The Commodity Futures Trading Commission is making it easier to market private securities offerings to the general public by harmonizing its rules with those amended last year by the Securities and Exchange Commission. A newly issued no-action letter  by the CFTC’s Division of Swap Dealer and Intermediary Oversight eases marketing restrictions on private offerings by hedge funds, private equity funds, and venture capital funds.

In July 2013, the SEC amended its rules to lift the ban on general solicitation and advertising for certain private securities offerings. Companies seeking to raise capital through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration. Rule 506 of Regulation D is the most widely-used exemption and Congress, through the JOBS Act, directed the SEC to remove the prohibition on general solicitation for these offerings (through the new Rule 506c) if sales are limited to accredited investors.

The CFTC’s exemptive letter seeks to offer the same benefits to funds that may be dual-registered with both it and the SEC. Private funds that use CFTC-regulated derivatives are required to register with the agency as a commodity pool operator (CPO), or claim an exemption, and the agency’s rules regarding CPOs has been an obstacle for private funds that could otherwise take advantage of the SEC’s amended rules.

Taking advantage of general solicitation will, however, require proof that a fund ultimately vetted accredited investor status, and other restrictions apply. The SEC added a requirement require that issuers provide additional information about their securities offerings,  requiring them to file Form D at least 15 calendar days before engaging in general solicitation for the offering. Within 30 days of completing an offering, they must update that information and indicate the offering has ended. The SEC also requires issuers to submit their written general solicitation materials via a public, online portal. The failure to meet these requirements can lead to an SEC ban on issuing securities for a year or longer.

In its no-action letter, the CFTC detailed its own conditions. The exemptive relief is strictly limited to CPOs who are Rule 506(c) issuers. The relief is not self-executing and CPOs must file a notice with the Division of Swap Dealer and Intermediary Oversight, which will require basic information on the entities claiming the exemption. Notice filings to claim the relief must provide a reasonable estimate of how many issuers are affected by the discrepancy between SEC rules 506(c) and 144A and the CFTC’s regulations. This disclosure is intended to assist the CFTC if it decides to address this issue through future rulemaking.

A claim submitted by a CPO will be effective upon filing, so long as it is materially complete and accurate. The claim for exemptive relief must: state the name, address, and telephone number of the CPO; state the name of the pool(s) for which the claim is being filed; indicate whether the CPO is a 506(c) issuer or is using one or more Rule 144A compliant resellers; and document that the CPO meets the conditions of the exemption. Claims must be signed by the CPO and filed via email using the address, with “JOBS Act Marketing Relief” in the subject line.

 “The industry has been waiting for this guidance for a long time,” David Mulle, an attorney with the law firm Seward & Kissel’s investment management practice, says. “Since the JOBS Act was passed this has been a significant hurdle to private funds taking advantage of 506(c). As a result it will be very interesting in the coming months to see whether this makes the general solicitation provisions more attractive for private funds.”

The harmonization of CFTC and SEC rules is “a sensible step,” Howard Groedel, a partner with the law firm Ulmer & Berne and chair of its securities regulatory compliance practice, says. However, he warns, “it is unlikely to herald in a significant increase in the number of hedge fund advertisements.”

“Many of the hedge funds subject to CFTC regulation engage in specialized or esoteric trading strategies,” Groedel says. “The more critical issue for the managers of these funds is finding enough investments to make rather than raising more capital. Many of these funds are at full capacity and don’t need to advertise in order to raise more capital.”