On December 4, 2012, the Commodity Futures Trading Commission's (CFTC) Division of Swap Dealer and Intermediary Oversight ("the Division") issued a no action letter to operators of business development companies ("BDCs"). The letter was in response to a request for clarification regarding CFTC Regulation 4.5 as applied to certain pooled investment vehicles organized as BDCs. The letter states that the Division will not recommend that the CFTC take enforcement action against the operators of BDCs for failure to register as commodity pool operators ("CPOs") under the Commodity Exchange Act and the CFTC's regulations, subject to certain conditions described in the letter.
The Division asserted that BDCs are properly considered commodity pools and, absent relief from the Division, a BDC's operator would be required to register as a CPO under the Dodd-Frank Act. The Dodd-Frank Act revised the definition of a CPO to include those accepting funds, securities, or property for the purpose of trading in commodity interests, which includes swaps. Based on these amendments, the CFTC determined that any swaps activities undertaken by a CPO would result in that entity being required to register — even one swap contract would trigger the registration requirement. However,in the letter and based upon specific representations made to the CFTC about BDCs, the Division stated that it will not recommend the CFTC take enforcement action against BDC operators for failure to register as a CPO if the following conditions are met...
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