I had a conference call with an attorney for an FCM we work with last week about this, but I want to know the opinion of the real soldiers in the trenches. Please note: we don't do any futures or are planning to ever; spot forex only. We have a few forex retail IB sites, but during the last two years have been focusing on funding traders (not necessarily CTA's). Initially, we started funding these traders with the retail investors that came through our websites; but this year we have started looking for forex traders for a financial institution (allocator) who funds them - so the focus has moved away from the retail investor almost exclusively. Based on this info, I asked the attorney if I can get by [in the meantime] with getting the series 3 and registering my firm as a CTA. The FCM's I work with on the retail side want us to register by next year anyway to continue to pay us, so maybe I'll be able to kill two birds with one stone. He told me that as long as I stuck to forex and not futures, I would be OK for now. Since we are not really doing the management of the accounts (retail or institutional) â just referring the funding sources to the traders, I'm planning to do the DDocs without any performance info. What do you guys thing about this? When I do this, will still be able to work with non-registered traders like I do now? A lot of people refer to the inability to deal with non-members, but I think this is mainly if I deal with futures. I only plan on dealing with forex. Will this fly? I understand that this is not the perfect thing to do. I'm of the opinion of setting up shop offshore to avoid a lot of the hassles, but can't do so now due to family reasons; so the CTA intermediary step might have to do for the time being. I really appreciate what you think. Thank you.
My best guess is that you would have to disclose each manager's style and performance to each investor in the DDoc. So you may need to construct a new DDoc for every manager you have (or hire) in the future. Take that for what you paid for it, though.
IANAL, but if you are just doing Cap Intro, I think you would get your cut from the trader, not from the client, and let the trader worry about the licenses.
NFA has made it illegal for Member FCM's/FDM's to have non-registered entities as partners, whether IB's or Money Managers, so he has to be licensed now. Otherwise I would agree with you, wenzi.
Yes; I was told this is the case if we get into futures, but not for forex. Does anyone have experience with what I'm talking about?
This is the release on October 4th: http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=1979 Notice I-07-41 October 04, 2007 Effective Date of Amendments to NFA Compliance Rule 2-39 NFA has received notice that the Commodity Futures Trading Commission has approved amendments to NFA Compliance Rule 2-39 to prohibit most Members from using unregulated solicitors when acting as fully disclosed forex intermediaries. Forex Dealer Members and Members who meet the criteria in NFA Bylaw 306(b) (e.g., registered broker-dealers) are exempt from the prohibition. Effective immediately, no Member subject to Compliance Rule 2-39(b) may accept orders or accounts for new retail off-exchange forex customers from unregulated entities. Firms that are currently accepting orders or servicing accounts introduced by unregulated entities have until October 31, 2007 to unwind their arrangements with these unregulated entities. These firms should contact NFA staff as soon as possible. An August 17, 2007 submission letter to the Commodity Futures Trading Commission includes a copy of the revised language as well as a more detailed description of the changes. You can access an electronic copy of the submission letter at National Futures Association | News Center. Questions concerning these requirements should be directed to Sharon Pendleton, Director, Compliance, (spendleton@nfa.futures.org or 312-658-6540) or Lauren Brinati, Manager, Compliance (lbrinati@nfa.futures.org or 312-658-6585). My understanding from was that certain registered firms couldn't do business with non-registered members anymore. For example, many firms were going to have to end their relationships with unregistered IB's; but I don't see how it applies to my situation. Does it mean that when our firm registers as a CTA we won't be able to use non-registered traders? If that's the case, that sucks big rhinocero's balls! I also looked at Rule 2-39(b): http://www.nfa.futures.org/printerFriendly.asp?tag=2-39 RULE 2-39. SOLICITING, INTRODUCING, OR MANAGING FOREX TRANSACTIONS OR ACCOUNTS. (Click Here to Print this Rule) [Adopted effective September 15, 2005. Effective dates of amendments: February 13, 2007; June 5, 2007 and September 21, 2007.] (a) Except for Members who meet the criteria in Bylaw 306(b) and Associates acting on their behalf, Members and Associates who solicit customers, introduce customers to a counterparty, or manage accounts on behalf of customers in connection with forex transactions shall comply with subsections (a), (b), (c), and (e) of Compliance Rule 2-36. (b) No Member except a Forex Dealer Member or a Member who meets the criteria in Bylaw 306(b) may accept forex orders or accounts or receive compensation-directly or indirectly-for forex transactions from any person unless that person is a Member or Associate of NFA, meets the criteria in NFA Bylaw 306(b), or would be exempt from Commission registration if it were acting in the same capacity in connection with exchange-traded futures products. (c) For purposes of this rule, the term "customer" means a person that is not an eligible contract participant as defined in Section 1a(12) of the Act and includes persons who participate in pooled accounts. Rule 2-39(b) seems to state that as a member, I cannot get paid "directly or indirectly" from a non-registered trader. Am I assuming this correctly? This does not apply unless the trader "meets the criteria in NFA Bylaw 306(b)." I look at this bylaw, but still do not know what the creteria is. It doesn't apply either if the trader would be "exempt from Commission registration if it were acting in the same capacity in connection with exchange-traded futures products." So I guess another question is, "what are the criteria to be excempt from Commission registration if you're trading futures for others? What a mess!
Finding a lawyer will take 8 hours of your time (including checking references). Cost to you: 8 x $200 = $1600 Asking a lawyer this question and listening to her answer will take 2 hours of your time. Cost to you: 2 x $200 = $400 The lawyer will bill you for her time. Cost to you: 2 x $400 = $800 Total cost to you: $2800 That's the cost. The price. But what is the value? Only you can decide.
Picking up the phone and calling the NFA will take a few minutes of your time. Cost to you: $0. Follow up with an email, to confirm that your understanding is correct and to have a written record. Why not go directly to the source, instead of the ET brain trust?