Morris Manning & Martin, LLP

CFTC Proposed Regulations to Provide Regulatory Certainty for BDCs and Registered Investment Companies


On October 9, 2018, the Commodity Futures Trading Commission (CFTC) proposed regulations that make certain prior no-action, exemptive and advisory relief, provided to commodity pool operators (CPOs) and commodity trading advisors (CTAs), permanent. The proposed amendments to Part 4 of the CFTC’s regulations will directly impact business development companies (BDCs), registered investment companies, including closed-end funds and interval funds, and registered investment advisers to BDCs and registered investment companies.

The CFTC’s proposed amendment to Section 4.5, which codifies CFTC No-Action Letter 12-40, provides exclusionary relief, subject to certain conditions, to BDCs and their investment advisers from the requirement to register with the CFTC as a CPO. With the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, BDCs that engage in derivative transactions, such as swap transactions, were brought within the scope of the Commodity Exchange Act (CEA) in connection with the definition of commodity interest. To claim relief from CPO registration, CFTC No-Action Letter 12-40 and the proposed CFTC regulations require that BDCs must (1) elect to be treated as a BDC under the Investment Company Act of 1940, as amended; (2) file a notice with the CFTC Division of Swap Dealer and Intermediary Oversight; (3) comply with a de minimis trading thresholds in Section 4.5.; and (4) not have been or must not market BDC interests to the public as investments in commodity pool, or otherwise as a vehicle for trading of commodity interests.

In addition, the CFTC proposes to add BDCs to the category of investment vehicles in Rule 4.5 whose operator may claim exclusion from having to register as a CPO. The same rule will apply to all registered investment companies. In connection with this proposal, Section 4.5 would also be amended to specifically identify the investment adviser to a BDC or a registered investment company as the entity claiming the CPO exclusion, subject to annual re-affirmation of the exclusion.

A copy of the CFTC release is available at:

If you have questions about this client alert or how it may apply to your business, please contact the authors, Owen J. Pinkerton and Katya R. Keremidchieva.