NFA Seeks Comment on Possible Capital Requirements for CPOs and CTAs and Additional Customer Protection Measures


The National Futures Association (“NFA”) issued Notice to Members I-14-03 seeking comment from its Member CPOs and CTAs as it considers (a) possible means of ensuring that each CPO or CTA has sufficient assets to operate as a going concern and (b) ways to strengthen the regulatory structure governing CPO operations to provide greater protection for customer funds.  This article provides summary highlights of the Notice.

CPO/CTA Capital Requirement

NFA is seeking input from its CPO and CTA Members on the concept of imposing capital requirements on CPOs and CTAs.  The Notice lists specific topics for comment in the following areas: (a) whether or not to impose a capital requirement, the appropriate amount of such a requirement, and the need for any related financial reporting and (b) alternative means of ensuring sufficient funds for ongoing CPO/CTA operation.

Additional Customer Protection Measures

The Notice requests comment on the following additional customer protection measures that are currently under consideration as a means of addressing improper use of pool funds by CPOs:

  • Independent third party authorization for disbursement of pool funds
  • NAV valuation and monthly or quarterly reporting
  • Independent preparation/verification of performance results
  • Verification of pool assets through periodic reporting to NFA by entities holding pool assets

The Notice also seeks comment on the appropriateness of maintaining memberships for CPOs and CTAs that do not engage in any commodity interest trading.

Comment Deadline

Comments in response to the Notice are due no later than April 15, 2014.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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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.

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