Team Hedge Fund

Archive for the ‘Fund Law Blog’ Category

We are happy to announce that the Hedge Fund Law Blog has been nominated for the LexisNexis Top 25 Business Law Blogs of 2010.  We thank our audience for reading and being engaged in the discussion, and of course for the nomination.

Call to Action!

We are not yet a Top 25 Business Law Blog – the next step is to submit a comment to LexisNexis to let them know about Hedge Fund Law Blog.  After the public comment period and voting ends (October 8th), the LexisNexis board of editors will select the Top 25 based in part on the public comments.  The final announcement is expected to be made on October 31.

To vote for the Hedge Fund Law Blog please go here and fill out a comment.

Other Blogs

There are a number of very good blogs which are also nominated.  The blogs that I actively read include:

• Compliance Building by Doug Cornelius
• Securities Law Prof Blog
• Startup Company Lawyer

Other blogs I that are in my RSS reader and which I think highly of:

• Ten Seconds into the Future
• Reverse Merger & SPAC Blog
• Jim Hamilton’s World of Securities Regulation
• BD Law Blog

Many thanks again for reading.

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Bart Mallon Speaking at Chicago CTA Expo

This year’s Chicago CTA Expo will again be held the same week as the FIA Expo and it will be a day after the NIBA Sales and Marketing Conference.  Bart Mallon of Mallon P.C. will be a speaker at the event.  The full line up of speakers can be found below.

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CTA EXPO 2010, for the first time, had conferences in New York, April 21 and now Chicago, November 3.  CTA EXPO Chicago will continue to focus on the needs of the CTA community.

November 2, 2010

• 4:30 – 6:00 - Joint NIBA/CTA EXPO Cocktail Party (Sponsored by Telvent DTN)

November 3, 2010

• 8:00 – 9:00 - Continental Breakfast (Sponsored by DMAXX)
• 8:45 – 9:00 – Welcoming Remarks (Sponsored by Barclay Hedge Ltd.)
  • Frank Pusateri (Adriondack Portfolio Management, Inc)
  • Bucky Isaacson (Future Funding Consultants)
• 9:00 – 9:30 – Marketing in Europe (Sponsored by Horizon Cash Management, LLC)
  • Cecilia Mortimore (Credit-Suisse Securities (USA) LLC)
• 9:30 – 10:00 – Institutional Marketing (Sponsored by Mallon P.C.)
  • Laurie Posner (PNC Capital Advisors)
• 10:00 – 10:30 – Coffee Break (Sponsored by Firm 58)
• 10:30 – 11:00 – Manager Selection and Portfolio Creation at a Fund of Funds (Sponsored by Ruddy Law Office, PLLC)
  • Speaker To Be Confirmed (The Kenmar Group)
• 11:00 – 12:00 – Innovations in Investment Products and Marketing Exchange Traded Funds (Sponsored by Michael Coglianese CPA, PC)
  • Tim Pickering (Auspice Capital Advisors Ltd)
• 11:00 – 12:00 – Product Structuring and Marketing to The Broker Dealer Community (Sponsored by Michael Coglianese CPA, PC)
  • Michael Tannenbaum (Tannenbaum Helpern Syracuse and Hirschtritt)
  • Others: To Be Confirmed
  • Moderator: Mark Omens (CME Group)
• 12:00 – 12:45 – Lunch (Sponsored by ICE)
• 12:45 – 1:30 – Keynote Speaker (Sponsored by Dorman Trading)
  • Suk Kim (Samsung Asset Management Company LTD)
• 1:30 – 2:00 – Marketing Emerging CTAs (Sponsored by eSignal)
  • Brad Cole (Cole Partners)
• 2:00 – 2:30 – Generate a Positive Impact with Your Marketing Materials (Sponsored by TraderView)
  • Kristin Fox (FoxInspires LLC)
• 2:30 – 3:00 – Coffee Break
• 3:00 – 3:30 – Internet Social Networking (Sponsored by Arthur Bell, Certified Public Accountants)
  • Bart Mallon (Mallon P.C.)
• 3:30 – 4:00 – Internet Publishing and Marketing (Sponsored by CCS Financial Services, Inc.)
  • John Lothian (John Lothian Newsletter)
• 4:00 – 4:30 – Managed Futures – Yesterday and Today (Sponsored by Woodfield Fund Administration LLC)
  • Leon and Joy Rose
• 4:30 – 6:00 – Cocktail Party

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Other related hedge fund law articles:

• How to Register as a CPO or CTA
• NFA Self-Examination Checklist
• Series 3 Exam

Mallon P.C. provides CTA registration and compliance services.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

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The Bay Area Hedge Fund Roundtable is having an event next week.  Mallon P.C. will be attending and we hope to see you there.  Details on the event can be found below.

