Offering Advice & Services to Traders | Investors | Funds
Commodity Pools and Managed Futures Funds
I would like to state unequivocally that I have had a completely positive experience in dealing with Capital Management Services Group. Truly, from the first phone call that I made to Capital Management, to the conference call that was arranged with Hannah Terhune, the time she took in answering all of my questions, and, finally, to the follow-up by Amy Hong. My case involved the establishment of a Forex Incubator Fund, and was thoroughly handled. Hannah Terhune responded promptly to my subsequent phone calls and Amy Hong is absolutely 100% efficient. I, certainly, plan to enlist Capital Management's services for my legal needs in the future concerning fund management. I would rate my experience and results 5 out of 5 stars! Totally satisfied, Rxxxxxx Sxxxx, Sept.22, 2010
What is a Commodity Pool? A commodity pool is a hedge fund in which money from investors is combined for the purpose of trading futures, swaps, contracts, or commodity options. A commodity pool is the commodity-futures equivalent of a hedge fund--the investor buys shares in the pool and the manager of the pool invests in managed futures, commodity interests and/or spot forex. Commodity pools are "covered securities" and subject to standard hedge fund rules. A modest level of managed futures trading gives rise to regulatory classification as a commodity pool and NFA control. Learn More About Hedge Funds If you are thinking about starting a commodity pool, you will find our Hedge Fund Checklist helpful.
What is a Commodity Pool Operator (CPO)?
A CPO is an individual or organization managing a commodity pool (i.e., an entity in which funds contributed by a number of investors is combined for the purpose of trading futures contracts, options on futures, or retail off-exchange forex contracts, or to invest in another commodity pool). A CPO makes trading decisions on behalf of the pool, or it retains the services of a CTA to do so. A CPO solicits or accepts funds, securities or property from prospective investors in the commodity pool. CPOs are required to register with the NFA unless they meet one of the requirements for exemption outlined by the CFTC. All registered CPOs must be members of the NFA in order to conduct business. Click Here for a Summary of Registration Exemptions CFTC Regulation 4.5 allows an exclusion from the definition of CPO for certain regulated persons. Click Here for the CPO Exclusion
What is a Commodity Trading Adviser (CTA)? A CTA is an individual or organization which, for compensation or profit, advises others as to the value of or the advisability of buying or selling futures contracts, options on futures, or retail off-exchange forex contracts. CTAs are responsible for advising managed accounts and pooled investment vehicles, such as commodity pools. CTAs also advise investors about the value of commodity futures or options or the advisability of trading in commodity futures or options. Commodities regulations apply to a hedge fund’s manager (CTA) or sponsor (CPO). Sometimes, the CPO and CTA are the same entity. Click Here for a Summary of Registration Exemptions
CPO and CTA Exemptions
If you can’t take advantage of an exemption from registration (see below), you must register with the CFTC, join the National Futures Association (NFA) and comply with detailed disclosure, record keeping and reporting regulations. The CFTC is an independent agency of the U.S. government responsible for regulating commodity trading. The NFA is responsible for regulating futures markets. NFA is overseen by the CFTC. The NFA is a self-regulatory organization to which the CFTC has delegated certain registration functions, including the registration of commodity pool operators (CPOs) and commodity trading advisers (CTAs). Click Here for a List of CPO and CTA Exemptions and Exclusions
The CFTC provides for key exemptions from CPO registration requirements. The exemptions are powerful in that a CPO that sets up an exempt commodity pool and is exempt from NFA registration, does not have to take the Series 3 exam, or become a member of the NFA. To use these exemptions you must give investors a Disclosure Document with certain disclosures, a copy of the NFA exemption, and keep certain records. CFTC Regulation 4.13 offers an exemption from CPO registration for operators of smaller pools and pools that trade at a de minimis level, as defined, of commodity interests in regulation. Any person claiming one of these exemption must also file a notice of eligibility with the NFA. Click Here for a List of the Exemptions
The exemptions are not self-executing. Need assistance? Contact Us We can prepare and file NFA Exemptions for qualifying CTAs and CPOs. The NFA exemptions from registration need to renewed annually.
