Advisories

CFTC Proposes To Provide CTAs With Greater Flexibility In Presenting Past Performance

March 25, 2003

The Commodity Futures Trading Commission ("CFTC") published in the Federal Register on March 13, 2003, a set of proposed rules relating to the computation and presentation of rate of return information and other disclosures concerning partially funded or "notional" accounts managed by commodity trading advisors ("CTAs") (the "Proposed Rules"). The CFTC is seeking comments on the Proposed Rules, which must be submitted by April 14, 2003.

The Proposed Rules will enable CTAs to disclose past performance as computed on the basis of a client’s nominal account size (the amount upon which the CTA bases its trading decisions) rather than on the basis of the actual funds the client has placed in an account subject to the CTA’s control. The historical difficulty in basing performance on actual funding levels arises primarily from the use of margin. The use of margin allows clients of the CTA to fund their accounts with amounts that are significantly less than the amounts that the CTA trades on their behalf, thereby greatly distorting returns calculated on the basis of actual funds. Similarly, accounts traded at similar trading levels may have widely disparate returns when expressed as a percentage of the actual funds or deposit with a futures commission merchant (FCM).