On March 30, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued Letter 18-09, which granted exemptive relief to a commodity pool operator (CPO) of a foreign “Master Fund” and a US “Feeder Fund.” CFTC rules generally require that the financial statements a CPO is required to provide US pool participants, both in periodic reports and the annual report, must be prepared in accordance with US generally accepted accounting principles (US GAAP). However, where the pool is organized under the laws of a foreign jurisdiction, CFTC Rule 4.22(d)(2)(i) authorizes a CPO to compute and present financial statements in accordance with applicable accounting standards in that jurisdiction, including International Financial Reporting Standards (IFRS), subject to the conditions set out in the Rule. One such condition is that, where the accounting principles, standards or practices of the other jurisdiction require consolidated financial statements for the pool, such as a feeder fund consolidating with its master fund, all applicable disclosures required by US GAAP for the feeder fund must be presented with the reporting pool’s consolidated financial statements.
The CPO requested relief to allow it to calculate and present the financial statements for a US-organized feeder fund in accordance with IFRS, noting that requiring the CPO to use US GAAP: (1) would be inconsistent with the understanding of the US Feeder Fund’s participants, who currently receive periodic account statements and annual financial statements presented in accordance with IFRS; and (2) would require the CPO to incur additional expense in having the financial statements recalculated and certified in accordance with US GAAP in addition to the original IFRS preparation.
DSIO granted the requested relief subject to the conditions that the CPO: (1) prepared the financial statements in accordance with IFRS, and (2) reconciled the statements to US GAAP, where the IFRS preparation would present a material difference from such statement’s preparation in accordance with US GAAP.
CFTC Letter No. 18-09 is available here.