Alert February 01, 2011

CFTC Proposes New Reporting Requirements for Commodity Pool Operators (“CPOs”) and Commodity Trading Advisors (“CTAs”) and Rule Amendments Affecting Compliance Obligations of CPOs and CTAs

At its open meeting on January 26, 2011, the CFTC approved new systemic risk reporting requirements under new proposed Commodity Exchange Act Regulation 4.27 and approved other rule amendments affecting compliance obligations of commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”).  Proposed new Regulation 4.27 would require CPOs and CTAs that are registered with the CFTC to file Forms CPO-PQR and CTA-PR with the National Futures Association (the “NFA”).  In addition, the rule amendments that the CFTC approved include major changes to the existing compliance regime with respect to CPO and CTA registration and disclosure requirements.  Because the formal proposing rule release was not available until this edition of the Alert was being finalized, this summary is based on the CFTC Q&A and fact sheet announcing the proposed rules.  A copy of the proposing release is available at the following link:

At the same open meeting, the CFTC approved proposed joint rules with the SEC to address reporting requirements with respect to private funds by advisers that are registered with the SEC and with the CFTC as CPOs or CTAs.  The proposed joint rules which would create a new Form PF are discussed elsewhere in this edition of the Alert

Specifically, the CFTC is proposing to:

  • Require any CPO or CTA that is registered or required to be registered with the CFTC to file proposed Forms CPO-PQR and CTA-PR, respectively, with the NFA.  According to the CFTC, proposed Forms CPO-PQR and CTA-PR would solicit information that is generally identical to the information sought through proposed new Form PF with appropriate modifications.  Proposed Regulation 4.27 utilizes a “tiered approach” to the collection of data from CPOs and CTAs in that the amount of information that a CPO or CTA will be required to disclose on the new forms (and the frequency of reporting) will vary depending on both the size of the operator or adviser and that of the advised pools.  The CFTC is also amending Regulations 145.5 and 147.3 to treat certain proprietary information collected in proposed Forms CPO-PQR and CTA-PR as non-public records.
  • Reinstate trading criteria for registered investment companies claiming exclusion from the CPO definition under Regulation 4.5.  The proposed amendments to Regulation 4.5 would restore conditions that prior to 2003 were imposed on registered investment companies that relied upon Regulation 4.5.  According to the CFTC, the proposed amendments to Regulation 4.5 are consistent with the language proposed by the NFA in its 2010 petition for rulemaking in which the NFA suggested certain revisions to the exclusion in Regulation 4.5 from the CPO definition for persons who would otherwise be regulated as such by the CFTC (as discussed in the September 14, 2010 Alert).  The NFA’s proposal was designed to foreclose reliance on the Regulation 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;
  • Rescind the exemption from CPO registration under Regulation 4.13(a)(3) and (4) for operators of pools that are similarly situated to private funds.  According to the CFTC, operators of such pools should be subject to similar regulatory obligations to those that the Dodd-Frank Act requires of advisers of private funds (including proposed Form CPO-PQR) in order to provide improved transparency and increased accountability with respect to such pools;
  • Revise Regulation 4.7 so that CPOs may no longer claim exemption from the certification requirement that an exempt pool’s annual report contain certified financial statements and modify the participant qualification criteria of Regulation 4.7 to incorporate the SEC’s accredited investor standard by reference rather than by direct inclusion of its terms.  Regulation 4.7 currently makes available relief from certain disclosure, reporting and recordkeeping requirements to CPOs of pools that are offered solely to qualified eligible participants;
  • Require all persons claiming exemptive or exclusionary relief under Regulations 4.5, 4.13 and 4.14 to confirm their notice of claim of exemption or exclusion on an annual basis; and
  • Amend the risk disclosure statement that must be included in CPO and CTA disclosure documents to describe certain risks specific to swaps transactions.