[Editor’s Note: The following post is authored by Davis Polk & Wardwell LLP.]
On August 13, 2013, the Commodity Futures Trading Commission (“CFTC”) adopted final regulations designed to harmonize the obligations of registered commodity pool operators (“CPOs”) under the CFTC Part 4. Regulations for commodity pools that are registered as investment companies (“RICs”) under the Investment Company Act of 1940 (“1940 Act”) with the obligations applicable to RICs under the 1940 Act and other securities laws. The final regulations also amend several Part 4 obligations as they apply to all registered CPOs with respect to all types of commodity pools.
In a significant departure from the harmonization rules proposed by the CFTC in February 2012, the final regulations adopt a “substituted compliance” framework that permits a registered CPO of a RIC to comply with the disclosure, reporting, and recordkeeping requirements applicable to the RIC under the Securities Act of 1933, the 1940 Act, and regulations of the Securities and Exchange Commission (“SEC”) in lieu of complying with many of the analogous Part 4 requirements that would otherwise apply to the registered CPO. Such substituted compliance is available under the final regulations for some, but not all, Part 4 requirements. Thus, while the harmonization rules provide important relief for registered CPOs of RICs with respect to most Part 4 compliance obligations, the rules do not address all requirements with which registered CPOs must comply. For example, the harmonization rules do not address requirements for registered CPOs under NFA bylaws. In addition, the harmonization rules do not affect the applicability of CFTC rules governing commodity interest trading activities, such as position limits or new swap regulatory requirements. Therefore, registered CPOs should carefully review their compliance programs in light of the harmonization rules to ensure they are meeting all applicable requirements.
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