On December 5, 2013, the National Futures Association (the “NFA”) issued a notice to members to provide guidance on the annual affirmation for certain Commodity Futures Trading Commission (“CFTC”) exemptions from registration as a commodity pool operator (“CPO”) or as a commodity trading advisor (“CTA”).1 Although the reaffirmation requirement went into effect for the calendar year-end December 31, 2012, year-end 2013 is likely the first reaffirmation period for a significant number of CPOs and CTAs and thus reaffirming exemptions may not yet be a compliance “habit.”
CPOs relying on exemptions or exclusions under CFTC Rules 4.5, 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), or 4.13(a)(5) and CTAs relying on exemption under CFTC Rule 4.14(a)(8) must reaffirm those CFTC exemptions annually.2 Affirmations can be made from December 3, 2013 to March 2, 2014. Failure to affirm will result in the automatic loss of the exemption/exclusion on March 3, 2014. For CFTC-registered CPOs or CTAs, such withdrawal will result in becoming subject to CFTC Part 4 requirements for non-exempt CPOs or CTAs. For non-registrants, such withdrawal may require CFTC registration. Failure to register may result in the CFTC taking enforcement action.
Any new exemptions or exclusions filed during the affirmation period (December 3, 2013 to March 3, 2014) are not required to be affirmed for calendar year 2013, but will be required to be affirmed during the next annual affirmation period.
CFTC-registered CPOs whose pools include entity investors and CFTC-registered CTAs with managed accounts held by entities should confirm the CFTC registration/exemption status of their investors/account holders who themselves may use exemptions that require annual affirmation. NFA Bylaw 1101 prohibits NFA Members from doing business with non-Members that are required to be registered with the CFTC, but are not so registered. NFA Members are required to have procedures in place that include (1) the steps firm personnel will take to determine if an entity is required to be CFTC registered and an NFA Member and (2) a requirement that firm personnel review the NFA’s online BASIC system to verify that the entity is registered and an NFA Member (if registration and membership are required). If an NFA Member does business with an exempt CPO or CTA, the NFA Member can check that such exempt entity has affirmed its exemption by accessing NFA’s BASIC system. To facilitate compliance, the NFA has provided all NFA Members with access to a spreadsheet that includes a list of all entities that have exemptions on file with NFA that must be affirmed on an annual basis.3