Amendments to Commodity Pool Operator and Commodity Trading Advisor Regulations Resulting From the Dodd-Frank Act, 54355-54360 [2012-21606]
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Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations
COMMODITY FUTURES TRADING
COMMISSION
17 CFR Part 4
RIN 3038–AD49
Amendments to Commodity Pool
Operator and Commodity Trading
Advisor Regulations Resulting From
the Dodd-Frank Act
Commodity Futures Trading
Commission.
ACTION: Final rules.
AGENCY:
The Commodity Futures
Trading Commission (Commission) is
amending its regulations governing the
operations and activities of commodity
pool operators (CPOs) and commodity
trading advisors (CTAs) in order to have
those regulations reflect changes made
to the Commodity Exchange Act (CEA)
by the Dodd-Frank Wall Street Reform
and Consumer Protection Act (DoddFrank Act).
DATES: Effective Date: November 5,
2012.
FOR FURTHER INFORMATION CONTACT:
Barbara S. Gold, Associate Director, or
Christopher W. Cummings, Special
Counsel, Division of Swap Dealer and
Intermediary Oversight, 1155 21st Street
NW., Washington, DC 20581. Telephone
number: 202–418–6700 and electronic
mail: bgold@cftc.gov or
ccummings@cftc.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Background
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A. The Dodd-Frank Act
On July 21, 2010, President Obama
signed the Dodd-Frank Act.1 Title VII of
the Dodd-Frank Act 2 amended the
CEA 3 to establish a comprehensive new
regulatory framework for swaps and
security-based swaps. The goal of this
legislation was to reduce risk, increase
transparency, and promote market
integrity within the financial system by,
among other things: (1) Providing for the
registration and comprehensive
regulation of swap dealers (SDs) and
major swap participants (MSPs); (2)
imposing clearing and trade execution
requirements on standardized derivative
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 through the Commission’s Web
site, www.cftc.gov.
2 Pursuant to Section 701 of the Dodd-Frank Act,
Title VII may be cited as the ‘‘Wall Street
Transparency and Accountability Act of 2010.’’
3 7 U.S.C. 1 et seq. (2006). The Commission’s
regulations are found at 17 CFR part 1 et seq.
(2012). Both the CEA and the Commission’s
regulations also may be accessed through the
Commission’s Web site.
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products; (3) creating robust
recordkeeping and real-time reporting
regimes; and (4) enhancing the
Commission’s rulemaking and
enforcement authorities with respect to,
among others, all registered entities and
intermediaries subject to the oversight
of the Commission. Among the changes
made by the Dodd-Frank Act to the CEA
were to include within the CPO
definition the operator of a collective
investment vehicle that trades swaps,
and to include within the CTA
definition a person who provides advice
concerning swaps.4
B. The Proposed Amendments to Part 4
Part 4 of the Commission’s regulations
sets forth a comprehensive regulatory
framework for the operations and
activities of CPOs and CTAs. It includes
disclosure, reporting and recordkeeping
requirements for registered CPOs and
CTAs, registration and compliance
exemptions for CPOs and CTAs, and
other provisions, including anti-fraud
provisions, applicable to CPOs and
CTAs, regardless of registration status.
To ensure that the Part 4 regulations
applied to CPOs and CTAs in the
context of these intermediaries’
involvement with swap transactions, on
March 3, 2011, the Commission
proposed certain amendments to Part 4
(Proposal).5
As the Commission explained in the
Proposal, because many of the existing
Part 4 regulations generally applied to
CPOs and CTAs, they would continue to
be applicable to CPOs and CTAs with
respect to their swap activities without
the need for amendment thereto. The
Commission noted that in other
instances, however, the text of certain
existing Part 4 regulations was specific
to activities involving futures contracts,
commodity options, and off-exchange
retail foreign currency (‘‘commodity
interests’’), and it did not include, refer
to or otherwise take account of swap
activities. As the Commission stated:
‘‘The Proposal [was] intended to clarify
and ensure that the requirements
governing the operations and activities
of CPOs and CTAs continue to apply for
these intermediaries in the context of
their involvement with swap
transactions.’’ 6 Accordingly, the
4 See Section 721(a) of the Dodd-Frank Act,
which re-organized (and in some cases amended)
existing definitions in, and added new definitions
to, Section 1a of the CEA. The CPO and CTA
definitions, as amended, are codified at CEA
sections 1a(11) and 1a(12), respectively.
5 76 FR 11701.
6 76 FR 11701. Part 4 applies to CPOs with
respect to their activities affecting pool participants
and to CTAs with respect to their activities affecting
clients. Depending on the nature of its activities, a
CPO or CTA may also come within the definition
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Commission proposed to amend
Regulations 4.7, 4.10, 4.22, 4.23, 4.24
4.30, 4.33 and 4.34 to include in each
of these regulations a reference to swaps
or swap activities.
II. Comments on the Proposal
The Commission received two
comment letters on the Proposal,7 each
of which supported the Proposal. One of
these letters stated that the Proposal
‘‘should act to reduce risk and increase
its transparency, and promote market
integrity by ensuring that all entities are
consistently regulated to the extent that
their trading and other activities pertain
to swaps.’’ 8 The other letter urged the
Commission ‘‘to work quickly and
diligently on writing these rules and
putting them in place as soon as
possible.’’ 9
III. The Final Regulations
In light of the supportive comments it
received, with one exception the
Commission is adopting the
amendments to the Part 4 regulations it
proposed. That exception concerns the
proposed amendment to Regulation
4.10(a) that, for the purposes of Part 4,
would have expanded the definition of
the term ‘‘commodity interest’’ to
include ‘‘swaps.’’ This proposal was
superseded by a proposed amendment
to Regulation 1.3(yy) that, for the
purposes of all of the Commission’s
regulations, would define the term
‘‘commodity interest’’ to include
‘‘swaps.’’ 10 Accordingly, the
Commission is considering the
proposed definition of the term
‘‘commodity interest’’ in connection
with its consideration of the comment
letters it received on its proposed
amendment to Regulation 1.3(yy).
A. Adding ‘‘Swap’’ Terms to Part 4
As proposed, the Commission is
inserting ‘‘swap,’’ ‘‘swap transaction’’ or
a similar term at various regulations
throughout Part 4. See the amendments
to Regulations 4.23(a)(1), 4.24(g), (h)(1),
and (i)(2) for CPOs and Regulations
4.34(g) and 4.34(i)(2) for CTAs. For
of the term ‘‘swap dealer’’ or ‘‘major swap
participant’’ in new CEA Section 1a(49) or 1a(33),
respectively. As directed by the Dodd-Frank Act,
the Commission has adopted new regulations that
establish business conduct standards for SDs and
MSPs. See 77 FR 9734 (Feb. 17, 2012). These new
regulations apply to SDs and MSPs with respect to
the counterparties with whom they transact swap
business, and govern different activity than that to
which the Part 4 regulations apply.
7 These comment letters currently are available on
the Commission’s Web site.
8 Comment letter from Chris Barnard (Mar. 29,
2011).
9 Comment letter from Kyle Vandergrift (Apr. 20,
2011).
10 See 76 FR 33066, 33069–70 (June 7, 2011).
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example, Regulation 4.23(a)(1) is being
amended to include ‘‘swap type and
counterparty’’ in the itemized daily
record that a CPO must make and keep
with respect to a pool’s commodity
interest transactions.
At other Part 4 regulations, the
Commission has included as proposed
the term ‘‘swap dealer’’ among the
persons for whom a CPO or CTA must
provide information in its Disclosure
Document and for whom a CPO must
provide information in a pool’s periodic
Account Statement. See the
amendments to Regulations 4.22(a)(3),
4.24(j)(1), (j)(3), (l)(1), and (l)(2) for
CPOs and Regulations 4.34(j)(1), (j)(3),
(k)(1) and (k)(2) for CTAs. For example,
Regulations 4.24(j) and 4.34(j) are being
amended to include SDs in the group of
persons as to which conflicts of interest
must be disclosed by CPOs and CTAs.
Similarly, the Commission has
included as proposed ‘‘a registered swap
dealer’’ among the persons listed in
Regulation 4.7(a)(2) that do not have to
satisfy a portfolio requirement in order
to be a qualified eligible person (QEP),
such that a CPO or CTA that has
claimed relief under Regulation 4.7 may
accept the SD as a pool participant or
advisory client without regard to the
size of its investment portfolio. As the
Commission explained, ‘‘this would be
consistent with the current treatment of
other financial intermediaries registered
with the Commission (such as futures
commission merchants [FCMs] and
retail foreign exchange dealers [RFEDs])
as QEPs under Regulation 4.7(a)(2).’’ 11
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B. Including Books and Records
Relating to Swap Transactions within
Part 4
The Commission has adopted as
proposed amendments to Part 4 that
require a CPO or CTA to make and keep
certain books and records generated by
the swap transactions in which it
engages on behalf of not only its pool
participants and clients, but also itself.
