Commodity Pool Operator Electronic Filing of Annual Reports, 74240-74246 [05-23965]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 70, Number 240 (Thursday, December 15, 2005)]
[Proposed Rules]
[Pages 74240-74246]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-23965]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

RIN 3038-AC25


Commodity Pool Operator Electronic Filing of Annual Reports

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 Commission regulations to require that 
commodity pool annual financial reports submitted by commodity pool 
operators (``CPOs'') to the National Futures Association (``NFA'') be 
filed electronically.
    Commodity pool annual reports filed with a registered futures 
association (currently, the NFA is the sole registered futures 
association) must contain a manually signed oath or affirmation under 
Commission regulations and no provision exists for electronic filing of 
annual reports with NFA. The NFA has recently petitioned the Commission 
to amend its regulations to require mandatory electronic filing of 
commodity pool annual reports. The Commission has considered the NFA 
petition and is hereby proposing to amend Commission regulations: (i) 
To require CPOs to file a commodity pool annual report with NFA 
electronically,

[[Page 74241]]

with the required oath or affirmation to be made through compliance 
with NFA's electronic filing procedures; (ii) to require CPOs to 
maintain for five years a manually signed copy of each annual report 
and to maintain records of how certain key financial balances submitted 
to NFA were compiled from the annual report; (iii) to eliminate the 
requirement that the annual report filed with NFA be manually signed.
    Further, the Commission is proposing additional amendments to 
clarify certain aspects of the Commission's regulations applicable to 
CPOs with respect to financial reporting, Specifically, the Commission 
is proposing amendments that would: explicitly state that commodity 
pool monthly and/or quarterly account statements distributed to 
participants must be prepared in accordance with generally accepted 
accounting principles; clarify that COPs must file a notification of a 
change in a public accountant for a commodity pool with the Commission 
and with NFA; clarify that a reference to ``segregation'' with respect 
to a statement required to be made in an accountant's letter refers to 
the prohibition on commingling of funds of a commodity pool with the 
assets of any other person; and require that notifications concerning 
CPOs' election of fiscal years for commodity pools other than the 
calendar year or changes in fiscal year be filed solely with NFA and 
not the Commission.
    Annual reports to pool participants may continue to be provided as 
they have been previously, either through hard-copy distribution via 
postal mail or electronically if the pool participant consents thereto.

DATES: Comments must be received on or before January 17, 2005.

ADDRESSES: You may submit comments, identified by RIN 3038-AC25, by any 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Following the instructions for submitting comments.
     E-mail: secretary@cftc.gov. Include ``Proposed Amendment 
to Rule 4.22'' in the subject line of the message.
     Fax: (202) 418-5521.
     Mail: Sent to Jean A Webb, Secretary of the Commission, 
Commodity Futures Trading Commission, 1155 21st Street, NW., 
Washington, DC 20581.
     Courier: Same as Mail above.
    All comments received will be posted without change to https://
www.cftc.gov, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: Thomas J. Smith, Deputy Director and 
Chief Accountant, at (202) 418-5430 or Jennifer C.P. Bauer, Special 
Counsel, at (202) 418-5472, Division of Clearing and Intermediary 
Oversight, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. Electronic mail: 
(tsmith@cftc.gov) or (jbauer@cftc,gov).

SUPPLEMENTARY INFORMATION:

