The Commodity Futures Trading Commission (the “CFTC”) recently issued an Exemptive Order and Interpretive Guidance concerning the cross-border application of the swap provisions of the Commodity Exchange Act. In the Interpretive Guidance, the CFTC stated that for purposes of the swap regulations promulgated under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (including mandatory clearing, execution and reporting of swaps), the term “U.S. person” includes a fund that (i) is organized or incorporated under the laws of a state or other jurisdiction in the United States, (ii) has its principal place of business in the United States or (iii) is majority-owned by U.S. persons.
The determination of whether a fund has a principal place of business in the United States must be made based on the specific facts and circumstances. In making such a determination, the CFTC will consider the location of the individuals responsible for formation and promotion of the fund as well as the implementation of the fund’s investment strategy. A fund is considered to be majority-owned by U.S. persons if more than 50% of the equity or voting interests of the fund are held by U.S. persons.1
Under the Exemptive Order, this new definition of U.S. person will become effective 75 days after the Interpretive Guidance is published in the Federal Register. Such publication has not yet occurred.
Funds that have not previously adhered to the ISDA Dodd-Frank Protocols in reliance on the narrower definition of “U.S. person” previously specified by the CFTC should consider such adherence prior to the effective date of the new definition in order to ensure their ability to trade after the effective date.
If you have any questions concerning the foregoing, please contact your primary attorney in Seward & Kissel’s Investment Management Group.
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1 For this purpose, a “U.S. person” means (i) a natural person who is a resident of the United States; (ii) any estate of a decedent who was a resident of the United States at the time of death; (iii) any corporation, partnership, limited liability company, business or other trust, association, joint-stock company, fund or any form of enterprise similar to any of the foregoing (other than an entity described in (iv) or (v) below) (a “legal entity”), in each case that is organized or incorporated under the laws of a state or other jurisdiction of the United States or having its principal place of business in the United States; (iv) any pension plan for the employees, officers or principals of a legal entity described in (iii) above, unless the pension plan is primarily for foreign employees of such entity; or (v) any trust governed by the laws of a state or other jurisdiction in the United States, if a court within the Untied States is able to exercise primary supervision over the administration of the trust; however, for this purpose, “U.S. person” does not include any commodity pool, pooled account, investment fund, or other collective investment vehicle that is publicly offered only to non-U.S. persons and not offered to U.S. persons.
