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CFTC Adopts Amendments to Rule 3.10(c) Exemption for Certain Foreign Intermediaries

Client memorandum | November 5, 2020

On October 15, 2020, the Commodity Futures Trading Commission (the “CFTC” or the “Commission”) voted unanimously to adopt several amendments to CFTC Rule 3.10(c) which, among other things, provides an exemption from registration as a commodity pool operator (“CPO”) for certain persons located outside of the United States engaged in the activity of a CPO (an “offshore CPO”) who operate an offshore commodity pool that is neither offered nor sold to U.S. participants (an “offshore pool”) (the “Offshore CPO Exemption”).  Consistent with the Commission’s earlier proposal, the amendments: (1) explicitly permit an offshore CPO to avail itself of the Offshore CPO Exemption on a pool-by-pool basis; (2) enable an offshore CPO’s U.S. affiliate to provide initial capital to an offshore pool without disqualifying such CPO from availing itself of the Offshore CPO Exemption; (3) add, subject to certain conditions, a safe harbor for a CPO using the Offshore CPO Exemption with respect to the inadvertent participation of U.S. persons in an offshore pool; and (4) explicitly permit an offshore CPO to claim the Offshore CPO Exemption concurrently with other registration exemptions or regulatory exclusions.  In addition, the amendments adopt in modified form a prior CFTC proposal intended to clarify whether commodity interest transactions must be cleared through a registered futures commission merchant (“FCM”) as a condition to claiming the registration exemptions for foreign intermediaries under Rule 3.10(c), and whether these exemptions are available for foreign intermediaries acting on behalf of certain international financial institutions (“IFIs”).  Lastly, the Final Rule implements conforming amendments and reorganizes Rule 3.10(c) to improve its readability and clarity.  The Final Rule will become effective 60 days following publication in the Federal Register.

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