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CFTC Adopts Harmonization Rules for Registered Investment Companies (with Delta Strategy Group Description, Lofchie Comment and Mehta Comment)

The CFTC issued its rules addressing the manner in which SEC-registered investment companies that use CFTC-regulated products must comply with the CFTC rules applicable to commodity pool operators and commodity trading advisors. The issuance of such rules was necessary because the CFTC withdrew a prior exemption that had permitted registered investment companies to use CFTC-regulated products without their managers or advisors becoming directly subject to the CFTC.

Mehta Comment: Although the CFTC harmonization release provides CPOs to RICs with the relief of substituted compliance, CPOs to RICs will continue to have affirmative obligations to the CFTC and the NFA. For example, certain filings will be required to be made with the NFA (notice of intent to use substituted compliance and third-party service providers for recordkeeping purposes and annual financial statements) and disclosure of performance information for certain accounts and pools substantially similar to the offered RIC (in the case of a CPO to an RIC with a less than three-year operating history). Notably (and not apparent from the title of the release), the CFTC provides amendments to the Part 4 rules applicable to all CPOs and CTAs with respect to recordkeeping (allowing third-party service providers to maintain records), disclosure document updates (changing from a 9-month cycle to a 12-month cycle) and the signed acknowledgment requirement (rescinding it in its entirety).

Lofchie Comment: Given that the CFTC cannot possibly accomplish all of its statutory missions, it is difficult to imagine a less useful task for the CFTC to undertake than the double regulation of SEC-registered investment companies. While some might commend the CFTC for not being as heavy-handed with its regulations as had been feared (in the CFTC's words, it was relying on "substituted compliance" with SEC regulations), please note that the CFTC said that it wanted first to "gain experience" (at page 9) with registered investment companies, presumably with the possibility of more rulemaking to come.

See: CFTC Harmonization Rules.
See also: Description of the Harmonization Rules (produced by Delta Strategy Group); and SEC Issues Guidance Update on Disclosure and Compliance Matters for Investment Company Registrants (with Lofchie Comment).


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