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
- 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.
- 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)
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.