See the amendments to Regulations
4.23(a)(7) and (b)(1) for CPOs and
Regulations 4.33(a)(6) and (b)(1) for
CTAs. The amendments to Regulations
4.23(a)(7) and 4.33(a)(6) require CPOs
and CTAs to retain each
acknowledgment of a swap transaction
received from an SD. The amendments
to Regulations 4.23(b)(1) and 4.33(b)(1)
make clear that if a CPO or CTA was a
counterparty to a swap transaction, then
it would be subject to the swap data
recordkeeping and reporting
requirements of Part 45 of the
11 76
FR at 11702.
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Commission’s regulations, as
applicable.12
C. Regulation 4.30
Subject to certain exceptions,
Regulation 4.30 provides that no CTA
may solicit, accept or receive from an
existing or prospective client funds,
securities or other property in the
trading advisor’s name (or extend credit
in lieu thereof) to purchase, margin,
guarantee or secure any commodity
interest of the client.
The Commission proposed to amend
Regulation 4.30 by adding to the list of
intermediaries then excepted from the
foregoing prohibition—i.e., registered
FCMs, leverage transaction merchants
and RFEDs—a registered SD in
connection with a swap that was not
cleared through a derivatives clearing
organization. The Commission
explained that this amendment to
Regulation 4.30 was necessary
‘‘[b]ecause swap dealers will generally
fall within the statutory definition of
CTA, and because a swap dealer
engaging in uncleared swap transactions
may be accepting funds or other
property from its counterparties as
variation and initial margin
payments.’’ 13
Subsequently, the Commission
amended Regulation 4.6 to provide
therein for an exclusion from the
definition of the term ‘‘commodity
trading advisor’’ for an SD, provided the
commodity interest and swap advisory
activities of the SD are solely incidental
to the conduct of its business as an
SD.14 Because not all SDs may always
meet the ‘‘solely incidental’’ proviso,
the Commission has determined to
amend Regulation 4.30 as proposed,
such that any registered SD who is a
CTA is not subject to the regulation’s
operational prohibition.
D. Deleting Regulation 4.32
The Commission has deleted as
proposed Regulation 4.32, which
concerned trading by a registered CTA
on or subject to the rules of a derivatives
12 See Regulation 45.2, which requires SDs and
MSPs to keep full, complete and systematic records,
together with all pertinent data and memoranda, of
all activities relating to their business with respect
to swaps, as prescribed by the Commission. (NonSD and non-MSP counterparties subject to the
Commission’s jurisdiction have a similar
requirement, but only with respect to each swap to
which they are a counterparty.)
13 76 FR at 11702. In this regard, the Commission
has proposed regulations addressing the
circumstances in which non-bank SDs may be
required or permitted to accept margin payments in
uncleared swap transactions. See 76 FR 23732 (Apr.
28, 2011). Accordingly, this amendment to
Regulation 4.30 should not be interpreted to impose
or authorize any such margin requirements.
14 See 77 FR 9734, 9739–40 (Feb. 17, 2012).
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transaction execution facility (DTEF) for
non-institutional customers. As the
Commission explained:
Section 734(a) of the Dodd-Frank Act
repeals Section 5a of the CEA, which is the
section establishing and providing for the
regulation of DTEFs. Accordingly, because
subsequent to the effective date of the DoddFrank Act Regulation 4.32 will no longer
have a statutory basis or purpose, the
Proposal would remove and reserve
Regulation 4.32.15
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act
(‘‘RFA’’) 16 requires federal agencies to
consider the impact of those rules on
small businesses.17 A regulatory
flexibility analysis or certification
typically is required for ‘‘any rule for
which the agency publishes a general
notice of proposed rulemaking pursuant
to’’ the notice-and-comment provisions
of the Administrative Procedure Act, 5
U.S.C. 553(b).18 The amendments to the
Part 4 regulations contained herein will
affect CPOs and CTAs. The Commission
stated in the Proposal that:
With respect to CPOs, the Commission
previously has determined that a CPO is a
small entity for the purpose of the RFA if it
meets the criteria for an exemption from
registration under Regulation 4.13(a)(2).
Thus, because the Proposal applies to
registered CPOs, the RFA is not applicable to
it. As for CTAs, the Commission previously
has stated that it would evaluate within the
context of a particular rule proposal whether
all or some affected CTAs would be
considered to be small entities and, if so, the
economic impact on them of the particular
rule. In this regard, the Commission notes
that the Proposal applies to registered CTAs.
Moreover, the Proposal would not have a
significant economic impact on any CPO or
CTA who would be affected thereby, because
it would merely bring within the current Part
4 regulatory structure of disclosure, reporting
and recordkeeping information with respect
to swap activities. It would not impose any
additional operative requirements or
otherwise direct or confine the activities of
CPOs and CTAs.19
The Commission did not receive any
comments regarding its RFA analysis in
the Proposal. Accordingly, pursuant to 5
U.S.C. 605(b), the Chairman, on behalf
of the Commission, certifies that the
amendments to the Part 4 regulations
being published today by this Federal
Register release will not have a
significant economic impact on a
substantial number of small entities.
15 76
FR at 11702.
U.S.C. 601 et seq.
17 By its terms, the RFA does not apply to
‘‘individuals.’’ See 48 FR 14933, n. 115 (Apr. 6,
1983).
18 5 U.S.C. 601(2), 603, 604 and 605.
19 76 FR at 11703.
16 5
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B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) 20 imposes certain requirements
on Federal agencies (including the
Commission) in connection with their
conducting or sponsoring any collection
of information as defined by the PRA.
The amendments to the Part 4
regulations will not require any new
collection of information from any
entity that is subject to them.
Additionally, the Commission did not
receive any comments regarding its PRA
analysis in the Proposal. Accordingly,
for purposes of the PRA, the Chairman,
on behalf of the Commission, certifies
that the amendments to the Part 4
regulations being published today by
this Federal Register release will not
impose any new reporting or
recordkeeping requirements.
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C. Cost-Benefit Analysis
Prior to the passage of the Dodd-Frank
Act, the Part 4 regulations did not apply
to swap-related activities. This preDodd-Frank Act construct provides a
useful reference point from which to
compare the costs and benefits of the
proposed regulations to the alternative
where the Commission would not be
taking any action to incorporate swaprelated information into Part 4.
As a result of the Dodd-Frank Act
including swap-related activities among
the activities on which the CPO and
CTA definitions are based, CPOs and
CTAs who engage in swap-related
activities are now subject to Part 4. In
various places, however, the wording of
particular provisions of Part 4 was
incomplete or inconsistent in the
context of CPOs and CTAs involved
with swap transactions; there is no
regulatory need for the prohibition in
Regulation 4.30 against directly
accepting margin payments to apply to
an SD; and the subject matter of
Regulation 4.32 (trading on DTEFs) was
rendered moot by the Dodd-Frank Act.
Under such a scenario, the costs to the
public of inaction would be, in
qualitative terms, failure to receive Part
4 disclosure, reporting and
recordkeeping protections from their
CPOs and CTAs with regard to their
swap activities, an unnecessary burden
on SDs, and regulatory text that is
obsolete. The costs of these
amendments, if any, will be minimal—
limited to the costs associated with
including information related to swaps
in the Disclosure Documents, Account
Statements and books and records
already required of CPOs and CTAs
under existing Part 4 regulations.
20 44
U.S.C. 3501 et seq.
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Moreover, this information should be
readily available to CPOs and CTAs.
The costs cannot be feasibly quantified
or estimated, because they will vary
according to each registrant’s internal
processes and registration category. In
contrast, the amendments will yield
significant if unquantifiable benefit to
the public, relative to inaction, by
clarifying the application of Part 4 and
the obligations of CPOs and CTAs to
their participants and clients,
respectively.
In the CEA,21 Congress provided the
Commission with the authority to
promulgate regulations that, among
other things, are reasonably necessary to
effectuate any of the provisions or to
accomplish any of the purposes of the
CEA. In accordance with Section 15(a)
of the CEA, it is in this post-Dodd-Frank
Act environment that the Commission
considers the costs and benefits of its
actions before promulgating a regulation
under the CEA or issuing an order.
Section 15(a) specifies that the costs
and benefits shall be evaluated in light
of the following five broad areas of
market and public concern: (1)
Protection of market participants and
the public; (2) efficiency,
competitiveness, and financial integrity
of futures markets; (3) price discovery;
(4) sound risk management practices;
and (5) other public interest
considerations.
In light of the provisions of the DoddFrank Act that expand the ‘‘commodity
pool operator’’ and ‘‘commodity trading
advisor’’ definitions to include swaprelated activities, these amendments
incorporate into the existing Part 4
framework regulations to take account
of the swap-related activities of CPOs
and CTAs. Specifically, the
amendments subject CPOs and CTAs
when involved with swap transactions
to the same Part 4 requirements that
apply when they are involved with
commodity interest transactions, to the
extent regulations in place at the time of
the enactment of the Dodd-Frank Act
did not clearly do so.22 The revision to
Regulation 4.30 excepts SDs from the
prohibition on accepting margin to treat
21 See
7 U.S.C. 12(a)(5).
is explained above, when the Dodd-Frank
Act extended the statutory definitions of the terms
‘‘commodity pool operator’’ and ‘‘commodity
trading advisor,’’ those existing Part 4 regulations
that applied generally to CPOs and CTAs became
applicable to CPOs and CTAs captured by the
expanded statutory definitions, without further
amendment. Certain other existing Part 4
regulations, however, spoke specifically to activities
involving commodity interests, but not to swap
activities. Accordingly, this rulemaking amends this
latter subset of Part 4 regulations by making them
applicable to swap activities, thus closing the
regulatory gap that would otherwise exist.
