Proposed Rule

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Proposed Amendments
Additions are underscored, deletions are [bracketed] and amendments pending CFTC approval are italicized:

Proposed Rule 2-35

Proposed adoption of Rule 2-35 to read as follows (additions to previously submitted text are underscored and deletions to previously submitted text are stricken through):

COMPLIANCE RULES

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Part 2 — RULES GOVERNING THE BUSINESS CONDUCT OF MEMBERS REGISTEREDWITH THE COMMISSION

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RULE 2-35. CPO/CTA DISCLOSURE DOCUMENTS.

(a) Required Delivery of Pool Disclosure Document and Statement of Additional Information

(1) The Disclosure Document required by CFTC Regulation 4.21(a) must be as clear and concise as possible, using plain English principles, and must contain only the information required or allowed by subsection (b).

(2) In addition to the Disclosure Document, the CPO of a commodity pool required to register its securities under the Securities Act of 1933 must deliver (or cause to be delivered) a separate Statement of Additional Information to a prospective participant prior to accepting or receiving funds from the prospective participant. The information that may be included in the Statement of Additional Information is described in subsection (c).

(3) The CPO of a commodity pool that is not required to register its securities under the Securities Act of 1933 may, but is not required to, prepare and distribute a Statement of Additional Information containing any or all of the information described in subsection (c). The Statement of Additional Information may be bound together with the Disclosure Document as long as the Disclosure Document comes first. If the Statement of Additional Information is separately bound, the CPO is not required to provide it to a prospective participant unless the prospective participant requests it.

(4) If a Statement of Additional Information is required under paragraph (2) of this section, the cover page of the Disclosure Document required under paragraph (1) of this section and the Statement of Additional Information required under paragraph (2) of this section shall state that the Disclosure Document is in two parts, both of which must be provided to a prospective participant prior to investing in the offered pool. If a Statement of Additional Information is prepared and separately distributed under paragraph (3) of this section, the cover page of the Disclosure Document required under paragraph (1) of this section shall state that the Statement of Additional Information is available free of charge and shall indicate how to obtain a copy of the Statement of Additional Information.

(b)Disclosures Required in the Disclosure Document

(1) The Disclosure Document required under subsection (a)(1) of this Rule must include the following:

(i) The information required by CFTC Regulation 4.24, and the performance disclosures required by CFTC Regulation 4.25, provided, however, that a CPO may provide the monthly rate of return information required under Regulation 4.25(a)(1)(i)(H) and the performance information required under CFTC Regulation 4.25(c)(5) in the Statement of Additional Information. If the CPO includes the monthly rate of return information in the Statement of Additional Information, the Disclosure Document must include annual rate of return information for the pool for the most recent five calendar years and year to date; and

(ii) Any other information necessary to understand the fundamental characteristics of the pool or keep the Disclosure Document from being misleading.

(2) The Disclosure Document required under subsection (a)(1) for pools required to register their securities under the Securities Act of 1933 shall include any other information that the Securities and Exchange Commission or state securities administrators require to be included in Part I of a two-part disclosure document. For all other pools, Disclosure Documents required under subsection (a)(1) may include such information.

 

(c) Information Included in the Statement of Additional Information

(1) If the CPO of a commodity pool prepares a Statement of Additional Information, the cover page must include the following:

(i) The name of the commodity pool;

(ii) A brief statement that the Statement of Additional Information is the second part of a two-part document and that it should be read in conjunction with the pool’s Disclosure Document, with instructions on how to obtain a free copy of the Disclosure Document;

(iii) The date of the most recent Disclosure Document for the pool; and

(iv) The date of the Statement of Additional Information.

(2) The cover page must be immediately followed by a table of contents.

(3) The Statement of Additional Information may also include:

(i) Disclosures, not included in the Disclosure Document, that are required by the Securities and Exchange Commission or state securities administrators;

(ii) Statements that expand on or explain the disclosures in the Disclosure Document, provided that the statements are not misleading or inconsistent with applicable statutes, rules, or regulations; and

(iii) Any other information about the commodity pool; its investments; its CPO, CTA(s), service providers, and their principals and employees; the commodity futures markets; or any other markets, including cash markets, that affect the value of the pool's investments, provided that the information is not misleading or otherwise inconsistent with applicable statutes, rules, or regulations.

