NFA/CFTC exemption question

As someone who is currently running a non-CTA exempt program, here's my input fwiw:

The 14 individual accounts is fixed for one year's time. You cannot add more if any drop out, so that's pretty much black & white.

The $400k contributions includes all capital added outside of profit & loss. Theoretically the pool could grow to $4 million or $40 million in time, but remain outside of Series 3 license status.

A letter of operations = disclosure document still needs to be in place between operator and client so everyone is on the same general page. So long as you follow the agreed upon direction of trading, legal issues aren't one-sided.

Clients have no reasonable expectation of guaranteed profits unless they are falsely led to believe so in some way. A written & signed document between all parties clears up later misunderstandings.

Following the guidelines of CFTC and NFA regulations is still a must. That goes without saying.

The intent of non-CTA exempt status is usually either a family & friends operation with no intent to add more accounts OR a fledgling fund operation that is growing in stages. In my case I'm starting with people who are known to me ground floor, securing Series 3 CTA status as needed when the time comes.

My operation is not a pool or general fund: individual segregated accounts traded in block contracts fashion. That eliminates potential for fraud, misuse of funds on the operator's part, fund disruption by sudden large withdrawls forcing position liquidation and other headaches of a general pool.

My fees are 0/25 which I think is more fair than 2/20. I'll eat the management fees and only profit from net gains on the account.
 
Quote from Wallace:

and where do 'signals providers' fit in ?
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I don't personally know any "signals providers" who are actively managing accounts, but I would assume they must follow the same lines as any professional trader would.

Doesn't that seem logical?
 
Quote from opt789:

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.
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Exactly right. Most futures short-term trading programs should be successful with individual segregated accounts as opposed to pooled funds. I can see where trading longer-term positions in commodity markets might need considerably greater account size than intraday strategies, but in the end it doesn't matter if one pooled account of $2 million or ten individual accounts of $200,000 are holding the same risk-weighted position size to gross capital.
 
Quote from austinp:


A letter of operations = disclosure document still needs to be in place between operator and client so everyone is on the same general page. So long as you follow the agreed upon direction of trading, legal issues aren't one-sided.

Clients have no reasonable expectation of guaranteed profits unless they are falsely led to believe so in some way. A written & signed document between all parties clears up later misunderstandings.

Following the guidelines of CFTC and NFA regulations is still a must. That goes without saying.

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Hmm... According to the CFTC and NFA,

"To use these exemptions, the CPO must provide to investors at the time it delivers the subscription agreement to investors a:
  • copy of the NFA exemption letter, as filed with the NFA; and
  • a statement that it is not required to deliver a DD or a certified annual report


As I uderstand it straight from the NFA, most pools are sold as private placements. Thus, a "small pool" is exempt from NFA disclosure requirements as well as SEC (after first filing a Form D).

AFAIK, most pools still provide at least annual reports, although if stated beforehand, they are not legally bound to. I'm not arguing in favor of either, just trying get a clear representation of what is actually required.
 
Quote from austinp:

Exactly right. Most futures short-term trading programs should be successful with individual segregated accounts as opposed to pooled funds. I can see where trading longer-term positions in commodity markets might need considerably greater account size than intraday strategies, but in the end it doesn't matter if one pooled account of $2 million or ten individual accounts of $200,000 are holding the same risk-weighted position size to gross capital.
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AFAIK, in many states if I operate a pooled fund that qualifies as a small pool(4.13(a)(2)), then I am also exempt from state regulation that would require series 65 RIA registration with the state. If I were to go the direction of block trading individual accounts, those same states might require s65 certification.

Many states, including my own have very strict requirements for registration if I have any discretion over client funds. These requirements are waived if they can pass the baton to the NFA through NFA exemptions.
 
Epic,
You sound rather inexperienced, not that there is anything wrong with that, but you are talking about entering into situations that you seem to significantly underestimate. You are convinced that if you fit into some exemptions by the bare minimum letter of the regulations then you will be fine. Theoretically that might be true, but realistically it won’t be. That is the difference between the knowledge that you get by doing your research and reading the regulations, and the wisdom earned by what happens in the real world.

You don’t seem to be interested in others hard earned experiences, so go ahead and pool people’s money together without any formal plans, agreements, disclosure documents, lawyers, or accountants, and eventually you will find out what happens. Off the top of my head I can think of 10 completely innocent mistakes you can make in the process of running a completely unregulated and informal hedge fund (which is what your commodity pool will be) that to you would seem minor and irrelevant to the overall scheme of things, but which will be considered fraud and will end in nothing but significant problems.

So there is no point to this thread anymore, you are correct in your basic reading of the regs, so go ahead and don’t worry about it. Although your unregistered fund has some more rules and requirements spelled out by the CFTC and SEC that you have not mentioned here. Pool the money and roll the dice, just don’t ever end up with one single investor who is unhappy - I suppose anything is possible. Being “exempt” is easier for you, there is no doubt, but doing the bare minimum (or skipping them altogether) for professional help, disclosures, and operating agreements exposes you to a level of liability that no successful trader would accept.
 
agreed with opt789 above

Make sure you communicate with NFA, your clearing firm and/or broker to stay on the correct side of compliance. The right thing to do is the only thing to do.

In my case, I prefer the cust seg account format because it eliminates any chance of misappropriations or fraud. I also email daily trade activity with profit or loss at end of operations which is appreciated by investors, rather than wait for their daily statements in wonderment.

Full compliance, constant communication with investors and you're on the right track. Be sure to work closely with NFA and clearing firm as final words of decision points.

There is a literal sea of money out there seeking competent management. Make sure you remain on the right path of compliance, and you share is waiting for you. Good luck :)
 
thanks autinp

I should probably start a new thread to ask about signal providers instead of asking
on this thread, but couldn't resist posting to see if anyone had information about any
regulation that applies to signal providers
 
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