Commodity Pool Operators, Commodity Trading Advisors, and Commodity Pools Operated: Updating the `Qualified Eligible Person' Definition; Adding Minimum Disclosure Requirements for Pools and Trading Programs; Permitting Monthly Account Statements for Funds of Funds; Technical Amendments, 78793-78815 [2024-21682]

Agencies

• Commodity Futures Trading Commission

[Federal Register Volume 89, Number 187 (Thursday, September 26, 2024)]
[Rules and Regulations]
[Pages 78793-78815]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-21682]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 1, 3, 4, 30, 43, and 75

RIN 3038-AF25


Commodity Pool Operators, Commodity Trading Advisors, and 
Commodity Pools Operated: Updating the `Qualified Eligible Person' 
Definition; Adding Minimum Disclosure Requirements for Pools and 
Trading Programs; Permitting Monthly Account Statements for Funds of 
Funds; Technical Amendments

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is adopting amendments to certain provisions of its regulations (the 
Final Rule) that would update the Portfolio Requirement thresholds 
within the ``Qualified Eligible Person'' definition; include revisions 
that are consistent with long-standing Commission exemptive letters 
addressing the timing of certain pools' periodic financial reporting; 
and make several technical amendments related to the structure of the 
regulations that are the subject of this Final Rule.

DATES: 
    Effective date: This rule is effective November 25, 2024.
    Compliance date: Commodity pool operators (CPOs) and commodity 
trading advisors (CTAs) must comply with the increased Portfolio 
Requirement thresholds in Commission regulation Sec.  4.7(a) by March 
26, 2025. The optional monthly account statement reporting schedule for 
certain Sec.  4.7 pools in Commission regulation Sec.  4.7(b)(3)(iv) is 
available to CPOs as of the effective date, and compliance is required 
upon election of that schedule by the CPO.

FOR FURTHER INFORMATION CONTACT: Amanda L. Olear, Director, 202-418-
5283 or [email protected]; Pamela M. Geraghty, Acting Deputy Director, 
202-418-5634 or [email protected]; Elizabeth Groover, Acting Associate 
Director, 202-418-5985 or [email protected]; or Andrew Ruggiero, 
Special Counsel, 202-418-5712 or [email protected]; each in the Market 
Participants Division at the Commodity Futures Trading Commission, 
Three Lafayette Centre, 1155 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction and Background
II. The Final Rule
    A. General Overview of Comments Received
    B. Minimum QEP Disclosure Requirements Under Commission 
Regulation Sec.  4.7
    C. Updating Financial Thresholds in the Portfolio Requirement of 
the ``Qualified Eligible Person'' Definition
    D. Permitting Monthly Account Statements for Certain 4.7 Pools 
Consistent With Commission Exemptive Letters
    E. Other Technical Amendments
    F. Effective and Compliance Dates for the Final Rule
III. Related Matters
    A. Regulatory Flexibility Act
    B. Paperwork Reduction Act
    C. Cost-Benefit Considerations
    D. Antitrust Considerations

I. Introduction and Background

    As amended by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act),\1\ section 1a(11) of the Commodity 
Exchange Act (CEA or Act) defines the term ``commodity pool operator'' 
as any person engaged in a business that is of the nature of a 
commodity pool, investment trust, syndicate, or similar form of 
enterprise, and who, with respect to that commodity pool, solicits, 
accepts, or receives from others, funds, securities, or property, 
either directly or through capital contributions, the sale of stock or 
other forms of securities, or otherwise, for the purpose of trading in 
commodity interests.\2\ CEA section 1a(10) defines a ``commodity pool'' 
as any investment trust, syndicate, or similar form of enterprise 
operated for the purpose of

[[Page 78794]]

trading in commodity interests.\3\ CEA section 1a(12) defines the term 
``commodity trading advisor'' as any person who, for compensation or 
profit, engages in the business of advising others, either directly or 
through publications, writing, or electronic media, as to the value of 
or the advisability of trading in commodity interests.\4\
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    \1\ Public Law 111-203, 124 Stat. 1376 (2010).
    \2\ 7 U.S.C. 1a(11).
    \3\ 7 U.S.C. 1a(10).
    \4\ 7 U.S.C. 1a(12).
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    Generally, CEA section 4m(1) requires each person whose activities 
satisfy either the CPO or CTA definition to register as such with the 
CFTC.\5\ With respect to both CPOs and CTAs, the CEA also authorizes 
the Commission to include persons within, or exclude them from, such 
definitions, by rule, regulation, or order, if the Commission 
determines that such action will effectuate the purposes of the CEA.\6\ 
In addition to the general registration authority set forth in CEA 
section 4m(1), CEA section 4n specifically empowers the Commission to 
impose compliance obligations related to the registration process, 
recordkeeping, disclosure, and reporting.\7\ Finally, the CEA also 
gives the Commission authority 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 purposes of 
the CEA.\8\
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    \5\ 7 U.S.C. 6m(1) (It shall be unlawful for any CTA or CPO, 
unless registered under this chapter, to make use of the mails or 
any means or instrumentality of interstate commerce with his 
business as such CTA or CPO). See also 17 CFR 3.10.
    \6\ 7 U.S.C. 1a(11)(B); 7 U.S.C. 1a(12)(B)-(C).
    \7\ 7 U.S.C. 6n.
    \8\ 7 U.S.C. 8a(5).
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    Part 4 of the Commission's regulations specifically governs the 
operations and activities of CPOs and CTAs.\9\ These regulations 
establish registration exemptions and definitional exclusions for CPOs 
and CTAs,\10\ and contain detailed regulations that establish the 
ongoing compliance obligations applicable to registered CPOs and CTAs, 
which implement the statutory authority granted to the Commission by 
the CEA with respect to such registrants.\11\ Specifically, the 
regulatory compliance requirements facilitate the Commission's 
oversight of their activities in the commodity interest markets and 
promote customer protection through operational requirements,\12\ 
disclosures,\13\ and regular reporting \14\ to a registrant's pool 
participants or advisory clients. Commission regulation Sec.  4.7 
provides exemptions from certain part 4 compliance requirements 
regarding disclosure, periodic reporting, and recordkeeping for 
registered CPOs and CTAs, whose prospective and actual pool 
participants and/or advisory clients are restricted to individuals and 
entities considered ``Qualified Eligible Persons,'' and who claim the 
desired exemptions, pursuant to paragraph (d) of that section.\15\ 
Since its adoption over thirty years ago, the Commission has 
occasionally amended Commission regulation Sec.  4.7 to enhance its 
usability and ensure that it remains fit for purpose.\16\
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    \9\ 17 CFR part 4.
    \10\ See 7 U.S.C. 6n; 17 CFR 4.5, 4.6, 4.13, 4.14.
    \11\ See, generally, 17 CFR 4.20 through 4.26, 4.30 through 
4.36.
    \12\ See, e.g., 17 CFR 4.20(c), 4.30(a) (prohibiting the 
commingling of pool funds with those of any other person and 
prohibiting CTAs from accepting funds from advisory clients in the 
CTA's name, respectively).
    \13\ 17 CFR 4.24, 4.25, 4.34, 4.35.
    \14\ 17 CFR 4.22.
    \15\ 17 CFR 4.7.
    \16\ See, e.g., 77 FR 11252 (Feb. 24, 2012) (rescinding the 
relief from the audit requirement for pool annual reports previously 
provided under Commission regulation Sec.  4.7(b)(4)); 84 FR 67355 
(Dec. 10, 2019).
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    After a careful review of the existing language and structure of 
Commission regulation Sec.  4.7, and considering the public and 
regulatory interest of maintaining and modernizing older, but still 
widely utilized provisions, the Commission approved and published in 
the Federal Register a notice of proposed rulemaking (NPRM or Proposal) 
comprised of targeted amendments to update the regulation in several 
ways.\17\ The Commission noted in the NPRM that, as of the end of FY 
2022, 837 registered CPOs operated approximately 4,304 commodity pools 
pursuant to claimed Commission regulation Sec.  4.7 exemptions (Sec.  
4.7 pools, and together with CTA programs operated under Commission 
regulation Sec.  4.7, the Sec.  4.7 pools and trading programs).\18\ 
Relatedly, approximately 865 CTAs claim an exemption under Commission 
regulation Sec.  4.7 for their trading programs, which the Commission 
also estimates to number in the tens of thousands. The Commission 
further stated that, during discussions with CFTC staff, the National 
Futures Association (NFA), the registered futures association to whom 
the Commission has delegated many of its regulatory oversight functions 
with respect to CPOs and CTAs, predicted that this population of CPOs, 
CTAs, commodity pools, and trading programs operating pursuant to 
Commission regulation Sec.  4.7 will only continue to grow in the 
future.\19\ More recent data on the usage of Commission regulation 
Sec.  4.7 shows this to be the case. As of June 2024, approximately 824 
CPOs claim exemptions under Commission regulation Sec.  4.7, with 
respect to 4,763 Sec.  4.7 pools, and 822 CTAs claim exemptions under 
Commission regulation Sec.  4.7 with respect to at least 10,000 Sec.  
4.7 trading programs.\20\
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    \17\ Commodity Pool Operators, Commodity Trading Advisors, and 
Commodity Pools: Updating the `Qualified Eligible Person' 
Definition; Adding Minimum Disclosure Requirements for Pools and 
Trading Programs; Permitting Monthly Account Statements for Funds of 
Funds; Technical Amendments, 88 FR 70852 (Oct 12. 2023) (NPRM or 
Proposal).
    \18\ These numbers were drawn from data in National Futures 
Association Form PQR filings for Q4 2022.
    \19\ In fact, as of March 31, 2023, there were approximately 
1,128 CPOs registered with the Commission, and on average, 
approximately 5,257 pools were reported via CFTC Form CPO-PQR on a 
quarterly basis in FY 2022. Assuming there is no material difference 
in the number of registered CPOs and pools reported between the 
closings of Q4 2022 and of Q1 2023, NFA and CFTC data show that 
approximately 69% of registered CPOs operate Sec.  4.7 pools, and 
approximately 81% of all pools reported on CFTC Form CPO-PQR are 
Sec.  4.7 pools. After amendments to Form CPO-PQR and Commission 
regulation Sec.  4.27 adopted in 2020, the Commission accepts NFA 
Form PQR as substituted compliance for the required completion of 
its own Form CPO-PQR. See 17 CFR 4.27. Therefore, the data sources 
for both NFA and CFTC are fundamentally the same, if not identical.
    \20\ With these updated figures, Sec.  4.7 CPOs continue to 
comprise approximately 69% of all CPOs registered with the 
Commission, and 4.7 CTAs 66% of all CTAs registered with the 
Commission, while approximately 86% of all commodity pools operated 
by a registered CPO are Sec.  4.7 pools.
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    In particular, the Commission proposed amendments that sought: (1) 
to increase the financial thresholds in the Portfolio Requirement of 
the ``Qualified Eligible Person'' (QEP) definition in Commission 
regulation Sec.  4.7(a) to reflect inflation; (2) to require certain 
minimum disclosures for Sec.  4.7 pools and trading programs operated 
and offered by CPOs and CTAs; (3) to add a process under Commission 
regulation Sec.  4.7(b)(3) permitting CPOs to elect an alternative 
account statement schedule for certain Sec.  4.7 pools consistent with 
long-standing exemptive letters issued by the Commission; \21\ and (4) 
to improve the structure and utility of Commission regulation Sec.  4.7 
through several technical adjustments (for example, reorganizing the 
QEP definition, updating cross-references, etc.). After consideration 
of the public comments received in response to the NPRM, as well as 
several meetings with

[[Page 78795]]

interested members of the public,\22\ the Commission has determined to 
finalize portions of the Proposal, while continuing to consider the 
remaining proposed amendments and alternative approaches offered by 
commenters.
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    \21\ Such exemptive letters are routinely drafted by Commission 
staff in the Market Participants Division (MPD) and constitute an 
exercise of the authority in Commission regulation Sec. Sec.  
4.12(a) and 140.93. See 17 CFR 4.12(a) and 140.93.
    \22\ All comments on the NPRM, including notices of ex parte 
meetings discussing this rulemaking, are available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7443.
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II. The Final Rule

A. General Overview of Comments Received

    The Commission requested comment on all aspects of the NPRM and 
also solicited comment through specific, targeted questions about each 
of the individual proposed amendments.\23\ The Commission received 
eight comment letters in response to the Proposal, including six from 
industry associations, one from NFA, and one from a law firm that 
frequently represents CPOs and CTAs utilizing Commission regulation 
Sec.  4.7 exemptions.\24\ Overall, comments on the Proposal were mixed, 
depending on which amendment was being discussed. With respect to the 
Portfolio Requirement updates, commenters largely agreed with the 
necessity of the proposed increases to account for inflation and were, 
for the most part, supportive of that proposed amendment. With respect 
to adding minimum disclosure requirements to Commission regulation 
Sec.  4.7 for all QEP pool participants and advisory clients, 
commenters disagreed with the amendments as proposed and made several 
suggestions seeking to narrow or eliminate the proposed disclosures. 
The proposed amendment designed to align Commission regulation Sec.  
4.7 with Commission exemptive letters that permit the distribution of 
monthly, rather than quarterly, account statements for certain Sec.  
4.7 pools received unanimous support and will consequently be adopted 
as proposed by the Final Rule amendments. The following sections 
discuss the proposed amendments in more detail, the comments the 
Commission received from the public, as well as the terms of the Final 
Rule being adopted herein.
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    \23\ See, e.g., Proposal, 88 FR 70855 (requesting comment on the 
proposed Portfolio Requirement increases, as well as posing specific 
questions for commenters to address).
    \24\ Comment Letter from the Securities Industry and Financial 
Markets Association Asset Management Group (Dec. 11, 2023), 
available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=73190&SearchText= (SIFMA AMG Letter); Comment 
Letter from the Investment Advisers Association (Dec. 11, 2023), 
available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=73192&SearchText= (IAA Letter); Comment Letter 
from the Alternative Investment Management Association Limited (Dec. 
11, 2023), available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=73193&SearchText= (AIMA Letter); Comment Letter 
from the Managed Funds Association (Dec. 11, 2023), available at 
https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=73194&SearchText= (MFA Letter); Comment Letter 
from the Investment Company Institute (Dec. 11, 2023), available at 
https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=73195&SearchText= (ICI Letter); Comment Letter 
from the National Futures Association (Dec. 11, 2023), available at 
https://comments.cftc.gov/PublicComments/ViewComment.aspx?73191&SearchText= (NFA Letter); and Comment Letter 
from Dechert, LLP (Dec. 11, 2023), available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?73196&SearchText= 
(Dechert Letter). One commenter also submitted a supplemental 
comment letter after the closing of the NPRM's public comment 
period. See Supplemental Comment Letter from the Managed Funds 
Association (Jun. 26, 2024), available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=73840&SearchText= (MFA Comment 
Letter II). The NPRM's complete comment file is available at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=7443.
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B. Minimum QEP Disclosure Requirements Under Commission Regulation 
Sec.  4.7

