Frequently Asked Questions - Trading Program Performance Calculations and Presentation by CTAs with Client Assets held at MF Global, Inc.
As a result of the October 31, 2011 bankruptcy proceeding involving MF Global, Inc. (MFG), NFA has received a number of questions from CTAs regarding how to calculate and present performance information for Trading Programs with client managed accounts that were affected by the MFG bankruptcy proceeding. NFA is issuing this notice to address those frequently asked questions.
1. All of my managed client accounts were held at MFG. The open positions in those accounts were subsequently transferred to another FCM. After the transfer, I continued to trade the accounts according to the trading program. How do I reflect the performance results?
Results should be based upon the assets under the CTA's control. Any customer assets that were not included in the transfer may not be included in assets under management for purposes of calculating the trading program's rate of return. The trading program's capsule performance must include appropriate footnote disclosure (See question 5 below).
2. All of my managed client accounts were held at MFG. The open positions in those accounts were subsequently transferred to another FCM. After the transfer, all positions in those accounts were liquidated, and I did not resume trading these accounts in accordance with the trading program. How do I reflect the performance results after the transfer?
For November 2011, the performance capsule for that trading program should reflect NT to indicate that the program did not trade during the month. The trading program's performance capsule must include appropriate footnote disclosure (See question 5 below).
3. My managed client accounts that were held at MFG and the open positions in those accounts were subsequently transferred to another FCM. After the transfer, I was able to continue trading those accounts. I have notional funding agreements with those accounts. Should I continue to include the amount of notional funds under the agreement in assets under management for purposes of calculating rate of return?
If you are trading the managed client accounts pursuant to an active notional funding agreement, you should continue to calculate rates of return using nominal account size as the denominator.
4. I have some managed client accounts held at MFG (with open positions that were subsequently transferred) and other managed client accounts held at other FCMs that are trading the same program. Since I did not have full control over the assets held at MFG, the rates of return for those accounts are materially different than the rates of return for accounts held at an FCM other than MFG. How do I reflect the performance results of the program?
For the month of November 2011, you should exclude the accounts that were held at MFG from the performance capsule. You do not have to prepare a separate capsule for these accounts. However, the trading program's performance capsule must include appropriate footnote disclosure (See question 5 below), including the range of the rates of return for those accounts.
5. What information should I include in the footnote disclosure?
At a minimum, the footnote disclosure should:
o Explain that as a result of the MFG bankruptcy proceeding, certain client managed accounts were not fully under the control of the CTA and therefore were excluded in whole or in part from the monthly performance calculation;
o Indicate the number of client accounts excluded;
o Indicate the amount of assets that were excluded;
o Indicate the percentage that the excluded assets represent of total assets under management for that program as of October 31, 2011.
6. Do I need to amend my disclosure document to reflect this information?
CTAs that plan to solicit new clients must ensure that all material information in their disclosure documents has been updated including, but not limited to, changes to assets under management, past performance results, and the firm's carrying broker relationships. As a reminder, all amended disclosure documents must be submitted to NFA for review prior to use.