Commodity Futures Trading Commission
Commodity Trading Advisors
On July 23, 2015 the Commodity Futures Trading Commission’s (“CFTC”) Division of Swap Dealer and Intermediary Oversight (“DSIO”) issued press release PR7202-15 announcing the issuance of a letter that exempts certain registered commodity trading advisors (“CTAs”) will be exempted from filing Form CTA-PR. Specifically, the letter exempts CTAs that are registered but do not direct any client commodity interest accounts from filing Form CTA-PR. The letter details the exemptive relief from CFTC Regulation 4.27(c) with respect to certain registered CTAs (“Letter 15-47”).
The DSIO referenced the exemptive relief already granted to commodity pool operators (“CPOs”) that only operate pools pursuant to a claim of exemption from registration or for which the CPO maintains an exclusion from the definition of a CPO. The exemption relief was detailed in CFTC Letter 14-115. In that letter, the DSIO reasoned that requiring the CPOs, reference at the beginning of the paragraph, to file a Form CPO-PQR would provide limited additional information regarding the CPO beyond what the entity has previously been provided during registration and the ongoing registration requirements. The DSIO has reasoned that requiring CTAs that do not direct any client commodity interest accounts to file Form CTA-PR would provide limited additional information about the CTAs beyond already existing information. Further, Letter 15-47 provides an exemption for these registrants from the reporting provisions of CFTC Regulation 4.27(c).
The Form CTA-PR is a quarterly report that requires CTAs to report general information about the CTA and its trading programs. For registered CTAs, the reports are to be filed within forty-five (45) days of the of the calendar quarter end. Pursuant to CFTC Regulation 4.27, all CTAs, even non-National Futures Association (“NFA”) Member CTAs, are required to file an annual Form CTA-PR.
National Futures Association
Commodity Pool Operators
On July 13, 2015, the NFA issued Notice I-15-17 to Members directed at CPOs utilizing wholly-owned subsidiaries that wish to consolidate filings under CFTC Regulation 4.22 and/or 4.27. This Notice is associated with CFTC No-Action Letter No. 14-112, from September 2014, regarding requests to consolidate annual report financial statements and Form CPO-PQR data between certain commodity pools and their wholly-owned subsidiaries. Further, Letter 14-112 permitted financial reporting requirements under Regulations 4.22(c) and 4.27(c) to be filed on a consolidated basis for a CPO of a parent commodity pool that is not a registered investment company under the Investment Company Act of 1940 that uses a wholly-owned subsidiary to trade commodity interests. Such CPOs are required to file a notice of claim to the CFTC requesting relief.
As per the NFA Notice, CPOs that have already filed a claim of notice with the CFTC are required to notify the NFA of the notice filing on or before July 31, 2015. This is to ensure that the NFA’s records are accurate for determining annual financial reporting requirements under CFTC Regulations 4.22(c) and 4.27(c). The process for notifying the NFA is as follows:
- First, update the Annual Questionnaire, through Online Registration System (“ORS”), to properly identify any parent pool and its wholly-owned subsidiary have been properly identified; and
- Then, through the exemption electronic filing system, file a 14-112 exemption for the annual report and/or the quarterly report to consolidate the filings. A separate exemption filing must be submitted for each report (annual and quarterly).
Failure to notify the NFA of a claim of notice under CFTC No-Action Letter 14-112 will result in a CPO being required to file financial reports that may not be necessary.
Securities and Exchange Commission
In June, the Securities and Exchange Commission’s (“SEC”) Division of Investment Management issued Guidance Update No. 2015-03, the (“Guidance Update”). The Guidance Update specifically addressed personal securities transactions reports by registered investment advisers and securities held in accounts over with reporting persons had no influence or control. Pursuant to the Investment Advisers Act Rule 204A-1, advisers are required to establish, maintain and enforce written policies and procedures that protect material nonpublic information and prevent personnel from misusing such information. Such policies and procedures are outlined in the adviser’s Code of Ethics, which must include requirements that advisory personnel report personal securities trading to provide a mechanism for the adviser and the regulators to identify proper trades or pattern of trades. Subsection (b)(3)(i) of Rule 204A-1 provides a reporting exemption when the securities of an “access persons” such as directors, officers, supervised person, etc., are held in accounts over which the access person has “no direct or indirect influence or control”. Lastly the SEC addressed the use of third-party authority. Simply granting a third-party management authority, by itself, is insufficient to suggest that an access person does not exert control or influence over their account. That being said, discussions between the third-party and the access person in which only account activity is reviewed, would not necessarily suggest control or influence. The SEC encourages advisers to thoroughly examine and take into consideration the Guidance Update when reviewing their Code of Ethics.
For further information about any of the topics covered, please feel free to contact the Ruddy Law Office, PLLC (www.ruddylaw.com) or 202-797-0762.