I. Background

    Regulation 4.22(c) requires a CPO to file with NFA and to provide 
to each participant an annual financial report, certified by an 
independent public accountant, for each commodity pool that it operates 
within 90 days of the end of the pool's fiscal year to the permanent 
cessation of trading.\1\ Also, Regulation 4.7(b)(3) requires a COP that 
has claimed an exemption from certain regulatory requirements pursuant 
to Rule 4.7 to file with NFA and to distribute to commodity pool 
participants an unaudited annual financial report in lieu of an audited 
annual financial report.\2\ Currently a CPO files such annual reports 
with NFA in paper form, unless the CPO has voluntarily elected to file 
the annual reports electronically pursuant to NFA's pilot program for 
electronic filing, which is discussed herein.
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    \1\ The regulations of the Commission cited in this release may 
be found at 17 CFR Ch. I (2005).
    \2\ CPOs operating pools offered solely to qualified eligible 
participants (``QEPs'') pursuant to Regulation 4.7 may claim relief 
from the certification requirement of Regulation 4.22(d) with 
respect to the exempt pools' financial statements. See Regulation 
4.7(b)(3).
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    Under Commission Rule 4.22(h), each annual financial report filed 
with NFA must contain a manually signed oath or affirmation that, to 
the best of the knowledge or belief of the individual making the oath 
or affirmation, the information contained in the annual report is 
accurate and compete. A facsimile of a manual signature is permitted 
for annual reports \3\ delivered to participants, and therefore CPOs, 
absent the participants' objection, may deliver annual reports to pool 
participants by means of electronic media.\4\ However, no regulatory 
provision currently permits the electronic filing of the annual report 
with NFA.
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    \3\ In addition to annual reports, Commission Regulation 4.22 
addresses account statements provided to participants by CPOs. 
However, the amendments proposed herein do not substantively change 
requirements for delivery to participants of account statements. 
Therefore, throughout this release, references will only be made to 
annual reports despite the applicability of certain regulations to 
account statements as well.
    \4\ Under the current rule, if the CPO maintains the annual 
report with the manually signed oath or affirmation and the oath or 
affirmation on the annual report filed with NFA is manually signed, 
the oath or affirmation on an annual report distributed to 
participants may contain a facsimile of the manual signature thereby 
permitting electronic distribution.
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II. NFA Pilot Program for CPO Electronic Filing

    Beginning with reports filed for the year ended December 31, 2004, 
the NFA implemented a pilot program permitting CPOs to voluntarily 
elect to file commodity pool annual reports through the use of an 
electronic filing system, the ``EasyFile'' system, accessed from the 
NFA's Web site.\5\ The NFA pilot program required that the complete 
annual report for commodity pools, including the public accountant's 
opinion contained in certified statements, be submitted to NFA in the 
Portable Document Format (``PDF'') file format. In addition to the 
electronic submission of the document in a PDF file format, 
participating CPOs were required to directly enter certain key 
financial statement balances or aggregated balances from the commodity 
pools' annual reports into the NFA's EasyFile system. NFA requested 
that the Commission provide CPOs participating in the pilot program 
with relief from the requirement of Regulation 4.22(h) that the annual 
report filed with NFA include a manually signed oath or affirmation, as 
NFA implemented an electronic version of the oath or affirmation 
applicable to both the document submitted in PDF file format and the 
key financial statement balances directly entered into the EasyFile 
system. The Commission's Division of Clearing and Intermediary 
Oversight issued exemptive relief in January 2005 to CPOs participating 
in the pilot program from the requirement that their pools' annual 
reports submitted to NFA be manually signed under Rule 4.22(j).\6\ On 
August 26, 2005, the NFA petitioned the Commission to formally amend 
Regulations 4.22 and 4.7 to eliminate the requirement that CPOs file 
manually signed pool annual reports with NFA, and to further require 
COPs to file such annual reports with NFA electronically using the 
EasyFile system implemented in the pilot program.
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    \5\ NFA initially adopted the EasyFile electronic filing system 
for financial reporting by introducing brokers (``IBs'') in 2004. 
The Commission approved NFA's rules adopting EasyFile for IBs on 
June 28, 2004.
    \6\ CFTC Letter No. 05-01 may be accessed at https://
www.cftc.gov/tm/letters/05letters/tm05-01.htm.

