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CFTC Offers Regulatory Relief

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WASHINGTON (–The Commodity Futures Trading Commission proposes to both expand existing exemptions and to add new exemptions from registration requirements for commodity pool operators and commodity trading advisers.

In a statement CFTC Chairman James Newsome said the proposals advance several goals by “removing artificial barriers to cross-border business, recognizing technological advances, reducing duplicative regulatory burdens on institutions subject to the oversight of more than one agency, and tailoring our own oversight efforts more appropriately to the nature of the activities of, and the participants involved in, an intermediary.”

One of the newly proposed CPO exemptions, which would become rule 4.13(a)(4), would apply to CPOs that restrict participation in their pools to certain sophisticated investors.

Another new exemption, 4.13(a)(3), would apply to CPOs that restrict their membership to accredited investors. Because of the lower level of sophistication of this latter group, the (a)(3) exemption would come with limits on the amount of commodity interest trading in which pools could engage under its aegis. They could use up to 2% of their assets to establish commodity interest positions or they could enter into commodity interest contracts whose notional value did not exceed 50% of the pool’s litigation value.

In a speech at the futures industry conference at Boca Raton, Fla., Mr. Newsome referred to such limits as a “de minimus level” of futures activity. He said that operators and advisers for entities that permit participation by investors who may not be quite so sophisticated as those in the (a)(4) pools should not be frightened away from trading in futures by rules that would invoke registration requirement on the basis of a single futures contract.

Similarly, in rule 4.14(a)(8), the CFTC proposes that CTAs that advise only the types of pools described in 4.13(a)(3) or (4) be exempt from CTA registration.

“These proposals are based on the [National Futures Association and Managed Funds Association] proposals and the No-Action Relief that was released in November 2002,” said Roderick Cruz, of the law firm Tannenbaum Helpern Syracuse & Hirschtritt LLP, New York.

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