How Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs) are Regulated
The Commodity Futures Trading Commission's (CFTCs) regulations for Commodity Pool Operators (CPOs) and Commodity Trading Advisors (CTAs) are based on investor protection. These regulations are designed to protect investors against fraud and other abuses. To achieve this purpose the CFTC sets forth registration and other requirements for CPOs and CTAs. These requirements are designed to ensure their qualifications and fitness. They must ensure that pool participants and advisory customers receive appropriate disclosures, which must be updated every nine-months. This information will normally include information on the investment program, principal risk factors, past performance, fees and expenses, and conflicts of interest.
CPOs also must provide periodic account statements as well as an annual audited financial statement for any pool they operate in. CPOs and CTAs both much comply with sales practice requirements as well as various reporting and recordkeeping requirements. Finally, they are subject to requirements on anti-fraud and anti-manipulation. These detailed forms of regulations help to ensure the safety of investing in Managed Futures.
CPOs and CTAs are also required to register with not only the CFTC but must also register as members of the National Futures Association (NFA). The NFA is an industry self-regulatory organization. In practice, the CFTC has delegated many of its regulatory responsibilities in this area to the NFA, including the registration processing function, and review of disclosure documents and financial statements. In addition, the NFA has responsibilities for conducting routine periodic examinations of compliance by CPOs and CTAs with all requirements. CPOs and CTAs are examined on a three-year cycle, unless circumstances require otherwise.