CFTC Regulation 4.12(b) and CFTC Regulation 4.7 also provide exemptions to a registered CPO from certain requirements for funds with certain trading positions and to pools whose participants are limited to “qualified eligible persons” (sophisticated investors). Exempted parties must file notification with the NFA. Click Here for Regulation 4.12(b) and Click Here for Regulation 4.7
CTAs are required to register with the NFA unless they meet certain criteria pertaining to the size and scope of services offered. All registered CTAs who manage customer accounts must be NFA members. Generally, a CTA is exempt from registration if: it is registered as a CPO and its commodity trading advice is directed solely to, and for the sole use of, the pool or pools for which it is so registered; it is exempt from registration as a CPO and its commodity trading advice is directed solely to, and for the sole use of, the pool or pools for which it is so exempt; or during the course of the preceding 12 months, it has not furnished commodity trading advice to more than 15 persons and it does not hold itself out generally to the public as a CTA. Exemptions are narrowly construed by the regulators and the courts.
CPOs and CTAs Trading Securities & Securities Products
You do not have to register as an investment adviser if you are not trading securities. Commodities, managed futures and spot forex are not securities. If you plan to execute more than an occasional stock trade, however, you may have to register as an investment adviser. Security futures products also constitute securities for purposes of the Investment Company Act of 1940. If a CTA or a CPO provides more than incidental advice about securities, it has to address investment adviser registration, whether with the Securities Exchange Commission (SEC) or a state securities commission. Learn More About Investment Adviser Registration
CTA and CPO Disclosure Documents
Disclosure Documents are offering documents. Learn More About Offering Documents CTA Disclosure Documents are managed account agreements which are more substantial than your broker's power of attorney. CPO disclosure documents are usually much longer and deal with a number of other federal laws. Performance and Management Fees are discussed in the Disclosure Documents. CPO disclosure documents should be drafted by an attorney.
Please contact us for a Free Consult if you are thinking about starting a hedge fund to trade spot forex, managed futures and/or commodity interests!
How do I become a CPO? Full registration as a CPO is a relatively involved process and typically takes from six to eight weeks to complete. A CPO registers with the CFTC and becomes a member of the NFA by filing the following: a completed online Form 7-R; an application fee of $200; and CPO Membership Dues of $750.00. A CPO is required to file the following in relation to its “principals” and “associated persons”: a completed online Form 8-R; Fingerprint cards; a Principal Application Fee of $85.00; and an Associated Person Application Fee of $85.00. Principals and associated persons of a CPO are generally required to have passed the Series 3 National Commodity Futures Examination.
How do I become a CTA?
A CTA registers with the CFTC and becomes a member of the NFA by filing the following: a completed online Form 7-R; an application fee of $200; and CTA Membership Dues, if applicable, of $750. A CTA is required to file the following in relation to its “principals” and “associated persons”: a completed online Form 8-R; fingerprint cards; a Principal Application Fee of $85; and an Associated Person Application Fee of $85. Principals and associated persons of a CTA are generally required to have passed the Series 3 National Commodity Futures Examination.
Contact us for your CFTC and NFA Registration Needs
We prepare all NFA registration forms; customize policies and procedures; liaison with the regulators throughout the registration process for RFED, FCM, IB, CTA and CPO; and prepare disclosure documents for CTAs and CPOs. Contact Us
Will There Be a Family Office Exemption?
The CFTC indicated that it is considering a family office exemption akin to the SEC exemption. Through a series of interpretative letters, the CFTC takes the position that certain funds comprised solely of immediate family members are not commodity pools and consequently their managers are not CPOs. Although these letters were issued on a case-specific basis, CFTC regulations permit other entities to rely on interpretative letters. Managers of family offices seeking to avoid CPO registration must either (i) rely on another exemption from registration, if available, (ii) rely on a previously issued interpretative letter, if possible, or (iii) seek similar interpretative or no-action relief from the CFTC. The CPO registration exemptions in Rules 4.13(a)(1) and 4.13(a)(2) (see below) may be available to the managers of certain family offices. Rule 4.13(a)(1) exempts from registration the CPO of a single pool, provided that, among other things, the CPO does not receive compensation and is not otherwise required to register with the CFTC. Rule 4.13(a)(2) exempts from registration the CPO of one or more pools with aggregate contributions of $400,000 or less, provided that no one pool has more than 15 participants. The CPO, its principals, their immediate family members and other relatives living in the same household are excluded from the participant and contribution limits. These exemptions have been of limited utility given the structure of many family offices.
