) is an individual or organization, who accepts funds, securities, or property for the purpose of trading commodity futures contracts or commodity options on behalf of the fund. If you as hedge fund manager plan on trading futures and/or commodities as part of your funds platform, you will need to register as a CPO.
One who, for pay, regularly advises others as to the value of commodity futures or options. A CTA may also provide advice to those wishing to trade commodity futures or options, and issues analyses or reports concerning the same.
More often than not, it is the fund, and not the fund manager, that registers as a CPO. According to the definition, a CPO is an individual or organization who accepts funds for the purpose of trading commodity futures or options. Therefore, you will want to register your fund as CPO.
As defined above, the CTA is an individual who develops strategies and helps make decisions for the fund regarding commodity futures and options. The fund manager should therefore be registered as the CTA.
The Commodity Exchange Act (the CEA), first enforced in 1936, demands that all hedge fund managers who engage in the purchase or sale of commodity interests may be required to register with the CFTC and become a member of the National Futures Association (the NFA). In 1974, the distinctions of CTA and CPO were added to the CEA and a commodity pool was defined as any investment trust, syndicate or similar form of enterprise operated for the purpose of trading commodity interests.
Under the CEA, hedge fund managers who engage in the purchase or sale (through a CTA or otherwise) of commodity interests are required to register with the Commodity Futures Trading Commission (the CFTC). However, Regulations 4.5 and 4.13 of the CFTC provide exemptions for circumstances where it is unnecessary to register as a CPO. The following are examples of entities or individuals that may be exempt:
Closely held pool this rule provides relief from CPO registration if all of the following provisions are met:
Manager does not receive any form of compensation;
Manager is not otherwise required to register with the NFA.
Small pool this rule provides relief from CPO registration if the following provisions are met:
The manager does not operate any pools which have 15 or more investors (excluding the manager and certain related persons); and
The total gross capital contributions in all pools operated or intended to be operated by the manager do not in the aggregate exceed $400,000 (certain capital contributions, including those of the manager, will not be counted for the purposes of this rule).
rule this rule provides relief from CPO registration if the following provisions are met:
The commodity pool interests are exempt from registration under the Securities Act of 1933, and such interests are offered and sold without marketing to the public in the U.S.;
Each investor in the pool must be an accredited investor; and
The aggregate initial margin and premiums required to establish such positions, determined at the time the most recent position was established, will not exceed 5 percent of the liquidation value of the pools portfolio, after taking into account unrealized profits and unrealized losses on any such positions it has entered into; or
The aggregate net notional value of such positions, determined at the time the most recent position was established, does not exceed 100 percent of the liquidation value of the pools portfolio, after taking into account unrealized profits and unrealized losses on any such positions it has entered into.
Otherwise regulated pools certain management entities which are already registered with other regulatory bodies do not need to also be registered as a CPO with the NFA. Some of these entities typically include managers of regulated mutual funds, insurance companies, banks and ERISA fiduciaries.
If you plan to exercise trading authority over your funds account, you will need to register with the CFTC. Similar to the above exemptions outlined for CPOs, there are exemptions for CTAs as well. The following are examples of entities or individuals that may be exempt:
You have provided advice to 15 or fewer persons during the past 12 months and do not generally hold yourself out to the public as a CTA;
You are in one of a number of businesses or professions listed in the CEA or are registered in another capacity and your advice is solely incidental to your principal business or profession;
You are providing advice that is not based upon knowledge of or tailored to customers particular commodity interest account, particular commodity interest trading activity, or other similar types of information, such as:
You make recommendations, such as advice to buy or sell specific futures contracts should a particular price level be reached, through newsletters, books, or periodicals. The advice includes specific recommendations, and the recipients of publications all receive the same advice; or
You provide specific advice through e-mails, facsimiles, a website, telephone calls, face-to-face meetings with customers consisting of instructions to buy or sell a futures contract based on a computerized trading system, which is also available for purchase and use on a personal computer, and the customers all receive the same advice; or
You conduct seminars at which you can teach attendees how to trade commodity futures contracts aided by a software program that you sell and invite seminar attendees to participate in a question-and-answer session at which you provide commodity trading advice without asking or receiving information about the personal characteristics of the attendees.
By rule, every CPO or CTA firm must have at least one AP registered with the CFTC. An AP is an individual who solicits orders, customers or customer funds (or who supervises those engaged) on behalf of a CTA or CPO. Of course, there are some exemptions to registering as an AP. For example:
The individual is already registered as a Futures Commission Merchant, Introducing Broker, or Floor Broker; or
The individual is already registered as a CPO if you are to be associated with a CPO; or
The individual is already registered as a CTA if you are to be associated with a CTA; or
The individual is already registered with the Financial Industry Regulation Authority as a registered representative and limits futures activity to the solicitation of participants in a commodity pool.
How Do I Register With The Commodity Futures Trading Commission?
If you do not fall under one of the exemptions outlined above, you must register with the CFTC.
Complete the NFA Form 7-R online at the NFA website;
Submit a non-refundable application fee of $200; and
Submit membership dues of $750 (may not apply to all CTA applicants).
Complete the NFA Form 8-R online at the NFA website;
Submit Fingerprint Cards (more information can be found on the NFA website);
Pass the Series 3 examination within two years of applying; and
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