[Federal Register Volume 76, Number 29 (Friday, February 11, 2011)]
[Proposed Rules]
[Pages 7976-8066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2437]
[[Page 7975]]
Vol. 76
Friday,
No. 29
February 11, 2011
Part IV
Commodity Futures Trading Commission
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17 CFR Parts 4, 145, and 147
Commodity Pool Operators and Commodity Trading Advisors: Amendments to
Compliance Obligations; Proposed Rule
Federal Register / Vol. 76 , No. 29 / Friday, February 11, 2011 /
Proposed Rules
[[Page 7976]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 4, 145, and 147
RIN 3038-AD30
Commodity Pool Operators and Commodity Trading Advisors:
Amendments to Compliance Obligations
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commodity Futures Trading Commission is proposing to amend
its existing regulations and proposing one new regulation regarding
Commodity Pool Operators and Commodity Trading Advisors. The Commission
is proposing a new data collection for CPOs and CTAs that is consistent
with the data collection required under the Dodd-Frank Act. The
proposed amendments would: Rescind the exemptions from registration
provided in the Commission's regulations; rescind the relief from the
certification requirement for annual reports provided to operators of
certain pools only offered to qualified eligible persons (``QEPs'');
modify the criteria for claiming relief under the Commission's
regulations; and require the annual filing of notices claiming
exemptive relief. Finally, the proposal includes new risk disclosure
requirements for CPOs and CTAs regarding swap transactions.
DATES: Comments must be in writing and received on or before April 12,
2011.
ADDRESSES: You may submit comments, identified by RIN number 3033-AD30,
by any of the following methods:
Agency Web site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments
through the Web site.
Mail: David A. Stawick, Secretary of the Commission,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581.
Hand Delivery/Courier: Same as mail above.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Please submit your comments using only one method.
Please specify the regulation(s) to which your comment refers in
the subject field of comments submitted by e-mail, and otherwise
clearly indicate the regulation(s) on written submissions. All comments
must be submitted in English, or if not, accompanied by an English
translation. Comments will be posted as received to http://www.cftc.gov. You should submit only information that you wish to make
available publicly. If you wish the Commission to consider information
that you believe is exempt from disclosure under the Freedom of
Information Act, a petition for confidential treatment of the exempt
information may be submitted according to the procedure established in
17 CFR 145.9.
The Commission reserves the right, but shall have no obligation, to
review, pre-screen, filter, redact, refuse or remove any or all of your
submission from http://www.cftc.gov that it may deem to be
inappropriate for publication, including, but not limited to, obscene
language. All submissions that have been redacted or removed that
contain comments on the merits of the rulemaking will be retained in
the public comment file and will be considered as required under the
Administrative Procedure Act and other applicable laws, and may be
accessible under the Freedom of Information Act.
FOR FURTHER INFORMATION CONTACT: For further information about the
proposed amendments to existing Sec. Sec. 4.5, 4.7, 4.13, 4.14, 4.24,
4.34, or 145.5, contact Kevin P. Walek, Assistant Director, Telephone:
(202) 418-5463, E-mail: [email protected], or Amanda Lesher Olear,
Special Counsel, Telephone: (202) 418-5283, E-mail: [email protected],
Division of Clearing and Intermediary Oversight, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW.,
Washington, DC 20581.
For further information about proposed Sec. 4.27 or proposed Forms
CPO-PQR or CTA-PR, contact Kevin P. Walek, Assistant Director,
Telephone: (202) 418-5463, E-mail: [email protected], or Daniel Konar,
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:
I. Statutory and Regulatory Background
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street
Reform and Consumer Protection Act (``Dodd-Frank Act'').\1\ The
legislation was enacted to reduce risk, increase transparency, and
promote market integrity within the financial system by, inter alia,
enhancing the Commodity Futures Trading Commission's (the
``Commission'' or ``CFTC'') rulemaking and enforcement authorities with
respect to all registered entities and intermediaries subject to the
Commission's oversight.
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\1\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
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The preamble of the Dodd-Frank Act explicitly states that the
purpose of the legislation is:
To promote the financial stability of the United States by
improving accountability and transparency in the financial system,
to end `too big to fail', to protect the American taxpayer by ending
bailouts, to protect consumers from abusive financial services
practices, and for other purposes.\2\
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\2\ Id.
Pursuant to this stated objective, the Dodd-Frank Act has expanded the
scope of Federal financial regulation to include instruments such as
swaps, enhanced the rulemaking authorities of existing Federal
financial regulatory agencies including the Commission and the
Securities and Exchange Commission (``SEC''), and created new financial
regulatory entities.
The Commodity Exchange Act (``CEA'') \3\ empowers the Commission
with the authority to register Commodity Pool Operators (``CPOs'') and
Commodity Trading Advisors (``CTAs''),\4\ exclude any entity from
registration as a CPO or CTA,\5\ and to require ``[e]very commodity
trading advisor and commodity pool operator registered under [the CEA
to] maintain books and records and file such reports in such form and
manner as may be prescribed by the Commission.'' \6\ The Commission
also has the power to ``make and promulgate such rules and regulations
as, in the judgment of the Commission, are reasonably necessary to
effectuate the provisions or to accomplish any of the purposes of [the
CEA].'' \7\ The Commission's discretionary power to exclude or exempt
persons from registration was intended to be exercised ``to exempt from
registration those persons who otherwise meet the criteria for
registration * * * if, in the opinion of
[[Page 7977]]
the Commission, there is no substantial public interest to be served by
the registration.'' \8\ It is pursuant to this authority that the
Commission has promulgated the various exemptions from registration as
a CPO that are enumerated in Sec. 4.13 of its regulations as well as
the exclusions from the definition of CPO that are delineated in Sec.
4.5.
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\3\ 7 U.S.C. 1, et seq.
\4\ 7 U.S.C. 6m.
\5\ 7 U.S.C. 1a(11) and 1a(12).
\6\ 7 U.S.C. 6n(3)(A). Under part 4 of the Commission's
regulations, entities registered as CPOs have reporting obligations
with respect to their operated pools. See 17 CFR 4.22. Although CTAs
have recordkeeping obligations under part 4, the Commission has not
required reporting by CTAs, See generally, 17 CFR part 4.
\7\ 7 U.S.C. 12a(5).
\8\ See H.R. Rep. No. 93-975, 93d Cong., 2d Sess. (1974), p. 20.
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Following the recent economic turmoil, and consistent with the
tenor of the provisions of the Dodd-Frank Act, the Commission has
reconsidered the level of regulation that it believes is appropriate
with respect to entities participating in the commodity futures and
derivatives markets. The Commission believes that it is necessary to
rescind or modify several of its exemptions and exclusions to more
effectively oversee its market participants and manage the risks that
such participants pose to the markets. Additionally, the Commission has
re-evaluated its prior decision not to require reporting by CTAs and
has concluded that additional information regarding CTAs' activities is
needed to provide the Commission with a more complete understanding of
such activities' effects on commodities and derivatives markets.
In addition to the expansion of the Commission's jurisdiction to
include swaps under Title VII of the Dodd-Frank Act, Title I of the
Dodd-Frank Act created the Financial Stability Oversight Council
(``FSOC'').\9\ The FSOC is composed of the leaders of various State and
Federal financial regulators and is charged with identifying risks to
the financial stability of the United States, promoting market
discipline, and responding to emerging threats to the stability of the
county's financial system.\10\ The Dodd-Frank Act anticipates that the
FSOC will be supported in these responsibilities by the Federal
financial regulatory agencies.\11\ The Commission is among those
agencies that could be asked to provide information necessary for the
FSOC to perform its statutorily mandated duties.\12\
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\9\ See section 111 of the Dodd-Frank Act.
\10\ See section 112(a)(1)(A) of the Dodd-Frank Act.
\11\ See sections 112(a)(2)(A) and 112(d)(1) of the Dodd-Frank
Act.
\12\ See section 112(d)(1) of the Dodd-Frank Act.
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Consistent with the Commission's view regarding the appropriate
level of regulation for its registrants in light of the recent economic
turmoil and the current regulatory environment, and in anticipation of
any requests for information from the FSOC, the Commission is
performing two tasks. First, the Commission is working with the SEC to
jointly promulgate the rules and forms needed to gather the data
required under section 406 of Title IV of the Dodd-Frank Act.\13\
Second, the Commission is re-evaluating its regulation of CPOs and CTAs
to ensure that its regulatory structure is appropriately designed to
effectuate its views regarding the necessary level of regulation in the
current economic environment and to be responsive to any informational
requests made to the Commission by other governmental agencies or FSOC.
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\13\ The Commission and the SEC are jointly proposing Form PF
with respect to entities registered with both agencies in a
forthcoming release.
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A. Title IV of the Dodd-Frank Act
Title IV of the Dodd-Frank Act requires advisers to large private
funds \14\ to register with the SEC.\15\ Through this registration
requirement, Congress sought to make available to the SEC ``information
regarding [the] size, strategies and positions'' of large private
funds, which Congress believed ``could be crucial to regulatory
attempts to deal with a future crisis.'' \16\ In section 404 of the
Dodd-Frank Act, Congress amended section 204(b) of the Investment
Advisers Act to direct the SEC to require private fund advisers
registered solely with the SEC \17\ to file reports containing such
information as is deemed necessary and appropriate in the public
interest and for investor protection or for the assessment of systemic
risk. These reports and records must include a description of certain
prescribed information, such as the amount of assets under management,
use of leverage, counterparty credit risk exposure, and trading and
investment positions for each private fund advised by the adviser.\18\
Section 406 of the Dodd-Frank Act also requires that the rules
establishing the form and content of reports filed by private fund
advisers that are dually registered with the SEC and the CFTC be issued
jointly by both agencies after consultation with the FSOC.\19\
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\14\ Section 202(a)(29) of the Investment Advisers Act of 1940
(``Investment Advisers Act'') defines the term ``private fund'' as
``an issuer that would be an investment company, as defined in
section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3),
but for section 3(c)(1) or 3(c)(7) of that Act.'' 15 U.S.C. 80a-
3(c)(1), 80a-3(c)(7). Section 3(c)(1) of the Investment Company Act
provides an exclusion from the definition of ``investment company''
for any ``issuer whose outstanding securities (other than short term
paper) are beneficially owned by not more than one hundred persons
and which is not making and does not presently propose to make a
public offering of its securities.'' 15 U.S.C. 80a-3(c)(1). Section
3(c)(7) of the Investment Company Act provides an exclusion from the
definition of ``investment company'' for any ``issuer, the
outstanding securities of which are owned exclusively by persons
who, at the time of acquisition of such securities, are qualified
purchasers, and which is not making and does not at that time
propose to make a public offering of such securities.'' 15 U.S.C.
80a-3(c)(7). The term ``qualified purchaser'' is defined in section
2(a)(51) of the Investment Company Act. See 15 U.S.C. 80a-2(a)(51).
\15\ The Dodd-Frank Act requires private fund adviser
registration by amending section 203(b)(3) of the Advisers Act to
repeal the exemption from registration for any adviser that during
the course of the preceding 12 months had fewer than 15 clients and
neither held itself out to the public as an investment adviser nor
advised any registered investment company or business development
company. See section 403 of the Dodd-Frank Act. There are exemptions
from this registration requirement for advisers to venture capital
funds and advisers to private funds with less than $150 million in
assets under management in the United States. There also is an
exemption for foreign advisers with less than $25 million in assets
under management from the United States and fewer than 15 U.S.
clients and private fund investors. See sections 402, 407 and 408 of
the Dodd-Frank Act.
\16\ See S. Conf. Rep. No. 111-176, at 38 (2010).
\17\ In this release, the term ``private fund adviser'' means
any investment adviser that is (i) registered or required to be
registered with the SEC (including any investment adviser that is
also registered or required to be registered with the CFTC as a CPO
or CTA) and (ii) advises one or more private funds (including any
commodity pools that satisfy the definition of ``private fund'').
