indirectly - National Futures Association

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
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
• 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will be automatically withdrawn from our
• If you have satisfied all registration
requirements on or before 12/31/12, your
registration as a CPO or CTA will become
• 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
Any person in charge of a business unit subject
to CFTC regulation
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
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
The individual’s formal title or position with the
Member; or
The individual’s financial or ownership interest in the
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
Pool Annual Report
Must contain information for two preceding fiscal
Must be distributed to participants within 90 days after
the end of the fiscal year or permanent cessation of
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
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
• 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
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
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