22 As
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54357
them equivalently with FCMs and
RFEDs. In addition, these amendments
delete Regulation 4.32, pertaining to
trading by registered CTAs on DTEFs,
given the repeal by the Dodd-Frank Act
of CEA Section 5a, which authorized
such trading facilities.
In the Proposal the Commission
sought public comment on the costs and
benefits of its contemplated
amendments to Part 4.23 The
Commission did not receive any
comments in response to this request.
Section 15(a) Factors
(1) Protection of market participants
and the public.
The Commission believes the
amendments to the Part 4 regulations
will provide protection to market
participants and the public by requiring
CPOs and CTAs to include information
on swap intermediaries and activities in
the disclosure, reporting and
recordkeeping framework under Part 4.
For example, Regulation 4.24(j) has
provided protections to commodity pool
participants by requiring their CPO to
disclose any actual or potential conflict
of interest with any FCM with whom
their pool was required to maintain its
account. The amendment to Regulation
4.24(j) the Commission has adopted will
provide similar protections, by requiring
the CPO to disclose any actual or
potential conflict of interest with any
SD with whom their pool maintains its
swap positions.
(2) Efficiency, competitiveness, and
financial integrity of the futures
markets.
The Commission does not expect the
amendments to Part 4 to have an impact
on the efficiency, competitiveness and
financial integrity of the commodity
interest markets.
(3) Price Discovery.
The Commission does not expect the
amendments to Part 4 to have an impact
on the market’s price discovery
functions.
(4) Sound risk management practices.
The Commission does not expect the
amendments to Part 4 to have an impact
on risk management practices by CPOs,
CTAs and other Commission registrants.
However, the requirement that CPOs
and CTAs account for SD, MSP and
swap activities when complying with
their disclosure, reporting and
recordkeeping requirements under Part
4 will benefit prospective and actual
pool participants and clients by
ensuring that these participants and
clients are afforded the same customer
protections as participants and clients
23 76
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FR 11701, 11703.
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in all other commodity pools and
managed account programs.
(5) Other public interest
considerations.
The Commission has not identified
any other public interest considerations
regarding the costs and benefits of the
amendments to Part 4.
List of Subjects in 17 CFR Part 4
Advertising, Brokers, Commodity
futures, Commodity pool operators,
Commodity trading advisors, Customer
protection, Reporting and recordkeeping
requirements, Swaps.
For the reasons presented above, the
Commission hereby amends Chapter I of
Title 17 of the Code of Federal
Regulations as follows:
PART 4—COMMODITY POOL
OPERATORS AND COMMODITY
TRADING ADVISORS
1. The authority citation for Part 4 is
revised to read as follows:
■
Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6l, 6m, 6n,
6o, 12a and 23, as amended by Title VII of
the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111–203,
124 Stat. 1376 (July 21, 2010).
2. Section 4.7 is amended by adding
paragraph (a)(2)(i)(C) 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) * * *
(2) * * *
(i) * * *
(C) A swap dealer registered pursuant
to section 4s(a)(1) of the Act, or a
principal thereof;
*
*
*
*
*
■ 3. Section 4.22 is amended by revising
paragraph (a)(3) to read as follows:
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§ 4.22
Reporting to pool participants.
(a) * * *
(3) The Account Statement must also
disclose any material business dealings
between the pool, the pool’s operator,
commodity trading advisor, futures
commission merchant, retail foreign
exchange dealer, swap dealer, or the
principals thereof that previously have
not been disclosed in the pool’s
Disclosure Document or any
amendment thereto, other Account
Statements or Annual Reports.
*
*
*
*
*
■ 4. Section 4.23 is amended by:
■ a. Revising paragraphs (a)(1) and
(a)(7); and
■ b. Revising paragraph (b)(1), to read as
follows:
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§ 4.23
Recordkeeping.
*
*
*
*
*
(a) * * *
(1) An itemized daily record of each
commodity interest transaction of the
pool, showing the transaction date,
quantity, commodity interest, and, as
applicable, price or premium, delivery
month or expiration date, whether a put
or a call, strike price, underlying
contract for future delivery or
underlying physical, swap type and
counterparty, the futures commission
merchant and/or retail foreign exchange
dealer carrying the account and the
introducing broker, if any, whether the
commodity interest was purchased, sold
(including, in the case of a retail forex
transaction, offset), exercised, expired
(including, in the case of a retail forex
transaction, whether it was rolled
forward), and the gain or loss realized.
*
*
*
*
*
(7) Copies of each confirmation or
acknowledgment of a commodity
interest transaction of the pool, and
each purchase and sale statement and
each monthly statement for the pool
received from a futures commission
merchant, retail foreign exchange dealer
or swap dealer.
*
*
*
*
*
(b) * * *
(1) An itemized daily record of each
commodity interest transaction of the
commodity pool operator and each
principal thereof, showing the
transaction date, quantity, commodity
interest, and, as applicable, price or
premium, delivery month or expiration
date, whether a put or a call, strike
price, underlying contract for future
delivery or underlying physical, swap
type and counterparty, the futures
commission merchant or retail foreign
exchange dealer carrying the account
and the introducing broker, if any,
whether the commodity interest was
purchased, sold, exercised, or expired,
and the gain or loss realized; Provided,
however, that if the pool operator is a
counterparty to a swap, it must comply
with the swap data recordkeeping and
reporting requirements of Part 45 of this
chapter, as applicable.
*
*
*
*
*
■ 5. Section 4.24 is amended by:
■ a. Revising paragraph (g);
■ b. Revising paragraph (h)(1)(i);
■ c. Revising paragraph (i)(2)(xii);
■ d. Revising paragraphs (j)(1)(vi) and
(j)(3); and
■ e. Revising paragraphs (l)(1)(iii), (l)(2)
introductory text and (l)(2)(i), to read as
follows:
§ 4.24
*
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*
*
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*
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*
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(g) Principal risk factors. A discussion
of the principal risk factors of
participation in the offered pool. This
discussion must include, without
limitation, risks relating to volatility,
leverage, liquidity, counterparty
creditworthiness, as applicable to the
types of trading programs to be
followed, trading structures to be
employed and investment activity
(including retail forex and swap
transactions) expected to be engaged in
by the offered pool.
(h) * * *
(1) * * *
(i) The approximate percentage of the
pool’s assets that will be used to trade
commodity interests, securities and
other types of interests, categorized by
type of commodity or market sector,
type of swap, type of security (debt,
equity, preferred equity), whether
traded or listed on a regulated exchange
market, maturity ranges and investment
rating, as applicable;
*
*
*
*
*
(i) * * *
(2) * * *
(xii) Any costs or fees included in the
spread between bid and asked prices for
retail forex or, if known, swap
transactions; and
*
*
*
*
*
(j) * * *
(1) * * *
(vi) Any other person providing
services to the pool, soliciting
participants for the pool, acting as a
counterparty to the pool’s retail forex or
swap transactions, or acting as a swap
dealer with respect to the pool.
*
*
*
*
*
(3) Included in the description of such
conflicts must be any arrangement
whereby a person may benefit, directly
or indirectly, from the maintenance of
the pool’s account with the futures
commission merchant and/or retail
foreign exchange dealer and/or from the
maintenance of the pool’s swap
positions with a swap dealer, or from
the introduction of the pool’s account to
a futures commission merchant and/or
retail foreign exchange dealer and/or
swap dealer by an introducing broker
(such as payment for order flow or soft
dollar arrangements) or from an
investment of pool assets in investee
pools or funds or other investments.
*
*
*
*
*
(l) * * *
(1) * * *
(iii) The pool’s futures commission
merchants and/or retail foreign
exchange dealers and/or swap dealers
and its introducing brokers, if any.
(2) With respect to a futures
commission merchant and/or retail
E:\FR\FM\05SER1.SGM
05SER1
Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations
foreign exchange dealer and/or swap
dealer or an introducing broker, an
action will be considered material if:
(i) The action would be required to be
disclosed in the notes to the futures
commission merchant’s, retail foreign
exchange dealer’s, swap dealer’s or
introducing broker’s financial
statements prepared pursuant to
generally accepted accounting
principles;
*
*
*
*
*
■ 6. Section 4.30 is revised to read as
follows:
§ 4.30
Prohibited activities.
(a) Except as provided in paragraph
(b) of this section, no commodity
trading advisor may solicit, accept or
receive from an existing or prospective
client funds, securities or other property
in the trading advisor’s name (or extend
credit in lieu thereof) to purchase,
margin, guarantee or secure any
commodity interest of the client.