\18\ See section 404 of the Dodd-Frank Act.
\19\ See section 406 of the Dodd-Frank Act.
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To fulfill this statutory mandate, the Commission and the SEC today
are jointly proposing sections 1 and 2 of Form PF in a forthcoming
proposal. Additionally, to ensure that necessary data is collected from
CPOs and CTAs that are not operators or advisors of private funds, the
Commission is proposing a new Sec. 4.27, which would require quarterly
reports from all CPOs and CTAs to be electronically filed with NFA. The
Commission is promulgating proposed Sec. 4.27 pursuant to the
Commission's authority to require the filing of reports by registered
CPOs and CTAs under section 4n of the CEA.\20\ In an effort to
eliminate duplicative filings, proposed Sec. 4.27(d) would allow
certain CPOs and/or CTAs that are also registered as private fund
advisers with the SEC pursuant to the securities laws to satisfy
certain of the Commission's systemic reporting requirements by
completing and filing the appropriate sections of Form PF with the SEC
with respect to advised private funds.
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\20\ 7 U.S.C. 6n(3)(A).
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B. Reason for Amending Existing CPO and CTA Regulations
In order to ensure that the Commission can adequately oversee the
commodities and derivatives markets and assess market risk associated
with pooled investment vehicles under its jurisdiction, the Commission
is re-
[[Page 7978]]
evaluating its regulation of CPOs and CTAs. Additionally, the
Commission does not want its registration and reporting regime for
pooled investment vehicles and their operators and/or advisors to be
incongruent with the registration and reporting regimes of other
regulators, such as that of the SEC for investment advisers under the
Dodd-Frank Act.
Ultimately, the Commission has determined that to address these
concerns it will be necessary to amend certain sections of its existing
regulations. These proposed amendments are designed to (1) bring the
Commission's CPO and CTA regulatory structure into alignment with the
stated purposes of the Dodd-Frank Act; (2) encourage more congruent and
consistent regulation of similarly-situated entities among Federal
financial regulatory agencies; (3) improve accountability and increase
transparency of the activities of CPOs, CTAs, and the commodity pools
that they operate or advise, and (4) facilitate a collection of data
that will assist the FSOC, acting within the scope of its jurisdiction,
in the event that the FSOC requests and the Commission provides such
data. Additionally, these proposed amendments will have the added
benefit of enabling the Commission to more efficiently deploy its
regulatory resources and to more expeditiously take necessary action to
ensure the stability of the commodities and derivatives markets,
thereby promoting the stability of the financial markets as a whole.
The existing regulations that the Commission proposes to amend are
enumerated below.
II. The Proposals
The Commission's proposed amendments are designed to (1) bring the
Commission's CPO and CTA regulatory structure into alignment with the
stated purposes of the Dodd-Frank Act; (2) encourage more congruent and
consistent regulation of similarly situated entities among Federal
financial regulatory agencies; (3) improve accountability and increase
transparency of the activities of CPOs, CTAs, and the commodity pools
that they operate or advise; and (4) facilitate a collection of data
that will assist the FSOC, acting within the scope of its jurisdiction,
in the event that the FSOC requests and the Commission provides such
data. The proposed amendments will also allow the Commission to more
effectively oversee its market participants and manage the risks posed
by the commodities and derivatives markets. To those ends, the
amendments: (A) Require the periodic reporting of data by CPOs and CTAs
regarding their direction of commodity pool assets; (B) identify
certain proposed filings with the Commission as being afforded
confidential treatment; (C) revise the requirements for determining
which persons should be required to register as a CPO under Sec. 4.5;
(D) require the filing of certified annual reports by all registered
CPOs; (E) rescind the exemptions from registration under Sec. Sec.
4.13(a)(3) and (a)(4); (F) require periodic affirmation of claimed
exemptive relief for both CPOs and CTAs; (G) require an additional risk
disclosure statement from CPOs and CTAs that engage in swaps
transactions; and (H) make certain conforming amendments to the
Commission's regulations as described below in subsection (H) of this
preamble. In addition, the proposed amendments make conforming changes
to the Commission's regulations in light of certain provisions in the
Dodd-Frank Act, including updating the accredited investor definition,
which the Commission has incorporated into the definition of QEP in
Sec. 4.7.
The Commission requests comment on all aspects of the proposal, as
well as comment on the specific provisions and issues highlighted in
the discussion below.
A. Proposed New Sec. 4.27 and Appendices A and C: Data Collection for
CPOs and CTAs
1. General Purpose of Forms CPO-PQR and CTA-PR
Section 4n of the CEA empowers the Commission to require all
registered CPOs and CTAs to file such reports as the Commission deems
necessary.\21\ Following the recent economic turmoil, and consistent
with the tenor of the provisions of the Dodd-Frank Act, the Commission
has determined that the reports currently required of Commission
registrants do not provide sufficient information regarding their
activities for the Commission to effectively monitor the risks posed by
those participants to the commodity futures and derivatives markets.
Moreover, the Commission has re-evaluated its prior decision not to
require reporting by CTAs and has concluded that additional information
regarding CTAs' activities is needed to provide it with a more complete
understanding of such activities.
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\21\ 17 U.S.C. 6n(3)(A).
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Therefore, the Commission is proposing Forms CPO-PQR (proposed to
appear in the Commission's regulations as appendix A to part 4), and
CTA-PR (proposed to appear in the Commission's regulations as appendix
C to part 4) to collect information from CPOs and CTAs that are solely
registered with the Commission to permit the Commission to more
effectively oversee participants acting within its jurisdiction. The
information that the Commission currently receives is limited, not
designed to measure systemic or market risk in any meaningful way, and
is only submitted by registered CPOs on an annual basis. In addition,
the annual financial reports filed by CPOs do not disclose information
regarding CPOs' use of stress testing or the tenor of fixed income
assets held by commodity pools.
The Commission proposes Forms CPO-PQR and CTA-PR to solicit
information that is generally identical to that sought through Form PF,
which is being jointly promulgated in a forthcoming release in
conjunction with the SEC. These forms were developed in consultation
with other financial regulators tasked with overseeing the financial
integrity of the economy. Through the collection of the data delineated
in proposed Forms CPO-PQR and CTA-PR, the Commission will be able, if
requested, by other financial regulators or FSOC, to provide them with
the information needed to identify whether any commodity pools are
systemically relevant and, as a result, warrant additional examination
or scrutiny.
The amount of information that a CPO or CTA will be required to
disclose on proposed Forms CPO-PQR and CTA-PR will vary depending on
both the size of the operator or advisor and the size of the advised
pools. This tiered approach to disclosure acknowledges the fact that
smaller operators, advisors, and pools are less likely to present
significant risk to the stability of the commodities futures and
derivatives markets and the financial market as a whole, and therefore,
such entities should have a lesser compliance burden. As detailed
infra, the Commission is proposing to collect more detailed information
from operators and advisors managing a large amount of commodity pool
assets.
2. Persons Required To Report on Proposed Forms CPO-PQR and CTA-PR
Pursuant to proposed Sec. 4.27, any CPO or CTA that is registered
or required to be registered must complete and submit proposed Forms
CPO-PQR and CTA-PR, respectively, with NFA as the Commission's
delegatee.\22\ As discussed
[[Page 7979]]
infra, only certain large CPOs and CTAs would have to complete the
sections of Forms CPO-PQR and CTA-PR that require the most detailed
information. It is expected that most CPOs would only have to complete
schedule A of form CPO-PQR, which contains essentially the same
information that NFA currently collects through form PQR. In addition,
the Commission expects that most CTAs only would have to complete
schedule A of form CTA-PR, which consists of limited questions
regarding self-identification, general operations of the CTA, and
whether the CTA directs assets for commodity pools equal to or
exceeding $150 million.
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\22\ In a forthcoming release, the Commission and the SEC will
be jointly promulgating Form PF with respect to the advisers to
private funds that are registrants with both agencies. CPOs and CTAs
that are dual registrants and that operate or advise commodity pools
that are not private funds will still be required to file the
proposed reports required in this release.
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Those CPOs with assets under management equal to or greater than
$150 million would be required to complete schedule B of form CPO-PQR,
which solicits basic information regarding the commodity pools operated
by such CPOs. CPOs with assets under management equal to or greater
than $1 billion would be required to complete schedule C of form CPO-
PQR, which solicits aggregate information regarding the commodity pools
operated by such CPOs and commodity pools with a net asset value
exceeding $500 million. Similarly, a CTA with commodity pool assets
under management equal to or exceeding $150 million would be required
to complete schedule B of form CTA-PR, which solicits basic information
regarding the CTA's trading program, the identification of the CTA's
client pool(s), and the position data of each commodity pool advised by
the CTA.
The Commission estimates that the number of CPOs that would have to
file schedule C of form CPO-PQR will be relatively small. The
Commission believes that it is appropriate to limit the more extensive
reporting obligations to the large entities detailed above because it
would provide information about those entities that are most likely to
pose market and systemic risk, and it minimizes the burden on smaller
registrants that are less likely to pose such risk.
The Commission requests comment on the proposed reporting scheme.
Should the Commission require that all CPOs and CTAs registered or
required to be registered with the Commission complete all of the
information on their respective forms regarding the pools that they
operate or advise? Please provide detail supporting your position. Are
there more appropriate thresholds for determining which CPOs and CTAs
must report more extensive information? Should the assets under
management thresholds be lower or higher? Is there additional
information that should be requested?
3. Frequency of Reporting
The Commission proposes to require the completion and filing of the
required section(s) of forms CPO-PQR and CTA-PR on a quarterly basis,
with the exception of mid-sized CPOs filing schedule B of form CPO-PQR
on an annual basis. The Commission believes that the proposed frequency
of reporting would permit the Commission to effectively monitor key
information relevant to the assessment of market risk posed by the
advisors and operators of commodity pools both on an individual and
aggregate basis. The proposal would require CPOs and CTAs to file the
appropriate reports within 15 days of each quarter end as set forth in
proposed Sec. 4.27. Additionally, proposed form CPO-PQR would require
schedule B to be filed by mid-sized CPOs within 90 days of the end of
the calendar year. The Commission believes that this periodic reporting
for CPOs and CTAs is necessary to provide the Commission with timely
data to effectively monitor CPOs' and CTAs' activities and to identify
emerging market issues. It is expected that this reporting would
coincide with registrants' existing internal reporting and risk
assessment system cycles. The various reporting schedules for
Commission registrants are set forth in the charts below.
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Form PF and Form
ADV PQR Schedule A PQR Schedule B PQR Schedule C
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Dual Registrant CPO for Quarterly.......... Quarterly.
Private Funds Only (Assets
under Management equal to or
exceeding $1 Billion).
Dual Registrant CPO for Annually........... Quarterly.
Private Funds Only (Assets
under Management less than $1
Billion).
Large CPO--Not Dual........... ................... Quarterly.......... Quarterly......... Quarterly.
Mid-size CPO.................. ................... Quarterly.......... Annually.
Small CPOs.................... ................... Quarterly.
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Form PF and Form ADV PR Schedule A PR Schedule B
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Dual Registrant CTA (Assets under Quarterly............... Quarterly.
Management equal to or exceeding
$1 Billion).
Dual Registrant CTA (Assets under Annually................ Quarterly.
Management less than $1 Billion).
Large and Mid-size CTAs............ ........................ Quarterly............... Quarterly.
Small CTAs......................... ........................ Quarterly.
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The Commission requests comment on the proposed filing frequency.
Is quarterly reporting an appropriate amount of time to gather the
information necessary to assess risk posed by filers? Is the 15-day
deadline for reports too long to ensure reporting of timely information
by filers?
4. Implementation of Reporting Obligation
The Commission currently anticipates that the proposed rules
requiring the filing of forms CPO-PQR and CTA-PR would become effective
six months after the adoption of the proposed forms, which will allow
sufficient time for the registrants to develop any systems necessary to
collect the information requested on the forms and prepare them for
filing. This effective date will also provide NFA with sufficient time
to modify its ``EasyFile'' system to enable registrants to file the
forms through that system.