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[[Page 74242]]

III. NFA's ``EasyFile'' Electronic Filing System

    NFA's electronic filing system for commodity pool annual reports 
has three components. First, the CPO must submit a PDF file version of 
the full annual report, including the balance sheet, income statement, 
schedule of investments, and the independent auditor's opinion, if 
applicable. Second, the CPO must directly enter approximately 30 key 
financial balances into a standardized form accessed through the NFA's 
Web site. These balances are obtained directly or aggregated from the 
commodity pool's balance sheet, income statement and statement of 
changes in net asset value included in the commodity pool's annual 
report. NFA's Web site includes on-line instructions for the amounts to 
include in the individual fields in the electronic schedule, and the 
system also enforces certain edit and validations checks to ensure data 
quality.\7\
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    \7\ For example, the system will prompt the user for a 
correction if the components listed as assets do not total to the 
amount entered for total assets, or if certain types of trading 
assets and liabilities are reported in the balance sheet but there 
are no gains or losses reported in the income statement with respect 
to such assets.
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    Third, when the CPO submits the electronic filing, NFA's system 
prompts the submitter to read and to indicate agreement to an 
electronic oath or affirmation. The submitter will have already 
securely accessed NFA's system through the input of a personal 
identification number (``PIN'').\8\ This oath or affirmation is made 
with respect to the PDF file of the annual report and the financial 
data entered into the NFA's database of key financial statement 
balances through the NFA Web site. The user interface and system 
security for NFA's CPO electronic filing system are patterned after 
NFA's existing EasyFile system for IBs' unaudited financial reports. 
Similar to EasyFile for IBs, the CPO's Security Manager can establish 
users and assign them abilities to enter data and/or submit the report 
and data in the NFA electronic filing system.\9\ A user such as the 
CPO's certified public accountant (``CPA'') may be provided with the 
ability to enter the key financial statement balances into NFA's 
database and save the form and report for later submission. However, 
only persons duly authorized to bind the pool operator in accordance 
with Rule 4.22(h)(3) may submit the data by entering a PIN and making 
the required oath or affirmation. The CPO is responsible for ensuring 
that only persons who are duly authorized to bind the CPO, in 
accordance with Rule 4.22(h)(3), are granted the ability to submit the 
financial statements and key financial statement balances to NFA. The 
electronic version of the oath or affirmation will appear in dialog 
boxes when reports or data are submitted, and completion of the 
submission will require an affirmative acceptance of the oath or 
affirmation by a user who has accessed the system with a secure PIN 
number and has been granted permission to submit reports. The Security 
Manager for each CPO will have the ability to access the firm's 
``Security'' tab within the electronic filing system to administer 
users and permissions. The Security Manager will be the person at the 
CPO responsible for ensuring that only duly authorized persons who may 
bind the CPO have system permissions to submit the annual reports and 
data.
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    \8\ The CPO has responsibility for establishing users and their 
on-line capabilities through a person designated as its Security 
Manager with NFA.
    \9\ The Security Manager procedure is part of NFA's existing 
electronic system for registration processing. The Commission 
adopted regulation amendments in 2002 to enable NFA to utilize an 
online system for registration functions. See 67 FR 38,869 (June 6, 
2002).
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    CPOs who distribute reports to participants through electronic 
media are required to maintain a manually signed copy of the oath or 
affirmation in their records, as specified currently in Rule 
4.22(j)(2), and to provide such oath or affirmation to NFA upon 
request. In the amendments as proposed, CPOs will be required to 
maintain the manually signed oath or affirmation for all reports 
regardless of whether the CPOs use electronic media for distribution to 
participants. In addition, CPOs will be required to maintain records 
indicating where the key financial statement balances directly entered 
into NFA's database appear in the commodity pool's annual report or how 
such balances are aggregated from amounts appearing in the pool's 
annual report.
    The key financial statement balances field electronically through 
the pilot program include all the data elements that NFA staff 
currently manually enter into the FACTS 2000 database from the 
information contained in hard copy annual reports, as well as several 
data elements that NFA staff added after consultation with members of 
the commodity pool industry, CPAs that serve the commodity pool 
industry, and Commission staff. NFA's FACTS 2000 database serves as the 
primary means by which NFA and Commission staff access commodity pool 
financial information.

