Qualified Eligible Participant - Explained
What is a Qualified Eligible Participant?
Written by Jason Gordon
Updated at April 17th, 2022
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Table of Contents
What is a Qualified Eligible Participant?How Does Being a Qualified Eligible Participant Work?What is a Qualified Eligible Participant?
Rule 4.7 of the Commodity Exchange Act defines who is a qualified eligible participant. It includes a laundry list of individuals qualified to handle sophisticated transactions within various types of investment fund. Generally, a QEP must hold a combined portfolio of specified investments; have held an account with a futures commission merchants within the previous 6 months; own a minimum of $2 million in securities; and hold $200,000 in initial margin and options premiums for commodity interest transactions.
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How Does Being a Qualified Eligible Participant Work?
Being a QEP is a sophistication requirement for hedge fund investors. Managers of the hedge fund are commodity pool operators (CPO) under the Commodity Exchange Act and Commodity Futures Trading Commission, and must CPO registration as well as the QEP requirements. Per the Commodity Exchange Act regulations, a plurality of hedge fund participants must qualify as QEPs. This higher level of sophistication is based upon the higher degree of sophistication and of risk associated with transactions and investment practices for these types of funds. There is an incentive to have everyone in a fund to qualify as a QEP, as this allows for exemption from numerous SEC regulations. This provides greater flexibility to the fund managers in making investments.