CFTC Open Meeting
Commodity Futures Trading Commission
Open Meeting
Thursday, June 4, 2020
Opening Statements
Chairman Heath P. Tarbert
In his opening statement, Tarbert outlined the agenda for the call and noted his support for the final rule as it furthers the Commission’s goal to protect investors.
All other Commissioners noted their support for the rule but reserved further comments for the Q&A period.
Staff Presentation
Final Rule: Amendments to Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors – Prohibiting Exemptions under Regulation 4.13 on Behalf of Persons Subject to Certain Statutory Disqualifications
- Joshua B. Sterling, Director, Division of Swap Dealer and Intermediary Oversight (DSIO)
- Amanda Olear, Deputy Director, DSIO
- Elizabeth Groover, Special Counsel, DSIO
Groover summarized the final rule stating that it would require any person that files with the Commission a notice claiming an exemption from registration as a CPO under Regulation 4.13 of the Commodity Exchange Act (CEA) to affirmatively represent that neither the claimant nor any of the CPO’s principals has in its background any statutory disqualification listed in section 8a(2) of the CEA, which are required to be disclosed as a part of a CPO registration application with the Commission. She continued that Commission staff recommends guidance be issued alongside the final rule regarding current CPOs operating exempt pools to grant them sufficient time to pursue adequate investigation of claimants in order to not be in violation.
Q&A
Chairman Heath P. Tarbert
In his statement of support, Tarbert stated that this final rule is intended to address the consequences of the most serious types of financial crimes, such as embezzlement, theft, extortion, fraud, misappropriation and bribery. He continued that this measure will close a loophole for bad actors that allowed a statutorily disqualified person who wishes to operate a fund that trades derivatives to simply claim one of the exemptions from registration as a CPO under CFTC Rule 4.13. Tarbert asserted that this final rule will further enhance customer protections and public confidence in the integrity of derivatives markets. He also noted that while this prohibition on statutory disqualification does not include offenses for which the CEA itself requires a hearing prior to disqualification, he is comfortable with the exclusion as it is consistent with legislative intent and because CPOs relying on a Rule 4.13 registration exemption generally do not manage the money and derivatives positions of the retail public at large. Tarbert also commended the National Futures Association (NFA) for their strong support for this rule and their role in promoting the integrity of the derivatives markets. He concluded with an announcement that after conversations with Commissioner Berkovitz regarding the previously adopted registration exemption for CPOs that meet the definition of “family office” under the Securities and Exchange Commission’s (SEC) regulation governing investment advisers, he has instructed the DSIO to conduct a special call to determine how many family office managers would be prohibited from claiming the exemption if they were covered by this rule.
Commissioner Brian D. Quintenz
Quintenz stated that he is fully supportive of the final rule. He elaborated that while an exempt CPO is more limited in its activities than a registered CPO, an exempt CPO still manages money for the public and should therefore be held to critical consumer protection standards under the CEA.
Commissioner Rostin Behnam
In outlining his support for the final rule, Behnam stated that it aggressively advances customer protection in a tangible way and aids the Commission in its statutory duty to provide a foundational level of security on which customers can rely upon. He continued that the final rule addresses the significant number of public comments, especially those seeking clarity on process and procedure. He then asked whether relevant information will be made available to the public in the event an individual requests a review of their statutory disqualification. Staff responded that both the request and the response from the Commission will be made publicly available on the Commission website and that they are working with the NFA on how to include this information in their listings as well.
Commissioner Dawn D. Stump
In elaborating on her support for the measure, Stump emphasized “one-size-fits-all” rules rarely work for the dynamic nature of the derivatives markets. She continued that exemptions critically assist the Commission in adapting rules to the changing realities of the marketplace. Stump stated that being exempt does not entail being outside the Commission’s regulatory framework altogether and that the final rule provides that the serious statutory disqualifications listed under Section 8a(2) of the CEA can preclude a CPO from registering with the Commission and will also preclude said CPO from acting in an exempt capacity under Rule 4.13. Stump asked staff to elaborate on their decision regarding not to exclude investment advisers registered under the SEC to which staff responded that this decision was made after consultation with the SEC and reaching the determination that the statutory disqualification regime under the Investment Advisers Act differs materially when compared to the CEA.
Commissioner Dan M. Berkovitz
Berkovitz spoke in support of the final rule and commended Chairman Tarbert for his decision to hold a special call regarding exemptions relating to CPOs of family offices. He continued that this rule will ensure that those disqualified under Section 8a(2) from operating in registered activities will not be able to skirt these restrictions by engaging in exempt activities. Specifically, he noted his approval that registered investment advisers were excluded from this rule.
Final Vote:
The final rule was approved unanimously.
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