CFTC Adopts Final Rule Amendments Regarding Registration and Reporting Requirements for CPOs and CTAs and Issues Regulatory Harmonization Proposal: CFTC’s New Rules Rescind and Amend Certain Existing Exemptions and Exclusions, Require Advisers to Many Private Funds to Register with the CFTC, and Significantly Limit the Ability of Registered Investment Companies to Claim Exclusion from the Definition of CPO; Proposed Rule Amendments Seek to Harmonize Certain SEC and CFTC Compliance...

Sullivan & Cromwell LLP - February 22, 2012
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On February 9, 2012, the CFTC adopted rule amendments that will, among other things, require registration of certain entities that are currently eligible for exemptions from registration as CPOs and CTAs. The February 9, 2012 adopting release (the “Adopting Release”) implements, with certain limited modifications, proposals issued by the CFTC in January 2011 to amend significantly its rules regarding CPOs and CTAs. The rule amendments approved by the CFTC will also require CPOs and CTAs to file reports regarding commodity pool and certain other assets under their management. The revised rules will increase disclosure requirements for both newly registered and existing CPOs and CTAs and will require more information to be made available to prospective investors and for use in risk assessment by the Financial Stability Oversight Council. In particular, the revised rules will:

  • significantly limit the availability of the exclusion from the CPO definition pursuant to Section 4.5 of the CFTC’s rules (the exclusion relied upon by numerous registered investment companies and other regulated entities);
  • mandate annual affirmation of exemptive relief claims for both CPOs and CTAs that rely on either Section 4.5 or Section 4.13(a)(3) to avoid CFTC registration;
  • require the filing of certified annual reports by all registered CPOs;
  • rescind the exemption from CPO registration under Section 4.13(a)(4) of the CFTC’s rules, which operators of many private funds have relied on historically;
  • require CPOs and CTAs that use swaps to add standard risk disclosure statements regarding their use of swaps to all new disclosure documents and all updates to existing disclosure documents; and
  • require periodic reporting of data by CPOs and CTAs regarding their commodity pool assets and other managed assets.

The Adopting Release reflects certain limited changes from the CFTC’s January 2011 proposals. In particular, the CFTC:

  • modified the proposed marketing restriction and included an alternative trading threshold test in Section 4.5;
  • provided for annual notices affirming exemptive relief claims to be filed on a calendar year-end basis rather than on the anniversary of the filing of the initial claim;
  • determined not to rescind Section 4.13(a)(3), which exempts from registration CPOs of pools with a “de minimis” amount of derivatives trading; and
  • made changes to Forms CPO-PQR and CTA-PR including expanding the number of sections of such forms that will be confidential and modifying their filing timelines.

Concurrently, and in response to comments, the CFTC proposed rule amendments to harmonize SEC and CFTC disclosure, reporting and recordkeeping requirements that apply to registered investment companies that are not excluded from the definition of CPO and thus are subject to both SEC and CFTC requirements (the “Harmonization Proposal”). Comments on the Harmonization Proposal are due 60 days after publication of the proposed rules in the Federal Register.