Legal and regulatory developments

Futures market regulation contains an important contradiction in the treatment of past performance information. On the one hand, the Commodity Futures Trading Commission (CFTC) requires commodity pool operators (CPO) and managers of commodity trading accounts (CTA) to disclose their trading performance to prospective investors. On the other hand, the National Futures Association (NFA) requires CPOs and CTAs to warn clients that past trading performance is not necessarily suggestive of future results. This contradiction results not from a difference of opinion but most probably from both organizations' failure to think through the performance disclosure concept. In particular, the CFTC has never really addressed why performance disclosure should be required at all. Its disclosure rules may not only be unnecessary but actually harmful. The CFTC and NFA should reconsider the issue of required performance disclosure, perhaps focusing on guidelines for the way in which performance should be disclosed.