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A. Proposed Deletion of Compliance Rules 2-13(d) and 2-35(d) and the Interpretive Notice Concerning CPO Profile Documents
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(1) the name of the CPO, issuer, underwriter, and selling agent;
(2) the name of the pool;
(3) the title, amount, minimum escrow, and basic terms of the equity interests the CPO proposes to offer;
(4) the date the offering will be commenced and the length of time it will remain open, and a brief statement of the manner of the offering;
(5) the type of pool (e.g., multi-advisor, single-advisor, principal-protected, speculative or hedge) and interests to be traded and, for a single advisor pool, the name of the CTA;
(6) any limitations regarding who may invest in the pool or the amount of any investment;
(7) any statement or legend required by any applicable laws, regulations, or rules or by any state, federal, or foreign regulator; and
(8) the name and address and/or telephone number to write or to call in order to obtain a copy of the Disclosure Document.
RULE 2-35. CPO/CTA DISCLOSURE DOCUMENTS
(d) CPO Profile Document
(1) A Member CPO may deliver a profile document, as defined in paragraph (2) below, to a prospective participant prior to the delivery of a Disclosure Document, provided that the profile clearly states that an investment in the pool may not be made until after the prospective participant has received the Disclosure Document. A Member CPO shall not provide any advertising or other promotional materials with the profile unless it is also accompanied by the pool's Disclosure Document.
- The following legend:
This profile summarizes key information about the pool that is included in the pool's disclosure document. The disclosure document includes additional information about the pool, including a more detailed description of the risks associated with investing in the pool, that you should consider before you invest. Before accepting any funds or other property from you for investment in this pool, the operator of this pool is required to provide you with a copy of the pool's disclosure document and obtain a signed and dated acknowledgment from you indicating that you have received the pool's disclosure document. You may obtain the disclosure document and other information about the pool at no cost by contacting ________________ at _____________.
- The name, main business address, main business telephone number and form of organization of the pool;
- The name, main business address, main business telephone number and form of organization of the pool operator;
- A statement identifying the document as a "profile" without using the term "disclosure document;"
- The approximate date of the profile's first use;
- A break-even analysis which includes a tabular presentation of all fees and expenses presented in a manner prescribed by NFA's Board of Directors;
- Futures and options trading can quickly lead to large losses as well as gains.
- Trading losses can sharply reduce the net asset value of a pool and the value of your interest in the pool.
- Some pools have restrictions on redemptions that may affect your ability to withdraw your investment in the pool.
- Some pools are subject to substantial charges for management, advisory and brokerage fees. In order to cover these fees, the pool may have to experience substantial trading profits.
(2) A profile document shall not present information on more than one pool. A profile document shall include the following information, and only the following information, in the order indicated:
(i) A cover page which contains the following information:
Before investing in a commodity pool, you should carefully consider the following:
You should also be aware that neither the Commodity Futures Trading Commission nor National Futures Association has passed upon the merits of participating in this pool nor the adequacy or accuracy of this profile.
(iii) The identity of each principal of the pool operator, the pool's trading manager and its principals, if any, each major investee pool, the operator of the pool and its principals, and each major CTA and its principals (for natural persons, this should include name and title);
(iv) A non-marketing oriented discussion of the trading strategy used to trade the pool;
(v) A discussion of any additional risk factors not highlighted in the cautionary statement which are material to this particular pool;
(vi) A discussion of any conflicts of interest which are material to the particular pool;
(vii) A summary of any material administrative or criminal actions, whether pending or concluded, within five years of the date of the profile, against the commodity pool operator or any of its principals;
(viii) A brief description of any restrictions on transfers of a participant's interest in the pool;
(ix) A brief description of how a participant may redeem his interest in the pool and a statement of redemption charge, if any;
(x) If applicable, a statement indicating the extent to which a participant may be held liable for obligations of the pool in excess of the funds contributed by the participant for the purchase of an interest in the pool;
(xi) For pools with prior operating history, the capsule performance information for the offered pool as required by Commodity Futures Trading Commission Regulation 4.25(a)(1)(i), exclusive of the requirement of Regulation 4.25(a)(2). In addition, if applicable, notice to the prospective participant that the pool operator is required to report performance information on other pools operated by the pool operator in its Disclosure Document under CFTC Regulation 4.25 and the specific section in the Disclosure Document where this information may be found; and
(xii) For pools with no operating history, a statement that the pool has no operating history and, if applicable, notice to the prospective participant that the pool operator is required to report performance information on other pools operated by the pool operator and performance information on major CTAs trading the pool in its Disclosure Document under CFTC Regulation 4.25 and the specific section in the Disclosure Document where this information may be found.
COMPLIANCE RULE 2-35: CPO PROFILE DOCUMENTS
The discussion of risk factors should focus on characteristics of the pool that go beyond risks that are associated with commodity pool investments in general. This section should not contain boilerplate or generic language on the risks related to volatility and leverage which are associated with all commodity pool investments. If, however, these risk factors raise any special considerations with respect to the offered pool, the profile should contain a complete discussion of these special considerations. Other risk factors that should be discussed in this section include but are not limited to risks associated with allocating a substantial portion of a pool's assets to one CTA or a group of CTAs whose trading methods do not provide any diversification (e.g., a single CTA fund which invested exclusively in agricultural products); counterparty creditworthiness issues that may arise if the pool's assets are concentrated in OTC or foreign instruments; liquidity issues that may arise if the pool itself is invested in illiquid products; and leverage issues that may exist if the pool will engage in borrowing or if assets are allocated among the pool's CTAs in such a way that the total allocations to the pool's CTAs are greater than the total assets of the pool.
