CFTC Issues No-action Relief on Fund-of-funds CPO Registration | Practical Law

CFTC Issues No-action Relief on Fund-of-funds CPO Registration | Practical Law

The CFTC granted temporary no-action relief from its CPO registration requirements for fund of funds under CFTC Regulations 4.5 and 4.13(a)(3), which exempt certain regulated persons from CPO registration.

CFTC Issues No-action Relief on Fund-of-funds CPO Registration

Practical Law Legal Update 0-522-9021 (Approx. 3 pages)

CFTC Issues No-action Relief on Fund-of-funds CPO Registration

by PLC Finance
Published on 06 Dec 2012 • USA (National/Federal)
The CFTC granted temporary no-action relief from its CPO registration requirements for fund of funds under CFTC Regulations 4.5 and 4.13(a)(3), which exempt certain regulated persons from CPO registration.
On November 29, 2012, the CFTC's Division of Swap Dealer and Intermediary Oversight issued No-action Letter 12-38 granting temporary relief to fund-of-funds operators from registration with the CFTC as commodity pool operators (CPOs). The no-action relief remains in effect until the later of:
  • June 30, 2013.
  • Six months after the CFTC issues revised guidance on the application to fund-of-funds operators of the calculation of de minimis thresholds under CFTC Regulation 4.5, which allows certain regulated persons to be excluded from the definition of CPO, and Regulation 4.13(a)(3), which exempts certain regulated persons from CPO registration.
Without this temporary relief, certain fund-of-funds operators may have been required to register with the CFTC by December 31, 2012. For details on CFTC CPO registration requirements, see Legal Update, Final Rules Amending CPO, CTA Registration and Compliance Obligations Issued by CFTC.
To be eligible for the no-action relief, the fund-of-funds operator must file a claim to "perfect the relief" before December 31, 2012 by e-mail to the Division and must remain in compliance for the duration of the relief period with the following criteria:
  • The operator structures its operations in whole or in part as an operator of one or more fund of funds.
  • The fund of fund's direct exposure to commodity interests does not rise above the de minimis thresholds specified in Regulations 4.5 and 4.13(a)(3).
  • The operator of the fund of funds does not know and could not reasonably have known that its indirect exposure to commodity interests exceeds the de minimis thresholds in Regulations 4.5 or 4.13(a)(3), either calculated directly or through use of the old Regulation 4.13(a)(3) guidance (see below for more on the old guidance).
  • The commodity pool for which the fund of funds seeks relief is either:
Specifically, the claim of no-action relief must:
  • State the name, main business address and main business telephone number of the operator claiming the relief.
  • State the capacity (for example, operator) and the name of the pool(s) for which the claim is being filed.
  • Be signed by the operator.
  • Be filed with the Division prior to December 31, 2012 via e-mail using the e-mail address [email protected] and stating "Fund-of-Funds" in the subject line of the e-mail.
Generally, CPOs must register with the CFTC by December 31, 2012. However, some fund-of-funds operators have expressed concern that due to the lack of visibility a fund-of-funds operator has into the positions of the investment vehicles in which it invests, the fund-of-funds operator may not be able to calculate whether it meets the new de minimis threshold requirement for exemption from registration under Regulations 4.5 and 4.13(a)(3). Additionally, because the de minimis threshold calculation test is the same for both Regulation 4.5 and Regulation 4.13(a)(3), fund-of-funds operators have requested that any future revised guidance address the application of both tests.
Prior to the amendment of the CFTC's Regulations by the Dodd-Frank Act, the CFTC had provided guidance on:
  • The application of Regulation 4.13(a)(3) to fund of funds that indirectly trade commodity interests as a result of their investments in other vehicles.
  • Whether a fund of funds meets the requirements for the CPO registration exemption under Regulation 4.13(a)(3) by addressing how a fund-of-funds operator may apply the Regulation's de minimis threshold by providing six factual situations. Those situations permitted a fund-of-funds CPO to infer compliance with the de minimis threshold requirement.
In conjunction with the Dodd-Frank amendments to the CFTC Regulations, the CFTC rescinded this guidance. The Division is expected to issue revised guidance in the future on the application of Regulation 4.13(a)(3) to fund of funds.
The CFTC has stated that fund-of-funds operators may continue to rely on the old guidance until the CFTC has issued the revised guidance. But this does not address fund-of-funds operators' concerns regarding their access to information they need to make their de minimis exemption calculations. The no-action relief addresses this by stating that the Division will not recommend that the CFTC take an enforcement action against any fund-of-funds operators that do not register because of their indirect exposure to commodity interests until the later of:
  • June 30, 2013.
  • Six months after the effective date of the revised guidance on the application to fund-of-funds operators of the calculation of de minimis thresholds under Regulations 4.5 and 4.13(a)(3) (or the compliance date, if later).