The Commodities Futures Trading Commission has adopted a proposed exemption from commodity pool operator (CPO) registration for certain independent directors of commodity exchange-traded funds. While it does not affect mutual fund trustees directly, the recent commodity ETF rulemaking, which also codifies the relief from disclosure, reporting and recordkeeping requirements for CPOs of these active-managed commodity pools, provides a signal that the CFTC recognizes that CPO registration does not make sense for independent directors, according to Chris Palmer, partner at Goodwin Procter. “Hopefully the CFTC will apply that same logic to any rulemaking involving mutual funds,” added Palmer.
In February, the CFTC proposed amendments to Regulation 4.5 that would roll back exemptions for investment companies that invest in commodities and could include independent directors as CPOs, which led to immediate industry pushback and concerns (FD, March).
“This is a good sign that the CFTC has acknowledged that independent directors should be exempt,” said Alyssa Albertelli, partner at Ropes & Gray. The commodity ETFs discussed in the new CFTC amendments are not governed under the Investment Company Act of 1940 but are required under the Securities Exchange Act of 1934 and Sarbanes-Oxley to have independent directors for the audit committee to meet exchange listing standards.
The amendments go into effect June 17.