CPO Disclosure Documents
In general, yes. Registered CPOs that are required to provide a disclosure document to pool participants must file the disclosure document with NFA. However, some exemptions from this requirement may apply to your firm. See Exemptions Available to CPOs for additional guidance on exemptions.
If a disclosure document is required, it cannot be used until it is reviewed and accepted by NFA.
A qualified eligible person (QEP) is an investor who fits into one of two distinct groups:
(1) Investors who do not need to meet the portfolio requirement; and
(2) Investors who must meet the portfolio requirement.
The categories of persons who qualify as QEPs are listed in CFTC Regulation 4.7(a).
If the CPO is soliciting new pool participants for the pool, then the pool disclosure document must be updated at least every 12 months. However, a CPO may be required to update the disclosure document more often if there are any material changes that must be disclosed. Updated disclosure documents must be filed with and accepted by NFA prior to use.
Review times vary depending on whether it is an initial or updated filing, the disclosure document size, and other factors. In general, NFA reviews most disclosure documents within 14 days of receipt.
If certain conditions are met, a disclosure document may be eligible for instant filing treatment. A disclosure document that qualifies for instant filing treatment is generally reviewed within three business days. NFA staff will respond to a Member via email with either a comment letter or an acceptance letter.
Prior to using the disclosure document, the Member must receive an acceptance letter from NFA confirming that the disclosure document can be used to solicit participants.
Instant filings are available for:
- Disclosure documents that do not contain material changes from a previous filing that NFA has accepted,
- New pool offerings that are substantially similar to disclosure documents of other pools operated by the CPO that NFA has accepted, or
- Pools that will be operated pursuant to an exemption under CFTC Regulation 4.12(b) and which invest in futures contracts and commodity options exclusively through investments in other section 4.12(b) pools.
NFA Rules and CFTC Regulations do not prohibit CPOs from including pool disclosure documents on their websites. However, if a privately offered commodity pool is exempt from SEC registration, the CPO should check with the SEC to ensure that this would not violate the exemption. Any disclosure document included on a CPO's website must be accurate and complete and may not be more than 12 months old.
A break-even analysis is a tabular presentation of the impact that fees and expenses have on the potential profitability of an investment in the pool. This information must be disclosed in the pool disclosure document. Review NFA Interpretive Notice 9023 and NFA's Disclosure Document Guide: A Guide for CPOs for guidance.
Hypothetical performance information may be included in the disclosure document if certain conditions are met. However, Members cannot include hypothetical performance results if it has three months of actual trading results for the program. Review NFA's Disclosure Document Guide: A Guide for CPOs, NFA Compliance Rule 2-29(c), and NFA Interpretive Notice 9025 for specific guidance.
A pool disclosure document can only include information required by the CFTC, the SEC and state authorities. Any other information the CPO wants to provide must be included in a Statement of Additional Information (SAI). If an SAI is prepared, it may either be bound together with the disclosure document or provided separately. All SAIs must be dated, include the name of the offered pool, the date of the most recent disclosure document and a statement that the SAI is the second part of two-part document that should be read in conjunction with the pool's disclosure document. This information must be followed by a Table of Contents. The SAI must be filed with NFA along with the respective disclosure document. Review NFA Compliance Rule 2-35 and NFA Interpretive Notice 9035 for specific guidance on preparing an SAI.
In general, pool disclosure documents should be no more than 30 pages long, be written in easy to understand language and avoid the use of legal jargon when possible. Pool disclosure documents that are more complex may be longer. Review NFA Interpretive Notice 9035 and NFA's Disclosure Document Guide: A Guide for CPOs for more guidance.
A CPO is required to update pool disclosure documents when it becomes aware that such disclosure document is materially inaccurate or incomplete. Corrections to the disclosure document are required to be distributed to existing participants as well as previously solicited participants. This may be done either as an updated disclosure document that has been accepted by NFA or as an addendum to an existing current, accepted disclosure document, known as a Supplement. A Supplement must be provided with the current, accepted disclosure document and is not a stand-alone disclosure document. Furthermore, a Supplement may not be used to extend the life of a disclosure document. If distributed in the form of an addendum, it must be filed with NFA as a Supplement