CFTC Relief Letter Concerning Quarterly Account Statements of CPOs of Funds of Funds
On November 6, 2014, the Division of Swap Dealer and Intermediary Oversight (the “Division”) of the Commodity Futures Trading Commission (“CFTC”) issued CFTC Letter No. 14-142 (“Letter 14-142”). Letter 14-142 grants exemptive relief to two commodity pool operators (namely, the applicant “CPOs”) from the 30-day period for distribution of quarterly statements to participants under CFTC Rule 4.7(b)(2). In order to receive such relief, the CPOs would instead provide the information required under CFTC Rule 4.7(b)(2) to participants on a monthly basis within 45 days of the month end. The CPOs requested such relief because the underlying investee pools (the “Investee Pools”) oftentimes do not distribute their reports to the CPOs’ pools (the “Investor Pools”) until the last few days of the 30-day period. Further, the Investor Pools also invest in Investee Pools that are not subject to CFTC regulation, which further complicates the Investor Pools’ efforts to obtain such financial information in a timely manner.
Under the relief provided by Letter 14-142, the Investor Pools would provide more frequent account information to their participants than is required under CFTC Rule 4.7(b)(2), which only requires quarterly reporting. The participants in the Investor Pools would thus receive two-thirds of the financial information provided in account statements earlier than they would otherwise, and one-third later than they would if the CPOs operated under the 30-day requirement. On balance, the Division determined that the relief requested would not be contrary to the purposes of CFTC Rule 4.7(b)(2).
To obtain the relief sought, the CPOs must abide by the following requirements:
(1) The CPOs must distribute to participants within 45 calendar days after the end of each month an account statement that includes all of the information required to be included in a CFTC Rule 4.7(b)(2) quarterly account statement and that is signed and affirmed in accordance with CFTC Rule 4.22(h); and
(2) The CPOs must inform current and prospective participants in the Investor Pools that account statements will be provided within 45 days after the end of the covered month.
The relief granted under Letter 14-142 is applicable only to the CPO applicants that requested such relief.
A link to Letter 14-142 can be found here:
http://www.cftc.gov/LawRegulation/CFTCStaffLetters/ExemptiveLetters/index.htm
CFTC Relief from CTA Registration for Family Offices
On November 5, 2014, the Division issued CFTC Letter No. 14-143 (“Letter 14-143”). Letter 14-143 grants no action relief from commodity trading advisor (“CTA”) registration for a qualifying family office in connection with the advisory services that it provides to family clients (“Family Clients”), as defined by regulations promulgated by the Securities and Exchange Commission (“SEC”). The relief provided under Letter 14-143 follows the relief previously granted to CPOs under CFTC Letter No. 12-37 (“Letter 12-37”).
Letter 12-37 explained that a family office is generally a professional organization that is wholly-owned by clients in a family and is exclusively controlled (directly or indirectly) by one or more members of a family or entities controlled by a family (“Family Office”). A Family Office is generally employed when certain family members wish to share their wealth with other family members and the Family Office is then used to provide personalized services to that family, such as with respect to matters of tax, estate planning, investments and charitable giving. Letter 12-37 was meant to address the impact felt by many Family Offices when CFTC Rule 4.13(a)(4) was rescinded, which provided CPO registration relief that was generally applicable to Family Offices. After the rescission of CFTC Rule 4.13(a)(4), many Family Offices requested relief from CPO registration since Family Offices are not the type of operations warranting CFTC oversight because they are comprised of participants with a close family relationship. Letter 12-37 was issued in response to such request.
Letter 12-37 intended to align itself with the SEC’s exclusion for Family Offices that would otherwise need to register as investment advisers. The Division thus provided no-action relief from CPO registration to CPOs meeting the SEC’s definition of “family office” in 17 CFR 275.202(a)(11)(G)-1 and that filed the requisite notice to the Division. Because Letter 12-37 did not include similar relief for CTAs, many Family Offices pointed out that the same reasoning should hold with regard to an exclusion from CTA registration.
In Letter 14-143, the Division agreed that the same reasoning underlying the Letter 12-37 relief granted to CPOs should apply with respect to CTAs. Consistent with the relief granted to CPOs in Letter 12-37, Letter 14-143 grants CTA registration relief where a Family Office, in connection with any advisory services it provides to a “Family Client,” submits a claim to elect for such relief and agrees to remain in compliance with 17 CFR 275.202(a)(11)(G)-1, regardless of whether the Family Office seeks to be excluded from registration as an investment adviser under the Investment Advisers Act of 1940.
