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Blueprint and Chesapeake TFPN
Innovation Against All Odds: The Trailblazing Launch of TFPN by Blueprint and Chesapeake
Following the successful launch of TFPN, the financial landscape experienced a notable shift. For the first time ever the concept of trend following was applied to both commodities and single stock equities. The innovative fusion of commodity trading assets and equity long-short positions set a new standard for ETFs, challenging conventional norms and inspiring further creativity in the financial industry.
Tidal’s ability to navigate complex regulations and market hesitations underscored the potential for bold ideas to reshape the investment landscape, leaving a lasting impact on how investors approached multi-asset strategies.
On July 11, 2023, Blueprint-Chesapeake unveiled a groundbreaking financial product: the Multi-Asset Trend ETF, known as TFPN, which stands for Trend Following Plus Nothing.
This innovative ETF was spearheaded by Jerry Parker, the founder of Chesapeake’s Capital, who was trained under the legendary “Turtles” Bill Eckhardt and Richard Dennis. The Turtles, as they were known, were pioneers in trend following, a strategy involving small bets that consistently yield profits over time. In the early 2000s, Chesapeake had emerged as the largest Commodity Trading Advisor(s) in the market.
The significance of the TFPN launch lies in its departure from conventional trends in the world of finance. Unlike traditional CTAs that primarily dealt with commodities, TFPN expanded the horizon by incorporating single stock equities alongside futures. This unique portfolio composition comprised of 50% Managed Futures and 50% Equity Long Short positions; a blend that had never been attempted before, inside the ETF wrapper.
Commodity ETFs are a rarity in the financial landscape, and Equity Long Short ETFs are equally scarce. The fusion of these two components was unprecedented, marking a pivotal moment in the industry.
Tidal Financial Group, a driving force behind this venture, was motivated by the belief that any innovation within the boundaries of regulations was possible. However, the journey towards launching TFPN was not without its challenges.
Four major hurdles stood in the way:
Requirements for TFPN Launch
Derivative Risk Management Program
Regulatory Complexity (CPO/CTA)
Cayman Subsidiary
Lead Market Maker (LMM)
Requirements for TFPN Launch
Derivative Risk Management Program
Regulatory Complexity (CPO/CTA)
Cayman Subsidiary
Lead Market Maker
- Derivatives Risk Management Program (DRMP): Tied to rule 18F-4, introduced in 2020, DRMP outlined specific regulations. Compliance with SEC Rule 18F-4 is essential for funds that utilize derivatives in their investment strategies. While these rules provided a structured framework, their rigidity posed to be a challenge Tidal, who now operates 30+ products under this rule, is the market leader in white labeling derivative-based ETFs.
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- Regulatory Complexity: TFPN requires a CPO (Commodity Pool Operator) and CTA (Commodity Trading Advisor) to be on board. Both of which operate under a different regulatory regime, the NFA (National Futures Association), adding an additional layer of complexity to the project.
- Cayman Subsidiary: To optimize tax treatment within a 40 Act ETF, a Cayman subsidiary was imperative. Although this process could be daunting, Tidal had mastered the intricacies and routinely navigates these complexities.
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- Market Maker Challenges: Blueprint-Chesapeake initially struggled to secure a Lead Market Maker (LMM) for TFPN. However, Tidal took the initiative and met with market makers, assuring them that they could secure an LMM. Given the unique blend of commodities and equities within TFPN, only a select few market makers possessed the capability to handle such a complex and innovative product. Eventually, a highly regarded market maker, known for its exceptional skills and experience in the field, stepped forward, turning Tidal’s vision for TFPN into a reality.
Despite these hurdles, Tidal’s determination and expertise prevailed. The launch of TFPN unlocked a unique investment opportunity and also showcased the industry’s ability to innovate within the regulatory confines. Tidal’s success in overcoming these challenges underscored their commitment to pushing the boundaries of traditional finance, paving the way for future financial innovations.