GAIM Ops Paris 2012: APAC managers behind curve on CFTC registration, says PAAMCO exec

InvestorsOperational RiskRegulation
18 Oct, 2012

Asia-based hedge fund managers appear to be behind the curve with CFTC registration, according to a senior executive at PAAMCO, the $8.5 billion fund of funds, speaking at GAIM Ops Paris 2012.

“A lot of managers in the region seem to have left their preparations for CFTC registration rather late. However, some of the institutional global managers in Asia are moving ahead with preparations in good time,” said Marc Towers, director at PAAMCO in Singapore.

Hedge funds trading interest rate swaps, OTC foreign currency options, commodity options, non deliverable forwards in FX, cross-currency swaps, forward rate agreements, CFDs and total return swaps on underlying commodity interests, options to enter into swaps and forwards swaps must register with the CFTC as commodity pool operators and become members of the National Futures Association (NFA) by December 31, 2012. NFA membership subjects managers to additional disclosure, reporting and audit requirements.

The lack of preparation has been exacerbated by indecision and wrangling over the precise definition of a swap by the CFTC and SEC. The regulators only clarified their definition of a swap in the summer much to the chagrin of managers.

Others argued there has been a lack of quality advice from both regulators and lawyers. “There is a lack of good quality providers of US legal advice in Asia,” said Alex Wise, director at Orchard Harbour, a Sydney-based operational due diligence consultancy.

There are ways around the rules nonetheless. Under the Regulation 4.13(a)(3) exemption, managers trading a limited number of CFTC-regulated instruments can avoid registration. “Some managers in APAC are taking a liberal interpretation of the exemptions and are hoping they meet the de minimis trading requirements outlined by the CFTC,” commented Towers.

A minority of Asian managers are going further and actively shunning US investors altogether so as to avoid SEC and CFTC registration. “There are a few managers, who – one could argue somewhat naively – are not targeting US investors so as to escape the rules. Whether or not they will survive and be able to attract capital remains to be seen,” said Towers.

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