The Commission has determined to authorize NFA to maintain and
serve as official custodian of record for the filings, notice, reports,
and claims
[[Page 7980]]
required by Sec. 4.27. This designation is consistent with the
Commission's prior designation of NFA as the official custodian of
record for the financial information filed as part of the annual
reports required under Sec. Sec. 4.7(b)(3) and 4.22(c).\23\ This
determination is based upon NFA's representations regarding procedures
for maintaining and safeguarding all such records, in connection with
NFA's assumption of the responsibilities for the activities referenced
herein. In maintaining the Commission's records, NFA shall be subject
to all other requirements and obligations imposed upon it by the
Commission in existing or future orders or regulations. In this regard,
NFA shall also implement such additional procedures (or modify existing
procedures) as are acceptable to the Commission and as are necessary
to: Ensure the security and integrity of the records in NFA's custody;
to facilitate prompt access to those records by the Commission and its
staff, particularly as described in other Commission orders or rules;
to facilitate disclosure of public or nonpublic information in those
records when permitted by the Commission concerning disclosure of
nonpublic information; and otherwise to safeguard the confidentiality
of records.\24\
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\23\ 67 FR 77470, Dec. 18, 2002.
\24\ Id.
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The Commission requests comment as to when proposed Sec. 4.27
should become effective, requiring the filing of forms CPO-PQR and CTA-
PR.
5. Information Required on Form CPO-PQR
The questions contained in form CPO-PQR reflect the experience of
the Commission in regulating CPOs, in consultation with staff of the
FSOC, the SEC, and NFA,\25\ as well as the purpose and requirements of
the Dodd-Frank Act. The information that the Commission proposes to
collect from CPOs is largely identical to that required under form PF
for private fund advisers and incorporates the information already
being collected by NFA in its form PQR. As stated previously, the
Commission expects that the collection of the data required by form
CPO-PQR would enhance the Commission's oversight of CPOs. A discussion
of the information required by form CPO-PQR follows.
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\25\ NFA is currently the only registered futures association
under the CEA and is the self regulatory organization overseeing all
CPOs and CTAs registered with the Commission. It is also responsible
for the administration of the Commission's registration program and
exemptions therefrom. See the Commission's delegation order
regarding the registration of CPOs and CTAs at 49 FR 39593, Oct. 9,
1984. Additionally, NFA currently collects certain data from CPOs
that are NFA members on its form PQR under NFA Rule 2-46.
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a. Proposed Schedule A
Generally, the information required under proposed schedule A will
be substantially similar to that required under form PF. Proposed
schedule A would be required of all CPOs that are registered or
required to be registered and incorporates all of the information
currently required by NFA's PQR data collection instrument. Proposed
part 1 of schedule A seeks basic identifying information about the CPO,
including its name, NFA identification number, and the CPO's assets
under management. Proposed part 2 of schedule A requires the reporting
of information regarding each of the CPO's pools, including the names
and NFA identification numbers for the pools operated during the
reporting period, position information for positions comprising five
percent or more of each pool's net asset value, and the pool's key
relationships with brokers, other advisors, administrators, etc. CPOs
that advise multiple pools will be required to complete and file a
separate part 2 of schedule A for each pool that they advise.
Proposed part 2 also requires the identification of each operated
pool's carrying brokers, administrators, trading managers, custodians,
auditors, and marketers. This information would enable the Commission
to determine which entities are exposed and connected to commodity
pools. The Commission is also proposing to include quarterly and
monthly performance information about each pool. This information would
permit the Commission to monitor trends regarding the commodity pool
industry, such as whether certain funds are engaging in investment
strategies that include significant risks having marketwide or even
systemic implications. Finally, the Commission is proposing to collect
information regarding a pool's subscriptions and redemptions, and any
restrictions thereon. The Commission believes that this information is
important to ensure adequate oversight of a CPO's decision to restrict
pool participants' access to their funds, given the recent economic
conditions that gave rise to the imposition of restrictions on
redemptions by CPOs.
The Commission is requesting comment on the appropriateness and
completeness of the information requested in proposed schedule A of
form CPO-PQR. Is there additional basic information that the Commission
should require of all CPOs filing form CPO-PQR or regarding the
commodity pools that they operate? Is there any information that is
included in schedules B and C for larger CPOs that should be included
in schedule A for all CPOs? Conversely, is there any information in
schedule A that the Commission should not require or that the
Commission should only require of large CPOs and, if so, why?
b. Proposed Schedule B
The Commission is proposing that all CPOs that are registered or
required to be registered that have assets under management equal to or
exceeding $150 million be required to file schedule B of form CPO-PQR.
CPOs satisfying the assets under management threshold would be required
to report detailed information for all operated pools, including
information regarding each pool's investment strategy; borrowings by
geographic area and the identities of significant creditors; credit
counterparty exposure; and entities through which the pool trades and
clears its positions. The Commission believes that this more detailed
pool information is necessary from mid-sized and large CPOs as these
CPOs and their pools are more likely to be a source of risk to both the
commodity futures and derivatives markets and the financial markets as
a whole.
The Commission is requesting comment on the appropriateness and
completeness of the information proposed to be requested from all CPOs
with assets under management equal to or exceeding $150 million. Is
there additional information that the Commission should request of mid-
sized and large CPOs? Is there information that the Commission should
not require to be reported? Should the Commission set a threshold net
asset value for pools for which CPOs must report information under
proposed schedule B, and if so, what threshold would be appropriate?
c. Proposed Schedule C
The Commission is also proposing that all CPOs with assets under
management equal to or exceeding $1 billion be required to file
schedule C of proposed form CPO-PQR. Part 1 of schedule C would require
certain aggregate information about the commodity pools advised by
large CPOs, such as the market value of assets invested, on both a long
and short basis, in different types of securities and derivatives,
turnover in these categories of financial instruments, and the tenor of
fixed income portfolio holdings, including asset-backed securities.
This
[[Page 7981]]
information will assist the Commission in monitoring asset classes in
which commodity pools may be significant investors and trends in pools'
exposures to allow the Commission to identify concentrations in
particular asset classes that are building or transitioning over time.
It also would aid the Commission in examining large CPOs' roles as a
source of liquidity in different asset classes.
Proposed part 2 of schedule C would require large CPOs to report
certain information about any commodity pool that they advise with a
net asset value of at least $500 million as of the end of any business
day during the reporting period. The Commission has selected $500
million as a threshold for more extensive individual commodity pool
reporting because the Commission believes that a pool with $500 million
in net asset value is a substantial fund whose activities could have an
impact on particular markets in which it invests or on its
counterparties. The Commission further believes that setting $500
million as the threshold will lessen the reporting burdens on smaller
or start-up pools that are less likely to pose systemic risk. This
threshold is the same threshold proposed by the Commission and the SEC
in their joint release for form PF.
Proposed part 2 would require information on the individual pool
level that is substantially similar to that requested in part 1 of
schedule C on an aggregate level. Part 2, however, would also require
additional information. The CPO would be required to report a
geographic breakdown of the reportable pool's assets as well as
information regarding asset liquidity, concentration of positions,
material investment positions, collateral practices with significant
counterparties, and clearing relationships. This information is
designed to assist the Commission in monitoring the composition of
commodity pool exposures over time as well as the liquidity of those
exposures.\26\
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\26\ It is noteworthy that the information in this proposed part
2 also could aid the FSOC, if it so requests such information from
the Commission and such request is granted, in monitoring: (1)
Credit counterparties' unsecured exposure to commodity pools, as
well as the pools' exposure; (2) a CPO's ability to respond to
market stresses; and (3) a CPO's interconnectedness with certain
central clearing counterparties.
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Proposed part 2 of schedule C also proposes to require the
reporting of data regarding commodity pool risk metrics, financial
information, and investor information. If during the reporting period
the CPO regularly calculated a value at risk (``VaR'') metric for the
reportable pool, the CPO would have to report VaR for each month of the
reporting period.\27\ Form CPO-PQR would also require the CPO to report
the impact on the pool's portfolio when stressing certain identified
market factors, if applicable, broken down by the long and short
components of the reportable pool's portfolio. It also requires the CPO
to note whether it regularly performed stress tests in which that
market factor was considered as part of its risk management
process.\28\ This information is designed to allow the Commission to
track basic sensitivities of the commodity pool to common market
factors, correlations in those factor sensitivities, and trends in
those factor sensitivities among large commodity pools.
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\27\ If VaR was calculated, the CPO would have to report the
confidence interval, time horizon, whether any weighting was used,
and whether VaR was calculated using historical simulation or Monte
Carlo simulation. If historical simulation was used, the CPO would
have to report the historical lookback period used.
\28\ The market factors are changes in: Equity prices; risk-free
interest rates; credit spreads; currency rates; commodity prices;
implied volatilities; implied correlations; default rates; and
prepayment speeds.
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Proposed part 2 of schedule C would require a CPO to report certain
financing information for its reportable pool, including a monthly
breakdown of its secured, unsecured, and synthetic borrowing, as well
as information about the collateral supporting the secured and
synthetic borrowing and the types of creditors. It also would require
certain information about the term of the fund's committed financing.
This information would assist the Commission in monitoring the
reportable pool's leverage, credit counterparties' unsecured exposure
to the pool, and the committed term of that leverage, which the
Commission may find important in monitoring if the pool comes under
stress.
Finally, proposed part 2 of schedule C would require a CPO to
report information about the reportable pool's investor composition and
liquidity. For example, proposed part 2 contains questions regarding
the pool's use of side pockets and gates, as well as information
relating to investor liquidity. The Commission believes this
information may be important in enabling the Commission to monitor the
commodity pool's susceptibility to failure through investor redemptions
in the event that the pool experiences stress due to market risks or
other factors.
The Commission requests comment on the information proposed in
schedule C for large CPOs. Is there additional information that should
be included and, if so, why? Is there information that should be
omitted and, if so, why? Is there information that the Commission
should require only on an aggregate basis that the Commission is
proposing to require CPOs to report on an individual pool basis? Are
there additional risk metrics or market factors that the Commission
should require CPOs to employ? Should the Commission require the
proposed market factors but with different parameters? Is there
information currently proposed that would not result in comparable or
meaningful information for the Commission? If so, how can changes to
the questions or instructions improve the utility of the information?
Is there information that should be broken down further and reported as
of smaller time increments, such as weekly? Is there information that
should be reported to show ranges, high points, or low points during
the reporting period, rather than as of the last day of the month or
quarter? Should clearing information be collected with respect to pools
with a net asset value less than $500 million?
6. Information Required on Proposed Form CTA-PR
The questions contained in proposed form CTA-PR reflect the
experience of the Commission in regulating CTAs, its knowledge
regarding how pools allocate funds among various CTAs, and the purpose
and requirements of the Dodd-Frank Act. The Commission is proposing
that all CTAs that direct commodity pool assets would be required to
report on form CTA-PR. As stated previously, the Commission expects
that the collection of the data required by form CTA-PR would enhance
the Commission's oversight of CTAs and its information regarding the
role that CTAs play in the investment of pool assets. A discussion of
the information required by form CTA-PR follows.
a. Proposed Schedule A
Proposed schedule A of form CTA-PR would collect general
information about the CTA and the pool assets under management by that
CTA. All CTAs that are registered or required to be registered would be
required to file proposed schedule A. Proposed schedule A consists of
general information, including: The name of the CTA; the CTA's NFA
identification number; the number of offered trading programs and
whether any pool assets are directed under those trading programs; the
total assets directed by the CTA; and the total pool assets
[[Page 7982]]
directed by the CTA. The Commission believes that this information will
assist the Commission in gaining a more complete understanding of CTAs
and their relationships with commodity pools without imposing any
significant burden on CTAs that do not manage a substantial amount of
pool assets. The Commission is proposing that all CTAs be required to
file proposed schedule A because the Commission believes that basic
information about entities registered as CTAs will assist the
Commission in making future determinations regarding their regulatory
obligations.
