© 2015 The Regulatory Fundamentals Group LLC x 1 CFTC in 2o15: What’s Hot? Deborah Prutzman, CEO The Regulatory Fundamentals Group January 28,

About RFG Founded in 2009 to simplify regulatory developments based on a tried-and-true methodology. RFG provides an enterprise-wide approach – Team members communicate better when they share a common understanding of important concepts. – Staff can more readily identify risks and sort through a wider range of possible solutions. – Improved communication enhances decision making. – Conversations with outside counsel are more efficient. In April 2014, a consortium of leading universities and foundations subscribed to RFG Pathfinder®. © 2015 The Regulatory Fundamentals Group LLC x 1 2

Agenda Am I prepared to trade? What about my counterparties, are they about to change the rules of the game? Am I prepared to meet my obligations (and how are these changing)? What about enforcement? Other areas of likely regulatory change? © 2015 The Regulatory Fundamentals Group LLC x 1 3

Am I prepared to trade? Can I enter into an OTC swap or am I only allowed to enter into exchange- traded swaps? Am I required to clear swaps that are subject to mandatory clearing? – Am I a financial entity (because I am a CPO)? Any likely changes in the swaps that are required to be cleared? Do I need to enter into new contracts in order to clear? Am I subject to margin requirements? – Am I subject to the financial entity margin requirements (because I am a CPO)? Do swap dealers have greater duties to me because I am a Special Entity? Will I be required to perform portfolio reconciliation? Do I need a Legal Entity Identifier? © 2015 The Regulatory Fundamentals Group LLC x 1 4

Am I a commodity pool (and, thus, a financial entity)? Do I invest in commodities? – Assume yes, due to far-reaching CFTC staff interpretations. Do I commingle the assets of more than one legal entity? – Assume yes if the entities are affiliated and even if they are wholly- owned. What exemption or exclusion am I relying on? – Am I complying with notice or other requirements? © 2015 The Regulatory Fundamentals Group LLC x 1 5

Possible CPO Exclusions and Exemptions Excluded automatically: ERISA-covered defined benefit plans; non-contributory defined contribution plans; government plans; employee welfare plans. Excluded if meet certain conditions: ERISA-covered contributory defined contribution plans and all other ERISA-covered pension plans. Other exemptions to registration may apply (one pool, de minimis activity)…but in this case: – A CPO must operate its pool as a separate legal entity, unless the CFTC grants an exemption. – A CPO/CTA must not commingle the property of any pool/client with the property of any other person. – Anti-fraud provisions of the Commodity Exchange Act apply. – CFTC privacy and identify theft prevention rules apply. – More onerous position limit aggregation requirements. – There are other implications. © 2015 The Regulatory Fundamentals Group LLC x 1 6

What about my counterparties, are they about to change the rules of the game? Banks and their new requirements (capital, liquidity, leverage, resolution plans). Central counterparties (membership rules, loss sharing, margin, insolvency of CCP). Swap Execution Facilities (SEFs). Margin requirements (discussed above). © 2015 The Regulatory Fundamentals Group LLC x 1 7

Am I prepared to meet my obligations (and how are these changing)? CFTC rules: – Reconciliation. – Market manipulation. – Position limits and aggregation (and related reports). CFTC proposed rule. Counterparty documents (selection of CCP, reconciliation). Cyber-security issues and the impact of an incident on the ability to fulfill obligations. © 2015 The Regulatory Fundamentals Group LLC x 1 8

What about enforcement? New director, Aitan Goelman, appointed over the summer. Former federal prosecutor (9 years at DOJ). CFTC obtain a record $3.2 billion in monetary sanctions last year. Monetary sanctions over past two years is more than the previous ten years combined. First whistleblower award made last year. Enforcement opened over 240 investigations last year. Hot topics: – Market manipulation and disruptive trading practices. (Note, CFTC can now bring charges for reckless behavior, even without intent to manipulate.) – Failure to supervise. – Gatekeeper liability. – Reporting obligations. – Position limits. © 2015 The Regulatory Fundamentals Group LLC x 1 9

Other areas of likely regulatory change? Automated trading. International swap cooperation. Retail fx. © 2015 The Regulatory Fundamentals Group LLC x 1 10

The Takeaways Be prepared to negotiate FCM and swap dealer documents. Understand the types of margin requirements that will apply to you and the risks you take when placing margin with a counterparty. Make sure you know whether you are required to register as a CPO/CTA. Determine whether you are subject to position limits and develop a process to comply is the year of enforcement: make sure you are ready. © 2015 The Regulatory Fundamentals Group LLC x 1 11

Questions? RF G © 2015 The Regulatory Fundamentals Group LLC x 1

RFG’s Background RFG was formed in 2009 with the belief that a methodology to simplify regulatory developments would be critical for alternative funds and their managers in the foreseeable future. During her 30+ career, Deborah developed a “knowledge based” methodology to help her clients navigate shifting regulatory and legal issues, so that they could successfully grow their businesses. She used this methodology to efficiently provide management teams and staff functions with the critical insights needed to communicate with one another and to be successful in a highly-regulated world. RFG’s founder, Deborah Prutzman, has an exceptionally deep background in the domestic and international financial services industry and is experienced in regulatory risk management and corporate governance. She was a partner at Paul, Weiss, Rifkind, Wharton & Garrison and Arnold & Porter. She has also served as General Counsel to leading-edge financial services companies, including the Merrill Lynch Global Bank Group and CLS Services, the world's foreign exchange netting system, during its start-up stages. © 2015 The Regulatory Fundamentals Group LLC x 1 13

Deborah Prutzman (212) x 1 RF G