NFA Proposes Requiring CPOs And CTAs To Report Financial Condition

The NFA proposed amending Compliance Rule 2-46 and adopting Interpretive Notice: “NFA Compliance Rule 2- 46: Reporting Financial Information on NFA Forms PQR and PR,” that requires commodity pool operators (“CPOs”) and commodity trading advisers (“CTAs”) to report on Forms PQR and PR the two ratios that would provide NFA with information on their financial condition. The NFA explained that Compliance Rule 2-46 currently requires CPOs and CTAs to report certain information to the NFA on a quarterly basis on Forms PQR and PR regarding only the pools operated by a CPO and the assets directed by a CTA. However, CPOs and CTAs are not currently required to provide information on their own financial condition.

Under the proposed Interpretive Notice, NFA-member CPOs and CTAs would be required to report on the quarterly Form PQR or PR the following financial ratios:

  • current assets to current liabilities of the CPO or CTA, in order to provide a measure of the firm’s liquidity; and
  • total revenue to total expenses of the CPO or CTA, in order to provide a measure of the firm’s operating margin.

The proposal would permit (i) firms that are part of larger financial groups to report required financial information at the parent company level, and (ii) firms whose fiscal year is not aligned with the PQR/PR reporting periods to report using information as of the most recently ended fiscal quarter. Firms would be required to maintain financial records to substantiate the financial ratios reported on Form PQR or PR.

The NFA noted that the proposal does not establish any minimum financial ratios that CPOs and CTAs would be required to meet. However, the NFA would use the financial information to identify firms that may be facing financial difficulties.


If these financial reporting requirements are adopted, how long will it be before the regulators impose actual capital requirements? Let us know what you think!

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