The Commission is seeking comment on the content of proposed
schedule A and which entities would be required to report under form
CTA-PR. Should all CTAs be required to file proposed schedule A of form
CTA-PR? If not, what criteria would be appropriate for limiting which
CTAs are required to file proposed schedule A of form CTA-PR?
b. Proposed Schedule B
Under the Commission's proposal, CTAs that direct pool assets equal
to or exceeding $150 million would be required to complete and file
proposed schedule B with details regarding the CTA's trading
program(s). CTAs would be required to file detailed position,
performance, and trading strategy information for each trading program.
CTAs also would be required to identify the pools advised under each
program and the percentage of the pool's assets that are directed by
the CTA. Finally, the CTA would be required to disclose whether it uses
the services of an administrator. Through analysis of the information
collected on form CTA-PR, in conjunction with that collected through
form CPO-PQR, the Commission will obtain a more complete understanding
of the relationships between CTAs and pools and interconnectedness of
the Commission's registrants. This information will also assist the
Commission in determining whether there is concentration of pool assets
with particular CTAs that could result in market risk.
The Commission is seeking comment on the information proposed to be
required under schedule B of form CTA-PR. Is there additional
information that should be included and, of so, why? Is there
information that should be omitted and, if so, why? Is there
information currently proposed that would not result in comparable or
meaningful information for the Commission? If so, how can changes to
the questions or instructions improve the utility of the information?
B. Amendments to Sec. Sec. 145.5 and 147.3: Confidential Treatment of
Data Collected on Forms CPO-PQR and CTA-PR
1. Proposed Amendments to Sec. 145.5
The Commission's collection of certain proprietary information
through proposed forms CPO-PQR and CTA-PR raises concerns regarding
whether the Commission could protect such information from public
disclosure. If publicly disclosed, this proprietary information could
put reporting entities at a significant competitive disadvantage.
Certain questions in both proposed forms request information on pool
assets under management, key service providers used by operators and
advisors, position-level information, pool performance, pool
subscriptions and redemptions, and the market value of pool assets
invested in different types of securities and swaps. The Commission has
determined that at least one of the nine exemptions to the Freedom of
Information Act, 5 U.S.C. 552 et seq., (``FOIA'') \29\ and section
8(a)(1) of the CEA \30\ protect certain proprietary information like
the information described above that the Commission would obtain
through proposed forms CPO-PQR and CTA-PR.\31\ A discussion of the
specific exemption from FOIA disclosure and the privacy protections
afforded under section 8(a)(1) of the CEA is described immediately
below.
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\29\ The nine exemptions are found in 5 U.S.C. 552(b)(1)-(7).
\30\ See 7 U.S.C. 12(a)(1).
\31\ Section 16 of the CEA, 7 U.S.C. 20, also prohibits the
Commission from disclosing such data and information in market
reports furnished to the public under that section. Section 16 is
not, however, applicable to the proposed rulemaking because the
reports to which it refers are investigations of such conditions as
supply, demand, and prices in the markets for ``goods, articles,
services, rights, and interests which are the subject of futures
contracts.''
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In general, FOIA requires the Commission and other Federal agencies
to provide the fullest possible disclosure of information unless such
information is otherwise exempted pursuant to one (or more) of nine
exemptions under FOIA.\32\ Accordingly, the Commission is required by
FOIA to make public its records and actions unless a specific exemption
is available.
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\32\ Section 552(b)(3) of FOIA provides that another statute may
provide a FOIA exemption. Section 404 of the Dodd-Frank Act sets out
such an exemption. Specifically, section 404 precludes the SEC from
being compelled under FOIA to reveal proposed Form PF or information
contained therein required to be filed with the SEC except to
Congress upon agreement of confidentiality or to comply with a court
order or other regulatory request. As noted above, the Commission
and SEC are jointly proposing Form PF in a forthcoming release. The
Dodd-Frank Act does not include similar language precluding the
Commission from being compelled to reveal similar information to the
public.
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Commercial and financial information and trade secrets are
generally exempted from public disclosure under FOIA.\33\ Information
will qualify for this exemption if the public disclosure of such
information would cause substantial harm to the competitive position of
the person from whom the information was obtained.\34\ As noted above,
the Commission believes that proposed forms CPO-PQR and CTA-PR would
require CPOs and CTAs, respectively, to report a great deal of
proprietary information that, if publicly disclosed, would cause
substantial harm to the competitive positions of those entities.
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\33\ See 5 U.S.C. 552(b)(4). ``Commercial'' and ``financial''
are given ``ordinary meanings.'' See Bd. of Trade of the City of
Chicago v. CFTC, 627 F.2d 392, 394-95 (DC Cir. 1980).
\34\ See, e.g., Pub. Citizen Health Research Group v. FDA, 704
F.2d 1280,1291 (DC Cir. 1983).
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Section 8(a)(1) of the CEA provides, in relevant part, that
``except as otherwise specifically authorized in the [CEA], the
Commission may not publish data and information that would separately
disclose the business transactions or market positions of any person
and trade secrets or names of customers.'' \35\ The CEA does not
specifically authorize the Commission to disclose to the public the
type of proprietary information collected in proposed forms CPO-PQR and
CTA-PR.
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\35\ 7 U.S.C. 12(a)(1).
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Currently, Sec. 145.5 of the Commission's regulations sets out the
Commission's general policy to protect from public disclosure those
portions of ``nonpublic records'' \36\ filed with it, which are
exempted under the commercial and financial information exemption from
FOIA.\37\ Specifically, Sec. 145.5 provides that ``[t]he Commission
shall publish or make available reasonably segregable portions of
`nonpublic records' * * *'' subject to a FOIA request if those portions
are not listed in Sec. 145.5.\38\
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\36\ Nonpublic records are defined as, among other things,
information published in the Federal Register, final Commission
opinions, orders, statements of policy and interpretations,
administrative manuals and instructions, indices, and records
released in response to FOIA requests that have been, or the
Commission anticipates will be, the subject of additional FOIA
requests.
\37\ See 17 CFR 145.5.
\38\ Id.
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To clarify the Commission's determination to treat certain
proprietary information collected in proposed forms CPO-PQR and CTA-PR
as nonpublic records--thereby protecting such information from public
disclosure--the Commission proposes
[[Page 7983]]
to list such information in Sec. 145.5(d).\39\ Specifically, the
Commission proposes to list the following schedules and questions in
proposed forms CPO-PQR and CTA-PR, the responses to which the
Commission would deem to be nonpublic records:
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\39\ Section 145.5(d) tracks the language of its FOIA
counterpart, exemption (b)(4).
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Proposed form CPO-PQR:
Proposed schedule A: Question 2, subparts (b) and (d);
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d),
(e), and (g); Question 11; Question 12; and Question 13.
Proposed schedule B: All.
Proposed schedule C: All.
Proposed form CTA-PR:
Proposed schedule B: Question 4, subparts (b), (c), (d),
and (e); Question 5; and Question 6.
2. Proposed Amendments to Sec. 147.3
The Commission's collection of certain proprietary information
through proposed forms CPO-PQR and CTA-PR raises concerns regarding
whether the Commission could protect such information from public
disclosure under The Government in the Sunshine Act, 5 U.S.C. 552b
(``Sunshine Act''), which are substantively identical to those
discussed above with respect to FOIA. The Sunshine Act was enacted to
ensure that agency action is open to public scrutiny and contains
exceptions to publication to the extent that such agency actions, or
portions of them, are protected by one or more exemptions,\40\ which
are identical to those under FOIA, discussed above. Accordingly, the
Commission is required by the Sunshine Act to make public its records
and actions unless a specific exemption is available. Commission
meetings, or portions thereof, may be ``closed'' under the Sunshine Act
where the Commission determines that open meetings will likely reveal
information protected by an exemption.\41\
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\40\ The exemptions from disclosure set forth in the Sunshine
Act are codified in 5 U.S.C. 552b(c). There are 10 listed
exemptions.
\41\ The Commission's Sunshine Act obligations are codified in
its part 147 rules, 17 CFR part 147.
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The Commission believes that portions of the filings required by
proposed Sec. 4.27 through proposed forms CPO-PQR and CTA-PR are
protected from disclosure as confidential commercial or financial
information under Sunshine Act exemption (c)(4), which prohibits the
disclosure of ``trade secrets and commercial or financial information
obtained from a person and privileged or confidential,'' \42\ for
reasons that are substantively identical to the rationale discussed
supra with respect to FOIA.
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\42\ 5 U.S.C. 552b(c)(4).
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The Commission further believes that the portions of forms CPO-PQR
and CTA-PR that are protected under Sunshine Act exemption (c)(4) are
also protected from disclosure by Sunshine Act exemption (c)(8),
pursuant to which the Commission is authorized to withhold from the
public matter ``contained in or related to examination, operating, or
condition reports prepared by, on behalf of, or for the use of an
agency responsible for the regulation or supervision of financial
institutions.'' \43\ Section 147.3(b) of the Commission's regulations
provides that the Commission generally will not make public matters
that are ``contained in or related to examinations, operating, or
conditions reports prepared by, on behalf of, or for the use of the
Commission or any other agency responsible for the regulation or
supervision of financial institutions.'' The Commission is aware that
no court has considered directly whether Commission registrants are
financial institutions for the purposes of Sunshine Act exemption
(c)(8). The Commission believes, however, that the language of the
Sunshine Act's legislative history contemplates the inclusion of
commodities professionals, including futures commission merchants,
designated contract markets, derivatives transaction execution
facilities, CPOs, and CTAs.\44\
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\43\ 5 U.S.C. 552b(c)(8).
\44\ See S. Rep. No. 354, 94th Cong., 1st Sess. 24 (1975)
(stating that ``financial institution'' is ``intended to include
banks, savings and loan associations, credit unions, brokers and
dealers in securities or commodities, exchanges dealing in
securities and commodities, such as the New York Stock Exchange,
investment companies, investment advisors, self-regulatory
organizations subject to 15 U.S.C. 78s, and institutional managers
as defined in 15 U.S.C. 78m.'').
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In light of the foregoing considerations, the Commission is
proposing to amend Sec. 147.3 to exempt from mandatory disclosure,
pursuant to Sunshine Act exemptions (c)(4) and (c)(8), the portions of
proposed forms CPO-PQR and CTA-PR as set forth below:
Proposed form CPO-PQR:
Proposed schedule A: Question 2, subparts (b) and (d);
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d),
(e), and (g); Question 11; Question 12; and Question 13.
Proposed schedule B: All.
Proposed schedule C: All.
Proposed form CTA-PR:
Proposed schedule B: Question 4, subparts (b), (c), (d),
and (e); Question 5; and Question 6.
C. Proposed Amendments to Sec. 4.5: Reinstating Trading Criteria for
Exclusion From the CPO Definition
The exclusion from the CPO definition under Sec. 4.5 is available
to certain otherwise regulated persons, including investment companies
registered under the Investment Company Act of 1940,\45\ in connection
with their operation of specified trading vehicles. Prior to amendments
that the Commission made in 2003, Sec. 4.5 required entities to file a
notice of eligibility that contained a representation that the use of
commodity futures for non bona fide hedging purposes will be limited to
five percent of the liquidation value of the qualifying entity's
portfolio and that the entity will not market the fund as a commodity
pool to the public.\46\
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\45\ 15 U.S.C. 80a-1 et seq.
\46\ 50 FR 15868, 15883, Apr. 23, 1985.
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The 2003 amendments revised Sec. 4.5 to require that notices of
eligibility only include representations that:
[T]he qualifying entity: (i) Will disclose in writing to each
participant, whether existing or prospective, that the qualifying
entity is operated by 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.\47\
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\47\ 17 CFR 4.5(c)(2).
