CFTC Final Rule: Registration and Compliance Obligations for Commodity Pool Operators and Commodity Trading Advisors

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Gavel.png FINAL RULE: The CFTC final rule on CPO/CTA registration and compliance issues was approved February 9, 2012.
Dodd-Frank Timeline, CPO/CTA Registration, CFTC
Final Rule Issue Effective Date Compliance Date
February 9, 2012 July 2, 2012 by December 2012*

On February 9, 2012, the CFTC published its final rule on compliance obligations for commodity pool operators (CPOs) and commodity trading advisors (CTAs). CPOs and CTAs that are registered with both the CFTC and SEC ("dual registrants") will be required to file reports to the SEC similar to Form PF, the systemic risk reporting requirement, mandated by the Dodd-Frank Act, and to be used by the Financial Stability Oversight Council. Mutual funds that use futures and swaps tied to commodities will be required to register with the CFTC, just as they had been prior to the granting of the exemption by executive order in 2003. The National Futures Association (NFA) sought the change to improve protection of retail investors.<ref>FTC Requires Registration by Mutual Funds With Commodities. Bloomberg. Retrieved on February 10, 2012.</ref>

According to CFTC Chairman Gary Gensler in his supporting statement, "This rule reinstates the regulatory requirements in place prior to 2003 for registered investment companies that trade over a de minimis amount in commodities or market themselves as commodity funds."<ref>Statements of Support, Amendments to Compliance Obligations and Harmonization Proposal. CFTC. Retrieved on February 10, 2012.</ref>

The final rule passed by a vote of 4-1, with Commissioner Jill Sommers voting against the rulemaking. In her dissenting statement, Sommers suggests that the rule goes beyond the mandates of the Dodd-Frank Act, and that "there is no evidence to suggest that inadequate regulation of commodity pools was a contributing cause of the crisis, or that subjecting entities to a dual registration scheme will somehow prevent a similar crisis in the future."<ref>Dissenting Statement, Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations. CFTC. Retrieved on February 10, 2012.</ref> Sommers' statement is also critical of the treatment of family offices and the lack of adequate cost-benefit analysis prior to the rulemaking.

The final rule also includes changes to certain compliance policies, specifically:

  • Reinstate trading criteria for registered investment companies claiming exclusion from the CPO definition under Regulation 4.5 and add an alternative trading threshold based on net notional value of commodity interest positions;
  • Rescind the exemption from CPO registration under Regulations 4.13(a)(4);
  • Revise Regulation 4.7 so that CPOs may no longer claim exemption from the requirement that an exempt pool’s annual report contain certified financial statements;
  • Modify the participant qualification criteria of Regulation 4.7 to incorporate the SEC’s accredited investor standard by reference rather than by direct inclusion of its terms;
  • Require all persons claiming exemptive or exclusionary relief under 4.5, 4.13, and 4.14 to confirm their notice of claim of exemption or exclusion on an annual basis; and
  • Amend the risk disclosure statement that must be included in CPO and CTA disclosure documents to describe certain risks specific to swaps transactions.

Effective Date[edit]

The effective date for the reporting requirements will vary depending upon the size of the entity:

  • CPOs having at least $5 billion in assets under management must report by September 15, 2012.
  • CPOs with assets of between $1.5 billion and $5 billion must report 60 days after the end of CPOs first calendar quarter ending after December 14, 2012.
  • All other CPOs and CTAs must report by 90 days after calendar year end 2012.

The effective date for changes to Regulation 4.27, Form CPO-PQR/CPO-PR, is July 2, 2012

Limited No-action Relief[edit]

On July 13, 2012, the CFTC Division of Swap and Intermediary Oversight issued a no-action relief letter for commodity pool operators (CPOs) and commodity trading advisors (CTAs) who have been exempt or excluded from registration but, because of recent amendments to Commission Regulations 4.13 and 4.5, now need to register and satisfy compliance obligations. Due to potential operational constraints in complying with the final rule, the DSIO recommend that the Commission not take enforcement action for failure to register until December 31, 2012.

On November 30, 2012, the CFTC issued no-action relief to CPOs operating funds of funds until June 30, 2013, or until the commission submits guidance on applying the de minimis thresholds to such funds of funds.

Related Documents: CPO/CTA Rule Proposal, Fact Sheet, and Q&A[edit]


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