CFTC Streamlines Requests for CPO Relief | Practical Law

CFTC Streamlines Requests for CPO Relief | Practical Law

The CFTC has established a streamlined approach that it will use going forward in considering requests for relief from CFTC commodity pool operator (CPO) registration requirements for entities that delegate certain duties to CFTC-registered CPOs.

CFTC Streamlines Requests for CPO Relief

Practical Law Legal Update 7-567-9685 (Approx. 4 pages)

CFTC Streamlines Requests for CPO Relief

by Practical Law Finance
Published on 14 May 2014 • USA (National/Federal)
The CFTC has established a streamlined approach that it will use going forward in considering requests for relief from CFTC commodity pool operator (CPO) registration requirements for entities that delegate certain duties to CFTC-registered CPOs.
On May 12, 2014, the CFTC's Division of Swap Dealer and Intermediary Oversight (DSIO) released Staff Letter No 14-69 (Letter 14-69), establishing a streamlined approach that it will use going forward in considering requests for relief from CFTC commodity pool operator (CPO) registration requirements under section 4m(l) of the CEA for entities that delegate certain duties to CFTC-registered CPOs.
This approach will allow the DSIO to more efficiently address the numerous requests for relief in this area. The DSIO stresses that Letter 14-69 does not provide any actual relief, but merely establishes circumstances under which it intends to provide relief. The CFTC will continue to evaluate requests for relief in situations involving circumstances in which parties are unable to utilize the approach set out in Letter 14-69 but which still may warrant relief from CPO registration.
A request for no-action relief from CPO registration through the streamlined approach will be limited to certain circumstances and subject to certain conditions including that the "delegating" CPO (the CPO requesting relief):
  • Has delegated to the other CPO (the "designated" CPO) all of its investment management authority with respect to the commodity pool.
  • Does not participate in the solicitation of participants for the commodity pool.
  • Does not manage any property of the commodity pool.
  • Is not subject to a statutory disqualification.
Additionally, the following conditions must be met:
  • The designated CPO is registered as a CPO.
  • There is a business purpose for the designated CPO being a separate entity from the delegating CPO that is not solely to avoid registration by the delegating CPO under the CEA and the CFTC's regulations.
  • The books and records of the delegating CPO with respect to the commodity pool are maintained by the designated CPO.
  • If the delegating and designated CPO are each a non-natural person, then one such CPO controls, is controlled by, or is under common control with the other CPO.
  • The delegating CPO, whether a natural or non-natural person, has executed a legally binding document with the designated CPO whereby each agrees to be jointly and severally liable for a violation of the CEA or the CFTC's regulations by the other in connection with the operation of the commodity pool.
  • If a delegating CPO is an unaffiliated board member, the board member must be subject to liability as a board member in accordance with the laws under which the commodity pool is established.
In order to request relief under the streamlined approach, the delegating CPO must submit a no-action request using the form included in Letter 14-69 to submit a request for relief pursuant to CFTC Regulation 140.99. The request must include the:
  • Name, main business address and telephone number and name of a contact person for each of the delegating CPO(s) and the designated CPO(s).
  • The National Futures Association (NFA) ID number of the designated CPO.
  • The name(s) of the commodity pool(s) for which relief is sought.
  • A representation that the applicable criteria are met.
  • A statement from the designated CPO acknowledging that it has been designated as the registered CPO of the commodity pool(s) and that it satisfies the applicable criteria.
Update:
  • On May 16, 2014, the CFTC, in No-action Letter 14-71, granted relief to a delegating CPO from the requirement to register as a CPO after the CPO requested relief in accordance with the streamlined approach for delegating CPOs described in CFTC No-action 14-69.
  • On June 2, 2014, the CFTC, in Form of Reply for CFTC Letter No. 14-75, 14-76, 14-77, 14-78, 14-79, 14-80, 14-81, 14-82, 14-83, and 14-84, No-Action, provided additional relief for delegating CPOs for failure to register as a CPO under CEA Section 4m(l) in connection with the operation of the pool as long as:
    • the designated CPO serves as the CPO of the pool(s);
    • the designated CPO remains registered as a CPO; and
    • the delegating CPO(s) and designated CPO continue to meet the criteria as represented in Letter 14-69.