Commodity Pool Operators and Commodity Trading Advisors: Amendments to Compliance Obligations, 7976-8066 [2011-2437]
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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules
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
Commodity Futures Trading
Commission.
ACTION: Notice of proposed rulemaking.
AGENCY:
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.
SUMMARY:
Comments must be in writing
and received on or before April 12,
2011.
DATES:
You may submit comments,
identified by RIN number 3033–AD30,
by any of the following methods:
• Agency Web site, via its Comments
Online process: https://
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: https://
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
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ADDRESSES:
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submissions. All comments must be
submitted in English, or if not,
accompanied by an English translation.
Comments will be posted as received to
https://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 https://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 §§ 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:
kwalek@cftc.gov, or Amanda Lesher
Olear, Special Counsel, Telephone:
(202) 418–5283, E-mail: aolear@cftc.gov,
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 § 4.27 or proposed Forms
CPO–PQR or CTA–PR, contact Kevin P.
Walek, Assistant Director, Telephone:
(202) 418–5463, E-mail:
kwalek@cftc.gov, or Daniel Konar,
Attorney-Advisor, Telephone: (202)
418–5405. E-mail: dkonar@cftc.gov,
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
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
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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.
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
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
may be accessed at https://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
2 Id.
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).
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Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules
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 § 4.13 of its regulations
as well as the exclusions from the
definition of CPO that are delineated in
§ 4.5.
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 reevaluated 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
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
8 See H.R. Rep. No. 93–975, 93d Cong., 2d Sess.
(1974), p. 20.
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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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.
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
13 The Commission and the SEC are jointly
proposing Form PF with respect to entities
registered with both agencies in a forthcoming
release.
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).
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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
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 § 4.27, which would
require quarterly reports from all CPOs
and CTAs to be electronically filed with
NFA. The Commission is promulgating
proposed § 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 § 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.
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 re17 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.
20 7 U.S.C. 6n(3)(A).
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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 DoddFrank 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 similarlysituated 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
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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
§ 4.5; (D) require the filing of certified
annual reports by all registered CPOs;
(E) rescind the exemptions from
registration under §§ 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 § 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 § 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 reevaluated 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.
Therefore, the Commission is
proposing Forms CPO–PQR (proposed
to appear in the Commission’s
regulations as appendix A to part 4),
21 17
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U.S.C. 6n(3)(A).
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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 § 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
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
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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.
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?
Form PF and
Form ADV
Dual Registrant CPO for Private Funds Only (Assets under Management
equal to or exceeding $1 Billion).
Dual Registrant CPO for Private Funds Only (Assets under Management less
than $1 Billion).
Large CPO—Not Dual ........................................................................................
Mid-size CPO .....................................................................................................
Small CPOs ........................................................................................................
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 § 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.
PQR
Schedule A
PQR
Schedule B
Quarterly .......
Quarterly.
Annually ........
Quarterly.
.......................
.......................
.......................
Quarterly .......
Quarterly .......
Quarterly.
Quarterly .......
Annually.
Form PF and
Form ADV
PR
Schedule A
Quarterly .......
Annually ........
.......................
.......................
Quarterly.
Quarterly.
Quarterly .......
Quarterly.
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Dual Registrant CTA (Assets under Management equal to or exceeding $1 Billion) ..................
Dual Registrant CTA (Assets under Management less than $1 Billion) .......................................
Large and Mid-size CTAs ..............................................................................................................
Small CTAs ....................................................................................................................................
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
registrants with both agencies. CPOs and CTAs that
are dual registrants and that operate or advise
commodity pools that are not private funds will
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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
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PQR
Schedule C
Sfmt 4702
Quarterly.
PR
Schedule B
Quarterly.
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
still be required to file the proposed reports
required in this release.
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required by § 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 §§ 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
The Commission requests comment as
to when proposed § 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
23 67
FR 77470, Dec. 18, 2002.
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24 Id.
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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would enhance the Commission’s
oversight of CPOs. A discussion of the
information required by form CPO–PQR
follows.
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
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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 midsized 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
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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
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
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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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.
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
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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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 DoddFrank 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
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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?
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B. Amendments to §§ 145.5 and 147.3:
Confidential Treatment of Data
Collected on Forms CPO–PQR and
CTA–PR
1. Proposed Amendments to § 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.
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
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.’’
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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records and actions unless a specific
exemption is available.
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.
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.
Currently, § 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,
§ 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 § 145.5.38
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
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).
35 7 U.S.C. 12(a)(1).
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 list such information in § 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:
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 § 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
The Commission believes that
portions of the filings required by
proposed § 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
39 Section 145.5(d) tracks the language of its FOIA
counterpart, exemption (b)(4).
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.
42 5 U.S.C. 552b(c)(4).
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to the rationale discussed supra with
respect to FOIA.
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
In light of the foregoing
considerations, the Commission is
proposing to amend § 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.
43 5
U.S.C. 552b(c)(8).
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.’’).
