D.C. District Court Rejects Challenge to CFTC Rule 4.5 Amendments


On December 12, 2012, the U.S. District Court for the District of Columbia dismissed a lawsuit challenging recent amendments to Rule 4.5 (the “Amended Rule”) promulgated by the Commodity Futures Trading Commission (the “CFTC”) under the Commodity Exchange Act. The Amended Rule has been a topic of intense focus by the mutual fund industry because it will subject many registered investment companies and their investment advisers to regulatory oversight by the CFTC and the National Futures Association (the “NFA”). The court rejected in their entirety the principal claims advanced on behalf of the mutual fund industry by the plaintiffs, the Investment Company Institute and the U.S. Chamber of Commerce, finding that “the CFTC considered the relevant factors [and] acted well within its discretion,” and that the CFTC’s regulatory action was neither arbitrary nor capricious. The text of the court’s opinion can be found below.

Investment advisers to registered investment companies that do not qualify for the exclusions from registration under the Amended Rule will be required to register with the CFTC by December 31, 2012, although they will not have to comply with certain recordkeeping, reporting and disclosure requirements until 60 days following the effectiveness of the final “harmonization” rule. As of the date of this alert, the CFTC had not announced when the final harmonization rule will be adopted.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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