Among the many topics covered by the Treasury Department’s recent report[1] on the asset management and insurance industries are recommendations to simplify the regulation of commodity pool operators (CPOs) and commodity trading advisors (CTAs), particularly for those that are regulated by both the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC).  The recommendations are largely designed to roll back post-Dodd-Frank Act regulations adopted by the CFTC that subjected a broader range of CPOs to registration with the CFTC and increased reporting requirements for registered CPOs and CTAs.  These recommendations are welcome news for asset managers subject to sometimes duplicative SEC and CFTC regulatory requirements.

Between 2003 and 2012, CPOs of registered investment companies (RICs) and private funds enjoyed broad exemptions from CFTC registration, including exemptions that were available without regard to the level of commodity interest trading engaged in by a fund. These exemptions were adopted based upon the CFTC’s view that CPO registration was not necessary where a CPO was otherwise regulated—for example, by virtue of being registered with the SEC—or where a fund was offered only to limited types of sophisticated investors.[2] In 2012, the CFTC rescinded these exemptions from CPO registration. Today, even if a CPO is an SEC registered investment adviser, it generally must register with the CFTC for operating a RIC or private fund, unless the fund engages in no more than a de minimis level of trading commodity interests. The CFTC in 2012 also adopted new disclosure and reporting requirements for registered CPOs and registered CTAs.

The report more specifically recommends that:

  • The CFTC should amend its rules so that an investment company registered with the SEC and its SEC-registered investment adviser would be exempt from registration as a CPO and regulation by the CFTC.  This recommendation, if adopted by the CFTC, would restore the registration exemption available for CPOs of RICs under CFTC Regulation 4.5 to its pre-2012 state.
  • The CFTC and SEC should work together to identify a single regulator for “de facto commodity pools,” that is, RICs that are marketed to retail customers as commodity futures investments.  Under this approach, oversight for these entities would either remain with the SEC or be transferred to the CFTC and National Futures Association.
  • The SEC and CFTC should cooperate and share disclosures they receive from the entities they regulate.
  • A CPO of a private fund should be exempt from CFTC registration if the fund’s adviser is subject to regulatory oversight by the SEC.  The report also recommends that the CFTC assess whether any exemptions from CFTC regulation should be provided to so-called SEC-exempt reporting advisers, which are investment advisers that are not required to register with the SEC but are subject to some SEC reporting requirements.
  • The SEC, CFTC, SROs and other regulators should work together to rationalize and harmonize asset manager reporting requirements.  The report describes the alphabet soup of reporting requirements to which asset managers and funds are subject—for example, those under Forms PF, N-PORT, N-CEN, N-PX, CPO-PQR and CTA-PR, among others.  The report recommends that the regulators combine any duplicative forms, eliminate any unnecessary or inconsistent data collection requirements and update reporting requirements to utilize structured data formatting where appropriate.

Although the Treasury’s recommendations are not binding on the SEC or CFTC, and neither Commission has formally indicated its views on these topics, the CFTC has stated its interest, including as part of its Project KISS, to revisit its general rulebooks and guidance.  We are hopeful that the report will encourage the Commissions to continue to work to rationalize and simplify the dual regulatory regimes for CPOs and CTA and the unnecessarily onerous reporting regime that has proven problematic for market participants.


[1] The  report is the third in a series issued under the Trump Administration’s February Executive Order on Core Principles for Regulating the U.S. Financial System.  The Treasury’s first report in the series covers banks and credit unions, and the second report covers capital markets.  Blog posts discussing these reports are available at www.finregreform.com.
[2] Additional Registration and Other Regulatory Relief for Commodity Pool Operators and Commodity Trading Advisors, 68 Fed. Reg. 12622 (Mar. 17, 2003); Commodity Pool Operators; Exclusion for Certain Otherwise Regulated Persons From the Definition of the Term “Commodity Pool Operator”; Other Regulatory Requirements, 50 Fed. Reg. 15868 (Apr. 23, 1985).