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June 27, 2012
Guidance to Persons Operating or Advising Funds Pursuant to an Exemption under CFTC Regulation 4.13(a)(4)
On February 24, 2012, the CFTC issued final rules amending CFTC Part 4 Regulations to rescind an exemption from CPO registration for certain qualifying pools under CFTC Regulation 4.13(a)(4) (this rescission applies to CPOs with 4.13 No Action letter exempting the CPO from registration based upon qualifying under the terms of 4.13(a)(4)). Although persons that currently operate a 4.13(a)(4) exempt pool(s) may continue to operate pursuant to that exemption until December 31, 2012, those persons must determine whether the pool(s) qualifies for an exemption from registration under 4.13(a)(3) (which provides an exemption from registration for CPOs that operate a pool(s) that does a de minimis amount of commodity interest trading) or whether they are required to register as a CPO. Any person that does not qualify for an exemption under 4.13(a)(3) but intends to continue trading commodity interests for its pool(s) will most likely be required to register as a CPO. Similarly, any person that advises a 4.13(a)(4) exempt pool(s) pursuant to an exemption from CTA registration under CFTC Regulation 4.14(a)(8)(D) must determine whether it will need to be registered as a CTA by January 1, 2013 in order to continue advising those pools after December 31, 2012.
The final rules also amend a number of CFTC Regulations to require persons that claim an exemption under CFTC Regulation 4.5, 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), 4.13(a)(5) and 4.14(a)(8) to annually reaffirm the applicable notice of exemption. Persons claiming one or more of these exemptions will have 60 days after the calendar year-end to reaffirm the notice of exemption through NFA's Electronic Exemption System. The first notice reaffirming these exemptions is due for the calendar year ending December 31, 2012 and annually thereafter. Any person that fails to file a notice reaffirming the exemption will be deemed to have requested a withdrawal of the exemption.
The Registration Process
In order to prevent or minimize disruption to ongoing business operations, a person exempt from CPO registration under CFTC Regulation 4.13(a)(4) that will not qualify for an exemption under CFTC Regulation 4.13(a)(3) should begin the registration process as soon as possible. In order to retain the regulatory relief available under 4.13(a)(4) until January 1, 2013, persons currently claiming this exemption will have the option to begin the registration process immediately while deferring the effective date of CPO registration and NFA Membership until January 1, 2013. Similarly, a CTA that no longer qualifies for an exemption under CFTC Regulation 4.18(a)(8)(D), should also begin the registration process in order to continue advising any pool losing its 4.13(a)(4) exemption after December 31, 2012.
Persons may register as a CPO and/or CTA and become an NFA Member through NFA's Online Registration System (ORS), which is available on NFA's website. Registering as a CPO prior to December 31, 2012 will not have any impact on the person's existing regulatory relief related to the 4.13(a)(4) pool, provided that pool retains its exemption until December 31, 2012. For assistance in the process, NFA has a number of webcasts available at http://www.nfa.futures.org/NFA-registration/videos/index.HTML.
Once registered, a CPO may be eligible for relief from certain regulatory requirements under CFTC Regulation 4.7, 4.12, or CFTC Advisory 18-96. Similarly, a registered CTA may be eligible under CFTC Regulation 4.7 for certain relief with respect to accounts of Qualified Eligible Purchasers (QEPs). Additional information on these exemptions is available in CFTC Regulations - Part 4. All exemptions, except for exemptions under CFTC Advisory 18-96 must be filed through NFA Electronic System at http://www.nfa.futures.org/NFA-electronic-filings/exemptions.HTML. An exemption under CFTC Advisory 18-96 must be filed in hard copy form with NFA's Compliance Department.
NFA will also be modifying the Electronic Exemption System to give persons that currently offer a 4.13(a)(4) exempt pool and have begun the registration process (but deferred the effective date until January 1, 2013), the ability to pre-file for an available exemption (e.g., 4.7, 4.12, or CFTC Advisory 18-96) that would become effective at the same time as the person's CPO registration on January 1, 2013. A person that elects to use the pre-filing option will not become subject to the additional reporting and disclosure requirements related to the newly claimed exemption until 2013.
Questions concerning these changes should be directed to Mary McHenry, Senior Manager, Compliance (email@example.com or 312-781-1420) or Tracey Hunt, Senior Manager, Compliance (firstname.lastname@example.org or 312-781-1284).