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Legal Update

CFTC Issues No-Action Relief to Manager of a Collateralized Loan Obligation for Failure to Register as a Commodity Trading Advisor

29 April 2014
Mayer Brown Legal Update

By Letter No. 14-57 dated April 11, 2014 (Letter), the US Commodity Futures Trading Commission (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) staff granted no-action relief to a manager (Manager) of a collateralized loan obligation (CLO) for failure to register as a commodity trading advisor (CTA) pursuant to Section 4m of the Commodity Exchange Act (CEA), 7 U.S.C. §6m, and the CFTC’s Regulation 3.4.

The Letter notes that the Manager is engaged by the CLO to provide investment advice for compensation and that the CLO is not a “commodity pool” pursuant to the CFTC’s Letters Nos. 12-14 and 12-45. The Letter also notes that the advice that the Manager provides to the CLO regarding hedging transactions on behalf of the CLO is, at most, “incidental” to the Manager’s core function, is not separately compensated and is a “peripheral,” rather than an essential, part of the CLO’s investors’ investment experience.

While noting that CTAs are generally required to register with the CFTC and that certain exceptions to such required registration are available, including that available under Section 4m for any person who, during the course of the preceding 12 months, has not furnished commodity trading advice to more than 15 persons and who does not hold itself out generally to the public as a CTA, the Letter states that the Manager does not want to avail itself of such exceptions, due in part to the additional obligations that are required to take advantage of certain exceptions.

The Letter grants the requested no-action relief to the Manager from the otherwise required registration, but expressly declines to provide broader interpretative relief. Specifically, the DSIO declined to provide an interpretation that the Manager’s activities in respect of the CLO issuer do not rise to a level that requires the Manager to register as a CTA. The DSIO also declined to provide an interpretation that the CTA registration requirements were never intended to apply to parties and transactions such as those described in the letter. As a result, CLO managers who believe they are similarly situated to the Manager, and who are not able or willing to comply with obligations under otherwise available exceptions to required registration as a CTA, should seek legal advice.

For more information about the topics raised in this Legal Update, please contact at +1 312 701 7366, at +1 212 506 2587, or at +1 212 506 2224.


  • J. Paul Forrester
    T +1 312 701 7366
  • Curtis A. Doty
    T +1 212 506 2224

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