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The Bay Area Hedge Fund Roundtable presents:

A Conversation About Global Investing Trends – One Year Later

FEATURING:

John Burbank of Passport Capital

Patrick Wolff of Clarium Capital Management

SEPTEMBER 29, 2010 SAN FRANCISCO, CA at 3 PM

Sens Restaurant at 4 Embarcadero Center, Promenade Level

Please RSVP to info@bayhedge.org

The Bay Area Hedge Fund Roundtable (“BAHR”) is an informal (and not for profit) organization of members of the Bay Area hedge fund community that was established in 2001.  BAHR strives to provide intelligent, fresh perspectives from industry leaders on current developments and offer an open, casual environment where members can exchange information and expertise and further develop their relationships within the industry.

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Bart Mallon, Esq. runs the Hedge Fund Law Blog and provides hedge fund legal services through Mallon P.C. He can be reached directly at 415-868-5345.

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At the end of July, the SEC adopted amendments to Form ADV Part 2 and the related rules.  The amended Form ADV Part 2 will be used by SEC-registered advisers to meet their disclosure obligations and generally describe the adviser’s services, fees, and strategies.

On September 1, 2010, the California Department of Corporations followed suit and announced its adoption of the new Part 2 as well, effective October 12, 2010 (see California ADV Part 2 Announcement).  This effective date corresponds with the effective date of the SEC’s rule changes.  The Department’s decision will help bring consistency between state and SEC investment adviser registration requirements.

New ADV Part 2

The amended Form ADV Part 2 consists of three parts:

• the “Firm Brochure” (Part 2A),
• a Wrap Fee Program Brochure (Part 2A, Appendix 1), and
• the “Brochure Supplement (Part 2B).

Every investment adviser must complete the Firm Brochure and the Brochure Supplement.  The Firm Brochure, which is filed electronically with the SEC on the IARD system, will include information about the adviser and its business. The Brochure Supplement, which is a brief disclosure document about certain personnel of the adviser, will be provided to clients but not filed with the SEC.

In addition, the new Part 2 will no longer be in the check-the-box format.  Instead, it will take the form of a narrative brochure written in plain English–the purpose of which is to provide clients with a more clear disclosure of the adviser’s business practices, conflicts of interest, and background.

Compliance Dates

Effective October 12, 2010,  for California registered investment advisers, the relevant compliance dates for the new ADV Part 2 are:

• As of January 1, 2011 all new investment adviser applicants will have to file, through the IARD, the new Part 2 of Form ADV as part of their application.
• As of January 1, 2011 all licensed investment advisers will need to incorporate the new Part 2 of Form ADV with their next filing of an amendment to Form ADV, or their annual updating amendment to Form ADV.
• Between October 12, 2010 and January 1, 2011 applicants and current licensed investment advisers filing amendments to their Part II of Form ADV may use either the current Part II or the new Part 2.

With this change, investment advisers should review and become familiar with the new Part 2.  Advisers that are currently registered with the California Securities Regulation Division will have to incorporate the new Part 2 when they file amendments to Form ADV and also when they file the required annual update.  For most advisers with a December 31, 2010 year-end, the deadline for the annual update will be March 31, 2011.

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Other related hedge fund law articles:

• SEC Approves New Form ADV Part 2
• Costs to Complete New Part 2
• State Information on New Part 2

Bart Mallon, Esq. runs the Hedge Fund Law Blog and provides investment adviser registration and compliance services through Mallon P.C.  He can be reached directly at 415-868-5345.

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This exam is required by certain states for an individual who wants to register as an investment adviser representative and securities agent.  Passing the Series 66 would be equivalent to passing both the Series 63 and Series 65 exams.  Additionally, individuals are required to pass the Series 7 exam as a prerequisite for taking the Series 66.  This post will provide an overview on the Series 66 exam and some thoughts on both taking and passing the exam.

The Series 66 Basics

What: The exam has a time limit of two hours and 30 minutes and a total of 110 questions, 10 of which are “pretest” questions and do not count in your final score.  The exam covers the following topics: Economic Factors and Business Information; Investment Vehicle Characteristics; Client Investment Recommendations and Strategies; and Laws, Regulations, and Guidelines, including Prohibition on Unethical Business Practices.  You must earn at least 75% to pass the exam.

