On September 8, 2014, the Division of Swap Dealer and Intermediary Oversight (DSIO) of the U.S. Commodity Futures Trading Commission (CFTC) issued an exemptive letter which provides an opportunity for relief from certain CFTC provisions restricting marketing to the public. This relief harmonizes Regulations 4.7(b) and 4.13(a)(3) under the Commodity Exchange Act with the general solicitation and advertising rules adopted by the United States Securities and Exchange Commission (SEC) pursuant to the Jumpstart Our Business Startups Act (JOBS Act).
Under Regulation 4.7(b), registered commodity pool operators (CPOs) are provided relief from certain disclosure, reporting, and recordkeeping requirements if interests in the commodity pools are offered to qualified eligible persons (QEPs). As a condition of relying upon this exemption, commodity pools have not been permitted to engage in general solicitation and advertising.
Under Regulation 4.13(a)(3), CPOs are provided a de minimis exemption from registration, subject to certain restrictions, including a requirement that interests in the pool must be offered and sold without marketing to the public.
In September 2013, rules adopted by the SEC pursuant to the JOBS Act went into effect to lift a ban on general solicitation and advertising in private securities offerings when reasonable steps have been taken by issuers or sellers to verify that all purchasers of the securities meet the “accredited investor” or “qualified institutional buyer” standards. After enactment of these rules, managers of hedge funds and private funds that trade commodity interests have been hesitant to engage in general solicitation and advertising because the CFTC did not have matching regulations that allowed for such general solicitation and advertising. The DSIO’s exemptive letter alleviates this concern.
CPOs may now claim exemptive relief from both Regulations 4.7(b) and 4.13(a)(3) by filing a notice with the DSIO. This relief will be effective upon filing. According to the DSIO’s exemptive letter, the claim of exemptive relief must:
- State the name, business address, and main business telephone number of the CPO claiming the relief;
- State the name of the pool(s) for which the claim is being filed;
- State whether the CPO claiming relief is a 506(c) Issuer or is using one or more 144A Resellers;
- Specify whether the CPO intends to rely on the exemptive relief pursuant to Regulation 4.7(b) or 4.13(a)(3), with respect to the listed pool(s);
- If relying on Regulation 4.7(b), represent that the CPO meets the conditions of the exemption, other than that provision’s requirements that the offering be exempt pursuant to section 4(a)(2) of the Securities Act of 1933 and be offered solely to qualified eligible persons, such that the CPO meets the remaining conditions and is still required to sell the participations of its pool(s) to QEPs;
- If relying on Regulation 4.13(a)(3), represent that the CPO meets the conditions of the exemption, other than that provision’s prohibition against marketing to the public;
- Be signed by the CPO; and
- Be filed with the Division via email using the email address firstname.lastname@example.org and stating “JOBS Act Marketing Relief” in the subject line of such email.
In light of this new exemptive letter, CPOs may opt to expand their solicitation and advertising practices, as they may now claim exemptive relief from both Regulations 4.7(b) and 4.13(a)(3) by filing a notice with the DSIO.