[Federal Register Volume 76, Number 42 (Thursday, March 3, 2011)]
[Proposed Rules]
[Pages 11701-11705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4657]
[[Page 11701]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AD49
Amendments to Commodity Pool Operator and Commodity Trading
Advisor Regulations Resulting From the Dodd-Frank Act
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing to amend its regulations affecting the operations and
activities of commodity pool operators (CPOs) and commodity trading
advisors (CTAs) (Proposal) in order to have those regulations reflect
changes made to the Commodity Exchange Act (CEA) by the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank Act).
DATES: Comments must be received on or before May 2, 2011.
ADDRESSES: You may submit comments, identified by RIN 3038-AD49, 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, Commodity Futures
Trading Commission, 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.
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 is exempt from disclosure under the Freedom of
Information Act (FOIA),\1\ a petition for confidential treatment of the
exempt information may be submitted according to the procedures set
forth in Commission Regulation 145.9.\2\
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\1\ 5 U.S.C. 552.
\2\ The Commission's regulations are found at 17 CFR Ch. I
(2010) and can be accessed through the Commission's Web site, http://www.cftc.gov.
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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, such as 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: Barbara S. Gold, Associate Director,
or Christopher W. Cummings, Special Counsel, Division of Clearing and
Intermediary Oversight, 1155 21st Street, NW., Washington, DC 20581.
Telephone number: 202-418-5450 and electronic mail: [email protected] or
[email protected].
SUPPLEMENTARY INFORMATION:
I. Background
On July 21, 2010, President Obama signed the Dodd-Frank Act.\3\
Title VII of the Dodd-Frank Act \4\ amended the CEA \5\ to establish a
comprehensive new regulatory framework for swaps and security-based
swaps. The goal of this legislation was to reduce risk, increase
transparency, and promote market integrity within the financial system
by, among other things: (1) Providing for the registration and
comprehensive regulation of SDs and MSPs; (2) imposing clearing and
trade execution requirements on standardized derivative products; (3)
creating robust recordkeeping and real-time reporting regimes; and (4)
enhancing the Commission's rulemaking and enforcement authorities with
respect to, among others, all registered entities and intermediaries
subject to the Commission's oversight. Among the changes made by the
Dodd-Frank Act to the CEA were to include within the CPO definition the
operator of a collective investment vehicle that trades swaps, and to
include within the CTA definition a person who provides advice
concerning swaps.\6\
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\3\ See Dodd-Frank Wall Street Reform and Consumer Protection
Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). The text of the
Dodd-Frank Act may be accessed at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/hr4173_enrolledbill.pdf.
\4\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\5\ 7 U.S.C. 1 et seq. (2006). The CEA also can be accessed
through the Commission's web site.
\6\ See Section 721(a) of the Dodd-Frank Act, which re-organized
(and in some cases amended) existing definitions in, and added new
definitions to, Section 1a of the CEA. The CPO and CTA definitions,
as amended, are to be codified respectively at CEA sections 1a(11)
and 1a(12).
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Part 4 of the Commission's regulations sets forth a comprehensive
regulatory scheme for the operations and activities of CPOs and CTAs.
It includes disclosure, reporting and recordkeeping requirements for
registered CPOs and CTAs, registration and compliance exemptions for
CPOs and CTAs, and other provisions, including anti-fraud provisions,
applicable to CPOs and CTAs regardless of registration status. Many of
the Part 4 regulations generally apply to CPOs and CTAs and, thus, they
will be applicable to CPOs and CTAs with respect to their swap
activities.\7\ In other instances, however, the text of certain Part 4
regulations is specific to activities involving futures contracts,
commodity options, and off-exchange retail foreign currency
transactions, and it does not include, refer to or otherwise take
account of swap activities.\8\ The Proposal is intended to clarify and
ensure that the requirements governing the operations and activities of
CPOs and CTAs continue to apply to these intermediaries in the context
of their involvement with swap transactions.\9\
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\7\ See, e.g., Regulations 4.21 and 4.31, which respectively
require registered CPOs and CTAs to deliver a Disclosure Document to
prospective pool participants and clients. See also Regulation 4.41,
which proscribes fraudulent advertising by CPOs, CTAs, and their
principals.
