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CFTC Grants No-Action Relief for Exemption for CPOs and CTAs

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Written by:  Jay Gould and Peter Chess

In a July 10, 2012, no-action letter[1], available here, issued by a Division of the U.S. Commodity Futures Trading Commission (the “CFTC”) in response to requested relief from certain new CFTC registration obligations, the CFTC granted temporary relief to commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”).  As previously discussed on this blog, earlier this year the CFTC rescinded an exemption under CFTC Rule 4.13(a)(4) used by many CPOs and CTAs.  This rescission went into effect on April 24, 2012 and denied the use of the exemption under Rule 4.13(a)(4) to any CPOs and CTAs of new pools on or after that date, although CPOs and CTAs already availing themselves of the exemption were able to continue its use until the end of the year.

The no-action letter offers relief to CPOs and CTAs of new pools, recommending that the CFTC not take enforcement action against CPOs or CTAs for new pool launched after the issuance of the no-action letter for failure to register as such until December 31, 2012, as outlined below.

No-action relief will be granted for each pool for which the CPO submits a claim to take advantage of the no-action relief and remains in compliance with the following:

  • Interests in the pool are exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), and such interests are offered and sold without marketing to the public;
  • The CPO reasonably believes, at the time of investment, that (i) each natural person participant is a “qualified eligible person” as that term is defined in Section 4.7(a)(2) of the Commodity Exchange Act; and (ii) each non-natural person participant is a “qualified eligible person” as that term is defined in Section 4.7 of the Commodity Exchange Act or an “accredited investor” as defined under the Securities Act; and
  • In addition, no-action relief will be granted where each pool for which the CPO claims relief is a registered investment company under the Investment Company Act of 1940, as amended.

No-action relief will be granted when the CTA submits a claim to take advantage of the relief and remains in compliance with the following:

  • The CTA’s commodity interest trading advice is directed solely to, and for the sole use of, the pools that it operates; or
  • The CTA’s commodity interest trading advice is directed solely to, and for the sole use of, pools operated by CPOs who claim relief from CPO registration under Rules 4.13(a)(1), (a)(2), (a)(3), (a)(4) or 4.5 of the Commodity Exchange Act, or under no-action relief provided by the no-action letter.

CPOs and CTAs should note that the no-action relief granted is not self-executing and must be affirmatively sought, and any relief sought and/or granted will expire at the end of the year and such CPOs and CTAs must remain in compliance with registration obligations going forward.

[1]   The No-Action letter was issued by the Division of Swap Dealer and Intermediary Oversight of the U.S. Commodity Futures Trading Commission to the Managed Funds Association, the Investment Adviser Association, the Alternative Investment Management Association, Ltd., and the Investment Company Institute, collectively.