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- 14 August, 2008 -
- Forex, Legal Resources -
- Tags : Associated Person, cftc, CPO, CTA, Form 7-R, Form 8-R, futures hedge fund, managed futures, NFA, Series 3
- 36 Comments
Many hedge fund managers choose to utilize futures and/or commodities in their trading purposes. Generally such managers will need to register as commodity pool operators (“CPO”) and as commodity trading advisors (“CTA”). The hedge fund itself will be deemed to be a commodity pool. For purposes of the Commodities Exchange Act (“CEA”), a future and commodity are functionally equal as it relates to hedge fund manager registration. Registration as a CPO or a CTA is an often overlooked part of the hedge fund formation process. Your attorney should discuss the requirements for registration and whether any exemptions from registration are available.
In addition to hedge fund managers, retail foreign exchange (“Forex”) managers may very soon be required to register because of the recently passed “Farm Bill.” The retail Forex markets have been very loosely regulated and the CFTC and NFA have been clamoring for authority to regulate this are of the markets. Accordingly, this article will give you the basics on how to register as a CPO and/or a CTA.
A very general outline of the CPO registration process is as follows:
Prerequisite – the Series 3 exam
Each CPO or CTA firm will need to have at least one Associated Person (AP). Generally an AP will be anyone in the firm who has contact with clients in something more than a purely administrative or clerical role. All managers and non-clerical employees will be APs. All APs must have passed the Series 3 exam. Information on the Series 3 exam:
- Series 3 (National Commodity Futures Examination)
- Cost: $95
- Number of Questions: 120 True/False and Multiple Choice
- Subject Matter: (part 1) Market knowledge and (part 2) U.S. regulations
- Time: 2 hours 30 minutes
- Passing Score: 70% for each part
Like the Series 65 exam, I highly recommend you spend plenty of time studying for the exam. If you would like some suggestions on various study guides, please let me know.
Filing the application forms with the NFA
During this process your compliance professional will: gain access to the NFA’s registration system on your behalf, input certain basic information on the Form 7-R (for your CPO/CTA firm) and Form 8-R (for the initial AP) – generally you will provide this information to your compliance professional prior to completing these forms, and submit the 7-R and 8-R on your firms behalf.
After the Form 7-R and 8-R have been submitted you will need to pay for registration ($200 registration fee for the CPO or CTA; $85 for each associated person or principal; $750 for NFA membership (this is an annual fee)). After payment has been submitted, the NFA will review your application. Typically registration should be complete within about 3-5 weeks. The next step will be to have your disclosure document approved by the NFA – your compliance professional can help you with this process.
You will be able to check on your registration through the NFA’s BASIC system.
Definitions
According to the CFTC website, the definition of CPO and CTA are as follows:
Commodity Pool Operator (CPO): A person engaged in a business similar to an investment trust or a syndicate and who solicits or accepts funds, securities, or property for the purpose of trading commodity futures contracts or commodity options. The commodity pool operator either itself makes trading decisions on behalf of the pool or engages a commodity trading advisor to do so.
Commodity Trading Advisor (CTA): A person who, for pay, regularly engages in the business of advising others as to the value of commodity futures or options or the advisability of trading in commodity futures or options, or issues analyses or reports concerning commodity futures or options.
Associated Person (AP): An individual who solicits or accepts (other than in a clerical capacity) orders, discretionary accounts, or participation in a commodity pool, or supervises any individual so engaged, on behalf of a futures commission merchant, an introducing broker, a commodity trading advisor, a commodity pool operator, or an agricultural trade option merchant.
[...] Information how to register as a CPO or a CTA (to find out more, please read How to register as a CPO or CTA) [...]
[...] Finally, if the hedge fund trades futures or commodities then the manager may need to be registered as a commodity pool operator with the National Futures Association. In order to register as a commodity pool operator at least one person at the management company will need to take the Series 3 exam. For more information on the Series 3 exam and this part of the registration process please read how to register as a CPO or CTA. [...]
[...] and registrationWhat licenses do you need to start or manage a hedge fund? | Hedge Fund Law Blog on How to register as a CPO or a CTASEC to replace ancient EDGAR database on SEC to replace ancient EDGAR databaseLukkibessoni on [...]
[...] fund managers which are licensed as commodity pool operators (CPOs) should have received an email from the NFA which requests certain financial information. [...]
[...] As I’ve detailed before, under the Commodities Exchange Act (CEA), hedge funds which invest in commodities/ futures or in other hedge funds which invest in commodities/ futures are deemed to be commodity pools. The managers of these commodity pools will need to be registered as commodity pool operators (CPOs) unless the manager fits within an exemption from the registration provisions. For more information on registration with the National Futures Association (NFA), please see article on how to register as a CPO. [...]
[...] How to register as a CPO or CTA [...]
[...] How to register as a CPO and CTA (non-Forex) [...]
[...] CPO and CTA registration [...]
Regarding the question of “holding oneself out as a CTA”, I understood that there are somewhat different and less rigid requirements when dealing with a QEC(qualified eligible client). Please comment on this. Thanks
We are a Cayman listed fund and were wondering what was the best route for our firm to go to reach out to US investores to feed into our already existing master feeder structure?
We trade al listed future and commodities and forex in a macro Fund.
So would it be best to for us to be
CTA vs CPO vs LC ?
What are the tax implications ?
Burdens on us the Firm ?
Costs to register ?
How do investors view these entities ?
SEC/ NFA/CFTC rules ?
the speed at which you can set up /register ?
I believe there are exemptions to registration .
Can you give me suggestions for Series 3 study guides, preferably online?
Warm Regards,
Glen
[...] How to register as a CPO or CTA [...]
[...] CTA and CPO Registration – this article discusses the how-to’s of registration with the CFTC. The article details the general requirements for firms, principals, and associated persons. Included in this discussion is information on CTA/CPO exam requirements and an overview of the registration process through the NFA’s electronic registration system. [...]
[...] How to Register as a CTA or CPO [...]
If a CTA or CPO has two Managers, will both need to pass the Series 3, or just one of them?
Thanks,
Tim
Tim,
Yes, both managers will need to pass the Series 3 exam. Additionally, if there is a branch office (that is, if the two managers have two different places of business), then one of the managers will need to be the “branch office manager” and pass the Series 30 exam.
I will also be writing an article about “silent” owners as well.
Hope this helps.
Regards,
Bart
[...] How to Register as a CPO or CTA [...]
[...] How to Register as a CPO or CTA [...]
[...] How to Register as a CPO or CTA [...]
[...] How to Register as a CTA or CPO [...]
[...] How to Register as a CPO or CTA [...]
[...] How to Register as a CPO or CTA [...]
[...] How to Register as a CPO or CTA [...]
[...] separately managed accounts fit within the realm of commodity trading advisors and investment advisors. However, many hedge fund managers are beginning to take on separately [...]
[...] How to Register as a CPO or CTA [...]
foreigner can register for the exam?
Yes, non-U.S. individuals can sign up for the series exams.
[...] CTA and CPO Registration [...]
[...] How to Register as a CPO or CTA [...]
[...] How to Register as a CTA or CPO [...]
[...] How to Register as a CTA or CPO [...]
[...] How to Register as a CTA or CPO [...]
Just found out from the National Futures Association, that if you’re a hedge fund with less than 15 people invested in the fund, you don’t need to be certified or to pass a series 3.
Roger,
That is not correct. Please read our post on exemptions from CPO registration. One thing you should always be careful about is relying on regulators for interpretations on your personal situation.
Hope this helps.
Best,
Bart
[...] How to Register as a CTA or CPO [...]
[...] How to Register as a CTA or CPO [...]