MFA submitted comments to the Commodity Futures Trading Commission (CFTC) in response to the Commission’s notice of proposed rulemaking to CFTC Regulation 4.7 (the “NPRM”). MFA appreciates the Commission’s vigilance in reviewing its regulatory framework to ensure that it meets the current needs of commodity market participants, while considering the impact of any rulemaking on both investors, and commodity pool operators (“CPOs”) and commodity trading advisors (“CTAs”).
The letter highlights that the NPRM includes several proposed disclosure requirements that are premature to consider and that, if adopted, would not provide any protections above and beyond the current regulations applicable to 4.7 CPOs and CTAs. MFA’s letter notes that increasing the investor qualification thresholds for qualified eligible persons (QEPs) could be an effective way to modernize Regulation 4.7. However, MFA opposes parts of the proposal that require 4.7 CPOs and CTAs to provide their sophisticated investors with overly prescriptive, and potentially misleading, disclosures that conflict with other CFTC regulations. The letter also highlights MFA’s concern about increased costs and internal inconsistencies within the NPRM.
MFA recommends that the Commission reconsider the NPRM as discussed below.
1. An increase, if any, in the Portfolio Requirement thresholds should carve out certain employees of CPOs and CTAs and does not need to be accompanied by mandatory minimum disclosures to protect the interests of investors.
2. There is no specific evidence indicating that the minimum disclosure obligations in the NPRM would enhance investor protections or otherwise remedy any existing investor protection concerns.
3. The NPRM would result in excessive, unnecessary, and potentially misleading disclosures to investors because it would impose existing performance and disclosure rules designed to apply to retail and non-sophisticated investor offerings, on complex, multi-layered private fund offerings to sophisticated investors.
4. The NPRM would not cure any perceived asymmetry of data concerns, and in some cases would decrease the usefulness of disclosures that many private fund advisers, CPOs and CTAs already provide to investors in the normal course of business.
5. The CFTC’s existing regulatory framework is sufficient to provide effective oversight of 4.7 CPOs and CTAs and to ensure that disclosures provided to investors are relevant, useful, accurate and not misleading.
6. The Commission should revise the NPRM to eliminate the requirement for CPOs and CTAs of 4.7 pools and accounts to provide the specifically prescribed disclosures and performance information in CFTC Regulations 4.24, 4.25, 4.34, 4.35 (the “Disclosure and Performance Rules”), and instead should continue to permit CPOs and CTAs of 4.7 pools and accounts to provide relevant and accurate disclosures and performance. CPOs and CTAs of 4.7 pools and accounts are best suited to develop relevant disclosures that would best benefit such sophisticated investors.
7. The NPRM would increase costs on CPOs and CTAs, which the CFTC has not adequately considered, without improving the data, disclosure, and performance information available to investors.
8. The NPRM in some respects is internally inconsistent, and we request that the Commission provide clarification with respect to certain aspects of the NPRM.
