In an effort to better understand and monitor the financial health of certain members of the National Futures Association (NFA), the NFA has submitted a proposal to the Commodity Futures Trading Commission (CFTC) that would require commodity pool operators (CPOs) and commodity trading advisors (CTAs) to report additional information about their financial condition on a regular basis. The recent proposal comes two years after NFA previously sought comments on possible minimum net capital requirements for CPOs and CTAs. Financial reporting may not, at first blush, seem as onerous as minimum net capital requirements. However, financial reporting will nonetheless require the careful attention and additional resources of CPOs and CTAs to calculate and report this information on an ongoing basis, as well as create additional recordkeeping requirements.
The NFA proposal would amend NFA Rule 2-46 and adopt a new interpretive notice, NFA Compliance Rule 2-46: Reporting Financial Information on NFA Forms PQR and PR. In this Client Alert, we examine some of the requirements of the NFA proposal.