IV. Benefits of Electronic Filing of Pool Annual Reports

    Mandatory electronic filing of commodity pool annual reports is 
anticipated to benefit both the Commission and NFA by increasing the 
quality of the financial data from commodity pool annual reports that 
will be collected in FACTS 2000 and be available to the Commission. 
Direct data entry by the CPO or its CPA, who are most familiar with the 
information being submitted, and the system-enforced edit and 
validation checks, should enhance the integrity and quality of data 
collected. Also, the prepared guidance for CPO members and their CPAs 
will promote more uniformity in the classification of the key data 
elements. Further, NFA reported that approximately 15 percent of the 
filed commodity pool annual reports for the year ended December 31, 
2004 were filed electronically through participation in the pilot 
program and that the electronic filing process is anticipated to be 
relatively simple and cost effective for CPOs, requiring only Internet 
access and a PDF file of the annual report.

V. Proposed Amendment

    Regulation 4.22(c) requires that a registered CPO file with NFA an 
annual report for each pool that it operates within 90 days of the end 
of the pool's fiscal year or the permanent cessation of trading. The 
Commission is proposing to amend Regulation 4.22(c) and Regulation 
4.7(b)(3) to specifically require that the commodity pool annual 
reports be submitted to NFA electronically through NFA's established 
electronic filing procedures. Further, the Commission is proposing to 
amend Regulation 4.22(h), pursuant to which each such report, including 
those provided under Rule 4.7 and Rule 4.12(b), must contain an oath or 
affirmation that, to the best of the knowledge and belief of the person 
making the oath or affirmation, the information contained in the 
document is accurate and complete. The amendment will require the oath 
or affirmation on annual reports filed with NFA to be made through the 
use of electronic filing procedures and will continue to permit the 
oath or affirmation on copies distributed to participants to contain 
facsimile signatures so long as a manually signed copy is maintained by 
the CPO. The Commission is also proposing to delete Rule 4.22(j) and 
add a provision to Rule 4.23(a) to require CPOs to maintain in their 
books and records a manually signed oath or affirmation for all annual

[[Page 74243]]

