The Federal Deposit Insurance Corporation (FDIC) today issued an “FAQ” to financial institutions entitled, Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19).

The FDIC has highlighted the following items in respect of this FAQ:

  • The FDIC encourages financial institutions to work with customers affected by COVID-19 in a prudent manner, especially borrowers from industry sectors particularly vulnerable to the volatility in the current economic environment and small businesses and independent contractors that are reliant on affected industries.
  • A financial institution’s prudent efforts to modify the terms on existing loans for affected customers will not be subject to examiner criticism.


Continue Reading Payment Accommodations Under Commercial Loans by Banks to Borrowers: Remember the Related Interest Rate Hedge Documentation

Mutual fund complexes relying on the exemption under Commodity Futures Trading Commission (“CFTC”) Regulation 4.5 from commodity pool operator (CPO) registration have to file:

(1) An initial notice of eligibility to claim that exemption; and

(2) An annual affirmation of continued reliance on the exemption within 60 days of each calendar year end.

In our experience, many mutual fund complexes “update” their Regulation 4.5 eligibility notices during the last two weeks of February.

This blog post is a reminder to clients and friends that the CFTC has recently amended its Regulation 4.5 to clarify that the registered investment adviser (the “RIA”) to a registered investment company is that company’s CPO.  This clarification will be of interest to any mutual fund complex that may have had an entity other than the RIA claim the CPO exemption with respect to the operation of a registered investment company.   


Continue Reading Mutual Fund Corner: A Reminder for Firms Updating CFTC Regulation 4.5 Exemptions – The Fund’s Adviser is Its CPO

This post is Part 2 of a series of posts that addresses the impact of recent regulatory developments on the use of limited recourse provisions in futures customer agreements entered into between a futures commission merchant (an “FCM”) and an investment manager on behalf of one or more of the manager’s clients.

In this post, we provide an overview of recent regulatory pronouncements from two divisions of the Commodity Futures Trading Commission (the “CFTC”) and the Joint Audit Committee (the“JAC”) of several large futures exchanges and the National Futures Association that prohibit the use of limited recourse provisions in futures customer agreements.
Continue Reading Limited Recourse Provisions in Futures Customer Agreements: Part 2 – I Cannot Guarantee Your Client’s Losses

Historically, many investment managers have negotiated limited recourse provisions into derivatives trading agreements entered into by the managers on behalf of their clients with banks, broker-dealers, and futures commission merchants (FCMs).  In short, these provisions state that only the assets in the specified account under the control of that particular manager can be used to make the other party to the agreement whole for losses and costs that relate to the specified account.

However, recent regulatory pronouncements from two divisions of the Commodity Futures Trading Commission (the “CFTC”) and the Joint Audit Committee (the “JAC”) of several large futures exchanges and the National Futures Association prohibit the use of limited recourse provisions in futures customer agreements.  This blog post is Part 1 of a series of posts that will address the impact of these recent regulatory developments on investment managers.

We start with the basics – investment management relationships and the use of limited recourse provisions in derivatives trading documents.  Additional posts in this series will address the regulatory pronouncements and how those pronouncements may impact relationships that investment managers have with their clients and the FCMs through which the managers are trading on behalf of their clients.
Continue Reading Limited Recourse Provisions in Futures Customer Agreements: Part 1 – I Only Control My AUM

On December 21, 2018, the U.S. Securities and Exchange Commission (“SEC”) announced enforcement actions against two robo-advisers, Wealthfront Advisors LLC (“Wealthfront”) and Hedgeable Inc. (“Hedgeable”), for making false statements about investment products and publishing misleading advertising. “Robo-advisers” are investment advisers that provide automated, software-based portfolio management services. In a press release related to these actions,

On October 31st, the CFTC’s Office of the Chief Economist (the “OCE”) issued a report about “Phase 5” of the uncleared margin rules (“UMR”) that are slated to go into effect on September 1, 2020.  The purpose of the report was “to guide regulators in their responses to industry requests for relief” from the scheduled application of Phase 5.

This post will provide an overview of the main conclusions of the report.  Any potential implementation of revisions to the UMR consistent with the conclusions in the report would have the effect of reducing the number of market participants subject to UMR, thereby simplifying compliance processes and burdens on entities that may have otherwise been impacted by the UMR.  It is too early to forecast whether regulators will propose and ultimately implement revisions to the UMR based upon this report.  Although, we believe that its issuance is a noteworthy development.

At the outset, the UMR are complex and their application to any particular trading activities should be undertaken in consultation with counsel familiar with these rules.  This post is not legal advice.


Continue Reading Initial Margin Phase 5: Report from CFTC’s Office of the Chief Economist

This post builds upon an idea presented in Part 4 of current series of posts on considerations for investment funds and advisers related to cryptocurrency derivatives.

In particular, this post provides additional perspectives on the relationship of leverage, margin, and financing to two commodity interests: “retail commodity transactions” and a “swaps”.  We decided to present these comments separate from the current multi-part series on cryptocurrency derivatives, since the topic may appeal to a broader audience than funds and advisers.

This post was co-authored with Michael Selig, an associate attorney in the New York office of Perkins Coie.


Continue Reading Swaps and Retail Commodity Transactions (Leverage, Margin or Financing: Will We Know It When We See It or Only After It Has Been Identified As Such?)

This post is the fourth 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 this Part 4, we discuss the commodity interests that are likely to be of greatest interest to crypto funds and advisers: futures contracts, swaps and retail commodity transactions.

At the outset, a sincere thanks goes out to Conor O’Hanlon and Michael Selig for their invaluable assistance and time spent thinking through many of the issues that are at this heart of this post and, more generally, this series.


Continue Reading Cryptocurrency Derivatives, Funds and Advisers: Key Considerations Under U.S. Commodity Laws (Part 4: About the Interests of Interest)

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)