United States: Guidance On Annual Affirmation Requirements for Persons Operating under Exemptions from CPO and CTA Registration

Last Updated: December 12 2016
Article by Conrad G. Bahlke, Brian I. Greene and Salim N. Azzam

On December 1, 2016, the National Futures Association (NFA) issued a Notice to Members (the "Notice")1 to provide guidance on the annual affirmation requirements that apply to each "commodity pool operator" (CPO) and "commodity trading adviser" (CTA) relying on certain exclusions or exemptions from registration under rules promulgated by the Commodities Futures Trading Commission (CFTC). Any individual or entity that claims an exclusion or exemption from registration as a CPO under CFTC Regulation 4.5 or 4.13(a)(1), (2), (3) or (5), or an exemption from registration as a CTA under CFTC Regulation 4.14(a)(8), is required to affirm on an annual basis the applicable notice of exclusion or exemption. Such affirmation must be made within sixty (60) days of each calendar year end (the "Affirmation Deadline Date"). Failure to   make such affirmation by the Affirmation Deadline Date will result in the applicable exclusion or exemption being withdrawn on such date.

For a registered CPO or CTA, withdrawal of the exclusion or exemption may result in such individual or entity having to comply with the requirements of Part 4 of the CFTC Regulations, regardless of whether such individual or entity otherwise remains eligible for such exclusion or exemption. The Part 4 requirements include significant disclosure, reporting and record-keeping obligations.

For a non-registrant, a withdrawal of the exclusion or exemption may subject such individual or entity to enforcement action by the CFTC.

The next Affirmation Deadline Date is March 1, 2017. The affirmation must be made through the NFA's electronic exemption filing system.2 The Notice includes a set of frequently Asked Questions (reproduced in Exhibit A hereto) offering practical guidance to individuals and entities who wish to file an affirmation of exclusion or exemption.

Many entities, including sponsors, managers and operators of private funds, engage in commodity interest transactions (which can include a variety of swap and other derivative transactions), including transactions that may be incidental to their operations (for example, as part of a private fund's hedging strategy, or indirectly through a private fund's ownership of interests in entities that themselves engage in commodity interest transactions), and thus rely on one of the aforementioned exclusions or exemptions from registration as a CPO or CTA. It is important that each such entity affirm its active exclusion or exemption to avoid loss of such exclusion or exemption and the resultant application of Part 4 of the CFTC Regulations or potential enforcement action by the CFTC. 

1 Available at https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4767.

2 Available at http://www.nfa.futures.org/NFA-electronic-filings/exemptions.html


1. How often will I need to affirm my exemptions?

You will need to affirm each applicable exemption on an annual basis, within 60 days of December 31. NFA will provide an additional email reminder of the affirmation process as the affirmation deadline nears. The email reminder will be sent to the email contact on file in NFA's Exemption System. In order to ensure that your firm receives NFA's annual reminder, you must verify that a current email address has been provided in NFA's Exemption System. If the contact information changes during the year, firms should promptly update this information

2. What if NFA records reflect an exemption for an inactive pool?

A registered CPO can update NFA's records with the applicable information. The CPO must first withdraw the exemption by accessing NFA's Exemption System. At the time you withdraw the exemption, you will be directed to the Annual Questionnaire to delete the pool or indicate the pool has ceased operations.

A non-registered entity must send a written notification to Exemptions@nfa.futures.org. The written notification should include the full name of the entity and the pool along with any identifying NFA ID number.

3. If I can no longer qualify for an exemption from CPO or CTA registration, what should I do?

If you do not affirm the applicable exemption by March 1, 2017, it will be automatically withdrawn. As a result, in order to continue to operate a pool or direct client accounts, you may be required to be registered as a CPO and/or CTA and be an NFA Member. An authorized user can apply for registration and NFA membership using NFA's Online Registration System (ORS), which is available on NFA's website. For assistance in the process, NFA has a number of video tutorials available online.

4. How will the firms with which I do business know that I have completed the affirmation process?

Once an entity affirms the applicable exemptions, NFA's BASIC system will reflect the affirmation date for each exemption held. If the exemption is not affirmed by March 1, 2017, BASIC will also reflect a withdrawal date for the exemption.

5. If I currently conduct business with an exempt CPO or CTA, how do I ensure that these entities have properly affirmed their exemptions in order to satisfy my Bylaw 1101 requirements?

BASIC will reflect whether an exemption held by a particular CPO or CTA has been successfully affirmed by including an affirmation date. A withdrawal date will be reflected for any exemption that was not affirmed. Members can also access a spreadsheet that includes a list of all persons or entities that have exemptions on file with NFA that must be affirmed on an annual basis. This spreadsheet can be found in the Member's Annual Questionnaire. Once an authorized user is logged into the Annual Questionnaire, the individual will see a link to a spreadsheet that is updated nightly. The spreadsheet will include all entities with an exemption(s) that requires an annual affirmation, as well as the most recent affirmation date, if applicable, and the affirmation due date. If the affirmation due date is March 1, 2017, the exemption has not yet been affirmed. Once the exemption has been affirmed, the affirmation due date will change to March 1, 2018.

6. If I file a new exemption during the affirmation period (December 1, 2016 – March 1, 2017), will I also need to affirm that exemption for 2016?

Any exemptions filed during the affirmation period will not need to be affirmed until 60 days after December 31, 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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