When adopting the final amendments, the Commission explained 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.'' \48\
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\48\ 68 FR 47221, 47223, Aug. 8, 2003.
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In 2010, the Commission became aware of certain registered
investment companies that were offering series of de facto commodity
pool interests claiming exclusion under Sec. 4.5. The Commission
consulted with market participants and NFA regarding this practice.
Following this consultation, NFA submitted a petition for rulemaking in
which NFA suggested certain revisions to Sec. 4.5 with respect to
registered investment companies.\49\ On September 17, 2010, the
Commission solicited comments from the public on
[[Page 7984]]
NFA's petition for rulemaking, which proposed the reinstatement of the
pre-2003 operating restrictions in Sec. 4.5. In its petition, NFA
proposed that Sec. 4.5(c)(2) be amended to read as follows:
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\49\ 75 FR 56997, Sept. 17, 2010.
(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) \50\; 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.\51\ (Emphasis
removed).
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\50\ The revisions to Sec. 4.5 proposed herein contain a
reference to the definition of ``bona fide hedging'' as it is
currently set forth in Sec. 1.3(z) of the Commission's regulations.
The Commission notes that rules proposed in the future regarding
``bona fide hedging'' may require the proposed revisions to be
amended to reflect such new regulations.
\51\ 75 FR 56997, 56998, Sept. 17, 2010.
To stop the practice of registered investment companies offering
futures-only investment products without Commission oversight, the
Commission is proposing to amend Sec. 4.5 to reinstate the pre-2003
operating criteria consistent with the language proposed by NFA in its
petition. The Commission believes that NFA's proposed language is an
appropriate point at which to begin discussions regarding the
Commission's concerns. Moreover, the Commission believes that imposing
such restrictions would limit the possibility of entities engaging in
regulatory arbitrage whereby operators of otherwise regulated entities
that have significant holdings in commodity interests would avoid
registration and compliance obligations under the Commission's
regulations. The Commission believes that this is appropriate to ensure
consistent treatment of operators of commodity pools regardless of
registration status with other regulators. In addition, the Commission
has determined that adopting the restrictions proposed by NFA would
ensure that entities that operate funds that are de facto commodity
pools would be required to report the activities of such pools on the
proposed form CPO-PQR. The Commission, however, is cognizant of the
fact that the structure of these otherwise regulated entities may
result in operational difficulties with respect to compliance with part
4 of the Commission's regulations. To that end, the Commission poses
several questions, immediately below, derived from comments received
with respect to NFA's petition to solicit comments regarding what the
Commission should consider with respect to the regulation of such
entities:
Several commenters to NFA's petition have suggested that
the marketing strategies used by entities claiming relief under Sec.
4.5 would be prohibited under NFA's proposal. Specifically, it has been
argued that marketing these funds under proposed Sec. 4.5 would be
impossible, or nearly impossible, as it would be cost prohibitive. The
Commission solicits comments on how these marketing strategies would be
affected by the proposed rule change. Specifically, should the proposed
restriction on marketing as a commodity pool or as a vehicle for
providing exposure to commodity interests be broader or more narrow?
It has been suggested that funds operated pursuant to
relief under Sec. 4.5 are now following numerous trading strategies,
including ``life cycle'' fund strategies, which are set to maximize
trading successes for certain trading periods, or horizons. The
Commission seeks comment on the differential impact the proposed
rulemaking would have on the various trading strategies implemented by
funds operated under Sec. 4.5, including which types of funds might be
more severely impacted than others, and, if so, why?
Some commenters to the NFA petition have suggested that
the term ``marketing'' needs to be clarified. What considerations
should be made with respect to such a definition? Further, what
specific areas related to marketing are most problematic and, if so,
why?
Commenters to the NFA petition have suggested that the
changes to Sec. 4.5 would result in direct conflicts with SEC
regulations relating to registered investment companies. Please detail
which rules and regulations are in conflict, and indicate how these
could be best addressed by the two Commissions.
Is a limit of five percent of the liquidation value of the
portfolio attributable to non-bona fide hedging purposes the
appropriate threshold? Should a higher or lower limit apply? Should the
calculation of the limit include swaps, or be limited to futures and
options? Is a portfolio based criterion appropriate or is there another
more effective means for identifying entities that should be registered
as CPOs?
Additionally, the Commission is soliciting comment
regarding the implementation of the proposed changes to Sec. 4.5. What
issues should the Commission consider with respect to the ability of
registered investment companies to comply with the disclosure document
and reporting delivery requirements; recordkeeping; and related fund
performance disclosure requirements under part 4 of the Commission's
regulations? How much time will be necessary for entities that have
previously claimed exclusion under this section to comply with the
proposed changes? Should any entities that have previously claimed
exclusion under this section be exempted from compliance with the
proposed revisions to Sec. 4.5?
D. Proposed Amendments to Sec. 4.7: Removing Exemptive Relief From the
Certification Requirement for Pool Annual Reports and Incorporating
Accredited Investor Definition
1. Removing Exemptive Relief From the Certification Requirement for
Financial Statements in Pool Annual Reports
In 1992, the Commission proposed and adopted Sec. 4.7, which
provided relief from disclosure, reporting, and recordkeeping
obligations under part 4 of the Commission's regulations for CPOs and
CTAs that are privately offered to sophisticated persons.\52\ Section
4.7(b)(3) provides relief from the certification requirement for
financial statements contained in annual reports distributed to
participants and filed with NFA.\53\
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\52\ See 17 CFR 4.7.
\53\ See 17 CFR 4.7(b)(3).
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Despite the availability of the exemption from the audit
requirement under Sec. 4.7(b)(3)(i), the vast majority of CTAs and
CPOs that operate commodity pools under Sec. 4.7 have their annual
reports for those pools audited by certified public accountants. For
example, 759 of the 892 pools that operated pursuant to exemptive
relief
[[Page 7985]]
under Sec. 4.7 in fiscal year 2009 (i.e., 85% of all pools operated
under Sec. 4.7 in that year) filed certified annual reports despite
being eligible for exemptive relief from certification in Sec.
4.7(b)(3).
In light of the stated purposes of the Dodd-Frank Act (i.e.,
transparency and accuracy of information across market participants),
the Commission proposes to extend the requirement for certified
financial statements in commodity pool annual reports to commodity
pools with participants who are QEPs. The Commission believes that
requiring certification of financial information by an independent
accountant in accordance with established accounting standards will
ensure the accuracy of the financial information submitted by its
registrants. Accordingly, proposed section 3 of the amendatory text
would remove the exemption in Sec. 4.7(b)(3)(C)(ii) from the
requirement that certified financial statements be included in the
annual reports to participants in their commodity pools. Commission
staff will continue to consider requests for exemption from the audit
requirement pursuant to the general exemptive provisions of Sec.
4.12(a), in accordance with the criteria under which such relief
previously has been granted.\54\
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\54\ See, e.g., CFTC Staff Letters 10-02, Feb. 23, 2010; 10-07,
Jan. 7, 2010; 10-08, Feb. 23, 2010; 10-09, Feb. 25, 2010; 10-11,
Mar. 3, 2010; 10-18, Apr. 12, 2010, at: http://www.cftc.gov/LawRegulation/CFTCStaffLetters/LettersAcrchive/2010/index.htm.
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2. Incorporating by Reference the Accredited Investor Standard
The Commission is also proposing to amend Sec. Sec. 4.7(a)(3)(ix)
and (a)(3)(x), which list those persons required to satisfy the
portfolio requirement to be QEPs.\55\ In 1992, when the Commission
proposed and adopted Sec. 4.7, it stated that the relief provided in
Sec. 4.7 was intended for persons who were ``highly accredited
investors'',\56\ which was defined as ``accredited investors'', per the
terms of Sec. 230.501 of regulation D \57\ under the Securities Act of
1933,\58\ who also satisfy a portfolio value requirement.\59\ Section
4.7(a)(3)(ix) incorporates the specific net worth provision set forth
in Sec. 230.501(a)(5) of the SEC's regulations.\60\ Similarly, Sec.
4.7(a)(3)(x) incorporates the income standards of Sec. 230.501(a)(6)
of the SEC's regulations.\61\
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\55\ See 17 CFR 4.7(a)(3)(ix).
\56\ See 57 FR 34853, Aug. 7, 1992.
\57\ See 17 CFR 203.501.
\58\ See 15 U.S.C. 77a, et seq.
\59\ See 57 FR at 34855.
\60\ See id. at 34855.
\61\ See id.
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Section 413 of the Dodd-Frank Act instructs the SEC to examine and
adjust the threshold for ``accredited investor'' status under its
regulations and initially increases the threshold amount so that it is
significantly greater than the current provisions of regulation D.
Because the Commission has incorporated the ``accredited investor''
definition from regulation D into its definition of QEP, the Commission
has determined that it is necessary to amend Sec. Sec. 4.7(a)(3)(ix)
and (a)(3)(x) to incorporate the new accredited investor standard.
Thus, the Commission's proposal seeks to amend Sec. 4.7 to incorporate
the accredited investor standard from Regulation D by reference, rather
than by direct inclusion of its terms. Incorporation by reference will
permit the Commission's definition of QEP to continue to include the
specific terms of the accredited investor standard in the event that it
is later modified by the SEC without requiring the Commission to amend
Sec. 4.7 each time to maintain parity.
E. Proposed Amendments to Sec. Sec. 4.13(a)(3) and (a)(4): Rescission
of Exemption From Registration
The Commission proposes to rescind certain exemptions from
registration provided in Sec. Sec. 4.13(a)(3) and (a)(4). Section
4.13(a)(3) of the Commission's regulations currently provides that a
person is exempt from registration as a CPO if the interests in the
pool are exempt from registration under the Securities Act of 1933 and
offered only to QEPs, accredited investors, or knowledgeable employees,
and the pool's aggregate initial margin and premiums attributable to
commodity interests do not exceed five percent of the liquidation value
of the pool's portfolio.\62\ Section 4.13(a)(4) of the Commission's
regulations provides that a person is exempt from registration as a CPO
if the interests in the pool are exempt from registration under the
Securities Act of 1933 and the operator reasonably believes that the
participants are all QEPs.\63\
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\62\ See 17 CFR 4.13(a)(3). CPOs claiming relief under Sec.
4.13 are required to submit to special calls by the Commission to
demonstrate eligibility, however, even if the Commission determined
to make a special call, it would not be entitled to information
regarding the pool's activities beyond those implicated by the claim
for exemptive relief. Therefore, the efficacy of special calls as a
tool to gain any information on par with that required by Part 4 of
the Commission's regulations is limited.
\63\ See id. 4.13(a)(4). Natural persons who are required to
satisfy the portfolio requirement to be considered QEPs are not
included in the persons to whom a pool operating under this
exemption may be offered.
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As a result of the creation of exemptions from registration as a
CPO under Sec. Sec. 4.13(a)(3) and (a)(4), a large group of market
participants have fallen outside of the oversight of regulators (i.e.,
there is very little if any transparency or accountability over the
activities of these participants). The Commission has concluded that
continuing to grant an exemption from registration and reporting
obligations for these market participants is outweighed by the
Commission's concerns of regulatory arbitrage.
To address the lack of transparency and accountability, the
Commission's proposal would eliminate the exemption under Sec.
4.13(a)(3). Indeed, the Commission believes that it is possible for a
commodity pool to have a portfolio that is sizeable enough that even if
just five percent of the pool's portfolio were committed to margin for
futures, the pool's portfolio could be so significant that the
commodity pool would constitute a major participant in the futures
market.
In addition, the Commission proposes to eliminate the exemption in
Sec. 4.13(a)(4) because there are no limits on the amount of commodity
interest trading in which pools operating under this regulation can
engage. That is, it is possible that a commodity pool that is exempted
from registration under Sec. 4.13(a)(4) could be invested solely in
commodities.
