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The New Year Rings in New Requirements for NFA Member Asset Managers

In the final weeks of 2018, the National Futures Association (“NFA”) issued new requirements applicable to asset managers who are members of the NFA that will take effect in 2019. First, the NFA amended its Interpretive Notice 9070, “NFA Compliance Rules 2-9, 2-36 and 2-49: Information Systems Security Programs” (the “Cybersecurity Notice”). The amended Cybersecurity Notice adds an NFA notification obligation, employee training requirements, and specific approval procedures to the written information systems security program (“ISSP”) required of each NFA member firm (a “firm”) under the original Cybersecurity Notice issued in 2016. In addition, Interpretive Notice “NFA Compliance Rule 2-9: CPO Internal Controls System” (the “Internal Controls Notice”) requires commodity pool operator (“CPO”) members to establish a system of internal controls and provides guidance on designing and implementing such controls. The Cybersecurity Notice will become effective on April 1, 2019 and we expect the Internal Controls Notice to be effective on April 1 or soon thereafter.

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Proposed Legislation Grandfathers Some Tax Benefits for PTPs and Presents Opportunities for Fund Managers Contemplating Going Public As Partnerships


Time to Read: 1 minutes Practices: Hedge Funds, Tax

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On December 9th, the House of Representatives passed the Tax Extenders Act of 2009. The Act contains provisions that would tax "carried interest" as ordinary income. The same provisions would also treat carried interest income as non-qualifying income for purposes of determining whether a publicly traded partnership (a PTP) meets the so-called 90% good income test. Partnerships that (i) satisfy the 90% good income test and (ii) are not registered under the Investment Company Act of 1940, in general, continue to be treated as partnerships and not as Subchapter C corporations for US federal income tax purposes.

Solely for purposes of the good income provision, the Act contains a grandfather rule whereby, with respect to a partnership which is a PTP on the date of the enactment of this provision, carried interest income continues to be qualifying (i.e., good) income for any taxable year of the partnership beginning before the 10th anniversary of enactment. Should the Act pass, and do so in its current form, the grandfather rule will be welcome news for existing PTPs that receive material amounts of carried interest income.

Although the Senate has yet to act on this legislation and its passage is uncertain, the grandfather rule also presents (urgent) planning opportunities for private equity, hedge and other fund managers that contemplate going public as partnerships but who may otherwise have done so only after the passage of the Act. (Note that a similar bill introduced by Congressman Levin in April only required the partnership to be in existence (not be a PTP) on the date of enactment of these provisions in order to benefit from the grandfather rule).

For more information regarding the proposed legislation, please contact a member of the Tax & Benefits Department or your regular Ropes & Gray attorney.

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