On May 12, 2014, the Division of Swap Dealer and Intermediary Oversight (“DSIO”) of the Commodity Futures Trading Commission (the “Commission” or “CFTC”) unveiled a new, streamlined process in Staff Letter No. 14-69 by which a commodity pool operator (“CPO”) may request expedited no-action relief for failure to register under Section 4m(1) of the Commodity Exchange Act (the “Act” or “CEA”) if such CPO has designated another, registered CPO to serve as the CPO of the commodity pool.1 To be eligible to request no-action relief under this new process, the delegating CPO and the designated CPO must fulfill certain criteria outlined by DSIO in the letter. However, DSIO acknowledged that certain circumstances may warrant no-action relief but might not conform to the criteria for this new process – accordingly, DSIO will also continue to review requests for CPO registration no-action relief from persons who are unable to satisfy the criteria outlined below. DSIO further noted that it may expand the streamlined process to address additional scenarios in the future.
Section 1a(11)(A)(i) of the CEA defines the term “commodity pool operator” to mean any person:
(i) engaged in a business that is of the nature of a commodity pool, investment trust, syndicate, or
similar form of enterprise, and who, in connection therewith, solicits, accepts, or receives from
others, funds, securities, or property, either directly or through capital contributions, the sale of
stock or other forms of securities, or otherwise, for the purpose of trading in commodity interests,
(I) commodity for future delivery, security futures product, or swap;
(II) agreement, contract, or transaction described in section 2(c)(2)(C)(i) of this title or
section 2(c)(2)(D)(i) of this title;
(III) commodity option authorized under section 6c of this title; or
(IV) leverage transaction authorized under section 23 of this title2
Under Section 4m(1) of the CEA, it is unlawful for any person who is a CPO to “make use of the mails or
any means or instrumentality of interstate commerce in connection with [its] business as such…[CPO]”
unless such person is registered under the CEA as a CPO.3
For a number of years, the CFTC staff has been reviewing requests from, and often granting no-action
relief to, CPOs under circumstances where (i) such CPOs (“Delegating CPOs”) have delegated
investment management authority of a commodity pool to another person that is registered as a CPO
(“Designated CPO”) and (ii) the Delegating CPO does not engage in the solicitation of participants for, or
the management of property of, the applicable commodity pool. In Staff Letter No. 14-69, DSIO notes that
many of those requests for relief contained similar fact patterns: for instance, (1) limited partnerships
(“LPs”) with two or more general partners (“GPs”), such that only one GP was required to register as a
CPO, (2) commodity pools organized as LPs or LLCs having, respectively, a GP or managing member
affiliated with the pool’s investment manager, such that the investment manager was permitted to serve
as the registered CPO in lieu of the GP or managing member and (3) requests from natural persons
serving as members of a board of directors or other governing body (“Board”) of a commodity pool
domiciled and located outside of the U.S. Note that the staff has generally required the Delegating CPO
and the Designated CPO to agree to be jointly and severally liable for any violations of the CEA or the
Commission’s regulations in these situations, but DSIO clarifies in Staff Letter No. 14-69 that it intends to
provide no-action relief to Board members of a commodity pool without requiring them to agree to joint
and several liability, provided that they are not affiliated with the Designated CPO (as discussed further
Since the number of requests for no-action relief recently has been increasing (likely due, among other
factors, to the rescission of CFTC Regulation 4.13(a)(4), which previously provided an exemption from
registration for CPOs of many privately offered funds), DSIO is seeking to enhance the efficiency of the
CPO registration no-action relief request process in the context of CPO delegation by developing a
streamlined process for the submission of such requests.
Summary of the Streamlined Process
Procedure for Requesting Relief under the Streamlined Process
Under the new process, a Delegating CPO must submit a request for relief pursuant to Regulation 140.99
in the form of the attachment to Staff Letter No. 14-69 (a copy of which is attached hereto for reference).
The request must include:
1. The name, main business address, main business telephone number and name of a contact
person of each of the Delegating CPO(s) and the Designated CPO;4
2. The NFA ID Number of the Designated CPO;
3. The name(s) of the commodity pool(s) with respect to which relief is being sought (note that a
single request for relief may be requested by a Delegating CPO with respect to multiple
4. A representation that the applicable Criteria (as defined below) are met;
5. A statement from the Designated CPO acknowledging that it has been designated as the
registered CPO of the commodity pool(s) and that it satisfies the applicable Criteria.6
Applicable Criteria That Must Be Satisfied To Utilize the Streamlined Process
The following criteria (the “Criteria”) must be satisfied to request CPO registration no-action relief through
the streamlined process described above:
1. (a) Pursuant to a legally binding document7
, the Delegating CPO has delegated to the
Designated CPO all of its investment management authority with respect to the commodity pool;
(b) The Delegating CPO does not participate in the solicitation of participants for the
commodity pool; and
(c) The Delegating CPO does not manage any property of the commodity pool.
2. The Designated CPO is registered as a CPO.
3. The Delegating CPO is not subject to a Statutory Disqualification (see n. 3 supra).
4. There is a business purpose for the Designated CPO being a separate entity from the Delegating
CPO that is not solely to avoid registration by the Delegating CPO under the CEA and the
The books and records of the Delegating CPO with respect to the commodity pool are maintained
by the Designated CPO in accordance with Regulation 1.31.
6. If the Delegating CPO and the Designated CPO are each a non-natural person, then one such
CPO controls, is controlled by, or is under common control with the other CPO.
7. If a Delegating CPO is a non-natural person, then such Delegating CPO and the Designated CPO
have executed a legally binding document whereby each undertakes to be jointly and severally
liable for any violation of the CEA or the Commission’s regulations by the other in connection with
the operation of the commodity pool.
8. If a Delegating CPO is a natural person and is not an Unaffiliated Board Member8
, then such
Delegating CPO and the Designated CPO have executed a legally binding document whereby
each undertakes to be jointly and severally liable for any violation of the CEA or the
Commission’s regulations by the other in connection with the operation of the commodity pool.
9. If a Delegating CPO is an Unaffiliated Board Member, then such Delegating CPO must be subject
to liability as a Board member in accordance with the laws under which the commodity pool is
Note that there may be some issues related to satisfying certain of the Criteria, depending upon the
particular facts and circumstances involved. For example, commodity pools that have a GP or managing
member that is not affiliated with the Designated CPO would not be eligible for the streamlined process.
Additionally, directors of pools who are affiliated with or employed by material service providers to a
Designated CPO or its affiliates might not be deemed “Unaffiliated Board Members” under the Criteria
(see n. 8), thereby necessitating that the parties enter into a joint and several liability agreement before
relief can be requested under the streamlined process.
By providing an alternative, streamlined process for requesting no-action relief from CPO registration in
the context of delegation arrangements in certain circumstances, the CFTC staff is attempting to facilitate
obtaining such relief, particularly since relief may be sought on behalf of multiple commodity pools by means of a single request. However, as noted, the Criteria that must be fulfilled in order to utilize the
streamlined process are not necessarily applicable to all CPOs and in all scenarios. Thus, certain CPOs
may need to request no-action relief outside of the new, streamlined process or consider alternative fund