On Wednesday, December 12, 2012, the United States District Court for the District of Columbia dismissed a lawsuit brought by the U.S. Chamber of Commerce (the “Chamber”) and Investment Company Institute (“ICI”) against the CFTC challenging amendments to CFTC Rules 4.5 and 4.27 adopted earlier this year (the “Amendments”). The Amendments, which were described in the February 14, 2012 Financial Services Alert, impose (1) additional conditions on an exclusion from the definition of commodity pool operator (“CPO”) available with respect to registered investment companies (“RICs”) and (2) new reporting requirements for CPOs and commodity trading advisers.
In their complaint filed on April 17, 2012, the Chamber and the ICI alleged, among other things, that the Amendments did not meet the requirements of the Commodity Exchange Act (CEA) relating to cost-benefit analysis and were arbitrary and capricious under the Administrative Procedure Act (APA). U.S. District Court Judge Beryl Howell, however, found that the CFTC had met the requirements of the CEA and the APA, noting that the CFTC “reasonably considered the costs and benefits of the final rule, and decided that the benefits outweigh the costs.” Judge Howell determined that certain of the new compliance obligations that will flow from registration as CPO of a RIC will not be ripe for review until the CFTC adopts final rules “harmonizing” certain CFTC and SEC regulations that apply to RICs.
December 31, 2012 is the compliance deadline for the amendments to the Rule 4.5 exclusion. CPOs that are required to register will have to comply with related recordkeeping, reporting and disclosure requirements within 60 days following the adoption of final rules harmonizing certain CFTC and SEC requirements as they apply to RICs.