Background
The Commodity Futures Trading Commission (“CFTC”), the federal agency that regulates trading in futures and other derivatives in the United States, has long maintained and operated a Large Trader Reporting System (“LTRS”) as part of its market surveillance program. A person may be considered to be a “large” trader at fairly modest position levels—such as 50 platinum contracts or 200 contracts in a broad-based securities index other than the S&P 500 Stock Index. These position levels are measured in any single futures or option expiration month as of the daily market close.

The CFTC adopted changes to the LTRS 18 months ago, known as the Ownership and Control Report or “OCR” rules. After several delays, the reporting aspects of these rules are scheduled to begin to take effect later this year on September 30, 2015. The new rules will require greater amounts of data to be reported to the CFTC, including data on swaps and intraday trading, as well as changes in the manner in which commodity interest market participants must report information.[1]

OCR Rules
The OCR rules will require the reporting of trading by a “volume threshold account” on an intraday basis and a more granular identification of omnibus accounts; these reports are in addition to the traditional end-of-day position reporting for accounts with positions at or above certain levels.[2] In addition, eventually all of the reporting under the LTRS will be required to be done electronically. Although position reporting under the LTRS is currently required in machine-readable form, the initial identification of large traders, which requires a large trader to provide certain identifying information about itself and its trading, is a paper-based system. The CFTC currently requires futures commission merchants (“FCMs”) to identify large traders by filing CFTC Form 102, which may then trigger a request by the CFTC to the large trader itself to file CFTC Form 40.[3] The OCR rules will now require FCMs to identify and report large traders based upon positions using Form 102A for futures and options on futures (an updated version of current Form 102) and Form 102S for swaps, and a new Form 102B for volume threshold accounts. These reports may trigger the CFTC, in its discretion, to issue special calls to traders to file a Form 40 (futures and options on futures), Form 40S (swaps), or new Form 71 for volume threshold accounts.[4]

The OCR rules originally required that all reports be submitted electronically as of August 15, 2014. This date has been postponed twice, and the new electronic reporting requirements are now set to begin implementation on September 30, 2015.[5] The new compliance date for the revised Form 40, Form 40S, and Form 71 to be filed electronically had previously been extended until February 11, 2016.[6]

The Futures Industry Association (“FIA”), which has been making the various extension requests, asked the CFTC to extend the general reporting compliance date for FCMs to file Forms 102A, 102S, and 102B electronically until February 11, 2016, but the CFTC staff only granted no-action relief generally until September 30, 2015.[7] The FIA requested additional time because of the need for FCMs to educate clients about the new reporting obligations and to explain the concepts of ownership and control to customers/counterparties. The FIA also expressed concern that, based upon the questions raised by client representatives during the first half of 2014, the client community is not ready to supply information regarding account ownership and control required under the OCR rules.

What's Ahead
In light of the latest CFTC extension of the compliance date and the recent Staff Advisory 15-14 (March 23, 2015) on this subject,[8] account owners and account controllers, including registered commodity pool operators (“CPOs”) and registered commodity trading advisors (“CTAs”), as well as investment advisors that are exempt from registration as CPOs and CTAs, can expect to receive requests for OCR data from their FCMs over the next several months. Based upon our discussions with clients, it appears that many FCMs started this process last summer, but that the requests for OCR data declined after the CFTC staff granted extensions of the compliance date. To assist FCMs in managing the data required for compliance with the OCR rules, FIA Tech, an affiliate of FIA, has established an OCR Portal to collect profile information on customers and counterparties.[9] Accordingly, FCMs may request that their customers (1) establish an OCR profile for their account owners and controllers with FIA Tech by completing a spreadsheet, and (2) grant the relevant FCMs permission to view and link accounts to those profiles. FIA Tech and many FCMs provide guidance for how to complete these profiles for accounts of funds and managed accounts. At the outset, the data provided will assist FCMs (which, together with clearing members, foreign brokers, swap dealers and certain markets are referred to as “Reporting Parties”) in fulfilling their responsibilities to file reports about reportable positions and volume threshold accounts. Eventually, owners and controllers of such positions and accounts will be required to file Form 40, Form 40S, and Form 71 electronically, so the furnishing of this data may prove useful in those circumstances.

Conclusion
The CFTC adopted the OCR rules in an effort to enhance its market surveillance system, especially in light of the increasing use of electronic trading, global participation in U.S.-based trading platforms, and the addition of swaps as regulated commodity interests. Requiring that all reports under the LTRS be submitted electronically is part of this enhancement. Most of the regulatory obligations remain with the FCMs or other Reporting Parties, but they require assistance from clients and their representatives, such as CPOs and CTAs, to obtain the information necessary to fulfill those obligations. As the CFTC staff states in Advisory 15-14: “Reporting Parties should manage their customer relationships appropriately in order to secure such information.” Firms should therefore expect to see such requests for information this summer.

Notes:
[1] 78 Fed. Reg. 69177 (November 18, 2013), which may be accessed by clicking here.

[2] The CFTC adopted new Regulation 15.04, which defines the reportable trading volume level for these purposes as 50 or more contracts, executed during a single trading day on a single market, in all instruments that the market includes under the same product identifier, including purchases and sales, and inclusive of all expiration months. This is intended to capture within the LTRS the activity of traders that engage in a significant amount of trading during a trading session, but do not hold positions overnight.

[3] When the CFTC receives a Form 102, it reviews its large trader database to determine if the trader identified has previously been reported as a large trader. If not, the CFTC will likely issue a “special call” to the trader to complete a Form 40. The Form 40 requires that the trader supply certain identifying information, as well as information regarding the type of trading it engages in, and related or affiliated parties. Traders also will be required to review this information on at least an annual basis, another new requirement.

[4] Even if the trader has previously filed a Form 40, the CFTC may request that the trader file a Form 40S if it is identified as a large trader in swaps or a Form 71 because of the amount of its trading during a particular trading session.

[5] CFTC Staff Letter 15-03 (February 10, 2015), which may be accessed by clicking here. The CFTC has not, however, extended the compliance date for the recordkeeping requirements for volume threshold account owners and controllers, which became effective on August 15, 2014.

[6] CFTC Staff Letters 14-95 (July 23, 2014) and 15-03.

[7] The one exception is that the compliance date for volume threshold accounts based on trading on a swap execution facility was extended until February 13, 2017.

[8] CFTC Staff Advisory 15-14 may be accessed by clicking here.

[9] Clients of Reporting Parties can access further information regarding the OCR Portal by clicking here, which also will provide a link to the OCR Portal Client Quick Start Guide. Customers and counterparties can use the FIA Tech OCR Portal at no charge.