Transcript Preparing for an NFA Audit

Session 2:
Disclosure Documents and
Performance Reporting
Moderator: Patricia Cushing, NFA
Panelists:
Kate Dressel, Strategic Compliance Solutions
Rita Molesworth, Willkie, Farr & Gallagher
Kristen Harkins, NFA
Disclosure Document
Overview
Main Objectives
• Disclosure to Investors
• Protect CPO/CTA
• Compliance with CFTC Regulations
4.7 Disclosure
• Corollary to Reg D
• More sophisticated investors “know to
ask”
Updating Disclosure Documents
• Changes to Operation or Program
• On-Line Registration Changes
Other Consideration:
Conflict with other rules applicable to
offerings to non-accredited investors
Most Common NFA
Comments
Business Background Information
• Specify month, year, firm name, business and
individual’s duties
• Required for last five years, explain gaps
• Certain information can trigger disclosure
beyond the last five years
FCM Litigation Disclosure
• 4.24(l) standard
• Updates to Information
Principal Risk Factors
• Areas specifically required by the Regulations
- Volatility
- Leverage
- Liquidity
- Counterparty Creditworthiness
• Tailor to the offered program
Easy-to-Fix Items
• Consistency throughout the document (e.g.
dates, fees)
• Risk Disclaimers must be verbatim
• Page References
• Remove the “never traded before” disclaimer
once the document is updated to include
performance
Performance
Reporting
Supporting Documentation
• Performance Worksheets for each
individual client account
• Monthly Carrying Broker Statements
Reliance on Third-Party
Providers
• Due Diligence
• Responsibility remains with the
CPO/CTA
Composite Performance
Capsules
• Accounts trading the same program
• Accounts are achieving “materially
similar” rates of return (NFA Interpretive
Notice ¶9054)
Proprietary Performance
• Accounts where more than 50% of the
beneficial interest is owned by the firm, its
affiliate, family member or any person
providing services to the account are
considered proprietary
• If disclosed, must be disclosed separately
from customer performance
Pro-forma Performance
• Actual Performance with a pro-forma
adjustment for fees
• Adjust Proprietary Performance for fees
charged to client accounts
• Adjusting Customer Performance for a new
fee structure
Other Items/Resources
• Break-Even Analysis Questions
• Tips for using NFA’s electronic
Disclosure Document Filing System
Session 2:
Disclosure Documents and
Performance Reporting
Moderator: Patricia Cushing, NFA
Panelists:
Kate Dressel, Strategic Compliance
Solutions
Rita Molesworth, Willkie, Farr & Gallagher
Kristen Harkins, NFA