The Commodity Futures Trading Commission under Chairman J. Christopher Giancarlo has been active in proposing changes to regulations under Project KISS, for “keep it simple, stupid.”
Changes along these lines have been made that affect commodity pool operators and commodity trading advisors who often also are registered as investment advisors. The CFTC is requesting industry comments now.
Here are a few of the proposed CFTC rules as reported by Stradley Ronon:
- For CPOs who engage in offshore pools or funds, the CFTC is considering a new exemption if pools meet these criteria:
- The pool is, and will remain, organized and operated outside of the U.S.;
- The pool will not hold meetings or conduct administrative activities within the U.S.;
- No shareholder of or other participant in the pool is or will be a U.S. person;
- The pool will not receive, hold or invest any capital directly or indirectly contributed from sources within the U.S.; and
- The person claiming the exemption, the pool, and any person affiliated therewith will not undertake any marketing activity for the purpose, or that could reasonably be expected to have the effect, of soliciting participation in the pool from U.S. persons.
This proposed exemption would be added to Rule 4.13(a)(4). The reason for the CFTC’s decision to offer this exemption is it will allow the agency to focus more time on domestic matters, as well as make the exemptions available to and flexible for operators of offshore funds, Stradley Ronon reports.
2) Exemptive relief for CPOs and CTAs who qualify as family offices.
The good news is the CFTC is hoping to codify the exemptive relief for those CPOs and CTAs who are family offices. But there still are rules to operating as a family office, such as A) the only “clients” of the office are family members, family entities and related key staff, B) the family office is solely controlled by the family or family entities, and C) the family office doesn’t “hold itself out” to the public as an investment advisor, according to Shearman & Sterling LLP.
In an effort to not duplicate as well as harmonize with Securities and Exchange Commission rules, the CFTC proposed this exemptive relief. The proposal would provide CPOs relief under new rule 4.13(a)(8). The rule for CTAs, 4.14(a)(11), “would provide registration relief for advice provided to individual family clients,” according to Stradley Ronon.
3) Amendment of Rule 4.5(a)(1) to Identify the Investment Advisor to an SEC-Registered Fund as the CPO
More of a housekeeping rule done to codify that the head registrant of an investment fund is the investment advisor and not the fund itself.
“The proposal would align with the CFTC’s determination in 2012 that for Registered Funds that do not meet the trading and marketing tests and thus are outside of the scope of the Rule 4.5 exclusion, the Registered Fund’s investment adviser is the appropriate person to serve as the Fund’s CPO for regulatory purposes,” states Stradley Ronon in its report.