On February 9th, the CFTC approved certain rule changes intended to increase transparency to the CFTC of commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”) active in the futures and swaps markets. One such change was to rescind an exemption from CPO registration on which hedge fund managers often rely. Specifically, the CFTC rescinded the exemption set forth in Rule 4.13(a)(4), which exempts from CPO registration hedge fund managers that advise funds whose investors are solely “qualified eligible persons” (as defined in Rule 4.7(a)(2)) or “accredited investors” (as defined in Regulation D under the Securities Act of 1933)). The rescission of this rule will become effective 60 days after its publication in the Federal Register.

Significantly, the CFTC retained the Rule 4.13(a)(3) de minimis exemption to CPO registration available to operators of private funds where, among other things, either: (i) the fund’s initial margin and premiums in respect of its commodity interest positions does not exceed 5% of the liquidation value of the fund’s portfolio; or (ii) the aggregate net notional value of its commodity interest positions does not exceed the liquidation value of the fund’s portfolio. The CFTC indicated that swaps activity would be relevant in determining eligibility for this exemption.

The CFTC also modified its Rule 4.5 to require the advisers of an investment company registered under the Investment Company Act of 1940 to register as CPOs if, generally, the fund invests a material amount of its assets in speculative commodity futures, options and swaps. Compliance with this amendment is required by the later of December 31, 2012 and 60 days after the final rulemaking defining the term “swap.” The investment management industry had objected to this new requirement when it was proposed, including through a letter from the Investment Company Institute, the mutual fund trade association, in which it argued that regulation by the CFTC would be burdensome and unnecessary because registered investment companies are already subject to regulation by the SEC. In response, the CFTC issued a proposed rule seeking to harmonize CFTC and SEC requirements and, therefore, reduce compliance burdens on investment companies whose advisors would be required to register as CPOs.

Moreover, the CFTC approved a final rule requiring CPOs and CTAs to file reports regarding their commodity pool assets, including the amount of assets under management, use of leverage, counterparty risk exposure and trading and investment positions for each pool. These new reporting requirements become effective July 2, 2012.