CFTC Finalizes Regulation Amendments: Certain Registered and Exempt CPOs and CTAs Need to Take Action

January 08, 2020

The Commodity Futures Trading Commission published in the Federal Register on December 10, 2019 several amendments to the regulatory framework applicable to certain commodity pool operators (CPOs) and commodity trading advisors (CTAs) that the CFTC initially proposed in October 2018.1 The amendments:

  • Codify a CPO exclusion for investment advisers of business development companies (BDCs) that have been relying on CFTC staff no-action relief, requiring a CFTC Rule 4.5 notice of exclusion filing with the National Futures Association as soon as practicable following January 9, 2020;
  • Clarify that the CPO exclusion for an entity operating as an investment company registered under the Investment Company Act of 1940 (registered fund) is available to the registered fund’s investment adviser;
  • Provide a CPO and CTA registration exemption for family offices and/or family clients as defined under Securities and Exchange Commission regulations;
  • Codify relief permitting general solicitation with respect to commodity pools operated by CPOs claiming relief under CFTC Rules 4.7(b) and 4.13(a)(3), as contemplated by the Jumpstart Our Business Startups Act (JOBS Act) and related SEC rules; and
  • Provide relief from filing CFTC Form CPO-PQR and CFTC Form CTA-PR for certain classes of registered CPOs and CTAs.

Some of these amendments will require action on the part of a CPO or CTA in order to avail itself of the benefits of the amendment, with certain filings and actions required as soon as practicable following the effective date of the amendments, January 9, 2020.2

The CFTC also amended CFTC Rule 4.13(a)(3) to provide that any investor that meets the definition of a “qualified eligible person” in CFTC Rule 4.7, which would include any “non-United States person” (as defined in the rule regardless of that investor’s sophistication), would be eligible to invest in a CFTC Rule 4.13(a)(3) commodity pool. As most CPOs already have been operating their pools in reliance on certain CFTC staff FAQs or CFTC staff guidance allowing such investors to participate in a CFTC Rule 4.13(a)(3) commodity pool,3 this Dechert OnPoint does not cover that development in detail.

This Dechert OnPoint includes the information set forth in the December 18 Newsflash addressing the amendments as applicable to BDCs, as well as information about the other CFTC regulation amendments listed above.

Business Development Companies

Part of this rulemaking effort will directly affect investment companies that have elected to be exempt from registration under the 1940 Act as a BDC. Specifically, the CFTC amended CFTC Rule 4.5(a)(1) and (b)(1) to codify a CPO exclusion under CFTC No-Action Letter No. 12-40 (Letter 12-40)4 for investment advisers to BDCs that trade in commodity interests (BDC exclusion).

The term “commodity interest” includes all futures, options on futures, commodity options and swaps. BDCs generally do not trade more than a de minimis amount of commodity interests. However, the commodity interests that they do trade (typically interest rate and currency swaps) cause such BDCs to be deemed to be commodity pools pursuant to the CFTC’s regulations. Until the effective date of this rulemaking, investment advisers to BDCs that trade in commodity interests and that comply with the conditions of Letter 12-40 are excluded from the definition of CPO.

New Filing Requirement for BDCs

The amendments to CFTC Rule 4.5 supersede Letter 12-40. As a result, investment advisers to BDCs that trade commodity interests to a de minimis extent must file an electronic notice of exclusion with the NFA “as soon as practicable after these amendments go into effect” in order to claim the exclusion.5 The effective date for the amendments is January 9, 2020.

The BDC exclusion does not change the substance of the current exclusion under Letter 12-40. Accordingly, investment advisers to BDCs that trade commodity interests in accordance with the conditions of Letter 12‑40 (i.e., to a de minimis extent) and file the required notice also will satisfy the conditions under the BDC exclusion.

New Annual Reaffirmation Requirement for BDCs

After making the initial notice of exclusion filing, investment advisers to BDCs will be required to reaffirm the electronic notice of exclusion with the NFA annually, within 60 days following each calendar year-end. This is a noteworthy change for BDCs as the relief under Letter 12-40 did not require annual reaffirmation.

