CFTC Issues No-Action Letter for CPOs of Certain Commodity Pools Not Registered as Investment Companies (CFTC Letter 14-112)
Commentary by Bob Zwirb
The CFTC Division of Swap Dealer and Intermediary Oversight issued a no-action letter for CPOs of certain commodity pools that are non-registered investment companies ("Parent Pools") that use wholly owned trading subsidiaries to trade commodity interests ("Trading Subsidiaries").
The letter grants no-action relief to a CPO for failure to provide the following:
- a separate annual report for a Parent Pool's Trading Subsidiary to the National Futures Association ("NFA"), pursuant to CFTC Rule 4.7(b) or 4.22(c); and
- a separate CPO-PQR report for a Parent Pool's Trading Subsidiary to NFA, pursuant to CFTC Rule 4.27(c).
The relief provided is dependent on (i) the CPO of the Parent Pool being the CPO of the Trading Subsidiary, (ii) the exposure to the Trading Subsidiary by the participants in its Parent Pool being shared pro rata, and (iii) the CPO providing a consolidated report for the Parent Pool that includes the data for the Trading Subsidiary to the NFA pursuant to CFTC Rule 4.27(c).
The CFTC previously issued similar relief in CFTC Letter 13-51 to CPOs of registered investment companies that utilize controlled foreign corporations. Letter 14-112 essentially expands the class of commodity pools for which a CPO may consolidate annual reports and CPO-PQR reports.
See: CFTC Letter 14-112.
Related news: CFTC No-Action Letter 13-51 for CPOs of SEC-Registered Investment Companies Having Subs That Are Controlled Foreign Corporations (September 5, 2013); NFA Notice I-13-36: Request for CPOs That Operate RICs Utilizing Wholly Owned Subsidiaries(November 18, 2013); NFA Notice I-13-44: Applicability of CFTC No-Action Letter 13-51 Regarding Reporting as to Subsidiaries That Are Pools (December 20, 2013).
Commentary
The following passage from the CFTC letter emphasizes the broad scope of the CPO registration requirement:
"the analysis of whether a CPO of a Trading Subsidiary is subject to registration and compliance with Part 4 of Commission regulations is independent of whether the activities of the Parent Pool trigger registration of such Parent Pool’s CPO. Therefore, even if the CPO of the Parent Pool is exempt from registration with respect to its operation of the Parent Pool, it is possible for that CPO to be required to be registered and subject to Part 4 of Commission regulations with respect to its operation of the Trading Subsidiary."