Summary. Earlier this month, the U.S. Commodity Futures Trading Commission (the CFTC) granted no-action relief to commodity pool operators (CPOs) of registered funds with respect to certain reporting requirements set forth in CFTC Regulations 4.27(c) and 4.22(c) in connection with wholly-owned subsidiaries known as controlled foreign corporations or CFCs. CPOs seeking relief from these reporting requirements may utilize the attached form to claim such relief from the CFTC.

CPOs that should claim this no-action relief. CPOs of registered funds (i.e., investment companies registered under the Investment Company Act of 1940) that trade in commodity interests through CFCs that are consolidated with such registered funds for financial reporting purposes should generally claim this relief.

Regulations 4.27(c) and 4.22(c). CFTC Regulation 4.27(c) requires, among other things, that a CPO file with the National Futures Association (the NFA) a report with respect to the directed assets of each commodity pool advised by the CPO (Form CPO-PQR). The CFTC’s definition of “commodity pool” includes the CFCs described above, triggering this reporting requirement for a CPO of a registered fund utilizing such a CFC. CFTC Regulation 4.22(c) requires, in pertinent part, that a CPO utilizing such a CFC also file an annual financial statement with the NFA for the CFC. Consequently, absent relief, a CPO of a registered fund that trades in commodity interests through a wholly-owned CFC is required 1) to file a Form CPO-PQR with the NFA with respect to the CFC for each reporting period as defined in Regulation 4.27 and the instructions to Form CPO-PQR (Reporting Period), and 2) to file an annual financial statement for the CFC with the NFA pursuant to Regulation 4.22(c).

The available no-action relief – 4.27(c). A CPO of a registered fund that trades in commodity interests through a wholly-owned CFC may claim relief from Regulation 4.27(c)’s requirement to file Form CPO-PQR with the NFA with respect to the CFC, provided that:

  1. the CPO provides a consolidated report for the registered fund that includes the data for its CFC to the NFA for the next applicable Reporting Period following the compliance date [1]; and
  2. the CPO either:
  1. currently consolidates the registered fund’s wholly-owned CFC financial statements with those of the parent registered fund’s financial statements for financial reporting purposes; or
  2. is in the process of converting from separate financial reporting to consolidated reporting for the registered fund and CFCs that it operates, provided that:
  • such CPO operates at least one registered fund that currently consolidates its CFCs for financial reporting purposes; and
  • the CPO’s other registered funds consolidate their CFCs for financial reporting purposes for the next applicable Reporting Period following the compliance date.

The available no-action relief – 4.22(c). A CPO of a registered fund that trades in commodity interests through a wholly-owned CFC may claim relief from Regulation 4.22(c)’s requirement to file an annual financial statement for the CFC with the NFA, provided that:

  1. the CPO prepares an annual report of the registered fund that contains consolidated audited financial statements for the registered fund that includes and separately indicates the holdings, gains and losses, and other financial statement amounts attributable to the CFC; and
  2. the CPO submits the annual report of the registered fund to the NFA, in lieu of a separate annual report for the CFC, for the next fiscal year of the registered fund that ends after the compliance date, and, going forward, for all subsequent fiscal years (as applicable).

How to request no-action relief. The no-action relief described above is not self-executing. A CPO eligible for the relief must submit a claim to the CFTC consistent with certain procedures. Drinker Biddle has designed a form to adhere to the CFTC’s procedures. Eligible CPOs seeking this no-action relief should fill in the form’s bracketed information and utilize the submission process described at the top of the form.

Additional information. A copy of the CFTC’s no-action letter can be found here. For more information, please contact the Drinker Biddle lawyer with whom you regularly work.

 


[1] The first filing would be required with respect to the period ending December 31, 2013 and must be filed within the time periods specified in the instructions to Form CPO-PQR.

Source: Investment Management Alert