Commodity Pool or Not a Commodity Pool? Revised CFTC Registration Requirements

by NCS Regulatory Compliance on October 18, 2012

Private Fund ManagerJust when you thought it was safe to be in the “pool,” the U.S. Commodities Futures Trading Commission (“CFTC”) announced changes to rules relative to the registration of Commodity Pool Operator (“CPO”) that could result in numerous managers of private funds having to register as such with the National Futures Association (“NFA”), subjecting them to filing and recordkeeping requirements. Add this to the compliance and filing requirements of managers that are now registered with the SEC as investment advisers, and it is no wonder private fund managers the world over are feeling the strain.

 

Changes in exemptions
Prior to the rule change, managers of private funds that invested in commodities and whose shares were sold only to accredited investors were exempt from registration as a CPO. These exempt managers filed a notice with the NFA of their reliance on this exemption and that was the end of it, unless they changed their model to allow unaccredited investors.

 

How life has changed. The exemption relative to accredited/qualified investors no longer exists, so unless a fund manager can be exempted under another provision, registration is now required. To avoid registration, fund managers who have commodity holdings in their funds will now have to look to other exemptions relative to their overall assets in commodities. One measure of exemption is related to the value of commodity assets held within the pool.

 

Registration requirements
Registration involves the payment of fees and the filing of various documents. The requirements for registration, however, reach beyond the firm itself to its principals — defined very broadly by the NFA — and its associated persons. Registration of these persons involves the filing of more forms, the payment of additional fees, and in many cases, the completion of qualification/proficiency examinations. There are exemptions from examination requirements for some persons within the firm, but the applicable registration documents and a request for waiver relief must be filed.

 

Reporting and compliance requirements
Once the fund is registered as a CPO the real fun begins, with annual reporting and compliance requirements, in addition to those the fund manager must worry about as an investment adviser, including policies, procedures and recordkeeping. How does filing not only the new Form PF but also the CFTC version (Form CPO-PQR) sound? What about having to deliver another disclosure document outlining risks, break-even points, information on principals and other data similar to a Form ADV but which must be approved by the NFA?

 

Regulatory Compliance is committed to providing comprehensive registration and compliance services as well as business support to the financial services industry. For more information on how Regulatory Compliance can assist you or if you have questions regarding the NFA’s requirements, please click here or contact our specialists at 603-434-3594.

 

 

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