April 2015
Practice Groups:
Hedge Funds and
Alternative
Investments
Investment
Management
Derivatives &
Structured Products
NFA Requires Delegated CPOs to Identify
Themselves
By Cary J. Meer, Lawrence B. Patent, and Carolyn A. Jayne
The National Futures Association (“NFA”) 1 issued a Notice to Members on April 8, 2015 2
that requires “Delegated CPOs” to identify themselves as such when filing a commodity
pool’s annual financial statement.
Registered commodity pool operators (“CPOs”) whose CPO responsibilities for a particular
pool are delegated to them by another CPO are referred to as “Delegated CPOs.”
Commodity Futures Trading Commission (“CFTC”) No-Action Letter No. 14-126 (“Letter 14126”), 3 the most recent letter regarding CPO delegation issued by the Division of Swap
Dealer and Intermediary Oversight (the “Division”) of the CFTC, permits certain CPO
delegations to be self-executing, i.e., no form requesting relief or even a notice need be filed.
Because this relief is self-executing, the NFA has been unable to track Delegated CPOs
through its automated systems.
To remedy this information gap, CPOs are now required to answer the following question in
NFA's EasyFile system when filing a pool's annual financial statement: “Has the CPO been
delegated all investment management authority with respect to this commodity pool,
pursuant to CFTC Letter No. 14-69 and/or 14-126?” Next to the question are “Yes” or “No”
radio buttons. If a CPO answers "Yes" to this question, NFA's BASIC system 4 will
automatically reflect the fund as a "Delegated Pool" of the CPO.
The purpose of this additional question is to gather data to assist other NFA members, such
as futures commission merchants (“FCMs”) and commodity trading advisors (“CTAs”), in
complying with their NFA Bylaw 1101 obligations. Under Bylaw 1101, NFA members (such
as registered CPOs, FCMs and CTAs) may not do business with another entity that is
required to be registered (in this case, as a CPO) unless the entity is registered in the
appropriate capacity. With this new information regarding CPO delegation, an NFA member
that may be approached to do business with a particular pool will, in the future, be able to
input the pool’s name in BASIC to determine whether the pool’s CPO is registered or exempt
from registration. When a Delegated CPO has answered “Yes” to the question set forth
above, the Delegated CPO’s name will appear in BASIC in the field “Operator Name” for that
pool. Clicking on that name will bring up the Delegated CPO’s current status, as well as a
section with the heading “Exemptions and No Actions.” Clicking on the link to “View
Exemptions and No Actions” will bring up various tabs, including one for “Delegated Pools.”
If the pool is listed under "Delegated Pools," the NFA member will generally have satisfied its
1
NFA is the futures industry self-regulatory organization in the United States.
The Notice is available by clicking here.
3
Letter 14-126, available by clicking here, modified the relief previously provided by the Division in CFTC NoAction Letter 14-69, available by clicking here. These letters are discussed in our prior Alert, which is available by clicking
here.
4
BASIC is an acronym for Background Affiliation Status Information Center, which may be accessed through
NFA’s website at http://www.nfa.futures.org/basicnet/welcome.aspx.
2
NFA Requires Delegated CPOs to Identify Themselves
Bylaw 1101 obligations. If the pool is not listed, the NFA member must conduct additional
due diligence to comply with Bylaw 1101.
Previously, it was sometimes difficult for an NFA member to fulfill its obligations under Bylaw
1101 when a Delegated CPO was involved. The additional question and enhancement of
BASIC should make it easier for NFA members to comply with Bylaw 1101.
NFA is working on providing CPOs with an alternative method to inform NFA of delegated
pools in circumstances in which an annual financial statement is not required to be filed.
Authors:
Cary J. Meer
Lawrence B. Patent
Carolyn A. Jayne
cary.meer@klgates.com
+1.202.778.9107
lawrence.patent@klgates.com
+1.202.778.9219
carolyn.jayne@klgates.com
+1.312.807.4299
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