With the passage of the Dodd-Frank Act, the regulatory environment
has changed from that which was in existence when Sec. Sec. 4.13(a)(3)
and (a)(4) were promulgated in 2003. As stated previously, one of the
primary purposes of the Dodd-Frank Act is to promote transparency with
respect to the activities of participants in the financial markets.
Sections 403 and 404 of the Dodd-Frank Act generally require
registration and reporting by investment advisers to private funds.\64\
Many private funds claim an exemption from SEC registration under
sections 3(c)(1) and (7) of the Investment Company Act of 1940 (the
``Investment Company Act'').\65\ The Dodd-Frank Act, although not
rescinding these exemptions from registration under the Investment
Company Act, requires the advisers of such funds to register with the
SEC as ``private fund investment advisers''.\66\ The Commission's
proposal seeks to eliminate the exemptions under
[[Page 7986]]
Sec. Sec. 4.13(a)(3) and (4) for operators of pools that are similarly
situated to private funds that previously relied on the exemptions
under Sec. Sec. 3(c)(1) and (7) of the Investment Company Act and
Sec. 203(b)(3) of the Investment Advisers Act. It is the Commission's
view that the operators of these pools should be subject to similar
regulatory obligations, including proposed form CPO-PQR, in order to
provide improved transparency and increased accountability with respect
to these pools. The Commission has determined that it is appropriate to
limit regulatory arbitrage through harmonization of the scope of its
data collection with respect to pools that are similarly situated to
private funds so that operators of such pools will not be able to avoid
oversight by either the Commission or the SEC through claims of
exemption under the Commission's regulations.
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\64\ See sections 403 and 404 of the Dodd-Frank Act. The Dodd-
Frank Act does grant a few exemptions from the registration
requirement. For example, section 407 provides that [venture
capital] funds are not required to register with the SEC.
\65\ See 15 U.S.C. 80a-3.
\66\ See sections 403 and 404 of the Dodd-Frank Act for the
general registration provisions for private fund investment
advisers.
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The Commission is soliciting comment regarding the implementation
of the proposed rescission of Sec. Sec. 4.13(a)(3) and (a)(4). How
much time will be necessary for entities that have previously claimed
exemption under these sections to comply with the proposed changes? How
should the Commission address entities whose activities do not require
registration; i.e., should such entities be required to file notice
with the Commission to avoid registration? Should any entities that
have previously claimed exemption under these sections be exempted from
compliance with the proposed revisions to Sec. Sec. 4.13(a)(3) and
(a)(4)? Should the Commission consider an alternative de minimis
exemption under Sec. 4.13, and, if so, what criteria should be
required to claim such exemption?
F. Proposed Amendments to Sec. Sec. 4.5, 4.13, and 4.14: Requiring
Annual Filings of Notices of Claims of Exemption
The Commission has the power to ``make and promulgate such rules
and regulations as, in the judgment of the Commission, are reasonably
necessary to effectuate the provisions or to accomplish the purposes of
[the CEA].'' \67\ It is pursuant to this authority that the Commission
promulgated the various exemptions from registration set forth in
Sec. Sec. 4.5, 4.13, and 4.14. It is also pursuant to this authority
that the Commission may revise the criteria for claiming such exemptive
relief.
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\67\ 7 U.S.C. 12a(5).
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Under the current provisions of part 4 of the Commission's
regulations, persons claiming exemptive relief from inclusion in the
definition of a CPO or from registration as a CPO or CTA are required
to file only a notice of such claim with NFA and to comply with a few
ministerial requirements.\68\ For entities claiming relief under
Sec. Sec. 4.5, 4.13, or 4.14, the filing of an exemption notice is the
end of these entities' interaction with the Commission or NFA (in the
absence of a special call or their capture by the large trader
reporting system). The Commission's regulations do not explicitly
require these entities to inform the Commission in the event that these
entities cease operating as a going concern.\69\
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\68\ Under the Commission's regulations, persons claiming such
relief remain subject to special calls (17 CFR 4.5(c)(2)(ii),
4.13(c)(2), 4.14(a)(8)(iv)(B)) and remain subject to all
requirements applicable to traders on our markets (i.e., large
trader reporting, position limits, anti-fraud provisions, etc.).
\69\ Since 2003, the Commission, through NFA, has received over
10,000 notices of claim for exemptive relief under Sec. Sec.
4.13(a)(3) and (a)(4), which represent approximately 30,000 pools.
The Commission has no simple and economical way of determining
whether all of the approximately 10,000 entities filing the notices
claiming relief remain going concerns. Therefore, it is difficult to
estimate the number of exempt entities currently operating in the
derivative markets.
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Based on the foregoing, the Commission proposes to require all
persons claiming exemptive or exclusionary relief under Sec. Sec. 4.5,
4.13, and 4.14 of the Commission's regulations to confirm their notice
of claim of exemption or exclusion on an annual basis.\70\ The
Commission believes that an annual notice requirement would promote
improved transparency regarding the number of entities either exempt or
excluded from the Commission's registration and compliance programs,
which is consistent with one of the primary purposes of the Dodd-Frank
Act. An annual notice requirement would enable the Commission to
determine whether exemptions and exclusions should be modified,
repealed, or maintained as part of the Commission's ongoing assessment
of its regulatory scheme. If a person chooses to withdraw their
certification other than due to the cessation of activities requiring
registration or exemption therefrom, the Commission's proposal would
require such person to file a registration application with NFA within
30 days of the anniversary date of the initial claim for exemptive
relief. Because persons are required to file electronically with NFA,
NFA would conduct the annual confirmation process through its
electronic system, similar to the annual updates to registration
information that are required of registered firms under Sec. 3.10(d).
The Commission's proposal would make the failure to comply with the
annual notice requirement result in a deemed withdrawal of the
exemption or exclusion and under those circumstances could result in
the initiation of an enforcement action.
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\70\ If the proposed repeal of Sec. Sec. 4.13(a)(3) and (a)(4)
is adopted, annual notices will still be required to be filed
pursuant to Sec. Sec. 4.13(a)(1) and (a)(2) under this proposal.
Regardless of whether the repeal of Sec. Sec. 4.13(a)(3) and (a)(4)
is adopted, all CPOs will be required to file annual notices in
order to claim exemptive relief under all provisions of Sec. 4.13.
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The Commission invites comment on whether 30 days is an adequate
period of time in which to affirm. Does it make sense to require a
filing within 30 days of the anniversary date of the initial filing, or
within 30 days of the end of the calendar year?
G. Proposed Amendments to Sec. Sec. 4.24 and 4.34: New Risk Disclosure
Statement for CPOs and CTAs
The enactment of the Dodd-Frank Act expanded the scope of the
Commission's authority to include swaps.\71\ In light of this expansion
of the Commission's jurisdiction, the Commission has determined that it
is necessary to amend the mandatory Risk Disclosure Statements \72\
under Sec. Sec. 4.24(b) and 4.34(b) for CPOs and CTAs to describe
certain risks specific to swaps transactions. Specifically, the
Commission believes that it is critical that registered CPOs and CTAs
inform pool participants and clients about the potential risks that
swaps may have limited liquidity and may be hard to value, which may
result in difficulties regarding the pool participants' ability to
redeem their interests in the pool and clients' ability to liquidate
their accounts. The Commission believes that the significance of these
risks should be appropriately highlighted by including a discussion in
the Risk Disclosure Statement at the beginning of the document.
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\71\ See generally Title VII of the Dodd-Frank Act.
\72\ See 17 CFR 4.24(b), 4.34(b).
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The Commission is specifically soliciting comment as to whether the
risks discussed in the proposed Risk Disclosure Statement are the
significant risks to pool participants and clients that are posed by
the use of swaps by CPOs and CTAs? Should any other risks be included
in the proposed Risk Disclosure Statement? Should any proposed language
be omitted?
H. Proposed Amendments to Part 4: Conforming Amendments
As a result of the amendments discussed in this proposal, the
Commission proposes to amend various provisions of part 4 of the
Commission's regulations for the purposes of making confirming changes.
Specifically, the proposal would delete references to repealed rules
(e.g., Sec. Sec. 4.13(a)(3) and
[[Page 7987]]
(a)(4), etc.) in other sections of the Commission's regulations.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \73\ requires that agencies,
in proposing rules, consider the impact of those rules on small
businesses.
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\73\ See 5 U.S.C. 601, et seq.
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CPOs: The Commission has determined previously that registered CPOs
are not small entities for the purpose of the RFA.\74\ With respect to
CPOs exempt from registration, the Commission has previously determined
that a CPO is a small entity if it meets the criteria for exemption
from registration under current Rule 4.13(a)(2).\75\ Such CPOs will
continue to qualify for either exemption or exclusion from registration
and therefore will not be required to report on proposed form CPO-PQR;
however, they will have an annual notice filing obligation confirming
their eligibility for exemption or exclusion from registration and
reporting. The Commission estimates that the time required to complete
this new requirement will be approximately 0.25 of an hour, which the
Commission has concluded will not be a significant time expenditure.
The Commission has determined that the proposed regulation will not
create a significant economic impact on a substantial number of small
entities.
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\74\ See 47 FR 18618, 18619, Apr. 30, 1982.
\75\ See 47 FR at 18619-20.
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CTAs: The Commission has previously decided to evaluate, within the
context of a particular rule proposal, whether all or some CTAs should
be considered to be small entities, and if so, to analyze the economic
impact on them of any such rule.\76\ Schedule A of proposed form CTA-PR
is proposed to be required of all registered CTAs, which necessarily
includes entities that would be considered small. The majority of the
information requested on schedule A is information that is readily
available to the CTA or readily calculable by the CTA, regardless of
size. Therefore, the Commission estimates that the time required to
complete the items contained in schedule A will be approximately 0.5
hours as it is comprised of only two questions, which solicit
information that is expected to be readily available. The Commission
has determined that proposed schedule A will not create a significant
economic impact on a substantial number of small entities. With respect
to proposed form CTA-PR, only CTAs directing pool assets equal to or in
excess of $150 million will be obligated to file schedule B. The
Commission is hereby determining that for purposes of this rulemaking
that CTAs directing pool assets equal to or in excess of $150 million
are not small entities for RFA purposes. Accordingly, the Chairman, on
behalf of the Commission hereby certifies pursuant to 5 U.S.C. 605(b)
that the proposed rules, will not have a significant impact on a
substantial number of small entities.
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\76\ See 47 FR at 18620.
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B. Paperwork Reduction Act
The Paperwork Reduction Act (``PRA'') imposes certain requirements
on Federal agencies in connection with their conducting or sponsoring
any collection of information as defined by the PRA.\77\ An agency may
not conduct or sponsor, and a person is not required to respond to, a
collection of information unless it displays a currently valid control
number from the Office of Management and Budget (``OMB''). The
Commission is proposing to amend Collection 3038-0023 to allow for an
increase in response hours for the proposed rulemaking resulting from
the rescission of Sec. Sec. 4.13(a)(3) and (a)(4) and the modification
of Sec. 4.5. The Commission is also proposing to amend Collection
3038-0005 to allow for an increase in response house for the proposed
rulemaking associated with new and modified compliance obligations
under part 4 of the Commission's regulations resulting from this
proposal. The Commission, therefore, is submitting this proposal to the
OMB for its review in accordance with 44 U.S.C. 3507(d) and 5 CFR
1320.11. The titles for these collections are ``Part 3--Registration''
(OMB Control number 3038-0023) and ``Part 4--Commodity Pool Operators
and Commodity Trading Advisors'' (OMB Control number 3038-0005).
Responses to this collection of information would be mandatory.
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\77\ See 44 U.S.C. 3501 et seq.
