Commodity Trading Advisor Regulation
|FINAL RULE: The SEC Final Rule: Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF was issued at its October 26, 2011 open meeting. The Commodity Futures Trading Commission (CFTC) approved the joint final rule on October 31, 2011.|
|FINAL RULE: The CFTC final rule on conforming amendments to include swaps in CPO/CTA rules was approved August 23, 2012.|
|Final Rule Issue||Effective Date||Compliance Date|
|February 9, 2012||July 2, 2012||by December 2012*|
|Proposal Date||Final Rule Issue||Effective Date|
|March 3, 2011||September 5, 2012||November 5 2012|
|Final Rule Issue||Effective Date||Compliance Date|
|November 16, 2011||March 31 2012||June 15, 2012*|
Among the provisions of the Dodd-Frank Act are several requirements affecting commodity trading advisors (CTAs), commodity pool operators (CPOs) and investment advisors to private funds. The Securities and Exchange Commission submitted a proposed rule on systemic risk reporting requirements for private fund advisers including hedge funds, CPOs and CTAs in February 2011; the rules became finalized in October 2011.
The Commodity Futures Trading Commission participated in the joint rulemaking with the SEC on the reporting requirements, and also proposed its own rules on certain compliance aspects for CPOs and CTAs. These rules were finalized in February 2012.
On June 15, 2012, the CFTC proposed a rule that clarifies certain supervisory responsibilities of swap dealers and major swap participants. Under the proposal, each swap dealer (SD), major swap participant (MSP), and other Commission registrant with whom an associated person (AP) is associated is required to supervise the AP and is jointly and severally responsible for the activities of the AP with respect to customers common to it and any other SD, MSP or other Commission registrant. To view the rule proposal, click HERE.
Note: On October 12, 2012, the CFTC issued no-action relief until December 31, 2012 for CPOs, CTAs, IBs and associated persons who would be required to register solely on the basis of swap-related activity.
On October 26, 2011, the Securities and Exchange Commission (SEC) finalized rules requiring advisers to hedge funds and other private funds, including commodity pool operators and commodity trading advisors, to report information for use by the Financial Stability Oversight Council (FSOC) in monitoring risk to the U.S. financial system. The Commodity Futures Trading Commission (CFTC) approved the joint final rule on October 31, 2011.
Under the rules, larger private fund advisers managing hedge funds, "liquidity funds" (i.e., unregistered money market funds), and private equity funds would be subject to heightened reporting requirements. Large private fund advisers would include any adviser with $1 billion or more in hedge fund, liquidity fund, or private equity fund assets under management. All other private fund advisers would be regarded as smaller private fund advisers and would be subject to lesser reporting requirements. Information reported on Form PF would remain confidential, unlike Form ADV which is available to the public.
The systemic risk reporting rule was done in accordance with Title I (Financial Stability Oversight Council) and Title IV (Investment Advisers) of the Dodd-Frank Act. According to Dodd-Frank, private funds who may have previously sidestepped registration and reporting would be required to periodically report certain information to regulators, depending upon:
- the amount of assets under management,
- use of leverage,
- counterparty credit risk exposure,
- trading and investment positions, and
- the proposed registration, reporting, and compliance requirements.
At a CFTC open meeting on January 26, 2011 and an SEC open meeting on January 25, 2011, a joint rulemaking was proposed, including amendments to the compliance obligations that require CPOs and CTAs registered solely with the CFTC to file similar reports, among other changes. The public comment period closed on April 12, 2011.
See Private Fund Systemic Risk Reporting Regulation for more information.
Final Rules, Conforming Amendments, August 2012
On August 23, 2012, the CFTC issued a final rule that amends Part 4 of its regulations to reflect changes made to the CEA by the Dodd-Frank Act. Dodd-Frank redefined the terms “commodity pool” “commodity pool operator” and“commodity trading advisor” to include involvement with swaps activities and transactions.
CFTC Final Rules, Compliance Obligations of CPOs and CTAs
On February 9, 2012, the CFTC issued its final rulemaking regarding CPO/CTA compliance obligations. The final rule rescinds the registration exemption for "qualified eligible persons," modifies the criteria for claiming relief under section 4.5, requires the annual filing of notices claiming exemptive relief, and adopts amendments that include new risk disclosure requirements for CPOs and CTAs regarding swap transactions. For more information, see the CFTC Final Rule: Registration and Compliance Obligations for Commodity Pool Operators and Commodity Trading Advisors page.
For more on the compliance rules as proposed in 2011, click HERE.
CFTC Guidance to Off-Exchange Forex CTAs/CPOs, February 27, 2012
On February 27, 2012, the CFTC Division od Swap Dealer and Intermediary Oversight issued a letter of guidance to the National Futures Association (NFA) regarding the CFTC Retail Forex rules and performance disclosure by CPOs and CTAs. According to the letter:
"It is the Division’s view...that a Forex CTA is required to disclose past performance for the period beginning October 18, 2010, or, if later, the date on which the Forex CTA first began exercising discretionary trading authority over accounts engaged in retail forex transactions. From and after October 18, 2015, the period of time described in Regulation 4.35(a)(5) (five most recent calendar years and year-to-date or life of the trading program, if shorter) would apply.
"If a Forex CTA elects to include in its Disclosure Document past performance information for any time prior to October 18, 2010, we believe that in order to avoid “cherry picking” the presentation of such information should encompass the entire period set forth in Regulation 4.35(a)(5) and should include all of the accounts over which the Forex CTA exercised discretionary trading authority during that period."
The full text of the letter can be found HERE.
CFTC Staff Roundtable on Changes to Registration and Compliance Requirements for CTAs and CPOs, July 6, 2011
On July 6, 2011, the CFTC held a public roundtable to discuss issues related to registration and compliance regime for commodity pool operators and commodity trading advisors. Issues addressed:
- The scope of changes to Commission Regulation 4.5 - thresholds, marketing restrictions, and alternatives to the proposal;
- Harmonization with Securities and Exchange Commission Requirements - disclosure and reporting requirements; foreign-domiciled entities;
- De Minimis Exemption; and
- Alternative exemptions, such as family offices.
For more information, including a summary of the roundtable and video of the event, click HERE.
- ↑ Dual and Multiple Associations of Persons Associated With Swap Dealers, Major Swap Participants and Other Commission Registrants. Federal Register. Retrieved on June 15, 2012.
- ↑ SEC Approves Confidential Private Fund Risk Reporting. SEC. Retrieved on October 26, 2011.
- ↑ CFTC and SEC Approve Confidential Private Fund Risk Reporting. CFTC. Retrieved on October 31, 2011.
- ↑ CFTC Staff Roundtable Discussion on Proposed Changes to Registration and Compliance Regime for Commodity Pool Operators and Commodity Trading Advisors. CFTC. Retrieved on July 29, 2011.