Back To The Futures: CFTC's No-Action Letter Largely Reinstates 2003's Regulation 4.13(a)(4) On An Interim Basis

In a no-action letter issued on December 19, 2025¹ (NAL), the staff of the Market Participants Division (MPD) of the Commodity Futures Trading Commission (CFTC) reinstated the exemption from commodity pool operator (CPO) registration formerly set forth in CFTC Regulation 4.13(a)(4) (QEP Exemption) for certain investment advisers registered with the Securities and Exchange Commission (SEC) as an interim measure while the staff considers further rulemaking. The staff also provided corresponding relief from the commodity trading advisor (CTA) registration requirements.

Background

The CFTC originally adopted the QEP Exemption in CFTC Regulation 4.13(a)(4) in 2003 with the purpose of encouraging and facilitating participation in the commodity interest markets by eliminating duplicative, overlapping, and conflicting regulatory requirements that would otherwise be applicable to SEC-registered private fund managers. However, in 2012, the CFTC rescinded the QEP Exemption in an effort to enhance its oversight following the adoption of the Dodd-Frank Act. Based on the MPD's experience since the recission of the QEP Exemption and consistent with the original rationale for adopting the QEP Exemption, the MPD has determined that its no-action position is warranted while the CFTC considers whether to reinstate the QEP Exemption.

No-Action Position

Until the CFTC promulgates rules, or publicly determines not to promulgate rules, addressing the reinstatement of the QEP Exemption, the MPD will not recommend an enforcement action against any investment adviser that (1) fails to register with the CFTC as a CPO, or (2) withdraws from registration with the CFTC as a CPO, subject to the following conditions:

• The investment adviser is registered with the SEC as an investment adviser (the NAL does not apply to investment advisers relying on exemptions from SEC registration, such as "exempt reporting advisers");
• The interests of the pool(s) operated by the investment adviser are exempt from registration under the Securities Act of 1933 (Securities Act);
• The interests of the pool(s) operated by the investment adviser are sold without marketing to the public in the United States (or are offered under the safe harbor afforded by Rule 506(c) of Regulation D under the Securities Act);
• The investment adviser reasonably believes at the time of investment, or at the time of relying on the NAL, that each pool participant meets the definition of qualified eligible person (QEP) set out in CFTC Regulation 4.7(a)(6);²
• The investment adviser files a Form PF with the SEC with respect to the pool(s) covered by the NAL, which is received by the CFTC;
• The investment adviser makes and keeps all books and records prepared in connection with its activities as a pool operator for a period of five years from when the records are prepared and keeps such records readily accessible for regulatory inspection;
• The investment adviser files a notice with the CFTC via email at mpdnoaction@cftc.gov that it is relying on the NAL; and
• The investment adviser reaffirms its eligibility for relief on an annual basis.

The MPD further stated that it will not recommend an enforcement action against an investment adviser that fails to register, or withdraws from registration, as a CTA solely with respect to the pools for which such investment adviser qualifies for, and relies on, the relief provided by the NAL.

Finally, the MPD confirmed that an investment adviser will not be required to offer all participants of the pool(s) with respect to which it is relying on the NAL an automatic right to redeem their interests in the pool(s), as would be required if a CPO withdrew its registration as a CPO in reliance on the de minimis exemption from CPO registration under CFTC Regulation 4.13(a)(3).

The NAL is expressly intended to be consistent with the regulatory philosophy articulated in Executive Order 13777, which directed agencies to "identify regulations that eliminate jobs, or inhibit job creation; are outdated, unnecessary, or ineffective; impose costs that exceed benefits; or implement more stringent standards than required by law." This determination by the MPD to reinstate the basic concepts of the former QEP Exemption under CFTC Regulation 4.13(a)(4), which had been widely relied on, opens up the ability of many private funds to qualify for exemption because, unlike the de minimis exemption in CFTC Regulation 4.13(a)(3) (which imposes a derivatives usage limit as a condition of the exemption), the QEP Exemption recognizes that operators of pools marketed exclusively to sophisticated investors do not require the same level of regulatory oversight. We expect that many private fund managers who advise commodity pools will find this to be a welcome reversion to the prior regulatory approach. We will continue to watch for formal rule-making in this area, which clearly has the attention of the CFTC.

Footnotes

1 See CFTC Letter No. 25-50 (available at https://www.cftc.gov/csl/25-50/download). See also Request for No-Action Relief from Commodity Pool Operator Registration for Certain Investment Managers to Qualified Eligible Persons (available at https://www.cftc.gov/csl/25-50/request_letter/0/download).

2 The requirement is automatically met with respect to any pool that is not required to register as an "investment company" in reliance on the exclusion from the definition of this term under Section 3(c)(7) of the Investment Company Act of 1940 and have only "qualified purchasers" (as defined in the Investment Company Act of 1940) and "knowledgeable employees" (as defined in the Investment Company Act of 1940) as investors because qualified purchasers and knowledgeable employees are QEPs under CFTC Regulation 4.7(a)(6)(i)(H) and (I) without being required to meet the Portfolio Requirement under CFTC Regulation 4.7(a)(5).

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