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The Commission will protect proprietary information according to
the Freedom of Information Act (``FOIA'') and 17 CFR part 145,
``Commission Records and Information.'' In addition, section 8(a)(1) of
the CEA strictly prohibits the Commission, unless specifically
authorized by the CEA, from making public ``data and information that
would separately disclose the business transactions or market position
of any person and trade secrets or names of customers.'' \78\ The
Commission is also required to protect certain information contained in
a government system of records according to the Privacy Act of
1974.\79\
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\78\ See 7 U.S.C. 12.
\79\ See 5 U.S.C. 552a.
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1. Additional Information Provided by CPOs and CTAs
a. OMB Control Number 3038-0023
Part 3 of the Commission's regulations concern registration
requirements. Existing Collection 3038-0023 has been amended to reflect
the obligations associated with the registration of new entrants, i.e.,
CPOs that were previously exempt from registration under Sec. Sec.
4.5, 4.13(a)(3) and 4.13(a)(4), that had not previously been required
to register. Because the registration requirements are in all respects
the same as for current registrants, the collection has been amended
only insofar as it concerns the increased estimated number of
respondents and the corresponding estimated annual burden.
Estimated number of respondents: 77,857.
Annual responses by each respondent: 78,109.
Annual reporting burden: 7,029.8.
b. OMB Control Number 3038-0005
Part 4 of the Commission's regulations concerns the operations of
CTAs and CPOs, and the circumstances under which they may be exempted
from registration. Under existing Collection 3038-0005 the estimated
average time spent per response has not been altered; however,
adjustments have been made to the collection to account for current
information available from NFA concerning CPOs and CTAs registered or
claiming exemptive relief under the part 4 regulations, and the new
burden expected under proposed Sec. 4.27. The total burden associated
with Collection 3038-005 is expected to be:
Estimated number of respondents: 31,322.
Annual responses by each respondent: 69,082.
Estimated average hours per response: 8.77.
Annual reporting burden: 272,419.6.
Proposed Sec. 4.27 is expected to be the main reason for the
increased burden under Collection 3038-005. Specifically, the
Commission expects the following burden with respect to the various
schedules of proposed forms CPO-PQR and CTA-PR:
Form CPO-PQR: Schedule A:
Estimated number of respondents: 4,060.
Annual responses by each respondent: 4.
Estimated average hours per response: 8.
[[Page 7988]]
Annual reporting burden: 129,920.
Form CPO-PQR: Schedule B:
Estimated number of respondents: 920.
Annual responses by each respondent: 4.
Estimated average hours per response: 4.
Annual reporting burden: 14,720.
Form CPO-PQR: Schedule C:
Estimated number of respondents: 260.
Annual responses by each respondent: 4.
Estimated average hours per response: 18.
Annual reporting burden: 18,720.
Form CTA-PR: Schedule A:
Estimated number of respondents: 450.
Annual responses by each respondent: 4.
Estimated average hours per response: 0.5.
Annual reporting burden: 900.
Form CTA-PR: Schedule B:
Estimated number of respondents: 150.
Annual responses by each respondent: 4.
Estimated average hours per response: 7.
Annual reporting burden: 4,200.
2. Information Collection Comments
The Commission invites the public and other Federal agencies to
comment on any aspect of the reporting and recordkeeping burdens
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission
solicits comments in order to: (i) Evaluate whether the proposed
collection of information is necessary for the proper performance of
the functions of the Commission, including whether the information will
have practical utility; (ii) evaluate the accuracy of the Commission's
estimate of the burden of the proposed collection of information; (ii)
determine whether there are ways to enhance the quality, utility, and
clarity of the information collected; and (iv) minimize the burden of
the collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.
Comments may be submitted directly to the Office of Information and
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at
[email protected]. Please provide the Commission with a copy
of submitted comments so that they can be summarized and addressed in
the final rule. Refer to the ADDRESSES section of this notice of
proposed rulemaking for comment submission instructions to the
Commission. A copy of the supporting statements for the collections of
information discussed above may be obtained by visiting RegInfo.gov.
OMB is required to make a decision concerning the collection of
information between 30 and 60 days after publication of this release.
Consequently, a comment to OMB is most assured of being fully effective
if received by OMB (and the Commission) within 30 days after
publication of this notice of proposed rulemaking.
C. Cost-Benefit Analysis
Section 15(a) of the CEA \80\ requires the Commission to consider
the costs and benefits of its actions before issuing rules,
regulations, or orders under the CEA. By its terms, section 15(a) does
not require the Commission to quantify the costs and benefits of its
rules, regulations or orders or to determine whether the benefits
outweigh the costs. Rather, section 15(a) requires that the Commission
``consider'' the costs and benefits of its actions. Section 15(a)
further specifies that the costs and benefits shall be evaluated in
light of the following five broad areas of concern: (1) Protection of
market participants and the public; (2) efficiency, competitiveness and
financial integrity of futures markets; (3) price discovery; (4) sound
risk management practices; and (5) other public interest
considerations. The Commission may in its discretion give greater
weight to any one of the five enumerated areas and could in its
discretion determine that, notwithstanding the costs, a particular
rule, regulation, or order is necessary or appropriate to protect the
public interest or to effectuate any of the provisions or accomplish
any of the purposes of the CEA.
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\80\ See 7 U.S.C. 19(a); see also 5 U.S.C. 801(a)(1)(B)(i).
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The proposed amendments to the Commission's regulations require
CPOs and CTAs registered with the CFTC to file in an electronic format
the proposed forms CPO-PQR and CTA-PR, respectively. Under the proposed
rule, most CPOs and CTAs would be required to provide quarterly a
limited amount of basic information on forms CPO-PQR and CTA-PR about
the operations of their commodity pools. Only large CPOs and CTAs would
have to submit on a quarterly basis the full complement of systemic
risk related information required by forms CPO-PQR and CTA-PR.
With respect to costs, the Commission has determined that: (1)
Although they are necessary to U.S. financial stability, the proposed
reporting requirements will create additional compliance costs for
these registrants; (2) without the proposed reporting requirements
imposed on CPOs and CTAs, the Commission may not have sufficient
information to provide effective oversight of participants in the
futures and derivatives markets; and (3) the proposed reporting
requirements, once finalized, will provide the Commission with better
information regarding the business operations, creditworthiness, use of
leverage, and other material information of certain registered CPOs and
CTAs.
In addition to the costs associated with the proposed data
collection instruments, the Commission has determined the following
with respect to the costs of the other proposed changes to part 4 of
the Commission's regulations impacting entitlement to exemptive relief
from registration: (1) Unless the Commission rescinds the exemptive
relief delineated in Sec. Sec. 4.13(a)(3) and 4.13(a)(4), the
information collected under proposed forms CPO-PQR and CTA-PR will not
provide a complete understanding of the risks arising from the
activities of CPOs and CTAs in the commodity derivatives markets; (2)
failing to adopt revisions to Sec. 4.5 that are substantively similar
to those proposed in NFA's petition for rulemaking would result in
disparate treatment of similarly situated collective investment
schemes; (3) requiring the filing of an annual notice to claim
exemptive relief under Sec. Sec. 4.5, 4.13, and 4.14 enables the
Commission to better understand the universe of entities claiming
relief from the Commission's regulatory scheme; and (4) although the
Commission believes that the abovementioned amendments are necessary,
the proposed changes will result in additional costs to certain market
participants due to registration and compliance obligations.
The Commission has determined that the proposed changes will
provide a benefit to all investors and market participants by providing
the Commission and other policy makers with more complete information
about these registrants. In turn, this information would enhance the
Commission's ability to form and frame appropriately tailored
regulatory policies to the commodity pool industry and its operators
and advisors. As mentioned above, the Commission does not have access
to this information today and has instead made use of information from
other, less reliable sources.
The Commission invites public comment on its cost-benefit
considerations. Commenters are also invited to submit any data and
other information that they may have
[[Page 7989]]
quantifying or qualifying the costs and benefits of this proposed rule
with their comment letters.
List of Subjects
17 CFR Part 4
Advertising, Brokers, Commodity futures, Commodity pool operators,
Commodity trading advisors, Consumer protection, Reporting and
recordkeeping requirements.
17 CFR Part 145
Commission records and information, Confidential business
information.
17 CFR Part 147
Open commission meetings, Sunshine Act.
Accordingly, 17 CFR chapter I is proposed to be amended as follows:
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
1. The authority citation for part 4 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a,
and 23.
2. In Sec. 4.5, add paragraphs (c)(2)(iii) and (c)(5) to read as
follows:
Sec. 4.5 Exclusion from the definition of the term ``commodity pool
operator.''
* * * * *
(c) * * *
(2) * * *
(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, or
swaps 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, or swaps 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, commodity options, or swaps markets.
* * * * *
(5) Annual notice: Each person who has filed a notice of exclusion
under this section must affirm the notice of exemption from
registration, withdraw such exemption due to the cessation of
activities requiring registration or exemption therefrom, or withdraw
such exemption and apply for registration within 30 days of the
anniversary of the initial filing date through National Futures
Association's electronic exemption filing system.
* * * * *
3. In Sec. 4.7, revise paragraphs (a)(3)(ix) and (x) and (b)(3) to
read as follows:
Sec. 4.7 Exemption from certain part 4 requirements for commodity
pool operators with respect to offerings to qualified eligible persons
and for commodity trading advisors with respect to advising qualified
eligible persons.
* * * * *
(a) * * *
(3) * * *
(ix) A natural person whose individual net worth, or joint net
worth with that person's spouse at the time of either his purchase in
the exempt pool or his opening of an exempt account would qualify him
as an accredited investor as defined in Sec. 230.501(a)(5) of this
title;
(x) A natural person who would qualify as an accredited investor as
defined in Sec. 203.501(a)(6) of this title;
* * * * *
(b) * * *
(3) Annual report relief. (i) Exemption from the specific
requirements of Sec. 4.22(c) of this part; Provided, that within 90
calendar days after the end of the exempt pool's fiscal year or the
permanent cessation of trading, whichever is earlier, the commodity
pool operator electronically files with the National Futures
Association and distributes to each participant in lieu of the
financial information and statements specified by that section, an
annual report for the exempt pool, affirmed in accordance with Sec.
4.22(h) which contains, at a minimum:
(A) A Statement of Financial Condition as of the close of the
exempt pool's fiscal year (elected in accordance with Sec. 4.22(g));
(B) A Statement of Operations for that year;
(C) Appropriate footnote disclosure and such further material
information as may be necessary to make the required statements not
misleading. For a pool that invests in other funds, this information
must include, but is not limited to, separately disclosing the amounts
of income, management and incentive fees associated with each
investment in an investee fund that exceeds five percent of the pool's
net assets. The income, management and incentive fees associated with
an investment in an investee fund that is less than five percent of the
pool's net assets may be combined and reported in the aggregate with
the income, management and incentive fees of other investee funds that,
individually, represent an investment of less than five percent of the
pool's net assets. If the commodity pool operator is not able to obtain
the specific amounts of management and incentive fees charged by an
investee fund, the commodity pool operator must disclose the percentage
amounts and computational basis for each such fee and include a
statement that the CPO is not able to obtain the specific fee amounts
for this fund;
(D) Where the pool is comprised of more than one ownership class or
series, information for the series or class on which the financial
statements are reporting should be presented in addition to the
information presented for the pool as a whole; except that, for a pool
that is a series fund structured with a limitation on liability among
the different series, the financial statements are not required to
include consolidated information for all series.
(ii) Legend. If a claim for exemption has been made pursuant to
this section, the commodity pool operator must make a statement to that
effect on the cover page of each annual report.
* * * * *
4. In Sec. 4.13:
a. Remove and reserve paragraphs (a)(3), (4), and (e)
b. Revise paragraph (b)(1)(ii)
c. Redesignate paragraph (b)(4) as paragraph (b)(5), and add new
paragraph (b)(4).
The revision and addition read as follows:
Sec. 4.13 Exemption from registration as a commodity pool operator.
