On November 29 and December 4, the Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) issued a series of no-action letters that afford relief from registration as a commodity pool operator (CPO) to operators of certain funds of funds (the Fund of Funds Letter), business development companies (the BDC Letter) and family offices (the Family Offices Letter) that engage in commodity interest (i.e., futures, options and swaps) trading. Also, on December 3, the National Futures Association (NFA) issued guidance that addresses the manner in which CPOs and commodity trading advisors (CTAs) that are exempt or excluded from registration can satisfy the new CFTC requirement to affirm eligibility for exemption or exclusion from registration. The CFTC no-action letters and NFA guidance are summarized below.
1. The Fund of Funds Letter
Under the Commodity Exchange Act and CFTC regulations promulgated thereunder, collective investment vehicles that indirectly obtain exposure to commodity interests by investing in commodity pools (Funds of Funds) are themselves commodity pools. As a result, operators of Funds of Funds would be CPOs and could be required to register as CPOs depending on their eligibility for a regulatory exemption or exclusion therefrom.
Previously, CPOs of Funds of Funds could use Appendix A to Part 4 of the CFTC’s regulations when determining whether they were eligible for an exemption from CPO registration available under CFTC Regulation 4.13(a)(3), which exempts from registration CPOs of commodity pools that only engage in a de minimis level of commodity interest trading. Appendix A presented a series of scenarios prepared by the CFTC to assist CPOs of Funds of Funds in applying CFTC Regulation 4.13(a)(3)’s de minimis thresholds. Without explanation, the CFTC rescinded Appendix A as part of final regulations that the CFTC adopted last February to amend CPO and CTA compliance obligations. After the adoption of these regulations, the CFTC staff indicated that it would revise the guidance in Appendix A. However, until that guidance is issued, market participants may continue to rely on Appendix A.
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