MFA, ICI: Broaden CFTC Adviser Exemption; NFA: Mind the Gap for Derivatives-Heavy Pools

The Managed Funds Association ("MFA") and the Investment Company Institute ("ICI") urged the CFTC to finalize and expand its proposal to exempt SEC-registered investment advisers from registering as commodity pool operators ("CPOs") and commodity trading advisors ("CTAs"). The National Futures Association ("NFA"), however, said it supports reducing duplicative regulation only if customer protections are not diminished.

The CFTC's proposal would exempt SEC-registered advisers from CPO registration under CFTC Rule 4.13(a)(4) ("Exemption from registration as a commodity pool operator") for pools limited to qualified eligible persons and certain accredited investors. It would also expand the CTA exemption in Rule 4.14(a)(8) ("Exemption from registration as a commodity trading advisor") to cover trading advice given to those pools (see prior coverage). The rule would restore an exemption rescinded in 2012, codify recent staff no-action relief, and raise the small pool threshold from $400,000 to $800,000.

In a comment letter, MFA said separate CFTC registration adds cost with little benefit, given existing SEC oversight. MFA requested that existing pools not be required to offer investors a special redemption right if their advisers claimed the exemption. On CTAs, MFA supported the Rule 4.14(a)(8) exemption. It asked the CFTC to confirm the exemption applies whether or not the CTA is affiliated with the pool operator. It also asked the CFTC to consider similar relief for separately managed accounts.

ICI said in its comment letter that codifying the staff relief is "essential." On CPOs, it asked for a separate amendment to Rule 4.5 ("Exclusion for certain otherwise regulated persons from the definition of the term 'commodity pool operator'") so that advisers to registered funds are not treated as CPOs. ICI also joined MFA in opposing the redemption right.

NFA's comment letter countered that the CPO exemption could remove significant activity from its oversight. It said pools already relying on the staff relief include more than $482 billion in derivatives exposure, and it urged the SEC and CFTC to agree on how the SEC will review that activity. Unlike MFA and ICI, NFA strongly supported the redemption right and asked that it extend to pools already exempt under the staff relief. It also backed the tighter investor standard and the higher small pool threshold.