On March 4, 2013, the National Futures Association (the “NFA”) submitted a proposed amendment (the “Amendment”) to the CFTC, which became effective on March 14, 2013, to clarify that certain transactions are not barred as a result of NFA Rule 2-45, which generally prohibits registered CPOs from using “any means to make a direct or indirect loan or advance of pool assets to the CPO or any other affiliated person or entity.” The Amendment also amends the companion interpretive notice to NFA Rule 2-45, titled “Prohibition of Loans by Commodity Pools to CPOs and Related Entities,” to specify that certain transactions engaged in by commodity pools would not violate NFA Rule 2-45, including short sale, cash financing, guarantee obligation, repurchase or reverse-repurchase agreement and certain taxrelated distribution transactions between a CPO (or its related person) and a commodity pool. In addition, the Amendment provides that transactions engaged in by a CPO operating a commodity pool that is a registered investment company or business development company pursuant to (i) a loan arrangement permitted by the Investment Company Act of 1940 (the “Investment Company Act”), (ii) exemptive rules under the Investment Company Act or (iii) an exemptive order issued by the SEC or in accordance with a no-action letter issued by SEC would not violate the prohibition on loans or advances under NFA Rule 2- 45.
The Amendment also provides that a CPO that was exempt from registration with the CFTC prior to December 31, 2012 and that caused a commodity pool it operated to make loans or advances that would have been prohibited by NFA Rule 2-45 prior to such CPO becoming registered with the CFTC (and therefore subject to NFA Rule 2-45), is required to notify the NFA of any such loan or advance arrangements within 30 days of either (i) the effective date of the Amendment or (ii) the date on which such CPO becomes registered with the CFTC, whichever is later. According to the Amendment, such CPOs would be required to ensure that any such loan or advance arrangements are disclosed in the disclosure documents or offering materials of the commodity pools operated by such CPOs and that the loans or advances and any conflicts of interest raised by such arrangements are disclosed to investors. The Amendment also requires any such loans or advances to be secured by marketable, liquid assets such that the loans or advances could have no effect on the commodity pool’s ability to meet its obligations to investors.