1. The Proposal
    Currently, Commission regulation Sec.  4.7 provides exemptions from 
the broader part 4 compliance requirements for CPOs with respect to 
pools offered solely to QEPs, and for CTAs advising or managing the 
accounts of QEPs, including those regulations requiring disclosure of 
general and performance information about a pool or trading program. 
Specifically, Commission regulation Sec.  4.7(b)(2) provides an 
exemption for CPOs with respect to their pools offered solely to QEPs 
regarding: (1) the requirement to deliver a disclosure document in 
Commission regulation Sec.  4.21; (2) the general disclosures required 
by Commission regulation Sec.  4.24; (3) the performance disclosures 
required by Commission regulation Sec.  4.25; and (4) the use and 
amendment requirements in Commission regulation Sec.  4.26; so long as 
the CPO provides a form statement on the cover page of any offering 
memorandum it chooses to distribute to its prospective pool 
participants (or near the signature line of the pool's subscription 
agreement, if its CPO chooses not to distribute an offering 
memorandum).\25\ Similarly, Commission regulation Sec.  4.7(c)(1) 
provides an exemption for CTAs with respect to their trading programs 
offered to QEPs regarding: (1) the requirement to deliver a disclosure 
document in Commission regulation Sec.  4.31; (2) the general 
disclosures required by Commission regulation Sec.  4.34; (3) the 
performance disclosures required by Commission regulation Sec.  4.35; 
and (4) the use and amendment requirements in Commission regulation 
Sec.  4.36; provided that the CTA includes a form statement on the 
cover page of any brochure or disclosure statement it chooses to 
distribute to its prospective advisory clients (or near the signature 
line of the advisory agreement, if the CTA chooses not to distribute a 
brochure or disclosure statement).\26\ CPOs and CTAs claiming these 
exemptions \27\ are not required to deliver or disseminate any offering 
memoranda, brochures, or disclosure statements to their prospective QEP 
pool participants or advisory clients. Rather, these CPOs and CTAs are 
only required to ensure that any information or disclosures they elect 
to provide to QEPs (QEP Disclosures), include all disclosures necessary 
to make the information contained therein, in the context in which it 
is furnished, not misleading.\28\
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    \25\ 17 CFR 4.7(b)(2) (providing an exemption from the specific 
requirements of Commission regulation Sec. Sec.  4.21, 4.24, 4.25, 
and 4.26 with respect to each Sec.  4.7 pool). The prescribed ``form 
statement'' indicates that the CPO's offering memorandum has not 
been, nor is it required to be, filed with the Commission, and that 
the CFTC has not reviewed or approved such offerings or any related 
offering memoranda for the Sec.  4.7 pool. Id.
    \26\ 17 CFR 4.7(c)(1) (providing an exemption from the specific 
requirements of Commission regulation Sec. Sec.  4.31, 4.34, 4.35, 
and 4.36 with respect to an offered Sec.  4.7 trading program). The 
prescribed ``form statement'' indicates the CTA's brochure has not 
been, nor is it required to be, filed with the Commission, and that 
the CFTC has not reviewed or approved such trading program or 
brochure. Id.
    \27\ See 17 CFR 4.7(d).
    \28\ 17 CFR 4.7(b)(2); 17 CFR 4.7(c)(1).
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    Under the Proposal, the Commission proposed to amend the disclosure 
relief provided by current Commission regulation Sec.  4.7(b)(2)(i) and 
(ii) to require CPOs to deliver a set of disclosures to their Sec.  4.7 
pools' prospective QEP participants.\29\ The proposed disclosure 
requirements included descriptions of the Sec.  4.7 pool's: (i) 
principal risk factors; (ii) investment program; (iii) use of proceeds; 
(iv) custodians; (v) fees and expenses; (vi) conflicts of interest; and 
(vii) targeted past performance information. Generally, the Commission 
proposed to establish these minimum disclosure requirements by 
rescinding or narrowing certain of the existing exemptions in 
Commission regulation Sec.  4.7, including those from Commission 
regulation Sec. Sec.  4.21, 4.24, and 4.25.\30\ Proposed Commission 
regulation Sec.  4.7(b)(2)(i)(F) included the requirement that QEP 
Disclosures provide all disclosures necessary to make the information 
contained therein,

[[Page 78796]]

in the context in which it is furnished, not misleading, and Proposed 
Commission regulation Sec.  4.7(b)(2)(i)(G) continued to require a form 
disclaimer like that currently required by Commission regulation Sec.  
4.7(b)(2)(i).
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    \29\ Proposal, 88 FR 70859.
    \30\ Id.
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    As a consequence of requiring these minimum disclosures for Sec.  
4.7 pools, the Commission also proposed to update corresponding 
recordkeeping, and use and amendment requirements. Specifically, the 
Commission proposed to amend Commission regulation Sec.  4.7(b)(5) to 
require that CPOs maintain such QEP Disclosures among the other books 
and records of their Sec.  4.7 pools, and make them available, upon 
request, to the Commission, NFA, and the U.S. Department of Justice, in 
accordance with Commission regulation Sec.  1.31.\31\ Additionally, the 
Commission proposed to narrow the exemption from Commission regulation 
Sec.  4.26 in its entirety to only Commission regulation Sec.  4.26(d), 
such that compliance with Commission regulation Sec.  4.26(a) through 
(c), provisions that generally govern the use and amendment of this 
information, would be required, but filing with NFA prior to first use 
would not.
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    \31\ 17 CFR 1.31.
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    Consistent with the proposed amendments regarding QEP Disclosures 
for Sec.  4.7 pools, the Commission also proposed disclosure 
requirements for Sec.  4.7 trading programs under Commission regulation 
Sec.  4.7(c)(1). Specifically, the Commission proposed to amend 
Commission regulation Sec.  4.7(c)(1) to require CTAs to deliver 
certain disclosures to their Sec.  4.7 advisory clients. The proposed 
disclosure requirements included a description of: (i) the trading 
program; (ii) certain persons to be identified; (iii) principal risk 
factors for the CTA's trading program; (iv) fees; (v) conflicts of 
interest; and (vi) targeted past performance information. Similar to 
the proposed amendments to Commission regulation Sec.  4.7(b)(2)(i), 
the Commission proposed to establish these minimum disclosure 
requirements by rescinding or narrowing existing exemptions in 
Commission regulation Sec.  4.7(c)(1) from Commission regulation 
Sec. Sec.  4.31, 4.34, and 4.35.\32\ Proposed Commission regulation 
Sec.  4.7(c)(2)(i)(G) continued to require that QEP Disclosures provide 
all additional disclosures necessary to make the information contained 
therein, in the context in which it is furnished, not misleading, and 
Proposed Commission regulation Sec.  4.7(c)(2)(i)(H) continued to 
require a form statement like that currently required by Commission 
regulation Sec.  4.7(c)(1)(i).
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    \32\ Proposal, 88 FR 70861.
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    Further, the Commission proposed to update corresponding 
recordkeeping, and use and amendment requirements for CTAs offering 
Sec.  4.7 trading programs. Specifically, the Commission proposed to 
amend Commission regulation Sec.  4.7(c)(2) to require CTAs to maintain 
QEP Disclosures among the other books and records for their Sec.  4.7 
trading programs, and make them available to the Commission, NFA, and 
the U.S. Department of Justice, in accordance with Commission 
regulation Sec.  1.31. Additionally, the Commission proposed to narrow 
the exemption from Commission regulation Sec.  4.36 in its entirety to 
only Commission regulation Sec.  4.36(d), such that compliance with 
Commission regulation Sec.  4.36(a) through (c), provisions that 
generally govern the use and amendment of this information, would be 
required, but filing with NFA prior to first use would not.
    In the Proposal, the Commission explained that ``[t]he definition 
of QEP in Regulation 4.7 encompasses a broad spectrum of market 
participants from large fund complexes and other institutional 
investors with significant assets under management to individuals with 
varying backgrounds and experience, each of which has vastly different 
resources available to insist upon the disclosure of information 
regarding the offered 4.7 pool or trading program and then to analyze 
whatever information is provided.'' \33\ Moreover, the Commission 
stated its concern that ``individual natural persons, who meet the QEP 
definition through the Portfolio Requirement, but nonetheless do not 
command the assets of large financial institutions, likely lack the 
ability to demand the same level of transparency afforded through the 
prospect of additional significant asset allocations,'' which, the 
Commission preliminarily expected, would result in their being more 
likely to rely upon whatever information the CPO or CTA chose to 
provide.\34\ The Commission stated its preliminary belief that, 
``[t]his perceived disparity may increase the likelihood of CPOs and 
CTAs with less rigorous risk management and controls to seek capital 
from such individuals who are generally less able to engage in the same 
rigorous monitoring,'' \35\ as institutional investors. As further 
support for the imposition of minimum disclosure requirements, the 
Commission also noted the ``rapid and unrelenting pace'' \36\ of 
product innovation, for example in the digital asset space, increasing 
the possibility that ``certain QEP participants and clients may not 
have the level of information necessary to fully appreciate the nature 
of the risk associated with their trading.'' \37\ The Commission 
preliminarily concluded in the Proposal, based upon its analysis of the 
regulatory history behind this regulation, the prevalence of Sec.  4.7 
offerings, and the myriad market and product developments since 1992, 
that ``requiring the provision of specific minimum disclosures for CPOs 
and CTAs operating 4.7 pools and trading programs will assist in 
mitigating the customer protection gaps that have developed since 1992 
by ensuring that QEPs receive the information necessary to make 
informed investment decisions, and that such disclosures are subject to 
Commission and NFA oversight.'' \38\ Further, in explaining the 
benefits of the proposed QEP Disclosure amendments, the Commission 
stated its belief that, these proposed amendments would mandate a 
minimum amount of transparency into Sec.  4.7 pools and trading 
programs, which could help such QEPs protect themselves against 
excessive fees and self-dealing, and generally help insure that the 
products offered by such CPOs and CTAs are performing and being 
operated, as anticipated.\39\ Additionally, the Commission explained 
its expectation that ``mandating QEP Disclosures and requiring that 
they be materially accurate and complete, rather than just optional and 
not materially misleading, [would] benefit market participants and the 
public by ensuring that prospective investors would receive QEP 
Disclosures containing, at a minimum, certain important general and 
performance information that they can reliably assume is kept current 
and materially complete with respect to the items proposed to be 
required . . . [and that the proposed amendments] would allow for 
improved oversight of the regulated activities of CPOs and CTAs'' by 
the Commission.\40\ For these reasons, among others articulated in the 
Proposal, the Commission proposed specific minimum disclosures to 
bridge the customer protection gap that has, in

[[Page 78797]]

its view, developed since the adoption of Commission regulation Sec.  
4.7 in 1992.
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    \33\ Proposal, 88 FR 70856.
    \34\ Id.
    \35\ Id. (citing Susan Taylor Martin, How Tampa's James Cordier 
went from high roller to YouTube apology after losing $150 million, 
Tampa Bay Times, Feb. 11, 2019, available at https://www.tampabay.com/business/how-tampas-james-cordier-went-from-high-roller-to-youtube-apology-after-losing-150-million-2019206/).
    \36\ Proposal, 88 FR 70857.
    \37\ Id.
    \38\ Id. at 70857-58.
    \39\ Proposal, 88 FR 70872.
    \40\ Id.
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2. Feedback From Commenters
    Generally, commenters were opposed to the proposed QEP Disclosures 
for Sec.  4.7 CPOs and CTAs, citing a number of concerns relating to 
cost, purpose, practicality in certain common structuring scenarios, 
and redundancy. All seven commenters provided feedback on the proposed 
minimum disclosure requirements, including several that offered 
alternative approaches to the proposed method of adding minimum QEP 
Disclosures to Commission regulation Sec.  4.7 for the Commission to 
consider.
    A majority of the commenters opposed or disagreed with the proposed 
minimum disclosure requirements because they believed the additional 
requirements were unnecessary.\41\ One commenter opposed the proposed 
QEP Disclosures generally because they believe ``imposing mandatory 
minimum disclosures would be premature,'' ``would not provide any 
protections above and beyond current regulations,'' ``could lead to the 
presentation of potentially misleading investor disclosures,'' and 
because ``the costs to 4.7 CPOs and CTAs would be unduly burdensome.'' 
\42\ This commenter disagreed that QEPs currently lack sufficient 
information to make informed decisions and stated that raising the 
Portfolio Requirement may mitigate the concerns the Commission 
expressed in the Proposal.\43\ The commenter asserted further that the 
current standard in Commission regulation Sec.  4.7 that requires 
disclosures, if any are provided, to not be misleading is sufficient 
because disclosures provided in the Sec.  4.7 pool context have become 
market practice and are made to satisfy the preferences and demands of 
sophisticated investors.\44\ Other commenters echoed this sentiment, 
with one suggesting that ``private fund managers commonly include a 
description of the fund's investment objectives and strategy in 
marketing materials and offering documents,'' \45\ and another stating 
that it would ``essentially render the entire 4.7 regime, and the 
exemptions provided thereunder, moot.'' \46\ Another commenter 
described the minimum QEP disclosure requirements as ``unnecessary to 
achieve the Commission's policy goals and . . . unduly costly and even 
counterproductive,'' \47\ and further stated that they are ``not aware 
that prospective or current QEP investors or clients in pools and 
trading accounts operated by these members, virtually all of which are 
qualified purchasers not subject to the Portfolio Requirement, have 
requested or otherwise indicated a need for such additional 
disclosure.'' \48\ Finally, NFA cautioned against the proposed 
disclosure requirements, and stated that ``over the years NFA has 
received few complaints from 4.7 exempt pool participants and managed 
account program clients that CPOs and CTAs have not provided them with 
information upon request.'' \49\ Several of these commenters 
specifically recommended that the Commission adopt the proposed 
amendments to the Portfolio Requirement, and then evaluate the 4.7 
population to determine whether the separately proposed minimum 
disclosure requirements are necessary.\50\
---------------------------------------------------------------------------

    \41\ See generally MFA Letter, at 6; SIFMA AMG Letter at 4; AIMA 
Letter at 2; IAA Comment Letter at 5.
    \42\ MFA Letter, at 2.
    \43\ MFA Letter, at 6
    \44\ MFA Letter, at 11.
    \45\ SIFMA AMG Letter, at 5.
    \46\ AIMA Letter, at 2.
    \47\ IAA Letter, at 5.
    \48\ Id.
    \49\ NFA Letter, at 3.
    \50\ See Dechert Letter, at 14 (``If the alternative approaches 
we articulate in this comment letter in response to the Proposal do 
not persuade the Commission, we would strongly counsel the 
Commission to limit the first stage of rulemaking in this area to 
the amendment of CFTC Rule 4.7 to increase the Portfolio Requirement 
to reflect inflation, as proposed, and then to study the effect that 
this change has on the types of QEPs the Commission seems most 
concerned about protecting.''); see also AIMA Letter, at 4-5 (``If 
the Portfolio Requirement thresholds are adjusted appropriately, 
then there is no reason why the Commission should also eliminate the 
disclosure exemptions under Regulation 4.7. The Commission should 
first evaluate whether the changes to the Portfolio Requirement 
thresholds address and/or mitigate the Commission's perceived 
concerns about unequal bargaining or negotiating power among those 
QEPs that satisfy the new, higher standard.'').
---------------------------------------------------------------------------