reports and account statements, and to maintain records of the key 
financial balances submitted to NFA that clearly demonstrate how such 
balances were derived. The Commission hereby requests comment on the 
foregoing amendments proposed to implement electronic filing of 
commodity pool annual reports with NFA.
    The Commission also requests comment on the following proposed 
amendments intended to clarify certain aspects of the Commission's 
regulations applicable to CPOs with respect to financial reporting. 
Regulation 4.7(b)(2) requires that an account statement signed and 
affirmed by the CPO be prepared and distributed to pool participants no 
less frequently than quarterly within 30 calendar days after the end of 
the reporting period. The account statement must indicate: (1) The net 
asset value of the exempt pool as of the end of the reporting period; 
(2) the change in net asset value from the end of the previous 
reporting period; and (3) the net asset value per outstanding unit of 
participation in the exempt pool as of the end of the reporting period.
    The Commission proposed to amend Rule 4.7(b)(2) to clarify that the 
account statement provided to participants must be prepared in 
accordance with generally accepted accounting principles as are other 
financial reports required in Part 4 of the Commission's Regulations. 
By requiring that the financial information contained in the account 
statement is computed and presented in accordance with generally 
accepted accounting principles, the Commission is assuring that 
participants receive information that is computed and presented in 
compliance with established professional standards.
    Regulation 4.22(d) requires that the certification of commodity 
pool annual reports by independent accountants be made in accordance 
with the certification requirements of Regulation 1.16 that are 
applicable to the financial statements of FCMs and IBs, with specific 
exceptions. Rule 4.22(d) does not exempt CPOs from Regulation 1.16(g), 
which requires written notification to be given to the NFA and to the 
Commission of changes in the entity's independent accountant. In order 
to make clear that this requirement applies to CPOs, the Commission 
hereby proposes to amend Regulation 4.22(d) to specifically state that 
Rule 1.16(g) is also applicable to CPOs with respect to notifications 
of changes in the independent accountants engaged for the certification 
of commodity pool financial statements. By clarifying this 
responsibility for compliance, the Commission will be assured of 
receiving proper notice of important circumstances with regards to 
changes of independent accountants, which changes may be indicative of 
disagreements with auditors or other matters of interest to the 
Commission concerning the commodity pool.
    Regulation 4.22(f)(1) provides a mechanism for CPOs that cannot 
distribute annual reports for pools within the required timeframe 
without substantial undue hardship to file applications of extensions 
of time with NFA. In the context of requesting such an extension, the 
application to NFA must be accompanied by a letter from the pool's 
independent public accountant. One of the items that must be addressed 
in the letter is whether the independent accountant has any indication 
from the audit work in process to indicate that the CPO is not meeting 
``segregation'' requirements. The Commission hereby proposes to amend 
Regulation 4.22(f)(1)(ii)(B) to clarify that this does not refer to the 
segregation requirements of Regulation 1.20 applicable to FCMs, but 
instead refers to the prohibition on commingling of funds of a 
commodity pool with the assets of any other person contained in 
Regulation 4.20(c).\10\
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    \10\ The language originally proposed was ``the segregation 
requirements of Sec.  4.20(c)'' showing the intent of the reference 
to reflect Regulation 4.20 and not FCM segregation requirements 
contained in Commission Regulation 1.20. 45 FR 51,600 at 51,610 
(August 4, 1980).
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    Regulations 4.22(g)(2) and (3) require notifications to be made to 
the Commission concerning CPOs' election of fiscal years for commodity 
pools other than the calendar year or subsequent changes in fiscal 
year-ends. The Commission hereby proposes to amend these Regulations so 
that such notifications are solely required to be filed with NFA and 
not the Commission, consistent with other financial reporting filings 
that are now made to NFA directly as a result of functions the 
Commission has authorized NFA to preform.\11\ The Commission has 
determined this function to be sufficiently related to other functions 
delegated to NFA with respect to the review of commodity pool financial 
reporting that it would be beneficial for this notice also to be made 
directly by CPOs to NFA and for NFA to process and maintain the records 
of these notices. As a result, the Commission believes the receiving 
and processing of CPOs' election of fiscal years and subsequent changes 
in fiscal years for commodity pools should similarly be delegated to 
NFA by rule amendment.
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    \11\ By order dated December 11, 2002, the Commission authorized 
NFA to: (1) Receive and review annual financial reports required to 
be filed by CPOs pursuant to Regulations 4.7(b)(3) and 4.22(c), 
including annual financial reports required to be filed by CPOs that 
have claimed relief pursuant to Regulation 4.12(b) with respect to 
qualifying pools, and to review such reports for compliance with the 
Act and the Commission regulations thereunder and to provide notice 
of deficiencies; (2) receive and grant or deny applications filed 
pursuant to Regulation 4.22(f)(1) for extensions of time to 
distribute annual financial reports; and (3) process notices of 
claims of extension of time to distribute and file annual financial 
reports filed pursuant to Regulation 4.22(f)(2). In addition, the 
Commission authorized NFA to maintain and to serve as the official 
custodian of such records. 67 FR 77,470 (December 18, 2002).
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VI. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires that agencies, in proposing regulations, consider the impact 
of those regulations on small businesses. The Commission previously has 
established certain definitions of ``small entities'' to be used by the 
Commission in evaluating the impact of its regulations on such entities 
in accordance with the RFA.\12\ The Commission has determined 
previously that registered CPOs are not small entities for the purpose 
of the RFA.\13\ The proposed amendments to Regulation 4.7 and 
Regulation 4.22 would apply only to registered CPOs. Therefore, the 
Chairman, on behalf of the Commission, hereby certifies, pursuant to 5 
U.S.C. 605(b), that the action proposed to be taken herein will not 
have a significant economic impact on a substantial number of small 
entities.
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    \12\ 47 FR 18618 (April 30, 1982).
    \13\ 47 FR at 18619.
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \14\ 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 amendment being proposed would, 
if approved, alter the method of collection of information required 
under Regulation 4.22. Pursuant to the PRA, the Commission has 
submitted a copy of this section to the Office of Management and Budget 
(``OMB'') for its review.
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    \14\ 44 U.S.C. 3507(d).
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    Collection of Information. (Rules Relating to the Operations and 
Activities of Commodity Pool Operators and Commodity Trading Advisors 
and to Monthly Reporting by Futures