A link to Letter 14-143 can be found here, which includes the requirements for requesting such relief:
http://www.cftc.gov/LawRegulation/CFTCStaffLetters/No-ActionLetters/index.htm
NFA Notice to CPOs Regarding Changes to EasyFile Financial Statement Filings
On February 10, 2015, the National Futures Association (“NFA”) issued Notice to Members I-15-09 (“Notice 15-09”). Notice 15-09 provides notice to NFA CPO Members of minor changes to the NFA EasyFile system with respect to all outstanding pool financial statements dated after November 29, 2014. Pursuant to Notice 15-09, CPOs must now complete a cover page regarding the pool financial statement and provide one additional balance in the “Pool Financial Balances” section (regarding redemptions receivable from other funds).
A link to Notice 15-09 can be found here:
http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=4539
CFTC Time-Limited Relief Letter Concerning Certain Ownership and Control Data Reporting Requirements
On February 10, 2015, the Division of Market Oversight of the CFTC issued CFTC Letter No. 15-03 (“Letter 15-03”). Letter 15-03 grants time-limited no-action relief on behalf of all parties that are obligated to report pursuant to the CFTC’s new rules and related forms seeking to enhance its identification of futures and swaps participants (the “OCR Final Rule”) on any of the New Form 102A, New Form 102B, New Form 102S, New Form 40/40S and New Form 71 (collectively, “Reporting Parties”). Letter 15-03 replaces CFTC Letter 14-95, which granted similar relief.
Under Letter 15-03, Reporting Parties have been afforded the following reporting extensions:
• New Form 102A and New Form 102S – September 30, 2015;
• New Form 102B with respect to designated contract market volume threshold accounts – September 30, 2015;
• New Form 102B with respect to swap execution facility volume threshold accounts –February 13, 2017; and
• New Form 40/40S and New Form 71 – February 11, 2016.
To rely on this relief, Reporting Parties must continue to submit Legacy Form 102, Legacy Form 102S, Legacy Form 40 and Legacy Form 40S in accordance with the reporting requirements in place prior to the implementation of the OCR Final Rule. Reporting Parties must also cooperate with the CFTC’s testing and implementation process in regards to the OCR Final Rule.
A link to Letter 15-03 can be found here:
http://www.cftc.gov/LawRegulation/CFTCStaffLetters/No-ActionLetters/index.htm
Please do not hesitate to contact us if you have any questions concerning the above updates.
Joseph M. Mannon: T: +1 (312) 609 7883; jmannon@vedderprice.com
Nicole M. Kuchera: T: +1 (312) 609 7763; nkuchera@vedderprice.com
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Joseph M. Mannon, JD is a member of Vedder Price P.C.’s Investment Services Group. Mr. Mannon focuses his practice on legal and compliance matters for investment advisers, mutual funds, closed-end funds and unregistered vehicles such as hedge funds, hedge fund of funds and other investment entities. With regard to unregistered vehicles, he frequently counsels clients on fund formation and structuring matters for funds organized both in the U.S. and abroad. He also counsels clients on issues relating to commodity trading advisors and commodity pool operators.
Mr. Mannon has substantial experience in regulatory and compliance matters affecting investment advisers, including registration and marketing, such as compliance with Global Investment Performance Standards (GIPS), as well as in drafting compliance policies and procedures and trading agreements.
Nicole M. Kuchera, JD, LLM is an attorney in Vedder Price P.C.’s Investment Services Group. She concentrates her practice on legal and compliance support for securities, futures, forex and derivatives industry clients, such as hedge funds, investment advisers, commodity pool operators, commodity trading advisors, broker-dealers, futures commission merchants, introducing brokers and proprietary trading firms. Ms. Kuchera counsels clients regarding a wide range of compliance and regulatory matters involving the rules and regulations of the Securities and Exchange Commission and Commodity Futures Trading Commission, as well as the self-regulatory organizations and exchanges.
Ms. Kuchera also represents clients in general corporate matters, such as business formation, corporate structuring, licensing, industry registration, trade agreements, preparation of disclosure documents and preparation and review of marketing and promotional materials.
