It is time to affirm exemptions and exclusions from registration as a commodity pool operator (CPO) or commodity trading advisor (CTA) for 2022. The Commodity Exchange Act (CEA), as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires CPOs and CTAs to register with the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) unless an exemption or exclusion from registration applies.
CFTC regulations also require a person or entity claiming an exemption or exclusion from CPO or CTA registration under CFTC regulation 4.5, 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), 4.13(a)(5), or 4.14(a)(8) to file an annual affirmation of such exemption or exclusion with the NFA.
Persons re-affirming an exemption under 4.13(a)(1), 4.13(a)(2), 4.13(a)(3) and 4.13(a)(5) will be required to attest that neither the person nor its principals have in their background any statutory disqualifications listed under section 8a(2) of the CEA.
The annual affirmation must be completed within 60 calendar days following the calendar year end (i.e., within 60 calendar days of December 31 of the prior year). Reed Smith discussed this obligation in detail in a previous client alert.
NFA’s notice of the annual affirmation requirement
On December 1, 2021, the NFA issued a notice reminding its members that the annual affirmation requirement for persons or entities claiming an exemption or exclusion from registration as a CPO or CTA must be completed by March 1, 2022 for the present affirmation cycle. Persons or entities filing new exemptions or exclusions during the affirmation period (December 1, 2021 to March 1, 2022) do not need to reaffirm such exemptions or exclusions until next year’s deadline (i.e., 60 days after December 31, 2022).
The NFA’s notice warns members that failure to affirm an active exemption or exclusion from CPO or CTA registration by March 1, 2022 will result in the automatic withdrawal of such exemption or exclusion on March 2, 2022. Also, for registered CPOs and CTAs, withdrawal of an active exemption or exclusion due to the failure to reaffirm in time will subject such CPOs or CTAs to CFTC Part 4 requirements,2 even if the CPO or CTA otherwise remains eligible for the exemption or exclusion. For non-registrants, withdrawal of an active exemption or exclusion may subject the person or entity to a CFTC or NFA enforcement action for non-compliance (i.e., failure to register in the absence of a valid exemption or an exclusion from registration).
The NFA will provide its members with another reminder of the annual affirmation requirement via email as the affirmation deadline nears. The NFA’s notice will be sent to the email contact on file in the NFA’s Exemption System and to the Enforcement Compliance Contact. Firms’ active registration, or exemptive status, can be confirmed through the NFA’s BASIC system at nfa.futures.org/basicnet.
Instructions for making the annual affirmation
The NFA’s notice includes detailed instructions for completing the annual affirmation process. The annual affirmation process must be completed online by using the NFA’s Exemption System. The NFA’s Exemption System is available in the Electronic Filings section of the NFA website. Once logged into the Exemption System, an Exemption Index will list all Firm Level (at the top) and Pool Level (at the bottom) exemptions and exclusions that are on file with the NFA. The exemptions or exclusions that require affirmation will be identified with an icon in the “Affirm” column. Clicking on the appropriate icon will prompt a pop-up box to appear requesting affirmation that the exemption or exclusion continues to be effective. By clicking “OK,” the current date will replace the “Affirm” icon and complete the affirmation requirement for the year. Note that this process must be completed for every exemption or exclusion that requires an affirmation.
Once the annual affirmation process is complete, the NFA’s BASIC System will reflect the affirmation date for each exemption or exclusion claimed for the year. If an exemption or exclusion is not affirmed by March 1, 2022, the NFA’s BASIC System will reflect a withdrawal date for the exemption on March 2, 2022.
Frequently asked questions about exemptions
The NFA’s notice also includes responses to frequently asked questions about the annual affirmation process. These questions and the NFA’s responses address (1) how to recover Exemption System usernames and passwords, (2) how often exemptions need to be affirmed, (3) how NFA records reflect inactive pools, (4) how to withdraw exemptions, and (5) how firms know that entities with which they do business have completed the affirmation process. The NFA’s notice also provides useful NFA contact information for questions regarding username and password issues and for questions regarding the information contained in the notice.
Cryptocurrencies, digital assets, and geographical considerations
Persons or entities that have questions as to whether they are subject to CFTC regulation should keep in mind that the CEA defines a “commodity” very broadly to include not only commonly understood physical commodities, such as corn, natural gas, and gold, but also financial commodities, such as cryptocurrencies and digital assets. Accordingly, cryptocurrencies and digital assets may be commodities for purposes of CFTC regulation and jurisdiction. In addition, many cryptocurrencies and digital assets may arguably qualify as “commodity interests,” and are therefore subject to the qualification as “commodity pools,” and entities that provide advice regarding these products may need to register with the CFTC or be exempted from registration.
Non-U.S.-based persons or entities should also note that the CFTC’s jurisdiction is not limited by where the person or entity is located ‒ whether in the United States or internationally, as long as there are U.S. investors at issue.
- See Notice I-21-38 (Dec. 1, 2021), available at nfa.futures.org
- Part 4 requirements are the rules and regulations set forth in Title 17, Chapter I, Part 4 of the U.S. Code of Federal Regulations applicable to CPOs and CTAs. See 17 C.F.R. sections 4.1-4.41.
Client Alert 2022-034
