A: “Selecting and Recommending CTAs - A Recommending CTA is one who recommends various trading advisors to clients (e.g., individuals, other CTAs or CPOs) but does not have any other authority regarding these trading CTAs. The recommending CTA is not required to provide its own disclosure document to clients and as such is not required to provide past performance information of the clients for which it has acted as a recommending CTA. The client should however receive the disclosure document, including past performance information, of the CTA who will actually direct or trade the client’s account. A Selecting CTA is one who has been granted authority by the client to select, hire, and fire trading CTAs for the client (e.g., individuals, other CTAs or CPOs.) A Selecting CTA is required to provide a disclosure document to the client that includes the past performance of clients for which it has acted as a selecting CTA. A Selecting CTA is required to be registered and an NFA member, but a Recommending CTA is only required to be registered. A Recommending CTA is not required to be an NFA member. A recommending CTA would only be required to be an NFA member if the CTA receives some type of incentive fee or performance based compensation. If the firm receives a trailing commission or other per trade compensation, the firm may be required to be registered as an NFA member IB.
Q: If a CTA withdrawals from NFA registration and subsequently wants to re-register, aside from registration fees and forms with NFA are there any other considerations? Is there a period of time where if an entity has been dormant for so long it will no longer be able to re-register?
A: Re-registration for a CTA can be done at any time. If registration is dormant for more than two (2) years (and you have no other CFTC registrations) you will have to retake the Series 3 exam.
Q:What are the obligations of an IB from a promotional material perspective when putting on a seminar or in person presentation to a group?
A: Any type of seminar soliciting for managed futures must full comport with NFA Compliance Rule 2-29: . Specifically, any performance information used as a component of the seminar must be clearly identified as either actual or hypothetical, which includes all applicable disclaimers and disclosures as prescribed by 2-29. Additionally, all performance referenced must be net of all commissions/fees. Finally, a few general considerations regarding the use of actual or hypothetical performance are:
Hypothetical Results
• Cannot be presented for any trading program that has at least three months of actual client or proprietary trading results;
• Must be accompanied by prescribed statements regarding hypothetical or simulated performance results;
• Must include comparable information regarding the past performance of all customer accounts directed by the Member
pursuant to a power of attorney or letter of direction over the past five years; and
• If the Member has less than one year of experience directing customer accounts, past performance of the Member’s proprietary trading for the past five years must be included in the material.
Actual Past Trading Profits
• Must state that “Past results are not necessarily indicative of future results.”
From a supervisory standpoint, all materials must be reviewed and approved prior to use. Specific supervisory requirements for review of promotional material can be found in NFA Compliance Rule 2-29(e): (It should also be noted that in this case the BOM who prepared the seminar should have the material reviewed by an appropriate supervisor at the home office prior to use).
(e) Supervisory Requirements
Every Member shall adopt and enforce written procedures to supervise its Associates and employees for compliance with this Rule. Prior to its first use, all promotional material shall be reviewed and approved, in writing, by an officer, general partner, sole proprietor, branch office manager or other supervisory employee other than the individual who prepared such material (unless such material was prepared by the only individual qualified to review and approve such material). If the Member is registered as a broker-dealer under Section 15(b)(11) of the Exchange Act and the promotional material specifically refers to security futures products, the individual reviewing and approving the promotional material must be a designated security futures principal.
Finally, NFA offers a voluntary pre-review program for promotional material review for all NFA members. Submissions can be sent to: ART@NFA.FUTURES.ORG
