NFA Provides Guidance Regarding CPO/CTA Incentive Fee Conflicts Disclosures


The National Futures Association (NFA) has published a Notice to Members which provides guidance to registered commodity pool operators (CPOs) and commodity trading advisors (CTAs) regarding their disclosure of conflicts of interest arising from the collection of incentive fees. The NFA guidance is based upon guidance that NFA received from the Commodity Futures Trading Commission’s Division of Clearing and Intermediary Oversight (DCIO), which oversees NFA in its review of CPO and CTA Disclosure Documents.

In its letter, DCIO noted that typical incentive fee arrangements, in which a CPO or CTA receives a fee or other compensation based upon its trading performance, could be viewed as creating a conflict of interest between the CPO or CTA and its pool investors or clients by encouraging the CPO or CTA to take excessive risks and/or maximize short-term performance in order to earn outsized incentive fees. Accordingly, the DCIO letter prescribes that every CPO and CTA that charges an incentive fee of this type must include discussion in its Disclosure Document that such fees may encourage the CPO/CTA to take excessive risk and may place the interests of the CPO/CTA in conflict with those of its clients or investors. In its Notice to Members, NFA urges its CPO and CTA members to review their Disclosure Documents and include any additional disclosures prior to submitting any subsequent filings of the document. Although NFA’s Notice to Members does not expressly discuss the status of registered CPOs and CTAs that rely upon the relief provided under CFTC Rule 4.7, or of CPOs and CTAs that are exempt from registration with NFA, because such CPOs and CTAs are not required to prepare and file Disclosure Documents with NFA, they are not directly affected by the NFA’s Notice to Members.

Please see full article below for more information.

LOADING PDF: If there are any problems, click here to download the file.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Katten Muchin Rosenman LLP | Attorney Advertising

Written by:


Katten Muchin Rosenman LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.