Forex Disclosure Documents
Disclosure documents are required for both Forex CTAs and Forex CPOs. While much of the basic informational requirements are the same, there are a couple of important differences. Below we provide an overview of the major requirements, note the additional requirements for Forex CPOs.
Major Disclosure Document Requirements
Below are the major items which need to be included in the documents:
· Cover Page - with name of firm and CFTC mandated disclaimer
· Inside Cover Disclaimer - the NFA requires all forex managers to include a lengthy disclaimer about the risks of the off-exchange spot foreign currency markets
· Table of Contents
· Manager Background Information - identifying information (firm name, addresses, phone numbers, registration etc) and business background of each principal
· Service Providers - Forex Dealer/FCM , Forex IBs (if any), other service providers such as accountants/administrators, auditors, lawyers, etc
· Principal Forex Risk Factors - such risks are expected to include the basic risks associated with trading in the forex markets. In addition, for Forex CPOs, there are other risks involved in the structure of the investment vehicle which will need to be disclosed.
· Forex Trading Program - general discussion about the proposed trading
· Fees - general discussion about the fee structure of the Forex hedge fund or Forex separately managed account program must be discussed including management fees and performance fees (if applicable) as well as the methods for calculating the fees.
· Performance Reporting - generally there will need to be some sort of performance reporting and we discuss this issue more below
· Conflicts of Interest - all actual or potential conflicts of interest must be disclosed (including, if applicable, any fee or pip sharing arrangements)
· Litigation - all “material administrative, civil or criminal” actions within the past five years must be disclosed for the management company, Forex Dealer/FCM, and any principles
· Statement of Additional Information - if the manager would like to include other information it may be included in the main body of the documents or may be included as a separate Statement of Additional Information (SAI)
Performance Reporting
Managers are required to provide detailed summaries of the performance of the offered forex trading program and various other information on past performance. If there has been no prior performance history of the offered program or by the manager, then there are specific disclaimers which will need to be included in the documents. From our experience, the NFA will pay particularly close attention to the performance reporting aspects of the program (especially if there is hypothetical or extracted performance) and so the manager must be especially careful when drafting this section.
For more specific details on the performance reporting requirements, please see our discussion of the forex performance capsule requirements. [to be linked]
Additional Information Required for Forex CPOs
Managers to forex commodity pools will need to provide more information to their potetial investors.
The disclosure document requirements discussed above will need to be included in the pool’s offering docuements which are drafted to conform with the other requirements imposed by various securities laws (for an in-depth discussion, please see our article hedge fund offering documents [http://www.hedgefundlawblog.com/monthly-feature-hedge-fund-offering-documents.html] on Hedge Fund Law Blog).
Other Issues
· Exemptions - right now we do not know whether certain exemptions will apply to Forex CPOs. If the Rule 4.7 or Rule 4.12 exemptions become available, we will update this page.
· Other Investments - if the firm also trades other instruments besides spot forex then the document will need to address those items as well – your hedge fund forex attorney will be able to discuss this issue with you in greater depth
Questions?
If you have any questions on the above requirements, please contact us [link to contact page] and we will get back to you as soon as possible.