On February 8, 2012, the
Commodity Futures Trading Commission ("CFTC" or
"Commission") issued final regulations that repeal the commodity pool
operator ("CPO") registration exemption widely used by the operators
of private funds offered only to highly sophisticated investors (commonly
called "qualified purchaser funds" or "Section 3(c)(7)
Funds"). That exemption - which was set forth in CFTC Regulation
4.13(a)(4) - placed no limits upon the amount of commodity interest trading by
such funds. At the same time, the CFTC voted to retain the CPO registration
exemption in Regulation 4.13(a)(3) for operators of private funds that trade
only a de minimis amount of commodity interests. The de minimis
exemption is used primarily by operators of private funds offered to investors
that meet a standard basically equivalent to that of an "accredited
investor" (commonly called "Section 3(c)(1) Funds").
The CFTC's changes will force
private fund operators that currently rely on Regulation 4.13(a)(4) (as well as
advisors to those funds that currently rely on the exemption from registration
as a commodity trading advisor ("CTA") in CFTC Regulation 4.14(a)(8))
to restrict commodity interest trading to qualify for the de minimis
exemption or register as CPOs (and as CTAs for advisors to such funds). Those
that register as a CPO and/or a CTA likely will be eligible for a less
burdensome system of CPO/CTA regulation under Regulation 4.7, which is available
to operators of and advisors to private funds offered only to a class of
investors similar to those eligible to invest in Section 3(c)(7) Funds.
The compliance date is December 31, 2012 for fund operators and advisors that
have claimed the Regulation 4.13(a)(4) or 4.14(a)(8) exemptions prior to the
effective date of the amendments (April 24, 2012). However, the compliance date
is also April 24, 2012 for the amendments for those fund operators and advisors
that have not claimed the rescinded exemptions prior to that date. Finally,
with respect to private funds that invest in swaps, but not in other commodity
interests, the compliance date is the effective date of the yet-to-be adopted
"swap" definitions. [footnotes omitted]
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