National Futures Association
Webinar for CPOs and CTAs Whose
Exemptions Expire 12/31/2012
Today’s Presenters
Larry Dyekman, Director, Communications and Education
Patricia Cushing, Director, Compliance
Tracey Hunt, Associate Director, Compliance
Mary McHenry, Associate Director, Compliance
Webinar Agenda:
•
CPO/CTA Exemptions – What’s going
away and what is still available
•
The Registration Process
•
Regulatory Responsibilities
Changes Affecting Exempt CPOs
•
4.13(a)(4) exemption
•
Definition of “commodity interest” now
includes swaps
•
•
4.13(a)(3) de minimis exemption
4.5 exemption for otherwise regulated entities
4.13(a)(3) Exemption Trading Tests
Must meet one of two tests:
• The aggregate initial margin/premium does
not exceed 5% of the liquidation value of
the pool’s portfolio; or
• The aggregate net notional value of
commodity interest positions does not
exceed 100% of the liquidation of the
pool’s portfolio.
4.5 Exemption and Registered
Investment Companies
Marketing Restriction
•
The investment company cannot be marketed as
a commodity pool or as a vehicle for trading in
the commodity futures, options or swaps
markets.
4.5 Exemption and Registered
Investment Companies
Trading Restrictions
•
Commodity futures, commodity options and swaps trading
must be for bona fide hedging purposes and any initial
margins and premiums required to establish transactions
not considered as a bona fide hedge may not exceed 5%
of the liquidation value of the pool’s portfolio; or
•
The aggregate net notional value of commodity futures,
options or swaps not used solely for bona fide hedging
purposes must not exceed 100% of the liquidation value of
the pool’s portfolio.
What Are My Options?
• Continue to operate under the exemption or
exclusion that I currently hold;
• Determine if I’m able to avail myself of an
alternative exemption; or
• Register as a CPO
Changes Affecting Exempt CTAs
• The 4.14(a)(8) exemption is available to
advisors whose advice is solely limited to
pools that are exempt under 4.13(a)(3),
4.13(a)(4) and 4.5.
• 4.13(a)(4) is going away at the end of this
year.
• Determine if you will still be able to claim the
exemption or if you will need to register as
a CTA.
When Should I Begin the
Registration Process?
• The sooner the better!
• Pre-registration option
• Pre-filing of available exemptions
What Happens on 12/31/12?
• All 4.13(a)(4) and related No Actions filings
will be automatically withdrawn from our
system.
• If you have satisfied all registration
requirements on or before 12/31/12, your
registration as a CPO or CTA will become
effective.
• Any pre-filed exemptions will also become
effective on 1/1/13 if all other registration
requirements have been completed.
Who needs to be listed as a principal?
• Job titles
• Ownership
• Job duties
Job Titles
•
Proprietor of sole proprietorship
•
General Partner of a partnership
•
Manager or Managing Member for an LLC
•
Board of Directors
•
President
•
CEO, COO, CFO
•
Any person in charge of a business unit subject
to CFTC regulation
Ownership
•
Any entity that owns 10% or more of any class of the
Member’s stock
•
Any entity who has contributed 10% or more of the
Member’s capital
•
Any individual who directly or indirectly owns 10% or
more of any class of the Member’s stock
•
Any individual who has contributed 10% or more of
the Member’s capital
Individual
100% Owner
Holding Company
50% Owner
NFA Member Firm
Both the Holding Company and the Individual would need to be
listed principals of the NFA Member Firm.
Indirectly owns 50%
of Member
Job Duties
•
An individual with controlling influence over the
Member’s activities
•
An individual who has control to make decisions that
materially affect the firm’s futures, options, forex or
swaps business without any sort of supervision.
Criteria for Being Listed as a Principal
•
The individual’s ability to control a Member’s business
activities;
•
The individual’s formal title or position with the
Member; or
•
The individual’s financial or ownership interest in the
Member.
Who has to register as an AP?
•
An individual who solicits orders, customers or
customer funds on behalf of any NFA Member firm or
someone who supervises other APs who are actually
doing the soliciting.
•
Anyone who is in the supervisory chain-of-command
and not only to persons who directly supervise.
Proficiency Requirements
•
National Commodity Futures Examination (Series 3)
•
Alternative for persons with certain registrations in the
UK or Canada: Limited Futures Examination –
Regulations (Series 32)
•
Waivers: See NFA’s website for details
Branch Office Registration
•
A branch office is any location, other than the firm’s
main business address, where a Member’s APs are
conducting business.
•
Each branch office must have a registered branch
office manager.
Regulatory Requirements
•
Disclosure Documents
•
Financial Records
•
Performance Reports
Periodic Reporting to Pool Participants
•
Account statements must be distributed within 30 days
following the end of the reporting period.
•
Statements must include statements of income/loss
and changes in Net Asset Value.
•
Signed oath or affirmation must accompany account
statement.
Pool Annual Report
•
Must contain information for two preceding fiscal
years;
•
Must be distributed to participants within 90 days after
the end of the fiscal year or permanent cessation of
trading;
•
Must be prepared in accordance with U.S. GAAP and
certified by an independent CPA; and
•
Must be filed with NFA.
CPO Quarterly Reporting to NFA/CFTC
•
CPO must enter the following information:
•
Identity of specific relationships, such as pool’s administrator,
carrying broker(s), trading manager(s), etc.
•
Statement of Changes in NAV for reporting period
•
Monthly performance for the period
•
Schedule of investments
CTA Quarterly Reporting to NFA/CFTC
•
New CFTC regulation requires CTAs to file an annual
report within 45 days of December 31.
•
NFA has proposed that CTAs file similar reports each
quarter with additional information on relationships,
assets under management and rates of return, on a
program basis.
•
Reports will be filed electronically via NFA’s website.
Disclosure Documents
•
Must be submitted to, and accepted by, NFA prior to first
use.
•
Must be updated at least every 9 months, if the CPO or
CTA continues to solicit potential clients/participants.
•
All clients/participants must sign and date an
acknowledgement of receipt of the document, which the
firm must maintain.
Information Included in a
Disclosure Document
• Business Background
• CTA Trading program and Pool Investment
Program
• Principal Risk Factors
• Fees
• Conflicts of Interest
• Litigation
• Performance
Self-Examination Questionnaire
• Includes a general questionnaire and five
supplemental questionnaires for each applicable
registration category.
• Designed to aid members in recognizing potential
problem areas and to alert them to procedures that
need to be revised or strengthened.
• Supervisory person must sign and date a written
attestation stating that they have reviewed the
Member’s operations in light of the matters
covered by the questionnaire.
• NFA updates questionnaires to reflect new and
amended rules as necessary.
NFA Audits
• Registration of APs, Principals, Other Firms
• Promotional Material
• Disclosure and Performance Reporting
• Financial Reporting
• Account Opening
• Trading and Bunched Orders
• Supervision
NFA Publications
• Self-Examination Questionnaire
• Disclosure Document Guide
• Promotional Material Guide
• Regulatory Requirements Guide
Additional NFA Resources
• Registration Tutorial Videos
• Podcasts
• Webinars
• Workshops
Contact NFA
NFA Information Center
(312) 781-1410
(800) 621-3570
Information@nfa.futures.org
pcushing@nfa.futures.org
thunt@nfa.futures.org
mmchenry@nfa.futures.org
ldyekman@nfa.futures.org