Will You Need to Register as a “CTA” in the New Year?

On February 9, 2012, the Commodity Futures Trading Commission (“CFTC”) issued “Final Rules” rescinding or amending certain exclusions and exemptions to registration as a commodity trading advisor (“CTA”); as well as expanding the definition of who is a CTA.  Some of the more noteworthy changes made by the CFTC include:

  • Rescinding Rule 4.13(a)(4) (an exemption that allowed funds offered to "qualified eligible persons" ("QEPs"), to do unlimited trading in futures and options without registering with the CTFC) thereby effectively rescinding Rule 4.14(a)(8) - the corollary exemption available to CTAs who advised funds operated under 4.13(a)(4).
  • Expanding the definition of CPOs, CTAs, and Commodity Pools to include “swaps”
  • Adopting Form CTA-PR

Previously exempt general partners and investment advisers may now avoid trading and marketing in commodity interests, rely on an alternative available exemption, or register with the CFTC/NFA and seek reporting leniency with the implementation of these changes.

There are still several exemptions available to those seeking to avoid registering as a CTA.  These exemptions (with the exception of CEA § 4m(1) and CEA § 4m(3)) are not self-executing however, and must be filed with the CFTC on an annual basis in order to be relied upon.  Some of the alternative exemptions available include: 4.13(a)(3), Rule 4.14(a)(8), CEA §4m(1) and CEA §4m(3).

If a CTA cannot rely on an exemption, it has to register with the CFTC through the National Futures Association (“NFA”) by December 31, 2012. This means that advisers will have to comply with extensive disclosure, reporting and recordkeeping requirements, including, amongst other things: filing online a Form 7-R, a Form 8-R for every  “principal” and “associated person” (associated persons need also provide evidence of proof of passing the Series 3 exam from FINRA within the last two years, except in certain select situations), and pay all applicable fees.

For further information on registering as a CTA, or other related topics, please contact us at info@corecls.com or (619) 278-0020.