[Federal Register Volume 75, Number 180 (Friday, September 17, 2010)]
[Notices]
[Pages 56997-56998]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23310]
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COMMODITY FUTURES TRADING COMMISSION
Petition of the National Futures Association, Pursuant to Rule
13.2, to the U.S. Commodity Futures Trading Commission To Amend of the
Rule 4.5
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of Petition and Request for Comment.
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SUMMARY: The National Futures Association (``NFA'') has petitioned the
Commodity Futures Trading Commission (``Commission'' or ``CFTC'') to
amend a rule that excludes certain otherwise regulated persons from the
definition of the term ``commodity pool operator'' (``CPO'') with
respect to certain qualifying entities. The rule presently requires any
person desiring to claim the exclusion to file a notice of eligibility
with NFA, which must identify the qualifying entity to be operated
pursuant to the exclusion.
NFA requests the Commission amend its rule to limit the scope of
the exclusion for registered investment companies (``RICs'').
Specifically, NFA has requested that any RIC include in its notice of
eligibility a representation that the RIC's qualifying entity (1) Will
use commodity futures or commodity options contracts solely for bona
fide hedging purposes, (2) will not have the initial margin and
premiums required to establish any commodity futures or commodity
options not used for bona fide hedging purposes exceeding five percent
(5%) of the liquidation value of the qualifying entity's portfolio, and
(3) will not be marketed to the public as a commodity pool or as a
vehicle for investment in commodity futures or commodity options.
The Commission seeks comment on NFA's petition and any related
questions. Copies of the petition are available for inspection at the
Office of the Secretariat, by mail at the address listed below, by
telephoning (202) 418-5100, or on the Commission's Web site (http://www.cftc.gov).
DATES: Comments must be received on or before October 18, 2010.
Comments must be in English or, if not, accompanied by an English
translation.
ADDRESSES: Comments should be sent to David A. Stawick, Secretary,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581. Comments may be sent by facsimile
transmission to (202) 418-5521, or by e-mail to
[email protected]. Reference should be made to ``National
Futures Association Petition to Amend Commission Rule 4.5.'' Comments
may also be submitted by connecting to the Federal eRulemaking Portal
at http://www.regulations.gov and following the comment submission
instructions. Comments will be published on the Commission's Web site.
FOR FURTHER INFORMATION CONTACT: Kevin P. Walek, Assistant Director,
Telephone: (202) 418-5463, E-mail: [email protected] or Daniel S. Konar
II, Attorney-Advisor, Telephone: (202) 418-5405, E-mail:
[email protected], Division of Clearing and Intermediary Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
SUPPLEMENTARY INFORMATION:
[[Page 56998]]
I. Background
In 1985, the Commission adopted Rule 4.5, which provides an
exclusion from the definition of ``CPO'' for certain otherwise
regulated persons that operated certain qualifying entities.\1\ At the
time of its adoption, any person seeking to claim the exclusion was
required to file with the Commission a notice of eligibility that
contained a representation that
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\1\ 50 FR 15868-01 (April 23, 1985).
* * * such person will operate the qualifying entity specified
therein in a manner such that the qualifying entity: (i) Will use
commodity futures or commodity options contracts solely for bona
fide hedging purposes within the meaning and intent of Sec.
1.3(z)(1) [subject to certain provisions] * * * (ii) Will not enter
into commodity futures and commodity options contracts for which the
aggregate initial margin and premiums exceed 5 percent of the fair
market value of the entity's assets, after taking into account
unrealized profits and unrealized losses on any such contracts * * *
and (iii) Will not be, and has not been, marketing participations to
the public as or in a commodity pool or otherwise as or in a vehicle
for trading in the commodity futures or commodity options
markets.\2\
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\2\ Id. at 15883.
In 2003, the Commission amended Rule 4.5 by deleting the bona fide
hedging requirement, the limitation on aggregate initial margin, and
the prohibition on marketing.\3\ In proposing these amendments to Rule
4.5, the Commission explained that its decision to delete the hedging
requirement and the limitation on aggregate initial margin was driven
by the fact that persons and qualifying entities that are otherwise
regulated ``may not need to be subject to any commodity interest
trading criteria to qualify for the exclusion afforded by Rule 4.5.''
\4\ The Commission further explained when adopting the final amendments
that its decision to delete the prohibition on marketing was driven by
comments claiming that ``the `otherwise regulated' nature of the
qualifying entities * * * would provide adequate customer protection,
and, further, that compliance with the subjective nature of the
marketing restriction could give rise to the possibility of unequal
enforcement where commodity interest trading was restricted.'' \5\
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\3\ 68 FR 47221-01, 47223 (Aug. 8, 2003).
\4\ 68 FR 12622-02, 12626 (March 17, 2003).
\5\ 68 FR 47223.
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Rule 4.5 currently requires only that notices of eligibility
include representations that
* * * the qualifying entity: (i) Will disclose in writing to
each participant, whether existing or prospective, that the
qualifying entity is operated be a person who has claimed an
exclusion from the definition of the term `commodity pool operator'
under the [Commodity Exchange] Act, and therefore, who is not
subject to registration or regulation as a pool operator under the
[Commodity Exchange] Act * * * and (ii) Will submit to special calls
as the Commission may require.\6\
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\6\ 17 CFR 4.5(c)(2).
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II. NFA's Petition
By letter dated August 18, 2010 (``Petition''), NFA, a registered
futures association, petitioned the Commission under Rule 13.2 \7\ to
amend Rule 4.5. Specifically, NFA requested that, in addition to the
two current representations required in a person's notice of
eligibility, Rule 4.5 should require the following representation:
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\7\ 17 CFR 13.2 (enumerating the process by which the Commission
may be petitioned for the issuance, amendment or repeal of a rule).
(iii) Furthermore, if the person claiming the exclusion is an
investment company registered as such under the Investment Company
Act of 1940, then the notice of eligibility must also contain
representations that such person will operate the qualifying entity
as described in [Rule] 4.5(b)(1) in a manner such that the
qualifying entity: (a) Will use commodity futures or commodity
options contracts solely for bona fide hedging purposes within the
meaning and intent of [Rule] 1.3(z)(1); Provided however, That in
addition, with respect to positions in commodity futures or
commodity option contracts that may be held by a qualifying entity
only which do not come within the meaning and intent of [Rule]
1.3(z)(1), a qualifying entity may represent that the aggregate
initial margin and premiums required to establish such positions
will not exceed five percent of the liquidation value of the
qualifying entity's portfolio, after taking into account unrealized
profits and unrealized losses on any such contracts it has entered
into; and, Provided further, That in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount as
defined in [Rule] 190.01(x) may be excluded in computing such [five]
percent; (b) Will not be, and has not been, marketing participations
to the public as or in a commodity pool or otherwise as or in a
vehicle for trading in (or otherwise seeking investment exposure to)
the commodity futures or commodity options markets.
III. Request for Comments
The Commission requests public comment on any aspect of the
Petition that commenters believe may raise issues under the Commodity
Exchange Act or Commission regulations.
* * * * *
Issued in Washington, DC, on September 13, 2010 by the
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2010-23310 Filed 9-16-10; 8:45 am]
BILLING CODE 6351-01-P