Search NFA Rulebook

Compliance Rules

Part 2 - Rules Governing the Business Conduct of Members Registered with the Commission


[Adopted effective May 1, 2004. Revised February 1, 2020]

(a) Performance Information

    (1) Member CTAs must calculate rate of return according to CFTC Regulation 4.35(a)(6) using nominal account size (see NFA Compliance Rule 1-1(x)) 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 Accounts with Actual Funds that Differ from the Nominal Account Size

    (1) For accounts with actual funds (see NFA Compliance Rule 1-1(b)) that differ from the nominal account size (i.e., partially-funded accounts and accounts with funds that exceed the nominal account size), 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;

      (ii) the nominal account size agreed to by the client and the CTA; and

      (iii) an explanation of how cash additions, cash withdrawals and net performance will affect the nominal account size.

    (2) A written confirmation must be received from or delivered to the client before the CTA places the first trade for the client.

    (3) If any of the information required under Section (b)(1) changes, a written confirmation describing the change and the effective date of the change must be received from or delivered to the client before the CTA places another trade for the client.

(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) A statement that partial funding increases leverage and may result in more frequent and larger margin calls;

    (3) 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

    (4) A description, by example or formula, of the effect of partial funding on rate of return and draw-down 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.