Earlier this year the Commodity Futures Trading Commission (CFTC) adopted final rules amending certain registration and compliance obligations of commodity pool operators (CPOs) and commodity trading advisors (CTAs).  Among other changes, the CFTC’s final rules rescind various exclusions from CPO registration, increase disclosure requirements for CTAs and CPOs, and increase various reporting requirements by registrant firms.  This article will summarize what we perceive to be the most important provisions contained in the CFTC’s final rules affecting CTAs and CPOs.  Except where otherwise noted, compliance with the following rule amendments is required by December 31, 2012.  We encourage you to seek assistance if you have any questions regarding how these final rules might affect your CTA or CPO.  The information set forth in this guide is not intended to be all-inclusive and does not constitute legal advice.

What Implications Do the Final Rules Have on CPOs and CTAs?

The CFTC’s final rules make the following amendments to the registration and compliance obligations of CTAs and CPOs under Part 4 of the CFTC Regulations:

  • Thresholds & Restrictions Under 4.5. Reinstates a trading threshold and marketing restriction for registered investment companies claiming exclusion from the definition of a CPO under CFTC Regulation 4.5.  The purpose of this rule change is to curb what the CFTC perceives to be the occurrence of certain registered investment companies offering interests in de facto commodity pools while still claiming the 4.5 exclusion from registration.  All firms must be in compliance with the new rule by the later of December 31, 2012 or 60 days after the date on which CFTC regulations defining the term “swap” become effective.  For more information regarding this CPO exclusion for investment companies, please see our previous article entitled: (embed link) End of Commodity Fund and Advisor Exemptions?
  • Rescission of 4.13(a)(4). Rescinds the exemption from CPO registration under CFTC Regulation 4.13(a)(4) for interests offered only to qualified purchasers.  All pools currently relying on this exemption must either be registered or discontinue their activities by December 31, 2012.  For more information regarding this exemption, please see our previous articles entitled: (embed link) Money Manager and Fund Regulatory Exemptions and End of Commodity Fund and Advisor Exemptions?
  • 4.7 Annual Report Certification. Requires the certification of annual reports for pools operating under CFTC Regulation 4.7 for interests offered to qualified eligible participants (QEPs).  For more information regarding this limited purpose exemption, please see our previous article entitled: (embed link) Money Manager and Fund Regulatory Exemptions.
  • Accredited Investor Definition Revision. Incorporates the U.S. Securities and Exchange Commission’s (SEC) recently amended “accredited investor” definition into CFTC Regulation 4.7 for pools offering interests only to QEPs.  For more information regarding changes to the accredited investor definition, please see our previous article entitled: (embed link) Obama Threatens Forex; Says Goodbye to OTC Gold Trading.
  • Renewal of Exclusion and Exemption Filings. Requires all pools claiming relief under CFTC Regulations 4.5, 4.13 or 4.14 to file an annual renewal confirming their claim for the applicable exemption or exclusion from registration.  For more information regarding these exclusions and exemptions, please see our previous articles entitled: (embed link) Money Manager and Fund Regulatory Exemptions and End of Commodity Fund and Advisor Exemptions?
  • Increased Swap Disclosures. Increases the risk disclosure requirements for disclosure documents of CTAs and CPOs that engage in swap transactions as part of their trading program.  For a more complete description of the increased swap disclosure requirements, please refer to the CFTC’s final rules.  Link to the CFTC’s final rules provided here.
  • Increased 4.27 Reporting Requirements. Requires CTAs and CPOs to report additional information under CFTC Regulation 4.27 regarding their trading practices and to also complete new Forms CTA-PR and CPO-PQR, respectively.  The additional information to be provided to the CFTC by CTAs and CPOs includes information concerning the amount of assets under management, the use of leverage, counterparty credit risk exposure, and trading and investment positions for pools.  These new 4.27 rule amendments go into effect on July 2, 2012.  The reporting compliance dates vary depending on the entity involved and assets under management (AUM).

Further Guidance

CPOs and CTAs, as well as non-registered firms relying on the above exclusions and exemptions from registration, should keep themselves informed on developments in this area.  It would be prudent to contact a regulatory professional like Turnkey Trading Partners (TTP) to assist you in understanding and complying with the new rules.  TTP has the business acumen, as well as relationships with law firms, such as Henderson & Lyman, to provide you with the guidance you need to tackle these new final rules.

-James Bibbings and Nicole Kuchera


James Bibbings is the President and CEO of Turnkey Trading Partners (TTP), a firm that supports all commodity and forex specific regulatory and business needs. Prior to founding TTP, Bibbings worked with the National Futures Association (“NFA”) as a supervising auditor. During his time with NFA he was involved in approximately 100 investigative audits and was able to gain a deep working knowledge of FDM, FCM, IB, CTA, and CPO operations.  Since departing from NFA, Bibbings has owned and operated an independent introducing brokerage and participated in international forums on proposed CFTC regulatory requirements.  He has also provided financial markets content for Financial Times, Bloomberg, MSN, Yahoo, FinAlternatives, The Wall Street Journal’s Market Watch, Forex Journal, FX Street, and many other highly acclaimed investment publications.  Two highly sought after informational pamphlets regarding futures and forex registration authored by Bibbings are currently available for free upon request through his company website.  If you have any questions or comments for Bibbings he can be reached directly by email at james@turnkeytradingpartners.com and would love to hear from you.

Nicole Kuchera, JD, LLM is an Associate in Henderson & Lyman’s Financial Services Practice Group. She concentrates her legal practice on transactional and litigation support for securities, futures, forex and derivatives industry clients, such as Introducing Brokers, Commodity Trading Advisors, Commodity Pool Operators, Broker-Dealers, Investment Advisers, Futures Commission Merchants, Hedge Funds and Forex Dealer Members.  Ms. Kuchera counsels clients regarding a wide range of compliance and regulatory matters involving the rules and regulations of the SEC and the CFTC, as well as self-regulatory organizations and exchanges.  She also represents financial services industry clients in a wide range of litigation matters in various forums, including state and federal courts and in industry arbitrations and mediations.  Ms. Kuchera also represents clients in general corporate matters, such as business formation, licensing and industry registration.