(d) CPO Profile Document

(1) A Member CPO may deliver a profile document, as defined in paragraph (2) below, to a prospective participant prior to the delivery of a Disclosure Document, provided that the profile clearly states that an investment in the pool may not be made until after the prospective participant has received the Disclosure Document. A Member CPO shall not provide any advertising or other promotional materials with the profile unless it is also accompanied by the pool’s Disclosure Document.

(2) A profile document shall not present information on more than one pool. A profile document shall include the following information, and only the following information, in the order indicated:

(i) A cover page which contains the following information:

    • The following legend:

This profile summarizes key information about the pool that is included in the pool’s disclosure document. The disclosure document includes additional information about the pool, including a more detailed description of the risks associated with investing in the pool, that you should consider before you invest. Before accepting any funds or other property from you for investment in this pool, the operator of this pool is required to provide you with a copy of the pool’s disclosure document and obtain a signed and dated acknowledgment from you indicating that you have received the pool’s disclosure document. You may obtain the disclosure document and other information about the pool at no cost by contacting ________________ at _____________.

  • The name, main business address, main business telephone number and form of organization of the pool;
    • The name, main business address, main business telephone number and form of organization of the pool operator;
    • A statement identifying the document as a "profile" without using the term "disclosure document;"
    • The approximate date of the profile’s first use;
    • A break-even analysis which includes a tabular presentation of all fees and expenses presented in a manner prescribed by NFA’s Board of Directors;

(ii) The following cautionary statement:

YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT FUTURES AND OPTION TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE POOL.

FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY AND BROKERAGE FEES, WHICH MAY REQUIRE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF THE PRINCIPAL RISK FACTORS, EACH EXPENSE TO BE CHARGED THIS POOL AND A MORE DETAILED DESCRIPTION OF THE BREAK-EVEN ANALYSIS IN THIS DOCUMENT.

THE REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") REQUIRE THAT PROSPECTIVE INVESTORS RECEIVE A DISCLOSURE DOCUMENT BEFORE INVESTING IN A COMMODITY POOL AND THAT CERTAIN RISK FACTORS BE HIGHLIGHTED. THIS PROFILE DOCUMENT DOES NOT DISCLOSE ALL OF THE INFORMATION NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL.

NEITHER THE CFTC NOR NATIONAL FUTURES ASSOCIATION HAS PASSED UPON THE MERITS OF PARTICIPATING IN THIS POOL, NOR HAS THE CFTC OR NFA PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROFILE.

(iii) The identity of each principal of the pool operator, the pool’s trading manager and its principals, if any, each major investee pool, the operator of the pool and its principals, and each major CTA and its principals (for natural persons, this should include name and title);

(iv) A non-marketing orientated discussion of the trading strategy used to trade the pool;

(v) If applicable, a statement of any risk factors unique to this particular type of pool;

(vi) A summary of any material administrative or criminal actions, whether pending or concluded, within five years of the date of the profile, against the commodity pool operator or any of its principals;

(vii) A brief description of any restrictions on transfers of a participant’s interest in the pool;

(viii) A brief description of how a participant may redeem his interest in the pool and a statement of redemption charge, if any;

(ix) If applicable, a statement indicating the extent to which a participant may be held liable for obligations of the pool in excess of the funds contributed by the participant for the purchase of an interest in the pool;

(x) For pools with prior operating history, the capsule performance information for the offered pool as required by Commodity Futures Trading Commission Regulation 4.25(a)(1)(i), exclusive of the requirement of Regulation 4.25(a)(2). In addition, if applicable, notice to the prospective participant that the pool operator is required to report performance information on other pools operated by the pool operator in its Disclosure Document under CFTC Regulation 4.25 and the specific section in the Disclosure Document where this information may be found; and

(xi) For pools with no operating history, a statement that the pool has no operating history and, if applicable, notice to the prospective participant that the pool operator is required to report performance information on other pools operated by the pool operator and performance information on major CTAs trading the pool in its Disclosure Document under CFTC Regulation 4.25 and the specific section in the Disclosure Document where this information may be found.

