Written by: Mark E. Ruddy, Esq. & Jessica I. Brown, CAMS
NATIONAL FUTURES ASSOCIATION
Financial Reporting Requirements of Commodity Pool Operators
The Commodity Futures Trading Commission (“CFTC”) amended certain items of Part 4 regulations applicable to commodity pool operators (“CPOs”) and their financial reporting requirements. As per the amendments, CFTC regulations now permit the following:
- The use, in certain circumstances, of specified additional alternative generally accepted accounting principles, standards or practices;
- A CPO to provide unaudited Annual Report for a pool’s first fiscal year, is specific criteria are met; and
- A CPO to provide an unaudited Annual Report, if, during any fiscal year, the pool only had insiders as participants.
In response to the Part 4 amendments, the NFA published Notice I-17-08. To claim the relief now available to CPOs, as part of the amendments to Part 4 regulations, a notice or exemption filing must be submitted to the NFA. Notice I-17-08 provides registrants with instructions regarding notice and exemptions filings. Further, the NFA enhanced its EasyFile Extensions and Notice Filing s System. The enhancements are due in part to the amendments and to allow CPOs to include multiple pools when filing a notice.
Please refer to Notice I-17-08 for more details regarding the amendments to Part 4 regulations.
COMMODITY FUTURES TRADING COMMISSION
Swap Trade Confirmation Relief
The relief provided to swap execution facilities (“SEFs”) regarding swap trade confirmation requirements was set to expire on March 31, 2017. The CFTC announced the extension of such relief in a press release issued March 24, 2017. The Division of Market Oversight (“DMO”) issued CFTC No-Action Letter 17-17, which provides a detailed explanation regarding the extension of no-action relief for SEF confirmation and record keeping requirements under CFTC regulations 37.6(b), 37.1000, 37.1001, 45.2 and 45.3(a). Further, Letter 17-17 extends the relief to SEFs until the date of revised CFTC regulations that establish a permanent, practicable SEF confirmation solution. SEFs must meet the terms and conditions outlined in Letter 17-17 to qualify for relief associated with trade confirmation requirements. Firms should carefully review CFTC’s March 24th Press Release and Letter 17-17 to ensure that they are complying with the terms and conditions of the letter. This relief requires that a SEF continue to report all swap data that the SEF is reporting as of the time this no-action relief is issued, as required by part 45 of the CFTC’s regulations, even if such data are contained in the documents that the SEF incorporates by reference in a confirmation.
SEFs were granted originally granted the relief pursuant to CFTC Staff Letter 16-25, which was issued in 2016.
Dodd-Frank Act Provisions Proposal
There are concerns among some financial service industry associates and public interest groups surrounding the latest proposal by the CFTC in December 2016 for Dodd-Frank Act position limits. The proposal establishes position limits for 25 exempt and agricultural commodity futures and option contracts as well as updating definitions, revising exemption, modifying particular reporting requirements, and recognition of hedges and exemptions for CFTC review. Notably, the Futures Industry Association (“FIA”) recommends that: “the rule should include more enumerated bona fide hedges and more flexibility for hedging activities generally.” The FIA believes that the current proposal’s position limits and exemptions are too restrictive and would impede bona fide hedging by end-users like famers, manufactures, and construction companies. Other associations have recommended that the CFTC revise their proposal to be more specific, as the current proposal is very general and overly simplistic.
Please refer to the CFTC Proposal for more detail regarding the proposed rules for position limits for derivatives.
For further information about any of the topics covered, please feel free to contact Ruddy Gregory, PLLC (www.ruddylaw.com) or 202-797-0762.