What are Commodity Interests?
Commodity interests include futures (including agricultural, metal and financial futures), commodity options and, upon the issuance of final rules under Dodd-Frank, swaps. Swaps include a wide variety of transactions, including interest rate swaps, many types of currency swaps, energy and metal swaps, agricultural swaps, commodity swaps, swaps on broad-based indices, and swaps on government securities. The CFTC's position is that transacting in any amount of futures contracts (either directly or indirectly) causes a fund sponsor to be a CPO. There is no de minimis exception in the definition. The CFTC position results in the conclusion that fund sponsors who have interest rate swaps or foreign exchange swaps are CPOs and need to registger (unless an exemption is available). Even a funds of funds may also be deemed to be commodity pools depending on the investment activities of underlying funds.
NFA Exemption Requirements
Exempt parties must file a publicly available notice disclosing the fund’s existence and exempt status. The NFA requires that parties that have filed a notice of exemption or exclusion under Rules 4.5, 4.13, or 4.14 must confirm such exemption or exclusion annually, within 60 days of the end of each calendar year. CFTC Rule 4.13 Failing to comply with this requirement will be treated as a request to withdraw the exemption. Click Here to Read the 2012 NFA Rule Changes Additionally, exempt parties must provide investors with an offering memorandum containing information disclosing: fees, transferability of fund interests, conflicts of interest and other matters. Exempt parties must provide investors with quarterly account statements disclosing: the fund’s net asset value (NAV) at quarter end; the change in NAV from the previous quarter end; and the value of the investor’s interest at quarter end. Exempt parties must provide investors with a form of annual report. Exempt parties are subject to the anti-fraud provisions of the Commodity Exchange Act (CEA). Exempt parties are subject to CFTC rules with respect to market manipulation. Exempt parties are subject to federal securities laws with respect to the offering of fund interests and investment activities involving securities. Finally, exempt parties are subject to certain special call provisions, including the requirement to file special reports with the CFTC, used for market surveillance and in connection with investigations or litigation.
Closely Held Pool Exemption CFTC Rule 4.13(a)(1) The Single Pool Exemption is available to a CPO who operates only one pool at a time and does not receive any direct or indirect compensation other than reimbursement of expenses. No one involved in the Pool can advertise the Pool or systematically solicit investors. You can set up a pool to develop a track record and it can be used in conjunction with incubator hedge funds. You can't receive any direct or indirect compensation other than reimbursement of expenses. You can't advertise the pool or solicit investors. Small Pool Exemption CFTC Rule 4.13(a)(2) The Small Pool Exemption is available to a CPO receiving capital contributions of less than $400,000 if the Pool doesn't have more than 15 investors. The CPO and its principals and certain relatives of the principals are not counted toward the 15 investor limit. Moreover, their contributions do not count toward the $400,000 limit. There are many exemptions to the $400k and 15 person limit such that the net effect is that you can set up a large pool while relying on this exemption. One of our planning strategies is to set up an exempt pool as a stepping stone to an NFA approved pool to avoid time delays. Contact Us for a Free Consult De Minimis Pool CFTC Rule 4.13(a)(3) The NFA requires full CPO registration by hedge fund managers operating hedge funds that conduct more than a de minimis amount of speculative trading in managed futures, spot forex and commodity interests. A hedge fund manager is required to register with the NFA unless the fund satisfies the de minimis trading limitations of Rule 4.13(a)(3). Under the rule, either: Initial margin and premiums for commodity interest transactions must be less than 5% of the liquidation value of the fund; or Aggregate net notional value of commodity interest transactions must be less than 100% of the liquidation value of the fund. Rule 4.13(a)(3) relief is available only if: (1) the hedge fund is privately offered to sophisticated investors defined in Rule 4.7 as qualified eligible persons (QEPs), accredited investors, or knowledgeable employees and (2) not marketed as a commodity futures or commodity options product. Most hedge funds and "real estate" hedge funds should be able to qualify under Rule 4.13(a)(3). Learn More About Accredited Investors
Rule 4.13(a)(4) Repeal
In 12, the NFA removed the exemption for CPO registration available in Rule 4.13(a)(4). This rule was relied on by a substantial portion of the hedge fund industry. Hedge fund managers operating commodity pools relying on the Rule 4.13(a)(4) exemption are required to register as CPOs by December 31, 2012 (unless they are able to avail themselves of another exemption). As a result of the repeal, CTAs currently operating under an exemption from CTA registration under Rule 4.14(a)(8)--based on the fact that they provide advise pools exempt under Rule 4.13(a)(4), are required to register as CTAs with the CFTC and become NFA members. In light of these changes you should consider your regulatory options. Confused? Contact Us for Assistance
The NFA modified the Electronic Exemption System to give persons that currently offer a 4.13(a)(4) exempt pool and have begun the registration process (but deferred the effective date until January 1, 2013), the ability to pre-file for an available exemption (e.g., 4.7, 4.12, or CFTC Advisory 18-96) that would become effective at the same time as the person's CPO registration on January 1, 2013. A person that elects to use the pre-filing option will not become subject to the additional reporting and disclosure requirements related to the newly claimed exemption until 2013.
