CFTC Approves Changes to Form CPO-PQR

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CFTC Building

Authored by: Financial Services Partners Kenneth R. Earley and Ethan Corey

CFTC Building

Beginning Stages to Revise CFTC Form CPO-PQR Are In Effect

On October 6, 2020, the Commodity Futures Trading Commission (CFTC) adopted amendments to certain compliance requirements for commodity pool operators (CPOs) under CFTC Rule 4.27 as well as substantial revisions to CFTC Form CPO-PQR.1  The CFTC adopted the amendments to the Rule and the revised Form largely as proposed2 and noted that the changes represent the first in a line of steps that the CFTC intends to take to reassess the Form, information collected by the CFTC, and the form and manner in which the CFTC collects and uses that information.

Specifically, the revisions to CFTC Form CPO-PQR:

  • Eliminate the pool-specific reporting requirements in Schedules B and C of the existing Form, other than the pool schedule of investments currently requested by question 6 of Schedule B;
  • Amend the information requested and instructions in Schedule A of the existing Form to include Legal Entity Identifiers (LEIs) for CPOs and their pools (if any pools have obtained LEIs); and
  • Eliminate questions from Schedule A of the existing Form regarding pool auditors and marketers.

Quarterly Filing Schedule for All CPOs Completing the Revised CFTC Form CPO-PQR

Currently, a Large CPO (a CPO that had at least $1.5 billion in aggregated pool assets under management (AUM) as of the close of any day during a calendar quarter) must file CFTC Form CPO-PQR on a quarterly basis, whereas a Small or Mid-Sized CPO (a CPO that did not have at least $1.5 billion in aggregated pool AUM as of the close of any day during a calendar quarter) must file the Form on an annual basis with respect to the calendar year.  Going forward, all CPOs will be required to file the revised CFTC Form CPO-PQR on a quarterly basis, regardless of a CPOs size. 

However, because the National Futures Association (NFA) requires Small and Mid-Sized CPOs to file NFA Form PQR3 for the first, second and third quarters of each calendar year, all CPOs regardless of size have already effectively had a quarterly filing obligation.  As such, a CPO’s filing schedule has not actually changed.

Substituted Compliance

The CFTC has amended CFTC Rule 4.27(c)(2) to clearly establish that a CPO may file NFA Form PQR in lieu of filing the revised CFTC Form CPO-PQR, since after the revisions to the CFTC Form and corresponding revisions to the NFA Form4, the two Forms will effectively be the same.  Consequently, Small and Mid-Sized CPOs that currently file NFA Form PQR for their other-than-annual filings and CFTC Form CPO-PQR for their annual filings will be able to satisfy both their CFTC and NFA quarterly filing requirements using only NFA Form PQR. 

Similarly, Large CPOs that currently file CFTC Form CPO-PQR for their quarterly filing requirements (or, depending on the facts and circumstances, currently file NFA Form PQR for their other-than-annual filings and CFTC Form CPO-PQR for their annual filings) will be able to satisfy both their CFTC and NFA quarterly filing requirements using only NFA Form PQR.

Conversely, the CFTC has also amended CFTC Rule 4.27(d) to eliminate the provision that allows a CPO that is also registered as an investment adviser with the Securities and Exchange Commission (SEC) to list its investment vehicles that are not “private funds” (e.g., pure commodity pools) on SEC Form PF in lieu of including such vehicles in its CFTC Form CPO-PQR5.  These investment vehicles will now need to be included in the CPO’s CFTC Form CPO-PQR.  The elimination of this provision of the Rule aligns with the applicable NFA rules which do not currently accept Form PF in lieu of NFA Form PQR.

Since CPOs dually registered as investment advisers with the SEC have nevertheless been subject to the NFA Form PQR quarterly filing requirement, substituted compliance has been of fairly limited practical use to eligible CPOs.  The removal of most of Schedule B and all of Schedule C from the revised CFTC Form CPO-PQR will have the effect of bringing the revised Form filing requirements into alignment with what CPOs relying on substituted compliance have been filing all along. 

The charts below summarize the current and amended filing obligations of a CPO dually registered with the SEC as an investment adviser, assuming the adviser relies on substituted compliance.

Small CPO (not required to file Form PF with the SEC)
Current Obligations Amended Obligations
Q1 NFA Form PQR NFA Form PQR
Q2 NFA Form PQR NFA Form PQR
Q3 NFA Form PQR NFA Form PQR
Annual or Q4 CFTC Form CPO-PQR

  • Schedule A
NFA Form PQR

 

Mid-Sized CPO (not required to file Form PF with the SEC)
Current Obligations Amended Obligations
Q1 NFA Form PQR NFA Form PQR
Q2 NFA Form PQR NFA Form PQR
Q3 NFA Form PQR NFA Form PQR
Annual or Q4 CFTC Form CPO-PQR

  • Schedule A
  • Schedule B
NFA Form PQR

 

Mid-Sized CPO (required to file Form PF with the SEC on an annual basis)
Current Obligations Amended Obligations
Q1 NFA Form PQR NFA Form PQR
Q2 NFA Form PQR NFA Form PQR
Q3 NFA Form PQR NFA Form PQR
Annual or Q4 CFTC Form CPO-PQR

