Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations (Final Rules)

77 FR 11252

The CFTC issued final rules on registration and compliance of commodity pool operators , which require private funds that trade more than a de minimis level of commodities (including swaps) to have a commodity pool operator register with the CFTC. Specifically, the CFTC rescinded Rule 4.13(a)(4), which provided private pools with an exemption from having to have a CPO register with the CFTC. The CFTC has maintained its Rule 4.13(a)(3) de minimis exemption, which allows private pools that trade a de minimis level of commodities from having to have a CPO register with the CFTC (i.e., no more than 5% in aggregate initial margin and premiums with respect to commodity interest positions; or the aggregate net notional of commodity interest positions cannot exceed 100% of a pool's liquidation value). In addition , the rules:

• Reinstate the 5% trading threshold for registered investments companies claiming exclusion from the CPO definition under § 4.5 that the CFTC eliminated in 2003, and add an alternative trading threshold based on net notional value of commodity interest positions;
• Revise § 4.7 so that CPOs may no longer claim exemption from the requirement that an exempt pool's annual report contain certified financial statements;
• Modify the participant qualification criteria of § 4.7 to incorporate the SEC's accredited investor standard by reference rather than by direct inclusion of its terms;
• Require all persons claiming exemptive or exclusionary relief under § 4.5, 4.13, and 4.14 to confirm their notice of claim of exemption or exclusion on an annual basis;
• Require CPOs and CTAs to file reports regarding their direction of commodity pool assets. Reports must include a description of certain information, such as the amount of assets under management, use of leverage, counterparty credit risk exposure, and trading and investment positions for each pool; and
• Amend the risk disclosure statement that must be included in CPO and CTA disclosure documents to describe certain risks specific to swaps transactions.

The rule passed 4-1, with Commissioner Sommers voting against the final rule. The rule, which was first proposed on January 26, 2011, will be effective as of April 24, 2012.

Cross References: Dodd-Frank Sections 404 406; 17 CFR Parts 4, 145, and 147; 76 FR 7976; Lofchie's Guide to CPO/CTA Regulation: Chapters 3 4, Registration, Chapter 6, Reporting.