\8\ See, e.g., Regulations 4.24(l) and 4.34(k), which currently
do not include ``swap dealer'' among the intermediaries for whom a
CPO or CTA must provide information concerning material litigation
in its Disclosure Document. See also Regulations 4.24(g) and
4.34(g), which do not specify any risks unique to trading swaps in
calling for disclosure of principal risk factors.
\9\ Part 4 applies to CPOs with respect to their activities
affecting pool participants and to CTAs with respect to their
activities affecting clients. Depending on the nature of its
activities, a CPO or CTA may also come within the definition of the
term ``swap dealer'' or ``major swap participant'' in new CEA
Section 1a(49) or 1a(33), respectively (added to the CEA by Section
721(a) of the Dodd-Frank Act). As directed by the Dodd-Frank Act,
the Commission has proposed new regulations that would establish
business conduct standards for swap dealers and major swap
participants. See 75 FR 80638 (Dec. 22, 2010). These new regulations
would apply to swap dealers and major swap participants with respect
to the counterparties with whom they transact swap business, and
would govern different activity than that to which the Part 4
regulations apply.
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The Commission is proposing still other rulemakings in response to
the Dodd-Frank Act that could affect the Part 4 regulations.\10\ The
Commission intends to resolve any discrepancies that may arise between
any of these other rulemakings and the Proposal in
[[Page 11702]]
the course of finalizing its rulemaking under the Dodd-Frank Act.
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\10\ See, e.g., Commodity Pool Operators and Commodity Trading
Advisors: Amendments to Compliance Obligations, 76 FR 7976 (Feb. 11,
2011); and Swap Data Recordkeeping and Reporting Requirements;
Proposed Rule, 75 FR 76574 (Dec. 8, 2010).
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II. The Proposal
The Part 4 regulations employ the term ``commodity interest''
throughout.\11\ This term currently is defined in Regulation 1.3(yy) to
mean:
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\11\ See, e.g., Regulations 4.10(f) and (g), which respectively
define the terms ``direct'' and ``trading program;''
4.12(b)(1)(i)(D), which provides an exemption from CPO registration
where, among other things, the pool at issue ``will trade * * *
commodity interests in a manner solely incidental to its securities
trading activities;'' 4.22(a)(1), which requires itemization in a
pool's periodic Account Statement of certain information concerning
commodity interest trading; 4.23 and 4.33, which respectively
require CPOs and CTAs to make and keep certain books and records
relating to commodity interest trading; and 4.24 and 4.34, which
respectively require CPOs and CTAs to disclose specified information
with respect to ``commodity interests.''
(1) Any contract for the purchase or sale of a commodity for
future delivery;
(2) Any contract, agreement or transaction subject to Commission
regulation under section 4c or 19 of the Act; and
(3) Any contract, agreement or transaction subject to Commission
jurisdiction under section 2(c)(2) of the Act.
To ensure that the Part 4 regulations adequately and accurately
encompass swap transactions, the Proposal would adopt in new Regulation
4.10(a) a definition of the term ``commodity interest'' to be employed
for the purposes of Part 4. That definition would include the text of
existing Regulation 1.3(yy) along with reference to the term ``swap''
as defined in Section 1a(47) of the CEA.\12\
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\12\ Section 721(a) of the Dodd-Frank Act added this new
definition to Section 1a of the CEA.
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At various regulations throughout Part 4, the Proposal would insert
``swap,'' ``swap transaction'' or a similar term. See the proposed
amendments to Regulations 4.23(a)(1), 4.24(g), (h)(1), and (i)(2) for
CPOs and Regulations 4.34(g) and 4.34(i)(2) for CTAs. For example,
regulation 4.23(a)(1) would be amended to include ``swap type and
counterparty'' in the itemized daily record that a CPO must make and
keep with respect to a pool's commodity interest transactions.