QEP Exemption for NFA-Registered CPO Registered CPOs may rely on CFTC Rule 4.7 for relief from certain requirements. Rule 4.7 provides relief from the disclosure, record keeping, and reporting requirements for CPOs that offer interests in private pools investing in commodities solely to QEPs. Previously, Rule 4.7 provides that a CPO claiming relief under the rule is not required to provide its pool participants with audited annual financial statements. Current rules require CPOs operating pools pursuant to relief under Rule 4.7 to have the annual financial statements for the pool certified by a public accountant. A hedge fund manager now required to register an operator as a CPO due to the rescission of Rule 4.13(a)(4) remains able to claim some relief from the disclosure, record keeping, and reporting requirements under the CFTC rules. Click here to read the CFTC regulations issued February 8, 2012.
Are PAMMs (Percentage Allocation Management Modules) Commodity Pools? Yes. PAMMs are quite popular with money managers. PAMMs are solutions offered by forex brokers allowing money managers to control multiple client accounts by either pooling them together or allowing to place simultaneous orders. Under Interpretative Notice to NFA Compliance Rule 2-10, the NFA may view the sub-accounts traded under a PAMM (and similar trade management tools) as commodity pools. This directly affects commodity trading advisers (CTA) managing customer accounts under a master account.
To avoid commodity pool status, each sub-account must be treated as an individual account. Orders must be placed on each sub-account’s margin equity rather than master account’s margin equity. Speedy deposit and withdrawal must be allowed--customer funds cannot be locked as a result of a collective trading position.
Hannah and her team were knowledgeable, professional, and a pleasure to work with; having access to their expert help is indispensable in forming an incubator fund or hedge fund entity at a very reasonable cost and time frame. D. Rxxxn December 21, 2011
I wanted to thank you and your staff for the professional and timely services that you provided in setting up a CTA business. As an individual trader for almost 20 years I have a full grasp of markets but had very little knowledge in setting up a trading business for clients. Everyone at your firm was extremely friendlyand helpful in giving me guidance in this new startup. Your prices were fair and while I looked at different firms to handle the process yours was head and shoulders above the rest. Thanks so much, Sxxx Sxxxr Managing Partner Sxxxxx Capital Management LLC. June 18, 2010.
Our Customers Hannah: You and your team delivered what you promised--on time and on budget. You all were were attentive and professional in every respect, and I appreciate your effort, advice and guidance very much. It was a pleasure working with you, and I would recommend you to others without reservation. Best Regards, PB. January 18, 2010
Principals generally mean persons who meet any of the following:Certain title: Director, President, usually any “Chief” role Ownership: generally owners with 10% or more interest, including owners which are entities and owners of those entities (there are also look-through rules for entities). Also means individuals with management and supervisory authority.
Associated Person Generally any partner, officer, employee, consultant, or agent (or any natural person occupying a similar status or performing similar functions), in any capacity which involves: the solicitation of funds, securities, or property for participation in a commodity pool or the supervision of any person or persons so engaged.
What is a Guaranteed Introducing Broker?
Generally a firm which introduces client accounts to an FCM or RFED. These brokers might include groups that license software and receive per trade compensation from a broker. A guaranteed IB is a firm which only introduces to one FCM or RFED.
What is an Independent Introducing Broker?
