The CFTC Division of Market Oversight ("DMO") clarified the circumstances under which an investor in commodity pools may qualify for disaggregation relief. The guidance concludes that relief should apply to a "passive investor, who has no ability to control the trading decisions of a commodity pool in which it invests."
The guidance was issued in response to a request from a large institutional investor (the "Investor") asking for confirmation of its view that, after qualifying for aggregation exemption, it would also be exempt from the requirement to "aggregate commodity interest positions of an underlying Portfolio Company" that the pool is invested in.
According to the letter, the Investor qualifies as a "passive investor" in certain funds that are defined as commodity pools. However, the Investor holds approximately 25 percent of the capital commitment to such funds and, therefore, is also able to acquire 10 percent or more of "indirect ownership interest in an underlying Portfolio Company through its investment in a Fund." The Investor countered that it does not control the funds' operations or investment decisions, nor does it know the commodity interest trading plans of a prospective Portfolio Company investing in the funds.
Based on the Investor's limited involvement, DMO concluded that when the Investor qualifies for an aggregation exemption, the exemption will extend to the Investor's 10 percent direct interest (via the Fund) in uncontrolled operating companies. In so holding, DMO noted that the aggregation requirement generally is limited to "situations where the owner is, in view of the circumstances, actually able to control the trading of the owned entity."
DMO added that this exemption would not apply in circumstances where (i) "the investor controls or directs trading directly or indirectly, or trades in concert with [another] portfolio company pursuant to an express or implied agreement," or (ii) "a passive investor invests in alternative or parallel funds to with the intention to circumvent position limits."
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