you asked, they answered: CFTC publishes updated FAQ for form CPO-PQR | K&L Gates LLP
On May 26, 2021, the Market Participants Division (MPD) of the Commodity Futures Trading Commission (CFTC or the Commission) released updated responses to frequently asked questions regarding Form CPO-PQR and CFTC Rule 4.27 (the FAQ 2021). The purpose of FAQ 2021 is to provide guidance to Product Pool Operators (CPOs) who file the recently revised CPO-PQR form.1
Form CPO-PQR and CFTC Regulation 4.27
The CPO-PQR form is a repository designed to collect data from registered CPOs2 on each of their exploited futures pools. CFTC regulation 4.27 requires CPOs to file the CPO-PQR form with the National Futures Association (NFA).3 The Commission began requiring CPOs to file the CPO-PQR form in 2012.4
On October 6, 2020, the Commission adopted a final rule amending CFTC Regulation 4.27 and form CPO-PQR (the 2020 Final Rule).5 Specifically, the 2020 Final Rule removed the existing Schedules B and C from the CPO-PQR form, with the exception of the list of pool investments; amended the information requirements of Annex A of the CPO-PQR form; required all reporting CPOs to submit the CPO-PQR form on a quarterly basis; authorized CPOs to substitute compliance with the NFA PQR form; and eliminated the possibility of replacing compliance through the joint PF form.6
Key FAQ clarifications
The 2021 FAQ answers several questions specific to the changes made by the 2020 Final Rule. Additionally, the 2021 FAQ updates previous and outdated answers provided in an FAQ published by the CFTC Division of Dealer Oversight and Swap Intermediaries on November 5, 2015. We discuss some notable clarifications or tips below.
The FAQ 2021 clarifies that if one or more pools of a CPO cease operations at the latest at the end of a reporting period (the date on which the filing requirements of the CPO-PQR form become determinable or “join”) , the reporting CPO must exclude the pool from its CPO-PQR form, as the pool would no longer have “managed assets… under the advice of the CPO”, as required by 17 CFR 4.27 (c) (1).7 However, other compliance obligations, such as the final annual report, may still apply.
According to FAQ 2021, pools that invest in other pools, including those that are exempt under 17 CFR 4.13 (a) (3), as well as pools excluded from the definition of CPO under 17 CFR 4.5 , must always be detailed and included in the Pool Investments Table.8 Additionally, a reporting CPO is required to include pools operated in accordance with CFTC Notice 18-96.9 or an exemption under 17 CFR 4.7 on its CPO-PQR form.ten
The 2021 FAQ states that the preferred approach of the Commission for reporting the rates of return of a pool with more than one share class without limitation of liability among the classes is to report the monthly rates of return on an aggregate basis. for all share classes on the basis of the net asset value of the pool.11
Finally, the 2021 FAQ states that doubly registered investment advisers and CPOs (IA-CPOs) are no longer allowed to file the SEC PF form in place of the CFTC CPO-PQR form.
- Since IA-CPOs are no longer permitted to file the Securities and Exchange Commission (SEC) Form PF instead of Form CPO-PQR, some market participants will need to change their compliance and operational procedures, which may result in additional compliance burden each quarter.
- The CPO-PQR form applies to registered CPOs. However, data relating to exempt term pools must also be reported in certain circumstances.
- In addition to the 2021 FAQs, NFA members should carefully review the instructions and tips in the NFA FAQ before completing the PQR form.12 As a reminder, members of the NFA must file the PQR form with the NFA.
K&L Gates’ Global Futures and Derivatives team will continue to monitor these developments as well as future developments related to the CFTC and the global derivatives regulatory program.
1 The 2021 FAQ can be found here.
2 The Commodity Exchange Act defines a CPO, in essence, as any person engaged in a business which is in the nature of a commodity pool, investment trust, syndicate or similar form of company, and which, with regard to this pool of raw materials, solicits, accepts or receives from third parties, funds, securities or goods, either directly or through capital contributions, the sale of stocks or other forms of securities, or otherwise, for the purpose of trading interest in commodities. See 7 USC § 1a (11) (A) (i).
3 17 CFR § 4.27 (c) (1).
4 See Commodity Pool Operators and Commodity Trading Advisors: Compliance Obligations, 77 Fed. Reg. 11252 (February 24, 2012).
5 See Compliance Requirements for Product Pool Operators on Form CPO-PQR, 85 Fed. Reg. 71772 (November 10, 2020).
6 See id.
7 See the answer to question 1 of the 2021 FAQ.
8 See the answer to question 4 of the 2021 FAQ.
9 CFTC Notice 18-96 provides certain CPOs that operate offshore product pools with an exemption from certain disclosure, reporting and record keeping requirements as well as the requirement to locate books and records, provided that certain conditions are met.
ten See the answer to question 5 of the 2021 FAQ.
11 See the answer to question 14 of the 2021 FAQ.
12 See NFA FAQ for CPO PQR form available here.