CFTC Approves Final Rule Regarding Exemptive Relief for CPOs and CTAs
The Commodity Futures Trading Commission (CFTC) has published a final rule that amends CFTC Regulation 4.7, a provision that provides relief from certain disclosure, reporting, and recordkeeping requirements for CPOs and CTAs who offer commodity interests to their sophisticated investors and clients.
These are the first amendments to the rule since its original adoption in 1992. Now, the final rule:
increases the monetary thresholds outlined in the “Portfolio Requirement” definition that certain persons may use to qualify as Qualified Eligible Persons (QEPs);
codifies exemptive letters allowing CPOs of Funds of Funds operated under Regulation 4.7 to choose to distribute monthly account statements within 45 days of the month-end;
includes technical amendments designed to improve its efficiency and usefulness for intermediaries and their prospective and actual QEP pool participants and advisory clients; and
updates citations within 17 CFR Part 4, and throughout the CFTC’s rulebook, to reflect the new structure of Regulation 4.7.
Although the changes to 4.7 may feel substantive, that final rule does not include proposed requirements that would have burdened CPOs and CTAs with additional disclosure requirements, including descriptions of the commodity pool’s principal risk factors, investment program, use of proceeds, custodians, fees and expenses, and conflicts of interest. The industry was particularly concerned with the proposed requirement to include in the pool’s offering memorandum a break-even table and performance of the pool calculated pursuant to CFTC rules. The victory prompted Commissioner Summer K. Mersinger to state, “This flawed proposal led to a unanimous comment file, without a single commenter supporting the Commission’s new minimum disclosure regime. The proposal was a textbook example of overregulation. Thankfully, the Commission avoided the temptation to overregulate under this rule, dropping the minimum disclosure regime from the final rule adopted today.”
If you’re an adviser or fund manager with commodity interests in your trading strategies or portfolios, we encourage you to contact Apogee’s exceptional CFTC/NFA compliance consultants to discuss these recent amendments and other recent changes relating to NFA’s BASIC system and Member Questionnaire.