As regulated entities, registered commodity pool operators have obligations to maintain and have ready access to a prescribed set of books and records. On August 13, in recognition of widespread market practice, the CFTC adopted regulations permitting CPOs to maintain certain books and records with a third party. Eligible third party recordkeepers under the new rule include:

  • A pool’s administrator, distributor or custodian;
  • A bank; or
  • A registered broker or dealer acting in a similar capacity with respect to the pool.

This new provision (included as part of broader rules on the harmonization of certain SEC and CFTC compliance obligations for registered investment companies) requires all CPOs that maintain required books and records with a third party to file for an additional exemption through the National Futures Association. This filing is required by the 30th day following publication of the new harmonization rules in the Federal Register and, while the CFTC and the NFA have not yet formalized the process, we expect it to be similar to the existing process for claiming exemptions through the NFA’s existing exemption filing system.

An exemption filing will require that you provide the following information:

  • Contact information for the third party recordkeeper;
  • A description (by category) of the records that will be maintained by the third party recordkeeper; and
  • Representations by the CPO that the records will be retrieved and made available for inspection within 48 hours (72 hours if the CPO is outside the United States) of a request by the CFTC (note that the NFA and the Department of Justice also have access and review rights), that it remains ultimately responsible for its recordkeeping, and that it will promptly amend its exemption if the information therein changes.

The third party recordkeeper will also need to file a statement with the NFA acknowledging and agreeing to its obligations.

In addition to making an exemption filing:

  • A CPO must also represent that it "will disclose in the pool’s Disclosure Document [e.g., a private placement memorandum] the location of its books and records" that are maintained with third party recordkeepers; and 
  • The Form 7-R (unless the NFA system automatically imports information from the exemption filing) may need to be amended to reflect where the required books and records are maintained.