Alert July 17, 2012

CFTC Issues No Action Relief for Newly-Formed Commodity Pools, Denies Other Requested Relief

The CFTC’s Division of Clearing and Intermediary Oversight (the “Division”) published a no‑action letter on July 13, 2012 (the “Letter”) that provides temporary relief from CFTC registration requirements to general partners and advisors of commodity pools formed between July 11, 2012 and December 31, 2012.  The Letter denied other relief sought by industry groups related to CFTC registration obligations.  The Letter allows entities that are commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”) under CFTC regulations to avail themselves of the “QEP Exemption” (and the corresponding exemption for CTAs) with respect to commodity pools launched after the issuance of the Letter (the Letter is dated July 10, 2012) and December 31, 2012.  To obtain relief, entities must file a claim with the CFTC.  The QEP Exemption (and the corresponding exemption for CTAs) expires on December 31, 2012.  Final rules issued by the CFTC on February 9, 2012 rescinded the QEP Exemption with respect to commodity pools formed before April 24, 2012, effective on December 31, 2012. 

The Letter responds to two letters from industry groups.  In addition to the temporary relief granted by the Letter, the Managed Funds Association, the Investment Adviser Association and the Alternative Investment Management Association in a letter dated April 30, 2012  and the Investment Company Institute, in a letter dated May 21, 2012, had also requested an extension of time during  which (i) a CPO could claim an exemption from registration under 17 CFR 4.13(a)(3) (the “De Minimis Exemption”) and 17 CFR 4.5 (the “Regulated Entity Exemption”) without including swaps in the CPO’s calculations to determine whether it qualifies for the De Minimis Exemption or the Regulated Entity Exemption and (ii) entities may rely on the QEP Exemption.  The Division denied these requests.

At this point, it appears unlikely that the CFTC will provide further relief related to the rescission of the QEP Exemption or the new restrictions associated with the De Minimis Exemption.  In providing the temporary relief to newly formed commodity pools that expires on December 31, 2012, the Letter states “[t]he Division believes that setting a specific compliance date that applies to all similarly situated CPOs and CTAs is appropriate.”  Therefore, advisors to private funds or accounts that hold commodities and that presently rely on the QEP Exemption in order to avoid registering with the CFTC should turn their attention at this time to determining whether they are eligible for the De Minimis Exemption.  If they are not, they will need to begin the CFTC registration process soon in order to achieve registration by December 31, 2012.