By: James Mahoney & Justin Meagher
The new CPO-PQR National Futures Association (NFA) compliance rule 2-46 amendment requires filers to report information on the financial condition of commodity pool operators (CPO) and commodity trading advisors (CTA) as part of the NFA compliance oversight program. It is intended to provide the NFA with an increased ability to monitor a firm's financial condition and identify firms that may be facing financial hardships. Here a firm refers to the CPO or CTA and their individual pools. Forms PQR and PR will require each CPO and CTA to report financial ratios related to the firm's financial health.
Required Ratios in the amendment to NFA Compliance Rule 2-46:
NFA Forms PQR and PR will contain data fields requiring CPOs and CTAs to report the following two ratios:
1. Current assets/current liabilities
This ratio divides a firm's current assets by its current liabilities to measure liquidity. It is based on a firm's current asset and current liability balances at the reporting quarter end.
2. Total revenue/total expenses
This ratio divides a firm's total revenue by its total expenses and represents a firm's operating margin each quarter. It must include all revenue and expenses from the preceding 12 months.
It does not establish minimum ratios for firms to meet. It will, however, incorporate financial information collected on Forms PQR and PR into its oversight program. This serves to identify trends and observe member firms.
Additionally, the amendment incorporates financial record keeping mandates requiring CPOs and CTAs to demonstrate how ratios reported on Form PQR or PR were calculated. CPOs and CTAs will also be required to retain financial records supporting these calculations. This may include making available relevant financial records of the holding company.
The CPO-PQR solution from SS&C helps you meet your reporting requirements with minimum cost and disruption. To learn how we can help you, download our brochure or contact Richard Clark, Managing Director, Regulatory Reporting, at 212-651-5124 or Justin Meagher, Managing Director, Regulatory Solutions, at 212-651-5200.