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Commodity Pool Operator and Commodity Trading Advisor Registrations

August 30, 2011

Pursuant to the Commodity Exchange Act (“CEA”), advisers who utilize futures contracts, options on futures or retail off-exchange forex contracts in their trading programs are generally required to register as a commodity pool operator (“CPO”) and/or commodity trading advisor (“CTA”), as appropriate, unless they qualify for an available exemption from registration.  This article provides a general overview of the CPO/CTA registration process.

A CPO is an individual or organization which operates and solicits funds for a commodity pool, including a hedge fund that trades futures contracts, options on futures or retail off-exchange forex contracts.  A CTA is more broadly defined to include an individual or organization which, for compensation or profit, advises others as to the value of or the advisability of buying or selling futures contracts, options on futures or retail off-exchange forex contracts.  In other words, a CPO is most always also a CTA by definition, whereas an individual or organization may be a CTA and not a CPO.  The key distinction is whether the adviser manages a pooled investment vehicle.

(Note: Prior to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), off-exchange retail forex was excluded from the jurisdiction of the Commodity Futures Trading Commission (“CFTC”).  However, in large part prompted by Dodd-Frank, the CFTC published final rules on August 30th, 2010 effectively making off-exchange retail forex markets subject to regulation by the CFTC and National Futures Association (“NFA”).  Advisers to funds and/or separate managed accounts who utilize forex trading and have not become registered CPOs and/or CTAs (or filed an available exemption) could be subject to significant sanctions, and should consult a qualified hedge fund attorney immediately to begin undertaking appropriate compliance measures.)

All registered CPOs and CTAs who manage or exercise discretion over customer accounts must be Members of NFA.  In addition, all CPO/CTA registrants are required to file the following:

  • A completed online Form 7-R;
  • A non-refundable $200 application fee; and
  • Membership dues (if applicable) of $750.

CPO/CTA registrants must also file applications for its Principals and Associated Persons that include the following:

  • A completed online Form 8-R;
  • Fingerprint cards;
  • Proficiency requirements (generally, a passing score on the Series 3 exam); and
  • A non-refundable $85 application fee for each Principal and Associated Person.

Lastly, all CPO/CTA registrants engaged in retail off-exchange forex are also required to:

  • Apply to become a forex firm by completing online Form 7-R; and
  • Have at least one Principal that is also an approved Forex Associated Person.

Please contact us for a free consultation if you have any questions regarding the CPO/CTA registration process.