Wednesday, December 23, 2020
ACA ALERT: CTA PROMOTIONAL MATERIAL RELIEF FOR ECPS AND PROPOSED UPDATES TO FORM CPO-PQR

Dually Registered CTA Promotional Material Relief

On April 22, 2020, the National Futures Association (“NFA”) issued Notice to Members I-20-18, providing relief to commodity trading advisors (“CTAs”) that are also Securities and Exchange Commission (“SEC”) registered investment advisors (“RIA”) to present past performance to eligible contract participants (“ECP”) on a gross basis in non-public, one-on-one presentations. 

NFA Compliance Rule 2-9 and Interpretive Notice 9003 require that past performance used in promotional material be presented net of fees, commissions, and other expenses. As such, in order to be in line with SEC requirements, the NFA made such amendments. To rely on this exception, the CTA/RIA must:

• Provide the ECP client with a written disclosure that the performance results are presented on a gross basis and do not reflect the deduction of fees and expenses, which will reduce the client’s returns; and

• Offer to provide the ECP client with the performance results net of any fees and expenses agreed upon by the CTA Member and the ECP client at or prior to exercising discretion over the client’s account.

These amendments are effective immediately.

CFTC Proposes Updates To Form CPO-PQR

On April 14, 2020, the Commidity Futures Trading Commission (“CFTC”) proposed amendments to the Form CPO-PQR, required under CFTC Regulation 4.27 for registered commodity pool operators (“CPOs”). The amendments would revise the scope of the information collected on the Form, specifically:

• Require that CPOs provide in Schedule A of CFTC Form CPO-PQR the Legal Entity Identifier (“LEIs”) of the CPO and their commodity pools if applicable

• Remove from Schedule A, questions regarding the pool’s auditors and marketers

• Remove from Schedules B and C, pool-level information required from Form CPO-PQR, except the schedule of investments portion from Schedule B, question 6

The collection of LEIs would allow the CFTC to obtain real-time data from other sources, such as derivatives clearing organizations and swaps data repositories, to better monitor its registrants while reducing the overall collection of data directly from its registrants.

If the proposal is adopted, it would be the first substantive change to the CFTC Form CPO-PQR since 2012. The CFTC has requested comments on the proposal by June 15, 2020.

ACA COMPLIANCE GROUP

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