On September 9th, the Division of Swap Dealer and Intermediary Oversight (the “Division”) issued CFTC Letter No. 14-116, which provides exemptive relief to hedge fund operators that rely on exemptions for commodity pool operators (CPO(s)) from certain compliance or registration obligations under CFTC Rule 4.7 or CFTC Rule 4.13(a)(3), respectively.  As more fully described in this posting, the fund’s operator will need to file a notice with the CFTC, in order to claim the relief provided for by the September 9th letter.


The Division issued the exemptive relief in order to harmonize the application of the CFTC’s rules with recent rule changes by the Securities and Exchange Commission with respect to SEC Rule 506 of Regulation D and Rule 144A, as required by the Jumpstart Our Business Startups Act (“JOBS Act”).  In particular, the JOBS Act directed the SEC to amend these rules in order to provide that:

1) The prohibition against general solicitation or general advertising under SEC Rule 502(c) will not apply to offers or sales of securities made pursuant to SEC Rule 506; and

2) Securities sold under Rule 144A may be offered to persons other than qualified institutional buyers (QIBs), including by means of a general solicitation or general advertising, as long as the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe is a QIB.  In other words, Rule 144A was amended to allow entities reselling securities in reliance on Rule 144A (“a Rule 144A Resellers”) to engage in general solicitation, provided that any securities are only resold to QIBs or persons reasonably believed to be QIBs.

The exemptive relief was specifically designed to address inconsistencies between marketing restrictions in the CFTC’s rules, on the one hand, and the amendments to the SEC’s rules, as amended by the requirements in the JOBS Act in order to provide for general solicitation or general advertising, on the other.

Specifically, absent such exemptive relief, CFTC Rule 4.13(a)(i) would require that interests in each pool for which a commodity pool operator (CPO) claims an exemption from registration under that rule be exempt from registration under the Securities Act of 1933 and offered and sold without marketing to the public in the United States.  Similarly, CFTC Rule 4.7(b) contains a restriction that a CPO relying on that rule’s relief only offer interests in the pool to investors that are “qualified eligible purchasers” under the CFTC’s rules.  In other words, a CPO operating a pool the interests of which are sold by a Rule 144A Reseller would be precluded from receiving exemptive relief under either Rule 4.7(b) or Rule 4.13(a)(3), if the Rule 144A Reseller uses general solicitation or advertising.


In light of the foregoing, the Division granted the exemptive relief from the prohibitions against general solicitation and advertising under  Rule 4.7(b) and Rule 4.13(a)(3)(i) to any CPO that meets the following requirements:

1)  The CPO must be operating funds that rely on Rule 506(c) only or using a Rule 144A Reseller

This condition reflected the fact that the SEC’s rule amendments only permitted general solicitation or adviertising in connection with offerings under Rule 506(c) or resales under Rule 144A; and

2) A CPO must file a notice with the Division in order to claim the relief, which is not self-executing.

A CPO must submit a claim via e-mail to dsionoaction@cftc.gov and stating “JOBS Act Marketing Relief” in the subject line of the e-mail message.  In addition, the claim must:

a) State the name, business address, and main business telephone number of the CPO claiming the relief;

b) State the name of the pool(s) for which the claim is being filed;

c) State whether the CPO claiming relief is a 506(c) Issuer or is using one or more Rule 144A Resellers;

d) Specify whether the CPO intends to rely on the exemptive relief pursuant to CFTC Rule 4.7(b) or CFTC Rule 4.13(a)(3), with respect to the listed pools and, in either case, include a representation to the effect that the CPO meets all of the requirements outlined in the letter – so, if a claimant is relying on CFTC Rule 4.7, the representation must state that the CPO meets the conditions of the exemption, other than the requirement that the offering be restricted to QEPs, and if a claimant is relying on CFTC Rule 4.13(a)(3), the representation must state that the CPO meets all of the coniditions of that exemption, other than that rule’s prohibition against marketing to the public.; and

e) Be signed by the CPO.

CFTC Staff Letter 14-116 is available here.

Good day.  Good claiming. DR2