In its November 25, 2019 Open Meeting, U.S. Commodity Futures Trading Commission (“CFTC”) commissioners voted to approve final rules amending Part 4 of the CFTC rules addressing registration and compliance requirements for commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”). The CFTC proposed amendments to Part 4 in October 2018. The final rule will be effective thirty days after publication in the Federal Register.

This post summarizes select key amendments in the rule and what action must be taken by firms intending to take advantage of the new amendments, if any.

1) Codification of Relief for Family Offices and Relief Related to the JOBS Act

By a 4-1 vote, the CFTC commissioners voted to approve amendments to CFTC Rules 4.7, 4.13 and 4.14, which include amendments providing the following forms of relief:

Relief for Family Offices: The final rule amends CFTC Rules 4.13 and 4.14 to exempt persons acting on behalf of “family offices” and/or “family clients” (as each term is defined by Securities and Exchange Commission (“SEC”) regulation 275.202(a)(11)(G)-1) from certain CPO and CTA registration requirements. The final rule codifies no-action relief that was previously granted by CFTC staff to qualifying family offices in No-Action Letters 12-37 and 14-143. (See DR2 November 28, 2014 Post on Letter 14-143).

Action Needed?
The amendments supersede Letters 12-37 and 14-143; however, no action is required by persons who are currently relying on relief provided by those letters. The final rule does not require persons seeking relief to provide notice to the CFTC. Nevertheless, the final rule advises family offices that qualify for the CPO and CTA exemptions to maintain internal records documenting the relevant exemption and qualifications to claim the exemption.

General Solicitation: In an effort to be consistent with the Jumpstart Our Business Start-ups Act of 2012 (“JOBS Act”) and analogous SEC rule amendments, the final rule amends Part 4 to permit CPOs to engage in general marketing and solicitation with respect to commodity pools issued in the Rule 506 context and pursuant to the exemptions under CFTC Rules 4.7 and 4.13(a)(3). The amendment is largely consistent with the terms of CFTC No-Action Letter 14-116 and makes clarifying revisions.

Action Needed?
The amendments supersede Letter 14-116; however, the final rule states that no action is required by persons who are currently relying on relief provided by that letter. Because CPOs currently relying on exemptive relief are already required to file notice with the CFTC, the final rule states that exempt CPOs may rely on existing filings. CPOs who want to rely on this exemption in the future can do so in reliance on the amended Part 4.

The final rule states that “[t]he Commission proposed these amendments intending to simplify the regulatory landscape for CPOs and CTAs without reducing the protections or benefits provided by those regulations, to increase public awareness about available relief by incorporating commonly relied upon no-action or exemptive relief in Commission regulations, and to generally reduce the regulatory burden without sacrificing the Commission’s customer protection and other regulatory interests.” Id. at 6-7.

2) Updating Exclusions and Adding Reporting Relief

The CFTC voted unanimously to approve a final rule amending CFTC Rules 4.5 and 4.27, including amendments to CFTC Rule 4.5 to provide an exclusion from the CPO definition for the operators of registered investment companies (“RICs”). The final rule first clarifies that a registered investment adviser (“RIA”) under the Investment Advisers Act of 1940 of a RIC is the entity that must seek the exclusion from CFTC requirements on behalf of the RIC. The final rule then amends Part 4 to extend the exclusionary relief in Rule 4.5 to cover the RIAs of business development companies (“BDCs”) in a manner similar to no-action relief granted by CFTC staff in No-Action Letter 12-40.

Action Needed?
The Part 4 amendments supersede Letter 12-40 and the final rule advises RIAs of BDCs to file a notice to claim the amended exclusion as soon as practicable after the amendments take effect in order to rely on the amended provision.

CFTC Chairman Tarbert noted that the Commission will discuss amendments to the CFTC’s swap clearing requirement exemptions in the future but did not provide any further indications regarding timing.

Additional information regarding the CFTC Open Meeting can be found here. The Commission will publish releases with commentaries relating to the amendments discussed at the Open Meeting at a later date.

The Proposed Rule amending Part 4 can be found here.

Good day DR2.