CFTC No-Action Relief Set to Expire — On June 30, 2013, temporary no-action relief provided by the Commodity Futures Trading Commission (the “CFTC”) regarding certain equity total return swaps on foreign securities (“compo equity swaps” or “compo equity total return swaps”) is set to expire. This time-limited no-action relief allowed compo equity total return swaps to be treated as “securities-based swaps” and not as “mixed swaps” until June 30, 2013. The classification of a derivative product as a “swap,” “security based swap” or “mixed swap” impacts, among other things, the tests investment managers use to determine whether such manager may be exempt from registering with the CFTC as a “commodity pool operator” or “CPO.”
 
Security-based swaps are regulated by the Securities and Exchange Commission instead of the CFTC. As such, under the CFTC’s no-action relief, these compo equity swaps could be excluded when an investment manager calculates whether it meets the standards under the de minimis exemptions from registration as a CPO set forth under Regulations 4.13(a)(3) or 4.5 of the Commodity Exchange Act. Investment managers that are currently relying on the de minimis exemption found under CFTC Regulation 4.13(a)(3) as to private funds and CFTC Regulation 4.5 as to registered funds, will need to, starting on July 1, include any compo equity swaps in their calculations in order to determine whether they may continue to claim the exemptions from registration under 4.13(a)(3) or 4.5. If an investment manager no longer qualifies for such exemptions, such manager may need to change the composition of its funds’ portfolios or register as a CPO. As of the date of this Financial Services Update, there is no indication that the CFTC will extend the no-action relief for compo equity total return swaps.