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CFTC codifies relief for CPOs and CTAs, harmonizing rules with SEC

CFTC codifies relief for CPOs and CTAs, harmonizing rules with SEC

25 November 2019 8:15pm EST

The U.S. Commodity Futures Trading Commission held a public meeting Nov. 25 in Washington, D.C., to discuss final amendments to several sections of the agency's Part 4 rules. The amendments, which passed in two separate packages, provided registration and compliance relief to certain types of commodity pool operators (CPOs) and commodity trading advisors (CTAs).

CFTC Chairman Heath Tarbert said in his opening statement that the final rules are intended to codify existing no-action relief for CPOs and CTAs and to harmonize the CFTC's rules in this area with the Securities and Exchange Commission's regulations. FIA generally supports efforts to codify no-action relief and harmonize regulations to reduce unnecessary regulatory friction and provide legal certainty to market participants.

One package of amendments, which will affect compliance with Rules 4.5 and 4.27, codified several exemptions from registration requirements that had been issued on an ad hoc basis through no-action letters. This package was approved unanimously by the agency's five commissioners.

The other package of amendments, which codified no-action relief outlined in CFTC letter 12-37 for family offices, was approved by a vote of 4-1, with Commissioner Dan Berkovitz dissenting.

Berkovitz noted in his dissent that a recent report found the average wealth of family offices to be $1.3 billion and commented that these offices largely serve "megarich people." He also argued the CFTC lacked appropriate "checks and balances" to backstop registration relief for these firms, specifically citing the lack of a notice filing under the new rules and the omission of language that would prohibit persons who are disqualified from registering as CPOs from availing themselves of the exemption. Berkovitz also stated that the registration obligations for family offices was not overly burdensome, and that he objected to simplifying rules "just for simplicity's sake."

In response, Commissioner Brian Quintenz noted that rulemaking was primarily concerned with registrants' relationships with clients. "The registration regime has never had anything to do with how much wealth, but rather to serve as a level of protection for outside investors," Quintenz said. He added that just because a family office has the staff and resources to meet a regulatory burden doesn't mean it is appropriate for the CFTC to impose one.

Though originally part of the agenda for the Nov. 25 meeting, a proposed rulemaking regarding exemptions for offshore commodity pool operators was withdrawn. Similarly, a discussion of amendments to swap clearing requirement exemptions under Part 50 was originally slated for the meeting but instead was postponed for discussion at future meetings.

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