* * * * *
(b) * * *
(2) * * *
(ii) Contain the section number pursuant to which the operator is
filing the notice (i.e., Sec. 4.13(a)(1) or (2)) and
[[Page 7990]]
represent that the pool will be operated in accordance with the
criteria of that paragraph; and
* * * * *
(4) Annual notice: Each person who has filed a notice of exemption
from registration under this section must affirm the notice of
exemption from registration, withdraw such exemption due to the
cessation of activities requiring registration or exemption therefrom,
or withdraw such exemption and apply for registration within 30 days of
the anniversary of the initial filing date through National Futures
Association's electronic exemption filing system.
* * * * *
5. In Sec. 4.14:
a. Remove paragraph (a)(8)(i)(D)
b. Redesignate paragraph (a)(8)(iii)(D) as (a)(8)(iii)(E) and add
new paragraph (a)(8)(iii)(D) to read as follows:
Sec. 4.14 Exemption from registration as a commodity trading adviser.
* * * * *
(a) * * *
(8) * * *
(iii) * * *
(D) Annual notice: Each person who has filed a notice of exemption
from registration under this section must affirm the notice of
exemption from registration, withdraw such exemption due to the
cessation of activities requiring registration or exemption therefrom,
or withdraw such exemption and apply for registration within 30 days of
the anniversary of the initial filing date through National Futures
Association's electronic exemption filing system.
* * * * *
6. In Sec. 4.24, add paragraph (b)(5) to read as follows:
Sec. 4.24 General disclosures required.
* * * * *
(b) * * *
(5) If the pool may engage in swaps, the Risk Disclosure Statement
must further state:
SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A
VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A
PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK,
COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND
OPERATIONAL RISK.
HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE
LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS.
HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR
LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE
OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.
IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED
WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT
A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL
CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON
INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR
THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE
POOL'S OBLIGATIONS OR THE POOL'S EXPOSURE TO THE RISKS ASSOCIATED
WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.
* * * * *
7. Add Sec. 4.27 to read as follows:
Sec. 4.27 Additional reporting by advisors of certain large commodity
pools.
(a) General definitions. For the purposes of this section:
(1) Commodity pool operator or CPO has the same meaning as
commodity pool operator defined in section 1a(11) of the Commodity
Exchange Act;
(2) Commodity trading advisor or CTA has the same meaning as
commodity trading advisor defined in section 1a(12);
(3) Direct has the same meaning as direct defined in section
4.10(f);
(4) Net asset value or NAV has the same meaning as net asset value
as defined in section 4.10(b);
(5) Pool has the same meaning as pool as defined in section
1(a)(10) of the Commodity Exchange Act;
(6) Reporting period means each quarter ending March 31, June 30,
September 30, or December 31;
(b) Persons required to report. A reporting person is:
(1) Any commodity pool operator that is registered or required to
be registered under the Commodity Exchange Act and the Commission's
regulations thereunder; or
(2) Any commodity trading advisor that is registered or required to
be registered under the Commodity Exchange Act and the Commission's
regulations thereunder.
(c) Reporting. (1) Except as provided in section (c)(2) of this
section, each reporting person shall file with the National Futures
Association, not later than 15 days after the end of the first
reporting period during which such reporting person satisfies the
requirements of paragraph (b) of this section, and not later than 15
days after the end of each quarter during the calendar year subsequent
thereto, a report with respect to the directed assets of each pool
under the advisement of the commodity pool operator consistent with
appendix A to this part or commodity trading advisor consistent with
appendix C to this part.
(2) Mid-Sized CPOs, as that term is defined in appendix A to this
part, shall file with the National Futures Association such reports
consistent with the time period described in appendix A.
(3) All financial information shall be reported in accordance with
generally accepted accounting principles consistently applied.
(d) [Reserved]
(e) Filing requirements. Each report required to be filed with the
National Futures Association under this section shall:
(1)(i) Contain an oath and affirmation that, to the best of the
knowledge and belief of the individual making the oath and affirmation,
the information contained in the document is accurate and complete;
Provided, however, That it shall be unlawful for the individual to make
such oath or affirmation if the individual knows or should know that
any of the information in the document is not accurate and complete and
(ii) Each oath or affirmation must be made by a representative duly
authorized to bind the CPO or CTA.
(2) Be submitted consistent with the National Futures Association's
electronic filing procedures.
(f) Termination of reporting requirement. All reporting persons
shall continue to file such reports as are required under this section
until the effective date of a Form 7W filed in accordance with the
Commission's regulations.
(g) Public records. Reports filed pursuant to this section shall
not be considered Public Records as defined in Sec. 145.0 of this
chapter.
8. In Sec. 4.34, add paragraph (b)(4) to read as follows:
Sec. 4.34 General disclosures required.
* * * * *
(b) * * *
(4) If the commodity trading advisor may engage in swaps, the Risk
Disclosure Statement must further state:
SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A
VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A
PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL,
[[Page 7991]]
HOWEVER, ALL SWAPS TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET
RISK, CREDIT RISK, FUNDING RISK, AND OPERATIONAL RISK.
HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE
LIQUIDITY RISK, WHICH MAY RESULT IN YOUR ABILITY TO WITHDRAW YOUR
FUNDS BEING LIMITED. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE
SUBSTANTIAL GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL
CHANGES IN THE VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET
FACTOR.
IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED
WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT
A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL
CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON
INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE TO
MODIFY, TERMINATE, OR OFFSET YOUR OBLIGATIONS OR YOUR EXPOSURE TO
THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED
TERMINATION DATE.
* * * * *
9. Appendix A is revised to read as follows:
Appendix A to Part 4--Form CPO-PQR
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10. Appendix C is added to read as follows:
Appendix C--Form CTA-PR
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BILLING CODE C
PART 145--COMMISSION RECORDS AND INFORMATION
11. The authority citation for part 145 continues to read as
follows:
Authority: Pub. L. 99-570, 100 Stat. 3207; Pub. L. 89-554, 80
Stat. 383; Pub. L. 90-23, 81 Stat. 54; Pub. L. 98-502, 88 Stat.
1561-1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389
(5 U.S.C. 4a(j)).
12. In Sec. 145.5, revise paragraphs (d)(1)(viii) and (h) to read
as follows:
Sec. 145.5 Disclosure of nonpublic records.
* * * * *
(d) * * *
(1) * * *
(viii) The following reports and statements that are also set forth
in paragraph (h) of this section, except as specified in 17 CFR
1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed pursuant
to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 1-FR
pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed pursuant to
17 CFR 31.13; the accountant's report on material inadequacies filed in
accordance with 17 CFR 1.16(c)(5); all reports and statements required
to be filed pursuant to 17 CFR 1.17(c)(6); and
(A) The following portions of Form CPO-PQR required to be filed
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and D;
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d),
(e), and (g); Question 11; Question 12; and Question 13; and Schedules
B and C;
(B) The following portions of Form CTA-PR required to be filed
pursuant to 17 CFR 4.27: Schedule B: Question 4,
[[Page 8066]]
subparts (b), (c), (d), and (e); Question 5; and Question 6;
* * * * *
(h) Contained in or related to examinations, operating, or
condition reports prepared by, on behalf of, or for the use of the
Commission or any other agency responsible for the regulation or
supervision of financial institutions, including, but not limited to
the following reports and statements that are also set forth in
paragraph (d)(1)(viii) of this section, except as specified in 17 CFR
1.10(g)(2) and 17 CFR 31.13(m): Forms 1-FR required to be filed
pursuant to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms
1-FR pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed
pursuant to 17 CFR 31.13; the accountant's report on material
inadequacies filed in accordance with 17 CFR 1.16(c)(5); all reports
and statements required to be filed pursuant to 17 CFR 1.17(c)(6); and
(1) The following portions of Form CPO-PQR required to be filed
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and D;
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d),
(e), and (g); Question 11; Question 12; and Question 13; and Schedules
B and C;
(2) The following portions of Form CTA-PR required to be filed
pursuant to 17 CFR 4.27: Schedule B: Question 4, subparts (b), (c),
(d), and (e); Question 5; and Question 6; and
* * * * *
PART 147--OPEN COMMISSION MEETINGS
13. The authority citation for part 147 continues to read as
follows:
Authority: Sec. 3(a), Pub. L. 94-409, 90 Stat. 1241 (5 U.S.C.
552b); sec. 101(a)(11), Pub. L. 93-463, 88 Stat. 1391 (7 U.S.C.
4a(j) (Supp. V, 1975)).
14. In Sec. 147.3, revise (b)(4)(i)(H) and (b)(8) to read as
follows:
Sec. 147.3 General requirement of open meetings; grounds upon which
meetings may be closed.
* * * * *
(b) * * *
(4)(i) * * *
(H) The following reports and statements that are also set forth in
paragraph (b)(8) of this section, except as specified in 17 CFR
1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed pursuant
to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 1-FR
pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed pursuant to
17 CFR 31.13; the accountant's report on material inadequacies filed in
accordance with 17 CFR 1.16(c0(5); all reports and statements required
to be filed pursuant to 17 CFR 1.17(c)(6); the following portions of
Form CPO-PQR required to be filed pursuant to 17 CFR 4.27: Schedule A:
Question 2, subparts (b) and D; Question 3, subparts (g) and (h);
Question 10, subparts (b), (c), (d), (e), and (g); Question 11;
Question 12; and Question 13; and Schedules B and C; and the following
portions of Form CTA-PR required to be filed pursuant to 17 CFR 4.27:
Schedule B: Question 4, subparts (b), (c), (d), and (e); Question 5;
and Question 6;
* * * * *
(8) Disclose information contained in or related to examination,
operating, or condition reports prepared by, on behalf of, or for the
use of the Commission or any other agency responsible for the
regulation or supervision of financial institutions, including, but not
limited to the following reports and statements that are also set forth
in paragraph (b)(4)(i)(H) of this section, except as specified in 17
CFR 1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed
pursuant to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms
1-FR pursuant to 17 CFR 1.10(h); Forms 2-FR pursuant to 17 CFR 31.13;
the accountant's report on material inadequacies filed in accordance
with 1.16(c)(5); and all reports and statements required to be filed
pursuant to 17 CFR 1.17(c)(6); and
(i) The following portions of Form CPO-PQR required to be filed
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and D;
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d),
(e), and (g); Question 11; Question 12; and Question 13; and Schedules
B and C; and
(ii) The following portions of Form CTA-PR required to be filed
pursuant to 17 CFR 4.27: Schedule B: Question 4, subparts (b), (c),
(d), and (e); Question 5; and Question 6;
* * * * *
Issued in Washington, DC on January 26, 2011 by the Commission.
David A. Stawick,
Secretary of the Commission.
Appendices to Commodity Pool Operators and Commodity Trading Advisors:
Amendments to Compliance Obligations--Commission Voting Summary and
Statements of Commissioners
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Dunn, Sommers
(by proxy), Chilton and O'Malia voted in the affirmative; no
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the proposed joint rulemaking with the Securities and
Exchange Commission (SEC) that requires reporting by investment
advisers to private funds that are also registered as commodity pool
operators (CPOs) or commodity trading advisors (CTAs) with the CFTC.
I also support the CFTC's proposed amendment to compliance
obligations of CPOs and CTAs. The joint rule requires private fund
investment advisers with assets under management totaling more than
$150 million to provide the SEC with financial and other trading
information. Private fund investment advisers with assets under
management totaling more than $1 billion would be subject to
heightened reporting requirements. I support the CFTC rule that
would bring similar reporting to CPOs and CTAs with assets under
management greater than $150 million that are not otherwise jointly
regulated. This is to ensure that similar entities in the asset
management arena are regulated consistently. Lastly, the proposal
repeals certain exemptions issued under Part 4 of the Commission's
regulations so the Commission will have a more complete picture of
the activity of operators of and advisors to pooled investment
vehicles in the commodities marketplace.
[FR Doc. 2011-2437 Filed 2-10-11; 8:45 am]
BILLING CODE P