CFTC Adopts Final Harmonization Rules
By THE INVESTMENT MANAGEMENT PRACTICE
On August 13, 2013, the Commodity Futures Trading Commission (the “CFTC”) issued final rules clarifying the compliance obligations for investment advisers of registered investment companies (“RICs”) that must register with the CFTC as commodity pool operators (“CPOs”). In February 2012, the CFTC narrowed the exclusions from the definition of “commodity pool operator” available under Rule 4.5 of the Commodity Exchange Act (the “CEA”) for investment advisers to investment companies registered with the Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940. The amendments imposed a new de minimis trading threshold in order for such advisers to be excluded from the definition of a CPO. The amendments had the effect of requiring many more advisers to RICs that invest in commodity instruments (including certain types of derivatives) to register as CPOs than had been the case under the prior Rule 4.5 regime. As of December 31, 2012, under the new Rule 4.5, advisers to entities that exceeded the de minimis trading threshold became subject to dual registration with both the CFTC and the SEC. Because the rules applicable to CPOs under the CEA were different, and sometimes inconsistent with, the rules applicable to RICs under the Investment Company Act of 1940 and the Securities Act of 1933, the CFTC adopted “Harmonization Rules” to resolve the duplicative, inconsistent, and possibly conflicting, disclosure and reporting requirements that would otherwise apply to dually registered CPOs of RICs.