CFTC Proposes Streamlined Version of Form CPO-PQR

The Commodity Futures Trading Commission (CFTC) has proposed amendments to Form CPO-PQR, streamlining the form but requiring commodity pool operators (CPOs) to report legal entity identifiers to facilitate the CFTC’s data collection and review. CPOs and other market participants can comment on the proposal before the June 15, 2020, deadline.

The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Investment Advisers Act of 1940 (Advisers Act) to require advisers to large private funds to register with the US Securities and Exchange Commission (SEC) and file reports containing information allowing regulators to assess systemic risk. Section 211 of the Advisers Act requires the SEC and the CFTC to adopt rules requiring dually-registered private fund advisers to file reports (i.e., Form PF). After the SEC and CFTC adopted Form PF, the CFTC, on its own initiative, adopted CPO-specific reporting forms (i.e., Form CPO-PQR). 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.

Form CPO-PQR currently includes three schedules:

• Schedule A contains basic identifying information about the CPO, each of the CPO’s pools, and service providers, and must be reported on a quarterly basis by Large CPOs (CPOs with more than $1.5 billion in assets under management (AUM)) and annually by all other CPOs.

• Schedule B includes information regarding each pool’s investment strategy, borrowings and types of creditors, counterparty credit exposure, trading and clearing mechanisms, value of aggregated derivative positions, and a schedule of investments. Large CPOs must submit Schedule B on a quarterly basis and Mid-Sized CPOs (CPOs with AUM of more than $150 million but less than $1.5 billion) must submit Schedule B on an annual basis. A dually-registered CPO is deemed to satisfy this requirement by filing Form PF.

• Schedule C is only required by Large CPOs on a quarterly basis and includes detailed information about all pools operated by the CPO and specific information about pools with a net asset value of at least $500 million as of the close of business on any day during the reporting period. A dually-registered CPO is deemed to satisfy this requirement by filing Form PF.

In addition to Form CPO-PQR, the NFA requires CPOs to file NFA Form PQR on a quarterly basis, although NFA accepts Form CPO-PQR (but not Form PF) in lieu of filing the NFA form for any quarter in which a Form CPO-PQR filing is required.

Streamlined Form CPO-PQR Proposal

After its experience with Form CPO-PQR, the CFTC has preliminarily determined that the CFTC could effectively oversee and assess the impact of CPOs and their pools in the commodity interest markets without collecting certain data in Schedules B and C. Moreover, the CFTC has other data streams (from futures exchanges, swap data repositories, derivatives clearing organizations, clearing members, futures commission merchants, swap dealers, and large traders) that enhance its ability to surveil financial markets for risks posted by market participants, including CPOs.

The amendments to Form CPO-PQR would result in a reporting form that generally aligns with NFA Form PQR.

• If NFA amends its form to include the reporting of legal entity identifiers (LEIs), the CFTC would permit a CPO to file NFA Form PQR instead of the revised From CPO-PQR. The amended Form CPO-PQR would require a CPO to report its and its pools’ LEIs (if any) to align the CFTC’s other data streams with Form CPO-PQR.

• The form would continue to include the questions in Schedule A, with the elimination of the questions regarding the pool’s auditors and marketers.

• Schedules B and C would be eliminated, except that question 6 of Schedule B (the pool schedule of investments) would be included in the revised Form CPO-PQR and moved to Schedule A. All CPOs, regardless of assets under management, would be required to report all of this information quarterly. As a result, Form CPO-PQR would be reduced to one schedule, the content and filing frequency of which would be the same for all CPOs regardless of their assets under management.

• Notably, the proposal would eliminate the current provision in Rule 4.27(d) that permits a CPO that is also a registered investment adviser to list its investment vehicles that are not “private funds” (e.g., pure commodity pools) on Form PF in lieu of including such vehicles on its Form CPO-PQR.

• Questions regarding pool and pool participant high-water marks would be eliminated.

Questions for Comment

The CFTC has included seven specific questions for comment. Among these questions, the CFTC asks whether it could clarify the instructions or references to defined terms or proposed to rescind questions that it should actually retain. Among other questions asked by the CFTC in the proposal is whether the CFTC should consider further amending the schedule of investments to align it with the simpler schedule that appeared in the National Futures Association’s original (2010) Form PQR which contained fewer investment categories. In addition, the original Form PQR required CPOs to identify any position that exceeded 10% of a pool’s net asset value. In adopting Form CPO-PQR, the CFTC set that threshold at 5%. The CFTC also notes that the changes to Form CPO-PQR would result in less regulatory congruence between Form PF and the CFTC’s reporting requirements. In this regard, the CFTC asks whether it should rescind Form CPO-PQR in its entirety, instead requiring all CPOs to file all or part of Form PF with NFA.

WHAT’S NEXT?

CPOs and other market participants that wish to comment on the proposal should do so by the CFTC’s June 15, 2020 deadline.

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
Sarah V. Riddell
Michael M. Philipp

New York
Thomas V. D’Ambrosio

Washington, DC
Laura E. Flores