NFA Member Obligations with Respect to CPOs/CTAs Exempt from Registration: Notice I-14-06 (with Lofchie Comment)
The National Futures Association ("NFA") issued a Notice reminding Members of their obligations with respect to CPOs and CTAs exempt from registration.According to the Notice, the CFTC rules require any person claiming an exemption from CPO registration under CFTC Rule 4.13 ("Exemption from Registration as a CPO"), an exclusion from CPO registration under Rule 4.5 ("Exclusion for Certain Otherwise Regulated Persons from the Definition of the Term 'Commodity Pool Operator'"), or an exemption from CTA registration under Rule 4.14(a)(8) ("Exemption from Registration as a CTA") to annually affirm the applicable notice of exemption within 60 days of each calendar year-end. Persons that fail to file the affirmation notice by March 3, 2014, will be deemed to have requested a withdrawal of the exemption and, therefore, may be required to be registered.
The Notice stated that the NFA recognizes it may be difficult for a Member to conclusively determine prior to March 3, 2014 if a previously exempt CPO/CTA continues to be eligible for a current exemption, since exempt CPOs/CTAs have until March 3, 2014 to complete the affirmation process.
Therefore, Members who take reasonable steps to determine the registration and membership status of these previously exempt persons will not be in violation of NFA Bylaw 1101 or Compliance Rule 2-36(d) if, between January 1 and March 31, 2014, they transact customer business with a previously exempt person who fails to either become registered and a member of the NFA, file a notice affirming its exemption from CPO registration or provide a written representation as to why the person is not required to register, or file the notice affirming, the exemption.
The NFA stated that it expects any Member transacting customer business with a person who claimed an exemption previously and who has not filed a notice of affirmation or exemption to contact that person and determine whether they intend to file a notice affirming the exemption. If the Member learns that the person does not intend to file a notice, then the Member must promptly obtain a written representation as to why the person is not required to register or file a notice exemption. If the Member ultimately determines that the person's written representation is inadequate and the person should be registered, then the Member must plan to cease transacting customer business with the person.
The NFA stated that it expects a Member to make reasonable efforts to identify those persons who currently claim exemptions from CPO/CTA registration. According to the Notice, the NFA is providing Members with access to a spreadsheet that is updated nightly and includes a list of all persons that have exemptions on file with the NFA that must be affirmed on an annual basis. The spreadsheet is found in the Member's Annual Questionnaire.
Lofchie Comment: Like the Fulton Street proverb says, "A trader's work is from bell to bell, but a compliance officer's work is never done."
See: NFA Notice 1-14-06. See generally: Lofchie's Guide to CPO/CTA Regulation (accessible to Cabinet subscribers only). Related news: NFA Notice I-13-38: Guidance on Annual Affirmation Requirements for Entities That Are Exempt from CPO/CTA Registration (December 5, 2013).