(b) The prohibition in paragraph (a) of
this section shall not apply to:
(1) A futures commission merchant
that is registered as such under the Act;
(2) A leverage transaction merchant
that is registered as a commodity trading
advisor under the Act;
(3) A retail foreign exchange dealer
that is registered as such under the Act;
or
(4) A swap dealer that is registered as
such under the Act, with respect to
funds, securities or other property
accepted to purchase, margin, guarantee
or secure any swap that is not cleared
through a derivatives clearing
organization.
§ 4.32
[Removed and Reserved]
7. Section 4.32 is removed and
reserved.
■ 8. Section 4.33 is amended by:
■ a. Revising paragraph (a)(6); and
■ b. Revising paragraph (b)(1), to read as
follows:
■
§ 4.33
Recordkeeping.
mstockstill on DSK4VPTVN1PROD with RULES
*
*
*
*
*
(a) * * *
(6) Copies of each confirmation or
acknowledgment of a commodity
interest transaction, and each purchase
and sale statement and each monthly
statement received from a futures
commission merchant, a retail foreign
exchange dealer or a swap dealer.
*
*
*
*
*
(b) * * *
(1) An itemized daily record of each
commodity interest transaction of the
commodity trading advisor, showing the
transaction date, quantity, commodity
interest, and, as applicable, price or
VerDate Mar<15>2010
17:01 Sep 04, 2012
Jkt 226001
premium, delivery month or expiration
date, whether a put or a call, strike
price, underlying contract for future
delivery or underlying physical, swap
type and counterparty, the futures
commission merchant and/or retail
foreign exchange dealer carrying the
account and the introducing broker, if
any, whether the commodity interest
was purchased, sold (including, in the
case of a retail forex transaction, offset),
exercised, expired (including, in the
case of a retail forex transaction,
whether it was rolled forward), and the
gain or loss realized; Provided, however,
that if the trading advisor is a
counterparty to a swap, it must comply
with the swap data recordkeeping and
reporting requirements of Part 45 of this
chapter, as applicable.
*
*
*
*
*
■ 9. Section 4.34 is amended by:
■ a. Revising paragraph (g);
■ b. Revising paragraph (i)(2);
■ c. Revising paragraph (j)(3); and
■ d. Revising paragraphs (k)(1)(iii),
(k)(2) introductory text and (k)(2)(i), to
read as follows:
§ 4.34
General disclosures required.
*
*
*
*
*
(g) Principal risk factors. A discussion
of the principal risk factors of this
trading program. This discussion must
include, without limitation, risks due to
volatility, leverage, liquidity, and
counterparty creditworthiness, as
applicable to the trading program and
the types of transactions and investment
activity expected to be engaged in
pursuant to such program (including
retail forex and swap transactions, if
any).
*
*
*
*
*
(i) * * *
(2) Where any fee is determined by
reference to a base amount including,
but not limited to, ‘‘net assets,’’ ‘‘gross
profits,’’ ‘‘net profits,’’ ‘‘net gains,’’
‘‘pips’’ or ‘‘bid-asked spread,’’ the
trading advisor must explain how such
base amount will be calculated. Where
any fee is based on the difference
between bid and asked prices on retail
forex or swap transactions, the trading
advisor must explain how such fee will
be calculated;
*
*
*
*
*
(j) * * *
(3) Included in the description of any
such conflict must be any arrangement
whereby the trading advisor or any
principal thereof may benefit, directly
or indirectly, from the maintenance of
the client’s commodity interest account
with a futures commission merchant
and/or retail foreign exchange dealer,
and/or from the maintenance of the
PO 00000
Frm 00007
Fmt 4700
Sfmt 4700
54359
client’s swap positions with a swap
dealer or from the introduction of such
account through an introducing broker
(such as payment for order flow or soft
dollar arrangements).
(k) * * *
(1) * * *
(iii) Any introducing broker through
which the client will be required to
introduce its account to the futures
commission merchant and/or retail
foreign exchange dealer and/or swap
dealer.
(2) With respect to a futures
commission merchant, retail foreign
exchange dealer, swap dealer or
introducing broker, an action will be
considered material if:
(i) The action would be required to be
disclosed in the notes to the futures
commission merchant’s, retail foreign
exchange dealer’s, swap dealer’s or
introducing broker’s financial
statements prepared pursuant to
generally accepted accounting
principles;
*
*
*
*
*
Dated: Issued in Washington, DC, on
August 23, 2012, by the Commission.
Sauntia S. Warfield,
Assistant Secretary of the Commission.
Appendices to Amendments to
Commodity Pool Operator and
Commodity Trading Advisor
Regulations Resulting From the DoddFrank Act—Commission Voting
Summary and Statements of
Commissioners
Note: The following appendices will not
appear in the Code of Federal Regulations.
Appendix 1—Commission Voting
Summary
On this matter, Chairman Gensler and
Commissioners Sommers, Chilton, O’Malia
and Wetjen voted in the affirmative; no
Commissioner voted in the negative.
Appendix 2—Statement of Chairman
Gary Gensler
I support the final rule to amend certain
provisions of Part 4 of the Commission’s
regulations regarding the operations and
activities of commodity pool operators
(CPOs) and commodity trading advisors
(CTAs). The amendments ensure that CFTC
regulations with regard to CPOs and CTAs
reflect changes made to the Commodity
Exchange Act by the Dodd-Frank Wall Street
Reform and Consumer Protection Act (DoddFrank Act).
Consistent with Dodd-Frank’s expansion of
the CPO and CTA definitions to include
those involved in swaps and advising on
swaps, the final amendments require swaps
information to be included in the disclosure,
reporting and recordkeeping obligations that
currently exist for CPOs and CTAs under Part
4. Such information will enhance customer
E:\FR\FM\05SER1.SGM
05SER1
54360
Federal Register / Vol. 77, No. 172 / Wednesday, September 5, 2012 / Rules and Regulations
protections by increasing the transparency of
CPO and CTA swap activities to their pool
participants and clients.
[FR Doc. 2012–21606 Filed 9–4–12; 8:45 am]
BILLING CODE 6351–01–P
DEPARTMENT OF COMMERCE
Patent and Trademark Office
37 CFR Parts 1 and 41
[PTO–C–2011–0007]
RIN 0651–AC55
CPI Adjustment of Patent Fees for
Fiscal Year 2013
United States Patent and
Trademark Office, Commerce.
ACTION: Final rule.
AGENCY:
The United States Patent and
Trademark Office (Office or USPTO) is
adjusting certain patent fee amounts for
fiscal year 2013 to reflect fluctuations in
the Consumer Price Index (CPI). The
patent statute provides for the annual
CPI adjustment of patent fees set by
statute to recover the higher costs
associated with doing business as
reflected by the CPI.
DATES: This final rule is effective on
October 5, 2012.
FOR FURTHER INFORMATION CONTACT:
Gilda Lee by email at
Gilda.Lee@uspto.gov, by telephone at
(571) 272–8698, or by fax at (571) 273–
8698.
SUPPLEMENTARY INFORMATION:
mstockstill on DSK4VPTVN1PROD with RULES
SUMMARY:
Executive Summary
Purpose: Section 41(f) of Title 35 of
the United States Code provides the
USPTO with the authority to adjust
certain statutory patent fees to reflect
fluctuations during the preceding
twelve months in the Consumer Price
Index (CPI). The purpose of this
provision is to allow the USPTO to
recover higher costs of providing
services as reflected by the CPI. This
final rule sets forth which fees will be
adjusted and how the adjustment is
calculated based on the current
fluctuation in the CPI over the twelve
months preceding this notice.
Summary of Major Provisions: The
USPTO is adjusting certain patent fees
in accordance with 35 U.S.C. 41(f), as
amended by the Consolidated
Appropriations Act (Pub. L. 108–447,
118 Stat. 2809 (2004)) and the LeahySmith America Invents Act (Pub. L.
112–29). The fee increase helps the
USPTO to meet its strategic goals and
maintain effective and efficient
operation of the patent system.
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17:01 Sep 04, 2012
Jkt 226001
Costs and Benefits: This rulemaking is
not economically significant as that
term is defined in Executive Order
12866 (Sept. 30, 1993).
Background
Statutory Provisions: Patent fees are
set by or under the authority provided
in 35 U.S.C. 41, 119, 120, 132(b), 156,
157(a), 255, 302, 311, 376, section
532(a)(2) of the Uruguay Round
Agreements Act (URAA) (Pub. L. 103–
465, § 532(a)(2), 108 Stat. 4809, 4985
(1994)), and section 4506 of the
American Inventors Protection Act of
1999 (AIPA) (Pub. L. 106–113, 113 Stat.
1501, 1501A–565 (1999)). For fees paid
under 35 U.S.C. 41(a) and (b) and
132(b), independent inventors, small
business concerns, and nonprofit
organizations who meet the
requirements of 35 U.S.C. 41(h)(1) are
entitled to a fifty-percent reduction.
The USPTO published a notice
proposing to adjust the patent fees
charged under 35 U.S.C. 41(a) and (b)
for fiscal year 2013 to reflect
fluctuations in the CPI on May 14, 2012.
