Look Who’s ‘Trading’ Commodities
In the government’s bid to crack down on risky trading, charities and other nonprofit organizations may become collateral damage. That is causing alarm in the nonprofit world and should be a concern for donors.I am reminded of the Church of England's mis-adventures in alternative investing.
Under new rules, your local charity could be obligated to register with federal regulators as a commodity-pool operator—even if it doesn’t invest directly in corn or pork bellies. CPOs, as they are sometimes called on Wall Street, invest in a range of derivatives contracts, including futures, swaps and options on foreign currencies, commodities and interest rates. That is light years away from the mission of most nonprofits.
Having to register as a CPO with the Commodity Futures Trading Commission would entail higher costs and more red tape. As a result, if you are a donor or board member, you need to ask a whole new set of questions about how the institution’s money is managed.
The registration requirements are imposed by an obscure provision of the Dodd-Frank Act, the 848-page law that was enacted in 2010 to constrain giant financial firms, not charities.
The Dodd-Frank provision doesn’t apply to individual investors. But it can subject a nonprofit to CFTC regulation if the organization oversees money for more than one entity—other nonprofits, certain affiliates or individuals—and invests, even indirectly through mutual funds, in certain financial contracts.
In principle, that could include a local charity in Ypsilanti, say, or a multibillion-dollar endowment.
“There’s a fair amount of consternation and confusion about this,” an investment manager at one of the largest university endowments in the country recently told me. (The nonprofit officials I spoke with declined to be named, citing internal policy or concerns about drawing the attention of regulators.)
“We’re accidental commodity-pool operators,” an executive at another major nonprofit said, explaining that the organization happens to own some stock funds that may occasionally use futures contracts to invest excess cash.
The CFTC feels these concerns are overblown. “We don’t think this will affect large numbers of charities across the country,” says an agency spokesman.
In 1995, the Philanthropy Protection Act exempted nonprofits from registration with the Securities and Exchange Commission. But no such sweeping exemption exists from the CFTC’s commodity regulations. And now Dodd-Frank has tossed many new instruments, like swaps and other derivatives, into the definition of “commodity.”...MORE
First the Archbishop of York said short-sellers were breaking a commandment or two:
Short-Sellers `Clearly Bank Robbers,' Says ArchbishopThen His Grace was informed the CofE had a fair chunk of loot entrusted to hedge funds:
Church of England accused of short-selling after its attack on 'bank robbing' tradersLeading to cruel headlines:
What would Jesus short?After which the Archbishop's A-bro changed targets:
Archbishop of Canterbury Tells Bankers to RepentWhile losing big money in another alt, top-tick real estate:
Church of England could lose [$35 Mil.] in StuyTownThe Church decided the hedgies weren't so bad:
Hedge funds win Church of England blessing (no new comments on 'Bank Robbing Traders')
