Life After CPO Registration: Select CFTC and NFA Compliance Obligations that Lie Ahead

Over the last few months, an exceptional number of investment management firms have either registered or prepared to register with the Commodity Futures Trading Commission (“CFTC”) as “commodity pool operators” (“CPOs”). Many of these firms, which operate investment funds (or “pools”) that participate directly or indirectly in CFTC-regulated “commodity interests” (such as commodity futures contracts, options on such contracts, and swaps), have been goaded toward registration by 2012 CFTC rulemaking that greatly narrowed the scope of registration relief historically available to CPOs. Since January 1st of this year, when much of that rulemaking was implemented, CPO registration has become all but mandatory for most U.S. managers of hedge funds, mutual funds, and various other types of pools that engage in more than de minimis levels of commodity interest trading.

Newly registered CPOs likely will need to weave into their compliance programs numerous policies and procedures dictated by the rules of the CFTC and the National Futures Association (“NFA”). This article highlights several of the more significant areas in which the CFTC and NFA regulate CPOs, and a number of particular requirements that recent CPO registrants should ensure they have accounted for in preparing for life with their new regulators. This article also highlights certain significant regulatory relief that some CPOs may be able to claim, particularly with respect to their CFTC disclosure, reporting, and recordkeeping obligations.

1. Duty to Update Registration Forms -

CPOs generally must ensure that the identification information, disciplinary history, contact details, and other information contained in their CPO registration form—CFTC/NFA Form 7-R—remains current. Specifically, CFTC Rule 3.31 and NFA Registration Rule 210 require that all CPO applicants and registrants “promptly” correct any deficiency or inaccuracy in the information contained in their Form 7-R. Although it is unclear how quickly a correction generally must be made to have been made “promptly,” NFA Registration Rule 208 specifically requires an NFA member to update its Form 7-R to reflect the addition of any new president, chief financial officer, or other “principal” of the member within 20 days after the applicable addition.

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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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