44 See
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C. Proposed Amendments to § 4.5:
Reinstating Trading Criteria for
Exclusion From the CPO Definition
The exclusion from the CPO
definition under § 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, § 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
The 2003 amendments revised § 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
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
In 2010, the Commission became
aware of certain registered investment
companies that were offering series of
de facto commodity pool interests
claiming exclusion under § 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 § 4.5 with respect to
registered investment companies.49 On
September 17, 2010, the Commission
solicited comments from the public on
45 15
U.S.C. 80a–1 et seq.
FR 15868, 15883, Apr. 23, 1985.
47 17 CFR 4.5(c)(2).
48 68 FR 47221, 47223, Aug. 8, 2003.
49 75 FR 56997, Sept. 17, 2010.
46 50
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NFA’s petition for rulemaking, which
proposed the reinstatement of the pre2003 operating restrictions in § 4.5. In
its petition, NFA proposed that
§ 4.5(c)(2) be amended to read as
follows:
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(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).
To stop the practice of registered
investment companies offering futuresonly investment products without
Commission oversight, the Commission
is proposing to amend § 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
50 The revisions to § 4.5 proposed herein contain
a reference to the definition of ‘‘bona fide hedging’’
as it is currently set forth in § 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.
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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 § 4.5 would be
prohibited under NFA’s proposal.
Specifically, it has been argued that
marketing these funds under proposed
§ 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 § 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
§ 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 § 4.5
would result in direct conflicts with
SEC regulations relating to registered
investment companies. Please detail
which rules and regulations are in
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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 § 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 § 4.5?
D. Proposed Amendments to § 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 § 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
Despite the availability of the
exemption from the audit requirement
under § 4.7(b)(3)(i), the vast majority of
CTAs and CPOs that operate commodity
pools under § 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
52 See
53 See
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17 CFR 4.7.
17 CFR 4.7(b)(3).
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under § 4.7 in fiscal year 2009 (i.e., 85%
of all pools operated under § 4.7 in that
year) filed certified annual reports
despite being eligible for exemptive
relief from certification in § 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
§ 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
§ 4.12(a), in accordance with the criteria
under which such relief previously has
been granted.54
2. Incorporating by Reference the
Accredited Investor Standard
The Commission is also proposing to
amend §§ 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 § 4.7, it stated
that the relief provided in § 4.7 was
intended for persons who were ‘‘highly
accredited investors’’,56 which was
defined as ‘‘accredited investors’’, per
the terms of § 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 § 230.501(a)(5) of
the SEC’s regulations.60 Similarly,
§ 4.7(a)(3)(x) incorporates the income
standards of § 230.501(a)(6) of the SEC’s
regulations.61
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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: https://www.cftc.gov/
LawRegulation/CFTCStaffLetters/LettersAcrchive/
2010/index.htm.
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
§§ 4.7(a)(3)(ix) and (a)(3)(x) to
incorporate the new accredited investor
standard. Thus, the Commission’s
proposal seeks to amend § 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
§ 4.7 each time to maintain parity.
E. Proposed Amendments to
§§ 4.13(a)(3) and (a)(4): Rescission of
Exemption From Registration
The Commission proposes to rescind
certain exemptions from registration
provided in §§ 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
As a result of the creation of
exemptions from registration as a CPO
62 See 17 CFR 4.13(a)(3). CPOs claiming relief
under § 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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7985
under §§ 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 § 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
§ 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
§ 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 §§ 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
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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§§ 4.13(a)(3) and (4) for operators of
pools that are similarly situated to
private funds that previously relied on
the exemptions under §§ 3(c)(1) and (7)
of the Investment Company Act and
§ 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.
The Commission is soliciting
comment regarding the implementation
of the proposed rescission of
§§ 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 §§ 4.13(a)(3) and (a)(4)? Should the
Commission consider an alternative de
minimis exemption under § 4.13, and, if
so, what criteria should be required to
claim such exemption?
F. Proposed Amendments to §§ 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 §§ 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.
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
67 7
U.S.C. 12a(5).
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claim with NFA and to comply with a
few ministerial requirements.68 For
entities claiming relief under §§ 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
Based on the foregoing, the
Commission proposes to require all
persons claiming exemptive or
exclusionary relief under §§ 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
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 §§ 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.
70 If the proposed repeal of §§ 4.13(a)(3) and (a)(4)
is adopted, annual notices will still be required to
be filed pursuant to §§ 4.13(a)(1) and (a)(2) under
this proposal. Regardless of whether the repeal of
§§ 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 § 4.13.
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are required of registered firms under
§ 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.
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 §§ 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
§§ 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.
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., §§ 4.13(a)(3) and
71 See
72 See
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17 CFR 4.24(b), 4.34(b).
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(a)(4), etc.) in other sections of the
Commission’s regulations.
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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.
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.
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,
73 See
5 U.S.C. 601, et seq.
47 FR 18618, 18619, Apr. 30, 1982.
75 See 47 FR at 18619–20.
76 See 47 FR at 18620.
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.
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 §§ 4.13(a)(3) and (a)(4) and
the modification of § 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.
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
74 See
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77 See
78 See
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7 U.S.C. 12.
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7987
system of records according to the
Privacy Act of 1974.79
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 §§ 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 § 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 § 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.