At other Part 4 regulations, the Proposal would include the term
``swap dealer'' among the persons for whom a CPO or CTA must provide
information in its Disclosure Document and a CPO must provide
information in a pool's periodic Account Statement. See the proposed
amendments to Regulations 4.22(a)(3), 4.24(j)(1), (j)(3), (l)(1), and
(l)(2) for CPOs and Regulations 4.34(j)(1), (j)(3), (k)(1) and (k)(2)
for CTAs. For example, Regulations 4.24(j) and 4.34(j) would be amended
to include swap dealers in the group of persons as to which conflicts
of interest must be disclosed by CPOs and CTAs. Also, the Proposal
would include a registered swap dealer among the persons listed in
Regulation 4.7(a)(2) that do not have to satisfy a portfolio
requirement in order to be a qualified eligible person (QEP), such that
a CPO or CTA that has claimed relief under Regulation 4.7 may accept
the swap dealer as a pool participant or advisory client without regard
to the size of its investment portfolio. This would be consistent with
the current treatment of other financial intermediaries registered with
the Commission (such as futures commission merchants and retail foreign
exchange dealers) as QEPs under Regulation 4.7(a)(2).
Yet other proposed amendments would require a CPO or CTA to make
and keep certain books and records generated by the swap transactions
in which they engage on behalf of not only their pool participants and
clients, but also themselves. See the proposed amendments to
Regulations 4.23(a)(7) and (b)(1) for CPOs and Regulations 4.33(a)(6)
and (b)(1) for CTAs. The proposed amendments to Regulations 4.23(a)(7)
and 4.33(a)(6) would require CPOs and CTAs to retain each
acknowledgment of a swap transaction received from a swap dealer. The
proposed amendments to Regulations 4.23(b)(1) and 4.33(b)(1) would make
clear that if a CPO or CTA was a counterparty to a swap transaction,
then it would be subject to the swap data recordkeeping and reporting
requirements of Part 45.\13\
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\13\ See Proposed Regulation 45.2, 75 FR 76574. In this regard,
the Commission notes that it intends to propose regulations
concerning recordkeeping and reporting requirements for ``pre-
enactment swaps'' and ``transition swaps,'' as those terms will be
defined in that proposal. The Commission further intends to provide
a cross-reference in Regulations 4.23(b)(1) and 4.33(b)(1) to any
such requirements it may adopt.
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The Proposal would also amend Regulation 4.30. Currently, this
regulation provides:
No commodity trading advisor may solicit, accept or receive from
an existing or prospective client funds, securities or other
property in the trading advisor's name (or extend credit in lieu
thereof) to purchase, margin, guarantee or secure any commodity
interest of the client; Provided, however, That this section shall
not apply to a futures commission merchant that is registered as
such under the Act or to a leverage transaction merchant that is
registered as a commodity trading advisor under the Act or to a
retail foreign exchange dealer that is registered as such under the
Act.
Because swap dealers will generally fall within the statutory
definition of CTA, and because a swap dealer engaging in uncleared swap
transactions may be accepting funds or other property from its
counterparties as variation and initial margin payments,\14\ the
Commission is proposing to amend Regulation 4.30 by excluding a
registered swap dealer from the regulation's prohibition in connection
with a swap that is not cleared through a derivatives clearing
organization. This action would result in four distinct categories of
intermediaries being excluded from the operative requirements of
Regulation 4.30. Accordingly, the Commission also is proposing to amend
the regulation by reorganizing its text where applicable to these
exclusions.
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\14\ The Commission intends to address the circumstances in
which non-bank swap dealers may be required or permitted to accept
margin payments in uncleared swap transactions in a future proposed
rulemaking. Accordingly, this proposed amendment to Regulation 4.30
should not be interpreted to impose or authorize any such margin
requirements.
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Finally, the Proposal would delete Regulation 4.32. This regulation
deals with trading by a registered CTA on or subject to the rules of a
derivatives transaction execution facility (DTEF) for non-institutional
numbers. Section 734(a) of the Dodd-Frank Act repeals Section 5a of the
CEA, which is the section establishing and providing for the regulation
of DTEFs. Accordingly, because subsequent to the effective date of the
Dodd-Frank Act \15\ Regulation 4.32 will no longer have a statutory
basis or purpose, the Proposal would remove and reserve Regulation
4.32.