    Among the general opposition to the minimum disclosure 
requirements, multiple commenters disputed the Commission's stated 
concern that some QEPs may lack the ability to demand the same level of 
transparency as those QEPs with significantly higher asset allocations, 
resulting in their being more likely to rely upon whatever information 
the CPO or CTA chose to provide. One commenter acknowledged that there 
could be a disparity in QEPs' ability to obtain information, by 
suggesting that the minimum disclosure requirements should be limited 
to natural person QEPs, and stating that, ``if the CFTC's policy behind 
the Proposal is to ensure that investors who do not have leverage are 
provided minimum disclosures, then the focus should be on investors who 
have direct privity with the CTA and do not have a large enough 
investment mandate to be able to negotiate disclosure.'' \51\ A second 
commenter pointed to language within current Commission regulation 
Sec.  4.7, in which ``[p]rospective QEP clients of CTAs already have 
the right, under existing regulations, to decline to have their 
accounts treated as exempt accounts under Regulation 4.7.'' \52\ Other 
commenters challenged the Commission's concerns more generally.\53\
---------------------------------------------------------------------------

    \51\ ICI Letter, at 9.
    \52\ IAA Letter, at 5.
    \53\ See MFA Letter, at 6 (``There is no evidence cited in the 
[NPRM] or elsewhere, however, that QEPs currently lack sufficient 
information to make informed decisions.''); AIMA Letter, at 7 
(``Second, the Commission concludes that the current exemption 
framework is insufficient because [it] fails to ensure that all QEPs 
(natural persons, specifically) can demand and receive the 
information necessary to make informed investment decisions and/or 
effectively monitor their investments. The Proposal, however, lacks 
a concrete example of any instance where this may be the case.'').
---------------------------------------------------------------------------

    Aside from this general opposition, some commenters provided 
specific feedback on the potential negative impacts the proposed 
minimum disclosure requirements may have on dually-registered 
investment advisers and complex fund structures that rely on Sec.  4.7 
exemptions.\54\ One commenter stated that, ``the proposed disclosure 
requirements create conflicts and duplicative burdens for CPOs and CTAs 
dually-registered as investment advisers with the SEC [Securities and 
Exchange Commission] when operating exempt pools or advising exempt 
accounts.'' \55\ Another commenter provided background, from the 
perspective of CTAs, on the ``critical'' regulatory relief provided by 
Commission regulation Sec.  4.7 for registered and offshore funds 
requiring a registered CTA, explaining that CTAs registered as 
investment advisers are already subject to ``extensive disclosure on 
Form ADV,'' and that ``both registered and offshore funds are currently 
required to provide robust disclosure documents that describe the 
fund's investment objective, policies, and risks, and such disclosures 
necessarily describe the CTA's trading strategy and associated

[[Page 78798]]

risks.'' \56\ Multiple commenters also argued that the minimum 
disclosure requirements are either unnecessary or inappropriate when 
applied to common usage scenarios involving complex fund structures or 
scenarios in which the CPO or CTA relies upon Commission regulation 
Sec.  4.7 solely because no other appropriate exemption for their 
activity exists.\57\ One commenter argued that ``layering'' the current 
performance and disclosure rules on complex multi-strategy mandates 
``would not provide clearer or more accurate disclosures to 
investors,'' and instead, ``would potentially require any disclosures 
to attempt to compensate for the flexibility inherent in these products 
and potentially result in disclosures that are so generic as to be 
meaningless to investors.'' \58\ Another commenter stated that, ``many 
of [their] CTA members are also CPOs and offer separate accounts only 
to QEPs who seek to invest a substantial amount of capital through a 
separate account structure rather than pool participation,'' describing 
these account arrangements as ``often heavily negotiated.'' \59\ 
Another commenter provided background on the relief Commission 
regulation Sec.  4.7 provides to registered and offshore funds 
requiring a registered CTA, describing four common scenarios where 
investment advisers rely on Commission regulation Sec.  4.7 for CTA 
compliance relief with respect to a registered or offshore fund 
requiring a registered CPO and CTA.\60\ With respect to these CTA-
specific scenarios, the commenter argued that if the proposed 
disclosure requirements were implemented in these contexts, commonly 
controlled entities would likely be required to provide disclosures to 
entities or persons that either already receive them, or already have 
access to such information, or would result in the Commission 
implementing regulatory authority over certain entities that the CFTC 
has traditionally sought not to oversee directly.\61\
---------------------------------------------------------------------------

    \54\ MFA Letter, at 8; Dechert Letter, at 10; IAA Letter at 5; 
ICI Letter, at 3-7.
    \55\ Dechert Letter, at 10 (stating further that ``CTAs that are 
SEC-registered investment advisers, like CPOs that are SEC-
registered investment advisers, already distribute regulatory 
disclosures to investors, such as Form ADV, making it unnecessary 
for these CTAs to create new disclosure documents''). This commenter 
further asserted that the Commission's concerns with respect ``to 
natural person QEPs should also be sufficiently addressed by 
adjusting [the Portfolio Requirement].'' Id.
    \56\ ICI Letter, at 8.
    \57\ SIFMA AMG Letter, at 5; IAA Letter, at 5, n.5; and, ICI 
Letter, at 4-7.
    \58\ MFA Letter, at 8.
    \59\ SIFMA AMG Letter, at 4 (arguing that ``[t]hese investors 
have the power to request the information they require to make 
informed investment decisions and have little need for exhaustive 
mandated disclosures that were designed originally with retail 
clients in mind'').
    \60\ ICI Letter, at 4-7. These scenarios included: (1) CPOs and 
CTAs in a master-feeder relationship; (2) advisers and sub-advisers 
to a registered fund requiring CPO and CTA registration; (3) U.S. 
investment advisers to offshore funds; and (4) offshore advisers to 
offshore funds that also advise U.S. funds. Id.
    \61\ See generally ICI Letter, at 4-7.
---------------------------------------------------------------------------

    Last, and perhaps most significantly, four commenters provided the 
Commission with potential alternatives to the minimum disclosure 
requirement framework proposed in the NPRM. One commenter suggested 
that the Commission instead amend Commission regulation Sec.  4.7 to 
require CPOs and CTAs to provide disclosures to QEP investors, the 
scope and substance of which, however, would be ``determined at the 
discretion of the 4.7 CPO or CTA.'' \62\ Another commenter suggested 
that the Commission instead consider limiting the required QEP 
Disclosures to ``risk factors, the CTA's trading programs, fees and 
conflicts of interest to be provided to clients who are (a) natural 
persons and (b) legal organizations who are not eligible contract 
participants.'' \63\ This commenter also requested that, ``where such 
information is disclosed to clients or prospective clients through 
compliance with an existing regulatory regime (e.g., via disclosure in 
the CTA's Form ADV Part 2 brochure), the Commission should permit 
satisfaction of the disclosure requirement by substituted compliance.'' 
\64\ A third commenter asked the Commission to consider adopting the 
disclosure requirements such that they would ``not apply where exempt 
pool participants and exempt account clients qualify as QEPs under CFTC 
Rule 4.7(a)(2),'' referring to those QEPs that are not subject to the 
Portfolio Requirement discussed in further detail below.\65\ Finally, a 
fourth commenter opined that the minimum disclosure requirements 
``should only apply to Regulation 4.7 CTA clients that are natural 
persons who are residents of the United States.'' \66\
---------------------------------------------------------------------------

    \62\ MFA Letter, at 12.
    \63\ SIFMA AMG Letter, at 5. The Commission notes that SIFMA AMG 
provided this specific recommendation only with respect to CTAs' 
Sec.  4.7 trading programs. SIFMA AMG did not provide a similar 
recommendation for CPOs and their Sec.  4.7 pools.
    \64\ Id.
    \65\ Dechert Letter, at 5. This approach was also acknowledged 
by other commenters in both comment letters and during ex parte 
meetings with Commission staff as a possible, acceptable alternative 
to the Proposal. See, e.g., MFA Comment Letter II, at 2 (stating 
``if the CFTC decides to move forward with any proposed disclosure 
requirements, it is critical that the Commission exempt CPOs and 
CTAs with respect to 4.7(a)(2) investors from the disclosure 
requirements'').
    \66\ ICI Letter, at 9.
---------------------------------------------------------------------------

3. Further Consideration of Proposed Minimum QEP Disclosures
    After considering the feedback received, the Commission has 
determined it appropriate to take additional time to consider the 
concerns articulated as well as the alternatives to the proposed QEP 
disclosure amendments put forward by commenters. Therefore, the Final 
Rule does not adopt minimum disclosure requirements to Commission 
regulation Sec.  4.7. Rather, the Commission is prioritizing in this 
Final Rule the adoption of amendments to Commission regulation Sec.  
4.7 that incorporate the proposed Portfolio Requirement increases in 
the QEP definition and add the monthly account statement schedule for 
certain Sec.  4.7 pools, while it continues to evaluate regulatory 
alternatives and may adopt further changes in the future.

C. Updating Financial Thresholds in the Portfolio Requirement of the 
``Qualified Eligible Person'' Definition

    As explained briefly above, the Commission proposed to amend the 
definition of the ``Portfolio Requirement,'' in Commission regulation 
Sec.  4.7 by updating its financial thresholds in a manner that 
accounts for the effects of inflation over the thirty-two years since 
their initial adoption with the intention of continuing to align the 
Portfolio Requirement with the Commission's original regulatory 
intent.\67\ Commission regulation Sec.  4.7 bifurcates the definition 
of QEP into two different groups of persons that may qualify: (1) those 
persons \68\ who do not need to satisfy an additional Portfolio 
Requirement to be considered a QEP; and (2) those persons who must 
satisfy the Portfolio Requirement to be considered a QEP.\69\ The 
Commission further explained that the current Portfolio Requirement 
contains two thresholds whereby a person can be deemed a QEP: (1) 
owning securities (including pool participations) of issuers not 
affiliated with such person and other investments with an aggregate 
market value of at least $2,000,000 \70\ (Securities Portfolio Test); 
or (2) having on deposit with a futures commission merchant (FCM), for 
its own account at any time during the six months preceding either the 
date of sale to that person of a pool participation in the Sec.  4.7 
pool or the date the person opens an account with the CTA for a Sec.  
4.7

[[Page 78799]]

trading program, at least $200,000 in exchange-specified initial margin 
and option premiums, together with required minimum security deposits 
for retail forex transactions, for commodity interest transactions \71\ 
(Initial Margin and Premium Test). Commission regulation Sec.  4.7 also 
provides that persons may satisfy the Portfolio Requirement by owning a 
portfolio comprised of a combination of the funds or property specified 
in the Securities Portfolio Test and the Initial Margin and Premium 
Test, which, when expressed as percentages of the required amounts, 
meet or exceed 100%.\72\ Therefore, if a person required to satisfy the 
Portfolio Requirement meets one of the tests (or some combination of 
the two), as described above, the CPO or CTA may consider such person 
qualified as a QEP and accept them as a Sec.  4.7 pool participant or 
advisory client, respectively.
---------------------------------------------------------------------------

    \67\ Proposal, 88 FR 70853-55.
    \68\ See 17 CFR 1.3 (defining ``person'' as including 
individuals, associations, partnerships, corporations, and trusts).
    \69\ Proposal, 88 FR 70853, n. 17-18 (describing these two 
different types of QEPs in further detail).
    \70\ 17 CFR 4.7(a)(1)(v)(A), or as amended by the Final Rule, 17 
CFR 4.7(a)(5)(i). The Commission explains further below that the 
Final Rule adopts several technical amendments reorganizing and 
renumbering portions of Commission regulation Sec.  4.7, including 
the paragraph containing definitions. As a result of the Final Rule, 
the new citations for the Portfolio Requirement thresholds will be 
17 CFR 4.7(a)(5)(i) through (iii).
    \71\ 17 CFR 4.7(a)(1)(v)(B), or as amended by the Final Rule, 17 
CFR 4.7(a)(5)(ii).
    \72\ 17 CFR 4.7(a)(1)(v)(C), or as amended by the Final Rule, 17 
CFR 4.7(a)(5)(iii).
---------------------------------------------------------------------------

    In the Proposal, the Commission explained its preliminary 
conclusions that updating the dollar thresholds within the Securities 
Portfolio Test and the Initial Margin and Premium Test would be 
appropriate because the thresholds had not been updated since their 
adoption in 1992.\73\ The Commission further explained its belief that 
the Consumer Price Index for All Urban Consumers (CPI-U) and the 
Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-
W) would be suitable benchmarks for determining the general impact of 
inflationary pressures on the existing Portfolio Requirement 
thresholds; employing those indexes, the Commission ultimately proposed 
doubling the Securities Portfolio Test to $4,000,000, and the Initial 
Margin and Premium Test to $400,000, while also retaining the existing 
option to meet the Portfolio Requirement through a combination of the 
two tests adding up to 100%.\74\ Although the Commission acknowledged 
that the proposed update to the dollar thresholds were not an exact 
reflection of the impact of inflation,\75\ the Commission reasoned that 
approximating these thresholds to the nearest million and hundred 
thousand provided clear and fair thresholds that would better 
facilitate compliance.\76\ After careful consideration of the comments 
received, as well as additional analysis of the benchmarks the 
Commission initially used to determine the impact of inflation on the 
existing Portfolio Requirement thresholds, the Commission is adopting 
the amendments to the Portfolio Requirement as proposed.
---------------------------------------------------------------------------

    \73\ Proposal, 88 FR 70854.
    \74\ Id.
    \75\ Using the indexes, as of February 2023, the Commission 
explained in the NPRM that $2,000,000 had the same buying power as 
$4,270,000, and $200,000 had the same buying power as approximately 
$427,000. Id.
    \76\ Id.
---------------------------------------------------------------------------

    Commenters generally supported the Commission's proposed amendments 
to the Portfolio Requirement. Of the eight responses the Commission 
received on the Proposal as a whole, five commenters responded directly 
to the Commission's proposal to update the Portfolio Requirement.\77\ 
MFA, SIFMA AMG, AIMA, IAA, and Dechert supported the Commission's 
proposal to update the Portfolio Requirement,\78\ although some 
commenters further stated that the adoption of these threshold 
increases should not be coupled with the addition of minimum disclosure 
requirements in Commission regulation Sec.  4.7. In particular, several 
commenters expressed their view that appropriately updating the 
Portfolio Requirement thresholds should alleviate the concerns raised 
by the Commission in the NPRM by providing additional customer 
protection for natural persons (and other QEPs subject to the Portfolio 
Requirement) and modernizing Commission regulation Sec.  4.7, which 
would thereby render any additional disclosure requirements 
unnecessary.\79\ The Commission agrees that increasing the thresholds 
brings Commission regulation Sec.  4.7 back into alignment with the 
Commission's original intention in 1992 for the purpose of 
differentiating between retail investors and more sophisticated market 
participants. The increases to the Portfolio Requirement thresholds 
ensure that persons unable to meet those metrics receive the full 
panoply of disclosures and other customer protections required for non-
QEP pool participants and advisory clients.
---------------------------------------------------------------------------

