The CFTC proposed amending certain regulations applicable to Annual Reports that commodity pool operators ("CPOs") must distribute for each commodity pool that it operates. The CFTC is proposing to codify the exemptive relief that had been previously provided from Part 4 of its rules on a case-by-case basis.

The CFTC's Notice of Proposed Rulemaking was published in the Federal Register.

The proposal would amend CFTC Rule 4.22(d)(2) to permit the use of alternative accounting standards other than U.S. Generally Accepted Accounting Principles ("GAAP"). These include: International Financial Reporting Standards or other generally accepted accounting practices followed in the U.K., Ireland, Luxembourg or Canada.

Also, the CFTC proposes amending CFTC Rule 4.22(g)(2) to provide for an exemption from the audit requirement applicable to the Annual Report for a pool's first fiscal year when the period from formation of the pool to the end of the pool's first fiscal year is a short period of time. Under the proposal, a CPO could claim this relief when:

  • the time period from the formation of the pool to the end of the pool's first fiscal year is three months or less;
  • during the time period from the formation of the pool to the end of the pool's first fiscal year, the pool had no more than fifteen participants; and
  • during the time period from the formation of the pool to the end of the pool's first fiscal year, the total gross capital contributions received by the CPO for units of participation in the pool did not exceed $1,500,000.

Finally, the proposal would amend CFTC Rule 4.22(c) making audit exemptive relief unavailable when a CPO has not previously distributed an audited Annual Report to pool participants or submitted the audited Annual Report to NFA — e.g., where the CPO has claimed relief pursuant to (proposed) CFTC Rule 4.22(g)(2) and the pool has ceased operations before the end of its first twelve-month fiscal year.

Comments on the proposed amendments must be submitted by September 6, 2016.

This type of general exemptive relief is practical; the CFTC wastes an enormous amount of its time and resources granting routine exemptions. The CFTC should also consider broadening the terms of the exemption or perhaps providing for different sets of conditions. For example, the $1.5 million cap on contributions looks low, particularly when the contributions come from a small number of sophisticated institutions.

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