Registered CPOs and CTAs Must Take Action with NFA by October 2024

• Pursuant to new National Futures Association (NFA) Compliance Rule 2-52, Interpretive Notice 9082 and amendments to NFA Bylaw 301, for NFA membership filings, membership renewals and material updates made after October 15, 2024, registered commodity pool operators (CPOs) and registered commodity trading advisors (CTAs) will need to designate an individual who is both a registered associated person (AP) and NFA-listed Principal (AP/Principal) to review and submit the CPO/CTA’s NFA Member Questionnaire (Questionnaire).
• In connection with these updates, a CPO/CTA NFA Member firm will also be required to promptly update its Questionnaire in light of any material changes to the CPO/CTA NFA Member firm’s business (including the launch of new commodity pools) and such updates will need to be reviewed and submitted by an AP/Principal.
• In addition, with respect to a CPO/CTA NFA Member firm that indicates in its Questionnaire that it is not engaged in activities relating to commodity interest products, such firm will be considered “inactive” and will be required to submit certain Questionnaire responses on a semi-annual basis.

For NFA membership filings, membership renewals and material updates made after October 15, 2024, registered CPOs and registered CTAs¹ will need to designate an individual who is an AP/Principal to review and submit the CPO/CTA’s Questionnaire.² This requirement will likely involve a significant change of practice for CPO/CTA NFA Members who have generally designated an authorized signatory who is involved in the more day-to-day compliance functions associated with NFA membership to make this filing, and internal procedures may need to be put in place to familiarize the AP/Principal with the Questionnaire’s content and purpose, and the electronic submission process.

When new NFA Compliance Rule 2-52, Interpretive Notice 9082³ and amendments to NFA Bylaw 301 go into effect in October 2024, they will revise certain requirements relating to the submission of the Questionnaire. For CPO/CTA NFA Member firms, the Questionnaire that is filed upon registration with the CFTC/NFA, updated annually on the anniversary of the CPO/CTA NFA Member’s NFA membership approval⁴ and updated with material changes (including the launch of new commodity pools) to the CPO/CTA NFA Member’s business will need to be reviewed and submitted by an individual who is an AP/Principal. In addition, with respect to a CPO/CTA NFA Member firm that indicates in its Questionnaire that it is not engaged in activities relating to commodity interest products, such firm will be considered “inactive” and will be required to submit certain Questionnaire responses on a semi-annual basis. These requirements are discussed in more detail below.

NFA Member Questionnaire Submission Requirements

Pursuant to new NFA Compliance Rule 2-52(c), for all CPO/CTA NFA Member firms, an AP/Principal is the individual who must review, “sign” and submit the Questionnaire.⁵ As explained in Interpretive Notice 9082, “the individual responsible for reviewing, signing and submitting the Questionnaire and all updates should be sufficiently knowledgeable about a Member firm’s ongoing business operations.” An attestation “certifying that the answers and information provided are materially true, complete and accurate” must be completed when submitting the Questionnaire. The entire submission process for the Questionnaire is electronic, so there is no wet signature involved in “signing.”

It is expected that this new requirement will involve a significant departure from how Questionnaires are currently submitted because an individual who is an AP/Principal is usually a senior officer of a CPO/CTA NFA Member firm and not involved in the more day-to-day compliance functions in connection with NFA membership. Currently, authorized employees or representatives of a CPO/CTA NFA Member firm are permitted to submit the Questionnaire, and in some cases, compliance consultants or outside legal counsel might be submitting the Questionnaire on behalf of the CPO/CTA NFA Member. Such employees or representatives will continue to be able to prepare responses for the Questionnaire in the NFA online registration system but will not be authorized to submit the Questionnaire after these changes go into effect. Prior to the October 15, 2024, compliance date, Member firms should identify the individual who will submit the Questionnaire and ensure that such individual has the necessary NFA login credentials, is comfortable with the process and familiar with the Questionnaire content.

The NFA staff has stated—but it has not yet appeared in an official NFA written communication—that CPO/CTA NFA Members will need manually to designate the one or more AP/Principals who will be able to submit the Questionnaire on the CPO/CTA NFA Member’s behalf, and that the NFA plans to do checks after Questionnaires are submitted to confirm that an AP/Principal is the person who submitted it. The manual way the rule change will be implemented will introduce the possibility that CPO/CTA NFA Members will initially miss compliance, and CPO/CTA NFA Members need to be familiar with the rule change and the steps they will need to implement it to avoid needing to refile. More information on how to designate AP/Principals as designees to submit the Questionnaire should be forthcoming in Summer 2024.

