In February 2012, the Commodity Futures Trading Commission (“CFTC”) issued final rules which require any person claiming an exemption or exclusion from registration as a commodity pool operator (“CPO”) under CFTC Regulations 4.5, 4.13(a)(2), 4.13(a)(3), 4.13(a)(5) or an exemption from registration as a commodity trading advisor (“CTA”) under CFTC Regulation 4.14(a)(8) to annually affirm their notice of exemption or exclusion within 60 days of the calendar year end.1 The first annual affirmation is due for the calendar year that ended December 31, 2012 and must be filed with the National Futures Association (“NFA”) by March 1, 2013.
A CPO or CTA subject to the annual affirmation requirement who fails to file such annual affirmation by March 1, 2013 will have its exemption or exclusion automatically withdrawn. There are several important implications if such withdrawal occurs. First, withdrawal may result in NFA members, including prime brokers who may transact on behalf of any such CPO or CTA, ceasing to conduct business with them in accordance with NFA Bylaw 1101. In this regard, NFA Bylaw 1101 generally prohibits NFA members from conducting business with non-members who are required to be registered with the CFTC.
Additionally, withdrawal may result in a registered CPO or CTA becoming subject to the compliance obligations under the CFTC’s Part 4 rules for the commodity pool(s) for which the exemption or exclusion has been withdrawn, regardless of whether the CPO or CTA otherwise remains eligible for the exemption or exclusion. For an unregistered CPO or CTA, withdrawal may result in such CPO or CTA having to register with and become an NFA member to continue operating or advising the commodity pool(s) for which the exemption or exclusion has been withdrawn. An unregistered CPO or CTA may also be subject to enforcement action by the CFTC if it continues to operate or advise the commodity pool(s) for which the exemption or exclusion has been withdrawn without applying for registration and NFA membership.
CPOs and CTAs subject to this requirement are encouraged to file their annual affirmation as soon as possible, but before March 1, 2013, to avoid the potential adverse impacts of withdrawal. Such annual affirmation can be completed by accessing NFA’s Exemption System.