Regulatory Review for Week Ended October 6, 2023 (Attention CTAs and CPOs Relying on CFTC Regulation 4.7)
This week’s BR Derivatives Report Regulatory Review focuses exclusively on a rule proposal issued by the U.S. Commodity Futures Trading Commission (“CFTC”) on October 2, 2023.
CFTC RULE PROPOSAL TO AMEND REGULATION 4.7
Type of Market Participant Involved
Registered Commodity Pool Operators (“CPOs”) and Commodity Trading Advisors (“CTAs”) relying on CFTC Regulation 4.7
Summary
The Commodity Exchange Act (“CEA”) regulates the entity or, in some cases, individuals responsible for the operation of an investment fund. In the language of the CEA, such an entity or individual is referred to as a “commodity pool operator” or CPO, while the investment fund itself is referred to as the “commodity pool.”
Similarly, the CEA regulates an investment adviser that provides advice for compensation or profit with respect to the purchase and sale of certain derivatives and other leveraged types of investments. Again, in the language of the CEA, such an adviser is a “commodity trading advisor” or CTA, while the derivatives and investments are called “commodity interests.”
The general regulatory architecture under the CEA involves the registration and substantive regulation of CPOs and CTAs through a myriad of disclosure, reporting, and recordkeeping obligations that apply to their investment and solicitation activities. Notably, the CFTC has issued its Regulation 4.7 to provide certain qualifying CPOs and CTAs relief from most of these obligations.
In order to claim the exemptive relief, CPOs and CTAs are required to restrict their pool participants and advisory clients to Qualified Eligible Persons (“QEPs”) as that term is defined in CFTC Regulation 4.7, register as a CPO or CTA with the CFTC and National Futures Association (“NFA”), and make certain filings with the NFA.
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