May 26, 2020

Commodity Pool Operator (CPO) Reporting Relief for a Parent Pool and Its Trading Subsidiary

On September 8, 2014, the DSIO issued CFTC Letter No. 14-112 (Letter 14-112), which grants no-action relief to permit certain commodity pools and their wholly owned subsidiaries to consolidate the annual report financial statements and Form CPO-PQR data. In particular, the DSIO will not recommend that the CFTC take an enforcement action against a CPO of a parent commodity pool (Parent Pool) that uses a wholly owned subsidiary to trade in commodity interests (Trading Subsidiary) for failure to file with the National Futures Association (NFA) a separate annual report for such Trading Subsidiary, pursuant to CFTC Rule 4.7(b) or 4.22(c), or for failure to file a separate Form CPO-PQR with NFA for such Trading Subsidiary, pursuant to CFTC Rule 4.27(c). Letter 14-112 does not apply to CPOs of registered investment companies.1

To be eligible for the consolidated annual report relief, the following requirements must be satisfied:

  1. the Parent Pool cannot be registered as an investment company under the Investment Company Act of 1940 (1940 Act);

  2. the CPO of the Parent Pool must also be the CPO of the Trading Subsidiary;

  3. exposure to the Trading Subsidiary by participants in the Parent Pool must be shared pro rata; and

  4. the CPO must prepare and file with NFA an annual report for the Parent Pool that contains consolidated financial statements for the Parent Pool that includes the holdings, gains and losses, and other financial statement amounts attributable to the Trading Subsidiary.2

To be eligible for the consolidated Form CPO-PQR relief, the above requirements 1-3 must be satisfied, and the CPO must provide a consolidated report to NFA for the Parent Pool that includes the data for the Trading Subsidiary, pursuant to CFTC Rule 4.27(c).

The relief is not self-executing. A notice of claim must be filed in the form described below:

  • state the name, main business address and main business telephone number of the CPO claiming the relief;

  • state the capacity (i.e., CPO) and the name of each Trading Subsidiary for which the claim is being filed and the name of the Parent Pool matched with each Trading Subsidiary;

  • be signed by the CPO, which may be accomplished by attaching a portable document format (PDF) file with the signature of the CPO; and

  • be filed with the DSIO via e-mail using the e-mail address of dsionoaction@cftc.gov with the subject line "Trading Subsidiary Letter 14-112."

Once obtained, the relief will not expire absent a future rulemaking or other CFTC action relating to the subject matter of the relief.

A link to Letter 14-112 can be found here.


1 CPOs of registered investment companies can already obtain similar relief under CFTC Letter No. 13-51 with respect to their controlled foreign corporation subsidiaries.

2 If the Parent Pool and its Trading Subsidiary are subject to different annual report requirements (e.g., CFTC Rule 4.7(b)(3) versus 4.22(c)), the more stringent annual report requirement of CFTC Rule 4.22(c) applies.

© 2020 Vedder Price

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About this Author

Joseph Mannon, Investment Lawyer, Vedder Price Law Firm
Shareholder

Joseph M. Mannon is a member of Vedder Price P.C.’s Investment Services group.

Mr. Mannon focuses his practice on legal and compliance matters for investment advisers, mutual funds, closed-end funds and unregistered vehicles such as hedge funds, hedge fund of funds and other investment entities.  With regard to unregistered vehicles, he frequently counsels clients on fund formation and structuring matters for funds organized both in the United States and abroad.  He also counsels clients on issues relating to commodity trading advisers and...

312-609-7883
Nicole M. Kuchera, Investment Services Attorney, Vedder Price law firm
Associate

Nicole M. Kuchera is an Associate at Vedder Price and a member of the Investment Services group in the firm’s Chicago office.

Ms. Kuchera counsels commodities, securities and derivatives professionals, such as hedge funds, investment advisers, commodity pool operators (CPOs), commodity trading advisors (CTAs), futures commission merchants (FCMs), retail foreign exchange dealers (RFEDs), introducing brokers (IBs), swap dealers (SDs), forex (FX) firms, proprietary trading firms, binary options trading firms and broker-dealers (BDs), in day-to-day legal matters. She also drafts private disclosure documents, subscription materials, compliance manuals, corporate documents, contracts/trade agreements and advertising materials; conducts and oversees blue sky due diligence, filings and rescissions; and provides guidance concerning master-feeder structures, domestic and foreign funds, and international offerings.

312-609-7763