Forex Commodity Pools
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Information on Forex Hedge Funds
The CFTC proposed rules early in 2010 that would require, among other things, managers engaged in providing investment advice with respect to retail forex to register with the CFTC and become members of the NFA. Those rules are expected to be promulgated sometime within the next 6-12 months and, accordingly, retail forex managers will need to understand the legal and regulatory requirements after the rules are effective. This article will overview the exam requirements for forex managers in general, detail the documents that forex commodity pools (i.e. forex hedge funds) and will also detail some of the major regulatory issues that managers should understand.
NFA Proficiency Exams – Series 3 and Series 34
Each manager who is required to be registered with the CFTC will need to take the appropriate proficiency exams. These exams include the Series 3 exam (focused on exchange traded futures) and the Series 34 exam (focused on off-exchange retail forex). The manager will need to take both of the exams even if the manager does not do any futures or commodities trading. Both exams are administered by FINRA and there are a number of study guides which will help managers to become adequately prepared for the test. If the manager has a branch office then the manager will
[Please note that I have talked with many forex managers who have not been able to pass the Series 34 exam and therefore we recommend that managers spend a significant amount of time studying for the exam. We also recommend using the free Series 34 exam study guide.]
Forex Commodity Pool Offering Documents
Forex commodity pools are typically established a Delaware limited partnerships. The forex manager forms a management company (usually a LLC) to act as the pool’s general partner; the investors will be the limited partners. The manager will need to have a forex lawyer who is familiar with the necessary securities laws and who will be able to draft the pool’s offering documents which will include a private placement memorandum, a limited partnership agreement and various subscription documents.
Forex Manager Regulatory Issues
Forex Registration - Once the managers have the proper exams, they will need to register as a forex commodity pool operator with the CFTC. This is done through the NFA’s online registration system. Usually it will take anywhere from 2-6 weeks (depending on whether the manager or employees have a negative regulatory history). Additionally there will be fees for registration and to become an NFA member.
Forex Branch Office - If the manager has multiple places of business, then the manager may have what is deemed a branch office and in that case the manager will need to designate a person as a branch office manager. As discussed above, the branch office manager will need to have a Series 30 exam.
Review by NFA – The NFA will need to review the pool’s offering documents. This review will include a series of back-and-forths with the NFA staff and usually lasts between 2-8 weeks depending on the NFA examiner and other items.
Forex Compliance – Having the appropriate forex compliance policies and procedures will be very important for managers because the NFA may audit managers and has specifically noted that forex managers are of particular concern to the NFA.
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Mallon P.C. provides comprehensive legal support to forex managers. Bart Mallon, Esq. can be reached directly at 415-868-5345.
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