Co-authored by Blake J. Brockway and Christian B. Hennion.

On March 4, the National Futures Association (NFA) issued a proposed rule change and interpretive notice that would allow commodity pools to provide certain loans to related commodity pool operators (CPOs) and other affiliates. Pursuant to NFA Rule 2-45, commodity pools are prohibited from directly or indirectly loaning or advancing pool assets to the pool’s CPO or other related parties. The proposed amendment clarifies that commodity pools operated by a registered CPO are permitted, subject to certain conditions set out in the related interpretive notice, to: (i) borrow securities from, or loan securities to, an affiliated pool to fulfill short sale borrowing and locate requirements; (ii) loan securities to an affiliate for cash financing purposes; (iii) guarantee the obligations of a subsidiary or affiliate in which the pool has a debt or equity investment; (iv) enter into repurchase or reverse repurchase agreements with affiliated pools; (v) make tax-related distributions to the CPO or a related party; and (vi) if the pool is a registered investment company or business development company, engage in certain loans or advances of fund assets permitted by the Investment Company Act and certain rules, orders or no-action letters issued thereunder. The NFA is issuing this amendment and guidance to accommodate CPOs that were previously exempt from registration. Unless the Commodity Futures Trading Commission notifies the NFA that it intends to formally review the amendment, the amendment will become effective after ten days.

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