monthly Performance – Rates of Return
    • Schedule of Investments
  • More information:
  • Once the report has been filed, complete and keep the Acknowledgment of Quarterly Report Filed (Rule 2-46) form and any related documents with your books and records.

Quarterly Review of Emails

  • Registered CPO and CTA firms are responsible for supervising employees and should periodically review employee emails.  It is a good idea to complete a quarterly review of employee emails, document the review and keep the documentation as part of the firm’s books and records.

Yearly Review of Email Procedures

  • The firm’s compliance officer should review the effectiveness of the firm’s email review procedures on a yearly basis.  The compliance office should document the review and keep the documentation as part of the firm’s books and records.

Compliance Manual Review

  • The compliance officer should review the firm’s compliance manual on an annual basis.  After the compliance manual has been reviewed and updated as necessary, the compliance officer should have each Principal, Associated Person, and Agent certify that he or she has read and understands the compliance manual and has complied with its requirements.

NFA Self-Examination Checklist

  • The NFA self-examination needs to be completed on a yearly basis.  The compliance office will need to review the firm’s operations using the NFA’s Self-Examination Checklist (http://www.nfa.futures.org/nfa-compliance/publication-library/self-exam-checklist.HTML), document the self-examination and keep the documentation as part of the firm’s books and records.
  • Mallon P.C. has provided an overview of the NFA Self-Examination process.

Privacy Policy

  • All firms should provide each fund investor or client with a copy of the firm’s Privacy Policy within 30 days of the close of the fiscal year.  If the firm provides monthly or other periodic statements, the firm might want to include the Privacy Policy with such normal communication.

Ethics Training

  • The firm’s compliance officer should review the firm’s ethics training program.  If the program changes, the compliance officer must make sure that all Principals, APs and Agents have completed the appropriate ethics training.  If the policy has not changed, this is a good time to confirm all Principals, APs and Agents have completed all appropriate ethics training.

Annual Report (CPO only)

We have outlined the reporting requirements for CPOs before which include an annual reporting requirement.  The CPO will need to provide, within 90 days after the end of the fund’s fiscal year (or within 90 days of the cessation of trading if the fund closes), an annual report to (i) each investor in the fund and (ii) the NFA.  The annual report must be presented and computed in accordance with GAAP consistently applied and must be audited by an independent public accountant.  [Please note that some CPOs may be able to request a waiver from the annual audit requirement.]

The report must include:

  • Fund NAV for the preceding two fiscal years
  • Total value of investor’s interest in the fund at the end of the preceding two fiscal years
  • Statement of Financial Condition for the fund’s fiscal year and preceding fiscal year
  • “Statement of operations” and “Statement of changes in net assets”
  • Footnotes if required to make statements not misleading (including certain information on underlying funds if the fund invests in other commodity pools)
  • Certain information if there is more than one ownership class or series.

Bunched Orders Allocation (CTA only)

  • CTA firms should periodically review the allocation of bunched orders.  Many firms will have a policy to review these allocations on a quarterly basis.  For more information, please see our post on CTA Bunched Orders.

Other Important Items

  • Annual Questionnaire – the annual questionnaire is due within 1 year of the date of registration.  This form is available through the NFA’s ORS (Online Registration System).  For more information see our post on this topic.
  • Annual Registration Update – the annual registration update is due within 1 year of the date of registration.  This form is available through the NFA’s ORS (Online Registration System).  In general the NFA will send a letter (and email) and invoice for annual fees and dues.
  • Other – some firms have policies regarding their Disaster Recovery Program which may need to be revisited during the annual review process.  Additionally, both CTA and CPO firms should take the opportunity to review their disclosure documents and see if any revisions to those documents should be made.  Other business issues, like bank reconciliations and general bookkeeping matters, should be reviewed in light of the firm’s compliance policies.


The above list is not indended to be exhaustive and each firm has different compliance requirements depending on unique circumstances.  If your firm would like help with developing a compliance program or if you have questions with respect to these topics, please don’t hesitate to contact us.

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

NFA Changes Post CFTC Audit

The results of the CFTC’s audit of the NFA were released a few weeks ago and we have already begun to see a few changes to the way the NFA operates.

