On February 8, 2012, the Commodity Futures Trading Commission (“CFTC” or “Commission”) issued final regulations that repeal the commodity pool operator (“CPO”) registration exemption widely used by the operators of private funds offered only to highly sophisticated investors (commonly called “qualified purchaser funds” or “Section 3(c)(7) Funds”). That exemption – which was set forth in CFTC Regulation 4.13(a)(4) – placed no limits upon the amount of commodity interest trading by such funds. At the same time, the CFTC voted to retain the CPO registration exemption in Regulation 4.13(a)(3) for operators of private funds that trade only a de minimis amount of commodity interests. The de minimis exemption is used primarily by operators of private funds offered to investors that meet a standard basically equivalent to that of an “accredited investor” (commonly called “Section 3(c)(1) Funds”).

The CFTC’s changes will force private fund operators that currently rely on Regulation 4.13(a)(4) (as well as advisors to those funds that currently rely on the exemption from registration as a commodity trading advisor (“CTA”) in CFTC Regulation 4.14(a)(8)) to restrict commodity interest trading to qualify for the de minimis exemption or register as CPOs (and as CTAs for advisors to such funds). Those that register as a CPO and/or a CTA likely will be eligible for a less burdensome system of CPO/CTA regulation under Regulation 4.7, which is available to operators of and advisors to private funds offered only to a class of investors similar to those eligible to invest in Section 3(c)(7) Funds.

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