CFTC Adopts Harmonization Rules for CPOs of Registered Investment Companies

The US Commodity Futures Trading Commission (“CFTC”) has adopted widely anticipated rules regarding the application of its commodity pool operator (“CPO”) regulatory regime to CPOs of registered investment companies (“RICs”).[1] In what will be a relief to the mutual fund industry, the CFTC has largely deferred to established industry practies. Many observers feared that the agency, having in 2012 replaced a broad status-based exemption for RICs with a narrower exemption dependent on trading limitations, now might impose additional rules on RICs. Instead, the CFTC’s final rules provide extensive relief from CPO compliance obligations under Part 4 of the CFTC rules and generally allow so-called “substituted compliance” with corresponding obligations imposed on RICs by the US Securities and Exchange Commission (“SEC”). In other words, for CPOs of RICs, the CFTC has determined to accept compliance with most SEC rules in lieu of the CFTC rules that otherwise might apply.

Highlights of the relief provided by the final rules are as follows:

- Substituted Compliance: Registered CPOs of RICs will be in compliance with CFTC Rules 4.21 (delivery and acceptance of disclosure documents), 4.22(a) and (b) (reporting to pool participants), 4.24 (general disclosures), 4.25 (performance disclosures) and 4.26 (use, amendment and filing of disclosure documents) if they satisfy the corresponding SEC rules applicable to RICs, subject to certain exceptions discussed below.

- Performance Disclosures: In an exception to the principle of substituted compliance, a RIC with less than three years’ operating history will be required to disclose the performance of all accounts and pools that are managed by the RIC’s CPO and that have investment objectives, policies and strategies “substantially similar” to those of the RIC.

- Third-Party Service Providers: All CPOs (not just those operating RICs) now are permitted to use third-party service providers to maintain their books and records.

Please see full memo below for more information.

LOADING PDF: If there are any problems, click here to download the file.