Access to BASIC Security Manager

Previously newly formed entities which were registering with the CFTC could start the registration process prior to formally being established.  Now, the NFA must have proof that the entity is in existence prior to granting security manager status.  Accordingly, groups wishing to register must wait until the entity is in existence and then submit the security manager form.  This will usually delay an initial application by about a week. We believe it would be more effective if the NFA made sure that the entity was established prior to submitting a registration application.  Absent such procedures, we believe that the security manager process should be streamlined and that access should be granted next day via email.  There is no good reason to have such a slow process just to access the online registration system.

Client withdrawals from account

Previously it was common for some CTAs to have some sort of lock-up period with respect to a trading program.   Now, the NFA will not allow a CTA to have a lock-up period because the client is always able to go to the FCM and cancel the account.  While from a technical perspective the client always has access to its own account and the CTA can’t control access to the account, many CTAs preferred the implicit protection afforded through the contractual agreement that the account would stay open during the lock-up.   By not allowing the lock-up language, CTAs will potentially be subject to greater and more frequent withdrawals from investors.

Revising Disclosure Documents

Many NFA Member firms will find out about the various new NFA procedures during the disclosure document revision process.  Moving forward, various deficiencies with disclosure documents that have been approved by the NFA in the past will need to be fixed (even though the documents were previously approved) as the managers revise the documents and seek instant filing or regular filing.

Please let us know if you have experienced any other changes with the NFA.


Other related hedge fund law articles:

Cole-Frieman & Mallon LLP provides comprehensive hedge fund start up and regulatory support for commodity pool operators.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

CFTC Issues Report on NFA Registration Process

Report Indicates Many Areas Needing Improvement

The CFTC registration process is handled almost exclusively by the NFA and last year the CFTC audited the NFA to see how successful the organization was at conducting the registration process.  The audit report, issued this week, indicates that the NFA needs to improve on many different areas.  One of the most important items which was mentioned a number of times in the report is that the NFA has not standardized the registration process in some areas.

While the CFTC report focuses only on the registration process, there are a number of other issues with the NFA which should have been highlighted.  The first and most important for many managed futures professionals, is the lack of standardization with respect to the disclosure document review process.  CTAs and CPOs both need to have their disclosure documents reviewed by the NFA and during this review process, depending on which examiner is assigned to the review, the process can be relatively straight-forward or quite difficult.  This obviously increases the time before the disclosure document is approved and most likely increases the legal costs involved.  Because our firm completes a number of CTA and CPO registrations each month we see this first hand.

As an anecdote, I have one CPO group who has two separate programs represented by two separate disclosure documents.  The documents are exactly the same except for slightly different investment programs.  These documents went to the NFA for review at the same time and were assigned to two different examiners.  Each deficiency letter came back with about 16 items that needed to be changed for the next draft – however, only 5 were the same!  The fact that two almost exactly same documents receive such disparate treatment is amazing and shows no standardization.  It also perfectly illustrates the oft said statement that “it depends on who you get” when discussing how long it will take for the disclosure documents to be approved.

Below I have included some of the statements I found in the report as well as the CFTC notice.

CFTC Notice: Press Release

The full report: CFTC Report on NFA Registration Process


Quotes from the Report

The Registration Department does not have a procedures manual that documents all of the procedures followed in processing registrations and withdrawals.

The Registration Department’s procedures manual for the Information Center is, in various areas, incomplete, inconsistent and/or outdated.

[T]he Registration Department tends to concentrate responsibility in a small number of staff members and to depend heavily on these staff members’ institutional knowledge in executing certain registration processing procedures. … This reliance on key persons’ institutional knowledge, coupled with the sparseness of the Registration Department’s documented procedures … interjects an unnecessary level of key person risk to the Registration Department.


June 24, 2010

CFTC Releases Report on the Registration Program of the NFA

Washington, DC – The Commodity Futures Trading Commission (CFTC) Division of Clearing and Intermediary Oversight (Division) today notified the National Futures Association (NFA) of the results of the Division’s “Report on the Registration Program of the NFA”. In the Report, the Division assessed whether the NFA has sufficient procedures to execute the Commission’s delegated registration and fitness functions.

The Division found that NFA has sufficient procedures to execute the Commission’s delegated functions with respect to the vast majority of registrants. However, the Division also identified nine areas in which the Commission’s and/or NFA’s procedures must be improved.

Copies of the Report are available the Commission’s website at www.cftc.gov.
Last Updated: June 24, 2010

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Cole-Frieman & Mallon LLP provides comprehensive hedge fund start up and regulatory support for commodity pool operators.  Bart Mallon, Esq. can be reached directly at 415-868-5345.