On February 9, 2012, the Commodity Futures Trading Commission (CFTC) issued a final rule regarding changes to Part 4 of the Commission’s regulation involving registration and compliance obligations for commodity pool operators (CPO).
The rule adopted by the Commission rescinds the exemption from registration provided in section 4.13(a)(4). Rule 4.13(a)(4) currently exempts a fund operator from registration as a CPO if all natural person participants are “qualified eligible person” (QEPs) as defined under CFTC Rule 4.7(a)(2) and the remaining participants are accredited investors (under Regulation D of the US Securities Act of 1933, as amended) or entities that are QEPs. This will require those currently relying on the exemption to either; register with the CFTC as a CPO by December 31, 2012; rely on a different exemption; or stop trading in assets that bring the fund operator within the definition of a CPO. The CFTC will no longer accept 4.13(a)(4) exemptions subsequent to April 24, 2012 so those fund operators that wish to take advantage of the transition period ending on December 31, 2012, must submit their 4.13(a)(4) exemptive notices prior to that date.
The exemption from CPO registration in section 4.13(a)(3) will still be available. This requires the fund operator’s trading activity to fall under the rule’s de minimus threshold. This threshold requires that the pool either have no more than 5% in aggregate initial margin and premiums with respect to commodity interest positions or the aggregate net notional value of commodity interest positions cannot exceed 100% of the pool’s liquidation value. CPOs relying on this exemption will now be required to file an annual notice affirming their exempt status.