The recent NIBA Conference panel Due Diligence for IBs using CTA Programs proved to be a lively discussion with strong input from the conference participants, which included both CTAs and IBs currently marketing managed futures programs. A short list of takeaways from the discussion:
- While CTA databases provide a lot of information on CTAs an IB should verify on their own database information.
- A CTA should have a 13-column spreadsheet and a completed due diligence questionnaire. They are industry standard. If they do not, it is a red flag.
- More and more CTAs are getting their track records audited.
- Entering into a marketing relationship with a CTA is like getting married – don’t get married to someone you don’t trust.
- A marketing agreement with a CTA should be in writing. The material business points that the arrangement should cover are: (a) compensation, (b) exclusivity, (c) capacity rights, and (d) whether there is a most favored nations provision.
- Ongoing due diligence is a must for any IB marketing a CTA. This includes checking leverage, assets under management, and reasons for draw downs.
By, Mark Ruddy
Ruddy Law Office, PLLC, www.ruddylaw.com
Mark Ruddy is an industry attorney at the Ruddy Law Office, PLLC in Washington, DC. He may be reached at mruddy@ruddylaw.com.
