On January 11, 2017, the National Futures Association issued a notice to its members regarding commodity pool operators and commodity trading advisors claiming an exemption or exclusion from registration pursuant to certain Commodity Futures Trading Commission regulations. The notice reminds NFA members that CPOs and CTAs claiming certain exemptions from CFTC and NFA registration must affirm their notice of exemption with the NFA by March 1, 2017. We detail the major take-aways from the notice, and other notable updates for CPOs and CTAs in this client alert.
As a new calendar year begins, commodity trading advisors (“CTA”) and commodity pool operators (“CPO”) must review and tend to their continuing regulatory obligations with the National Futures Association (“NFA”). In 2016, the NFA brought several enforcement actions against CPOs and CTAs for failing to comply with NFA rules, including its reporting requirements. Accordingly, it is important that all CPOs and CTAs currently claiming an exemption or exclusion from U.S. Commodity Futures Trading Commission (“CFTC”) and NFA registration pursuant to certain CFTC regulations, affirm their exemption by March 1, 2017. Market participants should note that the recent executive order signed into law by President Trump aimed at rolling back the Dodd-Frank Act does not impact their regulatory obligations. The executive order merely directs the CFTC and other agencies to review their regulations in light of the principles in the order. Accordingly, market participants should comply with the laws and regulations as they currently exist, and consider the NFA’s Annual Notice detailed below.
Annual Notice of Exemption Filing for CPOs/CTAs
On January 11, 2017, the NFA issued a notice to its members regarding CPOs and CTAs claiming an exemption or exclusion from registration pursuant to certain CFTC regulations.1 The notice reminds NFA members that CPOs and CTAs claiming certain exemptions from CFTC and NFA registration must affirm their notice of exemption with the NFA by March 1, 2017.
The Commodity Exchange Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, (“CEA”), and the CFTC’s regulations require CPOs and CTAs to register with the CFTC and the NFA, unless an exemption or exclusion applies. CPOs and CTAs that claim an exemption or exclusion from registration under CFTC regulations 4.5, 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), 4.13(a)(5), or 4.14(a)(8) must file annual notices of exemption with the NFA within 60 days following the calendar year end. Reed Smith discussed this obligation in detail in a previous Client Alert available here.
NFA asks its members to “take reasonable steps” to determine that the CPOs and CTAs with which they deal are not in violation of the NFA’s rules regarding exempt status. The NFA expects its members to perform reasonable diligence in reviewing the CPO/CTA that previously claimed an exemption from registration on the NFA’s BASIC system, or using the NFA’s exemptions spreadsheet to determine that the CPO/CTA has affirmed its exemption(s) in the past.
NFA members may easily perform due diligence on CPOs and CTAs using the NFA’s website.2 If they determine that a CPO or CTA does not have an active exemption, the NFA requires them to cease transacting customer business with the CPO/CTA.
Enforcement Actions against CPOs/CTAs
In 2016, the NFA brought five enforcement actions against CPOs and CTAs for failing to comply with its rules. These cases involved reporting and filing violations, making inaccurate and/or misleading statements to the NFA, failing to cooperate fully and promptly with an NFA examination, and misappropriating customer funds. In one case, the NFA fined a CPO/CTA $60,000 for failing to timely file three quarterly reports, eight annual pool financial statements, and three CTA PR reports.3 It is important that CPOs and CTAs carefully review their reporting requirements, and timely file all necessary reports with the NFA and verify that the reports are accurate. The NFA revoked several CPOs and CTAs memberships last year for submitting false or misleading information in NFA filings and reports.4
- See Notice I-17-02 (Jan. 11, 2017), available at nfa.futures.org.
- NFA members may perform diligence on their counterparties using the NFA’s BASIC system, available at nfa.futures.org/basicnet.
- See In the Matter of The Cambridge Strategy Asset Management Limited, NFA Case No. 16-BCC-013 (Nov. 2, 2016).
- See In the Matter of TGI Capital Management Limited, NFA Case No. 15-BCC-032 (Feb. 24, 2016); In the Matter of Tina Mozhayski, D/B/A RF Intl, NFA Case No. 15-BCC-004 (Mar. 24, 2016).
Client Alert 2017-050