Commodity Pool Operators

This post is the third in a series that outlines key considerations for investment funds and their advisers regarding the application of the U.S. commodity laws to cryptocurrency derivatives. This post is intended to be a primer on the topic and is not legal advice. You should consult with your counsel regarding the application of the U.S. commodity laws to your particular facts and circumstances.

In Part 1, we focused on the status of cryptocurrencies as commodities and how that status relates to the jurisdiction of the U.S. Commodity Futures Trading Commission (the “CFTC”). In Part 2, we provided an overview of the regulation of commodities and the commodity markets under the Commodity Exchange Act (the “CEA”), explaining in particular that while the authority to prevent fraud and manipulation may apply to any transaction in interstate commerce that involves a commodity, the CFTC’s “substantive regulation” applies only if a transaction involves a “commodity interest“.

Here, in Part 3, we explain why the concept of a commodity interest can be described as a “linchpin” to the substantive regulation  of CPOs and CTAs.Continue Reading Cryptocurrency Derivatives, Funds and Advisers: Key Considerations Under U.S. Commodity Laws (Part 3: Why Commodity Interests Are of Interest)

This post is the second in a series that outlines key considerations for investment funds and their advisers regarding the application of the U.S. commodity laws to cryptocurrency derivatives. This posting is intended to be a primer on the topic and is not legal advice. You should consult with your counsel regarding the application of the U.S. commodity laws to your particular facts and circumstances.

In Part 1, we focused on the status of cryptocurrencies as commodities and how that status relates to the jurisdiction of the U.S. Commodity Futures Trading Commission (the “CFTC”). Here, in Part 2, we provide an overview of the regulation of commodities and the commodity markets under the Commodity Exchange Act (the “CEA”).Continue Reading Cryptocurrency Derivatives, Funds and Advisers: Key Considerations Under U.S. Commodity Laws (Part 2: The Regulation of Commodities – Quite Substantial, Even If Not Substantive)

It was a busy morning at the intersection of derivatives and virtual currencies.  Here is an overview of what happened and some thoughts about what it means for the world of virtual currencies.
Continue Reading CBOE and CME Self-Certify Bitcoin Futures, Cantor Self-Certifies Bitcoin Binary Options and NFA Issues Investor Alert

In CFTC Letter 17-48, the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (the “CFTC”) indicated that it would not recommend enforcement action against the manager of a oil and gas fund and its subsidiaries for failure to register as a commodity pool operator (“CPO”) or a commodity trading advisor (“CTA”).  As background, the manager intended to use over-the-counter swap transactions (“Swaps”) to hedge commodity price risks relating to oil and natural gas investments made by the fund and its subsidiaries (collectively, the “Fund”).  The following are the key facts presented in CFTC Letter 17-48:
Continue Reading CFTC Grants CPO/CTA No-Action Relief to Oil and Gas Fund and Its Operating Subsidiaries

On February 12th, the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the United States Commodity Futures Trading Commission (“CFTC”) issued CFTC Letter No. 16-08.  This no-action letter clarifies that an intermediary located outside of the United States (a “Foreign Intermediary”) will not need to register as commodity pool operator (“CPO”), a commodity trading advisor (“CTA”), or an introducing broker (“IB”), as long as the following conditions are met:

  1. The Foreign Intermediary is located outside the United States; and
  2. The Foreign Intermediary acts only on behalf of  persons located outside the United States.

This posting provides additional information in respect of this no-action letter, which we expect will be of interest to non-U.S. hedge funds and investment advisers that use CFTC-regulated derivatives in connection with their investment strategies.
Continue Reading Attention Non-U.S. Funds and Advisers: Registration Exemption for Offshore CPOs, CTAs and IBs That Use Non-Cleared Derivatives

Happy New Year!

As a reminder, any person claiming certain relief from the requirement to register as a commodity pool operator (CPO) or commodity trading advisor (CTA) must submit an annual affirmation to the National Futures Association (“NFA”) by February 29, 2016. In particular, such affirmation must be filed by any person relying on the exemption or exclusion available under any of the following Commodity Futures Trading Commission (“CFTC”) rules:
Continue Reading CPOs and CTAs: Affirm Exemptions Before February 29, 2016

On April 8th, the National Futures Association (“NFA”) issued its Notice to Members I-15-13 (the “NTM”), which will be of interest to:

1) Any commodity pool operator (CPO) relying on CFTC No-Action Letters 14-69 or 14-126 in order to delegate certain of their oversight responsbilities as a CPO to another registered CPO; and

2) Any NFA member conducting due diligence pursuant to NFA Bylaw 1101 with respect to the status of a CPO as being properly registered or exempt from registration.

In sum, the NTM describes updates that were made to the NFA’s EasyFile system in order to allow a registered CPO to notify the NFA that another CPO has delegated to the registered CPO the investment management authority over a particular pool. 
Continue Reading Attention Hedge Funds: NFA Updates EasyFile System to Allow For CPO Delegation Under CFTC No-Action Letters 14-69 and/or 14-126

On Februrary 10th, the National Futures Association (“NFA”) announced that it was making two changes to its EasyFile system.  Both changes relate to the information that is required to be filed by a commodity pool operator (CPO) in respect of annual pool financial statements.  In particular, a CPO must now:
Continue Reading Attention CPOs: NFA Now Requires Cover Page and An Additional Financial Item

On January 15th, the National Futures Association (“NFA”) issued its Notice to Members I-15-02 (the “NTM”).

The NTM will be of interest to NFA Members, such as futures commission merchants (“FCMs”) and introducing brokers (“IBs”), and any entity in a mutual or hedge fund complex that has not yet affirmed its status for calendar year 2015 as:

  • an exempt commodity pool operator (“CPO”) under Commodity Futures Trading Commission (“CFTC”) Regulation 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), or 4.13(a)(5);
  • an excluded CPO under CFTC Regulation 4.5; or
  • an exempt commodity trading advisor (“CTA”) under CFTC Regulation 4.14(a)(8).

These annual affirmations are due by March 2, 2015.

The remainder of this posting is an overview of the NTM, which is available here.Continue Reading NFA Notice to Members I-15-02: Affirm CPO/CTA Exemptions and Exclusions by March 2nd, NFA Members Given Tools to Monitor Affirmations

In an October 15th letter, the CFTC’s Division of Swap Dealer and Intermediary Oversight (“DSIO”) issued self-executing no-action relief that allows a person to not register as a commodity pool operator (“CPO”), if that person (the “Delegating CPO”) delegates certain of their responsibilities as a CPO of a commodity pool to another person who is registered as a CPO (the “Designated CPO”) under applicable requirements of the Commodity Exchange Act (“CEA”).  The letter, which replaces CFTC Staff Letter No 14-69, will be of primary interest to the investment management community, since the letter allows the CPO of a private fund (such as the corporate general partner of a “hedge fund” organized as a limited partnership) to avoid CPO registration, if the following conditions are met.
Continue Reading CFTC Letter No. 14-126: CPO Registration Not Required, If Responsibilities Delegated to Registered CPO – Relief Self-Executing