Where: You can take the exam at most Pearson VUE or Prometric testing centers.

When: You should probably sign up for the exam at least a week prior to taking it, and you can choose the time and date on either the Pearson or Prometric website when you register.

Why: The exam is required for those individuals who want to become both securities agents (generally brokers) and investment adviser representatives.

How to sign up

You can register for the exam by submitting a Form U-4 or Form U-10 through the IARD system online.  Please not that, effective September 15, 2010, FINRA requires individuals to use either their CRD number or FINRA ID number in order to schedule an exam and no longer accepts social security numbers.  If you have any questions regarding registering for an exam, be sure to ask your law firm, compliance consultant, or feel free to contact us.

The cost to take the exam is $128.

How to study for the exam

It is recommended that you obtain a study guide and thoroughly read the entire guide.  NASAA (North American Securities Administration Association) provides a study guide available for download on their website.  Also, Kaplan provides a useful study guide that presents the study material in a simple and easy-to-understand way, and their practice questions are very similar to questions you are likely to see on the actual exam.

Take at least two to three practice exams prior to taking the test, possibly more.  Use memory refreshers such as note cards or other review materials.  Do not cram the morning of the test, as this will probably only make you more anxious.  In fact, it is recommended that you take the exam in the morning after a full night’s rest.

Day of exam

Arrive at the testing center at least 45 minutes prior to taking the exam to allow yourself time to review some of your notes beforehand.  The proctor will require you take off your jackets and place your belongings, including your study material, in a provided locker.  Be sure to have woken up early enough to eat breakfast beforehand and be fully alert during the test.

The exam

The exam is computer-based and will initially instruct you on how to properly answer and mark the following questions.  Note that the beginning of the exam will most likely include the easiest questions, and then the questions will get harder as you reach the middle.  Always attempt to make the most educated guess on questions you do not understand.

The length of the exam might require you to pause and use the restroom or take a break.  Allow yourself time to step away from the computer for a moment, take a drink, and gather your thoughts.  When you encounter difficult questions, you always have the option of marking the question for review.  Never spend an extended period of time on a question, as you will just waste time on answering other questions you might know better.

After you have completed the questions, you will have the option of changing any of your answers.  After completely answering everything, you will receive your score immediately.

If you don’t pass

A number of managers who take the exam do not pass or only come close to passing.  If this is the case, you will need to wait another 30 days before re-taking the exam.  If you do not pass the exam the second time, you will need to wait another 60 days before taking the exam.  If you do not pass either the third or fourth attempt, you will need to wait at least 180 days before taking the exam again.  There is no limit on the number of times allowed for taking a test.

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Other related hedge fund law articles:

• Series 65
• Series 79
• How to register as an investment adviser

Bart Mallon, Esq. runs the Hedge Fund Law Blog and provides hedge fund start up and legal services through Mallon P.C. He can be reached directly at 415-868-5345.

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Wants Managers of Commodity/Futures Mutual Funds to Register as CPOs

On August 18, 2010, the NFA filed a revised Petition for Rulemaking with the CFTC requesting that it amend CFTC Rule 4.5 with respect to managers to mutual funds which offer futures and commodities investment opportunities.  Generally, a manager operating a mutual fund that invests in futures and commodities would be a commodity pool operator and would need to register as such with the CFTC.  However, under current CFTC Rule 4.5, the manager could seek exclusion from such registration.  The NFA has become concerned about mutual funds that are not subject to the CFTC/NFA regulatory regime and that are marketed to retail customers as a way to invest in futures and commodities.  The NFA is requesting amendment of Rule 4.5 to restrict this kind of activity.

Background

CFTC Rule 4.5 provides an exclusion from the definition of the term “commodity pool operator” for certain otherwise regulated persons in connection with their operation of specified trading vehicles, including investment companies registered under the Investment Company Act of 1940.

Prior to August 2003, mutual fund managers seeking eligibility for exclusion under Rule 4.5 were required to meet the following requirements:

• they could not market participation in the mutual fund as participation in a commodity pool or a vehicle for trading commodities or futures;
• they had to represent that commodity futures or options contracts entered into by the fund were for bona fide hedging purposes; and
• they had to demonstrate that the aggregate initial margin and/or premiums for non-hedging positions did not exceed 5% of the liquidating value of the fund’s portfolio (after taking into account unrealized profits and losses).

