Corporate And Financial Weekly Digest - December 14, 2012

Edited by Robert L. Kohl and David A. Pentlow

CFTC

CFTC Issues No-Action Letters

The Commodity Futures Trading Commission (CFTC) released a series of staff letters relating to various issues arising under rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act, including chief compliance officer (CCO) reports, statutory disqualification prohibitions, commodity pool operator (CPO) registration, certain commodity swaps and certain requirements for non-US persons.

No-Action Relief for FCM Chief Compliance Officers. Pursuant to CFTC Letter No. 12-47, the CFTC's Division of Swap Dealer and Intermediary Oversight (SDIO) granted no-action relief that will allow the CCO of a futures commission merchant (FCM) that was registered with the CFTC on June 4, 2012, and currently regulated by a US prudential regulator or registered with the Securities and Exchange Commission, to file an abbreviated annual report for the FCM's fiscal year ending on or before March 31, 2013. The annual report must be filed within ninety days of the FCM's fiscal year-end and must cover the full fiscal year. The abbreviated annual report must include the following information: An introduction and an executive summary that contains a description of the FCM's business, identifies the FCM's Chief Executive Officer (CEO) and CCO and the time period of the annual report; A review of policies and procedures reasonably designed to ensure compliance with a list of enumerated customer protection rules, including a description of customer protection policies and procedures, an assessment of the effectiveness of the policies and procedures as of the end of the FCM's fiscal year and a discussion of areas for improvement; A description of material noncompliance issues and corresponding actions taken, including corrective actions related to customer protection rules; and CEO and/or CCO certification(s) stating, "To the best of my knowledge and reasonable belief and under penalty of law, the information contained in the attached annual reporting pertaining to the period from October 1, 2012 through [fiscal year end] is accurate and complete." CFTC Letter No. 12-47 is available here. Further CPO Interpretation and No-Action Relief for Securitization Vehicles and mREITs. In two separate no-action letters, CFTC staff provided additional guidance and relief for operators of securitization vehicles and mortgage real estate investment trusts (mREITs) seeking to determine their obligations to register as CPOs. In CFTC Letter No. 12-44, SDIO staff granted relief from CPO registration to operators of qualifying mREITs, provided that the mREIT limits its exposure to commodity interests to the thresholds specified in the letter, is not marketed as a vehicle for trading commodity interests, and has or will identify itself as an mREIT in its US income tax returns on Form 1120-REIT. The relief granted in the letter is not self-effectuating—for mREITs in operation as of December 1, a no-action request must be submitted to SDIO prior to December 31, and for mREITs commencing operations after December 1, a no-action request must be submitted within 30 days after commencing operations. CFTC Letter No. 12-44 is available here. In CFTC Letter No. 12-45, SDIO staff have provided further interpretation of the no-action relief granted to operators of securitization vehicles in CFTC Letter No. 12-14, and have also provided broad no-action relief for securitization vehicles that have not and do not issue new securities after October 12, 2012, as well as time-limited no-action relief to other operators of securitization vehicles. Under the expanded guidance, certain types of securitization vehicles that do not satisfy all of the strict requirements of the original letter may nonetheless be excluded from the definition of "commodity pool" where (among other things) their use of swaps is limited to the extent permitted under Regulation AB and Rule 3a-7 under the Investment Company Act of 1940 and such swaps are not used to create an investment exposure. The letter provides several examples of securitization vehicles that may be excluded under the new...