On January 1, commodity mutual funds will have to register both with the SEC and with the Commodity Futures Trading Commission (CFTC), facing differing regulatory regimes. InvestmentNews reports on the implications of and reactions to the rule change.

The CFTC voted on the change in February [see MFWire.com, 2/9/2012].

The CFTC said that the amendment goes after small number of "futures-only investment options" that it feels should have been under regulation from the start. In 2003 the regulatory agency granted commodity funds an exemption from registering with it.

The Investment Company Institute (ICI) continues to fight the change. Karrie McMillan, the trade group's general counsel, called the CFTC's move "a regulatory land grab.

"The result will either vastly expand the CFTC's jurisdiction -- or drive mutual funds out of the markets for futures, options and swaps," McMillan reportedly said. “It's going to immediately impact the profitability of the funds,” said John McGuire, a partner in the investment management and securities industry practice at Morgan Lewis & Bockius LLP. “Over time, firms are going to try to get profitability back to where it was, and they're probably going to have to raise fees to do that.”

“The impact on funds required to register with both agencies will be based in large part on the harmonization of the CFTC's rules,” said Nicole Goodnow, a spokeswoman for Fidelity. “We are in the process of assessing the rule proposal, and any comments we have will be made directly in response to the proposal.”

The CFTC and SEC currently have different, sometimes mutually exclusive, requirements. The SEC forbids funds from touting the past performance of similar products, InvestmentNews noted, yet the CFTC requires such reporting. And the CFTC, but not the SEC, requires commodities pool operators to reveal broker fees. 

Edited by: HFD


Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE