CFTC Proposes New Reporting and Compliance Obligations for Commodity Pool Operators and Commodity Trading Advisers and Jointly Proposes with the SEC Reporting Requirements for Dually-Registered CPO and CTA Investment Advisers to Private Funds
Hedge Fund Law Report
On January 26, 2011, the U.S. Commodity Futures Trading Commission (CFTC) proposed amendments to Part 4 of its regulations promulgated under the Commodity Exchange Act (CEA) governing Commodity Pool Operators (CPOs) and Commodity Trading Advisers (CTAs). The CFTC announced a joint effort with the U.S. Securities and Exchange Commission (SEC) proposing the adoption of a new rule on reporting for investment advisers required to register with the SEC that advise one or more private funds and that are also CPOs or CTAs required to register with the CFTC (dual registrants). This joint endeavor, mandated by Section 406 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), would obligate dual registrants to file newly-created Form PF with the SEC in order to satisfy both Commissions’ filing requirements. In an effort to harmonize its rules with this regulatory scheme, the CFTC separately announced a proposed amendment requiring all registered CPOs and CTAs to electronically file newly-created Forms CPO-PQR and CTA-PR with the National Futures Association (NFA) pursuant to § 4.27 of the CFTC regulations, forms substantively identical to Form PF. The CFTC has also proposed further changes to its regulations that it deemed necessary in the wake of recent economic turmoil and the new regulatory environment engendered by the Dodd-Frank Act. These proposed amendments would: (1) rescind the exemption from registration for CPOs provided in §§ 4.13(a)(3) and (a)(4) of its regulations; (2) revise § 4.7 so that CPOs may no longer claim an exemption from certifying certain annual reports; (3) incorporate the definition of “accredited investor” promulgated by the SEC in Regulation D into § 4.7; (4) reinstate the criteria for claiming an exclusion from the definition of CPO provided in § 4.5; (5) require any CPO or CTA seeking exemptive relief pursuant to §§ 4.5, 4.13 and 4.14 to annually renew their request with the NFA; and (6) require an additional risk disclosure statement under §§ 4.24 and 4.34 for any CPO or CTA engaged in swap transaction. The CFTC intends to promulgate these new rules in an effort to provide effective oversight of the commodity futures and derivatives markets and to manage the risks, especially systemic risks, posed by any pooled investment vehicles under its jurisdiction. This article provides a detailed summary of the CFTC’s proposed amendments.