Notices to Members
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February 6, 2023
Educational resources, common deficiencies and other important regulatory information for CPO and CTA Members
NFA is committed to providing its Members with the resources they need to meet their regulatory obligations as efficiently as possible. This Notice covers educational resources, common deficiencies and links to Notices to Members regarding recent amendments to NFA Rules and Interpretive Notices.
Members Section of NFA's Website
From the Members section of NFA's website, Members can access information detailing their regulatory obligations including the following:
Commodity Pool Operators (CPO)
Commodity Trading Advisors (CTA)Regulatory Obligations Related to Common Deficiencies
The following section describes a number of regulatory obligations related to common deficiencies noted during NFA examinations of CPO and CTA Members.
Self-Examination Questionnaire
NFA Members must annually review their operations using NFA's Self-Examination Questionnaire. This questionnaire is designed to aid Members in recognizing potential problem areas and to alert them to procedures that need to be revised or strengthened. A common deficiency in this area includes failing to review the questionnaire on an annual basis. NFA encounters firms with deficient policies and procedures, indicating an inadequate review of the self-examination questionnaire. Thorough questionnaire completion and review ensures firms are alerted to deficient policies and procedures that should be updated to comply with NFA rules.
Digital Assets
Members engaging in activities related to digital assets or digital asset derivatives must comply with the customer disclosure requirements established in NFA's Interpretive Notice 9073.
Third Party Service Providers
Members that outsource regulatory functions must adopt and implement a written supervisory framework over outsourced functions to mitigate outsourcing-related risks pursuant to Interpretive Notice 9079. The supervisory framework must address activities the firm will undertake with respect to initial risk assessment, onboarding due diligence, ongoing monitoring, termination and recordkeeping. Appendix E of the Self-Examination Questionnaire includes several questions intended to help Members understand these requirements. Firms must also maintain records demonstrating that they have addressed the items outlined in the Interpretive Notice and are following their procedures.
Cybersecurity
CPO and CTA Members must adopt a written information systems security program (ISSP) pursuant to Interpretive Notice 9070 to address the risk of unauthorized access to or attack of their information technology systems and to respond appropriately should unauthorized attacks occur. Members are also required to notify NFA of certain cybersecurity incidents related to their commodity interest activities via NFA's Cyber Notice Filing System. One common deficiency in this area is failure to provide cybersecurity training to employees upon hiring and annually thereafter.
Members that fail to establish and implement an ISSP may be subject to disciplinary action.
Pool Financial Reporting—Notification Requirements
Notice Filing Requirements: CPOs are required to file notice with NFA when a market or other event affects a commodity pool's ability to fulfill its participant obligations. Notice must be filed by 5:00 p.m. CT the next business day following one of the events outlined in Compliance Rule 2-50 and Interpretive Notice 9080.
Changes in Fiscal Year End: If a CPO elects a fiscal year end other than the calendar year end for a pool, it must give written notice of the election to all participants and file notice with NFA via EasyFile pursuant to CFTC Regulation 4.22(g) within 90 calendar days after the pool's formation. If this notice is not given, the CPO will be deemed to have elected the calendar year end as the pool's fiscal year end. The CPO must continue to use the elected fiscal year end for the pool unless it provides written notice of any proposed change to all participants and files such notice with NFA via EasyFile at least 90 days before the change.
Changes in Certified Public Accountant (CPA): In the event that a CPO changes the independent CPA engaged to audit a pool's financial statements, the CPO must file notice with NFA via EasyFile pursuant to CFTC Regulation 1.16(g) no more than 15 days after the CPA's resignation or dismissal by the CPO.
Extension Requests: If a CPO requests an extension to file an annual pool financial statement, the extension must be filed with NFA via EasyFile prior to the due date of the filing.
Cessation of Trading: When a pool ceases trading, the CPO must promptly update the Annual Questionnaire. With few exceptions, a CPO must also distribute to participants a final Annual Report and file the Annual Report with NFA. This Annual Report is due within 90 days after the pool ceases trading, absent an extension.
Calculation of Financial Ratios
CPO and CTA Members must compute financial ratios using the accrual method of accounting and in accordance with U.S. generally accepted accounting principles or another internationally recognized accounting standard as outlined in Interpretive Notice 9071. Members should consult Notice I-18-20 for additional guidance on calculating these ratios.
Financial Reporting: With few exceptions, each CPO Members must distribute an Annual Report, certified by an independent public accountant, to pool participants within 90 days of the pool's fiscal year-end or the permanent cessation of trading, whichever is earlier. Each CPO must also report to NFA on a quarterly basis specific information about the firm and the pools it operates. These pool quarterly reports (PQRs) are due within 60 days of each calendar quarter end. Each PQR filed after its due date will be subject to a late filing fee of $200 for each business day it is late.
CTA Members that direct trading of commodity interests are required to file a quarterly CTA Form PR report within 45 days of the quarter end. Each Form PR report filed after its due date will be subject to a late filing fee of $200 for each business day it is late. CTAs that commence trading client accounts during a quarter must update the Annual Questionnaire immediately to receive timely reporting notifications.
As a reminder, NFA views late filings as a serious rule violation, and we have taken disciplinary action against Member firms in the past for filing reports after the due date.
Ongoing Updates
On an ongoing basis, each NFA Member must update its Annual Questionnaire in the event of a material change to its operations. For example, if a Member begins doing business or begins soliciting for digital asset or micro contract products, the Member must immediately update its Annual Questionnaire. Doing so ensures that NFA's BASIC system displays correct information about the firm's business activities and ensures the firm receives all applicable notices relating to its reporting requirements in a timely manner.
A CPO Member who operates an umbrella-series structure (i.e., a single legal entity that has several distinct sub-funds which, in effect, are traded as individual funds) needs to list the umbrella entity with NFA through the Annual Questionnaire and mark it as such. CPOs may also identify the series funds that are tied to that umbrella through the questionnaire. Exemptions must be claimed at the umbrella level and must apply to the structure as a whole.
Recent Amendments and Reminders
The following links contain Notices to Members regarding reminders and recent amendments to NFA Rules and Interpretive Notices.
I-22-20: Reminder: NFA Member cybersecurity responsibilities
I-22-10: Reminder: CPO notice filing requirements under Compliance Rule 2-50
I-22-05: Extension of relief from the on-site annual inspection of branch offices and guaranteed IBs
Contact NFA
If you need assistance with any NFA requirements, please contact NFA's Information Center (312-781-1410 or 800-621-3570 or (information@nfa.futures.org).