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\15\ Subject to certain limited exceptions, the provisions of
the Dodd-Frank Act become effective 360 days after its enactment
(Jul. 21, 2010).
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The Commission requests comment on the foregoing. In addition, the
Commission seeks comment on any other amendments it should make to the
Part 4 regulations to clarify and ensure that that the requirements
governing the operations and activities of CPOs and CTAs continue to
apply to these intermediaries in the context of their involvement with
swap transactions.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') \16\ requires that
agencies, in proposing rules, consider the impact of those rules on
small businesses.\17\ The Commission previously has established certain
definitions of ``small entities'' to be used by the Commission in
evaluating the impact of its rules on such entities in accordance with
the
[[Page 11703]]
RFA.\18\ With respect to CPOs, the Commission previously has determined
that a CPO is a small entity for the purpose of the RFA if it meets the
criteria for an exemption from registration under Regulation
4.13(a)(2).\19\ Thus, because the Proposal applies to registered CPOs,
the RFA is not applicable to it. As for CTAs, the Commission previously
has stated that it would evaluate within the context of a particular
rule proposal whether all or some affected CTAs would be considered to
be small entities and, if so, the economic impact on them of the
particular rule. In this regard, the Commission notes that the Proposal
applies to registered CTAs. Moreover, the Proposal would not have a
significant economic impact on any CPO or CTA who would be affected
thereby, because it would merely bring within the current Part 4
regulatory structure of disclosure, reporting and recordkeeping
information with respect to swap activities. It would not impose any
additional operative requirements or otherwise direct or confine the
activities of CPOs and CTAs.\20\ Accordingly, the Chairman, on behalf
of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that
the Proposal would not have a significant economic impact on a
substantial number of small entities. However, the Commission invites
the public to comment on this certification.
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\16\ 5 U.S.C. 601 et seq.
\17\ By its terms, the RFA does not apply to ``individuals.''
See 48 FR 14933, n. 115 (Apr. 6, 1983).
\18\ See 47 FR 18618 (Apr. 30, 1982).
\19\ Id. at 18619-20.
\20\ While the Proposal would amend Regulation 4.30, which
concerns prohibited activities by a CTA regardless of registration
status, that amendment would extend to persons registered as a swap
dealer the existing exclusion from the regulation's scope.
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B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) \21\ imposes certain
requirements on Federal agencies (including the Commission) in
connection with their conducting or sponsoring any collection of
information as defined by the PRA. The Proposal would not, if adopted,
require any new collection of information from any entity that would be
subject to the affected regulations. Accordingly, for purposes of the
PRA, the Chairman, on behalf of the Commission, certifies that the
proposed amendments to Part 4, if adopted, would not impose any new
reporting or recordkeeping requirements.
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\21\ 44 U.S.C. 3501 et seq.
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C. Cost-Benefit Analysis
Section 15(a) of the CEA \22\ requires the Commission to consider
the costs and benefits of its actions before issuing a rulemaking under
the CEA. By its terms, Section 15(a) does not require the Commission to
quantify the costs and benefits of a rule or to determine whether the
benefits of the rulemaking outweigh its costs; rather, it simply
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 five broad areas of market and public
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 its costs, a
particular rule 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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\22\ 7 U.S.C. 19(a).
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Summary of Proposed Amendments. As is explained above, the proposed
amendments to Part 4 would ensure that the Commission's regulations
governing the operations and activities of CPOs and CTAs reflect
changes made to the CEA by the Dodd-Frank Act by, e.g., including swap
dealers among the intermediaries for whom CPOs and CTAs must disclose
information to prospective pool participants and clients, and swap
transaction confirmations among the books and records that CPOs and
CTAs must make and keep.
Costs. With respect to costs, the Commission has determined that
the costs of the Proposal would not be significant. This is because the
Proposal would simply conform the language of the existing Part 4
regulatory scheme to take into account the changes made to the
Commission's overall regulatory scheme as a result of the Dodd-Frank
Act. There will be additional disclosure and recordkeeping requirements
on CPOs and CTAs as a result of the Proposal. The information required
for compliance should be readily available, with minimal administrative
burdens, to CPOs and CTAs.