The definition is same as above, except an independent IB may introduce to any number of FCMs or RFEDs and does not need to enter into a guarantee agreement. The independent IB will need to maintain a certain net capital.
Our Customers I have had the fortune of working with Hannah Terhune and Capital Management Services on the setup of my hedge fund. As a well funded start up with offshore and onshore investors I needed someone who could help me and my investors navigate the complex tax, regulatory and set up requirements. Her firm supported us each step of the way and we were incredibly impressed with her knowledge, experience and execution. What could have been a very difficult and lengthy process was seamless, well managed and cost effective. We will continue to use Hannah as we grow our assets and would have no hesitation in recommending her to both start up and established managers. Thanks. Warren January 26, 2010
Why Hire Us? When you engage us for hedge fund you get a unique combination of securities, tax, and international experience, focused on the trader niche. We have established a leadership position with traders. We are one destination for all your very special hedge fund and trader tax needs. We think we have the best set of offering documents based on the current and ever changing federal, state and offshore securities, commodities, and tax laws. We aim and deliver quick turnaround times, because we understand that our customers want to begin their money management business as soon as possible. We conceive, structure, and deploy the best tax saving strategies into your hedge fund vehicle (for the benefit of the manager and their investors) and your management company. Investors value tax-savings strategies and we utilize all our special knowledge and ideas in this area. Our customers value our one-stop relationship. We will help you start your business and continue to assist you. Our tax services division handles accounting, software, and tax compliance, including all tax matters (tax planning and tax returns). Only one thing counts with us and that's our customer relationships!
CapitalManagementServicesGroup.com is recognized by discriminating fund managers and businessmen as being the foremost tax and legal authority in the business. Attorney Hannah Terhune's education and experience are unsurpassed in the area of hedge funds creation and management platforms, and the complex body of related tax laws. Ms. Terhune's extensive knowledge and experience have made her an indispensable resource for serious hedge fund and business professionals. Ms. Terhune's articles on the subjects have appeared in over 100 publications worldwide. Chances are, if you have read about the above matters, Ms. Terhune has written about them.
Give us the opportunity to use that knowledge and experience for you. We have both regulatory experience and the understanding of the foreign exchange and securities markets. We know how to navigate the compliance with rules and regulations in the United States as well as in regulated jurisdictions such as United Kingdom, Singapore, Hong Kong, Canada and the British Virgin Islands. Each client receives personalized attention from our attorneys and staff. No client is too large or small though because of our boutique size. We pride ourselves in providing personal attention to each client.
CMSG provides the best services and support needed for hedge funds and business projects. No need to coordinate work between different firms--we handle the entire business process from start to finish. We offer accounting, tax planning services, tax return preparation, business consulting, and U.S. and international company formation services. Our professionals provide the highest quality services at competitive rates. But don't take our word for it, give us a call and let us prove what we can do for you. Read our Leading Media Articles, Customer Testimonials and learn more About Us.
Personal Consultations You get answers to your specific questions by speaking directly to Hannah Terhune, an experienced hedge fund and international tax attorney. Ms. Terhune's hard-earned knowledge and experience can be put to work to save you unnecessary steps and costly wasted effort. The consult is an invaluable opportunity to speak to Hannah one-on-one, and learn how to achieve more in less time. As a result, you can anticipate that the return on your investment will far outweigh the costs associated with our unsurpassed services. Ms. Terhune's credentials reflect an invaluable resource that combines a well-informed professional practitioner with sound ethical judgment that cannot be over-estimated. The expertise required to recommend best solutions and provide sound advice should never be taken lightly. We are confident that when you are finished with your consultation, you will be impressed and more informed about your business plans than ever before. Call (307) 213-4732 or Click Here to Request Services. Our Commitment Henry David Thoreau wrote: "Do not hire a man who works for money, but him who does it for love of it." We are committed to your business plans and bringing you the best possible options. We are an established and internationally recognized business that serves and educates our clients throughout the industry. We do this by striving for the best results. Above all, we are a law firm. A lawyer is a philosopher and role model. The ability to improve our clients' lives is a privilege that we do not take lightly. There is tremendous power in being able to effect a positive change in our clients' lives. Our aim is to welcome our clients and to provide a comfortable, warm environment for all. Thanks for visiting our website. We hope to have the opportunity to serve you.