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On August 14, 2012, the Commodity Futures Trading Commission
(the "Commission" or "CFTC")'s Division of
Swap Dealer and Intermediary Oversight ("DSIO") released
a set of responses to frequently asked questions (FAQs) concerning
compliance obligations for commodity pool operators (each, a
"CPO") and commodity trading advisors (each, a
"CTA") under the Commission's Part 4
rules,1 which were significantly amended several months
ago.
Among other things, the FAQs address various questions and
topics, including the circumstances under which an unregistered
person or entity such as a general partner, a managing member or a
board of directors may delegate its rights and obligations as a
pool's CPO to a separate registered CPO who assumes such rights
and obligations and who instead serves as the pool's CPO;
whether a wholly-owned subsidiary of a commodity pool trading in
CFTC-regulated derivatives is itself a pool; Forms CPO-PQR and
CTA-PR; the trading limits under Rule 4.13(a)(3), commonly known as
the "de minimis" exemption from CPO registration; and
transitioning issues for CPOs operating pools pursuant to Rule
4.13(a)(4) who plan to operate such pools pursuant to Rule 4.7 or
CFTC Advisory No. 18-96.
The FAQs provide helpful guidance on certain issues, including,
as noted above, that an unregistered CPO may delegate its rights
and obligations to a registered CPO, subject to the delegating
entity remaining jointly and severally liable with respect to any
violation of the Commodity Exchange Act. This flexibility could
enable fund managers to operate their pools under a single CPO
registration rather than having to operate them under multiple CPO
registrations. The FAQs also clarify certain aspects of the
application of the trading limits under Rule 4.13(a)(3), including
that the tests are applied at the time a position is established,
so that a fund is not required to exit or otherwise reduce its
positions to maintain compliance. In addition, the FAQs confirm
that the CPO of a fund of funds may continue to rely on the
guidance in former Appendix A to the Part 4 rules with respect to
the application of the trading limits under Rule 4.13(a)(3) until
such time as the Commission adopts revised guidance.
The FAQs do, however, set forth the staff's position that a
wholly-owned subsidiary of a commodity pool trading in
CFTC-regulated derivatives is itself a separate commodity pool.
DSIO staff anticipates supplementing or revising the FAQs as
needed.
We will continue to monitor and report on developments in this
area.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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