[[Page 74244]]

Commission Merchants, OMB Control Number 3038-0005.)
    The expected effect of the proposed amended regulations will be to 
slightly increase the burden for this collection of information due to 
an estimated increase by one quarter hour of the filing of annual 
reports electronically. However, the burden most recently approved by 
OMB for this collection was submitted in 2002 based on estimates of 
anticipated changes resulting from significant amendments to Part 4 
requirements. Although this proposed amendment will slightly impact the 
estimated average hours per response for annual report filings, the 
other assumptions concerning average hours per response have not 
changed. However, the burden is being recalculated and submitted in its 
entirety for this collection due to availability of updated information 
on annual responses and respondents since the Part 4 regulation 
amendments went into effect, which updated information does not reflect 
the realization of the decrease in burden that was previously estimated 
to occur. The Commission estimates the burden of this collection of 
information as follows:
Estimated Annual Reporting Burden
    Number of Respondents: 8,500.
    Total Annual Responses: 27,575.
    Total Annual Hours: 166,360.
    Copies of the information collection submission to OMB are 
available from the CFTC Clearance Officer, 1155 21st Street, NW., 
Washington, DC 20581, (202) 418-5160. The Commission considers comments 
by the public on this proposed collection of information in--
    Evaluating whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information will have a practical 
use;
    Evaluating the accuracy of the Commission's estimate of the burden 
of the proposed collection of information, including the validity of 
the methodology and assumptions used;
    Enhancing the quality, utility, and clarity of the information to 
be collected; and
    Minimizing the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g., permitting electronic 
submission of responses.
    Organizations and individuals desiring to submit comments on the 
information collection should contact the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Room 10235, New 
Executive Office Building, Washington, DC 20503, Attn: Desk Officer of 
the Commodity Futures Commission. OMB is required to make a decision 
concerning the collection of information contained in these proposed 
Regulations between 30 and 60 days after publication of this document 
in the Federal Register. Therefore, a comment to OMB is best assured of 
having its full effect if OMB receives it within 30 days of 
publication. This does not affect the deadline for the public to 
comment to the Commission on the proposed Regulations.