In August 2003, the CFTC eliminated these requirements as a condition to be eligible under Rule 4.5.  The NFA is now petitioning for the CFTC to restore these conditions for eligibility.

NFA Petition for Rulemaking

The NFA’s Petition discusses the context for requesting this amendment.  In particular, the NFA has become aware of three mutual funds that recently filed for exclusions under Rule 4.5.  These funds are marketed as vehicles for commodity futures investment, with investments in derivatives and futures products made indirectly through their wholly-owned and controlled subsidiaries (for tax and mutual fund regulatory purposes).  In one case, a fund invests up to 25% of its total assets in a subsidiary that leverages assets at a 4:1 ratio–achieving a futures exposure of the full net value of the fund.

The NFA is concerned that such funds, which are active in the commodity futures industry, are not regulated as CPOs by the CFTC and NFA.  The futures mutual fund manager can file a notice with the NFA claiming the Rule 4.5 exclusion under the Commodity Exchange Act, as amended.  Accordingly, the fund is not subject to registration or regulation as a commodity pool.  Through its Petition, the NFA seeks to ensure that managers of registered investment companies that are marketed as a commodity pool or an investment vehicle for trading in commodity futures and options and whose funds engage in more than 5% of futures are subject to the appropriate oversight and regulatory requirements.

“No-Marketing” and the 5% Limitation

At the time the CFTC amended Rule 4.5, it also adopted Rule 4.13(a)(4) to provide an exemption to CPO registration if every natural person pool participant is a “qualified eligible person.”  The NFA argues that to the extent this exemption served as a reason to eliminate the “no marketing” and “5% trading test” from Rule 4.5, the CFTC should reexamine whether such reasoning is still valid.

When the CFTC amended these rules, it did so under the presumption that the qualifying entities, such as the mutual funds discussed in this article, were “otherwise regulated” and “may not need to be subject to any commodity interest trading criteria.”  But, the NFA is asserting that things have changed since the 2003 amendment and the rationale for the amendments is arguably no longer appropriate or valid.  Such registered investment companies that market themselves as a commodity pools or vehicles for trading in commodity futures or options to retail customers, who may be unsophisticated investors, or engage in more than 5% of non-hedging futures trading should be subject to the rules and regulations of the CFTC and NFA, the appropriate regulatory regime that protects customers participating in the commodity futures markets.

Comments by CFTC Commissioner

On September 1, 2010, CFTC Commissioner Scott O’Malia released a statement regarding the NFA petition which urged the CFTC to “expeditiously” move forward and adopt the NFA’s requested amendments.  The Commissioner stated:

Until the recent influx of new mutual funds specializing in futures trading, the use of the exclusion, in effect a form of regulatory arbitrage, was innocuous. However, continuing to allow FMFs to operate by evading CFTC oversight and its substantial disclosure obligations now poses increased risks to the market and to retail investors.

and

Without CFTC and NFA oversight, FMFs and other such funds that mimic CPOs, but do not abide by the same structure, will continue to avoid specific disclosures mandated for CPOs in the interest of consumer protection including: disclosures over fund risk exposure; performance returns; fee structures; and advisor conflict of interest information.

Future of Rule 4.5

It is clear that a new Rule 4.5 would be fiercely contested by current mutual fund managers who are investing in futures/commodities.  The big issue for managers will be an increase in start-up and compliance costs as well an increase in infrastructure requirements to comply with CFTC Regulations.  This will undoubtedly increase costs to mutual fund investors (and, the NFA argues, potentially increase investor protection).

However, nothing has happened yet.  Although the NFA asked the CFTC to amend the regulation, the CFTC will need to publish proposed amendments for public comment.  After receiving comments, the CFTC would be permitted to issue final regulations.  However, we do not think it is likely that the CFTC is going to focus its rule making (amending) efforts on issues that don’t fall under the Dodd-Frank act.  As the CFTC is under-resourced for this requirements of Dodd-Frank, it is unlikely to take up any outside initiatives over the next 9-12 months as they focus on other rule making efforts such as the OTC derivatives reform.

Other resources:

• NFA Petition

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Other related hedge fund law articles:

• How to Register as a CPO or CTA
• NFA Self-Examination Checklist

Mallon P.C. provides comprehensive CFTC and NFA compliance and regulatory support for investment managers.  Bart Mallon, Esq. can be reached directly at 415-868-5345.

