CPO Delegation: Form of CFTC No-Action Request Letter (with Lofchie Comment and YouTube Link)
In order to assist firms that may wish to request registration relief from the CFTC which allows them to delegate CPO functions, we link to a form of request letter that firms may tailor to their specific facts. As noted in the Cadwalader Cabinet newsletter May 24th, 2013, the CFTC recently issued several no-action letters granting CPO registration relief to the general partners of investment funds that delegated their CPO functions to the fund’s CFTC-registered investment manager.
By way of background, in August 2012 the CFTC issued Frequently Asked Questions on Amendments to CPO Obligations in which it indicated that general partners, managing members and other similar operators of investment vehicles may delegate their CPO functions to a CFTC-registered CPO (typically, the fund's investment manager). This relief was subject to certain conditions in line with prior no-action relief, including the condition that the general partner agree to accept joint and several liability for breaches of the CEA and CFTC Rules with the investment manager. Significantly, the FAQs did not require the general partner to file a request for no-action relief with the CFTC in order to enter into such delegation arrangements, and the industry generally "voted" not to submit such requests. Thus, although it is estimated that hundreds of firms registered as CPOs in 2012 as a result of rescission of Rule 4.13(a)(4) and the inclusion of swaps in the de minimis trading exemption of Rule 4.13(a)(3), the CFTC issued only three no-action letters in 2012 in relation to CPO delegation arrangements.
More recently, we understand that the CFTC has revisited this issue and is considering varying approaches to notifications concerning CPO delegations. We understand that possible approaches include (i) formally dispensing with any form of notification, provided that firms comply with the substantive conditions in prior no-action relief, (ii) requiring firms to file an e-mail notification with the CFTC representing that the delegation arrangements comply with the required conditions of prior no-action relief, or (iii) requiring firms to obtain their own formal no-action relief for CPO delegation arrangements. While we understand that the CFTC is aware of the administrative burden on firms - and on the CFTC itself - of requiring them to submit formal requests for CPO no-action relief (which would potentially require a fund manager to submit a new request each time the manger establishes a new fund with a new GP), the CFTC has not yet determined which approach to take.
In the interim, we understand that the CFTC is encouraging firms to submit requests for no-action relief if they consider that they need comfort for any specific reason. While it is not clear whether this means that firms should submit a request letter for all delegation arrangements, or only for those delegation arrangements that fall outside the terms of the CFTC's prior no-action relief, firms that seek the comfort of formal no-action relief may wish to submit a request to the CFTC. The attached template is designed to assist firms in making such a request. If you have any questions, please contact Dorothy Mehta at Cadwalader.
Lofchie Comment: Here's a cost saving idea for the CFTC: provide routine industry-wide guidance and eliminate requiring individualized application letters for approvals. YouTube Link.
Click here to a form of no-action request letter that firms may tailor to their individual circumstances.