MFA Urges CFTC to Reinstate QEP Exemption for Private Funds
Commentary by Steven Lofchie
The Managed Funds Association ("MFA") asked the CFTC "to take necessary action" to reinstate the "Qualified Eligible Persons exemption" (CFTC Rule 4.13(a)(4)) for commodity pool operators ("CPOs").
In a letter to Acting Chair Caroline D. Pham, the MFA argued that reinstating the QEP Exemption would enhance market efficiency and integrity while lowering costs for investors and managers, supporting both liquidity and prudent hedging.
The MFA explained that the QEP exemption relieved commodity pool operators from registration when their pools were offered exclusively to Qualified Eligible Persons. The association argued that rescinding the exemption in 2012 undermined its original purpose of facilitating sophisticated investor participation in commodity markets. The MFA pointed to subsequent regulatory developments, including Form PF reporting and FSOC oversight, as evidence that adequate safeguards were already in place.
The MFA argued that reinstating the QEP Exemption would:
- Reduce unnecessary burdens. The MFA emphasized that SEC-registered advisers are already subject to extensive oversight. The association argued that dual CFTC registration adds cost and complexity without improving investor protection, discourages hedging, and places U.S. funds at a global disadvantage. The MFA stated that reinstatement would advance executive orders to cut redundant regulation and promote efficient oversight of sophisticated investors.
- Eliminate duplicative requirements. The MFA argued that the 2012 rescission was based on flawed concerns about systemic risk, transparency, and harmonization that no longer apply. The association noted that advisers already registered with the SEC provide extensive data through Form PF, making dual CFTC registration and Form CPO-PQR reporting redundant. The MFA stressed that restoring the exemption would streamline oversight, reduce unnecessary burdens, and recognize the sophistication of QEP investors.
- Promote market efficiency. The MFA argued that requiring private funds to register as CPOs and Commodity Trading Advisors is unnecessary and counterproductive, given existing federal securities regulation. The association said rescinding the QEP Exemption undermined its purpose of fostering market participation and liquidity while imposing duplicative oversight that raises investor costs. The MFA urged reinstating the exemption as adopted in 2003 and clarifying that deregistration under Rule 4.13(a)(4) should not trigger mandatory redemption rights under Rule 4.13(e).
The MFA also provided draft rule text with conforming amendments to CFTC regulations.
Commentary
In 2003, the CFTC issued a rulemaking that provided that an entity was not required to register as a CPO, subject to limiting sales in the relevant fund limited to accredited investors and to limiting the extent of investment by the fund in commodity derivatives. (See 68 Fed. Reg. 47221 (Aug. 18, 2003)). This exemption was rescinded, as part of post-Dodd Frank rulemakings in 2012. (See 77 Fed. Reg. 11251 (Feb. 24, 2012)).
The case for providing the exemption is actually much stronger now than it would have been in 2003, because in 2003 many of the firms that benefitted from the exemption would not have been required to register either with the SEC or with the CFTC. In light of the Dodd Frank changes to the Advisers Act, many of the firms that would benefit from the exemption are now also registered with the SEC as investment advisers. Accordingly, there are strong arguments that requiring all such advisers registered with the SEC also to register under the CFTC is not a worthwhile burden to impose.