Monthly Archives: February 2012

Considerations for CFTC 4.13(a)(4) Exempt Commodity Pool Operators

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As discussed in our previous post, as a result of the Final Rule issued by  the Commodity Futures Trading Commission (the “CFTC”) on February 9th, certain private fund managers that trade directly or indirectly in commodities and/or futures will need to reconsider their status as commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”).  Note that when the CFTC and the Securities and Exchange Commission (“SEC”)  finalize the definition of “swap” (on the SEC’s Implementation Schedule for the first half of 2012 and expected in the next few months), pool operators trading in non-security based swaps will fall within with the definition of “commodity pool operator” and, in the absence of any applicable exemption, will be required to register.

The Final Rule, published in the Federal Register on Friday, February 24, 2012, is generally effective on April 24, 2012 and alters the registration, compliance and reporting obligations  for  CPOs and CTAs.   In particular, the Final Rule’s rescission of the section 4.13(a)(4) exemption will require advisers that have relied upon that exemption (historically, advisers to Section 3(c)(7) private funds) to determine if there is another exemption upon which they may rely.  Continue reading →

Funds of Funds and FINRA 5131(b)

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It appears that certain funds of funds are likely to see an easing up on their due diligence obligations vis-a-vis their investors under Financial Industry Regulatory Authority (“FINRA”) Rule 5131(b), the “anti-spinning” rule governing a fund’s purchase of new issues that was effective September 26, 2011. Spinning is the practice of allocating new issues to executive officers and directors of current or potential investment banking clients in exchange for their investment banking business. For your reference, Rule 5131(b) and the de minimis exception available to funds are reviewed below.

At a meeting last week, the FINRA Board of Governors authorized FINRA staff to submit a proposed rule change to the Securities and Exchange Commission (“SEC”) that would exempt certain funds of funds from the requirement to assess the status of indirect beneficial owners for purposes of purchasing new issues under the anti-spinning provisions of FINRA Rule 5131(b). Continue reading →

Upcoming 2012 SEC Regulatory Deadlines

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Congratulations to all newly registering investment advisers that have submitted their Forms ADV Part 1A and Part 2A via the Investment Adviser Registration Depository (“IARD”)  in anticipation of the March 30, 2012 deadline! The Securities and Exchange Commission (“SEC”) generally has up to 45 days after receipt of the Form ADV to declare the registration effective and generally will notify an adviser via email once its registration is declared effective.  Registrations may be declared effective at any time during that 45-day period. An adviser can also check on IARD under the heading “Registration/Reporting Status” to see if its registration has been declared effective.

Below is a review and reminder of certain of the annual regulatory requirements that may be applicable to investment advisers. This is not intended to be an exhaustive list of  SEC regulatory requirements and does not cover state-specific requirements.  In particular, it should be noted that the below information does not address any regulatory filings or reports required by the Internal Revenue Service, Department of the Treasury (such as TIC forms) or the Commodity Futures Trading Commission (“CFTC”).  We expect to release future articles on other required regulatory filings. The information below is for informational purposes only and is not legal advice. Continue reading →

CFTC Rescinds 4.13(a)(4) Exemption Among Other Amendments to Part 4

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The Commodity Futures Trading Commission (the “CFTC”) issued a Final Rule amending registration and compliance obligations for commodity pool operators and commodity trading advisors (“CPOs” and “CTAs”, respectively), in particular rescinding the section 4.13(a)(4) exemption upon which many investment advisers to private funds rely.
The 197-page Final Rule release as well as an explanatory Fact Sheet and Q&A document may be found here.
The Final Rule, first proposed on January 26, 2011, passed 4-1, and:
  • Rescinds the exemption from registration provided in section 4.13(a)(4);
  • Removes relief from the certification requirement for annual reports provided to operators of certain pools offered only to qualified eligible persons under section 4.7(b)(3);
  • Modifies the criteria for claiming relief under section 4.5;
  • Requires the annual filing of notices claiming exemptive relief under several sections of the CFTC’s regulations;
  • Adopts amendments that include new risk disclosure requirements for CPOs and CTAs regarding swap transactions; and
  • Adopts new data collections for CPOs and CTAs consistent with the Form PF data collection required under the Dodd-Frank Act for entities registered with both the CFTC and the Securities and Exchange Commission.
In preparing the Final Rule, the CFTC considered comment letters, including one submitted by HedgeOp Compliance, LLC, requesting that the 4.13(a)(4) exemption be retained for funds that are advised by an SEC-registered investment adviser and invest indirectly in commodity interests through a fund of funds structure.  The CFTC has determined to withhold consideration of such an exemption pending receipt of data from the new Forms CPO-PQR and/or CTA-PR.  The CFTC will consider requests for exemptive relief for funds of funds on a case by case basis.
The CFTC today also issued a Proposed Rule to harmonize compliance obligations for SEC-registered investment advisers to registered investment companies that would be required to register as commodity pool operators.
HedgeOp will be reviewing the Final Rule release and analyzing its potential ramifications.
Keep a look out for additional post summarizing the details and timing issues.