C. Cost-Benefit Analysis

    Section 15(a) of the Act, as amended by Section 119 of the CFMA, 
requires the Commission to consider the costs and benefits of its 
action before issuing a new Regulation under the Act. By its terms, 
Section 15(a) as amended does not require the Commission to quantify 
the costs and benefits of a new Regulation or to determine whether the 
benefits of the Regulation outweigh its costs. Rather, Section 15(a) 
simply requires the Commission to ``consider the costs and benefits'' 
of its action.
    Section 15(a) of the Act further specifies that costs and benefits 
shall be evaluated in light of five broad areas of market and public 
concern: protection of market participants and the public; efficiency, 
competitiveness, and financial integrity of futures markets; price 
discovery; sound risk management practices; and other public interest 
considerations. Accordingly, the Commission could 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 regulation was necessary or appropriate to protect the 
public interest or to effectuate any of the provisions or to accomplish 
any of the purposes of the Act.
    The proposed amendments to Regulation 4.7 and 4.22 would require 
CPOs to electronically file commodity pool annual reports with NFA with 
an oath or affirmation submitted electronically instead of with a 
manual signature.
    The Commission is considering the costs and benefits of this 
proposed regulation in light of the specific provisions of Section 
15(a) of the Act, as follows:
    1. Protection of market participants and the public. The proposed 
amendment should not affect the protection of market participants and 
the public as it provides an alternate method of delivery of 
information contained in commodity pool annual reports but does not 
substantively alter the character of such information or the nature of 
the oath or affirmation that must accompany the submission or 
distribution of such information.
    2. Efficiency and competition. The Commission anticipates that the 
proposed amendment will benefit efficiency by permitting NFA to 
streamline its process for receiving annual report submissions from 
CPOs. The proposed amendment is considered by the Commission as 
benefiting efficiency and not impacting competition.
    3. Financial integrity of futures markets and price discovery. The 
proposed amendment should have no effect, from the standpoint of 
imposing costs or creating benefits, on the financial integrity of 
futures markets or the price discovery function of such markets.
    4. Sound risk management practices. The proposed amendment should 
have no effect, from the standpoint of imposing costs or creating 
benefits, on sound risk management practices.
    5. Other public interest considerations. The Commission believes 
that the proposed regulation requiring electronic filing for the 
submission by CPOs of annual reports to NFA is beneficial in that is 
should streamline the timeliness of delivery and electronic 
accessibility of such reports, and permit NFA to retain such reports in 
a more streamlined and accessible manner.
    After considering these factors, the Commission has determined to 
propose the amendments discussed above. The Commission invites public 
comment on its application of the cost-benefit provision. Commenters 
also are invited to submit any data that they may have quantifying the 
costs and benefits of the proposal with their comment letters.

List of Subjects in 17 CFR Part 4

    Advertising, Commodity futures, Consumer Protection, Reporting and 
recordkeeping requirements.

    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, 6b, 6c, 6l, 6m, 6n, 6o, 12a, and 
23.


[[Page 74245]]


    2. Section 4.7 is amended by revising paragraphs (b)(2) and 
(b)(3)(i) introductory text 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.

* * * * *
    (b) * * *
    (2) Periodic reporting relief. Exemption from the specific 
requirements of Sec. Sec.  4.22(a) and (b); Provided, That a statement 
signed and affirmed in accordance with Sec.  4.22(h) is prepared and 
distributed to pool participants no less frequently than quarterly 
within 30 calendar days after the end of the reporting period. This 
statement must be prepared in accordance with generally accepted 
accounting principles and indicate:
    (i) The net asset value of the exempt pool as of the end of the 
reporting period;
    (ii) The change in net asset value from the end of the previous 
reporting period; and
    (iii) The net asset value per outstanding unit of participation in 
the exempt pool as of the end of the reporting period.
    (3) Annual report relief. (i) Exemption from the specific 
requirements in Sec. Sec.  4.22(c) and (d); Provided, That within 90 
calendar days after the end of the exempt pool's fiscal year, 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 those sections, an 
annual report for the exempt pool, affirmed in accordance with Sec.  
4.22(h) which contains, at a minimum:
* * * * *
    3. Section 4.22 is amended by:
    a. revising paragraph (c) introductory text;
    b. revising paragraph (d) introductory text;
    c. revising paragraph (f)(1)(ii)(B);
    d. revising paragraphs (g)(2) and (3);
    e. revising paragraph (h); and
    f. removing paragraph (j), to read as follows:


Sec.  4.22  Reporting to pool participants.