The fiscal year 2005 Consolidated
Appropriations Act (section 801 of
Division B) provided that 35 U.S.C.
41(a), (b), and (d) shall be administered
in a manner that revises patent
application fees (35 U.S.C. 41(a)) and
patent maintenance fees (35 U.S.C.
41(b)), and provides for a separate filing
fee (35 U.S.C. 41(a)), search fee (35
U.S.C. 41(d)(1)), and examination fee
(35 U.S.C. 41(a)(3)) during fiscal years
2005 and 2006. See Public Law 108–
447, 118 Stat. 2809, 2924–30 (2004). The
Omnibus Appropriations Act, 2009,
extended the patent and trademark fee
provisions of the fiscal year 2005
Consolidated Appropriations Act
through September 30, 2011. See Public
Law 112–4, 125 Stat. 6 (2011); Public
Law 111–322, 124 Stat. 3518 (2010);
Public Law 111–317, 124 Stat. 3454
(2010); Public Law 111–290, 124 Stat.
3063 (2010); Public Law 111–242, 124
Stat. 2607 (2010); Public Law 111–224,
124 Stat. 2385 (2010); Public Law 111–
117, 123 Stat. 3034 (2009); Public Law
111–8, 123 Stat. 524 (2009); Public Law
111–6, 123 Stat. 522 (2009); Public Law
111–5, 123 Stat. 115 (2009); Public Law
110–329, 122 Stat. 3574 (2008); Public
Law 110–161, 121 Stat. 1844 (2007);
Public Law 110–149, 121 Stat. 1819
(2007); Public Law 110–137, 121 Stat.
1454 (2007); Public Law 110–116, 121
Stat. 1295 (2007); Public Law 110–92,
121 Stat. 989 (2007); Public Law 110–5,
121 Stat. 8 (2007); Public Law 109–383,
120 Stat. 2678 (2006); Public Law 109–
369, 120 Stat. 2642 (2006); and Public
Law 109–289, 120 Stat. 1257 (2006). The
Leahy-Smith America Invents Act,
PO 00000
Frm 00008
Fmt 4700
Sfmt 4700
enacted September 16, 2011, codified
the patent and trademark fee provisions
of the fiscal year 2005 Consolidated
Appropriations Act.
Section 11 of the Leahy-Smith
America Invents Act provides for a
surcharge of fifteen percent, rounded by
standard arithmetic rules, on all fees
charged or authorized by 35 U.S.C.
41(a), (b), and (d)(1), as well as by 35
U.S.C. 132(b). Section 11 of the Act
provides that this fifteen percent
surcharge is effective ten days after the
date of enactment (i.e., September 26,
2011). Section 11 also provides that this
fifteen percent surcharge shall
terminate, with respect to a fee to which
the surcharge applies, on the effective
date of the setting or adjustment of that
fee pursuant to the exercise of the
authority under section 10 of the Act for
the first time with respect to that fee.
Section 10 fee-setting will be
implemented in a future separate
rulemaking.
As for this rulemaking, Section 41(f)
of Title 35, United States Code, provides
that fees established under 35 U.S.C.
41(a) and (b) may be adjusted on
October 1, 1992, and every year
thereafter, to reflect fluctuations in the
Consumer Price Index over the previous
twelve months. If the annual change in
CPI is one percent or less, no fee
adjustment for CPI fluctuations will be
pursued.
This CPI increase will be
implemented on October 1, 2012. This
interim increase in fees is necessary to
allow the USPTO to meet its strategic
goals within the time frame outlined in
the FY 2013 President’s Budget. The
interim fee increase is a bridge to
provide resources until the USPTO
exercises its fee-setting authority and
develops a new fee structure that will
provide sufficient financial resources in
the long term. An adequately funded
USPTO will optimize the administration
of the U.S. intellectual property system,
and thereby move innovation to the
marketplace more quickly, creating and
sustaining U.S. jobs and enhancing the
health and living standards of
Americans.
Fee Adjustment Level: The patent
statutory fees established by 35 U.S.C.
41(a) and (b) are adjusted to reflect the
most recent fluctuations occurring
during the twelve-month period prior to
publication of the final rule
implementing this CPI adjustment, as
measured by the Consumer Price Index
for All Urban Consumers (CPI–U). The
Office of Management and Budget
(OMB) has advised that in calculating
these fluctuations, the USPTO should
use CPI–U data as determined by the
Secretary of Labor, which is found at
E:\FR\FM\05SER1.SGM
05SER1
]]>Agencies
[Federal Register Volume 77, Number 172 (Wednesday, September 5, 2012)]
[Rules and Regulations]
[Pages 54355-54360]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21606]
[[Page 54355]]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AD49
Amendments to Commodity Pool Operator and Commodity Trading
Advisor Regulations Resulting From the Dodd-Frank Act
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (Commission) is
amending its regulations governing the operations and activities of
commodity pool operators (CPOs) and commodity trading advisors (CTAs)
in order to have those regulations reflect changes made to the
Commodity Exchange Act (CEA) by the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act).
DATES: Effective Date: November 5, 2012.
FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Associate Director,
or Christopher W. Cummings, Special Counsel, Division of Swap Dealer
and Intermediary Oversight, 1155 21st Street NW., Washington, DC 20581.
Telephone number: 202-418-6700 and electronic mail: bgold@cftc.gov or
ccummings@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Dodd-Frank Act
On July 21, 2010, President Obama signed the Dodd-Frank Act.\1\
Title VII of the Dodd-Frank Act \2\ amended the CEA \3\ to establish a
comprehensive new regulatory framework for swaps and security-based
swaps. The goal of this legislation was to reduce risk, increase
transparency, and promote market integrity within the financial system
by, among other things: (1) Providing for the registration and
comprehensive regulation of swap dealers (SDs) and major swap
participants (MSPs); (2) imposing clearing and trade execution
requirements on standardized derivative products; (3) creating robust
recordkeeping and real-time reporting regimes; and (4) enhancing the
Commission's rulemaking and enforcement authorities with respect to,
among others, all registered entities and intermediaries subject to the
oversight of the Commission. Among the changes made by the Dodd-Frank
Act to the CEA were to include within the CPO definition the operator
of a collective investment vehicle that trades swaps, and to include
within the CTA definition a person who provides advice concerning
swaps.\4\
---------------------------------------------------------------------------
\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 through the Commission's Web site,
www.cftc.gov.
\2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\3\ 7 U.S.C. 1 et seq. (2006). The Commission's regulations are
found at 17 CFR part 1 et seq. (2012). Both the CEA and the
Commission's regulations also may be accessed through the
Commission's Web site.
\4\ See Section 721(a) of the Dodd-Frank Act, which re-organized
(and in some cases amended) existing definitions in, and added new
definitions to, Section 1a of the CEA. The CPO and CTA definitions,
as amended, are codified at CEA sections 1a(11) and 1a(12),
respectively.
---------------------------------------------------------------------------
B. The Proposed Amendments to Part 4
Part 4 of the Commission's regulations sets forth a comprehensive
regulatory framework for the operations and activities of CPOs and
CTAs. It includes disclosure, reporting and recordkeeping requirements
for registered CPOs and CTAs, registration and compliance exemptions
for CPOs and CTAs, and other provisions, including anti-fraud
provisions, applicable to CPOs and CTAs, regardless of registration
status. To ensure that the Part 4 regulations applied to CPOs and CTAs
in the context of these intermediaries' involvement with swap
transactions, on March 3, 2011, the Commission proposed certain
amendments to Part 4 (Proposal).\5\
---------------------------------------------------------------------------
\5\ 76 FR 11701.
---------------------------------------------------------------------------
As the Commission explained in the Proposal, because many of the
existing Part 4 regulations generally applied to CPOs and CTAs, they
would continue to be applicable to CPOs and CTAs with respect to their
swap activities without the need for amendment thereto. The Commission
noted that in other instances, however, the text of certain existing
Part 4 regulations was specific to activities involving futures
contracts, commodity options, and off-exchange retail foreign currency
(``commodity interests''), and it did not include, refer to or
otherwise take account of swap activities. As the Commission stated:
``The Proposal [was] intended to clarify and ensure that the
requirements governing the operations and activities of CPOs and CTAs
continue to apply for these intermediaries in the context of their
involvement with swap transactions.'' \6\ Accordingly, the Commission
proposed to amend Regulations 4.7, 4.10, 4.22, 4.23, 4.24 4.30, 4.33
and 4.34 to include in each of these regulations a reference to swaps
or swap activities.
---------------------------------------------------------------------------
\6\ 76 FR 11701. Part 4 applies to CPOs with respect to their
activities affecting pool participants and to CTAs with respect to
their activities affecting clients. Depending on the nature of its
activities, a CPO or CTA may also come within the definition of the
term ``swap dealer'' or ``major swap participant'' in new CEA
Section 1a(49) or 1a(33), respectively. As directed by the Dodd-
Frank Act, the Commission has adopted new regulations that establish
business conduct standards for SDs and MSPs. See 77 FR 9734 (Feb.
