The National Futures Association (NFA) has petitioned the Commodity Futures Trading Commission (CFTC) to amend Regulation 4.5, which provides an exclusion from the definition of “commodity pool operator” (CPO) for certain qualifying entities, namely registered investment companies.
The rule change, if enacted by the CFTC, would go back to the more limited exclusion prior to 2003, which freed certain regulated entities from CPO registration if all their futures and options positions were used solely for bona fide hedging or if those positions only represented 5% of the fund’s liquidating value.
Basically the exclusion allowed commodity pool type products to register as mutual funds and face much less restrictive and complex regulation. NFA Senior VP Thomas Sexton says, “If you are a public commodity pool, you are regulated by NFA, Finra, the SEC (Securities and Exchange Commision) and the CFTC. These registered investment companies are only regulated by the SEC.”
The NFA cites several examples in their petition and Sexton says several funds are taking advantage of this. “You have funds offering investment in a retail futures product for as little as a $1,000 investment and traditionally the agencies responsible for overseeing those products, the CFTC and NFA, have no jurisdiction over those particular funds.”
Sexton adds, “The reason to change the rule is to ensure that retail participants are getting the required disclosure that they should be getting and that these funds are regulated by those that have the expertise to regulate the funds.”
Hot New CTAs
Futures is once again looking for the best new commodity trading advisors to profile in our annual feature, “Hot New CTAs.” If you will have managed customer funds for at least one year as of the end of August and have less than $25 million under management, e-mail your disclosure document and audited track record to dcollins@futuresmag.com, or send it to Futures Magazine, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606, Attn. Dan Collins. Deadline: Friday, Aug. 20.