Source: http://hedgefundlawblog.com/tag/commodity-exchange-act
Timestamp: 2019-04-22 06:11:15+00:00

Document:
In general, CFTC registered CPOs and CTAs must adhere to certain disclosure and reporting requirements as specified in the Commodity Exchange Act (“CEA”) and regulations thereunder. However, some CFTC registered firms can operate under a “lite-touch” regulatory regime if the firm only provides investment management services to qualified eligible persons. The lite-touch regulatory regime is available under CFTC Rule 4.7 to both CPOs and CTAs who file the exemption with the NFA.
This post will provide an overview of the firms which are eligible for the exemption and an overview of the relief granted. We post the entire text of the exemption at the end of this post.
The central reason why some firms will want to utilize the exemption is to keep from going through the disclosure document review process with the NFA which can take anywhere from 3 weeks to 3 months depending on a number of factors. Please note that firms must already be registered with the CFTC which means that Principals and APs will generally need to have the Series 3 exam license. If a CPO wants to remain unregistered, the firm may be able to use the 4.13(a)(4) exemption instead of the 4.7 exemption.
and for CPOs, that the exempt pool will be offered and operated in compliance with the requirements of Rule 4.7.
Generally, the exemption becomes effective upon filing, assuming there are no errors with the filing. It is important to note that the exemption ceases to be effective once a CPO’s/CTA’s circumstances change rendering it ineligible for the exemption. The CPO/CTA must promptly notify the NFA of such change.
*If the CPO chooses to provide investors with an offering memorandum, it must not be misleading and must contain the risk disclosure statement pursuant to Rule 4.7(b)(1).
4.7 Exempt CPOs will still need to file quarterly NFA Rule 2-46 reports for the funds which they manage.
CPOs must remember that while they may file a Rule 4.7 exemption for a particular pool and thus be exempt from the above requirements, the CPO is not exempt as related to the other non-exempt pools that it may operate.
This section is organized as follows: Paragraph (a) contains definitions for the purposes of §4.7; paragraph (b) contains the relief available to commodity pool operators under §4.7; paragraph (c) contains the relief available to commodity trading advisors under §4.7; paragraph (d) concerns the Notice of Claim for Exemption under §4.7; and paragraph (e) addresses the effect of an insignificant deviation from a term, condition or requirement of §4.7.
(ii) Exemption from disclosing the past performance of exempt pools in the Disclosure Document of non-exempt pools except to the extent that such past performance is material to the non-exempt pool being offered; Provided, That a pool operator that has claimed exemption hereunder and elects not to disclose any such performance in the Disclosure Document of non-exempt pools shall state in a footnote to the performance disclosure therein that the operator is operating or has operated exempt pools whose performance is not disclosed in this Disclosure Document.
(iii) The net asset value per outstanding unit of participation in the exempt pool as of the end of the reporting period.
(B) The total value of the participant’s interest or share in the exempt pool as of the end of the reporting period.
(iv) Where the pool is comprised of more than one ownership class or series, the net asset value of the series or class on which the account statement is reporting, and the net asset value per unit or value of the participant’s share, also must be included in the statement required by this paragraph (b)(2); except that, for a pool that is a series fund structured with a limitation on liability among the different series, the account statement required by this paragraph (b)(2) is not required to include the consolidated net asset value of all series of the pool.
(v) A commodity pool operator of a pool that meets the conditions specified in §4.22(d)(2)(i) of this part to present and compute the commodity pool’s financial statements contained in the Annual Report in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board and has filed notice pursuant to §4.22(d)(2)(ii) of this part also may use such International Financial Reporting Standards in the computation and presentation of the account statement.
(D) Where the pool is comprised of more than one ownership class or series, information for the series or class on which the financial statements are reporting should be presented in addition to the information presented for the pool as a whole; except that, for a pool that is a series fund structured with a limitation on liability among the different series, the financial statements are not required to include consolidated information for all series.
(ii) Except as provided in §4.22(d)(2) of this part, such annual report must be presented and computed in accordance with generally accepted accounting principles consistently applied and, if certified by an independent public accountant, so certified in accordance with §1.16 of this chapter as applicable.
(A) If a claim for exemption has been made pursuant to this section, the commodity pool operator must make a statement to that effect on the cover page of each annual report.
(4) Recordkeeping relief. Exemption from the specific requirements of §4.23; Provided, That the commodity pool operator must maintain the reports referred to in paragraphs (b)(2) and (b)(3) of this section and all books and records prepared in connection with his activities as the pool operator of the exempt pool (including, without limitation, records relating to the qualifications of qualified eligible persons and substantiating any performance representations) at his main business address and must make such books and records available to any representative of the Commission, the National Futures Association and the United States Department of Justice in accordance with the provisions of §1.31.
