CFTC and NFA Issue Relief for Registered CPOs and CTAs in Response to Disruptions Caused by COVID-19 Coronavirus Pandemic
March 23, 2020
The Commodity Futures Trading Commission issued industry-wide no-action relief for registered commodity pool operators on March 20, 2020, to permit those CPOs additional time to make certain regulatory filings and issue certain reports that would otherwise be due in the near term.1 In addition, the National Futures Association stated to the industry on March 13, 2020 that it would not take disciplinary action against NFA members (which would include registered CPOs and commodity trading advisors), if those firms do not list as branch offices home offices or other remote locations where their associated persons (APs) are temporarily working for business continuity purposes due to the COVID-19 coronavirus pandemic.2
CFTC No-Action Relief
In the no-action relief, the CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) stated that it would not recommend that the CFTC take enforcement action against any registered CPO for failure to comply with certain regulatory deadlines related to upcoming CFTC Form CPO-PQR filings, annual report filings and distribution of periodic account statements.
Specifically, the relief provides for the following:
- CFTC Form CPO-PQR
- Small and Mid-Sized CPOs may file their annual CFTC Form CPO-PQR risk report as late as May 15, 2020. Otherwise, this filing would have been due at the end of March (90 days following calendar year-end).
- Large CPOs may file their quarterly report on CFTC Form CPO-PQR for the first quarter of 2020 as late as July 15, 2020. Otherwise, this filing would have been due at the end of May (60 days following first calendar quarter-end). Note that as of the date the CFTC provided this no-action relief, Large CPOs’ CFTC Form CPO-PQR for the period ended December 31, 2019 had already been filed.
- Small and Mid-Sized CPOs may file their annual CFTC Form CPO-PQR risk report as late as May 15, 2020. Otherwise, this filing would have been due at the end of March (90 days following calendar year-end).
- Commodity Pool Annual Reports
- For any pool annual report that is due on or before April 30, 2020, CPOs have an additional 45 days past the due date of the filing in which to file the report with the NFA and distribute the report to participants. This would cover commodity pools with a fiscal year-end of December 31 or January 31, and commodity pools that ceased trading on or before January 31. CPOs may still request an additional 90 days to file beyond the original due date of the annual report in order to have a total of 180 days from the end of the pool’s fiscal year to file and distribute an annual report. This request must be submitted to the NFA in accordance with the process set forth in CFTC Rule 4.22(f).
- For any pool annual report that is due on or before April 30, 2020, CPOs have an additional 45 days past the due date of the filing in which to file the report with the NFA and distribute the report to participants. This would cover commodity pools with a fiscal year-end of December 31 or January 31, and commodity pools that ceased trading on or before January 31. CPOs may still request an additional 90 days to file beyond the original due date of the annual report in order to have a total of 180 days from the end of the pool’s fiscal year to file and distribute an annual report. This request must be submitted to the NFA in accordance with the process set forth in CFTC Rule 4.22(f).
- Commodity Pool Periodic Account Statements
- For any commodity pool periodic account statement for periods ending on or before April 30, 2020, CPOs have 45 days from the end of the reporting period to distribute to participants such periodic account statement. For commodity pools operated under the full CFTC Part 4 regime (retail commodity pools), these periodic account statements are distributed monthly for commodity pools with net assets of more than $500,000. For retail commodity pools with net assets of $500,000 or less and commodity pools operated under CFTC Rule 4.7(b), these periodic account statements are distributed quarterly. In each case, the relief provides CPOs an additional 15 days to distribute the account statements.
- For any commodity pool periodic account statement for periods ending on or before April 30, 2020, CPOs have 45 days from the end of the reporting period to distribute to participants such periodic account statement. For commodity pools operated under the full CFTC Part 4 regime (retail commodity pools), these periodic account statements are distributed monthly for commodity pools with net assets of more than $500,000. For retail commodity pools with net assets of $500,000 or less and commodity pools operated under CFTC Rule 4.7(b), these periodic account statements are distributed quarterly. In each case, the relief provides CPOs an additional 15 days to distribute the account statements.
NFA Guidance
The NFA-provided relief is intended to help firms (including CPOs and CTAs) that permit APs to temporarily work remotely from home offices or other locations that are not the main business address or a listed branch office of the firm, and without a branch office manager.
Generally, if an AP is located in a location other than the firm’s main business address: that location must be listed as a branch office with the NFA on the firm’s NFA Form 7-R; the branch office must have a branch office manager who has taken and passed the Series 30 licensing exam or qualified for an alternative; and the firm must audit the branch office on a periodic basis.3 These requirements apply whether or not the AP is engaged in activity requiring the AP registration from the remote location.
With many firm employees working from home or other remote locations as contingencies pursuant to their business continuity plans, the movement of APs to remote locations could have the potential to create many new branch offices and introduce new compliance burdens for firms. Recognizing that this is anticipated to be a temporary situation due to COVID-19 coronavirus, and expecting that these APs will return to their respective firms’ main offices once the firms no longer are operating under their business continuity plans, the NFA has determined not to take disciplinary action against firms for not listing these remote AP locations as branch offices and not taking the additional steps that would otherwise be necessary to operate these locations as branch offices.
However, the NFA expects that firms relying on this guidance will: (1) implement alternative supervisory methods to adequately supervise their remote APs’ activities; (2) meet recordkeeping requirements; and (3) document the procedures drafted to cover these arrangements.
Footnotes
1) No-Action Positions for Commodity Pool Operators in Response to the COVID-19 Pandemic, CFTC No-Action Letter No. 20-11 (Mar. 20, 2020).
2) Coronavirus Update—NFA Branch Office Requirements, NFA Notice I-20-12 (Mar. 13, 2020).
3) See NFA Compliance Rule 2-9; see also, Compliance Rule 2-9: Supervision of Branch Offices and Guaranteed IBs, NFA Interpretive Notice No. 9019.
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