Saturday, December 1, 2012
It is challenging times now for those investment managers who have recently launched hedge funds. It is due to the change in regulations by the Commodities Futures Trading Commission (CFTC) enacted in February of 2012. Operators of potential commodity pools are required to determine whether they operate a "commodity pool", and if yes, then they must register with the CFTC by December 31, 2012 or rely on an exemption from registration. It is not an easy task to determine whether the hedge fund is a commodity pool. In particular, potential commodity pool operators should check to see whether any of the agreements they have entered into are swaps. All Title VII instruments that are swaps will, effective December 31, 2012, be included into the definition of a commodity pool along with other instruments, such as futures contracts, security futures products, commodity options, and many others. Previously, many funds relied on Rule 4.13(a)(4) exemption from registration. This exemption is no longer available and the transition period expires on December 31, 2012. Now, unless investment managers qualify for other exemptions, they only have one month to register as CPOs with the CFTC.
For a closer analysis of what is a "commodity pool", I'd like to refer to an excellent blog post by Doug Cornelius. The full version is found here.
"In looking closer at the statutory definition of “commodity pool” it seems that single swap should not turn a private fund into a commodity pool.