CFTC Streamlines Form CPO-PQR

The US Commodity Futures Trading Commission (CFTC or Commission) unanimously approved amendments to Form CPO-PQR on October 6 that will streamline the form beginning with the March 31, 2021 reporting period. Here is how the form was amended and how it will affect commodity pool operators.

After the US Securities and Exchange Commission (SEC) and CFTC adopted Form PF as required pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFTC introduced Form CPO-PQR on its own initiative.[1] The CFTC determined that data reported on Form CPO-PQR would help it identify trends over time, including a pool’s likelihood of failure during times of stress, a pool’s exposure to asset classes, and the composition and liquidity of a pool’s portfolio.

After seven years of experience with Form CPO-PQR, the CFTC determined that it was not able to make use of much of the information required by the form and that revisions were necessary to better facilitate its oversight of commodity pool operators (CPOs) and pools and its coordination of other data streams and regulatory initiatives. The revised Form CPO-PQR reduces the overall reporting burden of CPOs by conforming the substantive and filing requirements of CFTC Form CPO-PQR with the National Futures Association’s (NFA’s) version of Form CPO-PQR, which registered CPOs also currently file. Once the amendments are effective, all CPOs will be able to file a single version of Form CPO-PQR. In addition, the amendments eliminate the “large”, “mid-sized,” and “small” CPO reporting threshold concept so that all registered CPOs will file on a quarterly basis (as is already required by the NFA).

Streamlined Form CPO-PQR

The CFTC’s amendments to Form CPO-PQR are the “first of several steps” in the CFTC’s ongoing reassessment of Form CPO-PQR, including the CFTC’s collection of information and form and manner of reporting. The Commission has instructed Staff to evaluate certain aspects of the final rulemaking, including whether the CFTC should adopt the NFA 2010 Schedule of Investments and whether it should incorporate a separate reporting stream for legal entity identifier (LEI) data (in response to commenter’s concerns about LEI data being linked with PQR data in the event of a cyber breach). The Staff’s evaluation should be completed within 18-24 months of the rulemaking’s Compliance Date, which is May 30, 2021. With regard to comments on master-feeder fund structure reporting, the CFTC instructed Staff to determine what modifications may be needed to provide consolidated fund structure reporting as appropriate. In addition, the CFTC intends to publish updates to the 2015 FAQs that reflect the new Form CPO-PQR.

Below is a summary of the changes to the new, streamlined Form CPO-PQR.

• All CPOs, regardless of assets under management (AUM), would be required to report all of the required information quarterly. Currently, the CFTC’s Form CPO-PQR is required on a quarterly basis for “large CPOs” (CPOs with more than $1.5 billion AUM) and on an annual basis for all other CPOs. The new Form CPO-PQR has been reduced to one schedule, the content and filing frequency of which is the same for all CPOs regardless of their AUM. Thus, the new form eliminates classes of filers (small CPOs, mid-sized CPOs, and large CPOs).
• The CFTC did not incorporate NFA’s request to eliminate the guidance in Instruction 4 (allowing a CPO to disregard a pool’s equity investments in other pools) for the following reasons. First, a CPO is permitted to include such investments in Form CPO-PQR provided that the CPO is consistent with its reporting throughout the form. Second, a CPO must include a pool’s equity investments in other pools in the pool’s AUM and net asset value (NAV). Moreover, these investments must be reported in the Pool Schedule of Investments, and Instruction 4 has been revised to explicitly require such reporting.
• Schedules B and C are no longer required “because the Commission was not able to fully incorporate the resulting data set into its oversight program for registered CPOs and their operated pools.”[2] However, question 6 of Schedule B (the Pool Schedule of Investments) remains a requirement under revised Schedule A.
• The CFTC will continue to require CPOs to complete the Pool Schedule of Investments, with a 5% pool NAV threshold for reportable assets (rather than the 10% threshold incorporated in the NFA’s 2010 Schedule of Investments). The CFTC retained the 5% threshold because raising the threshold would have resulted in significantly less information being made available to the Commission (specifically, asset balances of 22% of the total filed Pool Schedule of Investments would not be provided to the CFTC, based on 2019 year-end Form CPO-PQR data).
• The CFTC has eliminated questions regarding a CPO’s auditors and marketers because the CFTC and NFA have access to this information via other sources.
• Substituted Compliance
  • CPOs must report their LEIs and any of their pools’ LEIs, to the extent that the CPO or its pools have LEIs. The CFTC will not require CPOs and pools to obtain LEIs solely for purposes of Form CPO-PQR. The CFTC will provide substituted compliance to CPOs that complete NFA’s Form PQR in lieu of the CFTC’s Form CPO-PQR on the condition that NFA includes the LEI reporting requirement in its form.
  • Dually-registered CPO-investment advisers must file Form CPO-PQR notwithstanding the fact that they also file Form PF. The CFTC has eliminated substituted compliance for CPOs that file Form PF instead of Form CPO-PQR.
  • The CFTC declined to provide substituted compliance with Form CPO-PQR in response to the Investment Company Institute’s request that the CFTC allow CPOs of registered investment companies to avail themselves of substituted compliance with Form CPO-PQR through SEC regulatory filing requirements.

A brief summary of the changes to the existing Form CPO-PQR is below.

WHAT’S NEXT?

The CFTC will require reporting on the new form for the first calendar quarter reporting period of 2021 ending on March 31, 2021. Thus, CPOs will be subject to reporting on the new form by the May 30, 2021 deadline for this reporting period. Until then, CPOs should continue reporting on current Form CPO-PQR or comply with NFA reporting requirements, as applicable. In addition, CPOs should be prepared for the CFTC to issue updated FAQs that provide further guidance on the new form.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Chicago
Michael M. Philipp

New York
Thomas D’Ambrosio
Jedd H. Wider
Joseph D. Zargari

Boston
Richard A. Goldman
Stephen C. Tirrell
Justine Le

Miami
Ethan W. Johnson
Joy Crutcher Harrison

Washington, DC
Mana Behbin