On February 8, 2012, the Commodity Futures Trading Commission (“CFTC” or “Commission”) put forth final regulations repealing the popular exemption from registration for private fund managers under CFTC Regulation 4.13(a)(4) (exemption for commodity pool operator) and 4.13(a)(8) (exemption for commodity trading advisor). Now many private funds and advisers will have to solely rely on the final rule for the “de minimis” exemption directed by the Dodd-Frank Act.
The de minimis exemption imposes registration only on those entities and individuals who participate in security-based swaps above a certain dollar amount over a previous one-year period. The exemption makes a distinction between dealing activity and non-dealing activity such as “hedging or mitigating commercial risk”. In addition, the rule lists the threshold amount for credit default swaps (CDS) that are security-based swaps at $3 billion, while other categories of security-based swaps have a threshold of $150 million.
However, to ease the transition of the final rule, the de minimis rule will be phased in overtime by the SEC. The initial compliance threshold for CDS will be raised to $8 billion while the threshold for other security-based swaps will be raised to $400 million. The phase-in levels will conclude in the future unless the SEC conducts an investigation and determines a new de minimis threshold is required. The new rule will take effect 60 days after the date of publication in the Federal Register.
For additional information regarding the final rule or any other compliance questions, please contact us at (619) 278-0020 to schedule a consultation.