CFTC Developments and the JOBS Act

Advisers and Funds

The purpose of this Compliance Alert is to provide a status update on two key regulatory developments.

Swap Definition and CFTC Registration Deadline

First, the CFTC recently released a Final Rule further defining the term “swap”, a necessary final step towards the increased registration requirements created by the agency’s Final Rule issued this past February. The February rule amended the definition of commodity pool operator (“CPO”) to include the previously unregulated area of swaps. Moreover, the CFTC rescinded Regulation 4.13(a)(4) and amended Regulation 4.5 – two regulations that many CPOs previously relied upon to avoid registration with the CFTC. Funds that previously relied on 4.13(a)(4) or 4.5 are required to (1) claim an applicable exemption or (2) register with the CFTC. The February rule set a deadline for entities required to register with CFTC to do so within the latter of 60 days after the publication of the swap definition or December 31, 2012.

Now that the CFTC has defined the term “swap”, entities required to register with the CFTC must do so by December 31, 2012. The CFTC also indicated in a recent no-action letter that new pools launched after July 13 that could have claimed an exemption under 4.13(a)(4) or 4.5 will also have until December 31, 2012 to register. However, any pool launched after July 13 must file notice with the CFTC to trigger the no action relief.

Advisers to mutual funds that formerly relied on Regulation 4.5 should be aware that the Chamber of Commerce and Investment Company Institute have filed a lawsuit primarily alleging that the CFTC’s amendment to Regulation 4.5 failed to comply with statutory cost benefit analysis requirements. The status of the lawsuit notwithstanding, advisers in the commodities market should be proactive in doing the following:

  1. Determine whether any existing funds are required to register with the CFTC by the December 31, 2012 deadline by identifying funds that trade above the de minimis amount in commodity interests (including “swaps”); and
  2. For any pools launched after July 13, file the necessary notice with the CFTC to ensure no action relief through December 31, 2012.
JOBS Act’s Amendment to Regulation D

Second, the SEC is scheduled to consider a rule to amend Reg D on August 22, 2012. As we explained in a recent Compliance Alert, the recently enacted JOBS Act includes a provision requiring the SEC to revise Rule 506 of Reg D to eliminate the prohibition against private funds engaging in general solicitation. Congress directed the SEC to make the necessary revision within 90 days, a deadline that has since passed. At a recent hearing, SEC Chairman Mary Schapiro indicated that while the 90-day deadline was not feasible, a rule would be forthcoming. We will keep you updated on any developments arising out of the August 22nd session.








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