Commodity Investments

The Investment Company Institute and the US Chamber of Commerce filed a legal challenge to the Commodity Futures Trading Commission’s (CFTC) recent changes to its Rule 4.5, which governs registration of commodity pool operators (CPO). The CFTC’s amendments to Rule 4.5 are unnecessary, because the CFTC has not demonstrated a need for additional regulation of registered investment companies—such as mutual funds and exchange traded funds (ETFs)—and their advisers. They are also redundant, because of the layer of regulation added on top of the Securities and Exchange Commission’s (SEC) robust regulatory regime. Finally, the changes are costly, because ultimately funds and their investors will pay for these additional regulatory burdens in higher costs.

In the complaint filed with the US District Court for the District of Columbia, ICI and the Chamber charge that the CFTC’s amendment of Rule 4.5 was arbitrary and capricious, and that the CFTC violated the Administrative Procedure Act as well as the Commodity Exchange Act.

In December 2012, the Court rejected the Institute and Chamber’s challenge and upheld the CFTC’s amendments to Rule 4.5. In response, ICI and the Chamber filed an appeal with the US Court of Appeals for the District of Columbia Circuit (the Court). On June 25, 2013, the Court issued its opinion, ruling in favor of the CFTC. While ICI continues to believe that the CFTC’s recent amendments to Rule 4.5 were improperly adopted, the Institute intends to focus on ensuring that the CFTC’s regulatory regime as it evolves does not adversely affect fund investors.