(ii) Exemption from disclosing the past performance of exempt accounts in the Disclosure Document for non-exempt accounts except to the extent that such past performance is material to the non-exempt account being offered; Provided, That a commodity trading advisor that has claimed exemption hereunder and elects not to disclose any such performance in the Disclosure Document for non-exempt accounts shall state in a footnote to the performance disclosure therein that the advisor is advising or has advised exempt accounts for qualified eligible persons whose performance is not disclosed in this Disclosure Document.
(2) Recordkeeping relief. Exemption from the specific requirements of §4.33; Provided, That the commodity trading advisor must maintain, at its main business office, all books and records prepared in connection with his activities as the commodity trading advisor of qualified eligible persons (including, without limitation, records relating to the qualifications of such qualified eligible persons and substantiating any performance representations) and must make such books and records available to any representative of the Commission, the National Futures Association and the United States Department of Justice in accordance with the provisions of §1.31.
(d) Notice of claim for exemption.
( ii ) Prior to any offer or sale of any participation in the exempt pool if the claimed relief includes that provided under paragraph (b)(1) of this section.
( 2 ) Where participations in a pool have been offered or sold in full compliance with part 4, the notice of a claim for exemption may be filed with the National Futures Association at any time; Provided, That the claim for exemption is otherwise consistent with the duties of the commodity pool operator and the rights of pool participants and that the commodity pool operator notifies the pool participants of his intention, absent objection by the holders of a majority of the units of participation in the pool who are unaffiliated with the commodity pool operator within twenty-one days after the date of the notification, to file a notice of claim for exemption under §4.7 and such holders have not objected within such period. A commodity pool operator filing a notice under this paragraph (d)(1)(viii)(A)( 2 ) shall either provide disclosure and reporting in accordance with the requirements of part 4 to those participants objecting to the filing of such notice or allow such participants to redeem their units of participation in the pool within three months of the filing of such notice.
(B) Where the claimant is a commodity trading advisor, be received by the Commission before the date the trading advisor first enters into an agreement to direct or guide the commodity interest account of a qualified eligible person pursuant to §4.7.
(2) The notice will be effective upon receipt by the National Futures Association with respect to each pool for which it was made where the claimant is a commodity pool operator and otherwise generally where the claimant is a commodity trading advisor; Provided, That any notice which does not include all the required information shall not be effective, and that if at the time the National Futures Association receives the notice an enforcement proceeding brought by the Commission under the Act or the regulations is pending against the pool operator or trading advisor or any of its principals, the exemption will not be effective until twenty-one calendar days after receipt of the notice by the National Futures Association and that in such case an exemption may be denied by the Commission or the National Futures Association or made subject to such conditions as the Commission or the National Futures Association may impose.
(3) Any exemption claimed hereunder shall cease to be effective upon any change which would cause the commodity pool operator of an exempt pool to be ineligible for the relief claimed with respect to such pool or which would cause a commodity trading advisor to be ineligible for the relief claimed. The pool operator or trading advisor must promptly file a notice advising the National Futures Association of such change.
(i) Any exemption from the requirements of §4.21, 4.22, 4.23, 4.24, 4.25 or 4.26 claimed hereunder with respect to a pool shall not affect the obligation of the commodity pool operator to comply with all other applicable provisions of part 4, the Act and the Commission’s rules and regulations, with respect to the pool and any other pool the pool operator operates or intends to operate.
(ii) Any exemption from the requirements of §4.31, 4.33, 4.34, 4.35 or 4.36 claimed hereunder shall not affect the obligation of the commodity trading advisor to comply with all other applicable provisions of part 4, the Act and the Commission’s rules and regulations, with respect to any qualified eligible person and any other client to which the commodity trading advisor provides or intends to provide commodity interest trading advice.
(e) Insignificant deviations from a term, condition or requirement of §4.7.
(iii) A good faith and reasonable attempt was made to comply with all applicable terms, conditions and requirements of §4.7.
(2) A transaction made in reliance on §4.7 must comply with all applicable terms, conditions and requirements of §4.7. Where an exemption is established only through reliance upon paragraph (e)(1) of this section, the failure to comply shall nonetheless be actionable by the Commission.
Cole-Frieman & Mallon LLP provides comprehensive legal, registration and compliance services for CFTC registered firms. Bart Mallon can be reached directly at 415-868-5345.
This entry was posted in Uncategorized and tagged commodity exchange act on March 15, 2011 by lsico.

References: §4
 §4
 §4
 §4
 §4
 §4
 §4
 §4
 §1
 §4
 §1
 §4
 §1
 §4
 §4
 §4
 §4
 §4
 §4
 §4
 §4