July 17, 2012
Frequently Asked Questions - Trading Program Performance Calculations and Presentation by CTAs with Client Assets held at Peregrine Financial Group, Inc.
As a result of the enforcement actions taken by NFA and the CFTC against Peregrine Financial Group, Inc. (PFG), and the firm's subsequent bankruptcy filing, NFA has received a number of questions from CTAs regarding how to calculate and present performance information for Trading Programs with client managed accounts that had trading positions and other assets held at PFG at the time of these actions. NFA is issuing this notice to address those frequently asked questions.
1. All of my managed client accounts were held at PFG. The exchange-traded open positions in those accounts were liquidated at the direction of PFG's clearing firm. I have not had control over the forex positions since July 10, 2012 and have been unable to liquidate any of those positions. How do I reflect the performance results?
Results should be based upon the assets under the CTA's control. Any customer assets that were held at PFG at the time of the bankruptcy filing (futures or forex) are no longer considered under the control of the CTA; therefore, those assets should not be included in assets under management for purposes of calculating the trading program's rate of return. For July 2012, the performance capsule for that trading program should reflect "NT" to indicate that the program did not trade during the month. The trading program's performance capsule must include appropriate footnote disclosure (See question 3 below).
2. I have some managed client accounts held at PFG and other managed client accounts held at other FCMs that are trading the same program. Since I did not have full control over the assets held at PFG beginning on July 10, 2012, the rates of return for those accounts are materially different than the rates of return for accounts held at an FCM other than PFG. How do I reflect the performance results of the program?
For the month of July 2012, you should exclude the accounts that were held at PFG from the performance capsule. You do not have to prepare a separate capsule for these accounts. However, the trading program's performance capsule must include appropriate footnote disclosure (See question 3 below).
3. What information should I include in the footnote disclosure?
At a minimum, the footnote disclosure should:
- Explain that as a result of the PFG bankruptcy proceeding and related actions, certain client managed accounts were not fully under the control of the CTA and therefore were excluded in whole or in part from the monthly performance calculation;
- Indicate the number of client accounts excluded;
- Indicate the amount of assets that were excluded;
- Indicate the percentage that the excluded assets represent of total assets under management for that program as of July 9, 2012.
4. Do I need to amend my disclosure document to reflect this information?
CTAs that plan to solicit new clients must ensure that all material information in their disclosure documents has been updated including, but not limited to, changes to assets under management, past performance results, and the firm's carrying broker relationships. As a reminder, all amended disclosure documents must be submitted to NFA for review and acceptance prior to use.
Any questions regarding these disclosure issues should be directed to:
Kaitlan Chi, Manager, at (312) 781-1219 or kchi@nfa.futures.org
Susan Koprowski, Manager, at (312) 781-1288 or skoprowski@nfa.futures.org
Mary McHenry, Senior Manager, at (312) 781-1420 or mmchenry@nfa.futures.org
