In response to multiple requests, the Commodity Futures Trading Commission’s (the “Commission” or “CFTC”) Division of Swap Dealer and Intermediary Oversight (“DSIO”) has issued exemptive relief to commodity trading advisors (“CTAs”) from the requirement to keep certain books and records at their main business office, thus permitting them to use third-party recordkeepers. This relief results in consistency with the current treatment of commodity pool operators (“CPOs”).1
To obtain the exemptive relief, a CTA must file a notice of claim in accordance with the procedures specified in Letter 17-24, discussed in detail below.
CFTC Regulations 4.33 and 4.7(c)(2) require CTAs to make, keep, and produce upon request by the CFTC, the National Futures Association, or the Department of Justice certain records regarding their clients and subscribers, as well as the CTA itself. Further, these rules require a CTA to keep such records at its main business office (the “Main Business Office Requirement”).
Though CPOs have similar recordkeeping obligations, Commission rulemakings and subsequent DSIO relief have removed the analogous Main Business Office Requirement with respect to CPOs.2 In providing such relief to CPOs, DSIO noted that this requirement may be unnecessarily restrictive in light of current data management practices, which increasingly employ specialized data centers and services, or affiliates that have day-to-day control over that data to manage records.
Accordingly, because DSIO believes the same considerations regarding data management practices are applicable with respect to CTAs, it is providing exemptive relief from the Main Business Office Requirement to allow a CTA to use any third-party recordkeeper, subject to an appropriate filing consistent with the notification requirements applicable to CPOs.
To obtain the relief a CTA must file a notice of claim (i) at the time it registers with the CFTC, (ii) at the time it delegates its recordkeeping obligations, or (iii) June 30, 2017, whichever is later. The notice must be filed with DSIO via email at email@example.com, with the subject line “CTA Third-Party Recordkeeping Relief.” Specifically, the notice must:
1. identify the name, main business address, and main business telephone number of the person(s) who will be keeping required books and records in lieu of the CTA;
2. set forth the name and telephone number of a contact for each person who will be keeping required books and records in lieu of the CTA;
3. specify, by reference to the respective paragraph of Commission Regulations 4.33 and 4.7(c)(2), the books and records that such third-party recordkeeper will be keeping; and
4. be signed by the CTA, and contain representations from the CTA that:
a. it will promptly amend the statement if the contact information or location of any of the books and records required to be kept by Commission Regulations 4.33 and 4.7(c)(2) changes, by identifying in such amendment the new location and any other information that has changed;
b. it remains responsible for ensuring that all books and records required to be maintained by Regulations 4.33 and 4.7(c)(2) are kept in accordance with Commission Regulation 1.31;
c. within 48 hours after a request by a representative of the Commission, it will obtain the original books and records from the location at which they are maintained, and provide them for inspection at the CTA’s main business office; provided, however, that if the original books and records are permitted to be, and are maintained, at a location outside the United States, its territories or possessions, the CTA will obtain and provide such original books and records for inspection at the CTA’s main business office within 72 hours of such a request; and
d. it will disclose in its Disclosure Document, if any, the location of its books and records that are required under Commission Regulations 4.33 and 4.7(c)(2).
As with CPOs, the requirement to keep and produce such books and records remains the legal obligation of the CTA. Accordingly, DSIO notes that the failure of a third-party recordkeeper to keep or produce such books and records in accordance with CFTC regulations is the failure of the CTA.
Letter 17-24 harmonizes the requirements for CTAs and CPOs with respect to the ability to use third-party recordkeepers, providing regulatory consistency. This relief is also in keeping with the Commission’s recently proposed amendments to its recordkeeping rules set forth in Regulation 1.31 and related provisions, which are intended to provide greater flexibility regarding the retention and production of records in response to developments in technology over time.3