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June 25, 2012
Guidance to Members Carrying Accounts for, or Transacting Business with Persons Exempt from Registration
On February 24, 2012, the CFTC issued final rules amending a number of CFTC Regulations related to exemptions from CPO/CTA registration. Members that currently carry accounts for or transact business with any person who is exempt from CPO or CTA registration based on these exemptions should carefully review this guidance because the amendments may affect your ability to do business with these persons in the future.
The final rules rescind the exemption from CPO registration available under CFTC Regulation 4.13(a)(4) for certain qualifying pools. Persons that currently operate a pool that is exempt under CFTC Regulation 4.13(a)(4) may continue to operate that pool(s) pursuant to the exemption until December 31, 2012. After that date, if the pool does not qualify as an exempt pool under CFTC Regulation 4.13(a)(3), unregistered operators will need to be registered as a CPO and comply with the applicable Part 4 Requirements with respect to the pool, and currently registered CPOs offering an exempt pool will have to comply with the applicable Part 4 Requirements with respect to the pool. Similarly, any person that claimed an exemption for CTA registration under CFTC Regulation 4.14(a)(8)(D) with respect to providing trading advice to the exempt pool, may need to register as a CTA in order to continue the relationship.
The final rules also amend a number of CFTC Regulations to require any person that claims an exemption from CPO registration under CFTC Regulation 4.5, 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), 4.13(a)(5) or an exemption from CTA registration under 4.14(a)(8) to annually reaffirm the applicable notice of exemption within 60 days of the calendar year end. The first notice reaffirming these exemptions is due for the calendar year ending December 31, 2012 and annually thereafter. Any person that fails to file a notice reaffirming the exemption will be deemed to have requested withdrawal of the exemption.
Subsequent to December 31, 2012, any Member that carries an account or transacts business with any person that is currently exempt from CPO registration under CFTC Regulation 4.13(a)(4) must ensure that the person has filed a notice of exemption under CFTC Regulation 4.13(a)(3) or has properly registered and become an NFA Member. Similarly, any Member that transacts business with any person who is exempt from CTA registration under CFTC Regulation 4.14(a)(8) based on the fact that it is providing advice to a pool that is exempt under CFTC Regulation 4.13(a)(4) must ensure that the person continues to qualify for an exemption or has become properly registered and a Member of NFA. Failure to do so could result in a violation of NFA Bylaw 1101 and/or NFA Compliance Rule 2-36(d).
Furthermore, any Member that carries an account or transacts business with an unregistered person claiming an exemption from registration that must now be annually reaffirmed must ensure that the unregistered person properly files the notice reaffirming the exemption in order to continue to conduct business with the person. In particular, FCMs and RFEDs should adopt adequate policies and procedures to identify accounts of these exempt persons and conduct an annual review to ensure that the notices of exemptions are properly reaffirmed. Failure to do so could result in a violation of NFA Bylaw 1101 and/or NFA Compliance Rule 2-36(d).
In order to assist Members with this annual review process, NFA will be modifying the BASIC System to include information that will enable Members to determine if a person has filed the notice reaffirming the exemption or if the exemption has been withdrawn for failing to file. NFA's BASIC System can be access at: http://www.nfa.futures.org/basicnet.
Questions concerning these changes should be directed to Mary McHenry, Senior Manager, Compliance (email@example.com or 312-781-1420) or Tracey Hunt, Senior Manager, Compliance (firstname.lastname@example.org or 312-781-1284).