3 Things About…

This is an inaugural post in an occasional series that will attempt to distill a select current event to its essence.

Consistent with the (arguably bland yet) very accurate name of our blog, the focus of this series will be on regulatory and transactional issues related to derivatives and repurchase agreements.  Our first topic is..

…The CFTC’s Proposed Amendments to Form CPO-PQR

On April 14, 2020, the U.S. Commodity Futures Trading Commission the (“CFTC”) proposed changes to its Form CPO-PQR Report for Commodity Pool Operators (CPOs).

Form CPO-PQR: Regulatory History

The Form CPO-PQR reporting requirement was adopted by the CFTC in 2012 to mirror Form PF, a reporting requirement jointly adopted by the CFTC and the U.S. Securities and Exchange Commission (the “SEC“) in 2011 in respect of investment advisers to private funds (including CPOs to commodity pools).  CFTC Regulation 4.27(d) was amended in 2012 to allow a CPO that is dually registered with the SEC as an investment adviser to file Form PF in lieu of Form CPO-PQR.

Both Form PF and Form CPO-PQR were adopted as part of Dodd-Frank Act regulatory reforms.  As such, the forms shared the common goal of assisting the Financial Stability Oversight Council (the “FSOC”) with its assessment of systemic risk and preparedness to deal with potential future financial crises.

Yet, there was one key distinction between the two different reporting requirements.  Under the Dodd-Frank Act, Congress directed the SEC to adopt the Form PF reporting requirements.  However, the CFTC voluntarily chose to adopt the Form CPO-PQR reporting requirements.

That was then and this is now.

As explained by the CFTC in its April 2020 release proposing the changes to Form CPO-PQR,

After seven years of experience with Form CPO-PQR, the [CFTC] is reassessing the scope of Form CPO-PQR and how it aligns with the [CFTC’s] current regulatory priorities.”

With that as background, we will now turn to…

3 Things About the CFTC’s Proposed Amendments to Form CPO-PQR

  1. Size-Based Distinctions Will Be Eliminated – The proposed amendments to the form will eliminate all references to Mid-Sized and Large CPOs, as well as the information that these CPOs had to provide under Schedules B and C with one exception: revised Form CPO-PQR will require information about each pool’s schedule of investments.  More specifically, Item 6 of Schedule B will become Item 11 of Schedule A with the entirety of Schedules B and C otherwise being eliminated.
  2. Reporting of LEIs Will Be Required – Revised Form CPO-PQR will require a CPO to report LEIs for itself and all of the pools that it operates, to the extent that the CPO or the pools have LEIs.  As background, an LEI provides the CFTC with important surveillance and oversight functionality in respect of the over-the-counter swap markets.  The CFTC has broad surveillance and oversight powers in respect of exchange-traded futures markets independent of any LEI-enabled functionality applicable to the swap markets.  The inclusion of LEIs on Form CPO-PQR will enhance the ability of the CFTC to monitor the trading activities of CPOs and the pools that they operate, and allow the agency to aggregate data that it already receives about the CPO and its pools from other market intermediaries (like futures exchanges, swap execution facilities, clearinghouses and and futures commission merchants).
  3. All CPOs Will Have to File Quarterly Reports – Revised Form CPO-PQR will require all CPOs to file a report on a quarterly basis.  This reporting requirement would be a change for so-called “small” CPOs, which currently only have to file a Form CPO-PQR on an annual basis.  (A small CPO is one with less than $1.5 billion in assets under management.)  

In closing, there are a few additional aspects of the CFTC’s proposal that we believe are worth keeping in mind when considering the scope and impact of the proposed revisions to Form CPO-PQR.

First, a CPO will be allowed to file Form PQR on a quarterly basis with the National Futures Association (the “NFA”) in lieu of filing Form CPO-PQR with the CFTC, once the NFA revises its quarterly report to capture LEIs.

Second, revised Form CPO-PQR will largely align with the NFA’s form (which is already being filed by many “small” CPOs).

Third, pursuant to changes proposed to CFTC Regulation 4.27(d), a CPO that is dually registered with the SEC as an investment adviser will not be permitted to file Form PF in lieu of – in other words, a dually registered CPO will be required to file revised Form CPO-PQR in respect of any pools that are not private funds. (Commissioners Benham and Berkovitz have each issued statements raising concerns that this aspect of the proposed requirements will mean that the FSOC will receive less information in respect of these non-private fund pools.)

Comments on the proposed revisions to Form CPO-PQR are due on June 15, 2020.

Good day.  Good to know these 3 Things…Or was it actually 6? DR2