Commodity Futures Trading Commission Proposes to Rescind Registration Exemptions


On January 26, 2011, the Commodity Futures Trading Commission (the “CFTC”) proposed to rescind the exemptions from registration as a commodity pool operator (a “CPO”) typically relied on by private investment fund sponsors (Rules 4.13(a)(3) and 4.13(a)(4)), and to limit the availability of the exclusion from the definition of a CPO for certain registered investment companies (Rule 4.5). The text of the proposals has not yet been published.

If the proposals are adopted, sponsors of private funds will have to register with the CFTC if they use futures, options on futures or commodities, swaps and other over-the-counter derivatives (other than securities-based swaps, such as equity swaps and single-name credit default swaps) (beginning July 2011), and certain foreign currency transactions in those funds. Further, registered investment companies that use more than a de minimis amount of futures and options (in addition to bona fide hedging transactions) or that are marketed as vehicles for exposure to futures or options will also have to register with the CFTC. Advisers to these funds will need to consider whether these changes will result in an obligation to register with the CFTC as commodity trading advisors (“CTAs”). Registered CPOs and CTAs must comply with disclosure, reporting and recordkeeping rules, and implement certain policies and procedures. They are also subject to periodic audits by the National Futures Association (the self-regulatory organization for the futures industry). The registration process involves filings, fingerprinting, proficiency examinations and fees.

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