The National Futures Association (NFA) has proposed the adoption of two new compliance rules intended to enhance and standardize disclosure and reporting obligations for commodity trading advisors (CTAs) and commodity pool operators (CPOs) that engage in over-the-counter (OTC) forex transactions. Currently, registered CTAs and CPOs that trade OTC forex exclusively are not required to prepare and file disclosure documents or to comply with certain other disclosure requirements applicable to CTAs and CPOs that trade exchange-listed products. The proposed rules would require CTAs and CPOs that engage in OTC forex transactions on behalf of clients or pools that are not eligible contract participants to prepare a disclosure document in accordance with the requirements of CFTC Rules 4.24 – 4.26 (for CPOs) or 4.34 – 4.36 (for CTAs). The disclosure document would be required to be filed with NFA prior to its first use and provided to prospective clients or pool participants. In addition, the proposed rules would prescribe a specific risk disclosure statement regarding OTC forex trading to be included in the disclosure document (even if the CTA or pool also trades exchange-traded futures). The proposed rules appear to be applicable to registered CPOs and CTAs, including CPOs and CTAs that claim an exemption from preparing a disclosure document under the Commodity Futures Trading Commission Rule 4.7.
NFA’s proposed rules also impose certain financial reporting requirements on CPOs subject to the rule, requiring them to provide pool participants with monthly or quarterly account statements, as well as an annual report.