This section provides guidance to new Commodity Pool Operators ("CPO") and Commodity Trading Advisors ("CTA").
CPOs and CTAs that are not exempt are required to maintain an approved disclosure document for the pool or program being offered. The following links are resources NFA has compiled to help you put together your disclosure document. Firms that will operate exempt pools or programs are encouraged to review these materials as well are not required to provide as detailed disclosure.
CPOs and CTAs may choose to use hypothetical performance in their disclosure documents. The use of hypothethical performance is addressed in "The Do's and Don'ts of Promotional Material" webinar. A common error is that firms cannot provide support for this performance. The assumptions used to calculate hypothetical performance must be clear to the potential customer and that the performance shown is not actual results.
Tip: Remember to immediately update your Disclosure Document for any changes in your operations such as switching carrying brokers, adding a trading principal, altering your trading program or adjusting your fee structure.
Specific information about CPO exemptions can be found here.
Specific information about CTA exemptions can be found here.
View the CFTC Part 4 Exemption Easy Guide Reference for more information about exemptions.
CPOs have different financial requirements than IBs and FCMs. Not only do CPOs have to file financials with NFA, but they must also report to their pool participants. We often find that CPOs are missing required items from account statements sent to clients on a monthly basis (or quarterly for 4.7-exempt pools). CFTC Regulation 4.22 can be used as a checklist for what should be included. Most commonly, CPOs forget to include the information required under the oath or affirmation. Additionally, if you provide account statements to participants electronically, remember to obtain their consent in writing prior to sending the first statement.
Tip: The regulations require that you report the income and value of the pool in its entirety. Therefore, if you report the individual participant's change in net asset value and statement of income on your monthly account statements, you must also include the information for the pool as a whole.
CTA Performance computations may appear difficult at first, so we have created the "CTA Performance Reporting" webinar. If you outsource your performance calculations to a third party, we may want to be in contact with that vendor during an audit; however, we also expect an employee of your firm to be knowledgeable of the calculations and fees included.
Additionally, CTAs need to remember to trade all accounts within a program the same. Small differences between accounts in the same program will eventually become material and then you have a different trading program, which will have to be disclosed.
CTAs often place bunched orders. The Interpretive Notice on bunched orders is a good resource to read to ensure that your allocation procedures are non-preferential. Also, many CTAs forget to conduct a quarterly review of their bunched orders allocations. Like the rest of the reviews NFA requires, maintain a record of this in writing. It's also helpful to keep a listing (or even better, copies!) of documents you use during this review.