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Hedge Funds Care Presents its West Coast Scotch Tasting Event

The Event

The event will take place at the Offices of Thomson Reuters in San Francisco on September 30, 2010 from 4:00 p.m. to 7:00 p.m.  The event will include Scotch tasting, appetizers and food, and socializing.  The event is hosted by Thomson Reuters and Skyy Spirits and the cost to attend is $200 per person.

Mallon P.C. will be attending this event.

For more information about the event including how to register, please click here.

About Hedge Funds Care

Founder Rob Davis established Hedge Funds Care in 1998 with the dream of helping to prevent and treat child abuse. With the encouragement and participation of his colleagues in the hedge fund industry, the first Open Your Heart to the Children Benefit took place in New York in February of 1999 and raised $542,000. What began as a single fundraiser has grown into an international nonprofit organization. Hedge Funds Care has distributed over $21 million through more than 600 grants. In 2010, annual benefits will take place in New York, San Francisco, Chicago, Atlanta, Boston, Denver, Toronto, London and the Cayman Islands. Through the ongoing generosity and commitment of hedge fund industry professionals, HFC continues its rapid expansion. We anticipate future growth to cities in the U.S. and abroad.

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Bart Mallon, Esq. runs the Hedge Fund Law Blog and provides legal services through Mallon P.C. He can be reached directly at 415-868-5345.

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New Form MA-T Released

Under the Dodd-Frank FinReg bill, municipal advisors are required to register with the SEC by October 1, 2010.  Municipal advisors are firms or individuals who provide advice to state and local governments and other borrowers involved in the issuance of municipal securities.  The definition includes financial advisors, guaranteed investment contract brokers, third-party marketers, placement agents, solicitors, finders, and certain swap advisors that provide municipal advisory services.

Interim Final Temporary Rule 15Ba2-6T

In the SEC’s adopting release, the

The Commission is adopting an interim final temporary rule, Rule 15Ba2-6T, in order to provide a method for municipal advisors to temporarily satisfy the statutory registration requirement of Section 15B(a)(1) of the Exchange Act (as amended by Section 975(a)(1) of the Dodd-Frank Act) until the Commission has promulgated a final permanent registration program. The interim final temporary rule will expire on December 31, 2011.

Form MA-T Requirements

Form MA-T is a short six page form which requires municipal advisors to provide the following information:

• Identifying information (name, EIN, place of business, contact person, website, etc.)
• Type of advisory services
• Disciplinary information
• Execution

Municipal advisors should take note that the above information will be publicly available on the SEC website.

The release can be found here.

Further information can be found here.

Adopting Release can be found here.

Please also see the complete Form MA-T

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Bart Mallon, Esq. runs the hedge fund law blog and provides hedge fund registration and compliance services to hedge fund managers through Mallon P.C., a hedge fund law firm.  He can be reached directly at 415-868-5345.

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The following are various hedge fund events happening this month.  Please email us if you would like us to add your event to this list.

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September 1-2

• Sponsor: World Business Research
• Event: Trading Architecture Asia 2010
• Location: Hong Kong

September 7-8

• Sponsor: IQPC
• Event: 7th Annual Nordic Investors Forum 2010
• Location: Stockholm, Sweden

September 8-9

• Sponsor: JFPS Group
• Event: 4th Annual Funds Forum China 2010
• Location: Shanghai

September 10

• Sponsor: International Financial Law Review
• Event: Asia Private Equity Forum
• Location: Hong Kong

September 12

• Sponsor: 100 Women in Hedge Funds
• Event: La Parisienne Race in Support of Breast Cancer Research
• Location: Paris

September 12

• Sponsor: 100 Women in Hedge Funds
• Event: Susan G. Komen Race for the Cure
• Location: New York, NY

September 13-14

• Sponsor: Marcus Evans
• Event: 14th Annual Capital Allocation and Management
• Location: London

September 13-14

• Sponsor: Asia Business Forum
• Event: Construction Law and Contracts 2010
• Location: Singapore

September 13-15

• Sponsor: Terrappinn
• Event: Andes Investment Summit 2010
• Location: Cartagena, Colombia

September 13-16

• Sponsor: Terrapinn
• Event: Hedge Funds World Asia 2010
• Location: Hong Kong

September 14

• Sponsor: 100 Women in Hedge Funds
• Event: Education No. 211 An Evening with Industry Icon Jim Mellon
• Location: London

