S3 - 1.6 Flashcards
What are Commodity Pools?
Various persons, investors, fund a common Pool to trade futures and futures options
Who sets up a Commodity Pool?
a CPO (Commodities Pool Operator)
Who manages the pool’s funds?
By a CTA (Commodities trading Advisor)
Are Commodity Pools the same thing as ETFs or MFs?
Not at all
What do CPOs do?
1) set up and operate Commodity Pools (CP)
2) Accept funds for investment in a CP
Are CPOs regulated at all?
CPOs are heavily regulated
What kind of info do registered CPOs need to furnish to their clients?
1) Disclosure agreement
2) Periodic account statements (mthly or qtly)
3) Certified annual reports, including: Statement of financial condition, Profit and Loss statement
4) a statement of the changes in the NAV of the pool
How long must a CPO maintain records and record ?
5 years
When must the Pool deliver the Annual Report?
Within 90 days off the pool’s fiscal-year end
Which books and records does a registered CPO need to keep for 5 years?
1) Daily purchase/sell record
2) Daily cash record
3) Acknowledgements signed and dated of participants saying they received a Disclosure document
When does a Registered CPO have to give Disclosure documents to prospective clients?
Before on the day client adds funds t the pool
Who must check the Disclosure document before it can be used with clients?
NFA must approve disclosure documents in writing
How current do disclosure agreements need to be?
No older then 9 months
How many months old can disclosure documents concerning the pool’s performance?
No more than 3 months old
What is in the Disclosure doc given to clients?
1) Name, address, phone, firm’s and pool operator’s structure, name of CTA
2) Types of commodity interests (products that can be traded in the pool)
3) Detail of fees and expenses, including those for management, trade advice, trade commissions, for last fiscal year
4) CTA trade compensation / incentive
5) minimum funds needed to start-up the pool
6) Restrictions on transferability of client’s interests in the pool
7) Extend to which client may be liable past the funds contributed to the pool
8) Legal motions involving the pool in last 5 years
9) Solicitation fees (who is pool paying to bring in more clients and funds)
10) Statement saying pool will provide monthly or quarterly statements on condition of the pool
11) Permission or not to check on CPO’s proprietary trades
What goes on the cover of the Disclosure statement?
Risk Disclosure
What is the content of the Risk Disclosure?
1) how are margin requirements satisfied?
2) CPO and CTA business background for last 5 years (detailed work history)
3) Have the pool’s principals any pool experience?
4) Last 5 year pool performance to be presented on a quarterly basis
6) BEP Analysis
How many years of history must the Risk Disclosure cover?
5 years or full 3 years if pool is not older
Who prepares the pool’s Breakeven analysis?
CPO
What must the breakeven analysis consider?
1) all fees and expenses (except for incentives)
2) preliminary gross income before incentive fees (subtract interest income)
Where does the CPO need to show the Breakeven analysis?
In the Disclosure document
Do Pools NOT registered with the SEC need to present a Breakeven analysis?
Yes
Do Pools YES registered with the SEC need to present a Breakeven analysis?
Yes
If foreign futures are traded in the pool, is it necessary to Disclose?
Yes - with a specific Disclosure
Who can say they are qualified or approved by CTFC or any other regulatory agency?
NO ONE
Are the Pool and the CPO the same thing in terms of receiving funds or pool ownership?
NO - funding goes to the pool, not the CPO; the pool’s contents are not to be mixed up with the CPO’s own
Can a CPO act as CTA and vice versa?
Yes, but a separate registration is required
What does CTA need to disclose regarding up-front fees?
1) How up-front fees affect initial investment
2) impact of up-front fees on pool performance (as deducted from performance)
3) Must be disclosed in Disclosure cover
4) dilution table must show on disclosure cover as well
Can Commodity pools be set up as Limited Partnerships?
Yes, and must register with the SEC (and CFTC)
Pools of which value need distribute monthly account statements?
Pools with net assets under 500k
Do all CPOs need register?
If funds of pool < 400k and participants les than 15 - NO
What is the CPO wants to participate in the fund as an investor?
CPO has to disclose to pool investors
What are 3 legal ways a Pool can be structured?
1) Corporation
2) LIMITED LIABILITY
3) limited partnership
When is a CPO exempt from registration?
1) operates family, club or small pool
2) puts limits to futures activity
3) pool participation is limited to qualified eligible persons
What could become a conflict of interest in a pool?
CPO/CTA wanting higher fees Vs clients wanting to pay lower fees
