Questions regarding CTA/CPO registration

E

Em3

Hello everyone, this is my first(pair) of posts on this forum. I ran across this forum a while ago and there seem to be a a few more intelligent traders compared to any other forums I browse.

I posted some questions on a different forum and never got any responses after a month so I was hoping people here could help.

I copy/pasta'd the posts over to here.


POST #1---

I have a question regarding a subject that those in this thread might be able to help answer.

As a U.S. citizen/resident, to many others peoples money one would normally need to register as a CTA requiring taking the Series 3 and Series 34 for forex.

http://www.nfa.futures.org/NFA-registration/cta/index.HTML

According to this though, one can be exempt from having to do so if: "You have provided advice to 15 or fewer persons during the past 12 months and do not generally hold yourself out to the public as a CTA or"

*IMPORTANT PART* But I can't find any information regarding compensation. Lets say you already trade retail forex and a friend/family member wishes for you to directly manage their account, and you don't do this for than 15 people, are you allowed to be compensated for managing the person's account, aka a performance fee?

Many websites seem to have varying information, in which I've also seen the number of $250,000 as another limitation to the exemption thought I don't currently see it listed on the NFA website.

For reference here is another informative link

http://www.ecfr.gov/cgi-bin/retriev...6d2781778be9&mc=true&r=SECTION&n=se17.1.4_114


POST #2 ---

From more research, some which led from looking into CPO exemptions, I am led to believe that if there is not a maximum aggregate capital amount stated that there is no limit to the amount that can be managed as long as the 15 person rule is adhered.

Also I believe you can receive compensation since it isn't stated that you can't.

These were derived from the CPO exemptions that state specifically on these subjects in certain exemptions.

Link: http://www.nfa.futures.org/NFA-registration/cpo/index.HTML

Also the CTA exemption is also known as "CTA exemption 4m(1)" which appears to be "self-executing" which seems to mean that there is no necessary paper work to be filed to use this exemption unlike certain other exemptions.

Anyone with information on this, it is appreciated if you can share. Still wish I was able to find some sort of definite answer on the "aggregate capital limits" of the CTA exemption if there is one, and whether or not one can receive compensation.


****Not copy paste below

Thank you very much for any help ahead of time anyone may be able to provide. I only ask since I have people interested in managing money for them and wanted to know the implications/legalities of doing so.
 
If I understand your questions:

-If you are exempt from CTA registration, yes, you can still charge fees.

-The CPO exemptions are not the same as the CTA exceptions, and you must file the exemption with the NFA/CFTC. https://www.nfa.futures.org/NFA-com...pool-operators/easy-reference-guide-part4.pdf

-Correct, for the CTA exception you don't have to file. You will have to file an authorized trader for with the FCM where they will ask what your exemption is.

Be carful here. Make sure you comply with the exemptions or someone can come back and sue you later or your can end up be censured. Consult an expert for your exemptions and your contracts with your clients to make sure your are not stepping over the line.

Good luck....1245
 
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1245 said:
If I understand your questions:

-If you are exempt from CTA registration, yes, you can still charge fees.

-The CPO exemptions are not the same as the CTA exceptions, and you must file the exemption with the NFA/CFTC. https://www.nfa.futures.org/NFA-com...pool-operators/easy-reference-guide-part4.pdf

-Correct, for the CTA exception you don't have to file. You will have to file an authorized trader for with the FCM where they will ask what your exemption is.

Be carful here. Make sure you comply with the exemptions or someone can come back and sue you later or your can end up be censured. Consult an expert for your exemptions and your contracts with your clients to make sure your are not stepping over the line.

Good luck....1245
More...

I greatly appreciate your help.

If you/anyone happens to know, just to make sure, from my understanding if I simply only manage money for 15 people or less within a 12 month period I am exempt from registering as a CTA? (Given each account is independent and not pooled as to avoid possibly being considered a CPO).

Given the above, does anyone know if there is a limit as to the amount that can be managed, whether it be a max per individual or a max among all investors combined?


-- On a slightly different aspect. Does anyone know how income from "performance fees" for trading forex/currencies is treated? I know that one can file section 1256 for their own investments and it be treated as 60% long term/40% short term capital gains.
 
-I'm not aware of any limit to the size of the SMAs for the exemption

-Your fees as a third party will not get the benefit of the 1256 60/40 treatment. You would have to be a partner in their LLCs and get a K1 to pass that to you. It will be ordinary income.

1245
 
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1245 said:
-I'm not aware of any limit to the size of the SMAs for the exemption

-Your fees as a third party will not get the benefit of the 1256 60/40 treatment. You would have to be a partner in their LLCs and get a K1 to pass that to you. It will be ordinary income.

1245
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Thank you again for your help 1245.

I've tried to research into the partner/K1 situation for getting better tax treatment and came across something called "carried interest" which seems to be quite a big ordeal to politically and possibly the thing I am looking for.

-Is carried interest the tax loophole I should be looking into getting set up in some sort of partnership to get the tax advantages that forex gains normally receive for when receiving managed money "performance fee" income?

Hoping anyone may be able to help with the following two scenarios below.

On another note, I can't seem to find exactly how long term capital gain tax brackets work in a certain regard. Ordinary income, for 2016 filing single, is 10% for the first $9,275 then 15% for the amount above etc.

-(Scenario A) If one were to have say made $38,000 in ordinary income putting them in the 25% tax bracket, and say one then made $40,000 in addition in long term capital gains would the capital gains first be taxed at 0% for the first $37,650 and then 15% on the remaining $2,350 or would it of the $37,650 in its entirety fall under the 15%?

-(Scenario B) If one's source of only income is from capital gains such as forex in which a section 1256 was used. Could anyone, if so kindly able to, explain how one would be taxed say if they made $36,000 as opposed to making say $39,000. I use these numbers as they are essentially near the tax bracket cut off point and curious if it has as drastic of an effect as I perceive.
 
I'm not a tax expert, but what you want to focus on 1st and foremost is making money. If the only way to structure this is to get paid ordinary income, start your business, make money and pay your taxes. The big advantage of being part of the business and getting a pass though of trading profits, is that trading profits are not subject to self employment taxes. That is a big deal. I don't see anyone else besides friends and family agreeing to this set up, making you a partner in the LLC, rather than an outside party being paid.

1245
 
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