The reporting relief applies to commodity trading advisors that do not “direct” trading of any client commodity interest trading accounts.
On July 23, the CFTC’s Division of Swap Dealer and Intermediary Oversight issued an exemptive letter that exempts registered commodity trading advisors (CTAs) that do not direct any trading of client commodity interest accounts from filing Form CTA-PR. The letter does not require affected CTAs to take any steps to rely upon this relief.
Registered CTAs have been required to report information on Form CTA-PR since late 2013. Information that must be reported in the Form includes basic identifying information, total assets and total commodity pool assets directed by the CTA, the names of the commodity pools that the CTA advises, and the name of the commodity pool operator (CPO) that reports information to the CFTC for each identified pool. CTAs must complete Form CTA-PR annually and submit their reports to the National Futures Association (NFA). The NFA has adopted a substantially similar requirement, which requires all NFA Member CTAs to file quarterly reports on Form CTA-PR.
The letter provides that a registered CTA is not required to report on Form CTA-PR under CFTC regulations if it does not “direct” any trading of client commodity interest trading accounts. A CTA would be considered to direct a client’s commodity interest account if it is “authorized to cause transactions to be effected” in the account “without the client’s specific authorization.” As a result, the relief would appear to be available to registered CTAs that offer nondiscretionary investment advice, including model portfolio services.
It is unclear whether the relief may also apply to registered CTAs that have discretionary authority to make allocations of client assets among investment funds that trade commodity interests (i.e., commodity pools) without actually transmitting orders in commodity interests to a futures commission merchant or other brokers or counterparties on a client’s behalf. Applying the letter to such a situation would depend in part on interpreting the phrase “commodity interest account” in the definition of “direct” to refer exclusively to accounts established to facilitate transactions in commodity interests themselves. Whether such an approach could be taken would also depend on the specific facts and circumstances applicable to a given firm.
The Division Staff found support for its position in an earlier letter issued (the CPO Reporting Letter) that provided exemptive relief from Form CPO-PQR filing for certain registered CPOs. The CPO Reporting Letter exempted from Form CPO-PQR reporting CPOs that are registered with the CFTC but only operate commodity pools under either (i) an exemption from CPO registration or (ii) an exclusion from the definition of a CPO. The Division Staff reasoned in the CPO Reporting Letter that requiring those CPOs to file Form CPO-PQR would provide the Staff with limited additional information beyond what is already available to the CFTC through the CPO registration process and the ongoing regulation of those firms. Based on this reasoning, the Division Staff concluded in the present letter that requiring registered CTAs to report on Form CTA-PR when they do not direct client commodity interest accounts would not serve a meaningful regulatory purpose.
The relief addresses only the Form CTA-PR reports required under CFTC regulations. However, the NFA’s rule provides that a CTA member firm is required to report quarterly if the firm “has a reporting requirement under CFTC Regulation 4.27” (i.e., the regulation that requires Form CTA-PR reporting). Thus, the Division Staff’s letter should operate to relieve eligible firms from both CFTC and NFA reporting requirements. Registered CTAs should nonetheless evaluate any forthcoming guidance from the NFA regarding how and when this relief will be implemented.
If you have questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Steven W. Stone
Michael M. Philipp
Thomas V. D’Ambrosio
. See 17 C.F.R. § 4.27.
. See NFA Compliance Rule 2-46.
. See 17 C.F.R. § 4.10(f).
. See 17 C.F.R. §§ 4.5 (CPO exclusions) and 4.13 (CPO exemptions).
. NFA Compliance Rule 2‑46(c).
. A registered CTA is not required to be an NFA member if it does not trade commodity interests for client accounts. However, the CFTC has proposed a change in its regulations that, if adopted, would require a registered CTA to be an NFA member regardless of whether it engages in commodity interest trading. See 78 Fed. Reg. 67078 (Nov. 8, 2013).