Notices to Members2017 | 2016 | 2015 | 2014 | 2013 | Show more years
July 06, 2017
Reminder for CPOs and CTAs to report financial information on NFA Forms PQR and PR
In December 2016, NFA issued a Notice to inform Members that NFA's amendment to NFA Compliance Rule 2-46 and a related Interpretive Notice entitled NFA Compliance Rule 2-46: Reporting Financial Information on NFA Forms PQR and PR would be effective as of the quarter ending June 30, 2017. This Notice is a reminder of the effective date.
The amendment and Interpretive Notice require commodity pool operators (CPO) and commodity trading advisors (CTA) to report two financial ratios regarding a CPO's or CTA's financial condition on the quarterly Form PQR or PR.
The objective of this amendment and Interpretive Notice is to evaluate trends related to a CPO's or CTA's financial situation. The ratios will be reviewed in conjunction with all other data collected relating to the firm and its operations — there is no mandated minimum that a CPO or CTA Member must meet. Rather, NFA will review the ratio for trends over time.
As described in the Interpretive Notice, NFA Forms PQR and PR will contain data fields requiring CPO and CTA Members to report the following two ratios:
- Current Assets/Current Liabilities (CA/CL) Ratio — This ratio divides a firm's current assets by its current liabilities, providing a measure of a firm's liquidity. This ratio is based on a firm's current asset and current liability balances at the reporting quarter end.
- Total Revenue/Total Expenses (TR/TE) Ratio — This ratio divides a firm's total revenue by its total expenses, measuring a firm's operating margin. Although a firm will report this ratio each quarter, the ratio must reflect the total revenue earned and total expenses incurred during the prior 12 months.
All ratios must be computed using the accrual method of accounting and in accordance with generally accepted accounting principles or another internationally recognized accounting standard, consistently applied. Listen to the recording of NFA's recent Member Workshop for guidance on how to convert from cash basis to accrual basis of accounting, if needed.
Reporting Required Ratios on the Form PQR or PR
The Forms PQR and PR are now updated to include these required ratios. To report these ratios on the updated Form PQR or PR, CPOs and CTAs should follow the steps below.
- Specify whether the ratios will be reported at the Member firm level or parent/holding company level.
- Specify the reporting period. Firms with a fiscal year end not aligned with calendar quarter ends may report as of the firm's most recent fiscal quarter end.
- Enter the CA/CL ratio, which should be calculated by dividing current assets by current liabilities at the reporting quarter end.
- Enter the TR/TE ratio, which should reflect total revenue earned and expenses incurred during the prior 12 months.
Note: firms registered as both a CPO and CTA are required to report the ratios on the first form that is filed. This information will be carried over to the second form filed. For CPOs, ratio fields are now included in the XML schema in EasyFile.
CPO and CTA Members must be able to demonstrate to NFA how they calculated the ratios reported on Form PQR or PR and maintain financial records supporting the calculation of these ratios in accordance with NFA Compliance Rule 2-10. Each CPO and CTA Member must make these financial records available to NFA during an examination or upon request. For CPO and CTA Members that are part of a holding company structure, this may include making available the relevant financial records of the holding company.
NFA recently held Member Workshops in Chicago and New York, during which NFA offered a session on reporting CPO and CTA financial information. Access the audio recording and slides from this workshop. For background on this rule amendment see Notice to Members I-16-31.
During examinations, NFA staff will work with Members to ensure that the firm is calculating the ratios correctly. If you have questions, please contact Mary McHenry, Associate Director, Compliance (email@example.com or 312-781-1420) or Christine Roche, Associate Director, Compliance (firstname.lastname@example.org or 312-781-1562).