Hedge fund managers also have to consider whether their advising activities would subject them to registration as a Commodity Trading Advisor (CTA). A CTA is defined as anyone who, for profit, engages in the business of advising others about trading in commodity futures and options on futures. A manager who trades futures and options on futures for a hedge fund would fit this description. However, there are at least two exemptions from registration as a CTA that might be available.

First, CFTC Regulation 4.14(a)(4) states that a registered CPO that only provides trading advice to the pool or pools for which it is registered as a CPO does not also have to register as a CTA. The second exemption is applicable if an advisor has less than 15 clients in a 12 month period and does not hold itself out to the public as a CTA.

Registered CTAs also may use the exemptive provisions of Rule 4.7 if all of their customers are "Qualified Eligible Clients" (QECs). Rule 4.7 is available to relieve the CTA of the requirement to provide a CTA Disclosure Document, including the past performance history of the CTA. The CTA also is relieved of the specific recordkeeping requirements of Rule 4.32 and must only have available for inspection records concerning the qualifications of the QECs and other records prepared in connection with his CTA activities for QECs. Those records should substantiate any past performance representations the CTA chooses to make.


source: CME