Regulatory: CFTC maintains limited trading exemptions

May require more advisers to investment funds to register as CPOs and CTAs

Collective investment vehicles investing in commodities are not directly regulated by the Commodity Futures Trading Commission (CFTC), but the individuals or organizations directing or advising such vehicles with regard to trading in commodities are required to register with the CFTC unless an exemption applies.

The Dodd-Frank Act of 2010[1] expanded the requirement of who must register as such by amending the definition of commodity pool operators (CPOs) and commodity trading advisors (CTAs)[2] to include persons that trade swaps or advise with respect to swaps. The CFTC recently issued a final rule (the CPO-CTA Rule)[3] amending several regulations applicable to CPOs and CTAs.

CFTC Rule 4.14 exempts from CTA registration registered or exempt investment advisers whose commodity interest trading advice is directed solely to exempt CPOs. While the CPO-CTA Rule does not substantively amend this rule, to the extent that fewer persons can claim an exemption from the CPO registration requirement, fewer persons will be able to rely on Rule 4.14.

The limited trading exemption. The CPO-CTA Rule amends but retains the limited trading exemption in Rule 4.13(a)(3). That rule exempts persons who are advisers of investment funds for which:

Inclusion of swaps. The trading thresholds under the limited trading exemption will include the amount of swaps in addition to the futures contracts in which an investment fund engages. This is a change from existing Rule 4.13(a)(3), which had excluded the value of swaps from the trading calculation.

Annual notification requirement. As in the past, any entity or person relying on the exemption provided for in Rule 4.13(a)(3) must notify the CFTC that it is claiming such exemption by filing a notice with the National Futures Association (NFA). However, the CPO-CTA Rule now requires this notification to be re-affirmed on an annual basis.

Contributing Author

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Peter Malyshev

Peter Y. Malyshev, counsel, practices corporate law in the firm’s Washington, D.C. and New York offices and focuses his practice on regulatory, compliance...

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Contributing Author

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Jonathan Ammons

Jonathan T. Ammons is an associate at Latham & Watkins where he practices corporate law in the firm’s Washington, D.C. office. His practice focuses...

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