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February 12, 2014
Member Obligations under NFA Bylaw 1101 and Compliance Rule 2-36(d) with Respect to CPOs/CTAs Exempt from Registration
CFTC rules require any person that currently claims an exemption from CPO registration under CFTC 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), or 4.13(a)(5), an exclusion from CPO registration under Regulation 4.5, or an exemption from CTA registration under 4.14(a)(8) to annually affirm the applicable notice of exemption within 60 days of each calendar year end. Pursuant to the CFTC's rules, persons that fail to file the affirmation notice by March 3, 2014 will be deemed to have requested a withdrawal of the exemption and, therefore, may be required to be registered.
Since exempt CPOs/CTAs have until March 3, 2014 to complete the affirmation process, NFA recognizes that it may be difficult for a Member to conclusively determine prior to March 3, 2014 if a previously exempt CPO/CTA continues to be eligible for a current exemption.
Therefore, Members that take reasonable steps to determine the registration and Membership status of these previously exempt persons will not be in violation of NFA Bylaw 1101 or Compliance Rule 2-36(d) if, between January 1 and March 31, 2014, they transact customer business with a previously exempt person that fails to either become registered and a Member of NFA, file a notice affirming its exemption from CPO registration or provide a written representation as to why the person is not required to register or file the notice affirming the exemption. For those persons who previously claimed an exemption from CPO registration under CFTC Regulation 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), or 4.13(a)(5), an exclusion from CPO registration under Regulation 4.5, or an exemption from CTA registration under 4.14(a)(8) who have not filed a notice reaffirming the exemption, a notice of exemption for another available exemption or properly registered and become an NFA Member by December 31, 2013, NFA expects any Member transacting customer business with that person to promptly contact the person to determine whether the person intends to file a notice affirming the exemption.
If the Member learns that the person does not intend to file a notice affirming the exemption or the person does not file a notice affirming the exemption by March 3, 2014, then the Member must promptly obtain a written representation as to why the person is not required to register or file a notice exemption, and evaluate whether the representation appears adequate based upon the information that the Member knows about the person. If the Member ultimately determines that the person's written representation is inadequate and the person is required to be registered, then the Member must put a plan in place (e.g., liquidation-only trades) to cease transacting customer business with the person or risk violating NFA Bylaw 1101 or Compliance Rule 2-36(d).
NFA expects a Member to use reasonable steps to identify those persons who currently claim an exemption from CPO/CTA registration with whom the Member transacts customer business. Members should compare their list of exempt CPO/CTAs to the information NFA is making available to assist Members in determining whether an exempt CPO/CTA has affirmed its exemption(s). Members may review information on NFA's BASIC System, which will reflect an affirmation date if an exempt CPO/CTA has properly filed a notice affirming an exemption or a withdrawal date if the person has withdrawn the exemption. NFA is also providing Members with access to a spreadsheet, which is updated nightly, that includes a list of all persons that have exemptions on file with NFA that must be affirmed on an annual basis. The spreadsheet lists the operator of the pool and each pool for which it claims an exemption, as well as each person claiming exemption from CTA registration. This spreadsheet can be found in the Member's Annual Questionnaire. The spreadsheet will include all persons with an exemption(s) that requires affirmation, as well as the affirmation date, if applicable. If the spreadsheet does not reflect an affirmation date on or after December 3, 2013, then exemption for the current year has not been affirmed.
Any Member that acts in accordance with the guidance provided in this Notice will not be charged with violating NFA Bylaw 1101 or Compliance Rule 2-36(d). Members should be aware, however, that this Notice's guidance does not in any way relieve their regulatory obligations pursuant to the Commodity Exchange Act and the CFTC's Regulations.
If you have any questions on this Notice, please contact NFA's Information Center at 312-781-1410 or 800-621-3570.