The National Futures Association (NFA) has petitioned the Commodity Futures Trading Commission (CFTC) for rulemaking to restore certain regulatory restrictions that would limit the marketing and trading activities of registered investment companies engaged in futures trading. The petition is aimed at preventing mutual funds from operating, in effect, as public commodity pools without the protections afforded to investors by federal commodity futures laws and regulations.

Mutual funds that engage in commodity futures and options trading typically rely on CFTC Rule 4.5 to avoid having to register with the CFTC as a commodity pool operator (CPO). Rule 4.5 provides an exclusion from the definition of CPO for certain entities that are subject to oversight by another regulator. To rely on Rule 4.5, a mutual fund must file a notice of eligibility with the NFA and comply with the rule’s conditions.

The NFA is requesting that the CFTC amend Rule 4.5 to restore operating restrictions on registered investment companies that are substantially similar to those in effect prior to 2003. Rule 4.5, as then in effect, prohibited a registered investment company from marketing itself as a futures trading vehicle or committing more than 5% of the value of the company’s portfolio to speculative positions in commodity futures or options contracts.

In 2003, the CFTC eliminated those restrictions. The NFA is concerned that the CFTC’s action has allowed certain mutual funds to market themselves to investors as commodity futures investments, while also being “indirectly invested substantially in derivatives and futures products.” According to the NFA, “although these funds are structured differently than public commodity pools … their aim is the same—targeting retail investors … who want exposure to actively managed futures strategies.”