    \77\ See SIFMA AMG Letter, at 11; AIMA Letter, at 4; IAA Letter, 
at 2; Dechert Letter, at 14.
    \78\ See MFA Letter, at 3 (explaining that ``an increase in the 
investor qualification thresholds for QEPs could modernize CFTC 
Regulation 4.7 to meet contemporary expectations regarding 
sophisticated investors,'' and that the proposed increases ``would 
bring the Portfolio Requirement monetary threshold into closer 
alignment with the qualified purchaser . . . standard, consistent 
with the investor base for many 4.7 pools''); SIFMA AMG Letter, at 
11 (``[W]e think it makes sense to update the Portfolio Requirement 
to ensure that QEPs remain limited to those investors who are truly 
sophisticated.''); AIMA Letter, at 4 (``We broadly support the 
proposed changes to the Portfolio Requirement Thresholds.''); IAA 
Letter, at 2 (``We do not object to the Commission's proposal to 
update the Portfolio Requirement thresholds for QEPs to adjust for 
inflation.''); Dechert Letter, at 14 (``[W]e do not have an issue 
with CFTC's proposal to increase the two thresholds in the Portfolio 
Requirement.'').
    \79\ See, e.g., MFA Letter, at 5 (``Doubling the QEP dollar 
thresholds is sufficient to address the Commission's current 
investor protection and modernization goals, without conditioning 
the increase on the adoption of a prescriptive, retail orientated 
disclosure regime contained in the Disclosure and Performance 
Rules.''); SIFMA AMG Letter, at 11 (``In our view, this update 
should address the Commission's concerns articulated in the Proposal 
at large regarding investor sophistication and access to 
information, thus obviating the need to impose mandatory disclosure 
requirements in addition.''); AIMA Letter, at 4 (``If the Portfolio 
Requirement thresholds are adjusted appropriately, then there is no 
reason why the Commission should also eliminate the disclosure 
exemptions under Regulation 4.7.''); IAA Letter, at 2 (``We believe 
that raising [the Portfolio Requirement thresholds] should be 
sufficient to address the Commission's concerns, and that the 
additional proposed disclosures are not necessary.'').
---------------------------------------------------------------------------

    Although the Commission is not finalizing the proposed amendments 
that would add minimum disclosure requirements to Commission regulation 
Sec.  4.7 in this Final Rule, the Commission notes that commenters 
asserted that raising the Portfolio Requirement thresholds would also 
address the Commission's concerns regarding the informational 
discrepancy between CPOs' and CTAs' prospective and actual pool 
participants and advisory clients. The Commission proposed the 
increases to the thresholds in the Portfolio Requirement to ensure that 
it continued to serve as ``objective criteria'' to distinguish between 
retail participants in the commodity interest markets and those persons 
``with a high degree of sophistication with regard to investments as 
well as financial resources to withstand the risk of their 
investments.'' \80\ Essentially, increasing the Portfolio Requirement 
thresholds in the manner proposed in the NPRM effectively bridges the 
financial gap that has developed between the amounts the Commission 
adopted in 1992 and the actual buying power of those amounts in 2024, 
due to inflationary effects experienced in that time period.
---------------------------------------------------------------------------

    \80\ Proposal, 88 FR 70854 (citing the 1992 Proposed Rule, 57 FR 
3152).
---------------------------------------------------------------------------

    In addition to general support from commenters, the Commission 
believes that updated information from the indexes used to benchmark 
the proposed thresholds within the Portfolio Requirement continues to 
support the proposed increases. In developing this Final Rule, the 
Commission revisited the two inflation indexes published by the United 
States Bureau of Labor Statistics (BLS) used to devise the proposed 
amendments to the Portfolio Requirement. As explained in the Proposal, 
the Commission consulted

[[Page 78800]]

the CPI-U and CPI-W to understand the approximate effect of inflation 
on the dollar value thresholds within the Portfolio Requirement and the 
current buying power of those thresholds.\81\ The purpose of consulting 
these benchmarks was to determine whether the dollar thresholds within 
the Portfolio Requirement still reflect the heightened standard of 
investor activity and sophistication that the Commission considered 
sufficient for certain persons to qualify as a QEP in adopting the 
Portfolio Requirement in 1992. At the time of the Proposal, the 
Commission preliminarily concluded that the thresholds within the 
Portfolio Requirement were significantly devalued by over three decades 
of inflationary effects, such that the thresholds no longer served as 
the investor protection guardrails that the Commission originally 
intended.\82\ If left unaddressed, the Commission believes that the gap 
between the actual buying power of the original Portfolio Requirement 
thresholds and the Commission's original intent of limiting QEPs to 
financially sophisticated persons with significant commodity interest 
trading experience will only widen. In the Proposal, the Commission 
specifically requested feedback from commenters on whether the CPI-U 
and CPI-W indexes were ``the most appropriate for considering inflation 
on the thresholds within the Portfolio Requirement,'' and if not, the 
Commission also requested feedback on any other indexes or methods it 
should use in assessing the effect of inflation.\83\ The Commission did 
not receive any feedback in response to this question, and therefore, 
will continue to use the CPI-U and CPI-W indexes as benchmarks for its 
analysis. Using the same example, the Commission used in the Proposal, 
based on analysis using CPI-U data, as of July 2024, the $2,000,000 
threshold in the Securities Portfolio Test has the same buying power as 
approximately $4,464,726, and the $200,000 threshold in the Initial 
Margin and Premiums Test has the same buying power as approximately 
$446,472.\84\ As shown by the example, the disparity in buying power 
will continue to be exacerbated over time.
---------------------------------------------------------------------------

    \81\ See the U.S. BLS Handbook of Methods, for more information 
on the CPI, CPI-U, and CPI-W, available at https://www.bls.gov/opub/hom/cpi/presentation.htm. As described by the BLS Handbook of 
Methods, CPI-U represents the buying habits of the residents of 
urban and metropolitan areas in the United States and covers over 90 
percent of the U.S. population. Id. Comparatively, the CPI-W is 
computed using the same prices as the CPI-U, but the weights of the 
CPI-W are based on a subset of the CPI-U population, covering 
approximately 30 percent of the U.S. population. Id. The CPI-W also 
includes households where more than one-half of the household's 
earners must have been employed for at least 37 weeks during the 
previous 12 months. Id. Given the relevance of these indexes to the 
population of natural persons that may qualify as QEPs via the 
Portfolio Requirement, the Commission believes these indexes are the 
most appropriate to use in determining today's buying power of the 
Portfolio Requirement's monetary thresholds established in 1992.
    \82\ See Proposal, 88 FR 70854 The indexes show that inflation 
has had an appreciable effect on the monetary thresholds promulgated 
in the 1992 Final Rule. The CPI-U and CPI-W data expose that the 
current thresholds may no longer be indicative of a high level of 
investor sophistication, acumen, and resources that the Commission 
anticipated when the Portfolio Requirement was promulgated. Based on 
analysis using CPI-U data, for example, as of February 2023, the 
Securities Portfolio Test's $2,000,000 threshold has equal 
purchasing power as approximately $4,270,000, and the $200,000 
specification in the Initial Margin and Premiums Test has equal 
purchasing power as approximately $427,000. See also id. at 70854, 
n. 30.
    \83\ Id. at 70855.
    \84\ The actual calculator for CPI-U can be found at https://www.bls.gov/data/inflation_calculator.htm. Similar to the Proposal, 
the Commission is choosing to include the July 2024 CPI-U data above 
because it provides a clear example of today's buying power of the 
Portfolio Requirement, as it was established in August 1992, and 
because the data can be easily accessed and verified via the BLS 
inflation calculator link provided herein. In comparing the results 
of each index, as applied to the Portfolio Requirement thresholds, 
the Commission found no material difference between the CPI-W and 
CPI-U. Analysis using the CPI-W provided similar buying power 
figures to those produced by the CPI-U analysis. Given that the 
Commission is proposing updated thresholds rounded down to the 
nearest million and hundred thousand, the Commission believes that 
providing the CPI-U analysis is sufficient for purposes of this 
Final Rule.
---------------------------------------------------------------------------

    Although the Commission believes the updated information from the 
inflation indexes justifies updating the Portfolio Requirement 
thresholds, some commenters raised concerns that an increased Portfolio 
Requirement would have wider consequences. One commenter raised a 
concern that, if the Commission significantly raised the Portfolio 
Requirement's financial standards, it ``may move certain persons that 
may desire to participate in a 4.7 pool or managed account program 
further away from the SEC's current accredited investor qualification 
standards for private offerings,'' and recommended that the Commission 
work with the SEC to review the accredited investor definition and 
determine if any changes are appropriate, rather than update the 
Portfolio Requirement thresholds on its own.\85\ The Commission agrees 
with the commenter that it is desirable to harmonize overlapping 
regulatory regimes where possible and appropriate, and recognizes that 
it is perhaps particularly relevant to Commission regulation Sec.  4.7, 
where the Commission specifically identified and utilized the SEC's 
accredited investor definition as a ``foundation'' for developing the 
exemption.\86\ Despite that acknowledgement, the Commission is not 
persuaded that increasing the financial thresholds within the Portfolio 
Requirement would create a large enough gap between the two frameworks, 
so as to render them unworkable in tandem. The Portfolio Requirement is 
a unique feature of Commission regulation Sec.  4.7 that has never 
appeared as a qualification in the SEC's accredited investor 
definition. In 1992, as part of the Commission's discussion of the 
SEC's accredited investor definition serving as a ``foundation'' for 
Commission regulation Sec.  4.7, the Commission stated that it 
``[proposed] a definition of QEP that is designed generally to include 
persons who qualify as accredited investors under Regulation D [17 CFR 
230.500 through 230.508] and who meet certain additional 
qualifications.'' \87\ The Commission was clear in 1992 that the 
Portfolio Requirement was intended to be an ``additional 
qualification'' on top of meeting the accredited investor definition, 
and that its consideration of aspects of the accredited investor 
definition in developing Commission regulation Sec.  4.7 were with 
respect to the categories of QEPs and not the Portfolio Requirement. 
The Portfolio Requirement is a CFTC-only component of Commission 
regulation Sec.  4.7 that was developed intentionally to impose a 
heightened standard for QEPs as opposed to simply relying on the 
provisions of the securities laws. It is entirely plausible that, under 
the existing frameworks, a person may qualify as an accredited 
investor, but also not be a QEP. For example, Sec.  230.501(a)(6) of 
Regulation D defines an accredited investor as any natural person who 
had an individual income in excess of $200,000 in each of the two most 
recent years, or joint income with that person's spouse in excess of 
$300,000 in each of those years.\88\ If a natural person narrowly meets 
that accredited investor income test, it is entirely possible that they 
do not have sufficient assets to meet the Securities Portfolio Test, or 
sufficient commodity interest trading to meet the Initial Margin and 
Premiums Test under the current Portfolio Requirement in

[[Page 78801]]

Commission regulation Sec.  4.7. To put it simply, in the context of 
natural persons, the accredited investor definition attempts to measure 
financial sophistication by annual income or net worth, whereas the 
Portfolio Requirement is focused on a person's experience trading and 
managing a portfolio of sufficient size to demonstrate an understanding 
of the risks in the securities and commodity interest markets; the 
latter being arguably more relevant to assessing a person's 
sophistication and investment acumen given the complexity and unique 
risks associated with the commodity interest markets.\89\
---------------------------------------------------------------------------

    \85\ NFA Letter, at 3. NFA also stated that the Commission, in 
its 1992 Proposal, acknowledged that the SEC's accredited investor 
definition under SEC Regulation D was used as the ``foundation'' to 
define categories of QEPs. See also 57 FR 3148, 3151-3152 (Jan. 28, 
1992) (1992 Proposal).
    \86\ 1992 Proposal, 57 FR 3151.
    \87\ Id. (emphasis added).
    \88\ 17 CFR 230.501(a)(6).
    \89\ See 1992 Final Rule, 57 FR 34854, quoting 1992 Proposal, 57 
FR 3151 (explaining that the Commission intended to define QEP 
status by means of objective criteria that such persons possess 
either the investment expertise and experience necessary to 
understand the risks involved, as evidenced by the registered status 
of certain investment professionals, or have an investment portfolio 
of sufficient size to indicate that the participant has substantial 
investment experience and thus a high degree of sophistication with 
regard to investments as well as financial resources to withstand 
the risk of their investments).
---------------------------------------------------------------------------

