22 August 2012
On August 14, 2012, the US Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight released a set of frequently asked questions and answers
regarding the changes to registration and compliance requirements for commodity pool operators (CPOs) and commodity trading advisors (CTAs) adopted earlier this year. Although the FAQs still leave a number of questions unanswered for certain market participants, they do address the following points, among others:
- A fund that predominantly invests in non-derivatives and that seeks to manage risk through de minimis swap positions is not prevented from claiming exemption under CFTC Regulation 4.13(a)(3) even if its first position is a swap that technically causes such fund to exceed the threshold limits under Regulation 4.13(a)(3). A CPO should have a “reasonable time” to comply with the trading thresholds. The CFTC Staff declined to define what a “reasonable time” would mean, but noted that a “reasonable time” may vary depending upon the facts and circumstances of each CPO and pool.
- The CFTC Staff confirmed that, although Regulation 4.13(a)(3) requires that the trading limits be complied with “at all times,” measurement of compliance need occur only at the time a commodities position is established. Thus, a CPO need not reconfigure its portfolio to comply with such limits solely in response to market movements that change the composition of its portfolio and technical adherence to the stated trading limits.
- The notional value for cleared and uncleared swaps is the amount reported by the reporting counterparty of the swap under Part 45 of the CFTC’s regulations.
- CPOs that wish to transition from being exempt under CFTC Regulation 4.13(a)(4) to being exempt under Regulation 4.13(a)(3) must first submit a written request to the National Futures Association (NFA) to withdraw the exemption under Regulation 4.13(a)(4). The NFA will then contact the CPO when the exemption has been withdrawn. The CPO may file the new exemption after the withdrawal is finalized and must provide notice to participants of the change of exemption.
- CPOs of funds-of-funds may continue to rely on Appendix A until the CFTC adopts revised guidance.