The discussion on conflicts of interest should focus on arrangements or relationships among the pool's CPO, trading manager, major CTAs, CPOs of major investee pools, and any other person providing services to the pool that may compromise the pool participants' interest with respect to trading costs, fees, execution, or any other aspects of the pool's operation. For example, if the CPO provides other services to the pool for compensation, the CPO has a financial disincentive to replace itself even if it would be in the best interest of the pool. In addition, the compensation the CPO receives for providing these services will not have been set by arm's length negotiation. Other conflicts of interest that should be disclosed include, but are not limited to, situations where the CPO or CTA receives per trade compensation or where the CPO participates in soft dollar arrangements with the pool's FCM.
This interpretive notice is not intended to provide an inclusive list of the risk factors and conflicts of interest that must be disclosed in the profile.
B. Proposed Amendments to Registration Rules 204 and 802
(additions are underscored and deletions are
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(a) Application for Registration or Exemption from Registration.
(5)(B) Each IB, CPO or CTA applying for exemption or confirmed as exempt from registration pursuant to CFTC Regulation 30.5 shall promptly notify NFA in the event that the agreement in paragraph (a)(5)(A) of this Rule is terminated.
(d) Annual Registration Records Maintenance Fees. On an annual basis, NFA shall send an invoice to each FCM, IB, CPO, CTA, and LTM registered in accordance with paragraph (a)(1) of this Rule or confirmed as exempt from registration in accordance with paragraph (a)(5) of this Rule or pursuant to CFTC Regulation 30.10 requesting payment of the annual registration records maintenance fee set forth in Rule 203(a) and any other outstanding registration fees. NFA shall deem the failure to pay the required annual registration records maintenance fee and any other outstanding registration fees within 30 days following such date a request to withdraw from registration or to withdraw the confirmation of the exemption pursuant to CFTC Regulation 30.5 or CFTC Regulation 30.10, and shall notify the registrant or IB, CPO or CTA confirmed as exempt from registration pursuant to CFTC Regulation 30.5 or CFTC Regulation 30.10 accordingly.
PART 800. ELECTRONIC FILING OF REGISTRATION FORMS.
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(a) The electronic filing of a Form 7-R for registration as an FCM, IB, CPO and CTA or for exemption from registration as an IB, CPO and CTA pursuant to CFTC Regulation 30.5 is deemed to constitute the applicant's:
(9) agreement that, if the applicant is a foreign applicant:
(i) the applicant's books and records will be available for inspection by the CFTC, the U.S. Department of Justice ("DOJ") and NFA for purposes of determining compliance with the Act, CFTC Regulations and NFA Requirements;
(ii) such books and records will be produced on 72 hours notice at the location in the United States stated in the Form 7-R or, in the case of an IB, CPO or CTA confirmed as exempt from registration pursuant to CFTC Regulation 30.5, at the location specified by the CFTC or DOJ; provided, however, if the applicant is applying for registration as an FCM, upon specific request, such books and records will be produced on 24 hours notice except for good cause shown;
(v) the failure to provide the CFTC, DOJ or NFA with access to its books and records in accordance with this agreement may be grounds for enforcement and disciplinary sanctions; denial, suspension or revocation of registration; withdrawal of confirmation of exemption from registration as an IB, CPO or CTA pursuant to CFTC Regulation 30.5; and denial, suspension or termination of NFA membership;
(vi) the applicant for registration shall provide to NFA copies of any audit or disciplinary report related to the applicant for registration issued by any non-U.S. regulatory authority or non-U.S. self-regulatory organization and any required notice that the applicant for registration provides to any non-U.S. regulatory authority or non-U.S. self-regulatory organization. The applicant for registration shall provide these copies both as part of this application and thereafter immediately upon the applicant for registration's receipt of any such report or provision of any such notice; and
C. Proposed Amendments to Section 2 of NFA's Code of Arbitration and Sections 4 and 5 of NFA's Member Arbitration Rules
(additions are underscored and deletions are
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(a) Mandatory Arbitration.
(1) Claims. Except as provided in Sections 5 and 6 of this Code with respect to timeliness requirements, the following disputes shall be arbitrated under this Code if the dispute involves commodity futures contracts:
(iii) a customer claim whose resolution has been delegated to NFA by a contract market
under Section 5a(11) of the Commodity Exchange Act.
MEMBER ARBITRATION RULES
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No Arbitration Claim may be arbitrated under these Rules unless an Arbitration Claim or notice of intent to arbitrate (see Sections 5(a) and (c) below) is received by NFA within two years from the date when the party filing the Arbitration Claim knew or should have known of the act or transaction that is the subject of the controversy. No counterclaim, cross-claim or third-party claim may be arbitrated under these Rules unless it is received by NFA within two years from the date when the party asserting the counterclaim, cross-claim or third-party claim knew or should have known of the act or transaction that is the subject of the counterclaim, cross-claim or third-party claim or it is served on NFA
within 45 days from the date of service of the Arbitration Claim on the Respondent by NFA with a timely filed Answer, whichever is later. NFA shall reject any claim that is not timely filed. If, in the course of any arbitration, the Panel determines that the requirements of this section have not been met as to a particular claim, the Panel shall thereupon terminate the arbitration of the claim without decision or award.
SECTION 5. INITIATION OF ARBITRATION.
(g) Reply to Counterclaim or Cross-claim.
(2) Claims of more than $50,000. Where the aggregate claim amount exceeds $50,000, the Reply shall be served within
20 35 days from the date of service of the Answer, counterclaim or cross-claim by NFA.