Every new year brings a multitude of filings that compliance officers of financial advisory firms must make to meet regulatory requirements. Among the items on the compliance checklist for those involved in futures trading is the annual need to reaffirm their Commodity Futures Trading Commission (CTFC) exemption status with the National Futures Association (NFA) in order to comply with under commodity pool operator (CPO) and commodity trading advisor (CTA) rules.
The NFA, the self-regulating body of the U.S. derivatives industry, has more than 4,000 member firms and 55,000 member associates. In its CFTC-designated role as a registered futures association, the NFA exists to safeguard the integrity of the derivatives markets, protect investors, and ensure members meet their regulatory responsibilities.
Confirming the Status of CPOs and CTAs
A person is considered a Commodity Pool Operator (CPO) if engaged in the business of managing a collective investment vehicle that trades commodity interests such as futures, options, and swaps. A Commodity Trading Advisor (CTA) is defined as a person who advises others on the value of commodity interests or the advisability of trading in commodity interests.
CTAs and CPOs who claim an exemption from registration have until March 1, 2021 to reaffirm their exemption status. If they do not take this step, these firms will be deemed to have requested a withdrawal of the exemption and would need to register.
NFA members can review exemption information in two ways:
- Members can access NFA’s BASIC System and check the status of both individuals and firms.
- Members can access a spreadsheet that includes a list of all persons or entities that have exemptions on file with NFA. The spreadsheet is updated daily and can be found in the NFA member’s annual questionnaire, which can be accessed by logging into the NFA system.
Expectations of NFA Members
NFA requires members to know the status of their clients. Any person who has previously claimed an exemption from CPO/CTA registration under the regulations and who has not filed a notice in NFA’s system affirming the exemption or has not properly registered to become an NFA member, should proactively notify other member firms of their registration status.
If the NFA member learns that the person does not intend to file a notice reaffirming the exemption, or the person does not file a notice reaffirming the exemption by March 1, 2021, NFA requires that the member promptly obtain a written representation as to why the person is not required to register or file a notice of exemption and evaluate whether the representation appears adequate.
If the member determines that the written representation is inadequate and the person is required to be registered, then the member must put a plan in place (e.g., liquidation-only trades) to cease transacting customer business with the person or risk violating NFA Bylaw 1101 or Compliance Rule 2-36(d).
The Importance of Timely Filings
In addition to the approaching deadline for CPO/CTA exemption status, compliance officers should also review their compliance calendars for other required filings and make sure that these deadlines have been updated.
For further guidance on regulatory filing requirements and other regulatory questions, contact Core Compliance & Legal Services at 619.278.0020 or online at www.corecls.com to schedule a consultation.