17, 2012). These new regulations apply to SDs and MSPs with respect
to the counterparties with whom they transact swap business, and
govern different activity than that to which the Part 4 regulations
apply.
---------------------------------------------------------------------------
II. Comments on the Proposal
The Commission received two comment letters on the Proposal,\7\
each of which supported the Proposal. One of these letters stated that
the Proposal ``should act to reduce risk and increase its transparency,
and promote market integrity by ensuring that all entities are
consistently regulated to the extent that their trading and other
activities pertain to swaps.'' \8\ The other letter urged the
Commission ``to work quickly and diligently on writing these rules and
putting them in place as soon as possible.'' \9\
---------------------------------------------------------------------------
\7\ These comment letters currently are available on the
Commission's Web site.
\8\ Comment letter from Chris Barnard (Mar. 29, 2011).
\9\ Comment letter from Kyle Vandergrift (Apr. 20, 2011).
---------------------------------------------------------------------------
III. The Final Regulations
In light of the supportive comments it received, with one exception
the Commission is adopting the amendments to the Part 4 regulations it
proposed. That exception concerns the proposed amendment to Regulation
4.10(a) that, for the purposes of Part 4, would have expanded the
definition of the term ``commodity interest'' to include ``swaps.''
This proposal was superseded by a proposed amendment to Regulation
1.3(yy) that, for the purposes of all of the Commission's regulations,
would define the term ``commodity interest'' to include ``swaps.'' \10\
Accordingly, the Commission is considering the proposed definition of
the term ``commodity interest'' in connection with its consideration of
the comment letters it received on its proposed amendment to Regulation
1.3(yy).
---------------------------------------------------------------------------
\10\ See 76 FR 33066, 33069-70 (June 7, 2011).
---------------------------------------------------------------------------
A. Adding ``Swap'' Terms to Part 4
As proposed, the Commission is inserting ``swap,'' ``swap
transaction'' or a similar term at various regulations throughout Part
4. See the amendments to Regulations 4.23(a)(1), 4.24(g), (h)(1), and
(i)(2) for CPOs and Regulations 4.34(g) and 4.34(i)(2) for CTAs. For
[[Page 54356]]
example, Regulation 4.23(a)(1) is being amended to include ``swap type
and counterparty'' in the itemized daily record that a CPO must make
and keep with respect to a pool's commodity interest transactions.
At other Part 4 regulations, the Commission has included as
proposed the term ``swap dealer'' among the persons for whom a CPO or
CTA must provide information in its Disclosure Document and for whom a
CPO must provide information in a pool's periodic Account Statement.
See the amendments to Regulations 4.22(a)(3), 4.24(j)(1), (j)(3),
(l)(1), and (l)(2) for CPOs and Regulations 4.34(j)(1), (j)(3), (k)(1)
and (k)(2) for CTAs. For example, Regulations 4.24(j) and 4.34(j) are
being amended to include SDs in the group of persons as to which
conflicts of interest must be disclosed by CPOs and CTAs.
Similarly, the Commission has included as proposed ``a registered
swap dealer'' among the persons listed in Regulation 4.7(a)(2) that do
not have to satisfy a portfolio requirement in order to be a qualified
eligible person (QEP), such that a CPO or CTA that has claimed relief
under Regulation 4.7 may accept the SD as a pool participant or
advisory client without regard to the size of its investment portfolio.
As the Commission explained, ``this would be consistent with the
current treatment of other financial intermediaries registered with the
Commission (such as futures commission merchants [FCMs] and retail
foreign exchange dealers [RFEDs]) as QEPs under Regulation 4.7(a)(2).''
\11\
---------------------------------------------------------------------------
\11\ 76 FR at 11702.
---------------------------------------------------------------------------
B. Including Books and Records Relating to Swap Transactions within
Part 4
The Commission has adopted as proposed amendments to Part 4 that
require a CPO or CTA to make and keep certain books and records
generated by the swap transactions in which it engages on behalf of not
only its pool participants and clients, but also itself. See the
amendments to Regulations 4.23(a)(7) and (b)(1) for CPOs and
Regulations 4.33(a)(6) and (b)(1) for CTAs. The amendments to
Regulations 4.23(a)(7) and 4.33(a)(6) require CPOs and CTAs to retain
each acknowledgment of a swap transaction received from an SD. The
amendments to Regulations 4.23(b)(1) and 4.33(b)(1) make clear that if
a CPO or CTA was a counterparty to a swap transaction, then it would be
subject to the swap data recordkeeping and reporting requirements of
Part 45 of the Commission's regulations, as applicable.\12\
---------------------------------------------------------------------------
\12\ See Regulation 45.2, which requires SDs and MSPs to keep
full, complete and systematic records, together with all pertinent
data and memoranda, of all activities relating to their business
with respect to swaps, as prescribed by the Commission. (Non-SD and
non-MSP counterparties subject to the Commission's jurisdiction have
a similar requirement, but only with respect to each swap to which
they are a counterparty.)
---------------------------------------------------------------------------
C. Regulation 4.30
Subject to certain exceptions, Regulation 4.30 provides that no CTA
may solicit, accept or receive from an existing or prospective client
funds, securities or other property in the trading advisor's name (or
extend credit in lieu thereof) to purchase, margin, guarantee or secure
any commodity interest of the client.
The Commission proposed to amend Regulation 4.30 by adding to the
list of intermediaries then excepted from the foregoing prohibition--
i.e., registered FCMs, leverage transaction merchants and RFEDs--a
registered SD in connection with a swap that was not cleared through a
derivatives clearing organization. The Commission explained that this
amendment to Regulation 4.30 was necessary ``[b]ecause swap dealers
will generally fall within the statutory definition of CTA, and because
a swap dealer engaging in uncleared swap transactions may be accepting
funds or other property from its counterparties as variation and
initial margin payments.'' \13\
---------------------------------------------------------------------------
\13\ 76 FR at 11702. In this regard, the Commission has proposed
regulations addressing the circumstances in which non-bank SDs may
be required or permitted to accept margin payments in uncleared swap
transactions. See 76 FR 23732 (Apr. 28, 2011). Accordingly, this
amendment to Regulation 4.30 should not be interpreted to impose or
authorize any such margin requirements.
---------------------------------------------------------------------------
Subsequently, the Commission amended Regulation 4.6 to provide
therein for an exclusion from the definition of the term ``commodity
trading advisor'' for an SD, provided the commodity interest and swap
advisory activities of the SD are solely incidental to the conduct of
its business as an SD.\14\ Because not all SDs may always meet the
``solely incidental'' proviso, the Commission has determined to amend
Regulation 4.30 as proposed, such that any registered SD who is a CTA
is not subject to the regulation's operational prohibition.
---------------------------------------------------------------------------
\14\ See 77 FR 9734, 9739-40 (Feb. 17, 2012).
---------------------------------------------------------------------------
D. Deleting Regulation 4.32
The Commission has deleted as proposed Regulation 4.32, which
concerned trading by a registered CTA on or subject to the rules of a
derivatives transaction execution facility (DTEF) for non-institutional
customers. As the Commission explained:
Section 734(a) of the Dodd-Frank Act repeals Section 5a of the
CEA, which is the section establishing and providing for the
regulation of DTEFs. Accordingly, because subsequent to the
effective date of the Dodd-Frank Act Regulation 4.32 will no longer
have a statutory basis or purpose, the Proposal would remove and
reserve Regulation 4.32.\15\
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\15\ 76 FR at 11702.
---------------------------------------------------------------------------
IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') \16\ requires federal
agencies to consider the impact of those rules on small businesses.\17\
A regulatory flexibility analysis or certification typically is
required for ``any rule for which the agency publishes a general notice
of proposed rulemaking pursuant to'' the notice-and-comment provisions
of the Administrative Procedure Act, 5 U.S.C. 553(b).\18\ The
amendments to the Part 4 regulations contained herein will affect CPOs
and CTAs. The Commission stated in the Proposal that:
---------------------------------------------------------------------------
\16\ 5 U.S.C. 601 et seq.
\17\ By its terms, the RFA does not apply to ``individuals.''
See 48 FR 14933, n. 115 (Apr. 6, 1983).
\18\ 5 U.S.C. 601(2), 603, 604 and 605.
With respect to CPOs, the Commission previously has determined
that a CPO is a small entity for the purpose of the RFA if it meets
the criteria for an exemption from registration under Regulation
4.13(a)(2). Thus, because the Proposal applies to registered CPOs,
the RFA is not applicable to it. As for CTAs, the Commission
previously has stated that it would evaluate within the context of a
particular rule proposal whether all or some affected CTAs would be
considered to be small entities and, if so, the economic impact on
them of the particular rule. In this regard, the Commission notes
that the Proposal applies to registered CTAs. Moreover, the Proposal
would not have a significant economic impact on any CPO or CTA who
would be affected thereby, because it would merely bring within the
current Part 4 regulatory structure of disclosure, reporting and
recordkeeping information with respect to swap activities. It would
not impose any additional operative requirements or otherwise direct
or confine the activities of CPOs and CTAs.\19\
---------------------------------------------------------------------------
\19\ 76 FR at 11703.
