sign in sign up
<<
Home , Investment fund

Client ALERT December 2002 Proposed Exemptions from and Commodity Trading Advisor Registration

Introduction CFTC adopt new CPO and CTA reg- from registration as a CPO as In general, unless exempt an operator istration exemptions. described above; of an pool (including pri- CPO Exemption. Under the NFA’s l is solely incidental to the person’s vate investment funds) that trades proposal, a person would not be business of providing investment futures contracts or options on required to register as a CPO if: advice regarding instruments that are futures (“financial commodities”) either exempt or excluded from l the pool’s use of financial com- must be registered with the CFTC as CFTC regulation (e.g., securities); and modities (other than solely for bona a commodity pool operator (“CPO”) fide hedging purposes) is limited to l is consistent with the pool’s and/or a commodity trading advisor no more than 5% ofthe pool’s liqui- exempt status under the above (“CTA”). dation value; described CPO exemption. The Commodity Futures Trading l the pool is not marketed to the In addition, the person seeking the Commission (the “CFTC”) recently public as a commodity pool; exemption must not hold itself out as proposed new exemptions from regis- a CTA, must submit to CFTC calls to tration as CPO and CTA aimed at l the pool limits participation to provide information, and must file a persons who engage in limited finan- “accredited ,” as defined in notice of exemption with the CFTC. cial commodity trading activities.1 Regulation D under the Securities Act The CFTC is also providing tempo- of 1933 (the “Securities Act”); The Managed Funds Association rary immediately available no- l the purpose and scope of the Proposal action relieffrom CPO and CTA reg- pool’s financial commodity trading is istration for persons who meet speci- CPO Exemption.The Managed Funds disclosed to each prospective pool Association (the “MFA”) has pro- fied criteria pending final action on participant; the proposed exemptions.The CFTC posed an exemption applicable to must receive comments on its propos- l the operator submits to calls by pool operators that limit participation als by January 13, 2003. the CFTC to demonstrate its compli- in pools to “qualified eligible per- ance with the exemption; and sons,” as defined in the Commodity Certain exemptions from the CPO Exchange Act (the “Act”), and to cer- l the operator maintains its exempt registration requirement already exist. tain “accredited investors,” as defined pool related books and records for For example, CFTC Rule 4.13 in Regulation D under the Securities five years. exempts operators of small pools that Act. The exemption would apply to do not advertise the pool or receive A person exempt from registration persons who: compensation for operating the pool. under this proposal would need to l operate pools that are exempt CFTC Rule 4.5 exempts persons deliver a written disclosure regarding from registration under the Securities operating certain types of “qualify- the exemption to prospective partici- Act and that are not marketed to the ing” pools (including registered mutu- pants in the pool before soliciting or public in the U.S.; al funds,but excluding private invest- accepting funds, securities or proper- ment funds) who limit their use of ty.The operator must also file this l reasonably believe that all indi- financial commodities (other than for disclosure with the CFTC and the vidual pool participants (i.e.,natural bona fide hedging purposes) to five NFA. persons) are “qualified eligible per- percent of the liquidation value of sons”; CTA Exemption.The NFA has also the pool’s . proposed a corresponding registration l reasonably believe that all entity exemption for CTAs.As proposed, a pool participants are qualified eligible The National Futures persons or accredited investors; and Association Proposal person need not register as a CTA if the commodity trading advice: The National Futures Association l are not subject to certain disqual- (the “NFA”) has proposed that the l is directed solely to commodity ifications. pools operated by a person exempt

Paul, Hastings,Janofsky & Walker LLP 1 The CFTC proposing release is available at http://www.cftc.gov/files/opa/press02/opa17cfrpart4.pdf. Under the proposed exemption, the exceed 50% of the liquidation value Robert A. Boresta 212-318-6272 pool operator would remain subject of the pool’s portfolio. [email protected] to the Act’s anti-fraud and anti- CTA Registration No-Action Relief.The Gary D. Rawitz 212-318-6877 manipulation provisions, and the CFTC will not commence enforce- [email protected] operator must deliver to pool partici- ment action for failure to register as a pants certified year-end financial Kathleen D. Fuentes 212-318-6569 CTA if the adviser: statements within 180 days after the [email protected] z claims no-action relief from end of each fiscal year. The operator Brian F. Hurley 212-318-6531 CPO registration and its commodity would also be required to file these [email protected] statements and a notice of eligibility trading advice is directed solely to with the CFTC, and must submit to pools it operates; or Arlene A. Morris 212-318-6042 [email protected] calls by the CFTC to demonstrate z is registered as an investment compliance. adviser with the SEC or with a state Joseph M. Morriseey 212-318-6917 The MFA proposal does not include a securities regulatory agency, or it is [email protected] corresponding exemption for registra- exempt from such registration, so Christopher Tafone 212-318-6713 tion as a CTA. as the adviser does not hold [email protected] itself out as a CTA, and the adviser’s commodity interest trading advice: Matthew J. van Wormer 212-318-6962 No-Action Relief [email protected] The CFTC has issued temporary, - is directed solely to pools immediately available, no-action whose operators claim no-action In Los Angeles exemptive relief from CPO and CTA registration relief; Robert E. Carlson 213-683-6299 registration while the proposed [email protected] - is solely incidental to its exemptions are under review. To business of providing securities Michael Glazer 213-683-6207 claim this relief, an operator or advis- advice to such pools; and [email protected] er must file a claim notice with the CFTC and the NFA and disclose the - employs only strategies Chad Conwell 213-683-6158 claim to its prospective and existing consistent with the “notional [email protected] pool participants. Materially complete test” under the CPO no action Laurie Dee 213-683-6163 claims will be effective upon filing. relief. [email protected] The no-action relief appears to Persons who have filed an effective In San Francisco apply only with respect to invest- claim of no-action relief will remain ment pools and not to separately subject to the Act’s prohibitions Julie Allecta 415-856-7006 managed accounts. against fraud. Any final action taken [email protected] CPO Registration No-Action Relief.The by the CFTC on the proposed David A. Hearth 415-856-7007 CFTC will not commence enforce- exemptions will supersede this no- [email protected] action relief, and persons relying on ment action for failure to register as a Mitchell E. Nichter 415-856-7009 the no action relief will have a “suffi- CPO if: [email protected] cient” period of time either to com- z participation in the pool is ply with the final exemption provi- Lawrence S. Hing 415-856-7034 restricted to accredited investors, as sions, or register as a CPO and/or [email protected] defined in Regulation D under the CTA. Securities Act, knowledgeable Catherine MacGregor 415-856-7068 employees, as defined in the If you need assistance in determining [email protected] Act of 1940, whether the proposed exemptions or no- Adam Mizock 415-856-7094 non-U.S. persons, as defined under action position apply to your [email protected] the Act, and the operator and adviser operations, please contact a member of our Thao H. Ngo 415-856-7049 and their affiliates and employees; and Group. [email protected] z the aggregate notional value of In New York the pool’s commodity interest posi- Michael R. Rosella 212-318-6800 In Washington, D.C. tions, whether or not entered into for [email protected] Wendell M. Faria 202-508-9574 bona fide hedging purposes, does not [email protected]

Client Alert is published solely for the interest of friends and clients of Paul, Hastings, Janofsky & Walker LLP and should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. Paul, Hastings, Janofsky & Walker LLP is a limited liability partnership.