Benefits. With respect to benefits, the Commission has determined
that the benefits of the Proposal would be significant. This is because
it would enhance the customer protections currently provided under Part
4 by increasing the transparency of swap activities by CPOs and CTAs to
their pool participants and clients. This will be accomplished by
including information on swap activities in the disclosure, reporting
and recordkeeping scheme already existing under Part 4.
Public Comment. The Commission invites public comment on its cost-
benefit considerations. Commenters are also invited to submit any data
or other information that they may have quantifying or qualifying the
costs and benefits of the Proposal with their comment letters.
List of Subjects in 17 CFR Part 4
Advertising, Brokers, Commodity futures, Commodity pool operators,
Commodity trading advisors, Customer protection, Reporting and
recordkeeping requirements, Swaps.
For the reasons presented above, the Commission proposes to amend
Chapter I of Title 17 of the Code of Federal Regulations as follows:
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
1. The authority citation for part 4 is amended to read as follows:
Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6l, 6m, 6n, 6o, 12a and 23,
as amended by Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (Jul. 21,
2010).
2. Section 4.7 is amended by adding paragraph (a)(2)(i)(C) 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) * * *
(2) * * *
(i) * * *
(C) A swap dealer registered pursuant to section 4s(a)(1) of the
Act, or a principal thereof;
* * * * *
3. Section 4.10 is amended by adding paragraph (a) to read as
follows:
Sec. 4.10 Definitions.
* * *
(a) Commodity interest means:
(1) Any contract for the purchase or sale of a commodity for future
delivery;
(2) Any contract, agreement or transaction subject to Commission
regulation under section 4c or 19 of the Act;
(3) Any contract, agreement or transaction subject to Commission
jurisdiction under section 2(c)(2) of the Act; and
[[Page 11704]]
(4) A swap as defined under section 1a(47) of the Act and any
Commission regulations implemented thereunder.
* * * * *
4. Section 4.22 is amended by revising paragraph (a)(3) to read as
follows:
Sec. 4.22 Reporting to pool participants.
(a) * * *
(3) The Account Statement must also disclose any material business
dealings between the pool, the pool's operator, commodity trading
advisor, futures commission merchant, retail foreign exchange dealer,
swap dealer, or the principals thereof that previously have not been
disclosed in the pool's Disclosure Document or any amendment thereto,
other Account Statements or Annual Reports.
* * * * *
5. Section 4.23 is amended by:
a. Revising paragraphs (a)(1) and (a)(7); and
b. Revising paragraph (b)(1), to read as follows:
Sec. 4.23 Recordkeeping.
* * * * *
(a) * * *
(1) An itemized daily record of each commodity interest transaction
of the pool, showing the transaction date, quantity, commodity
interest, and, as applicable, price or premium, delivery month or
expiration date, whether a put or a call, strike price, underlying
contract for future delivery or underlying physical, swap type and
counterparty, the futures commission merchant and/or retail foreign
exchange dealer carrying the account and the introducing broker, if
any, whether the commodity interest was purchased, sold (including, in
the case of a retail forex transaction, offset), exercised, expired
(including, in the case of a retail forex transaction, whether it was
rolled forward), and the gain or loss realized.
* * * * *
(7) Copies of each confirmation or acknowledgment of a commodity
interest transaction of the pool, and each purchase and sale statement
and each monthly statement for the pool received from a futures
commission merchant or retail foreign exchange dealer or swap dealer.
* * * * *
(b) * * *
(1) An itemized daily record of each commodity interest transaction
of the commodity pool operator and each principal thereof, showing the
transaction date, quantity, commodity interest, and, as applicable,
price or premium, delivery month or expiration date, whether a put or a
call, strike price, underlying contract for future delivery or
underlying physical, the futures commission merchant or retail foreign
exchange dealer carrying the account and the introducing broker, if
any, whether the commodity interest was purchased, sold, exercised, or
expired, and the gain or loss realized; Provided, however, that if the
pool operator is a counterparty to a swap, it must comply with the swap
data recordkeeping and reporting requirements of part 45 of this
chapter.
