The Commodity Futures Trading Commission (“CFTC”)’s Division of Swap Dealer and Intermediary Oversight (“DSIO”) has issued a no-action letter (the “Letter”) clarifying that the commodity pool operator (“CPO”) of a parent commodity pool (a “Parent Pool”) that: (a) is not registered as an investment company under the Investment Company Act of 1940 (the “ICA”) and (b) uses a wholly-owned subsidiary to trade in commodity interests (a “Trading Subsidiary”) may file with the National Futures Association (“NFA”): (i) an annual report for the Parent Pool that contains consolidated financial statements for the Parent Pool and its Trading Subsidiary in lieu of a separate annual report for the Trading Subsidiary pursuant to applicable CFTC regulations and (ii) a Form CPO-PQR for the Parent Pool that contains consolidated Form CPO-PQR data for the Parent Pool and its Trading Subsidiary in lieu of a separate Form CPO-PQR for the Trading Subsidiary.1 DSIO had previously issued similar relief to CPOs of registered investment companies that utilize controlled foreign corporations for trading in commodity interests, so that granting this no-action relief is consistent with prior DSIO precedent.2
The Letter is designed to address industry concerns regarding the burden and expense associated with having to provide separate financial reporting for wholly-owned trading subsidiaries of commodity pools by expanding the class of commodity pools for which a CPO may file audited annual reports and Form CPO-PQR reports on a consolidated basis to include pools which are not registered investment companies under the ICA, such as hedge funds and similar funds.
The Letter states that, in response to numerous inquiries and several formal requests, DSIO is making available to a CPO of a Parent Pool that uses a Trading Subsidiary no-action relief for failure to file with NFA a separate annual report for the Trading Subsidiary pursuant to CFTC Rule 4.7(b) or 4.22(c), as applicable, provided that: (i) the CPO of the Parent Pool is also the CPO of the Trading Subsidiary3; (ii) the exposure to the Trading Subsidiary by the participants in its Parent Pool is being shared pro rata; (iii) the CPO prepares and files with NFA an annual report for the Parent Pool that contains consolidated audited financial statements for the Parent Pool which includes the holdings, gains and losses, etc. attributable to the Trading Subsidiary; and (iv) the CPO claims the relief through filing a notice with DSIO.
A claim for relief submitted by a CPO is effective upon filing, so long as it is materially complete. DSIO notes that the relief provided under the Letter will expire upon future rulemaking or other CFTC action relating to the underlying subject matter thereof.