On August 13, 2013, the Commodity Futures Trading Commission (CFTC) issued a final rule with respect to certain compliance obligations for commodity pool operators (CPOs) of investment companies registered under the Investment Company Act of 1940 that are required to register due to the recent changes to CFTC Regulation 4.5.1


In February 2012, the CFTC adopted modifications to the exclusions from the definition of CPO that are delineated in Section 4.52 of the rules promulgated under the Commodity Exchange Act. Specifically, the CFTC amended Section 4.5 to narrow the exclusion from the definition of “commodity pool operator” for those entities that are investment companies registered as such with the Securities and Exchange Commission (SEC) pursuant to the Investment Company Act of 1940. Consequently, certain investment advisers of registered investment companies (RICs) were required to register as CPOs with the CFTC. Concurrent with the modification of Section 4.5, the CFTC issued a proposed rule intended to harmonize to the fullest extent practicable the CFTC’s and SEC’s (i) disclosure, (ii) reporting, and (iii) recordkeeping regimes for “dually registered entities” (i.e., a RIC and its CPO) while maintaining the regulatory objectives of part 4 of the CFTC’s regulations, consistent with its experience to date with CPOs of RICs.

The CFTC received comments, noting that dually registered entities may be subject to duplicative, inconsistent and possibly conflicting disclosure and reporting requirements if required to comply with both the CFTC and SEC regimes. In the view of the CFTC, this final rule harmonizes, to the fullest extent practicable, the CFTC’s compliance obligations with those of the SEC to facilitate compliance with both regimes, while maintaining the regulatory objectives of part 4 of CFTC regulations.

For entities that are registered with both the CFTC and SEC, the CFTC will accept the SEC’s disclosure, reporting and recordkeeping regime as “substituted compliance” for substantially all of Part 4 of the CFTC’s regulations, so long as the entity complies with comparable requirements under the SEC’s statutory and regulatory compliance regime. Thus, the final rule allows dually registered entities to meet certain CFTC regulatory requirements for CPOs by complying with SEC rules to which they are already subject.

Harmonized Disclosure, Reporting and Recordkeeping Requirements Fund Level

The CTFC did little to disturb the prospectus, statement of additional information or financial report requirements for RICs. Fund level disclosure, reporting and recordkeeping requirements remain the same, with two minor exceptions.3 First, the prospectus cover page must now include the CFTC along with the SEC as government agencies that have “not approved the securities or passed upon the adequacy of the prospectus.”4 Second, a RIC with less than a three-year operating history will be required to disclose in its prospectus the performance of all accounts and pools that are managed by its CPO that have (i) investment objectives, (ii) policies, and (iii) strategies substantially similar to those of the RIC. This prior performance disclosure, if applicable, must be made on the RIC’s initial filing or its next annual update. Prior performance disclosure is in addition to, not a substitute for, fund performance.

CPO Level

As of August 22, 20135 (or with delays as noted below), CPOs for RICs are subject to several new notice or reporting requirements:

  • Notice filing with the National Futures Association (NFA) that the CPO will be availing itself of the substitute compliance regime.
  • Notice filing with the NFA that the CPO of a RIC uses or will use third-party recordkeepers.6
  • Copy filing with the NFA of SEC-required financial statements.
  • CPOs begin to file quarterly reports on form CPOPQR with respect to the RIC (effective 60 days after publication in the Federal Register).

SEC Staff Guidance

Concurrently with the CFTC release, the SEC staff issued guidance to RICs that invest in commodity-related derivatives.7 In addition to reiterating the SEC staff’s views on investment strategy and risk disclosures, it noted that the SEC would not object if the prospectus cover page disclaimer required by Rule 481 under the Securities Act of 1933 states that both the SEC and CFTC have not approved the securities or the prospectus. The SEC staff also acknowledged that the prior performance disclosure for a RIC with less than three years’ operating history is consistent with its current position on similar optional prospectus disclosures.