    Moreover, not all persons are required to meet the Portfolio 
Requirement to be QEPs. The Portfolio Requirement only applies to 
persons listed under current Commission regulation Sec.  4.7(a)(3),\90\ 
whereas those categories of persons listed under current Commission 
regulation Sec.  4.7(a)(2) do not have to meet its terms to be 
QEPs.\91\ In creating and adopting the QEP definition and Commission 
regulation Sec.  4.7, the Commission viewed these two categories as 
separate ``classes'' and intentionally provided an additional 
eligibility condition, in the form of the Portfolio Requirement, for 
those persons listed in current Commission regulation Sec.  
4.7(a)(3).\92\ The amendments to the financial thresholds being adopted 
today do not expand the Portfolio Requirement to the other persons 
enumerated under current Commission regulation Sec.  4.7(a)(2) or 
otherwise alter these two original categories of QEPs. The 
establishment of the Portfolio Requirement was an intentional, 
alternative mechanism for qualification as a QEP, functioning 
independent of the SEC's accredited investor definition, and has been 
part of the terms of Commission regulation Sec.  4.7 since its 
inception in 1992. As such, the Commission is not persuaded that 
updating the Portfolio Requirement by adjusting its thresholds would 
meaningfully disrupt existing harmonization between CFTC and SEC 
regulatory regimes, as the two standards were never identical and were 
not intended to be. Nor does the Commission believe that it should 
delay increasing the Portfolio Requirement until the accredited 
investor definition is otherwise amended.
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    \90\ This list includes, but is not limited to: (1) certain 
investment companies registered under the Investment Company Act of 
1940 (ICA) or business development companies as defined in section 
2(a)(48) of the ICA: (2) banks as defined in section 3(a)(2) of the 
Securities Act of 1933 (Securities Act); or any savings and loan 
association or other institution defined in section 3(a)(5)(A) of 
the Securities Act acting for its own account or for the account of 
a QEP; (3) certain insurance companies acting for their own account 
or that of a QEP; (4) certain state employee benefit plans; (5) 
certain employee benefit plans within the meaning of the Employee 
Retirement Income Security Act of 1974 (ERISA); (6) private business 
development companies; (7) certain organizations described in 
section 501(c)(3) of the Internal Revenue Code (IRC) with total 
assets in excess of $5,000,000; (8) certain corporations, 
Massachusetts or similar business trusts, or partnerships, limited 
liability companies or similar business ventures; (9) natural 
persons meeting the individual net worth or joint net worth tests 
within the ``accredited investor'' definition; (10) natural persons 
who would otherwise be considered accredited investors; (11) certain 
pools, trusts, insurance company separate accounts, or bank 
collective trusts; and (12) certain government entities.
    \91\ This list includes, but is not limited to: (1) registered 
FCMs, registered retail foreign exchange dealers (RFEDs), registered 
swap dealers, and principals thereof; (2) a registered broker or 
dealer, or principal thereof; (3) certain registered CPOs, and 
principals thereof (active for two or more years, and $5,000,000 in 
total aggregate commodity pool assets); (4) certain registered CTAs, 
and principals thereof (active for two or more years, and advising 
commodity accounts, in the aggregate, of $5,000,000 or more); (5) 
certain investment advisers registered under the Investment Advisers 
Act of 1940 (IAA), and principals thereof; (6) ``qualified 
purchasers'' as defined in section 2(a)(51)(A) of the ICA; (7) 
``knowledgeable employees'' as defined in 17 CFR 270.3c-5 pursuant 
to the ICA; (8) certain persons associated with an exempt pool or 
account; (9) certain trusts; (10) organizations described in section 
501(c)(3) of the IRC, where the trustee, founder, or person making 
investment decisions is also a QEP; (11) non-United States persons; 
and (12) exempt pools.
    \92\ 1992 Proposal, 57 FR 3152.
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    Another commenter expressed concern that the increases to the 
financial thresholds within the Portfolio Requirement could have 
negative effects on persons who currently qualify as QEPs, but would no 
longer be considered QEPs under the updated Portfolio Requirement.\93\ 
Specifically, the commenter advocated for the grandfathering of 
investors who are currently QEPs, but would no longer qualify as such 
under the increased Portfolio Requirement, and encouraged the 
Commission to ``clarify and explain its expectations with respect to 
4.7 offerings with pool participants that are both QEPs, and former 
QEPs that no longer satisfy the [increased] Portfolio Requirement.'' 
\94\ In the Proposal, the Commission specifically requested any data or 
information from CPOs or CTAs that utilize Commission regulation Sec.  
4.7 on the number of advisory clients and pool participants that would 
be directly affected by the increase.\95\ Despite raising this concern 
and the Commission's specific request, neither this commenter nor any 
other provided information or data on the number of advisory clients or 
pool participants that currently qualify as QEPs via the existing 
Portfolio Requirement, but would not so qualify if the increased 
thresholds are adopted. Notwithstanding the lack of specific 
information to assess the magnitude of the class of persons affected, 
the Commission acknowledges that some persons will fall within this 
``gap'' population that would no longer be considered QEPs under the 
updated Portfolio Requirement.\96\ Because of that reality, the 
Commission preliminarily addressed its position with respect to such 
former QEPs within the Proposal.\97\ For the sake of clarity, however, 
the Commission today restates its position below on how it expects CPOs 
and CTAs to comply with the updated Portfolio Requirement for its 
advisory clients or pool participants that previously qualified as 
QEPs, but would not so qualify under the updated Portfolio Requirement.
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    \93\ MFA Letter, at 4.
    \94\ Id.
    \95\ See Proposal, 88 FR 70855, Request #2 (``The Commission is 
also seeking any data or information, from CPOs and CTAs that 
utilize Regulation 4.7, on the estimated number of advisory clients 
and pool participants that currently qualify as QEPs via the 
existing Portfolio Requirement, but would not so qualify if the 
increased monetary thresholds in the Portfolio Requirement described 
above are adopted.'').
    \96\ The only mechanism available for the Commission to confirm 
the existence of this population would be to review all documents 
required to be kept by Sec.  4.7 CPOs and CTAs that validate their 
advisory clients' or pool participants' status as QEPs and assess 
how many would fall within the ``gap'' population.
    \97\ Proposal, 88 FR 70854-55 (``Acknowledging that the 
Portfolio Requirement will likely result in a certain portion of 
currently-qualifying QEPs no longer meeting the thresholds, the 
Commission noted that current Regulation 4.7(a)(3) provides that 
CPOs must assess a person's QEP status at the time of sale of any 
pool participation units including satisfying the Portfolio 
Requirement. Likewise, CTAs must make a similar assessment at the 
time that a person opens an exempt account. As opposed to requiring 
mandatory redemptions or terminations of advisory relationships for 
those current QEPs who may not meet the proposed heightened 
thresholds, the Commission expects that continuing this requirement 
minimizes the potential for disruption to the 4.7 pool or trading 
program, as well as possible negative consequences for the current 
QEPs. Therefore, the proposal was for the retaining the requirements 
of Regulation 4.7(a)(3) in Proposed Regulation 4.7(a)(6)(ii). 
Additionally the Commission sought comment on this issue in the 
proposal.).
---------------------------------------------------------------------------

    The Commission intends to retain, and will apply, the provision 
which requires that, for persons that must

[[Page 78802]]

satisfy the Portfolio Requirement, a CPO or CTA must have the 
reasonable belief, at the time of sale of a pool participation in an 
exempt pool, or at the time that a person opens an exempt account, that 
such person satisfies the Portfolio Requirement. In effect, if a CPO or 
CTA has previously sold a pool participation or opened an exempt 
account for a person that qualified as a QEP under the previous 
Portfolio Requirement, but who does not meet the updated Portfolio 
Requirement, the CPO or CTA would not be required to redeem such 
person's pool participations, or to terminate the advisory relationship 
with that person. However, a CPO or CTA would not be permitted to sell 
any additional pool participations or open any additional exempt 
accounts for any person that does not meet the updated Portfolio 
Requirement. The avoidance of required redemption or account closure 
should limit any potential disruptions or negative consequences either 
to the Sec.  4.7 pool or trading program, or the pool participant or 
advisory client.
    The Commission believes, however, that it would run counter to the 
intent of the updated Portfolio Requirement to permit a wholesale 
grandfathering of any persons who had previously been considered QEPs 
prior to the update. Additionally, the Commission is concerned that 
doing so may lead to an influx of persons into Sec.  4.7 pools and 
trading programs prior to the implementation date of the updated 
Portfolio Requirement, solely to evade the increased financial 
thresholds. The Commission notes that, pursuant to current Commission 
regulation Sec.  4.7 requirements, CPOs and CTAs are responsible for 
determining the QEP status of their prospective pool participants or 
advisory clients, regardless of how such QEP meets that definition, and 
must retain evidence of such determinations as part of their books and 
records.\98\
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    \98\ See 17 CFR 4.7(b)(5) and (c)(2) (requiring CPOs and CTAs to 
maintain books and records including, without limitation, records 
relating to the qualifications of qualified eligible persons).
---------------------------------------------------------------------------

D. Permitting Monthly Account Statements for Certain Sec.  4.7 Pools 
Consistent With Commission Exemptive Letters

    As the Commission explained in the Proposal, Commission regulation 
Sec.  4.7(b)(3) provides an exemption from the requirement in 
Commission regulation Sec.  4.22(a) and (b) that CPOs provide monthly 
account statements containing specific information to participants in 
their commodity pools.\99\ With respect to Sec.  4.7 pools, CPOs are 
permitted to distribute account statements no less frequently than 
quarterly within 30 days after the end of the reporting period.\100\ 
The Commission noted, however, that CPOs of Sec.  4.7 pools that are 
``Funds of Funds'' \101\ have reported to Commission staff that they 
often have difficulty complying with the quarterly account statement 
schedule required by Commission regulation Sec.  4.7(b)(3). The 
Commission stated further that such CPOs regularly request exemptive 
letters from the Commission to permit them to follow an alternate 
account statement schedule, explaining that because they cannot control 
the timing of when they receive financial information from underlying 
investee collective investment vehicles, investor Fund of Funds CPOs 
often do not receive the requisite information for their own Sec.  4.7 
pool periodic reporting until the 30-day period for distribution is 
nearly expired. The Commission explained that, over the years, it has 
routinely granted these exemptive letter requests, permitting 
requesting CPOs to distribute monthly, rather than quarterly, account 
statements for their Sec.  4.7 Fund of Funds pools within 45 days of 
the month-end,\102\ and that this approach allowed the requesting CPOs 
additional time to receive and gather the information required for 
their account statements, while also ensuring that QEP pool 
participants receive both more accurate and more frequent reporting.
---------------------------------------------------------------------------

    \99\ Proposal, 88 FR 70863 (citing 17 CFR 4.7(b)(3), 4.22(a) and 
(b)).
    \100\ 17 CFR 4.7(b)(3)(i).
    \101\ In the Proposal, the Commission defined ``Funds of Funds'' 
as pools that invest in unrelated funds, pools, or other collective 
investment vehicles. Proposal, 88 FR 70856, n. 42.
    \102\ Proposal, 88 FR 70863 (citing CFTC Letters 18-29, 19-01, 
19-03, 20-11, 21-16, and 23-04).
---------------------------------------------------------------------------

    Consistent with its past efforts to memorialize routinely granted 
Commission letter relief via regulatory amendments, the Commission 
proposed to add paragraph (b)(3)(iv) to Commission regulation Sec.  
4.7, noting that the amendment was intended to streamline availability, 
provide consistency, and eliminate the need for Commission staff to 
process and respond to requests individually.\103\ Proposed Commission 
regulation Sec.  4.7(b)(3)(iv) stated, where the exempt pool is 
invested in one or more other pools or funds operated by third parties, 
the commodity pool operator may choose instead to prepare and 
distribute to its pool participants statements on a monthly basis 
within 45 days of the month-end, provided that such account statements 
otherwise meet the requirements of Commission regulation Sec.  
4.7(b)(3), and that the CPO notifies its Sec.  4.7 pool participants of 
this alternate distribution schedule either in the pool's offering 
memorandum, or upon adoption of this reporting schedule.\104\ The 
Commission requested comment on the proposed amendment, in particular 
whether it effectively creates a mechanism in Regulation Sec.  
4.7(b)(3) that is equivalent to the exemptive letters currently issued 
by the Commission, and whether the alternate account statement 
distribution schedule and notice requirements are clear.\105\
---------------------------------------------------------------------------

    \103\ Id.
    \104\ Proposal, 88 FR 70878.
    \105\ Id. at 70863.
---------------------------------------------------------------------------

    In response to this aspect of the NPRM, the Commission received 
positive feedback from multiple commenters, with one commenter noting 
specifically that ``seeking and receiving the exemptive relief has come 
with a time and cost burden for CPOs'' operating Sec.  4.7 Fund of Fund 
pools and indicating that the proposed amendment would be a welcome 
alternative to that process.\106\ Given the positive public comments, 
the lack of any suggested changes to this amendment, as well as its 
continued belief that considering and adopting regulatory amendments 
consistent with staff letter relief provides clarity, consistency, and 
streamlines availability, the Commission is adopting Proposed 
Commission regulation Sec.  4.7(b)(3)(iv) as proposed.
---------------------------------------------------------------------------

    \106\ SIFMA AMG Letter, at 11; IAA Letter, at 7; NFA Letter, at 
5; Dechert Letter, at 11.
---------------------------------------------------------------------------

E. Other Technical Amendments

    The Proposal also included a number of technical amendments to 
Commission regulation Sec.  4.7 designed to improve its efficiency and 
usefulness for intermediaries and their prospective and actual QEP pool 
participants and advisory clients, as well as the general public.\107\ 
For example, the Commission proposed to delete the introductory 
paragraph to Commission regulation Sec.  4.7 and to generally 
restructure the definitions section in Commission regulation Sec.  
4.7(a), eliminating what it viewed as unnecessary subparagraph levels 
in the QEP definition and alphabetizing the definitions for ease of 
reference. The Commission also proposed additional amendments to ensure 
that cross-references within Commission regulation Sec.  4.7 and in 
other part 4 regulations were accurate.
---------------------------------------------------------------------------

    \107\ Proposal, 88 FR 70863.
---------------------------------------------------------------------------

    The Commission sought comment on those technical amendments and 
requested commenters detail any other technical amendments it should 
consider for ease of use, as well as

[[Page 78803]]

whether there were any other cross-references within Commission 
regulation Sec.  4.7 not addressed by the Proposal that should be 
corrected. The Commission received no comments on these technical 
amendments, and no commenters identified additional technical 
amendments or corrections that it should consider. Nevertheless, as a 
result of the reorganization of the definitions in Commission 
regulation Sec.  4.7 accomplished by this Final Rule, the Commission 
has identified several regulations outside of 17 CFR part 4 that now 
require technical corrections because they refer to certain definitions 
in Commission regulation Sec.  4.7. Specifically, the Commission is 
correcting references to defined terms in Commission regulation Sec.  
4.7 found in Commission regulation Sec. Sec.  1.35, 3.10, 30.6, 43.6, 
and 75.10. Therefore, the Commission is adopting the technical 
amendments in the NPRM largely as proposed, along with technical 
corrections to the regulatory cross-references outside of part 4 that 
are listed herein.

F. Effective and Compliance Dates for the Final Rule

    In the Proposal, the Commission requested feedback from commenters 
on the time needed to comply with the proposed Portfolio Requirement 
update and the proposed minimum disclosure requirements.\108\ The 
Commission only received one comment in response, requesting an 18-
month implementation timeline for the proposed minimum disclosure 
requirements.\109\ As discussed above, the Final Rule is not adopting 
minimum disclosure requirements in Commission regulation Sec.  4.7 at 
this time. Nonetheless, the Commission is adopting distinct compliance 
dates for each remaining component of the Final Rule.
---------------------------------------------------------------------------

    \108\ Proposal, 88 FR 70855 (``3. How much time would CPOs and 
CTAs need to determine that their existing QEP pool participants and 
clients would continue to satisfy the increased Securities Portfolio 
or Initial Margin and Premium Tests, if adopted as proposed?''); see 
also Proposal, 88 FR 70859 (``Should the Commission consider an 
implementation period for the proposed amendments, and if so, how 
much time should the Commission allow for CPOs and CTAs to develop 
and prepare QEP Disclosures that would comply with the proposed 
amendments?'').
    \109\ SIFMA Letter, at 11 (``If, however, the Commission 
declines to do so, we ask that the Commission allow for at least an 
18-month compliance period to allow CPOs and CTAs adequate time to 
develop the necessary compliance programs.'').
---------------------------------------------------------------------------

    The compliance date for the increased Portfolio Requirement 
thresholds shall be six months from publication of the Final Rule in 
the Federal Register. As discussed in section II.C above, the updated 
Portfolio Requirement will require Sec.  4.7 CPOs and CTAs to adjust 
their processes for assessing the QEP status for both new and existing 
pool participants and advisory clients. However, given that the 
Portfolio Requirement update would not require Sec.  4.7 CPOs and CTAs 
to redeem pool participations or otherwise end advisory relationships 
with those QEPs who no longer meet the Portfolio Requirement, as 
amended by the Final Rule, and that Sec.  4.7 CPOs and CTAs only need 
to update their QEP evaluation processes with the new thresholds on a 
forward-looking basis, the Commission believes a 6-month implementation 
period is appropriate.\110\
---------------------------------------------------------------------------

    \110\ See discussion in section II.C above for more detail on 
the implementation and applicability of the amended Portfolio 
Requirement to existing QEP pool participants and advisory clients.
---------------------------------------------------------------------------

    Finally, the component of the Final Rule permitting alternative 
monthly account statement schedule for certain Sec.  4.7 pools that are 
Funds of Funds, i.e., new Commission regulation Sec.  4.7(b)(3)(iv), 
shall be effective as of the Final Rule's effective date, as described 
above, and following the effective date, compliance will be required 
when a CPO elects to utilize this schedule for a qualifying Sec.  4.7 
pool.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that Federal 
agencies, in promulgating regulations, consider whether the regulations 
they propose will have a significant economic impact on a substantial 
number of small entities, and if so, to provide a regulatory 
flexibility analysis regarding the economic impact on those 
entities.\111\ If the rules are determined to have a significant 
economic impact, such agencies must provide a regulatory flexibility 
analysis regarding such economic impact. Each Federal agency is 
required to conduct an initial and final regulatory flexibility 
analysis for each rule of general applicability for which the agency 
issues a general notice of proposed rulemaking. The Final Rule 
amendments adopted by the Commission today would affect only persons 
registered or required to be registered as CPOs and CTAs and those 
commodity pools and trading programs operated under Commission 
regulation Sec.  4.7 and offered solely to QEPs.
---------------------------------------------------------------------------