  • Schedule A
  • NFA Form PQR
  • Form PF
NFA Form PQR

 

Large CPO (not required to file Form PF with the SEC)
Current Obligations Amended Obligations
Q1 CFTC Form CPO-PQR

  • Schedule A
  • Schedule B
  • Schedule C
NFA Form PQR
Q2 CFTC Form CPO-PQR

  • Schedule A
  • Schedule B
  • Schedule C
NFA Form PQR
Q3 CFTC Form CPO-PQR

  • Schedule A
  • Schedule B
  • Schedule C
NFA Form PQR
Annual or Q4 CFTC Form CPO-PQR

  • Schedule A
  • Schedule B
  • Schedule C
NFA Form PQR

 

Large CPO (required to file Form PF with the SEC on a quarterly basis)
Current Obligations Amended Obligations
Q1 NFA Form PQR NFA Form PQR
Q2 NFA Form PQR NFA Form PQR
Q3 NFA Form PQR NFA Form PQR
Annual or Q4 CFTC Form CPO-PQR

  • Schedule A
  • NFA Form PQR
  • Form PF
NFA Form PQR

Adoption of the Proposed Schedule of Investments in the Revised CFTC Form CPO-PQR

One specific question posed by the CFTC in the Proposing Release was whether the CFTC should consider amending the schedule of investments to be included in the revised CFTC Form CPO PQR to align with the simpler schedule that appeared in the NFA Form PQR in 2010.  Aligning the schedule of investments in the revised Form with the 2010 NFA schedule would have included, among other things, increasing the threshold for reportable assets of a pool from 5% of a pool’s NAV to 10%. 

Despite commenters’ arguments in favor of alignment, the CFTC ultimately determined not to make any revisions to the schedule of investments in the revised Form.  The CFTC argued that simplifying the schedule of investments may limit its ability to understand how CPOs are positioned vis-à-vis their counterparties and the economy as a whole, and that the increase to the 10% reportable assets threshold in the schedule would result in a material loss of information from reporting CPOs on their pools’ alternative investment or derivative positions, both of which are the primary focus of the CFTC’s jurisdiction.

Adding LEI Fields to the Revised CFTC Form CPO-PQR

In addition to eliminating a significant number of questions from CFTC Form CPO-PQR by removing most of Schedule B and all of Schedule C, the revisions add certain questions to enable the data the CFTC collects to be used in conjunction with other data regarding the commodity interest markets.  Specifically, the inclusion in the revised Form of reporting LEIs for CPOs and their pools enables the CFTC to leverage other data sets it receives more frequently from other sources regarding the swaps market (e.g., swap execution facilities and swap data repositories). 

Note however, that reporting LEIs on the revised Form is required only where a person or entity is trading swaps, and thus already has an LEI as required by applicable regulation.  CPOs and their pools are not be required to obtain LEIs if they are not trading swaps.

Effective and Compliance Dates

The amendments to CFTC Rule 4.27 and revisions to CFTC Form CPO-PQR will take effect thirty (30) days after publication in the Federal Register.  All reporting CPOs are required to file revised CFTC Form CPO-PQR with respect to their pools for the first calendar quarter of 2021 ending on March 31, 2021.6

Conclusion

These Rule amendments and revisions to CFTC Form CPO-PQR, which represent the first substantive revisions to the Form since it was first adopted in 2012, are significant steps towards streamlining the reporting requirements applicable to CPOs.  Not only have the lengthiest and most detailed sections of the Form been removed but, along with the Rule amendments concerning substituted compliance, the CFTC’s revised Form has been successfully unified with the equivalent Form used by the NFA.  More importantly, these revisions to the Form will reduce overall reporting burdens for eligible CPOs.

Please contact Kenneth R. Earley, Ethan Corey, or the Practus LLP attorney who usually advises you with any questions you may have or if you would like additional information.

Attorney Phone Email
Kenneth R. Earley, Partner (617) 865-1870 Kenneth.Earley@Practus.com
Ethan Corey, Partner (301) 580-6489 Ethan.Corey@Practus.com

Article Footnotes


  1. Press Release, CFTC Unanimously Approves a Final Rule Amending Form CPO-PQR, CFTC (Oct. 6, 2020), available at https://cftc.gov/PressRoom/PressReleases/8277-20.
  2. Amendments to Compliance Requirements for Commodity Pool Operators on Form CPO-PQR, 85 FR 26378 (May 4, 2020) (the “Proposing Release”).
  3. NFA Form PQR consists of most of Schedule A and the schedule of investments from CFTC Form CPO-PQR.  It also includes several NFA-specific questions not found in CFTC Form CPO-PQR.
  4. The CFTC anticipates the NFA will revise its Form PQR to accommodate the revisions to CFTC Form CPO-PQR.
  5. Investment advisers registered with the SEC are generally required to file Form PF if their private fund AUM as of the last day of their most recent fiscal year was at least $150 million.  The frequency at which an adviser must file Form PF with the SEC (i.e., quarterly versus annually) depends on the type of adviser (hedge fund, liquidity fund or private equity fund) and how much private fund AUM they manage.
  6.  The filing deadline for that reporting period is May 31, 2021 (i.e., sixty (60) days after the quarter end).