The deadline for re-affirming CPO exemptions/exclusions is approaching

CFTC Regulation 4.5

Of the Part 4 regulations, CFTC regulation 4.5 is relevant to business development companies (BDCs). 

Per the Commodity Exchange Act (CEA) and CFTC regulations, a collective investment vehicle that engages in commodity interest (i.e., futures, swaps or options) trading is a “commodity pool.” This definition technically captures BDCs. Persons who operate commodity pools (i.e., BDC managers) are CPOs under the CEA and CFTC regulations. CPOs are required to register with the CFTC via the National Futures Association (NFA) and registered CPOs are subject to myriad regulatory compliance obligations. 

Among other things, CFTC regulation 4.5 affords an exclusion from the CPO definition for managers of BDCs and registered investment companies (RICs). Pursuant to CFTC regulation 4.5, a manager of a BDC or RIC does not need to register as a CPO so long as:

1. The manager does not market the BDC or RIC to the public as an investment in a commodity pool or otherwise as an investment vehicle for the trading of commodity interests;
2. The manager represents that it limits the use of commodity interests in the BDC or RIC consistent with a de minimis trading threshold under CFTC Regulation 4.5(c)(2)(iii)(A)-(B);¹ and
3. The manager claims the exception with the NFA.

In addition, disclosure about the BDC or RIC manager’s reliance on the CFTC regulation 4.5 exclusion with respect to the BDC or RIC must be made to investors in writing. This disclosure typically appears in the prospectus, the annual report on Form 10-K, or the quarterly report on Form 10-Q.

Claiming Relief with the NFA

The NFA’s exemptions filing system is available at https://www.nfa.futures.org/electronic-filing-systems/exemptions.html. A BDC or RIC manager will need to create an account to use the exemptions filing system and must have certain information about the RIC or BDC available, including its tax identification number. If any assistance is required, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work. 

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If you have any questions about this legal briefing, please feel free to contact any of the attorneys listed under 'Related People/Contributors' or the Eversheds Sutherland attorney with whom you regularly work.