Commodity Futures Trading Commission Open Meeting

Commodity Futures Trading Commission

Open Meeting

Monday, November 25, 2019


Opening Statements & Introduction

Chairman Heath P. Tarbert

After providing a brief overview of the agenda items, Tarbert noted his support for the changes under consideration and stressed that these measures will improve the regulatory experience for market participants as well as enhance harmonization for entities dually registered with the Securities Exchange Commission (SEC) and the Commodity Future Trading Commission (CFTC), specifically commodity pool operators (CPOs) and commodity trading advisors (CTAs).

Commissioner Brian Quintenz

Quintenz voiced his support for both measures under consideration.

Commissioner Dawn P. Stump

Stump voiced her support for both measures under consideration, stressing the importance of the CFTC providing regulatory certainty.

Commissioner Dan M. Berkovitz

Berkovitz noted that not all of the changes he requested regarding relief for family offices made it into the final rule. As such, he voiced his concern about this final version.


Staff Presentation: Final Rule – Amendments to Part 4: Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors

  • Amendments to Rules 4.7, 4.13, and 4.14 (Codification of Relief for Family Offices and Relief Related to the JOBS Act)
  • Amendments for Rules 4.5 and 4.27 (Updating Exclusions and Adding Reporting Relief)


  • Josh Sterling, Director, Division of Swap Dealer and Intermediary Oversight (DSIO)
  • Amanda Olear, Associate Director, DSIO
  • Elizabeth Groover, Special Counsel, DSIO
  • Chang Jung, Special Counsel, DSIO

Sterling stated that these final measures are based on an October 18, 2018 notice of proposed rulemaking issued by the CFTC. He noted that staff received over 30 comment letters from interested market participants and that he believes the final rules reflect a balance of the comments received.

Groover summarized the measures related to rules 4.13 and 4.14 and provided a historical overview of what constitutes a ‘family office’ as well as the previous regulatory environment. She stated that these measures acknowledge the unique nature of family offices, professional organizations that are wholly owned or controlled by clients in a single family and serve as a wealth management mechanism providing investment management as well as tax and estate planning services to the family. She continued that as these entities do not hold themselves to the public as investment advisors, they should not be regulated like registered CPOs and CTAs and that these final amendments are consistent with the exemptions for family offices put forth in staff no-action letters 12.37 and 14.43. She continued that staff believes that an annual filing should not be required for these entities due to the stable nature of family offices and that requiring family offices to file exemption claims would just increase burden while not providing any regulatory benefit. She said that these entities will still be subject to identical record keeping requirements. She concluded that these final measures will better harmonize the conditions that exist between the SEC and CFTC.

Jung presented the regulatory amendments to rules 4.5 and 4.7, related to the JOBS Act, which would provide relief to commodity pools with qualified eligible persons (QEPs) and registration relief to CPOs engaging in a limited amount of derivatives trading. He noted that these regulations are being amended in response to changes caused by the JOBS Act that have resulted in a regulatory mismatch between SEC and CFTC regulations. After providing background on the JOBS Act and the impact it had on the regulatory framework, Jung stated that these measures would permit general solicitation in certain dually regulated private offerings and resales under SEC Regulation D and Rule 144A, respectively. He explained that these changes will better harmonize Part 4 exemptions with SEC regulations that allow issuers and resellers to market their securities more widely and to confirm their existence to the public without fear of violating federal securities laws and regulations, provided that securities sales are limited to sophisticated investors. He continued that these amendments are consistent with the JOBS Act relief letter (CFTC No-Action Letter 14-116) previously issued by the CFTC and that the final amendments are not substantively different when compared to the proposed rules. He concluded that these measures will reduce regulatory friction and provide legal certainty while at the same ensuring protections for the public.

Turning to the changes proposed for rule 4.5, Jung stated that this amendment will clarify that existing exclusions from the CPO definition for SEC-registered investment companies (RICs) should be claimed by the entity that solicits for and operates the RIC. This entity, more often than not, is usually its SEC-registered investment adviser (RIA). As such, Jung noted that RIAs, as opposed to the RICs under their supervision, should claim exclusions from the CPO definition because they better resemble CPOs and are already registered with the SEC. These changes would also amend rule 4.5 to exclude RIAs of business development companies, due to their unique role and use of derivatives for hedging and to manage risks related to the companies in which they invest, from the CPO definition. This would codify existing staff no-action relief that has been in effect since 2012. Jung concluded that these amendments would better harmonize the CFTC’s part 4 registration requirements with the SEC and that the final version of these measures is identical to the proposed text.

Olear summarized the amendments to rule 4.27 which would 1) remove redundancies in terms of regulatory filing requirements for certain registered CPOs that only operate pools for which they claim a CPO exemption or exclusion and 2) remove filing requirements for registered CTAs that do not direct client accounts or who are already required to report substantially similar information due to being registered in another capacity. She noted that the final rule is the same as the proposed rule and stated her belief that these changes will ease regulatory burden for market participants while streamlining the regulatory duties of the CFTC.

Question & Answer

Berkovitz voiced his concern with the final rule concerning family offices, specifically regarding the absence of notice and disqualified persons provisions. He stated that the absence of these provisions hampers the ability of the CFTC to properly conduct market surveillance as he believes that the CFTC needs to know who is operating these commodity pools and whether there are disqualified persons operating exempt pools. He continued that family offices manage massive amounts of money and are becoming a disruptive force in the marketplace. He outlined his belief that these factors combined with family offices’ use of commodity pools should be of regulatory interest. He concluded that harmonization with SEC rules should not be undertaken for solely harmonization’s sake and that there needs to be a regulatory benefit for doing so.

Behnam also asked about the lack of notice provisions and how these amendments will impact the market surveillance mission of the CFTC. Sterling responded that staff believes that these changes will not affect the ability to conduct comprehensive market surveillance. Behnam also asked about the impact of these amendments on standing no-action letters. Olear said that these final rules will supersede 12.37 and 14.143. She continued that certain entities who have received one-off interpretive letters will be permitted to continue to operate in accordance with such guidance. Behnam concluded that he will support the final rules but that he maintains his concern regarding the lack of notice provisions.

Quintenz again voiced his support for the amendments and noted that historically, the registration regime for CPOs never had anything to do with the amount of wealth they oversee but was designed to serve as a level of protection for outside investors in that pool. He asked, referencing National Futures Association (NFA) bylaw 1101 which states that no member of the NFA may do business with an unregistered entity, that when there is a family office that is not registered pursuant to no-action relief, but should have registered in the absence of such relief, how NFA members will know they can trade with such unregistered entities. Groover stated that such family offices are essentially showing their effective claims of the no-action relief to those firms to show that they are not in scope of this bylaw.

Final Vote (Amendments to Rules 4.7, 4.13, and 4.14 (Codification of Relief for Family Offices and Relief Related to the JOBS Act))

The final rule was approved in a 4-1 vote, with Berkovitz opposing.

Final Vote (Amendments for Rules 4.5 and 4.27 (Updating Exclusions and Adding Reporting Relief)

The final rule was approved in a 5-0 unanimous vote.

Closing Statements

Berkovitz echoed his earlier comments and reiterated the need to only simplify and harmonize when retaining or advancing the regulatory mission of the CFTC.

Stump stated that simplicity is not the objective in and of itself, but that the commission should avoid erecting any unnecessary regulatory obstacles for market participants. She stressed the need that any information collected by the CFTC should demonstrate utility in advancing the regulatory mission of the CFTC. She concluded that regulatory certainty will breed a culture of compliance.

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