Use of Derivatives by Investment Companies

As long as ICs comply with SEC regulations concerning asset coverage, there are no significant restrictions on their use of derivatives. However, an IC which uses derivatives more than just as a hedging strategy potentially faces the need to register with the CFTC as a CPO and may be required to comply with two different regulatory regimes.

Where an IC is registered with the SEC, its operator is not required to register with the CFTC as a CPO, if the IC enters into transactions in CFTC regulated derivatives for bona fide hedging purposes.

This exemption is dependent on the IC complying with the following conditions:

1. it commits no more than 5 per cent of its total net assets to initial margin and option premiums;

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Posted: February 9th, 2008 under Commodities Futures, Future Broker.
Comments: 5

CTA Regulation

Anyone whose business involves advising US citizens or residents on trading in CFTC-regulated contracts or who trades such contracts on a discretionary basis is required to register with the CFTC as a CTA and to become a member of the NFA. CTAs who have advised fewer than 15 people in the previous 12 months are exempt from registration if they do not publicly present themselves as CTAs.

The CFTC takes the view that if a CTA advises a fund, it advises each investor who participates in the fund and the CFTC counts each investor for purposes of its 15-person limit. If advice is only given in relation to pools for which a CPO is registered or exempt, the CFTC exempts it from the obligation to register as a CTA. CTAs must comply with CFTC and NFA membership application procedures and provide disclosure documents before soliciting clients. Read more »

Posted: February 9th, 2008 under Commodities Futures, Future Fund, Future Management.
Comments: 4

THE UNITED STATES

The legislation for setting up and marketing managed futures funds in the US is incorporated in regulations from the Securities and Exchange Commission (the SEC), the Commodity Futures Trading Commission (the CFTC), and the securities (blue sky) laws of the 50 states.

Interests in funds are ‘securities‘ under the Securities Act of 1933 and may only be offered or sold to the US general public in compliance with SEC rules. In addition, the organisers and advisers of derivative funds are generally required to register with the CFTC as commodity pool operators (CEOs) or commodity trading advisers (CTAs).

Funds whose principal activity is investing in equities and government securities must in most cases register with the SEC as investment companies (ICs) under the Investment Company Act of 1940 and their advisers are required to register with the SEC as investment advisers (IAs) under the Investment Advisers Act of 1940. Read more »

Posted: February 9th, 2008 under Commodities Futures, Future Fund, Future Trading.
Comments: 3

Marketing Rules for Fofs and Gfofs

The rules on marketing Gfofs are more stringent than those which apply to Fofs, because Gfofs are perceived to have a greater requirement for investor protection. The marketing rules apply to direct offer advertising, unsolicited calls, cooling-off periods, projections, past performance comparisons, risk warnings, valuation and pricing.

There is no legislation on guaranteed funds as yet, and Fofs and Gfofs are not allowed to pay performance fees. There is further debate in progress on the whole subject of authorised unit trusts investing in futures and options and the SIB is likely to make amendments to the original regulations by 1994. Read more »

Posted: February 9th, 2008 under Future Fund.
Comments: 4