On Oct. 9, 2018, in a wide-ranging notice of proposed rulemaking (the “KISS Proposal”), the Commodity Futures Trading Commission proposed (1) to codify several accepted practices that currently rely on no-action letters and similar CFTC staff guidance and (2) to make a number of substantive changes to CFTC regulations, such as offering broader exemptive relief for offshore funds and imposing disqualifications from certain commonly claimed exemptions.

The proposals are now in a comment period, so investment managers that (1) are CFTC registrants, (2) are claiming one or more exemptions from CFTC registration or (3) operate funds that are claiming one or more exemptions under the CFTC’s regulations should review the proposals to determine what, if any, changes the KISS Proposal would have on their businesses. Some managers may deem it useful to submit comment letters to the CFTC explaining what the effect of these regulations, if adopted, would be on their businesses.

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In its budget request for fiscal year 2018, the CFTC outlined an increasingly muscular enforcement effort, stating that, “the Commission will utilize its enforcement resources to continue preserving market integrity[.]” This 2017 request, however, also foreshadowed a new enforcement initiative for 2018, one focused on:

“Increasing effectiveness and efficiency of enforcement through cooperative enforcement with SROs, state, Federal, and international authorities, including achieving efficiencies through referrals[.]”

The fruits of this “cooperative enforcement” initiative became evident in the last three weeks of the CFTC’s 2018 fiscal year. In what has become a familiar pattern with other federal regulators, the close of the fiscal year is preceded by the announcement and resolution of numerous enforcement actions. What was especially noteworthy this year, however, was the number of CFTC enforcement actions that were marked by nearly-simultaneous settlements with self-regulatory organizations, such as the National Futures Association, the self-regulatory organization for the commodity derivatives industry, and CME Group, a global operator of commodity futures and options exchanges.

To read more about these recent settlements and the implications for private fund managers, click here.

On May 22, 2017, the U.S. Commodity Futures Trading Commission amended and supplemented several CFTC regulations to strengthen anti-retaliation protections for whistleblowers under the Commodity Exchange Act. These amendments, in general, make the CFTC’s whistleblower protections consistent with those afforded by Securities and Exchange Commission rules and reinforce the need for private fund managers that are registered as commodity pool operators or commodity trading advisors to take affirmative steps to avoid violating federal regulations regarding whistleblowing.

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In an interview with Corporate Disputes Magazine, partner Brian Daly discusses key issues facing commodities markets, including the impact of the current regulatory environment and common types of commodities-related litigation. He also discusses the steps companies can take when facing commodities-related litigation, and his expectations for how commodities litigation will develop over the next 12 months.

Click here to read the interview.

In recent weeks, the U.S. Commodity Futures Trading Commission has issued several final rules and rule proposals that directly affect hedge fund managers that trade in futures contracts (and in other commodity interests) and private equity fund managers with portfolio companies that may, as part of a hedging or raw materials acquisition effort, engage in commodity interest transactions. All fund managers should review these changes to determine if they present limitations on their business or require regulatory relief filings; registered commodity pool operators and commodity trading advisors, of course, should review all of the developments discussed.

Click here to read more about these developments.

n Sept. 17, 2015, the Commodity Futures Trading Commission issued an order against an online platform (and against its sponsor) for facilitating the trading of Bitcoin options contracts.[1] The Order is based on the activities of Francisco Riordan, the chief executive officer of Coinflip Inc., and of Coinflip itself in operating an unregistered online trading platform that enabled trading in Bitcoin-based derivatives.

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On Feb. 27, 2015, the Commodity Futures Trading Commission, Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency, and Securities and Exchange Commission (collectively, the “Agencies”) published a new FAQ on the Agencies’ rule promulgated under Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is commonly referred to as the “Volcker Rule.” The new FAQ now makes clear that the Volcker Rule does not necessarily prohibit non-U.S. banking entities from investing in third-party managed hedge funds and private equity funds, even where the ownership interests of such funds are marketed and sold to U.S. investors.

Click here to read more about this update.

On Oct. 15, 2014, the staff of the Commodity Futures Trading Commission issued a letter granting no-action relief to persons seeking to delegate their commodity pool operator authority to others.

The October letter expands upon the relief granted in an earlier (May 2014) letter in two respects:

  • Unlike the May letter, the October guidance provides self-executing relief (i.e., no application need be made, and no notice is required to be filed with the CFTC); and
  • The October letter also addresses some technical, but often problematic, impediments to accessing the relief granted through the May letter.

Click here to read more about the CFTC relief.

On Sept. 9, 2014, the U.S. Commodity Futures Trading Commission staff granted broad relief intended to remove an obstacle to the ability of market participants, under rules previously promulgated by the U.S. Securities and Exchange Commission, to utilize general solicitation and general advertising in conducting placements of hedge fund and private equity fund interests (and other securities). This relief has certain conditions and does not represent a resolution of all of the questions and concerns surrounding the use of general solicitation and general advertising, as highlighted here.

On May 12, the Commodity Futures Trading Commission staff issued guidance for so-called “CPO delegation” arrangements, which are situations where an individual or entity that could otherwise be obligated to register with the CFTC as a commodity pool operator (a “CPO”) seeks to delegate its commodity pool operator authority to another person.

Click here to read more details on the guidance.