Historically, the NFA has sent email reminders regarding the reaffirmation process to entities relying on CPO or CTA registration exclusions and/or exemptions that are subject to reaffirmation. These reminders typically have been sent in early December of each year. When setting up a filing account with the NFA, investment advisers to BDCs may wish to provide a compliance group email address as part of the contact information, in order to ensure that multiple individuals receive such reminders. Investment advisers to BDCs also may want to establish log-in credentials for several individuals for the filing account as a backup, in case the individual responsible for the process departs the firm or is otherwise unavailable during the reaffirmation period.

New Disclosure Requirement for BDCs

CFTC Rule 4.5(c)(2) requires BDCs to disclose in writing to each participant, whether existing or prospective, that the BDC is operated by a person who has claimed an exclusion from the definition of the term CPO and therefore is not subject to registration or regulation as a CPO. The relief under Letter 12-40 was not subject to a condition requiring similar disclosure. Such disclosure should be included in the notes to the BDC’s next regular financial statements, as well as in its next offering document update produced in the normal course after making the initial notice of exclusion filing with the NFA. This disclosure also should be included in such documents on a going-forward basis.

Registered Investment Companies

The CFTC amended CFTC Rule 4.5(a)(1) to change the entity that is excluded from the definition of CPO from “the investment company registered as such under” the 1940 Act to the investment adviser to the registered fund. This change aligns the exclusion with the CFTC’s stated expectation that the registered fund’s investment adviser would be the appropriate entity to operate, in a registered CPO capacity, a registered fund that cannot meet the conditions of the CFTC Rule 4.5 exclusion.6

Change of CPO Exclusion Filings for Registered Funds

New CFTC Rule 4.5 exclusion notices that are filed electronically with the NFA on or after the January 9, 2020 effective date of the rule change will need to be filed identifying the investment adviser (rather than the registered fund) as the excluded CPO.

CFTC Rule 4.5(a)(1) historically has identified the registered fund as the excluded CPO, and CFTC Rule 4.5(b)(1) identified the “qualifying entity” as the registered fund as well. As a result, for a registered fund that is a series of a multi-series Delaware or Massachusetts statutory or business trust or Maryland corporation (or has a similar structure), the CFTC Rule 4.5 exclusion notices often identified the trust or corporation as the excluded CPO, and the individual series as the commodity pool or “qualifying entity” for which the CPO was excluded. For a registered fund that is a stand-alone trust or corporation and does not use the series structure (including many registered closed-end funds), the CFTC Rule 4.5 exclusion notices often have identified the registered fund as both the excluded CPO and the commodity pool. However, other CFTC Rule 4.5 exclusion notices have identified the investment adviser to the registered fund as the excluded CPO and the registered fund (whether a separate series or a stand-alone entity) as the qualifying entity, consistent with amended Rule 4.5(a)(1).

Compliance Period

Recognizing the potential burden of changing the required filings in the NFA exemptions system, the CFTC is permitting registered funds currently relying on CFTC Rule 4.5 until March 1, 2021 to come into compliance. During the exclusion reaffirmation process at the end of 2020 and beginning of 2021, the CFTC expects that investment advisers will: file new notices identifying the relevant investment adviser as the excluded CPO; and then allow the existing notice identifying the trust/corporation/registered fund as the excluded CPO to expire. Registered funds also will need to review their related disclosures to ensure that this change is reflected, if necessary.

It is suggested that investment advisers not try to effect this change during the 2019-2020 reaffirmation period currently underway. Rather, they should wait until the NFA has had the time to make updates to its Electronic Filings System to accommodate the changes to CFTC Rule 4.5(a)(1). If attempted now, the process would involve the necessity of: creating a co-CPO relationship in the NFA exemptions system between the investment adviser and the trust or company, as applicable; filing a new notice with the NFA; and then contacting the NFA exemptions staff via email to request that the relationship between the trust/company and its series be terminated.

