Session 2: Disclosure Documents and Performance Reporting Moderator: Patricia Cushing, NFA Panelists: Kate Dressel, Strategic Compliance Solutions Rita Molesworth, Willkie, Farr & Gallagher Kristen Harkins, NFA

Disclosure Document Overview

Main Objectives Disclosure to Investors Protect CPO/CTA Compliance with CFTC Regulations

4.7 Disclosure Corollary to Reg D More sophisticated investors “know to ask”

Updating Disclosure Documents Changes to Operation or Program On-Line Registration Changes

Other Consideration: Conflict with other rules applicable to offerings to non-accredited investors

Most Common NFA Comments

Business Background Information Specify month, year, firm name, business and individual’s duties Required for last five years, explain gaps Certain information can trigger disclosure beyond the last five years

FCM Litigation Disclosure 4.24(l) standard Updates to Information

Principal Risk Factors Areas specifically required by the Regulations -Volatility -Leverage - Liquidity - Counterparty Creditworthiness Tailor to the offered program

Easy-to-Fix Items Consistency throughout the document (e.g. dates, fees) Risk Disclaimers must be verbatim Page References Remove the “never traded before” disclaimer once the document is updated to include performance

Performance Reporting

Supporting Documentation Performance Worksheets for each individual client account Monthly Carrying Broker Statements

Reliance on Third-Party Providers Due Diligence Responsibility remains with the CPO/CTA

Composite Performance Capsules Accounts trading the same program Accounts are achieving “materially similar” rates of return (NFA Interpretive Notice ¶9054)

Proprietary Performance Accounts where more than 50% of the beneficial interest is owned by the firm, its affiliate, family member or any person providing services to the account are considered proprietary If disclosed, must be disclosed separately from customer performance

Pro-forma Performance Actual Performance with a pro-forma adjustment for fees Adjust Proprietary Performance for fees charged to client accounts Adjusting Customer Performance for a new fee structure

Other Items/Resources Break-Even Analysis Questions Tips for using NFA’s electronic Disclosure Document Filing System

Session 2: Disclosure Documents and Performance Reporting Moderator: Patricia Cushing, NFA Panelists: Kate Dressel, Strategic Compliance Solutions Rita Molesworth, Willkie, Farr & Gallagher Kristen Harkins, NFA