On July 13, 2012, the Division of Swap Dealer and Intermediary Oversight (the Division) of the U.S. Commodity Futures Trading Commission (CFTC) issued a no-action letter in response to the requests of several industry trade associations that the CFTC (i) delay the compliance date for including swaps as “commodity interests” when determining compliance with CFTC Rules 4.13(a)(3) and 4.5, and (ii) grant temporary relief from CFTC registration to commodity pool operators (CPOs) and commodity trading advisers (CTAs) who would have been exempt under Rule 4.13(a)(4) or 4.5 but for the February amendments. Although the first request was denied, the Division agreed that eligible CPOs and CTAs (i.e., those who comply with the substantive and filing requirements set forth below) will not be subject to CFTC enforcement action for failure to register as a CPO and/or a CTA before December 31, 2012.
What Does the No-Action Relief Mean?
Advisers and sponsors of new registered investment companies and certain privately offered pools launched after July 13, 2012 will not be required to register as CPOs or CTAs until December 31, 2012. Because the relief parallels the provisions of former Rule 4.13(a)(4), advisers to new private funds relying on Section 3(c)(7) of the Investment Company Act of 1940 (the 1940 Act) may effectively rely on the provisions contained in the Rule 4.13(a)(4) exclusion until December 31, 2012. The relief, however, is not self-executing and is subject to the conditions set forth below.
What About Funds Launched Between April 25, 2012 and July 12, 2012?
Unfortunately, advisers and sponsors of registered investment companies and privately offered pools launched during this window may not claim the no-action relief, and firms will need to comply with the CFTC regulations as amended.
Requirements for No-Action Relief
In order to qualify for the relief, CPOs must comply with the following criteria:
For privately offered pools:
- Interests in the pool must be exempt from registration under the Securities Act of 1933, and such interests must be offered and sold without marketing to the public in the United States.
The CPO reasonably believes, at the time of investment, that
- Each natural person participant (including such person’s self-directed employee benefit plan, if any) is a “qualified eligible person” (QEP) and
- Each non-natural person participant is a QEP or an “accredited investor.”
For registered investment companies:
Advisers to funds that are registered investment companies under the 1940 Act are also allowed to claim the relief.
CTAs are eligible for corresponding relief, provided they comply with the following criteria:
- The CTA claims relief from registration under the no-action relief, and its commodity interest trading advice is directed solely to, and for the sole use of, the pools that it operates; or
- The CTA’s commodity interest trading advice is directed solely to, and for the sole use of, pools operated by CPOs who claim relief from CPO registration under Sections 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), 4.13(a)(4) or 4.5, or under the no-action relief described in the Division’s letter.
Filing Requirements for No-Action Relief
As mentioned above, the no-action relief is not self-executing. In addition to maintaining compliance with the substantive criteria previously listed, an eligible CPO or CTA must file a claim that:
- States the name, main business address and main business telephone number of the CPO or CTA claiming the relief;
- States the capacity (i.e., CPO, CTA or both) and, where applicable, the name of the pool(s) for which the claim is being filed;
- Is electronically signed by the CPO or CTA; and
- Is filed with the Division using the e-mail address firstname.lastname@example.org prior to the date upon which the CPO or CTA first engages in business that would otherwise require registration as such.
Any complete claim by an eligible CPO or CTA will be effective upon filing, and the relief will expire on December 31, 2012.