How Do New Commodities Regulations Impact Hedge Fund Managers with Respect to Registration, Marketing, Trading, Audits and Drafting of Governing Documents?

On February 9, 2012, the U.S. Commodity Futures Trading Commission (CFTC) rescinded an exemption from commodity pool operator (CPO) registration found in CFTC Rule 4.13(a)(4) that was previously heavily relied upon by many hedge fund managers.  The rescission of that exemption also narrowed the availability of an exemption from commodity trading adviser (CTA) registration found in CFTC Rule 4.14(a)(8) which was also relied upon heavily by many hedge fund managers.  As such, many hedge fund managers will need to register as CPOs or CTAs with the CFTC, become members of the National Futures Association (NFA) and become subject to CFTC and NFA regulations.  See “Do You Need to Be a Registered Commodity Pool Operator Now and What Does It Mean If You Do? (Part One of Two),” Hedge Fund Law Report, Vol. 5, No. 8 (Feb. 23, 2012).  Bearing this in mind, law firm Kleinberg, Kaplan, Wolff & Cohen, P.C. (KKWC) and hedge fund administrator CACEIS jointly hosted a webinar (Webinar) on April 19, 2012 to outline changes in the regulatory regime for CPOs and CTAs.  During the Webinar, Martin D. Sklar, a Member of KKWC, and Darren J. Edelstein, an Associate at KKWC, shared their expertise on numerous topics, including a discussion of the remaining exemptions from CPO and CTA registration for hedge fund managers; the steps taken to register a CPO or a CTA and its respective principals and associated persons; the various CFTC and NFA regulations impacting CPOs and CTAs; and the reporting requirements applicable to registered CPOs and CTAs, including completion and filing of Form CPO-PQR and CTA-PR.  The Hedge Fund Law Report interviewed Sklar and Edelstein following the Webinar to conduct a deeper dive into some of the topics discussed during the Webinar, including a discussion of: the Rule 4.13(a)(3) de minimis exemption; which hedge fund management entities should register as CPOs and CTAs; what marketing, trading and other regulations affect registered CPOs and CTAs; whether and to what extent registered CPOs and CTAs are subject to CFTC and NFA audit; whether hedge fund managers must add additional disclosures or change their subscription documents to allow them to comply with CFTC and NFA regulations; and the biggest challenges hedge fund managers face with respect to registering as a CPO or CTA and becoming subject to CFTC and NFA regulations.

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