    \111\ 5 U.S.C. 601, et seq.
---------------------------------------------------------------------------

1. CPOs
    The Commission has previously established certain definitions of 
``small entities'' to be used by the Commission in evaluating the 
impact of its rules on such entities in accordance with the 
requirements of the RFA.\112\ With respect to CPOs, the Commission 
previously has determined that a CPO is a small entity for purposes of 
the RFA, only if it meets the criteria for an exemption from 
registration under Commission regulation Sec.  4.13(a)(2).\113\ The 
regulations adopted in this Final Rule apply to persons registered or 
required to be registered as CPOs with the Commission (specifically, 
those registered CPOs whose prospective and actual pool participants 
are restricted to QEPs) and/or provide relief to qualifying registrants 
from certain periodic reporting burdens. Accordingly, the Chairman, on 
behalf of the Commission, certifies pursuant to 5 U.S.C. 605(b) that 
this Final Rule will not have a significant economic impact on a 
substantial number of small entities, with respect to CPOs.
---------------------------------------------------------------------------

    \112\ See, e.g., Policy Statement and Establishment of 
Definitions of ``Small Entities'' for Purposes of the Regulatory 
Flexibility Act, 47 FR 18618, 18620 (Apr. 30, 1982).
    \113\ Id. at 18619-20. Commission regulation Sec.  4.13(a)(2) 
exempts a person from registration as a CPO when: (1) none of the 
pools operated by that person has more than 15 participants at any 
time, and (2) when excluding certain sources of funding, the total 
gross capital contributions the person receives for units of 
participation in all of the pools it operates or intends to operate 
do not, in the aggregate, exceed $400,000. See 17 CFR 4.13(a)(2).
---------------------------------------------------------------------------

2. CTAs
    Regarding CTAs, the Commission has previously considered whether 
such registrants would be deemed small entities for purposes of the RFA 
on a case-by-case basis, in the context of the particular Commission 
regulation at issue.\114\ Because certain of these registered CTAs may 
be small entities for the purposes of the RFA, the Commission 
considered in the NPRM whether the proposed amendments would have a 
significant economic impact on such registrants.\115\ The Commission 
received no comments on the initial regulatory flexibility analysis 
conducted in the Proposal.
---------------------------------------------------------------------------

    \114\ Id. at 18620.
    \115\ Proposal, 88 FR 70863-66.
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    The portions of the Final Rule directly impacting CTAs would affect 
only CTAs registered or required to register with the Commission that 
offer and operate trading programs designed for QEPs. Given that the 
Commission has determined to finalize only the Portfolio Requirement 
increases in this Final Rule, the Commission believes that the Final 
Rule amendments will have almost no economic impact on registered CTAs 
offering Sec.  4.7 trading programs because, beyond increasing

[[Page 78804]]

the thresholds in the Portfolio Requirement, the Final Rule does not 
add any other compliance burdens for CTAs.
    As stated above, the amendments adopted today primarily impact 
registered CTAs offering Sec.  4.7 trading programs to QEP advisory 
clients and claiming the compliance exemptions currently offered by 
Commission regulation Sec.  4.7. As explained in the NPRM, data on the 
specific size of registered CTAs offering Sec.  4.7 trading programs is 
limited, but it has been the Commission's experience that such CTAs 
claiming compliance exemptions in Commission regulation Sec.  4.7 for 
the purposes of soliciting and serving QEP advisory clients are often 
large financial institutions with substantial financial assets and 
advisory experience, or affiliates thereof. Although the Chairman, on 
behalf of the Commission, certifies under the RFA that the Final Rule 
will not have a significant impact on a substantial number of small 
entities, and hereby provides notice of that certification to the Small 
Business Administration, the Commission nonetheless has determined that 
publishing a final regulatory flexibility analysis is appropriate to 
ensure that the impact of the Final Rule is fully addressed. Therefore, 
the Commission has prepared the following final regulatory flexibility 
analysis:
i. A Statement of the Need for, and Objectives of, the Rule
    As the Commission stated in the Proposal, and as reiterated above 
in this Final Rule, since the 1992 Final Rule adopting Commission 
regulation Sec.  4.7, the Commission has witnessed substantial 
increases in the intermediary population utilizing those exemptions for 
Sec.  4.7 pools and trading programs offered and available to QEPs. 
This development also coincides with current commodity interest market 
conditions, in which the Commission has seen significant expansion and 
growth in the complexity and diversity of commodity interest products 
offered via Sec.  4.7 pools and trading programs, which may be more 
challenging to fully understand. As stated above, the CEA grants the 
Commission the authority to regulate and register CTAs, as well as to 
require the maintenance of books and records and filing of reports that 
the Commission believes is necessary to accomplish its regulatory 
mission and the goals of the CEA.\116\ The Commission has determined to 
adopt the proposed increases to the Portfolio Requirement in the QEP 
definition, which will require CTAs to adjust their methods of 
evaluating prospective advisory clients' QEP status.
---------------------------------------------------------------------------

    \116\ 7 U.S.C. 6m, 6n.
---------------------------------------------------------------------------

ii. A Statement of the Significant Issues Raised by the Public Comments 
in Response to the Initial Regulatory Flexibility Analysis, a Statement 
of the Assessment of the Agency of Such Issues, and a Statement of Any 
Changes Made in the Proposed Rule as a Result of Such Comments
    The Commission received no comments specifically addressing the 
initial regulatory flexibility analysis published in the Proposal.\117\ 
However, the Commission did receive several comments, discussed above, 
stating that the proposed amendments, if adopted, would prove costly to 
intermediaries, with such costs being passed down to QEP pool 
participants and advisory clients, without necessarily resulting in the 
customer protection benefits the Commission intended. Commenters 
asserted that the proposed amendments, as applied to common usage 
scenarios in complex fund structures, may require CTAs to provide QEP 
Disclosures to entities or persons under common control who likely 
already receive or have access to such information; that, in other 
contexts, CTAs have relationships with highly sophisticated and well-
resourced QEPs, whose disclosures and access to information are 
carefully negotiated; and finally, that the proposed amendments would 
be duplicative of requirements in the securities laws dictating the 
content and disclosures in Form ADV, which is commonly filed by 
investment advisers dually registered as CTAs, or of disclosures 
already being made as a matter of common market practice.
---------------------------------------------------------------------------

    \117\ Proposal, 88 FR 70863-66.
---------------------------------------------------------------------------

    After considering these comments, as well as potential alternatives 
raised by commenters, the Final Rule does not adopt any minimum 
disclosure requirements in Commission regulation Sec.  4.7. The 
Commission will continue evaluating the regulatory alternatives and may 
adopt further changes in the future. The Commission has determined to 
adopt the proposed increases to the Portfolio Requirement in the QEP 
definition as part of this Final Rule, which will require CTAs to 
adjust their methods of evaluating prospective advisory clients' QEP 
status. Therefore, the only impact this Final Rule will have on CTAs is 
with respect to the adoption of the Portfolio Requirement increases 
that may have a small effect on how CTAs evaluate prospective advisory 
clients' QEP status.
iii. A Description of and, Where Feasible, an Estimate of the Number of 
Small Entities to Which the Rule Will Apply
    CTAs are generally not subject to any minimum capital requirements, 
nor does the Commission collect data on the ``size'' of registered CTAs 
via Commission registration applications or other required Commission 
filings or reports. Therefore, the Commission has no data to analyze 
that would enable it to estimate how many registered CTAs may be 
considered small entities for RFA purposes. The Commission sought 
comment on this issue in its initial regulatory flexibility analysis, 
but received no comments addressing this issue or providing relevant 
data. It is the Commission's experience that registered CTAs \118\ 
claiming Commission regulation Sec.  4.7 exemptions and offering Sec.  
4.7 trading programs to QEP advisory clients are frequently large 
financial institutions offering a variety of trading programs and 
strategies. Nonetheless, the Commission acknowledges that some 
percentage or portion of the population of CTAs affected by this Final 
Rule, i.e., those registered or required to register with the 
Commission and utilizing the exemptions in Commission regulation Sec.  
4.7, may be considered small entities as defined by the RFA, though the 
Commission lacks the information or data necessary to determine or 
estimate how many.
---------------------------------------------------------------------------

    \118\ As of June 2024, there were approximately 1,241 CTAs 
registered with the Commission.
---------------------------------------------------------------------------

iv. A Description of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements of the Rule, Including an Estimate of the 
Classes of Small Entities Which Will Be Subject to the Requirement and 
the Type of Professional Skills Necessary for Preparation of the Report 
or Record
    The Commission is not adopting the minimum disclosure requirements, 
or the corresponding proposed recordkeeping, use and amendment 
requirements, in Commission regulation Sec.  4.7, but is adopting 
adjustments to the Portfolio Requirement in the QEP definition of that 
provision. The Commission anticipates that the Final Rule will affect 
CTAs claiming Commission regulation Sec.  4.7 and offering Sec.  4.7 
trading programs, which, as stated above, may include some small 
entities for RFA purposes. Nonetheless, regardless of whether a CTA is 
considered a small entity, the Commission believes that all registered 
CTAs offering and managing Sec.  4.7 trading programs generally possess 
the

[[Page 78805]]

professional skills necessary to accurately evaluate the QEP status of 
prospective advisory clients, which is a baseline requirement for CTAs 
operating under claimed exemptions in Commission regulation Sec.  4.7, 
and that the Final Rule will require only minor adjustments to CTAs' 
existing processes.
v. A Description of the Steps the Agency Has Taken To Minimize the 
Significant Economic Impact on Small Entities Consistent With the 
Stated Objectives of Applicable Statutes, Including a Statement of the 
Factual, Policy, and Legal Reasons for Selecting the Alternative 
Adopted in the Final Rule and Why Each One of the Other Significant 
Alternatives to the Rule Considered by the Agency Which Affect the 
Impact on Small Entities Was Rejected
    The Commission did not propose any specific small entity exemption, 
but in the initial regulatory flexibility analysis, the Commission 
identified potential alternatives to the proposed amendments: (1) to 
not amend Commission regulation Sec.  4.7 to add disclosure 
requirements for Sec.  4.7 trading programs; (2) to amend Commission 
regulation Sec.  4.7(c)(1) to require compliance with the entirety of 
the disclosure regulations generally applicable to registered CTAs 
offering trading programs to non-QEP advisory clients; or (3) limiting 
the application of the proposed amendments to registered CTAs claiming 
Commission regulation Sec.  4.7 and offering Sec.  4.7 trading programs 
to those CTAs who are not small entities for RFA purposes.
    Although the Commission did not receive any comments directly on 
the initial regulatory flexibility analysis, multiple commenters made 
suggestions regarding how the Commission might limit the scope of the 
proposed disclosure requirements, while still accomplishing its 
customer protection goals with respect to QEPs most in need of 
regulatory support. In this Final Rule, the Commission has determined 
to adopt the proposed increases to the Portfolio Requirement in the QEP 
definition as part of this Final Rule, but is not adopting the proposed 
minimum disclosure requirements. Nonetheless, the Commission will 
continue to evaluate regulatory alternatives relating to minimum 
disclosure requirements and may adopt further changes, in the future, 
as appropriate.

B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) imposes certain 
requirements on Federal agencies, including the Commission, in 
connection with conducting or sponsoring any ``collection of 
information'' as defined by the PRA.\119\ Under the PRA, 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 PRA is 
intended, in part, to minimize the paperwork burden created for 
individuals, businesses, and other persons as a result of the 
collection of information by Federal agencies, and to ensure the 
greatest possible benefit and utility of information created, 
collected, maintained, used, shared, and disseminated by or for the 
Federal Government. The PRA applies to all information, regardless of 
form or format, whenever the Federal Government is obtaining, causing 
to be obtained, or soliciting information, and includes required 
disclosure to third parties or the public, of facts or opinions, when 
the information collection calls for answers to identical questions 
posed to, or identical reporting or recordkeeping requirements imposed 
on, ten or more persons.
---------------------------------------------------------------------------

    \119\ 44 U.S.C. 3501, et seq.
---------------------------------------------------------------------------

    The Final Rule modifies an existing collection of information 
previously approved by OMB and for which the Commission has received an 
OMB control number. The title for this collection is ``Rules Relating 
to the Operations and Activities of Commodity Pool Operators and 
Commodity Trading Advisors and to Monthly Reporting by Futures 
Commission Merchants'' (Collection 3038-0005). Collection 3038-0005 
primarily accounts for the burden associated with the Commission's part 
4 regulations that concern compliance generally applicable to CPOs and 
CTAs, as well as certain exemptions from registration as such and 
exclusions from those definitions, and available relief from compliance 
with certain regulatory requirements, e.g., Commission regulation Sec.  
4.7. In the Proposal, the Commission performed a PRA burden analysis of 
the proposed amendments and invited the public and other interested 
parties to comment on any aspect of the information collection 
requirements discussed therein. The Commission did not receive any such 
comments. The Commission is revising Collection 3038-0005 to reflect 
the adoption of the Final Rule amendments to Commission regulation 
Sec.  4.7, as discussed in further detail below.
    Collection 3038-0005 governs responses made pursuant to part 4 of 
the Commission's regulations, pertaining to the operations of CPOs and 
CTAs, including the itemization of compliance burdens remaining after 
CPOs and CTAs elect certain exemptions from broader compliance 
obligations in the part 4 regulations. In the NPRM, the Commission 
proposed new information collection obligations including minimum 
disclosure requirements and an alternative reporting schedule for 
required account statements. As discussed above, the Commission is not 
adopting the minimum disclosure requirements proposed in the NPRM in 
this Final Rule. The Commission is, however, adopting the amendment 
addressing the reporting schedule for distribution of account 
statements by CPOs of Sec.  4.7 pools that are Funds of Funds.
    As discussed above, the Commission is adopting an amendment to 
Commission regulation Sec.  4.7(b)(3) that, consistent with routinely 
issued Commission exemptive letters, permits CPOs of Sec.  4.7 pools 
that are Funds of Funds to distribute monthly account statements within 
45 days of the month-end, provided that such account statements 
otherwise meet the requirements of Commission regulation Sec.  
4.7(b)(3), and that the CPO notifies its Sec.  4.7 pool participants of 
this alternate distribution schedule either in the pool's offering 
memorandum, or upon adoption of this reporting schedule. Collection 
3038-0005 currently includes a reporting burden associated with 
Commission regulation Sec.  4.7(b)(3) that accounts for the quarterly 
account statements currently required to be distributed by such CPOs to 
their Sec.  4.7 pools' QEP participants. The Commission is revising the 
collection to include an additional reporting burden associated with 
Commission regulation Sec.  4.7(b)(3)(iv), adopted as part of this 
Final Rule, to account for the burden associated with monthly reporting 
as an option for Sec.  4.7 pools that are Funds of Funds. As it stated 
in the NPRM, the Commission believes that ``a smaller subset of CPOs 
and 4.7 pools [will] rely on this reporting schedule, and therefore, 
burden estimates below are based on 100 CPOs utilizing this alternative 
monthly account statement schedule for up to three 4.7 pools each.'' 
\120\
---------------------------------------------------------------------------

    \120\ Id.
---------------------------------------------------------------------------

    Accordingly, the aggregate annual estimate for the reporting burden 
associated with Commission regulation Sec.  4.7(b)(3)(iv), as added by 
this Final Rule, is as follows:
    Estimated number of respondents: 100.

