CFTC Proposes Limiting Eligibility of QEPs for Commodity Pool Operators

The CFTC proposed raising the amount of money required to invest in funds under CFTC Rule 4.7 ("Exemption from certain part 4 requirements for commodity pool operators with respect to offerings to qualified eligible persons") and increasing the disclosure requirements applicable to such funds.

Under the Proposal, the CFTC would:

• amend the qualified eligible persons ("QEPs") definition to increase the financial thresholds requirement and reflect inflation by doubling the portfolio requirements to $4,000,000;
• establish minimum content requirements for CPOs’/CTAs’ QEPs' disclosure, promotional and advertising-related practices for operating pools and trading programs and require CPOs and CTAs to retain business records of the disclosures;
• codify "routinely granted" exempted requests, allowing CPOs to distribute monthly, as opposed to quarterly, account statements for their "Fund of Funds" pools; and
• make several technical amendments consistent with the proposed changes.

Comments on the proposal are due 60 days following publication in the Federal Register.

Statements

CFTC Commissioner Summer K. Mersinger dissented from the proposal to narrow the scope of exemptions. She argued that the proposal represents a "mandate first, evaluate later" approach based on "assumptions, speculation and poor sourcing." Ms. Mersinger argued the CFTC should evaluate whether the proposed amendments to the portfolio requirement would address concerns regarding the differences among QEPs.

CFTC Commissioner Caroline D. Pham dissented, arguing that the proposed amendments are "burdensome and unnecessary" for market participants who are already subject to other "extensive" regulations. She added that the proposed changes would create operational challenges and impose costs without a "persuasive" cost-benefit analysis.

CFTC Commissioner Kristin N. Johnson commended the proposal for addressing regulatory gaps resulting from "changing dynamics in the derivatives markets." She stated that the proposed threshold increases would not be "too restrictive or limiting" and could possibly be higher given that they are "not even as high as those that were originally proposed in 1992." Ms. Johnson also agreed with the proposed minimum disclosure requirements, which would create "heightened customer protections for QEP that currently are entitled to none."