Material Changes to an NFA Member’s Business Operations

Under new NFA Compliance Rule 2-52(b), if there has been a material change to a CPO/CTA NFA Member firm’s business operations that would make previously submitted Questionnaire responses inaccurate or incomplete, the firm must promptly update the applicable Questionnaire responses. In Interpretive Notice 9082, the NFA stated that it does “not intend to prescribe all of the events that may qualify as material” but rather “each Member is in the best position to determine what constitutes a material change in its operations based on the type, size and complexity of the Member’s business.” Interpretive Notice 9082 does, however, provide some specific examples of changes that the NFA would consider to be material to a CPO/CTA NFA Member firm’s business operations, including, if a CPO launches a new commodity pool or “engaging or disengaging in activities relating to: commodity interest products, micro-contracts, retail forex or digital assets, algorithmic trading activities, or cloud computing.”⁶ Similar to the annual Questionnaire, a designated AP/Principal is the individual who will need to submit updates to a Questionnaire to address a material change in the CPO/CTA NFA Member firm’s business operations.

Inactive NFA Members

Interpretive Notice 9082 provides that CPO/CTA NFA Member firms that answer “no” to all the questions included in the Questionnaire regarding the CPO/CTA NFA Member firm’s involvement in activities relating to commodity interest products will be considered by the NFA to be “inactive.” For each CPO/CTA NFA Member firm that is considered inactive, the CPO/CTA NFA Member firm’s page on the NFA’s online database, BASIC, will include a banner indicating that the CPO/CTA NFA Member firm is inactive. In addition, the NFA will require that inactive CPO/CTA NFA Member firms submit a Questionnaire every six months rather than only on an annual basis. If an inactive CPO/CTA NFA Member firm begins engaging in activities relating to commodity interest products, this would be considered a material change to the CPO/CTA NFA Member’s business operations and the firm would be required to promptly update its Questionnaire responses pursuant to NFA Compliance Rule 2-52(b) in the manner discussed above.

1. The NFA is the U.S. self-regulatory organization of the commodity interest trading markets. The NFA manages CFTC registration matters, implements its own rules and conducts routine compliance audits addressing compliance with CFTC regulations and NFA rules. All registered CPOs and registered CTAs with discretionary assets under management are required to become NFA Members (each, a CPO/CTA NFA Member). Note that some market intermediaries are only registered as CPOs or only registered as CTAs or are registered as both. For ease of reference in this Dechert OnPoint, all these market intermediaries are collectively referred to as CPO/CTA NFA Members.
2. Under Commodity Exchange Act Section 4k(1), an individual is required to register as an AP if the individual engages in solicitation of interests in pools or accounts a registered CPO or CTA is operating in their respective registered capacity. Additionally, an individual who supervises those who are soliciting must register as an AP.
   
   The definition of a Principal under CFTC Regulation 3.1(a) is long and complex, but can be summarized as including the officers/leadership of a registered CPO or registered CTA, as well as direct and indirect 10 percent or more individual owners and direct 10 percent owners.
   
   Importantly, even if a registered CPO or CTA is not involved in solicitation, under NFA Bylaw 301(a)(iv), every CPO/CTA NFA Member must have at least one individual who is registered as an AP and is also listed with the NFA as a Principal.
3. NFA Compliance Rule 2-52: Requirements in Connection with NFA’s Member Questionnaire, NFA Interpretive Notice No. 9082 (effective Oct. 15, 2024) (hereinafter, Interpretive Notice 9082).
4. Failure to submit the Questionnaire within the required time frame is considered a request to withdraw the firm’s NFA membership.
5. NFA Compliance Rule 2-52(d) requires that swap dealer NFA Member firms’ Questionnaire be reviewed, “signed” and submitted by a Principal of the swap dealer NFA Member firm. If an NFA Member firm is registered as a swap dealer and is also registered under another NFA membership category, the NFA Member firm’s Questionnaire must be reviewed, signed and submitted by an individual who is a registered Associated Person and a listed Principal of the Member firm pursuant to Rule 2-52(c). Note that registration as a swap dealer is not the same thing as a CPO/CTA NFA Member being designated as an NFA “swap firm.” Registered swap dealers tend to be on the “sell-side” of the swaps trading markets where as CPO/CTAs that trade swaps and are designated as swap firms tend to be on the “buy-side” of the swaps trading markets.
6. Interpretive Notice 9082 (“However, NFA believes a Member should update its Questionnaire if certain changes occur. Specifically, engaging or disengaging in activities relating to: commodity interest products, micro-contracts, retail forex or digital assets, algorithmic trading activities, or cloud computing; a significant increase or decrease in customer accounts; an [Introducing Broker]’s revenue increases to exceed the designated threshold that would require it to comply with Commodity Futures Trading Commission Regulation 1.35(a)(1)(iii); or, if a CPO has a pool that has just commenced operations.”)