CFTC And SEC Rules Harmonized To Facilitate General Solicitation

CFTCBy U.S. Government [Public domain], via Wikimedia Commons

The U.S. Commodity Futures Trading Commission (CFTC) has issued an exemptive letter providing relief from certain provisions restricting marketing of investment opportunities to the public.

A Commodity Pool Operator (CPO) claiming the exemptive relief must file a notice with the Division of Swap Dealer and Intermediary Oversight.

CFTC’s JOBS Act exemptive relief

CFTC’s Division of Swap Dealer and Intermediary Oversight issued a letter on September 9, 2014 providing exemptive relief to CPOs of private funds from the general solicitation restrictions set forth in CFTC Regulations 4.7(b) and 4.13(a) (3).

This exemption facilitates CPOs from certain disclosure, reporting and recordkeeping obligations. CFTC’s new relief would harmonize its regulations with Jumpstart Our Business Startups Act (“JOBS Act”) amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933.

Harmony with SEC rules

As reported earlier, in September 2013, the Securities and Exchange Commission lifted its 80-year-old ban on hedge-fund advertising.

However, few hedge funds could take advantage of the new marketing opportunity as the CFTC had maintained its ban on advertising and a large number of hedge fund managers are regulated not only by the SEC, but also by the CFTC. With its September 9th letter, the CFTC finally took steps to make it easier for hedge funds and other firms to advertise investment opportunities.

Donald Steinbrugge of Agecroft Partner, however, points out that very few hedge funds have decided to take advantage of the new SEC regulations largely due to their concern about additional compliance requirements imposed on firms that register for general solicitation.

However, the CFTC’s coming into alignment with the SEC’s view will undoubtedly inspire some hedge funds to seek out new investors using advertising.

The JOBS Act mandated both the SEC and the CFTC relax their hedge-fund advertising bans in an effort to open the market for more startups and spur job growth.

The Hedge Fund Association, a leading global nonprofit trade and nonpartisan lobbying organization, welcomed the CFTC’s recent decision. It is assumed the CFTC’s recent move will remove an impediment to general solicitation and benefit a large number of commodity pool managers trading a variety of future, forex and swap instruments.

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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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