79 See
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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.
jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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
OIRAsubmissions@omb.eop.gov. 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
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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.
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
80 See 7 U.S.C. 19(a); see also 5 U.S.C.
801(a)(1)(B)(i).
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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
§§ 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
§ 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 §§ 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
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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 § 4.5, add paragraphs (c)(2)(iii)
and (c)(5) to read as follows:
§ 4.5 Exclusion from the definition of the
term ‘‘commodity pool operator.’’
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*
*
*
*
*
(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
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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 § 4.7, revise paragraphs (a)(3)(ix)
and (x) and (b)(3) to read as follows:
§ 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
§ 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 § 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 § 4.22(g));
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7989
(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 § 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:
§ 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., § 4.13(a)(1) or (2)) and
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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 § 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:
§ 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 § 4.24, add paragraph (b)(5) to
read as follows:
§ 4.24
General disclosures required.
*
*
*
*
(b) * * *
(5) If the pool may engage in swaps,
the Risk Disclosure Statement must
further state:
jlentini on DSKJ8SOYB1PROD with PROPOSALS2
*
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
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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.
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
7. Add § 4.27 to read as follows:
that, to the best of the knowledge and
§ 4.27 Additional reporting by advisors of
belief of the individual making the oath
certain large commodity pools.
and affirmation, the information
(a) General definitions. For the
contained in the document is accurate
purposes of this section:
and complete; Provided, however, That
(1) Commodity pool operator or CPO
it shall be unlawful for the individual to
has the same meaning as commodity
make such oath or affirmation if the
pool operator defined in section 1a(11)
individual knows or should know that
of the Commodity Exchange Act;
any of the information in the document
(2) Commodity trading advisor or CTA is not accurate and complete and
has the same meaning as commodity
(ii) Each oath or affirmation must be
trading advisor defined in section
made by a representative duly
1a(12);
authorized to bind the CPO or CTA.
(3) Direct has the same meaning as
(2) Be submitted consistent with the
direct defined in section 4.10(f);
National Futures Association’s
(4) Net asset value or NAV has the
electronic filing procedures.
same meaning as net asset value as
(f) Termination of reporting
defined in section 4.10(b);
requirement. All reporting persons shall
(5) Pool has the same meaning as pool continue to file such reports as are
as defined in section 1(a)(10) of the
required under this section until the
Commodity Exchange Act;
effective date of a Form 7W filed in
(6) Reporting period means each
accordance with the Commission’s
quarter ending March 31, June 30,
regulations.
September 30, or December 31;
(g) Public records. Reports filed
(b) Persons required to report. A
pursuant to this section shall not be
reporting person is:
considered Public Records as defined in
(1) Any commodity pool operator that
§ 145.0 of this chapter.
is registered or required to be registered
8. In § 4.34, add paragraph (b)(4) to
under the Commodity Exchange Act and
read as follows:
the Commission’s regulations
thereunder; or
§ 4.34 General disclosures required.
(2) Any commodity trading advisor
*
*
*
*
*
that is registered or required to be
(b) * * *
registered under the Commodity
(4) If the commodity trading advisor
Exchange Act and the Commission’s
may engage in swaps, the Risk
regulations thereunder.
Disclosure Statement must further state:
(c) Reporting. (1) Except as provided
SWAPS TRANSACTIONS, LIKE OTHER
in section (c)(2) of this section, each
FINANCIAL TRANSACTIONS, INVOLVE A
reporting person shall file with the
VARIETY OF SIGNIFICANT RISKS. THE
National Futures Association, not later
SPECIFIC RISKS PRESENTED BY A
than 15 days after the end of the first
PARTICULAR SWAP TRANSACTION
reporting period during which such
NECESSARILY DEPEND UPON THE TERMS
reporting person satisfies the
OF THE TRANSACTION AND YOUR
CIRCUMSTANCES. IN GENERAL,
requirements of paragraph (b) of this
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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,
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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
BILLING CODE P
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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
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BILLING CODE C
§ 145.5
PART 145—COMMISSION RECORDS
AND INFORMATION
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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 § 145.5, revise paragraphs
(d)(1)(viii) and (h) to read as follows:
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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
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8065
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,
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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 § 147.3, revise (b)(4)(i)(H) and
(b)(8) to read as follows:
§ 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
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*
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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,
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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
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[Federal Register Volume 76, Number 29 (Friday, February 11, 2011)]
[Proposed Rules]
[Pages 7976-8066]
From the Federal Register Online via the Government Printing 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: https://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: https://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 https://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 https://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: kwalek@cftc.gov, or Amanda Lesher Olear,
Special Counsel, Telephone: (202) 418-5283, E-mail: aolear@cftc.gov,
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: kwalek@cftc.gov, or Daniel Konar,
Attorney-Advisor, Telephone: (202) 418-5405. E-mail: dkonar@cftc.gov,
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 https://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------
Form PF and Form
ADV PQR Schedule A PQR Schedule B PQR Schedule C
----------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Form PF and Form ADV PR Schedule A PR Schedule B
----------------------------------------------------------------------------------------------------------------
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.
----------------------------------------------------------------------------------------------------------------
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,
