CFTC Rule 4.13

CFTC Rule 4.13 creates several important exemptions from CPO registration requirements. It serves as a key regulatory framework that allows smaller investment vehicles, family offices, and funds with minimal commodity trading to operate without the full burden of commodity pool operator Commodity pool operator (CPO) A commodity pool operator (CPO) is a person or entity that manages an investment fund that collects money from multiple investors to trade commodity futures, options, and swaps. Most CPOs must register with the Commodity Futures Trading Commission (CFTC) unless they qualify for specific exemptions. registration. The rule recognizes that certain pool operations present lower regulatory risks and should face reduced compliance requirements.

The CFTC originally adopted this rule as part of its broader effort to match regulation to actual risk levels. Rule 4.13 provides multiple pathways for exemption that address different categories of pool operators. These range from small-scale operations to family offices to funds with limited commodity interest exposure.

1981 Original Adoption: Rule 4.13 was initially adopted, establishing basic exemptions for small and family-controlled pools.

2003 Harmonization: Significant amendments aligned exemptions with securities regulations and clarified how commodity and securities law exemptions interact. This particularly affected accredited investor standards.

2012 Dodd-Frank Implementation: Major revisions implemented Dodd-Frank Act requirements affecting swap treatment within exempt pools. The CFTC also rescinded Rule 4.13(a)(4), which had provided exemptions for pools limited to qualified eligible persons. This required operators to transition to alternative exemptions.

2021 Family Office Codification: Rule 4.13(a)(6) was added to provide statutory exemption for qualifying family offices. This codified previous no-action reliefRegulatory guidance indicating that staff will not recommend enforcement action if specific conditions are met..

Rule 4.13(a)(3) provides the most widely used exemption for pools with limited commodity interest trading. This is commonly known as the "de minimis" exemption. This exemption applies to pools that meet specific trading limitations and participant qualification requirements.

Trading Limitations: The pool must satisfy one of two tests at all times:

• 5% Test: The combined initial marginThe upfront cash or collateral deposit required to establish a futures or options position., premiums, and required minimum security deposits for commodity interest positions cannot exceed 5% of the pool's liquidation value
• 100% Test: The combined net notional value of commodity interest positions cannot exceed 100% of the pool's liquidation value

Participant Requirements: All participants must be accredited investors Accredited investor An accredited investor refers to an individual or entity that meets specific financial thresholds set by securities regulations, qualifying them to invest in unregistered securities offerings such as hedge funds, with standards including minimum income or net worth requirements. , qualified eligible persons, knowledgeable employeesUnder Investment Company Act Rule 3c-5(a)(4), either a senior executive or director of a private fund or its management company, or an employee who participates in investment activities for at least 12 months., or trusts formed by accredited investors for family members.

Additional Conditions: Pool interests must be exempt from Securities Act registration and marketed in compliance with Regulation D Regulation D Regulation D provides exemptions from SEC registration requirements for private placements of securities, with hedge funds typically relying on Rule 506(b) for traditional private offerings or Rule 506(c) for offerings involving general solicitation. . They also cannot be marketed as vehicles for commodity trading.

Rule 4.13(a)(2) provides an exemption for operators of small commodity poolsInvestment vehicles that pool funds from multiple participants to trade in commodity interests, including futures, options, and swaps.. To qualify, the pool can have no more than 15 participants at any time and total gross capital contributions cannot exceed $400,000. This exemption recognizes that smaller operations pose limited systemic risk and can operate effectively with reduced regulatory oversight.

The exemption requires operators to provide basic disclosure to participants and maintain certain records. However, it eliminates the extensive registration, disclosure documentA comprehensive document that provides prospective investors with material information about an investment offering., and ongoing reporting requirements that would otherwise apply.

When determining eligibility, operators may exclude certain related parties from the participant count. These include the pool's operator, commodity trading advisor Commodity trading advisor (CTA) A commodity trading advisor (CTA) is any person who receives compensation for providing advice to others about the value or wisdom of trading commodity interests, including futures, commodity options, and swaps. CTAs are generally required to register with the CFTC, and since 1984 this registration process has been carried out through the National Futures Association (NFA), to which the CFTC has delegated this authority. , their principals, and immediate family members living in the same household.

Rule 4.13(a)(6) provides a statutory exemption for family offices operating commodity pools exclusively for family clientsUnder SEC regulations, family members and certain other persons who may invest through family offices.. This provision enables family offices to implement sophisticated investment strategies, including commodity trading, without triggering full CPO registration requirements.

To qualify for this exemption, the operator must meet several requirements. First, it must qualify as a "family office" under SEC regulations. Second, it must offer pool interests only to "family clients." Third, it must ensure interests are exempt from registration under the Securities Act of 1933.

The exemption reflects regulatory recognition that family-controlled investment arrangements involve different risk profiles and investor protection needs compared to third-party managed pools.

Most Rule 4.13 exemptions require operators to file a notice of exemptionA filing required for certain regulatory exemptions that must be submitted and maintained to preserve exemption status. with the National Futures Association. This is done through its electronic filing system. The family office exemption under Rule 4.13(a)(6) is self-executing and does not require notice filing.

Exempt operators must file annual affirmations within 60 days of calendar year-end to maintain their exemption status. Failure to file the annual affirmation results in automatic withdrawal of the exemption. Operators must also maintain books and records for five years and submit to special regulatory calls demonstrating continued compliance.

Rule 4.13 exemptions enable various fund structures that might not be economically viable under full CPO registration. Small emerging managers can utilize commodity strategies without prohibitive compliance costs. Family offices can implement sophisticated multi-asset strategies for wealth management.

The de minimis exemption particularly benefits hedge funds using derivatives for risk management or opportunistic trading as part of broader investment strategies. It allows access to commodity markets without extensive operational requirements designed for pure commodity pool operations. However, operators must carefully monitor trading levels to ensure continued compliance with the applicable thresholds.

Operators relying on Rule 4.13 exemptions must understand that these are ongoing obligations requiring continuous monitoring. Loss of exemption eligibility typically triggers full registration requirements within specified timeframes. The CFTC has indicated that there is no safe harborRegulatory provision that provides protection from liability or enforcement action when specific compliance requirements are met. for temporary threshold breaches. Even momentary exceeding of trading limits can result in loss of exemption status.

Additionally, operators must provide required disclosures to prospective participants explaining their exempt status and the reduced regulatory protections compared to registered operators. This ensures participants understand they will not receive the same disclosure documents and annual reports required for registered pools.