CPO and CTA Disclosure Documents Flashcards
CPO Disclosure Documents
Every registered Commodity Pool Operator must furnish each prospective pool participant with a risk disclosure statement and a disclosure document. The CPO must deliver the document before directly or indirectly soliciting, accepting, or receiving funds, securities, or other property from the prospect. The Commodity Pool Operator must also obtain a signed acknowledgment that the customer has read and understood the risk disclosure statement prior to accepting funds.
The date the disclosure document was prepared must appear on the cover page of the document.
All information, except performance information, must be current as of the date the document was prepared. Performance information used in the document may not be older than three months before the date the disclosure document was prepared. Information contained in the disclosure document may be furnished to the public up to nine months after the date that appears on the cover page.
The Commodity Pool Operator disclosure document must contain the following information:
The Commodity Pool Operator disclosure document must contain the following information:
1. The name, form of business, address and telephone number of the main business office of the commodity pool. The same information must also be provided about the CPO. In addition, the name of the principals of the CPO, as well as the CTA and each of its principals, must be listed. The disclosure document must also include the address where the pool’s books and records are located.
2. The business background for the last five years of the Commodity Pool Operator, Commodity Trading Advisor, and each of their principals, including the name and main business of each employer and the nature of the person’s duties.
3. Any actual or potential conflict of interest of the Commodity Pool Operator, Commodity Trading Advisor, and each of their principals. If none of these persons will trade for their own accounts, there must be a statement to that effect for each such person. Conflicts of interest include:
P an arrangement under which the CPO, the CTA, or their principals benefit in the maintenance of the pool’s account with an FCM; or
P the receipt by a pool operator of part of the commissions that are charged to the pool
when the CPO also acts as a trading advisor. Commission sharing is considered a conflict of interest and is examined during NFA audits.
4. The Commodity Pool Operator and each of its principals must disclose specific performance
data, depending upon how long the pool has traded commodity interests. The following must be revealed:
P If the pool being solicited has traded commodity interests for more than three years and at least 75% of the contributions to the pool were made by persons not affiliated with the pool, the Pool Operator must disclose the actual performance for the
preceding five years or the lifetime of the pool, whichever is less.
P If the pool being solicited has traded commodity interests for less than three years, the Commodity Pool Operator must disclose a prominent statement to this effect. It must disclose the actual performance record of the pool for its entire history. The Commodity Pool Operator must also present the actual performance for the last five years of each other pool it is operating. If the pool operator and its principals have not operated any other pool, this fact must be disclosed.
Specific information must be displayed in a table showing quarterly performance, including the beginning and ending net asset value, all additions, withdrawals and redemptions during the period, the net performance and rate of return for the period, and the number of outstanding units.
Net performance figures must be reduced by the amount of any up-front fees. The amount listed as being contributed by investors must include up-front fees and expenses.
CPO disclosure document additional items:
P The name of the person who will make the trading decisions.
P The minimum amount of funds required in order for the pool to commence trading. If there is no such minimum, this must be stated.
P If there is a maximum amount of funds that the fund will accept, the amount must be stated. If there is no such maximum, this must be stated.
P If funds are received prior to trading, it must be stated where the funds will be deposited and who will receive the interest earned.
P The types of commodity contracts the pool will trade and any restrictions or limitations on trading.
P The extent of any beneficial interest of the Commodity Pool Operator, Commodity Trading
Advisor, and their principals.
P A description of the expenses, including any up-front fees or expenses. Up-front fees and expenses must be disclosed in a table on the cover page of the disclosure document. The NFA suggests that the table show a standardized amount of initial investment, all up-front fees and charges (including organizational and offering expenses), and the net proceeds available for
trading after deductions for up-front charges. If fees are charged on an incentive basis, the method of calculation must be disclosed.
P The manner in which the pool will fulfill its margin requirements. If margin is met in a noncash form, the nature of the noncash items must be stated and who will receive the interest.
P A complete description of any restrictions upon the transferability of a participant’s interest in the pool.
P The extent to which a participant may be held liable for obligations of the pool in excess of the funds contributed.
P The pool’s policies with respect to the payment of distributions from profit or capital.
P Any administrative, civil, or criminal action taken against the Commodity Pool Operator, Commodity Trading Advisor, Futures Commission Merchant, Introducing Broker, or any of their principals within the last five years.
P Any commissions or other fees that are paid by the pool, CPO, CTA, or any of their principals,
to any person, for soliciting funds for the pool.
P A statement whether trading in commodity interests will be done, or is intended to be done, for the account of the CPO, CTA, or any of their principals.
P A statement that the Commodity Pool Operator must provide all participants with monthly or quarterly statements of their accounts and a certified annual report.
Filing of Disclosure Documents
At least 21 days before furnishing any disclosure document to the public, the CPO must file a copy
with the NFA. A Commodity Pool Operator that is exempt from registration, must disclose this fact,
describe the basis under which exemption is claimed, and file copies of this statement with the
CFTC and NFA.
Reporting to Pool Participants
Each Commodity Pool Operator must distribute an Account Statement of Income (Loss) and a Statement of Changes in the Net Asset Value, including all withdrawals and deposits to the pool.
If the net assets are more that $500,000 at the beginning of the pool’s fiscal year, the report must be sent monthly. If the net assets are $500,000 or less, the report must be sent quarterly.
An annual report must also be distributed to each pool participant. The statements must be computed according to generally accepted accounting principles and certified by an independent CPA.
A Commodity Pool Operator must maintain books and records for five years (two years in a readily accessible location). Upon request, copies of certain records and financial reports must be made available to participants for inspection and copying.
CTA Disclosure Document
Each registered Commodity Trading Advisor that exercises trading discretion, or that recommends trades by means of a systematic program, is required to furnish each prospective customer with a disclosure document. The CTA must provide the disclosure document before entering into any agreement to provide advisory services or soliciting such an agreement.
Up-front Fees
Any up-front fees charged by the CTA must be disclosed. The disclosure should include, on the
cover page of the disclosure document, a standardized investment amount, the related fees, and the net proceeds available for trading after the deduction of the up-front expenses.
Standardized Warnings
If the Commodity Trading Advisor is not a registered Futures Commission Merchant, the cover page
must include a standardized warning that the CTA is prohibited by law from accepting customer funds for trading, and that such funds must be deposited directly with a Futures Commission Merchant. The statement must also say that the CFTC has not passed upon the merits of the trading program, or passed on the accuracy or adequacy of the disclosure document.
Filing of Disclosure Documents
CTA disclosure documents, like CPO disclosure documents, are subject to filing requirements. At least 21 days before furnishing any disclosure document to the public, the CTA is required to file a copy the NFA. A Commodity Trading Advisor that is exempt from registration must disclose this fact, describe the basis under which exemption is claimed, and file copies of this statement with the CFTC and NFA.
The date the disclosure document was prepared must appear on the cover page of the document.
All information, except performance information, must be current as of the date the document was prepared. Performance information used in the document may not be older than three months before the date the disclosure document was prepared. Information contained in the disclosure document may be furnished to the public up to nine months after the date appearing on the cover page.
