Category Archives: CFTC

CFTC and SEC Adopt Joint Final Rules on Definitions of “Swap Dealer” and “Security-Based Swap Dealer”

Posted on by
Reply

The Securities and Exchange Commission (“SEC”), unanimously, and the Commodity Futures Trading Commission (“CFTC”), 4-1, have approved the joint Final Rules on Further Definition of “Swap Dealer,” “Security-Based Swap Dealer,” “Major Swap Participant,” “Major Security-Based Swap Participant,” and “Eligible Contract Participant” with interpretive guidance. The vast majority of the swaps markets will be governed by the CFTC which has already adopted a number of final swap market related rules and has other proposed rules out for comment.  The SEC’s rulemaking activity in the derivatives market area may be found here.  Continue reading →

Identity Theft Red Flags Rules Proposed by SEC and CFTC

Posted on by
Reply

The Securities Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) (collectively, the “Commissions”) recently issued Proposed Identity Theft Red Flags Rules (“Proposed Rules”) requiring certain of their regulated entities to put identity theft prevention programs (“Programs”) in place, similar to Fair Credit Reporting Act (“FCRA”) rules adopted in 2007 (the “2007 Rules”) by the Federal Trade Commission (“FTC”) and other federal financial regulatory agencies. The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred authority over certain parts of the FCRA to the SEC and CFTC, respectively, for entities regulated by those Commissions. The deadline for comments is May 7, 2012. Continue reading →

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

Posted on by
Reply

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 →

Upcoming 2012 SEC Regulatory Deadlines

Posted on by
Reply

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

Posted on by
Reply
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.

Proposed: Private Fund Adviser Systemic Risk Report Rules and Changes to CFTC Regulations

Posted on by
Reply

This past week, the Securities and Exchange Commission (the “SEC”) and the Commodity Futures Trading Commission (“CFTC”) jointly proposed rules requiring SEC-registered investment advisers, CFTC-registered commodity pool operators (“CPOs”) and CFTC-registered commodity trading advisers (“CTAs”) that advise private funds to report certain information about their businesses and the private funds they manage.  Information reported on the new proposed forms will be confidential, to the extent permitted under applicable law, and will be used by the Financial Stability Oversight Council to help the Council assess and monitor the potential risk posed to the U.S. financial markets by the private funds.

The CFTC separately proposed related modifications to CPO and CTA regulations, including rescinding Commodity Exchange Act Rule 4.13(a)(3) and Rule 4.13(a)(4), two exemptions from CFTC registration used by many advisers to private funds investing in commodities. Unless otherwise exempt or excluded from the requirement to register, advisers previously exempt under these Rules would be required to register with the CFTC and the advisers and the commodity pools they advise would become subject to certain requirements, including disclosure, financial reporting and recordkeeping.  Registration with the CFTC generally includes registration of the adviser’s principals and associated persons, who would have to satisfy certain proficiency or examination requirements.

The Comment Period on the Proposed Rules will be open for 60 days following publication of the Proposed Rules in the Federal Register.

No New Funds Expected for SEC and CFTC

Posted on by
Reply

The Wall Street Journal Online reports that the Senate voted 82-14  this morning to end debate on a continuing resolution for $250 billion to fund the government through March 4, 2011.  It is expected that, after a final vote in the Senate, the resolution will be sent to the House of Representatives for a vote prior to the expiration of the current stop-gap measure at midnight tonight.

According to a Senate Appropriations Committee summary produced late Sunday, the resolution provides a small increase of $1.16 billion over 2010 spending, but it appears that there will be no new funds to help the SEC or CFTC with regulatory reform under Dodd-Frank.  According to the Wall Street Journal Online, the proposed spending plan would give the SEC authority to set up five offices mandated by Dodd-Frank, including a whistleblower office.

A $1.1 trillion omnibus bill, supported by the Democrats and hailed by the SEC and CFTC, would have included an 18% increase in the SEC’s budget ($200 million in new funding), and a 69% increase in the CFTC’s budget ($100 million of additional money).  That bill failed to garner sufficient support and, last Thursday night,  the Dow Jones Newswire reported that  Senate Majority Leader Harry Reid (D-Nev.) had announced that the Senate would focus instead on a short-term funding measure.  At that time, it was reported that the Senate Republicans were considering only a resolution proposed by Minority Leader Mitch McConnell (R-Ky.), which would have simply maintained funding at the 2010 budget levels until February 18, 2011.  The House’s version of a new measure, released in early December, would have shifted more funds to the SEC and the CFTC while maintaining the 2010 budget.