(e) CTA Profile Document

(1) A Member CTA may deliver a profile document, as defined in paragraph (2) below, to prospective clients prior to the delivery of a Disclosure Document, provided that the profile clearly states that an agreement to direct or guide the client’s commodity interest trading may not be entered into until after the prospective client has received the Disclosure Document. A Member CTA shall not provide any advertising or other promotional materials with the profile unless it is also accompanied by the CTA’s Disclosure Document.

(2) A profile document shall not present information on more than one trading program. A profile document shall include the following information, and only the following information, in the order indicated:

(i) A cover page which contains the following information:

    • The following legend:

This profile summarizes key information about the CTA and the trading program that is included in the CTA’s disclosure document. The disclosure document includes additional information about the CTA and the trading program, including a more detailed description of the risks associated with trading commodity futures and options, that you should consider before you invest in the commodity futures and options markets. Before entering into an agreement with you to direct or guide your commodity interest account, the CTA is required to provide you with a copy of its disclosure document and obtain a signed and dated acknowledgment from you indicating that you have received the disclosure document. You may obtain the disclosure document and other information about the CTA at no cost by contacting __________ at ____________.

  • The name, main business address, main business telephone number and form of organization of the commodity trading advisor;
  • A statement identifying the document as a "profile" without using the term "disclosure document;"
  • The approximate date of the profile’s first use;

(ii) The following cautionary statement:

THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.

THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS.

IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES WHICH MAY REQUIRE THE CTA TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF THE PRINCIPAL RISK FACTORS AND EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE CTA.

THE REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") REQUIRE THAT PROSPECTIVE CLIENTS OF A CTA RECEIVE A DISCLOSURE DOCUMENT BEFORE THEY ENTER INTO AN AGREEMENT WHEREBY THE CTA WILL DIRECT OR GUIDE THE CLIENT’S COMMODITY INTEREST TRADING AND THAT CERTAIN RISK FACTORS BE HIGHLIGHTED. THIS PROFILE DOCUMENT DOES NOT DISCLOSE ALL OF THE INFORMATION NECESSARY TO DECIDE WHETHER YOU SHOULD ENTER INTO AN AGREEMENT WITH THIS CTA TO DIRECT OR GUIDE YOUR ACCOUNT.

NEITHER THE CFTC NOR NATIONAL FUTURES ASSOCIATION HAS PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM, NOR HAS THE COMMISSION OR NFA PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROFILE.

(iii) The identity of each principal of the CTA (for natural persons, this should include name and title);

(iv) A non-marketing orientated description of the trading program used by the CTA;

(v) If applicable, a statement of any risk factors unique to the trading program used by the CTA;

(vi) The amount of each fee (either specific dollar amount or percentage of equity) which the CTA will charge the client;

(vii) A summary of any material administrative or criminal actions, whether pending or concluded, within five years of the date of this profile, against the CTA or any of its principals;

(viii) For trading programs with prior operating history, the performance information for the offered program as required by Commodity Futures Trading Commission Regulation 4.35(a)(1), exclusive of Regulation 4.35(a)(2). In addition, if applicable, notice to the prospective participant that the CTA is required to report performance information for other trading programs or accounts traded by the CTA in its Disclosure Document under CFTC Regulation 4.35 and the specific section in the Disclosure Document where this information may be found.

(ix) For trading programs with no operating history, a statement that the trading program has no operating history, and if applicable, notice to the prospective participant that the CTA is required to report performance information on other trading programs or accounts traded by the CTA in its Disclosure Document under CFTC Regulation 4.35 and the specific section in the Disclosure Document where this information may be found.

(f) Filing Requirements for Profile Documents

All profile documents must be filed with NFA and simultaneously filed with the Commodity Futures Trading Commission as follows:

(1) The initial profile document for each pool offering must be filed with NFA before its first use. Initial documents will be reviewed for consistency with the full Disclosure Document and may not be used until the later of 30 days after the date of filing the document or the date the Disclosure Document is accepted for filing by NFA or the CFTC.

(2) An amended profile document must be filed with NFA no later than five business days after the date it is first used.

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