On September 12th, the Commodities Futures Trading Commission ("CFTC") finalized its proposal to update its Regulation 4.7 ("Rule 4.7"), which provides relief from a variety of disclosure, reporting and recordkeeping requirements. The updated Rule 4.7 increases the minimum threshold to be considered a qualified eligible person ("QEP").  The QEP definition is important to commodity pool operators ("CPOs") or commodity trading advisors ("CTAs") who rely on these disclosure exemptions that only apply to QEPs. 

The final rule explains that the original portfolio requirement to qualify as a QEP contains two separate criteria:

(1) owning securities (including pool participations) of issuers not affiliated with such person and other investments with an aggregate market value of at least $2,000,000 (Securities Portfolio Test); or

(2) having on deposit with a futures commission merchant (FCM), for its own account at any time during the six months preceding either the date of sale to that person of a pool participation in the 4.7 pool or the date the person opens an account with the CTA for a 4.7 trading program, at least $200,000 in exchange-specified initial margin and option premiums, together with required minimum security deposits for retail forex transactions, for commodity interest transactions (Initial Margin and Premium Test).  

The final rule doubles the monetary threshold in the securities portfolio test from $2 million to $4 million and raises the initial margin/premium test from $200,000 to $400,000. 

The original proposal would have imposed a series of minimum disclosure requirements--such as principal risk factors, past performance, conflicts of interest, and fees-- that would have effectively eliminated the benefit of the disclosure exemptions for CPOs or CTAS that only invest on behalf of QEPs. Thanks to advocacy on the part of AIMA and others, the final rule did not include the proposed new minimum disclosure and reporting requirements.

The final rule also codifies previous exemptive relief that allows funds of funds to choose to distribute monthly account statements within 45 days of the month's end rather than the standard requirement to report no less frequently than 30 days after the quarter's end.

The effective date is November 25, 2024. Compliance with the higher QEP thresholds will be required by March 26, 2025, but compliance with the new fund of funds distribution timeline will not be required until the CPO chooses to utilize the new reporting schedule.

We will provide further implementation guidance on this rule in the future. In the meantime, please contact Joe Engelhard or Nick Pernas if you have questions about this new rule.

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  Joe Engelhard

  Head of US Private Credit and Asset Management Policy & Regulation

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  Nick Pernas

  US Policy & Regulation Analyst