The National Futures Association (“NFA”) [1] issued a Notice to Members on April 8, 2015 [2] that requires “Delegated CPOs” to identify themselves as such when filing a commodity pool’s annual financial statement.
Registered commodity pool operators (“CPOs”) whose CPO responsibilities for a particular pool are delegated to them by another CPO are referred to as “Delegated CPOs.” Commodity Futures Trading Commission (“CFTC”) No-Action Letter No. 14-126 (“Letter 14-126”), [3] the most recent letter regarding CPO delegation issued by the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the CFTC, permits certain CPO delegations to be self-executing, i.e., no form requesting relief or even a notice need be filed. Because this relief is self-executing, the NFA has been unable to track Delegated CPOs through its automated systems.
To remedy this information gap, CPOs are now required to answer the following question in NFA's EasyFile system when filing a pool's annual financial statement: “Has the CPO been delegated all investment management authority with respect to this commodity pool, pursuant to CFTC Letter No. 14-69 and/or 14-126?” Next to the question are “Yes” or “No” radio buttons. If a CPO answers "Yes" to this question, NFA's
BASIC system [4] will automatically reflect the fund as a "Delegated Pool" of the CPO.
The purpose of this additional question is to gather data to assist other NFA members, such as futures commission merchants (“FCMs”) and commodity trading advisors (“CTAs”), in complying with their NFA Bylaw 1101 obligations. Under Bylaw 1101, NFA members (such as registered CPOs, FCMs and CTAs) may not do business with another entity that is required to be registered (in this case, as a CPO) unless the entity is registered in the appropriate capacity. With this new information regarding CPO delegation, an NFA member that may be approached to do business with a particular pool will, in the future, be able to input the pool’s name in BASIC to determine whether the pool’s CPO is registered or exempt from registration. When a Delegated CPO has answered “Yes” to the question set forth above, the Delegated CPO’s name will appear in BASIC in the field “Operator Name” for that pool. Clicking on that name will bring up the Delegated CPO’s current status, as well as a section with the heading “Exemptions and No Actions.” Clicking on the link to “View Exemptions and No Actions” will bring up various tabs, including one for “Delegated Pools.” If the pool is listed under "Delegated Pools," the NFA member will generally have satisfied its Bylaw 1101 obligations. If the pool is not listed, the NFA member must conduct additional due diligence to comply with Bylaw 1101.
Previously, it was sometimes difficult for an NFA member to fulfill its obligations under Bylaw 1101 when a Delegated CPO was involved. The additional question and enhancement of BASIC should make it easier for NFA members to comply with Bylaw 1101.
NFA is working on providing CPOs with an alternative method to inform NFA of delegated pools in circumstances in which an annual financial statement is not required to be filed.
Notes:
[1] NFA is the futures industry self-regulatory organization in the United States.
[2] The Notice is available by clicking here.
[3] Letter 14-126, available by clicking here, modified the relief previously provided by the Division in CFTC No-Action Letter 14-69, available by clicking here. These letters are discussed in our prior Alert, which is available by clicking here.
[4] BASIC is an acronym for Background Affiliation Status Information Center, which may be accessed through NFA’s website at http://www.nfa.futures.org/basicnet/welcome.aspx.
