MFA Files Follow-up Letter with CFTC on Delegation of CPO Obligations (with Mehta Comment)

The Managed Funds Association ("MFA") submitted a letter to the CFTC staff requesting clarifications to CFTC Letter 14-69, which established a streamlined process for receiving expedited no-action relief with respect to delegation of the commodity pool operator ("CPO") function by certain persons.MFA stated it is concerned that, absent clarification, affiliated directors of a fund might not be able to use the expedited no-action relief process.

Specifically, MFA requested clarification from the CFTC that:

• the satisfaction of the delegation of investment management authority criteria is not precluded where a Delegating CPO or the Designated CPO appoints one or more third parties to serve as investment manager(s) to the pool; provided that each such person who is engaged in providing commodity interest trading advice to the pool is registered as a certified trading advisor ("CTA") or is exempt from such registration pursuant to the CEA and the CFTC Rules;
• the satisfaction of the solicitation activities of fund directors criteria is not precluded where the Delegating CPO is also an associated person of the Designated CPO, or exempt from registration as such, and the person participates in the solicitation of pool participants solely in such capacity; and
• the satisfaction of the criterion that requires the Delegating CPO to not manage any property of the commodity pool is not precluded where the Delegating CPO is also a principal or employee subject to supervision of either the Designated CPO or the CTA of the pool; provided that the person exercises these management responsibilities solely in his or her capacity as a principal or employee subject to supervision of the Designated CPO or the CTA, and not as a separate CPO or CTA of the pool.

Mehta Comment: The clarification request regarding criteria 1a-1c by the MFA has the potential to make the CPO delegation request under 14-69 truly a "streamlined approach" for most registered CPOs. Under a literal reading of the current letter, a director to a pool structure in which the director also acts in the capacity of soliciting investors (or supervises these activities) or advising on portfolio management is not able to file for CPO delegation under this streamlined approach (with the alternative for CPO delegation request, to file a "bespoke" letter and then risk comment/questions from the CFTC and ultimately a delay in resolution on the matter). The availability of the streamlined approach with the clarification letter will be especially beneficial if the CFTC decides to grant omnibus-industry relief in respect of those submissions.

See: MFA Comment Letter; MFA Blog.
Related news: CFTC Streamlines Process for CPO Delegation (CFTC Letter 14-69)(with Mehta Comment) (May 12, 2014); CFTC Grants No-Action Relief Regarding CPO Registration under New Streamlined Approach (CFTC Letter 14-71) (May 19, 2014); CFTC Issues Ten No-Action Letters Regarding Requirement to Register as a CPO (CFTC Letters 14-75 through 14-84) (with Mehta Comment) (June 11, 2014).