On January 23, 2014, the National Futures Association ("NFA") announced that it is soliciting industry comment on the concept of imposing a capital requirement on Commodity Pool Operator ("CPO") / Commodity Trading Advisor ("CTA") members and various other customer protection measures, as detailed below. NFA is contemplating the adoption of these new requirements in response to recent disciplinary actions taken against CPOs and CTAs over matters involving misuse of customer funds and misstating net asset values and/or performance information. Comments are due by April 15, 2014.

CPO/CTA Capital Requirement

NFA is seeking comments regarding a possible new requirement that registered CPOs/CTAs maintain a minimum amount of capital, which they are not currently required to do. In addition to whether such a requirement should be imposed on CPOs and CTAs, NFA is requesting comment on:

  • What other alternatives exist for ensuring that CPOs/CTAs have sufficient funds to operate as a going concern;
  • How net capital should be defined (e.g., current assets minus liabilities);
  • How the amount of such a requirement should be determined;
  • Whether there should be any difference in the method of determining the required capital amount for CPOs or CTAs and, if so, the reasons for any such difference; and
  • How often CPOs and CTAs should be required to file financial reports with NFA and whether CPOs and CTAs should have to file certified financial reports annually with NFA.

Other Customer Protection Measures

NFA is also seeking comment on a number of other possible new customer protection measures involving CPOs, including whether:

  • An independent third party should review and authorize a CPO's disbursement of any pool funds;
  • An independent third party should prepare or verify account statements concerning a pool's value, as well as a pool's performance results;
  • NFA should develop a system of obtaining and reconciling reported information regarding pool assets received from CPOs with information reported by depositories with accounts holding pool assets, similar to NFA's current system for FCMs with depositories with accounts holding customer segregated funds for FCMs; and
  • NFA should permit inactive members that do not engage in any commodity interest trading to remain NFA members and, if required to withdraw as a member, how inactivity should be defined.

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