The Commission did not receive any comments regarding its RFA
analysis in the Proposal. Accordingly, pursuant to 5 U.S.C. 605(b), the
Chairman, on behalf of the Commission, certifies that the amendments to
the Part 4 regulations being published today by this Federal Register
release will not have a significant economic impact on a substantial
number of small entities.
[[Page 54357]]
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) \20\ imposes certain
requirements on Federal agencies (including the Commission) in
connection with their conducting or sponsoring any collection of
information as defined by the PRA. The amendments to the Part 4
regulations will not require any new collection of information from any
entity that is subject to them. Additionally, the Commission did not
receive any comments regarding its PRA analysis in the Proposal.
Accordingly, for purposes of the PRA, the Chairman, on behalf of the
Commission, certifies that the amendments to the Part 4 regulations
being published today by this Federal Register release will not impose
any new reporting or recordkeeping requirements.
---------------------------------------------------------------------------
\20\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------
C. Cost-Benefit Analysis
Prior to the passage of the Dodd-Frank Act, the Part 4 regulations
did not apply to swap-related activities. This pre-Dodd-Frank Act
construct provides a useful reference point from which to compare the
costs and benefits of the proposed regulations to the alternative where
the Commission would not be taking any action to incorporate swap-
related information into Part 4.
As a result of the Dodd-Frank Act including swap-related activities
among the activities on which the CPO and CTA definitions are based,
CPOs and CTAs who engage in swap-related activities are now subject to
Part 4. In various places, however, the wording of particular
provisions of Part 4 was incomplete or inconsistent in the context of
CPOs and CTAs involved with swap transactions; there is no regulatory
need for the prohibition in Regulation 4.30 against directly accepting
margin payments to apply to an SD; and the subject matter of Regulation
4.32 (trading on DTEFs) was rendered moot by the Dodd-Frank Act. Under
such a scenario, the costs to the public of inaction would be, in
qualitative terms, failure to receive Part 4 disclosure, reporting and
recordkeeping protections from their CPOs and CTAs with regard to their
swap activities, an unnecessary burden on SDs, and regulatory text that
is obsolete. The costs of these amendments, if any, will be minimal--
limited to the costs associated with including information related to
swaps in the Disclosure Documents, Account Statements and books and
records already required of CPOs and CTAs under existing Part 4
regulations. Moreover, this information should be readily available to
CPOs and CTAs. The costs cannot be feasibly quantified or estimated,
because they will vary according to each registrant's internal
processes and registration category. In contrast, the amendments will
yield significant if unquantifiable benefit to the public, relative to
inaction, by clarifying the application of Part 4 and the obligations
of CPOs and CTAs to their participants and clients, respectively.
In the CEA,\21\ Congress provided the Commission with the authority
to promulgate regulations that, among other things, are reasonably
necessary to effectuate any of the provisions or to accomplish any of
the purposes of the CEA. In accordance with Section 15(a) of the CEA,
it is in this post-Dodd-Frank Act environment that the Commission
considers the costs and benefits of its actions before promulgating a
regulation under the CEA or issuing an order.
---------------------------------------------------------------------------
\21\ See 7 U.S.C. 12(a)(5).
---------------------------------------------------------------------------
Section 15(a) specifies that the costs and benefits shall be
evaluated in light of the following five broad areas of market and
public concern: (1) Protection of market participants and the public;
(2) efficiency, competitiveness, and financial integrity of futures
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations.
In light of the provisions of the Dodd-Frank Act that expand the
``commodity pool operator'' and ``commodity trading advisor''
definitions to include swap-related activities, these amendments
incorporate into the existing Part 4 framework regulations to take
account of the swap-related activities of CPOs and CTAs. Specifically,
the amendments subject CPOs and CTAs when involved with swap
transactions to the same Part 4 requirements that apply when they are
involved with commodity interest transactions, to the extent
regulations in place at the time of the enactment of the Dodd-Frank Act
did not clearly do so.\22\ The revision to Regulation 4.30 excepts SDs
from the prohibition on accepting margin to treat them equivalently
with FCMs and RFEDs. In addition, these amendments delete Regulation
4.32, pertaining to trading by registered CTAs on DTEFs, given the
repeal by the Dodd-Frank Act of CEA Section 5a, which authorized such
trading facilities.
---------------------------------------------------------------------------
\22\ As is explained above, when the Dodd-Frank Act extended the
statutory definitions of the terms ``commodity pool operator'' and
``commodity trading advisor,'' those existing Part 4 regulations
that applied generally to CPOs and CTAs became applicable to CPOs
and CTAs captured by the expanded statutory definitions, without
further amendment. Certain other existing Part 4 regulations,
however, spoke specifically to activities involving commodity
interests, but not to swap activities. Accordingly, this rulemaking
amends this latter subset of Part 4 regulations by making them
applicable to swap activities, thus closing the regulatory gap that
would otherwise exist.
---------------------------------------------------------------------------
In the Proposal the Commission sought public comment on the costs
and benefits of its contemplated amendments to Part 4.\23\ The
Commission did not receive any comments in response to this request.
---------------------------------------------------------------------------
\23\ 76 FR 11701, 11703.
---------------------------------------------------------------------------
Section 15(a) Factors
(1) Protection of market participants and the public.
The Commission believes the amendments to the Part 4 regulations
will provide protection to market participants and the public by
requiring CPOs and CTAs to include information on swap intermediaries
and activities in the disclosure, reporting and recordkeeping framework
under Part 4. For example, Regulation 4.24(j) has provided protections
to commodity pool participants by requiring their CPO to disclose any
actual or potential conflict of interest with any FCM with whom their
pool was required to maintain its account. The amendment to Regulation
4.24(j) the Commission has adopted will provide similar protections, by
requiring the CPO to disclose any actual or potential conflict of
interest with any SD with whom their pool maintains its swap positions.
(2) Efficiency, competitiveness, and financial integrity of the
futures markets.
The Commission does not expect the amendments to Part 4 to have an
impact on the efficiency, competitiveness and financial integrity of
the commodity interest markets.
(3) Price Discovery.
The Commission does not expect the amendments to Part 4 to have an
impact on the market's price discovery functions.
(4) Sound risk management practices.
The Commission does not expect the amendments to Part 4 to have an
impact on risk management practices by CPOs, CTAs and other Commission
registrants. However, the requirement that CPOs and CTAs account for
SD, MSP and swap activities when complying with their disclosure,
reporting and recordkeeping requirements under Part 4 will benefit
prospective and actual pool participants and clients by ensuring that
these participants and clients are afforded the same customer
protections as participants and clients
[[Page 54358]]
in all other commodity pools and managed account programs.
(5) Other public interest considerations.
The Commission has not identified any other public interest
considerations regarding the costs and benefits of the amendments to
Part 4.
List of Subjects in 17 CFR Part 4
Advertising, Brokers, Commodity futures, Commodity pool operators,
Commodity trading advisors, Customer protection, Reporting and
recordkeeping requirements, Swaps.
For the reasons presented above, the Commission hereby amends
Chapter I of Title 17 of the Code of Federal Regulations as follows:
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
0
1. The authority citation for Part 4 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6l, 6m, 6n, 6o, 12a and 23,
as amended by Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (July 21,
2010).
0
2. Section 4.7 is amended by adding paragraph (a)(2)(i)(C) to read as
follows:
Sec. 4.7 Exemption from certain part 4 requirements for commodity
pool operators with respect to offerings to qualified eligible persons
and for commodity trading advisors with respect to advising qualified
eligible persons.
* * * * *
(a) * * *
(2) * * *
(i) * * *
(C) A swap dealer registered pursuant to section 4s(a)(1) of the
Act, or a principal thereof;
* * * * *
0
3. Section 4.22 is amended by revising paragraph (a)(3) to read as
follows:
Sec. 4.22 Reporting to pool participants.
(a) * * *
(3) The Account Statement must also disclose any material business
dealings between the pool, the pool's operator, commodity trading
advisor, futures commission merchant, retail foreign exchange dealer,
swap dealer, or the principals thereof that previously have not been
disclosed in the pool's Disclosure Document or any amendment thereto,
other Account Statements or Annual Reports.
* * * * *
0
4. Section 4.23 is amended by:
0
a. Revising paragraphs (a)(1) and (a)(7); and
0
b. Revising paragraph (b)(1), to read as follows:
Sec. 4.23 Recordkeeping.
* * * * *
(a) * * *
(1) An itemized daily record of each commodity interest transaction
of the pool, showing the transaction date, quantity, commodity
interest, and, as applicable, price or premium, delivery month or
expiration date, whether a put or a call, strike price, underlying
contract for future delivery or underlying physical, swap type and
counterparty, the futures commission merchant and/or retail foreign
exchange dealer carrying the account and the introducing broker, if
any, whether the commodity interest was purchased, sold (including, in
the case of a retail forex transaction, offset), exercised, expired
(including, in the case of a retail forex transaction, whether it was
rolled forward), and the gain or loss realized.