[[Page 78806]]

    Estimated frequency/timing of responses: Monthly.
    Estimated number of annual responses per respondent: 36.
    Estimated number of annual responses for all respondents: 3,600.
    Estimated annual burden hours per response: 1.
    Estimated total annual burden hours per respondent: 36.
    Estimated total annual burden hours for all respondents: 3,600.

C. Cost-Benefit Considerations

1. Statutory and Regulatory Background
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of its discretionary actions before promulgating a 
regulation under the CEA or issuing certain orders. CEA section 15(a) 
further specifies that the costs and benefits shall be evaluated in 
light of five broad areas of market and public concern: (1) protection 
of market participants and the public; (2) efficiency, competitiveness, 
and financial integrity of 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 of the 
five enumerated areas of concern, and may, in its discretion, determine 
that, notwithstanding its costs, a particular rule is necessary or 
appropriate to protect the public interest, or to effectuate any of the 
provisions, or to accomplish any of the purposes, of the CEA. The 
Commission considers the costs and benefits resulting from its 
discretionary determinations with respect to the section 15(a) factors.
    The Commission invited public comment on the cost-benefit 
consideration in the Proposal. There were several general comments that 
it was ``inadequate.'' \121\ One commenter stated that they believed 
the Commission failed to engage in an adequate cost-benefit analysis 
sufficient to justify a burdensome and costly disclosure regime.\122\ 
Similarly, another commenter stated that they believed the cost-benefit 
analysis in the Proposal was insufficient.\123\ This commenter further 
encouraged the Commission to ``carefully evaluate the increased 
operational costs associated with requiring CPOs and CTAs offering 4.7 
pools and managed account programs to provide the proposed additional 
disclosures,'' as they ``will almost certainly be passed on to the 
pools' participants and managed account programs' clients.'' \124\ 
Despite these general objections to the Commission's Proposal, 
commenters provided no additional detail regarding how or why the 
Commission's preliminary cost-benefit analysis was ``inadequate,'' nor 
did commenters respond to the Commission's specific requests for 
comment associated with the Proposal's cost-benefit considerations 
discussion,\125\ both of which impede the Commission's ability to 
remediate the deficiencies commenters perceived in the Proposal's cost-
benefit analysis. Regardless, as detailed below, the Commission has 
considered the broad criticism asserted by commenters, as well as the 
adjustments made from the proposed amendments to those in this Final 
Rule.
---------------------------------------------------------------------------

    \121\ MFA Letter, at 12; SIFMA AMG Letter, at 10; and AIMA 
Letter, at 8.
    \122\ MFA Letter, at 12. However, in their comment letter, MFA 
did not provide any specific cost considerations or analysis for the 
Commission to consider.
    \123\ SIFMA AMG Letter, at 10.
    \124\ Id.
    \125\ See, e.g., Proposal, 88 FR 70872 (inquiring as to ``the 
costs of gathering and disseminating the other types of information 
required to be included in the QEP Disclosures,'' and ``how . . . 
fees and expenses charged by CPOs and CTAs . . . [would] be affected 
by the proposed disclosure requirements'').
---------------------------------------------------------------------------

    As discussed above, the Commission is adopting amendments to 
Commission regulation Sec.  4.7 that will result in additional costs 
for CPOs and CTAs operating Sec.  4.7 pools and trading programs. In 
response to certain comments, however, the Commission is declining to 
finalize the proposed minimum disclosure requirements and believes it 
appropriate to spend additional time considering the alternative 
proposals put forward by commenters. The Commission believes this 
approach will significantly reduce the costs and burdens to Sec.  4.7 
CPOs and CTAs arising from this Final Rule, as compared to those 
outlined in the NPRM. The Final Rule will, however, finalize the 
proposed amendments that will (1) increase the Portfolio Requirement in 
Commission regulation Sec.  4.7 such that persons required to meet it 
to be a QEP may satisfy it by either: (a) owning securities and other 
assets worth at least $4,000,000; (b) having on deposit with an FCM for 
their own account at least $400,000 in initial margin, option premiums, 
or minimum security deposits; or (c) owning a portfolio of funds and 
assets that, when expressed as percentages of the prior two thresholds, 
have a combined value of at least 100%; and (2) add a provision to 
Commission regulation Sec.  4.7(b)(3) codifying routinely issued 
exemptive letters allowing CPOs of Sec.  4.7 pools that are Funds of 
Funds to distribute account statements on a monthly basis, within 45 
days of the end of the month-end. These regulatory amendments adopted 
by the Final Rule will likely generate minimal costs to Sec.  4.7 CPOs 
and CTAs, but are expected to result in several benefits to 
intermediaries and pool participants and advisory clients. The baseline 
against which these costs and benefits are compared is the regulatory 
status quo set forth in current Commission regulation Sec.  4.7. The 
Commission has endeavored to enumerate material costs and benefits and, 
when reasonably feasible, assign a quantitative value to them. Where it 
is not reasonably feasible to quantify costs and benefits of the 
proposed amendments, those costs and benefits are discussed 
qualitatively.
    The consideration of costs and benefits below is based on the 
understanding that the markets function internationally, with many 
transactions involving U.S. firms taking place across international 
boundaries; with some Commission registrants being organized outside of 
the United States; with some leading industry members typically 
conducting operations both within and outside the United States; and 
with industry members commonly following substantially similar business 
practices wherever located. Where the Commission does not specifically 
refer to matters of location, the discussion of costs and benefits 
below refers to the effects of this Final Rule on all activity subject 
to the amended regulations, whether by virtue of the activity's 
physical location in the United States or by virtue of the activity's 
connection with or effect on U.S. commerce under CEA section 2(i). Some 
CPOs and CTAs are located outside of the United States.
2. Increasing Financial Thresholds in the Portfolio Requirement of the 
``Qualified Eligible Person'' Definition
    The Final Rule increases the Portfolio Requirement in Commission 
regulation Sec.  4.7 such that persons required to meet the Portfolio 
Requirement to be considered QEPs can do so by either: (1) owning 
securities and other assets worth at least $4,000,000; (2) having on 
deposit with an FCM for their own account at least $400,000 in initial 
margin, option premiums, or minimum security deposits; or (3) owning a 
portfolio of funds and assets that, when expressed as percentages of 
the prior two thresholds, have a combined value of at least 100%. The 
Commission did not receive any specific comments regarding whether any 
costs associated with the Portfolio Requirement financial thresholds 
would change as a result of the proposed increases. As stated in the

[[Page 78807]]

Proposal and herein, the Portfolio Requirement was adopted to identify 
prospective pool participants and advisory clients that possess 
sufficient financial experience and sophistication to withstand the 
risks associated with their participation in the commodity interest 
markets without the full panoply of protections afforded under part 4 
of the Commission's regulations. As stated previously in this release 
and in the Proposal, the Commission believes that increasing such 
thresholds appropriately restores the alignment of Commission 
regulation Sec.  4.7 with the Commission's original intention when it 
was adopted in 1992 to differentiate between retail investors and more 
sophisticated market participants, i.e., QEPs.
    The Commission recognizes, as it did in the Proposal, that 
increasing the thresholds in the Portfolio Requirement will result in 
some subset of QEPs no longer qualifying as such, which, should such 
newly designated non-QEPs still desire to participate in the commodity 
interest markets, could result in market forces supporting the 
development and offering of additional non-Sec.  4.7 pools and trading 
strategies. This would result in more diverse offerings to retail 
commodity interest market participants, thereby enhancing the variety 
and vibrancy of the non-QEP marketplace. As stated in the Proposal, the 
Commission believes that this development would result in more non-QEPs 
having the opportunity to participate in the commodity interest markets 
through commodity pools and trading programs better aligned with their 
particular risk tolerances and investment goals.
    As noted in the Proposal, due to the increases in the Portfolio 
Requirement thresholds, Sec.  4.7 CPOs will likely no longer be able to 
offer pool participation units to certain QEPs who will no longer 
qualify under the new thresholds adopted herein. Such CPOs, as well as 
some Sec.  4.7 CTAs, may decide to offer commodity pools and trading 
programs that are subject to the full suite of requirements under part 
4 of the Commission's regulations, which necessarily would result in 
increased costs associated with compliance. Conversely, it is possible 
that some CPOs and CTAs may continue to find the compliance relief 
provided by Commission regulation Sec.  4.7 to outweigh possible gains 
to be had by accessing the non-QEP market, which would mitigate the 
potential benefit to non-QEPs. Additionally, the Commission expects 
there to be certain ministerial costs associated with system updates 
required for Sec.  4.7 CPOs and CTAs to implement the increased 
thresholds, but given that the general requirements associated with the 
Portfolio Requirement are not changing in a substantive way beyond the 
actual numerical value of the thresholds, the Commission does not 
expect such costs to be significant.
Section 15(a) Factors
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of the amendments to Commission regulation Sec.  4.7 
with respect to the following factors: protection of market 
participants and the public; efficiency, competitiveness, and financial 
integrity of markets; price discovery; sound risk management practices; 
and other public interest considerations. As discussed above, the Final 
Rule's amendments increasing the financial thresholds in the Portfolio 
Requirement will, in the Commission's opinion, more closely align the 
QEP definition with the original intent of the regulation, which is to 
assure that offerings operated pursuant to Commission regulation Sec.  
4.7 compliance exemptions are only made to persons with ``substantial 
investment experience and thus a high degree of sophistication with 
regard to investments as well as financial resources to withstand the 
risk of their investments.'' \126\
---------------------------------------------------------------------------

    \126\ 1992 Final Rule, 57 FR 34854 (citing and quoting 1992 
Proposal, 57 FR 3151).
---------------------------------------------------------------------------

a. Protection of Market Participants and the Public
    As stated above, the Commission believes that this amendment will 
benefit the commodity interest markets and the general public by 
realigning financial thresholds in its most commonly used regulations 
in a manner that accounts for the impacts of inflation since their 
original adoption and more accurately reflects current economic 
circumstances; the Commission expects that this will result in persons 
investing in commodity interest products offered by registered CPOs and 
CTAs being more accurately categorized as QEPs, and thus, more 
appropriately limited in their investment choices. Moreover, raising 
the Portfolio Requirement thresholds, as a practical matter, will 
likely limit the prospective investor population for Sec.  4.7 pools 
and trading programs to a smaller number of persons. To the extent 
persons who meet the higher Portfolio Requirement thresholds are more 
financially sophisticated or resilient than those who no longer 
qualify, this amendment should result in individuals and entities, both 
QEPs and non-QEPs, being offered pools and trading programs that are 
regulated in a manner commensurate with their respective needs for 
customer protection. If the increased thresholds further lead to the 
creation of more commodity pools and trading programs subject to the 
full part 4 compliance requirements by registered CPOs and CTAs, this 
too will potentially lead to greater transparency in their activities, 
which also protects persons investing in commodity interest products. 
Additionally, greater variety in the commodity pools and trading 
programs available to non-QEPs will provide more options for this 
population to consider, which may further enable them to make more 
appropriate investment decisions by choosing the offerings best suited 
to their individual risk appetite or other portfolio needs.
b. Efficiency, Competitiveness, and Financial Integrity of Markets
    The Final Rule's amendments to the Portfolio Requirement may also 
affect the size, composition, or number of commodity pools and trading 
programs in the commodity interest markets, especially those offered 
solely to QEPs. This may, in turn, affect the flow of investing in 
commodity interests. The financial economics literature suggests that, 
to the extent changing the QEP definition reduces the flow of non-
commercial funds into commodity interest markets, the cost to 
commercial traders using futures markets to hedge their risks may 
increase.\127\ Via this mechanism, the Final Rule's amendment may have 
an indirect effect on efficiency of the futures markets with respect to 
the hedging costs of operating companies, commodity producers, or other 
commercial traders.
---------------------------------------------------------------------------

    \127\ Goldstein and Yang, ``Commodity Financialization and 
Information Transmission,'' 2022, Journal of Finance, 77, 2613-2668.
---------------------------------------------------------------------------

c. Price Discovery
    The increased Portfolio Requirement thresholds are likely to result 
in fewer persons being considered QEPs, which may further result in 
fewer participants and clients in offered pools and trading programs 
operated under Commission regulation Sec.  4.7. An additional indirect 
effect of the Final Rule's amendments could be a change in the flow of 
investment in commodity interests by non-commercial traders. The 
financial economics literature has found ambiguous results regarding 
the relationship between increased investment by non-commercial traders 
in commodity interest markets and price

[[Page 78808]]

discovery.\128\ As such, it is difficult to ex ante predict how changes 
in the Portfolio Requirement thresholds would impact price discovery.
---------------------------------------------------------------------------

