On August 23, 2012, the Commodity Futures Trading Commission
("CFTC") approved conforming amendments to Part 4 of its
regulations. Among other requirements, Part 4 requires the
registration of commodity pool operators ("CPOs") and
commodity trading advisors ("CTAs") unless such persons
are otherwise excluded or exempted. The conforming amendments
reflect changes made to the Commodity Exchange Act by the
Dodd-Frank Wall Street Reform and Consumer Protection Act
("Dodd-Frank"). These conforming changes will become
effective 60 days after their publication in the Federal
The purpose of the amendments is to clarify the applicability of
Part 4 regulations to swap activities. Although the CFTC is still
considering whether, for all purposes of the CFTC's
regulations, the term "commodity interest" would include
"swaps," the amendment makes it clear that for Part 4
purposes, "commodity interest" includes
"swaps." In particular, the amendment covers four
substantive categories of revisions:
Adding "Swap"-Related Terms to Part 4.
Various amendments have been made to the Part 4 provisions
specifying the activities to be undertaken by CPOs and CTAs because
of the inclusion of "swaps" as "commodity
interests." For example, Regulation 4.23(a)(1) is being
amended to include "swap type and counterparty" in the
itemized daily record that a CPO is required to maintain with
respect to a pool's commodity interest transactions. In
addition, "swap dealers" will also be among the persons
for whom CPOs and CTAs must provide information in their disclosure
documents. Other regulations are being amended to include
"swap dealers" within the group of persons to which
conflicts of interest must be disclosed by CPOs and CTAs. To the
extent that a CPO or CTA has availed itself of the
"registration lite" procedures under Regulation 4.7, such
CPO or CTA may be able to accept a registered "swap
dealer" as a pool participant or advisory client, as the case
may be, without regard to the size of its investment portfolio.
Such registered "swap dealer" would thereby be treated
the same as other CFTC-registered financial intermediaries.
Recordkeeping. As a result of the amendments to
Part 4, CPOs and CTAs will need to prepare and maintain books and
records of the swap transactions in which it engages not only on
behalf of its pool participants and clients but also for itself.
Moreover, each CPO and CTA will have to retain each acknowledgment
of a swap transaction received by it from a swap dealer.
Additionally, if a CPO or CTA is itself a counterparty to a swap
transaction, it will be subject to the swap data recordkeeping and
reporting requirements of Part 45 of the CFTC's regulations.
These requirements oblige swap dealers and major swap participants
to keep full, complete, and systematic records of all activities
relating to their swap business (or, in the case of a non-swap
dealer or non-major swap participant, relating to each swap to
which it is a counterparty).
Regulation 4.30 Exception. Regulation 4.30
generally prohibits CTAs from soliciting, accepting, or receiving,
from any existing or prospective client funds, securities or other
property in the trading advisor's name (or extending credit in
lieu thereof) to purchase, margin, guarantee, or secure any
commodity interest of the client. Certain
intermediaries—registered futures commission merchants,
leverage transaction merchants, and retail foreign exchange
dealers—have been excepted from the prohibitions
contained in Regulation 4.30. As a result of the amendment,
registered swap dealers who qualify as CTAs (i.e., because they are
not otherwise excluded from the definition of "commodity
trading advisor" by virtue of their activities) have been
added to the list of intermediaries that are not subject to the
prohibitions contained in this regulation.
Deletion of Regulation 4.32. The amendment deletes
Regulation 4.32, which dealt with trading by a registered CTA on or
subject to the rules of a derivatives transaction execution
facility for noninstitutional clients. This action was in response
to the adoption of Section 734(a) of Dodd-Frank, which repealed the
section of the Commodity Exchange Act that addressed the regulation
of derivatives transaction execution facilities (former Section
In addition to the foregoing, the CFTC also considered the economic
impact of the Part 4 revisions on small businesses under the
Regulatory Flexibility Act ("RFA"). It concluded that an
otherwise affected CPO or CTA would either be exempted from
registration (and, accordingly, the RFA would not apply to it)
under the "small pool" provisions of Regulation
4.13(a)(2) or, if not so exempt, would not be unduly burdened by
bringing swap activities within its existing disclosure, reporting,
and recordkeeping obligations.
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