* * * * *
(7) Copies of each confirmation or acknowledgment of a commodity
interest transaction of the pool, and each purchase and sale statement
and each monthly statement for the pool received from a futures
commission merchant, retail foreign exchange dealer or swap dealer.
* * * * *
(b) * * *
(1) An itemized daily record of each commodity interest transaction
of the commodity pool operator and each principal thereof, showing the
transaction date, quantity, commodity interest, and, as applicable,
price or premium, delivery month or expiration date, whether a put or a
call, strike price, underlying contract for future delivery or
underlying physical, swap type and counterparty, the futures commission
merchant or retail foreign exchange dealer carrying the account and the
introducing broker, if any, whether the commodity interest was
purchased, sold, exercised, or expired, and the gain or loss realized;
Provided, however, that if the pool operator is a counterparty to a
swap, it must comply with the swap data recordkeeping and reporting
requirements of Part 45 of this chapter, as applicable.
* * * * *
0
5. Section 4.24 is amended by:
0
a. Revising paragraph (g);
0
b. Revising paragraph (h)(1)(i);
0
c. Revising paragraph (i)(2)(xii);
0
d. Revising paragraphs (j)(1)(vi) and (j)(3); and
0
e. Revising paragraphs (l)(1)(iii), (l)(2) introductory text and
(l)(2)(i), to read as follows:
Sec. 4.24 General disclosures required.
* * * * *
(g) Principal risk factors. A discussion of the principal risk
factors of participation in the offered pool. This discussion must
include, without limitation, risks relating to volatility, leverage,
liquidity, counterparty creditworthiness, as applicable to the types of
trading programs to be followed, trading structures to be employed and
investment activity (including retail forex and swap transactions)
expected to be engaged in by the offered pool.
(h) * * *
(1) * * *
(i) The approximate percentage of the pool's assets that will be
used to trade commodity interests, securities and other types of
interests, categorized by type of commodity or market sector, type of
swap, type of security (debt, equity, preferred equity), whether traded
or listed on a regulated exchange market, maturity ranges and
investment rating, as applicable;
* * * * *
(i) * * *
(2) * * *
(xii) Any costs or fees included in the spread between bid and
asked prices for retail forex or, if known, swap transactions; and
* * * * *
(j) * * *
(1) * * *
(vi) Any other person providing services to the pool, soliciting
participants for the pool, acting as a counterparty to the pool's
retail forex or swap transactions, or acting as a swap dealer with
respect to the pool.
* * * * *
(3) Included in the description of such conflicts must be any
arrangement whereby a person may benefit, directly or indirectly, from
the maintenance of the pool's account with the futures commission
merchant and/or retail foreign exchange dealer and/or from the
maintenance of the pool's swap positions with a swap dealer, or from
the introduction of the pool's account to a futures commission merchant
and/or retail foreign exchange dealer and/or swap dealer by an
introducing broker (such as payment for order flow or soft dollar
arrangements) or from an investment of pool assets in investee pools or
funds or other investments.
* * * * *
(l) * * *
(1) * * *
(iii) The pool's futures commission merchants and/or retail foreign
exchange dealers and/or swap dealers and its introducing brokers, if
any.
(2) With respect to a futures commission merchant and/or retail
[[Page 54359]]
foreign exchange dealer and/or swap dealer or an introducing broker, an
action will be considered material if:
(i) The action would be required to be disclosed in the notes to
the futures commission merchant's, retail foreign exchange dealer's,
swap dealer's or introducing broker's financial statements prepared
pursuant to generally accepted accounting principles;
* * * * *
0
6. Section 4.30 is revised to read as follows:
Sec. 4.30 Prohibited activities.
(a) Except as provided in paragraph (b) of this section, no
commodity trading advisor may solicit, accept or receive from an
existing or prospective client funds, securities or other property in
the trading advisor's name (or extend credit in lieu thereof) to
purchase, margin, guarantee or secure any commodity interest of the
client.
(b) The prohibition in paragraph (a) of this section shall not
apply to:
(1) A futures commission merchant that is registered as such under
the Act;
(2) A leverage transaction merchant that is registered as a
commodity trading advisor under the Act;
(3) A retail foreign exchange dealer that is registered as such
under the Act; or
(4) A swap dealer that is registered as such under the Act, with
respect to funds, securities or other property accepted to purchase,
margin, guarantee or secure any swap that is not cleared through a
derivatives clearing organization.
Sec. 4.32 [Removed and Reserved]
0
7. Section 4.32 is removed and reserved.
0
8. Section 4.33 is amended by:
0
a. Revising paragraph (a)(6); and
0
b. Revising paragraph (b)(1), to read as follows:
Sec. 4.33 Recordkeeping.
* * * * *
(a) * * *
(6) Copies of each confirmation or acknowledgment of a commodity
interest transaction, and each purchase and sale statement and each
monthly statement received from a futures commission merchant, a retail
foreign exchange dealer or a swap dealer.
* * * * *
(b) * * *
(1) An itemized daily record of each commodity interest transaction
of the commodity trading advisor, showing the transaction date,
quantity, commodity interest, and, as applicable, price or premium,
delivery month or expiration date, whether a put or a call, strike
price, underlying contract for future delivery or underlying physical,
swap type and counterparty, the futures commission merchant and/or
retail foreign exchange dealer carrying the account and the introducing
broker, if any, whether the commodity interest was purchased, sold
(including, in the case of a retail forex transaction, offset),
exercised, expired (including, in the case of a retail forex
transaction, whether it was rolled forward), and the gain or loss
realized; Provided, however, that if the trading advisor is a
counterparty to a swap, it must comply with the swap data recordkeeping
and reporting requirements of Part 45 of this chapter, as applicable.
* * * * *
0
9. Section 4.34 is amended by:
0
a. Revising paragraph (g);
0
b. Revising paragraph (i)(2);
0
c. Revising paragraph (j)(3); and
0
d. Revising paragraphs (k)(1)(iii), (k)(2) introductory text and
(k)(2)(i), to read as follows:
Sec. 4.34 General disclosures required.
* * * * *
(g) Principal risk factors. A discussion of the principal risk
factors of this trading program. This discussion must include, without
limitation, risks due to volatility, leverage, liquidity, and
counterparty creditworthiness, as applicable to the trading program and
the types of transactions and investment activity expected to be
engaged in pursuant to such program (including retail forex and swap
transactions, if any).
* * * * *
(i) * * *
(2) Where any fee is determined by reference to a base amount
including, but not limited to, ``net assets,'' ``gross profits,'' ``net
profits,'' ``net gains,'' ``pips'' or ``bid-asked spread,'' the trading
advisor must explain how such base amount will be calculated. Where any
fee is based on the difference between bid and asked prices on retail
forex or swap transactions, the trading advisor must explain how such
fee will be calculated;
* * * * *
(j) * * *
(3) Included in the description of any such conflict must be any
arrangement whereby the trading advisor or any principal thereof may
benefit, directly or indirectly, from the maintenance of the client's
commodity interest account with a futures commission merchant and/or
retail foreign exchange dealer, and/or from the maintenance of the
client's swap positions with a swap dealer or from the introduction of
such account through an introducing broker (such as payment for order
flow or soft dollar arrangements).
(k) * * *
(1) * * *
(iii) Any introducing broker through which the client will be
required to introduce its account to the futures commission merchant
and/or retail foreign exchange dealer and/or swap dealer.
(2) With respect to a futures commission merchant, retail foreign
exchange dealer, swap dealer or introducing broker, an action will be
considered material if:
(i) The action would be required to be disclosed in the notes to
the futures commission merchant's, retail foreign exchange dealer's,
swap dealer's or introducing broker's financial statements prepared
pursuant to generally accepted accounting principles;
* * * * *
Dated: Issued in Washington, DC, on August 23, 2012, by the
Commission.
Sauntia S. Warfield,
Assistant Secretary of the Commission.
Appendices to Amendments to Commodity Pool Operator and Commodity
Trading Advisor Regulations Resulting From the Dodd-Frank Act--
Commission Voting Summary and Statements of Commissioners
Note: The following appendices will not appear in the Code of
Federal Regulations.
Appendix 1--Commission Voting Summary
On this matter, Chairman Gensler and Commissioners Sommers,
Chilton, O'Malia and Wetjen voted in the affirmative; no
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the final rule to amend certain provisions of Part 4
of the Commission's regulations regarding the operations and
activities of commodity pool operators (CPOs) and commodity trading
advisors (CTAs). The amendments ensure that CFTC regulations with
regard to CPOs and CTAs reflect changes made to the Commodity
Exchange Act by the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).
Consistent with Dodd-Frank's expansion of the CPO and CTA
definitions to include those involved in swaps and advising on
swaps, the final amendments require swaps information to be included
in the disclosure, reporting and recordkeeping obligations that
currently exist for CPOs and CTAs under Part 4. Such information
will enhance customer
[[Page 54360]]
protections by increasing the transparency of CPO and CTA swap
activities to their pool participants and clients.
[FR Doc. 2012-21606 Filed 9-4-12; 8:45 am]
BILLING CODE 6351-01-P
