In the past, certain CPOs that delegated investment management authority (delegator CPO) over a commodity pool to another affiliated CPO (designated CPO) were able to apply for a waiver of CFTC CPO registration requirements. To do so, the delegator CPO and the proposed delegation arrangement had to meet certain criteria; if they did, these no action requests generally were granted. However, this process required submission of a full request for no action relief to the CFTC’s Division of Swap Dealer and Intermediary Oversight that conformed to general CFTC requirements pertaining to no action requests. (For details regarding the general process to request no action and other exemptive relief from the CFTC, click here.)
Under the new streamlined process approved by the Division, qualified CPOs requesting registration relief are simply obligated to file a specially designed form of letter that contains certain basic information about both the delegator and designated CPOs. In the letter the delegator CPO confirms that the applicable criteria for the relief has been met. Both the designated and delegator CPOs must also execute forms of certification that must accompany the request.
For the delegating CPO to obtain the relief, the following criteria must be met:
In most circumstances the delegating and designated CPO must also agree to joint and several liability in connection with the operation of the commodity pool. However, this is not necessary when the delegating CPO is an unaffiliated board member of the relevant commodity pool and is subject to liability as a board member under the laws of the jurisdiction where the commodity pool is set up.
In general, anyone who is engaged in a business that is of the nature of a commodity pool and solicits and handles funds from US customers to trade futures, related options, security futures or swaps on a collective basis must register as a CPO under CFTC rules. A registered CPO must also be a member of the National Futures Association.
My View. It is time for the CFTC to update it April 1999 Advisory regarding Exemptive, No Action and Interpretative Letters (for a version of this advisory, click here). Given the financial austerity which cripples the agency, at a minimum, third parties with identical or nearly identical fact patterns should be permitted to rely on published no action letters. Currently only the submitter of such a request can rely on it. This current initiative by the Division of Swap Dealer and Intermediary oversight is an important first step in such a process. Moreover, as I have written before, the CFTC should consider revising its 2007 enforcement advisory entitled “Cooperation Factors in Division Sanction Recommendations” to offer potential respondents an opportunity early on to settle certain types of offenses (e.g. where there has been no customer harm, fraud or manipulation) on an expedited basis before the expenditure of substantial time and resources by both CFTC staff and potential respondent(s). (For my prior views on this, see the article entitled “CFTC Fines Two Entities…Over Inadvertent Deficiencies in Their Handling of Customer Funds and Position Limit Violations,” in the March 31 version of Bridging the Week by clicking here).
For more details on this new CFTC process, click here:
The information in this article is for informational purposes only and is derived from sources believed to be reliable as of May 13, 2014. No representation or warranty is made regarding the accuracy of any statement or information in this article. Also, the information in this article is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The impact of the law for any particular situation depends on a variety of factors; therefore, readers of this article should not act upon any information in the article without seeking professional legal counsel. Katten Muchin Rosenman LLP and/or Gary DeWaal may represent one or more entities mentioned in this article.
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