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NFA/CFTC exemption question
- Thread starter Epic
- Start date
Just sort of got an answer. NFA contact stated that her understanding is that it is gross contributions only, and does not account for net gains/profits. She said that it would otherwise make reference to a maximum NAV of less than $400K.
But a disclaimer said that they are not allowed to directly interpret commission papers and that if I intend to cite a source for the definition that it would need to be the CFTC and not the NFA.
I'll post the follow up when I get it.
But a disclaimer said that they are not allowed to directly interpret commission papers and that if I intend to cite a source for the definition that it would need to be the CFTC and not the NFA.
I'll post the follow up when I get it.
Quote from Epic:
Just sort of got an answer. NFA contact stated that her understanding is that it is gross contributions only, and does not account for net gains/profits. She said that it would otherwise make reference to a maximum NAV of less than $400K.
But a disclaimer said that they are not allowed to directly interpret commission papers and that if I intend to cite a source for the definition that it would need to be the CFTC and not the NFA.
I'll post the follow up when I get it.
IMO, the above makes more sense in that an exempt pool might fluctuate above and below that threshold week by week, and to me it really wouldn't make sense to regulate in that manner.
{edit}It does however specifically state "gross" contributions, implying that it also doesn't account for withdrawals, otherwise it would probably say "Net Contributions". Thus frequent deposits and withdrawals would approach the threshold quickly.
"total gross capital CONTRIBUTIONS in all
pools operated or intended to be
operated do not in the aggregate
exceed $400,000."
The exact wording of the law is that it is contributions. There is no reason to assume it means anything other than exactly what it states.
I believe the NFA woman is correct.
pools operated or intended to be
operated do not in the aggregate
exceed $400,000."
The exact wording of the law is that it is contributions. There is no reason to assume it means anything other than exactly what it states.
I believe the NFA woman is correct.
Quote from 1prometheus:
"total gross capital CONTRIBUTIONS in all
pools operated or intended to be
operated do not in the aggregate
exceed $400,000."
The exact wording of the law is that it is contributions. There is no reason to assume it means anything other than exactly what it states.
I believe the NFA woman is correct.
+1
But the confusion comes in that several high profile CPAs have suggested otherwise. Of course, they make about 1/3 the $ if you are setting up an exempt pool. So it is self serving to hold to that interpretation. But I agree. It isn't about interpretation really. It is about what it actually says.
Quote from Epic:
+1
But the confusion comes in that several high profile CPAs have suggested otherwise. Of course, they make about 1/3 the $ if you are setting up an exempt pool. So it is self serving to hold to that interpretation. But I agree. It isn't about interpretation really. It is about what it actually says.
Kind of like how dentists today try to sell you on all kinds of crap you don't want or need.
Quote from 1prometheus:
"total gross capital CONTRIBUTIONS in all
pools operated or intended to be
operated do not in the aggregate
exceed $400,000."
The exact wording of the law is that it is contributions. There is no reason to assume it means anything other than exactly what it states.
I believe the NFA woman is correct.
I believe you are correct. LOL
Seriously, if it states 'contributions' then, as you say, there is no reason to assume otherwise. I didn't know the exact wording
It is not only limited to contributions, so AUM is not relevant, but the person or persons running it donât count toward the under 15 number and any money they put in does not count.
Furthermore many people can be excluded from the 15 count and their contributions do not count toward the 100k:
âThe pool's operator, CTA, principals and any of their children, siblings or parents. The spouse of any of these personsâ
So you can grow as large as you want, and start with a lot of money if it came from you and your immediate family. However, there are a bunch of rules if you use this exemption, like you have to send each participant a copy of your monthly commodity statement. So even though you are âexemptâ there are still a bunch of rules you have to follow.
If you do follow this exemption and just try to do it by yourself you need to understand you are taking on a huge amount of personal liability and risk. If you lose money they can sue and you will lose. If you make any mistakes at all in following the regulations of CFTC, NFA, SEC and your state they seem to very much enjoy coming after you and wonât hesitate to bar you for life. To do it right you need lawyers and accountants to set up the proper entities in the right places and have all your risk and disclosure documents vetted.
CPOs have a lot more regulatory issues because pooling the money puts you under the SEC and state regulators as well, but the CTA route is easier if you can get clients with enough individual accounts sizes to do your strategy.
No one can make a living of charging 2 and 20 on 400k, so if you are doing it just to have a track record you may want to look into an incubator fund where to donât get paid anything and would have less liability.
Furthermore many people can be excluded from the 15 count and their contributions do not count toward the 100k:
âThe pool's operator, CTA, principals and any of their children, siblings or parents. The spouse of any of these personsâ
So you can grow as large as you want, and start with a lot of money if it came from you and your immediate family. However, there are a bunch of rules if you use this exemption, like you have to send each participant a copy of your monthly commodity statement. So even though you are âexemptâ there are still a bunch of rules you have to follow.
If you do follow this exemption and just try to do it by yourself you need to understand you are taking on a huge amount of personal liability and risk. If you lose money they can sue and you will lose. If you make any mistakes at all in following the regulations of CFTC, NFA, SEC and your state they seem to very much enjoy coming after you and wonât hesitate to bar you for life. To do it right you need lawyers and accountants to set up the proper entities in the right places and have all your risk and disclosure documents vetted.
CPOs have a lot more regulatory issues because pooling the money puts you under the SEC and state regulators as well, but the CTA route is easier if you can get clients with enough individual accounts sizes to do your strategy.
No one can make a living of charging 2 and 20 on 400k, so if you are doing it just to have a track record you may want to look into an incubator fund where to donât get paid anything and would have less liability.
Quote from opt789:
To do it right you need lawyers and accountants to set up the proper entities in the right places and have all your risk and disclosure documents vetted.
This is true. But as has already been pointed out in this thread, there is a large amount of misinformation that is actually promulgated by those professionals. I should also point out that it isn't that hard to track down answers regarding which requirements you are subject to. It isn't like the CFTC and NFA are trying to hide these things from you. All you have to do is ask. The more difficult part is actually figuring out the setup that is most advantageous in terms of tax. But for the most part the structure is just a limited partnership usually.
CPOs have a lot more regulatory issues because pooling the money puts you under the SEC and state regulators as well, but the CTA route is easier if you can get clients with enough individual accounts sizes to do your strategy.
Not sure that I would say they are subject to more regulation. Sure they have to file a Form D with the SEC, but an exempt pool doesn't even have to provide the disclosure documents or the certified annual report.
No one can make a living of charging 2 and 20 on 400k, so if you are doing it just to have a track record you may want to look into an incubator fund where to donât get paid anything and would have less liability.
That is debatable. I think the better statement would be, "most people can't make a living charging 2 and 20 on 400K".