* * * * *
    (c) Except as provided in paragraph (c)(6) of this section, each 
commodity pool operator registered or required to be registered under 
the Act must distribute an Annual Report to each participant in each 
pool that it operates, and must electronically submit a copy of the 
Report and key financial balances from the Report to the National 
Futures Association pursuant to the electronic filing procedures of the 
National Futures Association, within 90 calendar days after the end of 
the pool's fiscal year or the permanent cessation of trading, whichever 
is earlier, but in no event longer than 90 days after funds are 
returned to pool participants; Provided, however, That if during an 
calendar year the commodity pool operator did not operate a commodity 
pool, the pool operator must so notify the National Futures Association 
within 30 calendar days after the end of such calendar year. The Annual 
Report must be affirmed pursuant to paragraph (h) of this section and 
must contain the following:
* * * * *
    (d) The financial statement in the Annual Report must be presented 
and computed in accordance with generally accepted accounting 
principles consistently applied and must be certified by an independent 
public accountant. The requirements of Sec.  1.16(g) of this chapter 
shall apply with respect to the engagement of such independent public 
accountants and the certification must be in accordance with Sec.  1.16 
of this chapter, except that the following requirements of that section 
shall not apply:
* * * * *
    (f) * * *
    (1) * * *
    (ii) * * *
    (B) Do you have any indication from the part of your audit 
completed to date that would lead you to believe that the commodity 
pool operator was or is not meeting the recordkeeping requirements of 
this part 4 or was or is not complying with the Sec.  4.20(c) 
prohibition on commingling of property of any pool with the property of 
any other person?
* * * * *
    (g)(1) * * *
    (2) If a commodity pool operator elects a fiscal year other than 
the calendar year, it must give written notice of the election to all 
participants and must file the notice with the National Futures 
Association within 90 calendar days after the date of the pool's 
formation. If this notice is not given, the pool operator will be 
deemed to have elected the calendar year as the pool's fiscal year.
    (3) The commodity pool operator must continue to use the elected 
fiscal year for the pool unless it provides written notice of any 
proposed change to all participants and files such notice with the 
National Futures Association at least 90 days before the change and the 
National Futures Association does not disapprove the change within 30 
days after the filing of the notice.
    (h)(1) Each Account Statement and Annual Report, including an 
Account Statement or Annual Report provided pursuant to Sec.  4.7(b) or 
4.12(b), must contain an oath or affirmation that, to the best of the 
knowledge and belief of the individual making the oath or 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.
    (2) Each oath or affirmation must be made by a representative duly 
authorized to bind the pool operator, and
    (i) For the copy of a commodity pool's Annual Report submitted to 
the National Futures Association, such representative shall satisfy the 
required oath or affirmation through compliance with the National 
Futures Association's electronic filing procedures, and
    (ii) for a commodity pool Account Statement or Annual Report 
distributed to participants, a facsimile of the manually signed oath or 
affirmation of such representative may be used so long as the manually 
signed original is retained in accordance with Sec.  4.23.
    (3) For each manually signed oath or affirmation, there must be 
typed beneath the signed oath or affirmation:
    (i) The name of the individual signing the document;
    (ii) The capacity in which he is signing;
    (iii) The name of the commodity pool operator for whom he is 
signing; and
    (iv) The name of the commodity pool for which the document is being 
distributed.
* * * * *
    4. Section 4.23 is amended by adding a new paragraph (a)(12) to 
read as follows:


Sec.  4.23  Recordkeeping.

* * * * *
    (a) * * *
    (12) A manually signed copy of each Account Statement and Annual 
Report provided pursuant to Sec.  4.22, Sec.  4.7(b) or 4.12(b), and 
records of the key financial balances submitted to the National Futures 
Association for each commodity pool Annual Report, which records must 
clearly demonstrate how the key financial balances were compiled from 
the Annual Report.
* * * * *


[[Page 74246]]


    Issued in Washington, DC, on December 7, 2005 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 05-23965 Filed 12-14-05; 8:45 am]
BILLING CODE 6351-01-M