In response to industry comment, on October 15 the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) provided further relief from commodity pool operator (CPO) registration to a CPO that has delegated investment management authority (Delegating CPO) to another person registered as a CPO (Designated CPO). CFTC Letter No. 14-126 supersedes relief DSIO had provided earlier this year, as reported in the May 16, 2014 edition of the Corporate Financial Weekly Digest. The earlier relief, CFTC Letter No. 14-69 (May 12, 2014), provided a streamlined process for a Delegating CPO to request no-action relief from CPO registration, but nonetheless required the Delegating CPO to file a written request for relief and for DSIO to provide a written response.
Unlike the prior relief, relief under Letter No. 14-126 is self-executing. Under the new letter, a Delegating CPO would automatically qualify for relief, provided the Delegating CPO (except as described in the next paragraph):
- delegates all of its investment management authority to a Designated CPO pursuant to a legally binding document;
- refrains from participating in the solicitation of participants for, or managing any property of, the commodity pool;
- is not subject to a statutory disqualification;
- where applicable, is able to identify a business purpose (other than avoiding registration requirements) that explains why the Designated CPO is a separate entity from the Delegating CPO;
- ensures that the Designated CPO maintains books and records related to the commodity pool in accordance with CFTC regulations;
- controls, is controlled by, or is under common control with the Designated CPO if both the Delegating CPO and Designated CPO are entities;
- enters into an agreement to be jointly and severally liable with the Designated CPO unless the Delegating CPO is an “Unaffiliated Board Member” (as defined in the letter); and
- remains fully responsible as a board member under applicable law in cases where the Delegating CPO is an Unaffiliated Board Member.
Additionally, Letter No. 14-126 modifies certain of the conditions previously set out in Letter No. 14-69. Specifically, Letter No. 14-126 makes clear that, notwithstanding the conditions described above: (i) the Delegating CPO or Designated CPO may further delegate investment management authority to a third party that is registered as a commodity trading advisor (CTA) or exempt from CTA registration; (ii) the Delegating CPO may solicit pool participants if the Delegating CPO is registered as an associated person (AP) of the Designated CPO or is exempt from AP registration; and (iii) the Delegating CPO may manage property of the pool where the Delegating CPO is a principal or employee subject to supervision by either the Designated CPO or CTA of the pool and exercises management responsibilities solely in such capacity.
CFTC Letter No. 14-126 is available here.