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CFTC Modernizes Offshore CPO Exemption, Aligns Regulation of Offshore Intermediaries with Global Practices and Current Commission Policies

February 04, 2021
Client Alert

I. Introduction and Executive Summary

At an open meeting held on October 15, 2020, the Commodity Futures Trading Commission (the “CFTC” or the “Commission”) unanimously adopted amendments to Rule 3.10(c), the Commission’s exemption for offshore intermediaries (the “3.10 Exemption” or “Exemption”), to modernize the conditions under which commodity pool operators (“CPOs”) located outside of the United States (“Non-U.S. CPOs”) acting on behalf of offshore pools whose participants are limited to persons located outside the United States (“foreign located persons”) may rely on the Exemption. The amendments become effective on February 5, 2021.

The amendments finalize a proposal published in June of 2020 (the “2020 Proposal”), substantially as proposed but with a number of noteworthy changes recommended by industry commenters. Specifically the amendments provide for:

(1) Pool-by-Pool Reliance. A Non-U.S. CPO may rely on the 3.10 Exemption on a pool-by-pool basis, for pools limited to foreign located persons, while simultaneously relying on registration or on other available exemptions for operation of other pools;

(2) Initial Seed Capital from U.S. Affiliates. A U.S. affiliate of a Non-U.S. CPO may provide initial seed capital to an offshore pool, without jeopardizing the Non-U.S. CPO’s ability to rely on the Exemption for that pool, subject to certain anti-evasion provisions; and

(3) Safe Harbor for Inadvertent U.S. Participants. The amendments provide a safe harbor for Non-U.S. CPOs that take specified steps designed to prevent investment by U.S. participants.

At the same time, the Commission adopted amendments to the Exemption codifying existing no-action relief, substantially as proposed in a 2016 proposal, the comment period for which was re-opened in connection with the 2020 Proposal (the “2016 Proposal” and together with the 2020 Proposal, the “Proposal”). Read more...

Information contained in this publication should not be construed as legal advice or opinion or as a substitute for the advice of counsel. The articles by these authors may have first appeared in other publications. The content provided is for educational and informational purposes for the use of clients and others who may be interested in the subject matter. We recommend that readers seek specific advice from counsel about particular matters of interest.

Copyright © 2021 Stradley Ronon Stevens & Young, LLP. All rights reserved.

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