Introduction -

In response to new commodity pool operator (CPO) and commodity trading advisor (CTA) compliance deadlines scheduled to go into effect on January 1, 2013 following the rescission of CFTC Regulation 4.13(a)(4) (Rule 4.13(a)(4)) and the amendment of CFTC Regulation 4.5 (Rule 4.5), the U.S. Commodity Futures Trading Commission (CFTC) has granted relief in a no-action letter for both public and private fund-of-funds managers. The no-action letter allows these managers to delay such compliance until the later of June 30,2013, or six months from the date that the Division of Swap Dealer and Intermediary Oversight (Division) issues revised guidance (or the compliance date, if later) on the application of the calculation of the de minimis commodity interest trading tests in the context of Rules 4.5 and 4.13(a)(3), as long as certain criteria are met (Relief). At that later date, a CPO of a fund-of-funds will have to be registered with the CFTC as a CPO and be a member of the U.S. National Futures Association (NFA) (not merely have submitted its application by then) or qualify for and effectuate an appropriate exclusion or exemption from such registration. This new relief has been granted in response to a request by the Investment Adviser Association (IAA), the Managed Funds Association (MFA), and Dechert LLP — on behalf of a group of fund-of-funds clients — made to the Division.

Rescission of Rule 4.13(a)(4) -

Prior to the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), the instruments that would cause a commingled investment fund to become a commodity pool were exchange-traded futures contracts, options on futures contracts, and commodity options (among other instruments). The Dodd-Frank Act changed the regulatory landscape by giving the CFTC jurisdiction over the trading of security futures products and certain exchange-traded and over-the-counter derivatives (such as swap, forward, and option contracts), other than: swaps (including credit default swaps) referencing single securities or loans or baskets of nine or fewer securities; forward contracts on non-financial items; and certain limited currency swaps and forwards providing for physical delivery of two currencies. As a result of this sweeping change, the CFTC concluded that it was necessary to regulate managers that invested through commingled investment funds in the products over which the CFTC now had jurisdiction.