* * * * *
6. Section 4.24 is amended by:
a. Revising paragraph (g);
b. Revising paragraph (h)(1)(i);
c. Revising paragraph (i)(2)(xii);
d. Revising paragraphs (j)(1)(vi) and (j)(3); and
e. Revising paragraphs (l)(1)(iii), (l)(2) introductory text and
(l)(2)(i), to read as follows:
Sec. 4.24 General disclosures required.
* * * * *
(g) Principal risk factors. A discussion of the principal risk
factors of participation in the offered pool. This discussion must
include, without limitation, risks relating to volatility, leverage,
liquidity, counterparty creditworthiness, as applicable to the types of
trading programs to be followed, trading structures to be employed and
investment activity (including retail forex and swap transactions)
expected to be engaged in by the offered pool.
(h) * * *
(1) * * *
(i) The approximate percentage of the pool's assets that will be
used to trade commodity interests, securities and other types of
interests, categorized by type of commodity or market sector, type of
swap, type of security (debt, equity, preferred equity), whether traded
or listed on a regulated exchange market, maturity ranges and
investment rating, as applicable;
* * * * *
(i) * * *
(2) * * *
(xii) Any costs or fees included in the spread between bid and
asked prices for retail forex or, if known, swap transactions; and
* * * * *
(j) * * *
(1) * * *
(vi) Any other person providing services to the pool, soliciting
participants for the pool, or acting as a counterparty to the pool's
retail forex transactions, acting as a swap dealer with respect to the
pool, or acting as a counterparty to the pool's swap transactions.
* * * * *
(3) Included in the description of such conflicts must be any
arrangement whereby a person may benefit, directly or indirectly, from
the maintenance of the pool's account with the futures commission
merchant and/or retail foreign exchange dealer and/or from the
maintenance of the pool's positions with a swap dealer, or from the
introduction of the pool's account to a futures commission merchant
and/or retail foreign exchange dealer and/or swap dealer by an
introducing broker (such as payment for order flow or soft dollar
arrangements) or from an investment of pool assets in investee pools or
funds or other investments.
* * * * *
(l) * * *
(1) * * *
(iii) The pool's futures commission merchants and/or retail foreign
exchange dealers and/or swap dealers and its introducing brokers, if
any.
(2) With respect to a futures commission merchant and/or retail
foreign exchange dealer and/or swap dealer or an introducing broker, an
action will be considered material if:
(i) The action would be required to be disclosed in the notes to
the futures commission merchant's, retail foreign exchange dealer's,
swap dealer's or introducing broker's financial statements prepared
pursuant to generally accepted accounting principles;
* * * * *
7. Section 4.30 is revised to read as follows:
Sec. 4.30 Prohibited activities.
(a) Except as provided in paragraph (b) of this section, no
commodity trading advisor may solicit, accept or receive from an
existing or prospective client funds, securities or other property in
the trading advisor's name (or extend credit in lieu thereof) to
purchase, margin, guarantee or secure any commodity interest of the
client.
(b) The prohibition in paragraph (a) of this section shall not
apply to:
(1) A futures commission merchant that is registered as such under
the Act;
(2) A leverage transaction merchant that is registered as a
commodity trading advisor under the Act;
(3) A retail foreign exchange dealer that is registered as such
under the Act; or
(4) A swap dealer that is registered as such under the Act, with
respect to funds, securities or other property accepted to purchase,
margin, guarantee
[[Page 11705]]
or secure any swap that is not cleared through a derivatives clearing
organization.
Sec. 4.32 [Removed and Reserved]
7. Section 4.32 is removed and reserved.
8. Section 4.33 is amended by
a. Revising paragraph (a)(6); and
b. Revising paragraph (b)(1), to read as follows:
Sec. 4.33 Recordkeeping.