Family Offices

The CFTC amended CFTC Rules 4.13 and 4.14 to codify CPO and CTA registration exemptions, respectively, for family offices and family clients meeting the definitions of the same terms under Rule 202(a)(11)(G)-1 of the Investment Advisers Act of 1940 and which trade in commodity interests. These amendments codify CFTC staff no-action relief under CFTC No-Action Letters No. 12-37 and 14-143, on which family offices have been able to rely since 2012 and 2014, respectively.

The CPO and CTA registration exemptions are self-executing. As such, there is no notice filing requirement in order to rely on these exemptions.

Recordkeeping Considerations for Family Offices

Exempt family offices now will be subject to the same recordkeeping requirements and special call authority of the CFTC as set forth in CFTC Rules 4.13 and 4.14, which are applicable to all other exempt CPOs and CTAs relying on these rules. With regard to records, an exempt family office will be required to maintain records prepared in connection with its activities as an exempt CPO or CTA for five years after the first date of preparation (during the first two of which, the records must be kept in a readily accessible location).

In addition, because the rule amendments supersede the no-action relief, exempt family offices will need to create and maintain an internal record documenting the exemption on which they are relying, as well as their qualifications for the relevant exemption. This record needs to be created as soon as practicable after January 9, 2020.

Implications for Registered CPOs and CTAs Doing Business with Registered Funds, BDCs and Family Offices

The CFTC exclusion and exemption changes affecting registered funds, BDCs and family offices could have implications for the registered CPOs and CTAs where registered funds, BDCs or family offices invest with registered CPOs and CTAs. NFA Bylaw 1101 prohibits any NFA member (which would cover all registered CPOs and most registered CTAs) from doing futures trading-related business with any entity that is required to be registered with the CFTC, unless the latter entity: is registered with the CFTC and an NFA member; or is appropriately exempt. Registered CPOs and CTAs generally establish the registered or excluded/exempt status of investors and clients by requesting that certain representations be made in subscription agreements and/or other account-opening documents. Because the registered CPO or CTA must assess the reasonableness of the response the investor or client provides, these representations often require the investor or client to cite the exemption or no-action relief on which it is relying. To the extent that the CFTC Part 4 rule changes would change those representations (i.e., because BDCs will no longer be relying on no-action relief but instead will rely on an exclusion that the BDC’s investment adviser must claim), registered CPOs and CTAs may need to amend the representations they request from their investors and clients.

JOBS Act Amendments

The CFTC amended CFTC Rules 4.7(b) and 4.13(a)(3) to: codify relief permitting general solicitation as contemplated by the JOBS Act, SEC Regulation D and SEC Rule 144A for commodity pools operated by CPOs that claim relief under such CFTC rules; and eliminate the necessity to submit any additional notice beyond that already required to claim relief under such CFTC rules.

The amendments remove marketing restrictions from Rules 4.7(b) and 4.13(a)(3), which historically have prevented a CPO operating a commodity pool under such rules from engaging in general solicitation or general advertising. Certain general solicitation and advertising activities are otherwise permissible in accordance with provisions of Regulation D and Rule 144A that were adopted in accordance with the requirements of the JOBS Act. CFTC Exemptive Letter No. 14-116 provided relief for CPOs to rely on Rules 4.7(b) and 4.13(a)(3) even if the CPOs or their resellers engaged in certain general solicitation and marketing activities in accordance with Regulation D or Rule 144A. Among other things, the relief was conditioned on the CPO filing a notice with the CFTC staff, claiming the relief in writing.

The rule amendments supersede the no-action relief. Under the amended rules, the ability for CPOs operating pools in reliance on CFTC Rules 4.7(b) and 4.13(a)(3) to engage in general solicitation and general advertising as contemplated by the JOBS Act, Regulation D and Rule 144A is now self-executing.

Changes to Scope of the Definition of “Reporting Person” for CFTC Forms CPO-PQR and CTA‑PR

The CFTC amended CFTC Rule 4.27(b) to remove the requirement that registered CPOs and registered CTAs, which operate only in the capacity as exempt CPO or CTA, file CFTC Forms CPO-PQR and CTA-PR. These changes codify exemptive relief that has been available to such registered CPOs and CTAs through CFTC Exemptive Letters No. 14-115 and 15-47.

