CFTC Form 40 – Statement of Reporting Trader

Managers Must File CFTC Form 40 for Reportable Futures Positions

Managers who maintain large positions in certain futures instruments will need to be aware of the speculative position limits with respect to the instruments.  In the event a position reaches a certain level, the CFTC will request more information about the position from the manager.  For managers which are registered with the NFA as either a commodity pool operator (CPO) or commodity trading adviser (CTA), the CFTC may send a request for the manager to complete and file a Form 40 – Statement of Reporting Trader.  This request is also referred to as a “Special Call” and CFTC regulations require every trader that holds or controls a reportable futures and option position to file Form 40 when they receive the CFTC request. CFTC Form 40 allows the CFTC to compile information to assess whether a trader’s activities could potentially impact the market and whether traders are complying with speculative position limits.

This post provides a brief description of Form 40, the reasons a CPO/CTA may receive a Special Call, as well as how to appropriately respond to the request.

Definitional Aspects of Form 40

Form 40 needs to be completed by the trader of the reportable position.  A trader is “a person who, for his own account or for an account which he controls, makes transactions in commodity futures or options, or has such transactions made.” For most commodity pools, the trader would be the manager of the fund—the CPO.

In the event there is a reportable postion, the CFTC will issue a Special Call based on information provided by futures commission merchants, clearing members and foreign brokers (collectively, “reporting firms”). If, at the daily market close, a reporting firm has a customer with a position at or above the reportable position level in any single futures or option expiration month (a “special account”), the reporting firm must send a report to the CFTC with that customer’s entire position in all futures and options expiration months in that commodity. A “special account” is any commodity futures or option account in which there is a reportable position.

A reportable position that may trigger the Special Call is defined as:

“any open contract position that at the close of the market on any business day equals or exceeds the quantity specified in CFTC Regulation 15.03 in either:

  • Any one future of any commodity on any one reporting market, excluding future contracts against which notices of delivery have been stopped by a trader or issued by the clearing organization of a reporting market; or
  • Long or short put or call options that exercise into the same future of any commodity, or long or short put or call options for options on physicals that have identical expirations and exercise into the same physical, on any one reporting market.”

Reporting Levels for Form 40

Reporting levels vary and can range from 25 contracts for smaller markets to 125,000 contracts for the largest market – for a full description of the reporting requirements, please see the full text of CFTC Regulation 15.03. Reporting thresholds cover the following categories:

  • Agricultural;
  • Broad-based security indexes;
  • Financial;
  • Hedge Street products;
  • Natural resources;
  • Security futures products;
  • TRAKRS; and
  • All other commodities.

Once a reporting threshold is crossed, the fund’s FCM will submit a form to the CFTC which may then prompt a Special Call to the CPO/CTA.

Receiving the Special Call and How to Respond 

When a CPO receives the Special Call, it must complete the Form 40 by the date specified in the letter. Form 40 is comprised of three parts.

Part A requests the following information:

  • Name and address of the CPO;
  • Principal business and occupation of the CPO;
  • Type of entity;
  • Whether the CPO is registered under the Commodity Exchange Act;
  • Whether the CPO controls the futures or option trading for any other person;
  • Whether any other person controls the CPO;
  • Names and locations of all firms at which futures or option trading accounts are carried;
  • Whether any other persons guarantee the futures or option trading accounts of the CPO or have a financial interest of 10% or more in the CPO or the futures or option accounts of the CPO;
  • Whether the CPO guarantee or has a financial interest of 10% or more in futures or option accounts not in the CPO’s name or has a financial interest of 10% or more in another futures or option trader; and
  • Whether the CPO represents a foreign government.

Part B must be completed if the CPO is an individual, joint tenant, or partnership.

Part C must be completed if the CPO is corporation, association, trust, or “other” type of trader. These sections request information that allows the CFTC to aggregate related accounts controlled or held by the CPO. They also request information about whether the CPO is engaged in activities hedged by the use of futures or option markets.

Schedule A requests information about the types of futures/options in which the CPO hedges or covers risk exposure, the CPO’s merchandising or marketing activities, all futures/option markets used, and all cash commodities hedged or risk exposure covered.

Conclusion

If you receive a Special Call from the CFTC, it is important that you respond by the date listed on the letter. The information provided should be for the person or entity that makes transactions in commodity futures or options. For funds, the CPO should complete Form 40 as the trader. A link to the form can be found here (http://www.cftc.gov/ucm/groups/public/@forms/documents/file/cftcform40.pdf).

For more information, please see the CFTC’s discussion on market surveillance and large trader reporting.

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Cole-Frieman & Mallon LLP provide legal advice to CPOs, CTAs and traders in the managed futures space.  Bart Mallon can be reached directly at 415-868-5345.

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