CFTC Amends CPO Exemption To Facilitate Cross-Border Activity

The CFTC unanimously voted to amend, largely as proposed, the conditions under which non-U.S. CPOs qualify for exemption from registration under CFTC Rule 3.10(c) ("Registration requirements for different types of firms").

As previously covered, the amended rule allows a person or entity that is (i) engaged in the activity of a CPO and (ii) legally domiciled outside of the United States, to claim an exemption from CPO registration on a pool-by-pool basis for any pool in which no U.S.-domiciled persons invest (an "offshore pool"). In effect, a non-U.S. CPO already registered or relying on other CPO exemptions may claim the 3.10(c) exemption with respect to a pool meeting as delineated in certain specific criteria set forth in the amendments. The amended rule also (i) creates a conditional safe harbor for non-U.S. CPOs that cannot, due to the structure of their offshore pools, determine with certainty that such pools contain no U.S. investors, and (ii) allows the U.S.-based affiliates of fund sponsors to make initial capital contributions to such offshore pools without being considered U.S. investors for purposes of the exemption.

The amended rule also clarifies the conditions surrounding commodity interest transactions not subject to a clearing requirement under Rule 3.10(c), consistent with CFTC Staff Letters No. 16-08 and 15-37. Additionally, the final rule modifies the definition of "international financial institution" ("IFI") to exclude IFIs from the definition of "U.S. person," consistent with the cross-border rules for swap dealers and major swap participants recently adopted by the CFTC.

The final rule goes into effect 60 days after its publication in the Federal Register.

In a public statement, CFTC Chair Heath Tarbert said that "the final rule eliminates the potential need for the CFTC to require the registration and oversight of non-U.S. CPOs whose pools have no U.S. investors." Commissioner Stump pointed out that the CFTC failed to codify the relief provided in Staff Letter 18-96, which provides relief from certain books and records requirements for offshore commodity pools under the Part 4 rules.

Primary Sources

1. CFTC Voting Draft: Exemption from Registration for Certain Foreign Intermediaries
2. CFTC Press Release: CFTC Finalizes Position Limits Rule at October 15 Open Meeting
3. CFTC Statement, Heath P. Tarbert: Statement in Support of Amending the Registration Exemption for Foreign CPOs
4. CFTC Statement, Brian Quintenz: Supporting Statement Regarding Final Rule Exempting from Registration Certain Foreign Persons Acting as CPOs of Offshore Commodity Pools
5. CFTC Statement, Rostin Behnam: Opening Statement before the Meeting of the Commodity Futures Trading Commission
6. CFTC Statement, Dawn D. Stump: Statement Regarding Amending Rule 3.10(c): Exemption from Registration for Non-US CPOs of Offshore Commodity Pools
7. CFTC Statement, Dan M. Berkovitz: Statement Regarding Final Rule to Amend Exemptions for Foreign Persons Acting as Commodity Pool Operators of Offshore Commodity Pools

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