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CFTC Issues No-action Relief to CLO Manager from Registration as Commodity Trading Advisor
Practical Law Legal Update 0-566-8505 (Approx. 3 pages)
CFTC Issues No-action Relief to CLO Manager from Registration as Commodity Trading Advisor
by Practical Law Finance
| Published on 01 May 2014 • USA (National/Federal) |
The CFTC granted no-action relief to the manager of a collateralized loan obligation (CLO) from the requirement to register as a commodity trading advisor (CTA) under CFTC Regulation 3.4.
On April 11, 2014, the CFTC's Division of Swap Dealer and Intermediary Oversight (DSIO) issued No-action Letter 14-57 (No-action 14-57), which granted relief to the asset manager of a collateralized loan obligation (CLO) from the requirement to register as a commodity trading advisor (CTA) under CFTC Regulation 3.4. No-action 14-57 was issued in response to a request for relief from CTA registration requirements on the grounds that:
- The activities of the CLO manager do not rise to a level that would require CTA registration since advice that the CLO manager provides regarding hedging transactions is incidental to the manager's core function, and is not separately compensated.
- The CLO in this case does not qualify as a "commodity pool" under the definition provided in CFTC's No-action Letters 12-14 and 12-45 (see Practice Note, The Dodd-Frank Act: Expanded "Commodity Pool" Definition and CPO/CTA Rules and Legal Update, CFTC Expands CPO Registration Exemption for ABS Issuers under No-action Letter).
The CLO manager was engaged by the CLO to provide investment advice regarding traditional cash loan assets, and the compensation which the manager received from the CLO was partially based on the total assets under management. Any person who "engages in the business of advising others, or as part of a regular business issues reports or analysis, as to the value of or the advisability of trading in, any futures contract or swap" is considered to be a CTA. CTAs are generally required to register with the CFTC under CFTC Regulation 3.4. Although there are certain exceptions available for CTAs who do not wish to register with the CFTC, the CLO manager did not wish to take advantage of the exceptions because they impose additional obligations.
The CFTC provided relief to the manager in this specific instance, but declined to provide interpretative guidance on its reasoning which would extend this relief to other similarly situated managers.