Regulator eyes mutual funds

The National Futures Association (NFA) has asked the federal government to expand NFA oversight to include futures-focused mutual funds sold to retail investors.

The NFA wants the Commodity Futures Trading Commission (CFTC) to re-affirm the industry watchdog's power to regulate mutual funds that are primarily active in futures contracts. The NFA used to have this authority, but it was removed from the association's responsibilities in 2003.

Specifically, the NFA would like the CFTC to remove exclusions that allow certain mutual funds active in futures to bypass registering as commodity pool operators under CFTC Regulation 4.5.

The NFA's petition reads, in part:

“CFTC Regulation 4.5 currently makes available to eligible persons an exclusion from the definition of CPO with respect to the operation of certain qualifying entities (e.g. registered investment companies) that would otherwise constitute commodity pools but that are already subject to extensive federal and/or state operating requirements. Prior to 2003, eligible persons claiming this exclusion were required to represent that commodity futures and option contracts were used solely for bona fide hedging purposes....”

The NFA goes on to state that recent exclusion filings have partially driven the request for the change:

“Recently, NFA has become aware of at least three entities filing for exclusions under Regulation 4.5 with respect to certain qualifying entities (i.e. registered investment companies) that they operate. These mutual funds are marketed to customers, including retail investors, as commodity futures investments and are indirectly invested substantially in derivatives and futures products. In fact, although these funds are structured differently than public commodity pools and conduct the futures trading through a subsidiary for tax and mutual fund regulatory purposes, their aim is the same-targeting retail investors with in some cases minimum investment amounts of as little as $1,000 who want exposure to actively managed futures strategies.”

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