United States: CFTC Update: CFTC Staff Issues No-Action Letter Concerning Relief From Rescission Of CFTC Rule 4.13(a)(4) And Amendments To Rule 4.5

On July 13, 2012, the Commodity Futures Trading Commission's Division of Swap Dealer and Intermediary Oversight (the "CFTC") issued a no-action letter¹ responding to a request for no-action relief submitted by the Managed Funds Association, the Investment Adviser Association, the Alternative Investment Management Association, Ltd., and the Investment Company Institute for additional time to comply with (i) the inclusion of swaps in the de minimis threshold calculation under CFTC Rule 4.13(a)(3) (and Rule 4.5 for registered investment companies) and (ii) the rescission of CFTC Rule 4.13(a)(4) (and the amendments to Rule 4.5 with respect to registered investment companies).

The CFTC staff declined to delay compliance of the inclusion of swaps within the de minimis threshold, confirming that swaps have to be included within the de minimis threshold under Rule 4.13(a)(3) (and Rule 4.5 for registered investment companies) by the later of December 31, 2012 or 60 days after the adoption of final rules defining the term "swap". Thus, because the CFTC adopted the rules defining the term "swap" on July 10, 2012,² commodity pool operators ("CPOs") will have to include swaps when performing the de minimis calculation under Rule 4.13(a)(3) beginning on December 31, 2012.

However, the CFTC staff granted no-action relief for CPOs and (commodity trading advisors (CTAs)) of new pools (i.e., pools launched after the issuance of the no-action letter) that would have been eligible for exemption under Rule 4.13(a)(4), subject to meeting the criteria in Rule 4.13(a)(4) and filing a notice of a claim for relief with the CFTC using an email address (rather than with the National Futures Association). The CFTC staff issued similar no-action relief for CPOs (and CTAs) of newly registered investment companies under Rule 4.5.

A claim for relief submitted by a CPO or CTA is effective upon filing, so long as it is materially complete. Pursuant to this relief, CPOs and CTAs will be able to launch new funds prior to the end of this year under the regulatory regime that existed before the CFTC's recent amendments to the Part 4 rules.³ The relief will be effective through December 31, 2012.

We will continue to monitor and report on developments in this area.

Footnotes

1 See CFTC Letter No. 12-03 (July 13, 2012).

2 See http://www.cftc.gov/ucm/groups/public/@newsroom/documents/file/federalregister071012c.pdf . For example, if these rules are published in the Federal Register on August 1, 2012, they will become effective on October 1, 2012.

3 See 77 Fed. Reg. 11252 (Feb. 24, 2012). The CFTC granted comparable treatment to operators of Rule 4.13(a)(4) exempt pools that were launched earlier this year and for which Rule 4.13(a)(4) notices were filed by April 23, 2012.

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