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CFTC’s Division of Swap Dealer and Intermediary Oversight Extends Exemptive Relief From CFTC Regulations 4.7 and 4.2 Requirement to Prepare Financial Statements in Accordance With US GAAP

On March 30, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued Letter 18-09, which granted exemptive relief to a commodity pool operator (CPO) of a foreign “Master Fund” and a US “Feeder Fund.” CFTC rules generally require that the financial statements a CPO is required to provide US pool participants, both in periodic reports and the annual report, must be prepared in accordance with US generally accepted accounting principles (US GAAP). However, where the pool is organized under the laws of a foreign jurisdiction, CFTC Rule 4.22(d)(2)(i) authorizes a CPO to compute and present financial statements in accordance with applicable accounting standards in that jurisdiction, including International Financial Reporting Standards (IFRS), subject to the conditions set out in the Rule. One such condition is that, where the accounting principles, standards or practices of the other jurisdiction require consolidated financial statements for the pool, such as a feeder fund consolidating with its master fund, all applicable disclosures required by US GAAP for the feeder fund must be presented with the reporting pool’s consolidated financial statements.

The CPO requested relief to allow it to calculate and present the financial statements for a US-organized feeder fund in accordance with IFRS, noting that requiring the CPO to use US GAAP: (1) would be inconsistent with the understanding of the US Feeder Fund’s participants, who currently receive periodic account statements and annual financial statements presented in accordance with IFRS; and (2) would require the CPO to incur additional expense in having the financial statements recalculated and certified in accordance with US GAAP in addition to the original IFRS preparation.

DSIO granted the requested relief subject to the conditions that the CPO: (1) prepared the financial statements in accordance with IFRS, and (2) reconciled the statements to US GAAP, where the IFRS preparation would present a material difference from such statement’s preparation in accordance with US GAAP.

CFTC Letter No. 18-09 is available here.

©2019 Katten Muchin Rosenman LLP


About this Author

Christian B. Hennion, Finance Attorney, Katten Muchin Law Firm

Christian B. Hennion concentrates his practice in financial services and asset management matters, including counseling fund managers, registered investment advisers and commodity trading advisors on both transactional and regulatory matters. Chris has advised a wide range of US and international managers, from start-ups to large institutions, regarding a variety of matters, including private fund launches and reorganizations, advisory engagements, Investment Advisers Act and Commodity Exchange Act compliance obligations, Securities and Exchange Commission (SEC) and Commodity Futures...

Timothy Nolan, Katten Law Firm, Chicago, Corporate Law Attorney

Timothy Nolan concentrates his practice on transactional, corporate and regulatory aspects of financial services matters. Timothy is able to provide legal services to a wide variety of clients, including proprietary trading firms, hedge funds, broker-dealers, registered investment advisers, commodity trading advisers, financial institutions and general corporate clients.

Prior to joining Katten, Timothy served as the CEO and the president of the board of directors of a small commercial real estate company and spent 10 years in the scrap recycling industry, including several years as general manager of a mid-sized company. In his time in the scrap recycling industry, Timothy worked with traders, brokers, importers and exporters, and other industry professionals around the world relating to ferrous, non-ferrous and precious metal recycling, together with paper and plastic recycling.