CFTC Approves Registration Amendments

The Commodity Futures Trading Commission (CFTC) published a final rule on September 12, 2024 amending CFTC Regulation 4.7, which exempts commodity pool operators (CPOs) that offer commodity pools to qualified eligible persons (QEPs) and commodity trading advisors (CTAs) that provide advisory services to QEPs from certain compliance requirements.

The final rule amends CFTC Regulation 4.7 as follows:

• Increases the financial thresholds in the “Portfolio Requirement” of the QEP definition
• Allows CPOs of funds of funds to distribute monthly account statements within 45 days of the month-end, consistent with routinely issued CFTC exemptive letters
• Introduces several technical amendments to Regulation 4.7, such as deleting the introductory paragraph, restructuring the definitions under 4.7(a), removing unnecessary sub-paragraph levels, and more
• Updates citations within 17 CFR Part 4, and throughout the CFTC’s rulebook, to reflect the new structure of Regulation 4.7

The final rule was published today, September 26, 2024, in the Federal Register and will become effective on November 25, 2024 (60 days after the publications in the Federal Register). 

Portfolio Requirements

CPOs and CTAs must comply with the increased Portfolio Requirement thresholds in Regulation 4.7(a) by May 26, 2025. It should be noted that current investors or advisory clients who do not meet the updated Portfolio Requirement will not be required to redeem their pool participation or terminate their advisory agreements because the new thresholds do not apply retroactively. However, the final rule does not permit any wholesale grandfathering of any persons who had been considered QEPs prior to the update. Consequently, it is expected that CPOs and CTAs request evidence that any existing QEPs relying on the Portfolio Requirements, who intend to purchase new participations in a commodity pool or receive new commodity interest advisory services prior to the compliance date, satisfy the updated Portfolio Requirements. In addition, advisers that are registered both with the CFTC and the U.S. Securities and Exchange Commission (SEC) should note that the increased thresholds are not aligned with those set forth under the definition of accredited investors.

Monthly account statements

The optional monthly account statement reporting schedule for funds of funds operating under Regulation 4.7 is available to their CPOs as of the final rule’s effective date. Compliance will be required upon election of that schedule by the CPO.

What is not included in the final rule

The final rule does not include all of the changes the CFTC proposed in 2023. In fact, due to the widespread opposition expressed by commenters, including the National Futures Association (NFA), the CFTC has not adopted the proposed QEP minimum disclosure requirements. In the adopting release, the CFTC states that it has “determined it appropriate to take additional time to consider the concerns articulated as well as the alternatives to the QEP disclosure amendments put forward by commenters”.

Our guidance

With the effective date of 60 days from today, firms should review the new amendments to learn how they apply to their firm and consider what changes need to be made within the next few weeks to ensure compliance by the effective date.

How we help

The compliance environment has never been more complex or demanding. We can help you to navigate the evolving regulatory landscape while considering the complexity of your firm’s unique compliance requirements. ACA Signature can help.

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