LPS 4-02 - Commodity Contract Act Managed Account Disclosure Document [Rescinded]

1.0        General

1.1        A managed account is an investment portfolio of a client managed by a registrant (a commodity contracts dealer or commodity trading manager) through discretionary authority granted by the client on a continuing basis, whether in consideration of fees or otherwise, where

1.1.1       the investment portfolio is a commingled funds investment portfolio (i.e. an investment portfolio of a bank, trust company, loan company, insurance company, mutual fund or pension plan, including a profit sharing or deferred profit sharing or other retirement savings or similar plan but excluding a self-administered retirement savings plan), or

1.1.2       the management of the investment portfolio by the registrant arises because the registrant has held itself out or has described itself as having special skills or ability regarding the management of investment portfolios, but shall not include

1.1.3       the management of the investment portfolio on a temporary basis at the written request of a client because of the inability of the client to communicate instructions by reason of absence, illness or other reasonable cause, or

1.1.4       the management of the investment portfolio on a continuing basis by a partner or officer of the registrant on the basis of a personal relationship between the partner or officer and the client, where the management was in effect on February 1, 1986.

1.2        A disclosure document provides a prospective client who is considering opening a managed account with the information that person needs in order to make an informed decision.

1.3        Before a prospective client signs a managed account trading agreement, the registrant must

1.3.1       furnish that person with a copy of the disclosure document, and

1.3.2       obtain from that person a signed and dated acknowledgement of receipt of the disclosure document.

1.4        A disclosure document must be approved by the superintendent prior to its distribution.

1.5        A disclosure document must be dated and can be used for only the next six months.

1.6        Any materially incomplete, inaccurate or misleading information in an existing disclosure document must be corrected.  Copies of the corrections must be distributed to all persons who received copies of the disclosure document.

2.0        Contents of Disclosure Document

2.1        A disclosure document must contain all information which could influence a prospective client's decision to open a managed account.

2.2        A disclosure document must, at a minimum, contain the following information

2.2.1       the date of the disclosure document,

2.2.2       the name, main business address and phone number of the registrant,

2.2.3       the name of each commodity contracts salesman, commodity contracts trading partner or officer or commodity contracts advising partner or officer who will be handling accounts,

2.2.4       a statement as to whether the registrant or any of the individuals referred to in subsection 2.2.3 will trade in commodity contracts for their own accounts and, if so, whether clients will be permitted to inspect the records of such trades,

2.2.5       the name of the commodity contracts dealer at which a commodity trading manager will require its clients to maintain accounts or a statement that clients are free to choose their own commodity contracts dealer,

2.2.6       a full and specific description of any actual or potential conflicts of interest on the part of the registrant, the commodity contracts dealer referred to in subsection 2.2.5 or any of their partners, directors, officers or commodity contracts salesman, such conflicts of interest to include

2.2.6.1    any circumstance in which a personal or financial interest of these persons, including the interest of other accounts or businesses they may manage, might influence decisions made in the course of handling clients' accounts; and

2.2.6.2    any arrangements whereby the commodity trading manager or any of its partners, directors or officers benefit directly or indirectly from the introduction or maintenance of accounts with the commodity contracts dealer referred to in subsection 2.2.5,

2.2.7       a description of the trading program, the types of commodity contracts that the registrant intends to trade and any restrictions or limitations with regard to such trades,

2.2.8       a complete and detailed description of all fees which the registrant will charge its clients,

2.2.9       an historical summary for the registrant and for each of the individuals referred to in subsection 2.2.3, each summary to include

2.2.9.1    the person's business background for the past five years,

2.2.9.2    a description of any administrative, civil or criminal actions brought against the person in the past five years or a statement that no such actions have been brought,

2.2.9.3    a statement that the person has not previously directed a managed account, if this in fact the case,

2.2.9.4    the person's performance record for at least the  past three years:

2.2.9.4.1                the performance record must be current as of a date not more than three months preceding the date of the disclosure document and must comprise a table containing, on at least a quarterly basis, the following information:

2.2.9.4.1.1             beginning net asset value: the same as the ending net asset value for the previous period,

2.2.9.4.1.2             additions: additional money which the client adds to the account during the period,

2.2.9.4.1.3             withdrawals: money which the client withdraws from the account during the period,

2.2.9.4.1.4             net performance: the total of realized and unrealized gains or losses less commission costs and other expenses,

2.2.9.4.1.5             ending net asset value: beginning net asset value, plus additions, minus withdrawals and plus or minus net performance,

2.2.9.4.1.6             rate of return:  net performance divided by beginning net asset value,

2.2.9.4.2                the performance record may be presented on either an individual (account by account) basis or on a composite (combining a number of accounts advised by the person) basis; in either case, material differences among the accounts must be described; in the case of composite records, the applicant must maintain on file schedules or work papers which detail performance balances on a per account basis,

2.2.9.4.3                all performance record information must be substantiated by third party documents (such as bank documents or commodity contracts dealer documents); this documentation must be maintained for five years and be readily accessible during the first two of those years.

2.3        A disclosure document must contain the following statements, in capital letters and bold face type:

2.3.1       on the cover page of the disclosure document: "The Superintendent of Brokers has not passed upon the merits of participating in this trading program nor has the superintendent passed on the adequacy or accuracy of this disclosure document.",

2.3.2       on the first page of the disclosure document: "The risk of loss in trading commodity contracts can be substantial.  You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.  In considering whether to trade or to authorize someone else to trade for you, you should be aware of the following:

(1)           If you purchase a commodity option or a commodity futures option you may sustain a total loss of the premium and of all transaction costs.

(2)           If you purchase or sell a commodity futures contract or sell a commodity option or commodity futures option you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your commodity contracts dealer to establish or maintain your position.  If the market moves against your position, you may be called upon by your commodity contracts dealer to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position.  If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss and you will be liable for any resulting deficit in your account.

(3)           Under certain market conditions, you may find it difficult or impossible to liquidate a position.  This can occur, for  example, when the market makes a 'limit move'.

(4)           The placement of contingent orders by you or by your commodity trading manager, such as a 'stop-loss' or 'stop-limit' order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.

(5)           A 'spread' position may not be less risky than a simple 'long' or 'short' position.

(6)           The high degree of leverage that is often obtainable in commodity contracts trading can work against you as well as for you.  The use of leverage can lead to large losses as well as gains.

In some cases, managed commodity contracts accounts are subject to substantial charges for management and advisory fees.  It may be necessary for those accounts that are subject to these charges to make substantial trading profits to avoid depletion or exhaustion of their assets.  This disclosure document contains a complete description of each fee to be charged to your account by the commodity contracts dealer or commodity trading manager.

This brief statement cannot disclose all the risks and other significant aspects of the commodity contracts markets.  You should therefore carefully study this disclosure document and commodity contracts trading in general before you trade."

2.3.3       as the last paragraph of the disclosure document of a commodity trading manager: "This commodity trading manager is prohibited by law from accepting funds in the commodity trading manager's name from a client for trading commodity contracts.  You must place all funds for trading in this trading program directly with a commodity contracts dealer."

This Local Policy Statement shall come into effect on February 1, 1986.

DATED at Vancouver, British Columbia, this 16th day of December, 1985.

R.L. Bullock
Superintendent of Brokers,
Insurance and Real Estate