Alert April 24, 2012

ICI and U.S. Chamber of Commerce Challenge Changes to CFTC Exemption for Advisers to Registered Funds

The Investment Company Institute (ICI) and the U.S. Chamber of Commerce filed a complaint in the U.S. District Court for the District of Columbia challenging amendments to Rule 4.5 under the Commodity Exchange Act (CEA).  The amendments, which were discussed in the February 14, 2012 Financial Services Alert, increase the number of conditions an adviser to a registered investment company must meet to claim an exemption from regulation by the CFTC as a commodity pool operator (CPO); the amendments, in part, reinstate trading and marketing conditions that were part of Rule 4.5 prior to 2003.  The complaint alleges a number of defects in the CFTC’s rulemaking process under the CEA and Administrative Procedures Act (APA), including failure to conduct the cost/benefit analysis required under CEA and failure to provide reasoned explanations for various aspects of the rulemaking as required by the APA and the CEA.  The suit also challenges new quarterly reporting requirements for CPOs that the CFTC added to Rule 4.27 under the CEA in the same rulemaking with the Rule 4.5 amendments.  The complaint asks that the amendments to Rule 4.5 and 4.27 be vacated and that the court postpone the effectiveness of the amendments until the case is concluded.