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Amendments to Compliance Rule 2-46. CPO and CTA Reporting Requirements
June 30, 2017— Amendments to Compliance Rule 2-46. and new NFA Interpretive Notice NFA Compliance Rule 2-46: Reporting Financial Information on NFA Forms PQR and PR. An explanation of the amendments and Interpretive Notice can be found in the September 6, 2016 rule submission letter.
Part 2 - Rules Governing the Business Conduct of Members Registered with the Commission
RULE 2-34. CTA PERFORMANCE REPORTING AND DISCLOSURES
[Adopted effective May 1, 2004.]
(a) Performance Information
(1) Member CTAs must calculate rate of return according to CFTC Regulation 4.35(a)(6) using nominal account size as the denominator.
(2) Draw-down information reported under CFTC Regulation 4.35(a)(1)(v) and (vi) must be based on rate of return figures using nominal account size as the denominator.
(3) In calculating net performance, Member CTAs may include interest earned on actual funds but may not impute interest on other funds.
(b) Written Confirmation for Partially-Funded Accounts
(1) For partially-funded accounts, a Member CTA must either receive from a client or deliver to a client a written confirmation that contains the following information:
(i) the name or description of the trading program, and
(ii) the nominal account size agreed to by the client and the CTA.
(2) For new clients, the written confirmation must be received from or delivered to the client before the CTA places the first trade for the client.
(3) For existing clients, the written confirmation must be received from or delivered to the client before the CTA places the first trade after any of the information required under Section (b)(1) of this rule changes. The written confirmation must include the new information and the effective date of the change but need not include any information that will remain the same.
(c) Additional Disclosures for Partially-Funded Accounts
CTAs must provide the following information to clients with partially-funded accounts if the clients are not QEPs:
(1) A statement of how management fees will be computed relative to the nominal account size,
(2) An explanation of how cash additions, cash withdrawals, and net performance will affect the nominal account size,
(3) A brief explanation regarding the effect of partial funding on margin and leverage,
(4) A statement that partial funding increases the fees and commissions as a percentage of actual funds but does not increase the dollar amount of those fees, and
(5) A description, by example or formula, of the effect of partial funding on rate of return and drawdown percentages.
(d) CPO Use of CTA Performance Information
Member CPOs who are required by CFTC Regulation 4.25(c) to disclose CTA performance must report the CTA performance on the same basis as the CTA is required to report it.