By letter dated November 29, 2012,1 the Commodity Futures Trading Commission (CFTC) granted time-limited no-action relief for fund of funds operators that would be deemed commodity pool operators and required to register as a result of their indirect exposure to commodity interests2 until such time as the Division of Swap Dealer and Intermediary Oversight (the Division) issues revised guidance on the application of the de minimis thresholds to fund of funds operators in the context of Regulations 4.5 and 4.13(a)(3). Pursuant to the no-action relief, the Division will not recommend enforcement action against commodity pool operators of funds of funds for failure to register as such until the later of June 30, 2013, or six months from the date that the Division issues revised guidance on the application of the calculation of de minimis thresholds in the context of Regulations 4.5 and 4.13(a)(3). However, such operators must file a claim with the CFTC for relief prior to December 31, 2012, in order to obtain this relief.

The CFTC Letter responds to concerns expressed by fund of funds operators that material changes to the Commission’s Appendix A guidance3 might pose significant operational challenges, especially given the reliance by fund of funds sponsors on underlying fund operators to manage their commodity interest exposures and concerns surrounding both the level of transparency and frequency of reporting provided by underlying fund sponsors regarding their commodity interest exposures. Such information is critical in order for certain fund of funds managers to timely calculate their indirect and aggregate exposures (if direct exposures exist at all) to commodity interests when evaluating compliance with CFTC guidance in Appendix A. Additional operational challenges also are expected to arise as fund of funds operators reallocate among underlying funds in an effort to comply with Regulation 4.13(a)(3) and amended Regulation 4.5 de minimis requirements. 

In order to take advantage of the time-limited no-action relief, fund of funds operators must submit a claim to the CFTC and remain in compliance with the following criteria:

  • The commodity pool operator currently structures its operations in whole or in part as a commodity pool operator of one or more “funds of funds”;
  • The amount of commodity interest positions to which the Investor Fund is directly exposed does not exceed the levels specified in Commission Regulation 4.5 or 4.13(a)(3)(ii)(A) or (B);
  • The commodity pool operator does not know, and could not have reasonably known, that the fund of fund’s indirect exposure to commodity interests derived from contributions to underlying funds exceed the levels specified in Commission Regulations 4.5 or 4.13(a)(3)(ii)(A) or (B), either calculated directly, or through the use of Prior Appendix A; and 
  • The commodity pool for which the commodity pool operator seeks relief is either:
    • an investment company registered as such under the Investment Company Act of 1940 or
    • compliant with the provisions of CFTC Regulation 4.13(a)(3) (i), (iii) and (iv).

This relief is not self-executing. An eligible commodity pool operator must file a claim to perfect the relief. A claim submitted by a commodity pool operator will be effective upon filing, so long as the claim is materially complete.

The claim of no-action relief must (i) state the name, main business address and main business telephone number of the commodity pool operator claiming the relief; (ii) state the capacity (i.e., CPO) and the name of the pool(s), for which the claim is being filed; (iii) be signed by the commodity pool operator and (iv) be filed with the Division prior to December 31, 2012 via email using the email address “” and stating “Fund-of-Funds” in the subject line of such email.

The relief issued by the CFTC Letter does not excuse the affected persons from compliance with any other applicable requirements contained in the Commodity Exchange Act or in the Commission’s regulations issued thereunder, including disclosure obligations and the antifraud provisions of the Commodity Exchange Act.

For more information about the topics raised in this Legal Update, please contact any member of our Corporate and Securities practice or Rory M. Cohen at +1 212 506 2587, Elizabeth M. Knoblock at +1 202 263 3263, or J. Paul Forrester at +1 312 701 7366. 

1 CFTC Letter No. 12-38, “Re: Request for Delayed Compliance Date of Amended Part 4; Rescission of Former Appendix A”, November 29, 2012.
2 The ability to measure indirect exposures has become even more challenging due to the expanded scope of “commodity interests” subject to CFTC jurisdiction to include non-security based swaps. See “Further Definition of ‘Swap,’ ‘Security-Based Swap,’ and ‘Security-Based Swap Agreement’; Mixed Swaps; Security-Based Swap Agreement Recordkeeping,” 77 Fed. Reg. 48207 (August 13, 2012). The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) defines the term “swap” by adding section 1a(47) to the Commodity Exchange Act, 7 U.S.C. 1a(47). Title VII of the Dodd-Frank Act directs the CFTC and the Securities and Exchange Commission to define these terms. Pub. L. No. 111-203, 124 Stat. 1376 (2010). 
3 Prior Appendix A was removed from Part 4 of the Commission’s Regulation and replaced by Form CPO-PQR in “Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations” 77 FR 11252 (Feb. 24, 2012).