The SEC and CFTC had expected to use the new funding under the omnibus bill to allow the agencies to more  effectively carry out their new responsibilities and implement the many new rules under the Dodd-Frank Act.  These include both agencies’ supervision of the over-the-counter derivatives markets and the SEC’s new power to regulate and examine certain private fund advisers and municipal advisers.   Now, it appears that, despite these  new duties, which both SEC Chairman Mary Schapiro and CFTC Chairman Gary Gensler have said require hiring hundreds of new staff members and significant upgrades in technology, the SEC and CFTC will  be forced to operate within their 2010 budgets.

Although the Obama administration could shift money around to help the SEC and CFTC, it is likely that the Republicans, who did not support Dodd-Frank and will take control of the House of Representatives in January 2011, will attempt to block any such shifts through legislation.

The Wall Street Journal Online reports that Senate Finance Committee Chairman Max Baucus (D., Mont.) remains confident that the Democrats could still win funding battles for financial regulation.  Sen. Richard Shelby (R., Ala.), however, is quoted as  saying, “It’s going to be a big political fight. I think the odds shift toward Republicans.”

Senate Spending Bill would Increase SEC and CFTC Budgets; SEC and CFTC Meetings this Week

Posted on by
Reply

Senate Spending Bill

Reuters is reporting that a Senate spending bill released today will give an increase of 18% in the SEC’s 2011 budget  to $1.3 billion and an increase of 69% in the CFTC’s 2011 budget to $286 million (in excess of the funding requested by that agency).  These increases should give the agencies the monies they need to implement the many new rules being put in place pursuant to Dodd-Frank, in particular the rules governing the over-the-counter derivatives market.  Both agencies had warned of delays resulting from lack of funds and the SEC (whose fiscal year began October 1) recently announced that, because of budget uncertainty, it was deferring setting up new offices, including the whistleblower office and those overseeing credit rating agencies and municipal securities.

In order for the agencies to receive their funds, the Senate must now pass the bill and then merge its bill with the House spending bill which has already been passed and includes large increases for these agencies.

SEC Open Meeting

Among the items to be discussed at tomorrow’s Open Meeting at the SEC:

  • Rule and form amendments to establish a process for the submission for review of security-based swaps for mandatory clearing and notice filing requirements for clearing agencies; and
  • An end-user exception to mandatory clearing of security-based swaps for certain counterparties.

CFTC Public Meeting

The CFTC will hold a public meeting on Thursday, December 16, to consider rules whose effect will be to limit speculation in the commodity derivatives markets.  The CFTC plans to propose rules that will set:

  • “Position limits” on how many physical commodity derivative contracts a single speculator can hold;
  • Confirmation, portfolio reconciliation and portfolio compression requirements for swap dealers and major swap participants;
  • Risk management requirements for derivatives clearing organizations;  and
  • Core principles and other requirements for swap execution facilities.

The CFTC is expected to produce new rules by late January.

SEC December Activities Implementing Dodd-Frank

Posted on by
Reply

The SEC staff continues to carry out the rulemaking and proceed with the studies mandated by the Dodd-Frank Act.

The SEC’s  “Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act” web page consolidates links to all of the SEC’s related accomplishments to date, includes a calendar of its planned activities implementing the Dodd-Frank Act through July 2011 and provides a link to comments the SEC has received on both rulemaking and planned studies.

In November, the SEC proposed the following: an anti-manipulation rule for security-based swaps, a Whistleblower Incentives and Protection Program, rules regarding the registration and regulation of security-based swap repositories and security-based swap reporting and, most recently, exemptions from investment adviser registration for venture capital firm advisers and certain private fund advisers, as well as rules and changes to forms to implement the transition of mid-sized investment advisers from SEC to State regulation.

Highlights of the December, 2010 calendar most relevant to hedge funds and investment advisers include: Continue reading →

SEC November Activities Implementing Dodd-Frank

Posted on by
Reply

The SEC staff continues its hard work on the rulemaking and studies mandated by the Dodd-Frank Act, signed into law by President Obama on July 21, 2010.

The SEC’s webpage captioned “Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act” consolidates links to all of the SEC’s related accomplishments to date, and includes a calendar of its planned activities implementing the Dodd-Frank Act through July 2011.

Highlights of the November, 2010 calendar relevant to hedge funds and investment advisers include:

  • §§407 and 408: Propose rules implementing the exemptions from registration for advisers to venture capital firms and for certain advisers to private funds
  • §410: Propose rules and changes to forms to implement the transition of mid-sized investment advisers (between $25 and $100 million in assets under management) from SEC to State regulation, as provided in the Act

    • Continue reading →