September 14

• Sponsor: Argyle Exec. Forum
• Event: Endowments, Foundations & Pension Funds
• Location: New York, NY

September 14

• Sponsor: FINalternatives
• Event: State of the Hedge Fund Industry
• Location: New York, NY

September 14-15

• Sponsor: Winston Baker
• Event: Film Finance Forum East
• Location: New York, NY

September 15

• Sponsor: HedgeAnswers
• Event: HedgeAnswers: The Conference Calls
• Location: Virtual event

September 15-16

• Sponsor: Opal Financial Group
• Event: Real Asset Investing Group
• Location: San Francisco

September 15-16

• Sponsor: Opal Financial Group
• Event: Private Equity Summit for Institutional Investors
• Location: San Francisco

September 16

• Sponsor: 100 Women in Hedge Funds
• Event: Senior Practitioner Event: The History of Hedge Funds – A Window on Tomorrow’s Financial System
• Location: New York, NY

September 16

• Sponsor: HedgeWorld
• Event: Is Your Story Strong Enough?
• Location: New York, NY

September 16

• Sponsor: Hedge Funds Care
• Event: Cocktails on the Sound
• Location: Stamford, CT

September 16-17

• Sponsor: Marcus Evans
• Event: 2nd Annual Investing in Frontier Markets
• Location: London

September 16-17

• Sponsor: FRA
• Event: Marketing & Advertising Compliance for Investment Advisers
• Location: New York, NY

September 20-22

• Sponsor: Infocast
• Event: Energy OTC Derivatives, Futures & Swaps Summit
• Location: Washington, DC

September 21

• Sponsor: Golden Networking
• Event: Distressed Investing Experts Forum 2010
• Location: New York, NY

September 21

• Sponsor: IBC Conferences
• Event: Hedge Fund Redomiciliation & Restructuring
• Location: London

September 21-22

• Sponsor: IMN
• Event: Foundations & Endowments Summit
• Location: San Diego, CA

September 21-22

• Sponsor: IMN
• Event: Alternative Investments Summit
• Location: San Diego, CA

September 21-22

• Sponsor: FRA
• Event: Sub-Advised & Multi-Managed Funds Forum
• Location: Boston, MA

September 21-22

• Sponsor: IMN
• Event: Emerging Managers Symposium
• Location: San Diego, CA

September 22

• Sponsor: 100 Women in Hedge Funds
• Event: Geneva 2010 Charity Gala in aid of Solidarite Femmes (Women Supporting Women)
• Location: Geneva

September 22-24

• Sponsor: ACA Compliance
• Event: Compliance Conference
• Location: San Diego

September 25

• Sponsor: 100 Women in Hedge Funds
• Event: The Komen Massachusetts Race for the Cure
• Location: Boston, MA

September 26-28

• Sponsor: Ascendant Compliance Management
• Event: Capitalize on Compliance in Washington, DC
• Location: Washington, DC

September 26-28

• Sponsor: Institutional Investor Alpha Hedge
• Event: 16th Annual Institutional Investment Conference
• Location: San Francisco, CA

September 28-29

• Sponsor: Fleming Gulf
• Event: Risk Management Asia 2010
• Location: Singapore

September 28

• Sponsor: FTF News
• Event: Understanding Portfolio Management & Trading
• New York, NY

September 28

• Sponsor: SIFMA
• Event: Fixed Income Legal & Compliance Conference
• Location: New York, NY

September 28

• Sponsor: FTF News
• Event: Surviving a Hedge Fund Operational Due Diligence
• Location: New York, NY

September 28-29

• Sponsor: Dow Jones
• Event: Private Equity Analyst Conference
• Location: New York, NY

September 29

• Sponsor: Judicial Media
• Event: Green Investor Conference
• Location: San Francisco, CA

September 29

• Sponsor: Judicial Media
• Event: Accredited Investor Conference
• Location: San Francisco

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Bart Mallon, Esq. runs the hedge fund law blog and provides hedge fund registration and compliance services to hedge fund managers through Mallon P.C., a leading hedge fund law firm.  He can be reached directly at 415-868-5345.

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Bart Mallon, Esq. – Mallon P.C.
(www.forexregistration.com)

NFA Releases Notice Regarding Forex Registration

As we discussed in our post yesterday about outstanding issues with retail forex regulations, the NFA posted guidance regarding the final retail forex regulations passed by the CFTC earlier this week.  In general, the notice answers a few of the questions regarding implementation of the regulations, but many questions are left unanswered.

