1. Managed Funds Association May 2014 COMMODITY TRADING ADVISOR & COMMODITY POOL OPERATOR 101 AN INTRODUCTION TO A VITAL PART OF THE FINANCIAL SERVICES INDUSTRY
8.HOW REGULATION WORKS The process by which the CFTC regulates CTAs and CPOs includes: • The applicants register with the CFTC. • The CFTC monitors the market for potential manipulation. • The agency also enforces market manipulation rules. 8*These requirements are in addition to federal and state securities law requirements that apply to the fund. The process by which the NFA regulates CTAs and CPOs includes: • All CTAs / CPOs must be registered members of the NFA. • NFA membership stipulates that associated persons of a CTA or CPO must satisfy proficiency requirements, including passage of the National Commodity Futures Examination (known as the Series 3) prior to engaging in commodities activities. • CTAs / CPOs must file disclosure documents with the NFA. Commodities regulations apply to the funds manager (CTA) or sponsor (CPO). Sometimes, the CPO and CTA are the same entity.
9.CFTC EXEMPTIONS CFTC Regulation 4.5 offers an exclusion from the definition of the term commodity pool operator for certain regulated persons. Managers wishing to claim an exclusion must file a notice of eligibility with the NFA. Regulation 4.5 also offers automatic exclusion from the CPO definition to operators of certain employee benefit plans. CFTC Regulation 4.13 offers an exemption from CPO registration for operators of smaller pools and pools that trade at a de minimis level, as defined, of commodity interests in regulation. Any person claiming this exemption must also file a notice of eligibility with the NFA. Exclusion from CPO Definition Exemption from CPO Registration 9 The CFTC offers exemptions for CTAs and CPOs whose pools meet certain qualifications, including: Exemption from CTA Registration The Commodity Exchange Act provides certain exemptions from CTA registration for qualifying individuals. A list of the qualifications can be found here. Exempted parties must file with the NFA, however the relief is considered self-executing with the CFTC and does not require notification to the Commission. Other Exemptions CFTC Regulation 4.12(b) and CFTC Regulation 4.7 also provide exemptions to a registered CPO from certain requirements for funds with certain trading positions and to pools whose participants are limited to qualified eligible persons (sophisticated investors). Exempted parties must file notification with the NFA.
Commodity Trading Advisor & Commodity Pool Operator 101
11.DODD-FRANK AND CTAS / CPOS The Dodd-Frank Act expanded the definition of CPO and CTA in the CEA to include entities operating pooled investment vehicles and managing commodity trading accounts that enter into swaps. The Act also amended the definition of commodity pool to include pooled investment vehicles that trade commodities – including pools that enter into non- security-based swaps. As a result of these changes, many funds and investment managers will now be required to register as CPOs or CTAs. On February 9, 2012, the CFTC issued final rules under the Dodd-Frank Act removing certain registration and compliance exemptions for CPOs and CTAs. The rules also adopt new data collection rules for CPOs and CTAs and include new risk disclosure requirements for CPO and CTA swap transactions. The purpose of the rules is to increase transparency in CPOs and CTAs that participate in the futures and swaps markets and enhance protections for their customers. Once finalized, these rules will impose Dodd-Frank swap-related obligations on many funds, fund managers and investment managers, regardless of whether or not their swap activities are for client accounts or for their own investment or risk- mitigation activities. 11 Changes under the Dodd-Frank Act:
CFTC Grants No-Action Relief to Commodity Pool Operators with Respect to Cert…
Looks like youve clipped this slide toalready.
Commodity Trading Advisor and Commodity Pool Operator 101
7.REGULATING CTAS AND CPOS – THE NFA The National Futures Association (NFA): The Commodity Futures Trading Commission Act of 1974 also authorized the creation of registered futures associations giving the futures industry the opportunity to create a nationwide self-regulatory organization (SRO). The NFA is the industry-wide SRO for the U.S. futures industry. 7 • The NFA is comprised of a 25-member Board of Directors, which is its principal governing and policy-development body. • Membership in NFA is mandatory and the association is financed exclusively from membership dues and assessment fees paid by the users of the futures markets. • NFA has the authority to take disciplinary actions against any firm or individual who violates its rules. For more information on the NFA, click here.