The CFTC Rule 4.27(b) amendment narrows the types of CTAs that must file CFTC Form CTA-PR to those CTAs operating in their registered capacity. As a result, the rule amendment goes further than the previous exemptive relief – the amendment also excludes from the CFTC Form CTA-PR filing requirement a registered CTA that acts only in an exempt capacity in reliance on CFTC Rule 4.14(a)(4) and (a)(5), because the CTA is advising commodity pools for which it also serves as the registered or exempt CPO, respectively. Under the previous exemptive relief, CFTC Form CTA-PR relief was only available to CTAs that were not considered to be directing any client accounts. Registered CTAs that also conducted registered or exempt CPO business could not qualify for the relief and thus needed to file a CFTC Form CTA-PR filing, generally consisting of all zeros. The CFTC determined that the value of such a filing would be outweighed by the additional burden imposed on the CTA to make this extra filing.

Taking Advantage of the New Reporting Relief

The NFA administers the CFTC Forms CPO-PQR and CTA-PR filing process. As of the publication of this Dechert OnPoint, the NFA has not yet published guidance for registered CPOs and CTAs as to how to notify the NFA that the entity is eligible for the carve-out from being a reporting person. Previously, CTAs that were eligible for the CFTC Form CTA-PR reporting relief indicated so in their annual NFA CTA Questionnaire.7


Although there will be some work that needs to be done to implement these changes, the rulemakings are intended to: (1) simplify the regulatory landscape for CPOs and CTAs without reducing the protections or benefits provided by those regulations; (2) increase public awareness about registration and filing relief available, by incorporating commonly relied-upon no-action or exemptive relief in CFTC regulations; and (3) generally reduce the regulatory burden of CFTC regulations without sacrificing the CFTC’s customer protection and other regulatory interests.


1) Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors: Registered Investment Companies, Business Development Companies, and Definition of Reporting Person, 84 Fed. Reg. 67343 (Dec. 10, 2019); Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors: Family Offices and Exempt CPOs, 84 Fed. Reg. 67355 (Dec. 10, 2019). Although proposed together in October 2018, the CFTC published the rule amendments in these two separate releases.

2) For further information regarding the October 2018 proposed rulemaking, please refer to Dechert OnPointCFTC Proposes Amendments to Regulatory Framework for Certain CPOs and CTAs and New Exemption for CPOs of Non-U.S. Pools. Notably, the CFTC is withdrawing an aspect of the October 2018 proposed rulemaking that would have codified an exemption from CPO registration based on CFTC Advisory 18-96. The CFTC also did not act on another aspect of the proposed rulemaking that would have added a statutory disqualification prohibition to CPOs (and their principals) operating under CFTC Rule 4.13(a)(1) – (a)(5). The CFTC stated that it intends to further consider comments on the statutory disqualification proposal and to reconsider the relevant proposed rule amendments.

3) See CFTC Division of Swap Dealer and Intermediary Oversight Responds to Frequently Asked Questions – CPO/CTA: Amendments to Compliance ObligationsSee also CFTC Letter No. 04-13.

4) CFTC No-ActionLetter No. 12-40.

5) Similar to the text of CFTC Rule 4.5(a)(1) prior to the effective date of the amendments discussed in this OnPoint, Letter 12-40 did not specify which entity: would be appropriate to be the excluded CPO of a BDC; and should file the claim of no-action relief with the CFTC as required under Letter 12-40. Historically, certain BDCs have filed the claim in the name of the BDC rather than in the name of the investment adviser to the BDC.

6) See Commodity Pool Operators and Commodity Trading Advisors: Compliance Obligations, 77 Fed. Reg. 11252 (Feb. 24, 2012).

7) Relief from CTA-PR Filing Requirement for Commodity Trading Advisors that DO NOT Direct Trading of Commodity Interest Accounts, NFA Notice to Members No. I-15-19 (July 30, 2015).

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