On August 14, 2012, the Commodity Futures Trading Commission (the "Commission" or "CFTC")'s Division of Swap Dealer and Intermediary Oversight ("DSIO") released a set of responses to frequently asked questions (FAQs) concerning compliance obligations for commodity pool operators (each, a "CPO") and commodity trading advisors (each, a "CTA") under the Commission's Part 4 rules,1 which were significantly amended several months ago.
Among other things, the FAQs address various questions and topics, including the circumstances under which an unregistered person or entity such as a general partner, a managing member or a board of directors may delegate its rights and obligations as a pool's CPO to a separate registered CPO who assumes such rights and obligations and who instead serves as the pool's CPO; whether a wholly-owned subsidiary of a commodity pool trading in CFTC-regulated derivatives is itself a pool; Forms CPO-PQR and CTA-PR; the trading limits under Rule 4.13(a)(3), commonly known as the "de minimis" exemption from CPO registration; and transitioning issues for CPOs operating pools pursuant to Rule 4.13(a)(4) who plan to operate such pools pursuant to Rule 4.7 or CFTC Advisory No. 18-96.
The FAQs provide helpful guidance on certain issues, including, as noted above, that an unregistered CPO may delegate its rights and obligations to a registered CPO, subject to the delegating entity remaining jointly and severally liable with respect to any violation of the Commodity Exchange Act. This flexibility could enable fund managers to operate their pools under a single CPO registration rather than having to operate them under multiple CPO registrations. The FAQs also clarify certain aspects of the application of the trading limits under Rule 4.13(a)(3), including that the tests are applied at the time a position is established, so that a fund is not required to exit or otherwise reduce its positions to maintain compliance. In addition, the FAQs confirm that the CPO of a fund of funds may continue to rely on the guidance in former Appendix A to the Part 4 rules with respect to the application of the trading limits under Rule 4.13(a)(3) until such time as the Commission adopts revised guidance.
The FAQs do, however, set forth the staff's position that a wholly-owned subsidiary of a commodity pool trading in CFTC-regulated derivatives is itself a separate commodity pool.
DSIO staff anticipates supplementing or revising the FAQs as needed.
We will continue to monitor and report on developments in this area.
Footnote
1 See http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/faq_cpocta.pdf
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
