CFTC Issues Advisory Concerning CTAs That Provide Advice as to Swaps (CFTC Letter 13-79)

The CFTC Division of Swap Dealer and Intermediary Oversight issued an advisory that provides guidance regarding requirements imposed on commodity trading advisors ("CTAs") resulting from Dodd-Frank.

Dodd-Frank amended the statutory definition of CTA to include any person who engages in the business of advising others on swaps. As a result, provisions of the CEA and CFTC Rules applicable to CTAs may result in new advisory obligations. Additionally, according to the advisory, certain CTAs who were previously exempt from registration with the CFTC are now required to register due to the CFTC’s rescission of CFTC Rule 4.13(a)(4) ("Exemption from Registration as a Commodity Pool Operator") and amendments to CFTC Rule 4.5.

The advisory is issued in a question and answer format, and provides guidance on the potential new advisory obligations of CTAs. It also informs the newly expanded class of CTAs and those previously exempt CTAs as to the general regulatory framework, including: (1) provisions of the CEA and CFTC regulations applicable generally to CTA activities; (2) CTA advisory obligations with respect to swap risk disclosures; and (3) requirements relevant to CTAs that advise Special Entities on swap transactions.While the letter provides a good bit of general guidance as to the obligations of CTAs, the principal reason for the letters appears to have been to emphasize (i) the risk disclosures that CTAs must provide to clients for whom they execute swaps (Part II of the letter beginning on page 6) and (ii) the duties that CTAs have with respect to special entities entering into swaps (part III of the letter beginning on page 7).

See: CFTC Advisory (Letter 13-79). See generally: Guide to CPO-CTA Regulation, Who Must Register as a CPO or CTA.