* * * * *
(a) * * *
(6) Copies of each confirmation or acknowledgment of a commodity
interest transaction, and each purchase and sale statement and each
monthly statement received from a futures commission merchant or a
retail foreign exchange dealer or a swap dealer.
* * * * *
(b) * * *
(1) An itemized daily record of each commodity interest transaction
of the commodity trading advisor, showing the transaction date,
quantity, commodity interest, and, as applicable, price or premium,
delivery month or expiration date, whether a put or a call, strike
price, underlying contract for future delivery or underlying physical,
the futures commission merchant and/or retail foreign exchange dealer
carrying the account and the introducing broker, if any, whether the
commodity interest was purchased, sold (including, in the case of a
retail forex transaction, offset), exercised, expired (including, in
the case of a retail forex transaction, whether it was rolled forward),
and the gain or loss realized; Provided, however, that if the trading
advisor is a counterparty to a swap, it must comply with the swap data
recordkeeping and reporting requirements of part 45 of this chapter.
* * * * *
9. Section 4.34 is amended by
a. Revising paragraph (g);
b. Revising paragraph (i)(2);
c. Revising paragraph (j)(3); and
d. Revising paragraphs (k)(1)(iii), (k)(2) introductory text and
(k)(2)(i), to read as follows:
Sec. 4.34 General disclosures required.
* * * * *
(g) Principal risk factors. A discussion of the principal risk
factors of this trading program. This discussion must include, without
limitation, risks due to volatility, leverage, liquidity, and
counterparty creditworthiness, as applicable to the trading program and
the types of transactions and investment activity expected to be
engaged in pursuant to such program (including retail forex and swap
transactions, if any).
* * * * *
(i) * * *
(2) Where any fee is determined by reference to a base amount
including, but not limited to, ``net assets,'' ``gross profits,'' ``net
profits,'' ``net gains,'' ``pips'' or ``bid-asked spread,'' the trading
advisor must explain how such base amount will be calculated. Where any
fee is based on the difference between bid and asked prices on retail
forex or swap transactions, the trading advisor must explain how such
fee will be calculated;
* * * * *
(j) * * *
(3) Included in the description of any such conflict must be any
arrangement whereby the trading advisor or any principal thereof may
benefit, directly or indirectly, from the maintenance of the client's
commodity interest account with a futures commission merchant and/or
retail foreign exchange dealer, and/or from the maintenance of the
client's positions with a swap dealer or from the introduction of such
account through an introducing broker (such as payment for order flow
or soft dollar arrangements).
(k) * * *
(1) * * *
(iii) Any introducing broker through which the client will be
required to introduce its account to the futures commission merchant
and/or retail foreign exchange dealer and/or swap dealer.
(2) With respect to a futures commission merchant, retail foreign
exchange dealer, swap dealer or introducing broker, an action will be
considered material if:
(i) The action would be required to be disclosed in the notes to
the futures commission merchant's, retail foreign exchange dealer's,
swap dealer's or introducing broker's financial statements prepared
pursuant to generally accepted accounting principles;
* * * * *
Issued in Washington, DC, on February 24, 2011, by the
Commission.
David A. Stawick,
Secretary of the Commission.
Appendices to Amendments to Commodity Pool Operator and Commodity
Trading Advisor Regulations Resulting from the Dodd-Frank Act--
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, 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 rule that will amend certain provisions
of Part 4 of the Commission's regulations regarding the operations
and activities of commodity pool operators (CPOs) and commodity
trading advisors (CTAs). The proposed amendments would ensure that
CFTC regulations with regard to CPOs and CTAs reflect changes made
to the Commodity Exchange Act by the Dodd-Frank Act. Consistent with
the Dodd-Frank Act revisions to the definitions of CPOs and CTAs to
include pools involved in swaps and advising on swaps, the proposed
amendments will enhance current customer protections by increasing
the transparency of swap activities by CPOs and CTAs to their pool
participants and clients. The proposed rule would require that this
information be included in the disclosure, reporting and
recordkeeping scheme that currently exists for CPOs and CTAs under
Part 4.
[FR Doc. 2011-4657 Filed 3-2-11; 8:45 am]
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