The central take-aways from the notice below include the following:

• NFA will begin taking registration applications from forex firms on September 2
• Retail forex firms not registered by October 18, 2010 must cease conducting retail forex business until registration is finalized
• Forex only FCMs will need to register as an RFED even though they are already registered as a FCM
• Forex APs will need to pass both the Series 3 and Series 34 exams (with certain exceptions)
• Forex IBs, if guaranteed, can only have a guarantee agreement with one FCM/RFED

The release below is silent on the following issues:

• Disclosure documents for Forex CTAs and CPOs - do these need to be reviewed and approved by the NFA prior to use by the registered forex firm?  If so, is the NFA providing expedited review for these forex applications?
• Currently registered CTAs and CPOs who conduct a small amount of retail forex transactions – do APs at these firms also need to take and pass the Series 34 exam?  Are there additional items in the NFA online registration system which need to be completed?
• Open positions on October 19, 2010 – what happens if a forex CTA or CPO is not registered by October 19, 2010?

Other questions deal with issues which we will seek clarification from the CFTC – the big open question is whether individuals will be able to open accounts at offshore forex firms.

It is also currently unknown what sort of paperwork or procedures the forex dealers will be requiring from the forex CTAs and CPOs in order to comply with the provisions of the CEA.

The following notice can be found here.

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Notice I-10-17

September 01, 2010

NFA to begin accepting registration applications from forex firms and individuals on September 2

The Commodity Futures Trading Commission has issued final forex rules which become effective on October 18, 2010. NFA will begin accepting registration applications from forex firms and individuals beginning Thursday, September 2.

Any retail forex entity that does not complete the registration process by October 18, 2010 will be unable to conduct retail forex business until registration and all necessary approvals and designations are granted.

As part of the reauthorization of the CFTC in May 2008, Congress amended the Commodity Exchange Act to require, with certain exceptions, including a Futures Commission Merchant (FCM) acting primarily or substantially as a traditional FCM, any firm acting as a counterparty to certain retail forex transactions to register as a Retail Foreign Exchange Dealer (RFED).

Consequently, any existing Forex Dealer Member of NFA that is currently registered as an FCM must register as an RFED unless the firm’s business is primarily or substantially that of a traditional FCM. Moreover, even if the firm’s business is primarily or substantially that of a traditional FCM, the firm must access NFA’s Online Registration System (ORS) and request approval as a Forex Firm and designation as a Forex Dealer Member.

The Commodity Exchange Act was also amended to require any individual acting as a forex solicitor, account manager or pool operator to register with the CFTC as Introducing Brokers (IBs), Commodity Trading Advisors (CTAs) or Commodity Pool Operators (CPOs) and become Members of NFA. Also, any Associated Person (AP) soliciting or supervising persons soliciting business on behalf of a forex firm must request approval as a Forex AP.

If you are not currently registered, you must comply with all registration and forex requirements.

If you are currently registered as an IB, CPO, CTA or AP that is conducting forex business, you must still apply for Forex Firm or Forex AP approval.

All individuals who solicit retail off-exchange forex business or who supervise that activity must take and pass two exams. One is the National Commodity Futures Examination (Series 3) and the other is the Retail Off-Exchange Forex Examination (Series 34), a new exam focusing exclusively on forex-related questions.

Individuals who were registered as APs, sole proprietors or floor brokers (FBs) on May 22, 2008 will not need to take the Series 34 exam unless there has been a two-year gap in their registration since that date.

Every approved Forex Firm (RFED, FCM, IB, CPO or CTA) must have at least one principal who is registered as an AP or FB and who is approved as a Forex AP.

In addition, any RFED branch office must have a branch office manager who has taken the Series 30 exam and is an approved Forex AP.

The Commission’s final forex rules do not require Forex Firm IBs to be guaranteed. However, if a Forex Firm IB is guaranteed, the IB can only have one guarantor. In other words, an IB cannot be guaranteed by an FCM for futures business and a different RFED for forex business.

NFA has prepared a “Registration Overview for Retail Foreign Exchange Dealers and Forex IB, CTA and CPO Applicants” that provides additional registration information. You can also find information and guidance on NFA’s website.

Additionally, NFA’s Information Center (800-621-3570) is available from 8:00 a.m. – 5:00 p.m. CT, Monday through Friday.

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