Alert September 14, 2010

CFTC Commissioner Supports NFA Petition for Rulemaking to Address Commodity Mutual Funds

CFTC Commissioner Scott D. O'Malia issued a statement in which he indicated that the CFTC should move forward on a petition by the National Futures Association (“NFA”) proposing amendments to the exclusion provided under CFTC Regulation 4.5 (“Reg. 4.5”) from the definition of the term “commodity pool operator” for persons who would otherwise be regulated as such by the CFTC.  The NFA’s proposal is designed to foreclose reliance on the Reg. 4.5 exclusion by “commodity mutual funds,” pooled investment vehicles registered under the Investment Company Act of 1940, as amended, that are marketed as commodities futures investments to retail investors, among others.  The NFA’s proposed amendments would restore conditions that prior to 2003 were imposed on registered investment companies that relied upon Reg. 4.5.  Under the NFA’s proposal, a registered investment company seeking to rely on Reg. 4.5 would have to represent that it “(1) will not be, and has not been, marketing participations to the public as or in a commodity pool or otherwise as or in a vehicle for trading in the commodity futures or commodity options markets; and (2) will use commodity futures or commodity options contracts solely for bona fide hedging purposes and, with respect to positions held for non-bona fide hedging purposes the aggregate initial margin and premiums required to establish such positions will not exceed five percent of the liquidation value of the qualifying entity’s portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into.”