    \128\ Id.
---------------------------------------------------------------------------

d. Sound Risk Management Practices
    Increasing the Portfolio Requirement thresholds may result in 
registered CPOs and CTAs that previously only offered pools and trading 
programs to QEPs creating and offering pools and trading programs 
designed for persons that are not QEPs. Consequently, these non-QEP 
pools and trading programs operated by registered CPOs and CTAs would 
then be subject to the full complement of part 4 compliance 
requirements, which could result in more diligent risk management 
practices by the CPOs and CTAs.
e. Other Public Interest Considerations
    The original Portfolio Requirement thresholds in the QEP definition 
were intended to ensure that only persons possessing an appropriate and 
high level of trading experience, acumen, and financial resources would 
be eligible to invest in complex commodity interest investments offered 
and operated under Commission regulation Sec.  4.7. The Commission 
determined it appropriate to lessen the compliance burdens for 
registered CPOs and CTAs limiting their prospective participants and 
clients to financially sophisticated QEPs through the exemptions 
provided by Commission regulation Sec.  4.7 for their Sec.  4.7 pools 
and trading programs. The 1992 Portfolio Requirement thresholds were 
adopted to provide a metric by which CPOs and CTAs could approximately 
assess the experience and financial wherewithal of potential pool 
participants or advisory clients, ensuring that they truly possess the 
sophistication and resilience of other QEPs not subject to such 
thresholds. Updating these thresholds to account for inflation realigns 
the Portfolio Requirement with the original intent of the QEP 
definition and modernizes its provisions consistent with today's 
economic circumstances.
3. Permitting Monthly Account Statements Consistent With Commission 
Exemptive Letters for Certain Sec.  4.7 Pools
    Consistent with longstanding exemptive letter relief described 
herein, the Final Rule adds a provision to Commission regulation Sec.  
4.7(b)(3) allowing CPOs of Sec.  4.7 pools that are Funds of Funds to 
distribute account statements on a monthly basis, within 45 days of the 
month-end, provided that such CPOs notify their pool participants. The 
Commission received no comments addressing any costs that Sec.  4.7 
CPOs or CTAs may incur as a result of adopting this amendment.
    As discussed in the Proposal, the primary benefit of this amendment 
is to facilitate Sec.  4.7 pools' investment in other pools or 
collective investment vehicles without potentially violating the 
periodic reporting requirements in Commission regulation Sec.  4.7. The 
Commission expects that this would allow CPOs of Sec.  4.7 pools to 
seek higher returns and/or better diversification for their 
participants by investing in other pools or other collective investment 
vehicles, without requiring an exemptive letter to ensure they can meet 
their periodic reporting requirements, or otherwise risking chronic 
compliance violations. The Commission also continues to believe there 
is significant benefit to be gained by adopting this amendment because 
CPOs of Sec.  4.7 Fund of Funds pools will be able to adopt an 
alternative account statement schedule at their convenience or 
immediately when necessary, rather than being required to seek an 
exemptive letter individually from the Commission and to potentially 
delay operational decisions or changes until such letter is received. 
Moreover, the Final Rule also ensures that similarly situated 
registrants are treated in a consistent manner by making the 
alternative schedule available to all qualifying CPOs and Sec.  4.7 
pools without the need for individual requests.
    Under the alternative schedule, as described above, qualifying CPOs 
would be required to prepare and distribute periodic account statements 
on a monthly basis, which is more frequent than the baseline of 
quarterly. This will result in increased administrative costs to CPOs 
that elect this alternative schedule associated with the monthly 
account statements, which may be passed on to their pool participants. 
Under the terms of the Final Rule, qualifying CPOs are also required to 
disclose to their pool participants their election to use the 
alternative account statement schedule, and this disclosure must be 
provided to their prospective and existing pool participants. The 
notification requirement will also result in costs to the CPO, and 
potentially the pool participants, which will vary in amount depending 
on whether the CPO chooses to incorporate the notice in an existing 
communication to pool participants or to create a new standalone 
disclosure. Similarly, the costs associated with dissemination will 
vary depending on whether the offered pool is still accepting new 
participants, or if it is closed, as the Commission does not expect 
Sec.  4.7 CPOs to prepare disclosures for pool participants with 
respect to pool participation units purchased prior to the effective 
date of this Final Rule. The Commission notes that this alternative 
reporting schedule is voluntary, and therefore, should a CPO determine 
that the costs associated with more frequent statements outweighs the 
benefits associated with adopting the alternative schedule, it is not 
required to do so and can continue to provide quarterly account 
statements within 30 days of the quarter-end, as currently required 
under Commission regulation Sec.  4.7 (and which will remain unchanged 
by this Final Rule).
    The Commission expects that CPOs will use the services of an 
accountant to prepare the monthly account statements permitted by the 
Final Rule amendments. The BLS states that the mean wage for 
accountants as of May 2023, the most recent information available, is 
$43.65 per hour.\129\ The Commission has estimated that the time burden 
associated with complying with the alternate schedule for periodic 
account statements required under the Final Rule is 36 hours per CPO. 
If the CPO solely uses the services of an accountant to complete these 
tasks, the total cost associated with the alternative account statement 
provisions adopted herein is $1,571.40 per CPO.
---------------------------------------------------------------------------

    \129\ Bureau of Labor Statistics, United States Department of 
Labor, Occupational Employment and Wage Statistics, Accountants and 
Auditors, May 2023 (published April 2024), available at https://www.bls.gov/oes/current/oes132011.htm.
---------------------------------------------------------------------------

Section 15(a) Factors
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of the amendment to Commission regulation Sec.  
4.7(b)(3) with respect to the following factors: protection of market 
participants and the public; efficiency, competitiveness, and financial 
integrity of markets; price discovery; sound risk management practices; 
and other public interest considerations. As discussed above, the 
addition to Commission regulation Sec.  4.7(b)(3) of a permissible 
monthly account statement schedule will facilitate compliance with 
periodic reporting deadlines for CPOs of Sec.  4.7 Fund of Funds pools. 
Absent this change (and assuming such Sec.  4.7 pool has received no 
exemptive letter from the Commission), it may otherwise be impractical 
for such Sec.  4.7 pools to operate as Funds of Funds, due to the 
baseline applicable quarterly reporting requirements in Commission 
regulation Sec.  4.7.

[[Page 78809]]

a. Protection of Market Participants and the Public
    As discussed above, the Final Rule will permit CPOs of Sec.  4.7 
Fund of Funds pools to adopt an alternative monthly account statement 
schedule, provided such statements are distributed within 45 days of 
the end of each month, and provided that they notify their QEP pool 
participants of such reporting schedule. To the extent this amendment 
encourages QEPs to participate in Sec.  4.7 Fund of Funds pools, rather 
than other Sec.  4.7 pools, it may require them to adjust to a 
different account statement schedule, but the Commission believes, 
based on its past observation of the implementation of staff letters 
that have been issued addressing this issue, that this amendment will 
likely provide such QEPs with more complete and accurate account 
statements on a more frequent basis. Additionally, the Final Rule may 
facilitate the formation of Sec.  4.7 Fund of Funds pools by making it 
easier for their CPOs to comply with the applicable periodic reporting 
requirements under Commission regulation Sec.  4.7; this trend may also 
serve to benefit QEP participants, in that the CPOs of Sec.  4.7 Fund 
of Funds pools may be able to operate them in a manner that achieves 
exposure to a wider variety of underlying investment strategies through 
their investee pools, while continuing to remain compliant with their 
regulatory obligations. Finally, such CPOs will also have greater 
incentive and may possess more resources to monitor the behavior of 
their Sec.  4.7 Fund of Funds pools' underlying investments in other 
pools or funds, than QEPs directly investing therein.
b. Efficiency, Competitiveness, and Financial Integrity of Markets
    The Final Rule amending Commission regulation Sec.  4.7(b)(3) may 
indirectly affect the functioning of commodity interest markets. To the 
extent that the Final Rule affects the behavior of CPOs or the size and 
composition of their Sec.  4.7 Fund of Funds pools, it might also 
affect the flow of investing in commodity interests. The financial 
economics literature suggests that increased investment by non-
commercial traders in commodity interest markets will generally reduce 
the difference between futures prices and expected future spot 
prices.\130\ This effect means that, to the extent that offering an 
alternative schedule for periodic reporting in Sec.  4.7 Fund of Funds 
pools increases the flow of non-commercial funds into commodity 
interest markets, it will tend to also reduce the cost to commercial 
traders of using the futures market to hedge their risks. In that 
sense, this Final Rule may have an indirect effect on efficiency of the 
futures markets in regard to the hedging costs of operating companies, 
commodity producers, or other commercial market participants.
---------------------------------------------------------------------------

    \130\ Goldstein and Yang, ``Commodity Financialization and 
Information Transmission,'' 2022, Journal of Finance, 77, 2613-2668.
---------------------------------------------------------------------------

c. Price Discovery
    To the extent that the Final Rule amending Commission regulation 
Sec.  4.7(b)(3) affects the size or composition of Sec.  4.7 pools, it 
might also affect the flow of investing in commodity interests. The 
financial economics literature has found ambiguous results regarding 
the relationship between increased investment by non-commercial traders 
in commodity interest markets and commodity price discovery.\131\ As 
such, it is difficult for the Commission to ex ante predict how the 
addition of an alternative account statement schedule for Sec.  4.7 
Fund of Funds pools would impact price discovery.
---------------------------------------------------------------------------

    \131\ Id.
---------------------------------------------------------------------------

d. Sound Risk Management Practices
    Periodic reporting requirements in the form of regular account 
statements provided to pool participants serve as an effective means 
for participants as well as CPOs to monitor pools' risk management. 
Because the amount of funds a CPO manages through its operated pools is 
likely responsive to its past performance,\132\ requiring the provision 
of complete financial information on pool performance through regular 
account statements can serve to provide an incentive for sound risk 
management by such CPOs. As discussed above, the Final Rule amending 
Commission regulation Sec.  4.7(b)(3) may encourage the formation of 
Sec.  4.7 Fund of Funds pools, whose CPOs may be better able to monitor 
the performance of underlying commodity pools or funds in which they 
invest, as compared to QEP participants investing directly therein. 
This also may positively influence CPOs' risk management practices in 
their pools, to the extent their participants are other Sec.  4.7 
pools.
---------------------------------------------------------------------------

    \132\ Sirra and Tufano, ``Costly Search and Mutual Fund Flows,'' 
Journal of Finance, 1998, 53, 1589-1622; Del Guercio and Reuter, 
``Mutual Fund Performance and the Incentive to Generate Alpha,'' 
Journal of Finance, 2014, 1673-1704.
---------------------------------------------------------------------------

e. Other Public Interest Considerations
    A key practical consideration is that, absent exemptive letters 
issued by the Commission, the existing Commission regulation Sec.  
4.7(b)(3) appears to make it very difficult for CPOs to operate their 
Sec.  4.7 pools as Funds of Funds, while complying with applicable 
periodic reporting requirements. To the extent that facilitating the 
operation of such Sec.  4.7 pools as Funds of Funds is a legitimate 
policy goal of the Commission (as suggested by its routine granting of 
exemptive letters on this topic), changing the regulations to 
explicitly permit this alternative account statement schedule will be a 
more effective and direct means of accomplishing that objective that 
further ensures more consistent treatment of similarly situated 
registrants.

D. Antitrust Considerations

    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least anticompetitive means of achieving the 
purposes of the CEA in issuing any order or adopting any Commission 
rule or regulation.\133\ The Commission believes that the public 
interest to be protected by the antitrust laws is generally to protect 
competition. In the Proposal, the Commission requested comment on 
whether the NPRM implicated any other specific public interest to be 
protected by the antitrust laws, but received no comments.
---------------------------------------------------------------------------

    \133\ 7 U.S.C. 19(b).
---------------------------------------------------------------------------

    The Commission has considered the amendments in this Final Rule to 
determine whether they are anticompetitive and has not identified any 
anticompetitive effects. Because the Commission has not determined that 
the Final Rule is anticompetitive or has anticompetitive effects, the 
Commission has not identified any less anticompetitive means of 
achieving the purposes of the CEA.

List of Subjects

17 CFR Part 1

    Brokers, Commodity futures, Consumer protection, Reporting and 
recordkeeping requirements.

17 CFR Part 3

    Administrative practice and procedure, Commodity futures, Consumer 
protection, Definitions, Foreign futures, Foreign options, Registration 
requirements.

17 CFR Part 4

    Advertising, Brokers, Commodity futures, Commodity pool operators, 
Commodity trading advisors, Consumer

[[Page 78810]]

protection, Reporting and recordkeeping requirements.

17 CFR Part 30

    Consumer protection, Fraud.

17 CFR Part 43

    Consumer protection, Reporting and recordkeeping requirements, 
Swaps.

17 CFR Part 75

    Banks, Banking, Compensation, Credit, Derivatives, Federal branches 
and agencies, Federal savings associations, Government securities, 
Hedge funds, Insurance, Investments, National banks, Penalties, 
Proprietary trading, Reporting and recordkeeping requirements, Risk, 
Risk retention, Securities, Swap dealers, Trusts and trustees, Volcker 
rule.

    For the reasons stated in the preamble, the Commodity Futures 
Trading Commission amends 17 CFR chapter I as follows:

PART 1--GENERAL REGULATIONS UNDER THE COMMODITY EXCHANGE ACT

0
1. The authority citation for part 1 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 5, 6, 6a, 6b, 6c, 6d, 6e, 6f, 6g, 
6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a-1, 7a-2, 7b, 7b-3, 8, 
9, 10a, 12, 12a, 12c, 13a, 13a-1, 16, 16a, 19, 21, 23, and 24 
(2012).

0
2. In Sec.  1.35, revise paragraph (b)(5)(i)(D) to read as follows:


Sec.  1.35  Records of commodity interest and related cash or forward 
transactions.

* * * * *
    (b) * * *
    (5) * * *
    (i) * * *
    (D) A foreign adviser that exercises discretionary trading 
authority solely over the accounts of non-U.S. persons, as defined in 
Sec.  4.7(a)(4) of this chapter;
* * * * *

PART 3--REGISTRATION

0
3. The authority citation for part 3 continues to read as follows:

    Authority:  5 U.S.C. 552, 552b; 7 U.S.C. 1a, 2, 6a, 6b, 6b-1, 
6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 
12a, 13b, 13c, 16a, 18, 19, 21, and 23.

0
4. In Sec.  3.10, revise the introductory text of paragraph (c)(5)(ii) 
to read as follows:


Sec.  3.10  Registration of futures commission merchants, retail 
foreign exchange dealers, introducing brokers, commodity trading 
advisors, commodity pool operators, swap dealers, major swap 
participants and leverage transaction merchants.

* * * * *
    (c) * * *
    (5) * * *
    (ii) With respect to paragraph (c)(5)(i) of this section, initial 
capital contributed to a commodity pool by an affiliate, as defined by 
Sec.  4.7(a)(1) of this chapter, of the pool's commodity pool operator 
shall not be considered for purposes of determining whether such 
commodity pool operator is executing commodity interest transactions on 
behalf of a commodity pool, the participants of which are all foreign 
located persons; provided, that:
* * * * *

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

0
5. The authority citation for part 4 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, 
and 23.


0
6. In Sec.  4.7:
0
a. Revise paragraph (a);
0
b. Add paragraph (b)(3)(iv); and
0
c. Revise paragraph (b)(5).
    The revisions and addition 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) Definitions. (1) Affiliate of, or a person affiliated with, a 
specified person means a person that directly or indirectly through one 
or more persons, controls, is controlled by, or is under common control 
with the specified person.
    (2) Exempt account means the account of a qualified eligible person 
that is directed or guided by a commodity trading advisor pursuant to 
an effective claim for exemption under this section.
    (3) Exempt pool means a pool that is operated pursuant to an 
effective claim for exemption under this section.
    (4) Non-United States person means:
    (i) A natural person who is not a resident of the United States;
    (ii) A partnership, corporation or other entity, other than an 
entity organized principally for passive investment, organized under 
the laws of a foreign jurisdiction and which has its principal place of 
business in a foreign jurisdiction;
    (iii) An estate or trust, the income of which is not subject to 
United States income tax regardless of source;
    (iv) An entity organized principally for passive investment such as 
a pool, investment company or other similar entity; Provided, That 
units of participation in the entity held by persons who do not qualify 
as Non-United States persons or otherwise as qualified eligible persons 
represent in the aggregate less than 10% of the beneficial interest in 
the entity, and that such entity was not formed principally for the 
purpose of facilitating investment by persons who do not qualify as 
Non-United States persons in a pool with respect to which the operator 
is exempt from certain requirements of this part by virtue of its 
participants being Non-United States persons; and
    (v) A pension plan for the employees, officers or principals of an 
entity organized and with its principal place of business outside the 
United States.
    (5) Portfolio Requirement means that a person:
    (i) Owns securities (including pool participations) of issuers not 
affiliated with such person and other investments with an aggregate 
market value of at least $4,000,000;
    (ii) Has had on deposit with a futures commission merchant, for its 
own account at any time during the six-month period preceding either 
the date of sale to that person of a pool participation in the exempt 
pool or the date that the person opens an exempt account with the 
commodity trading advisor, at least $400,000 in exchange-specified 
initial margin and option premiums, together with any required minimum 
security deposits for retail forex transactions (defined in Sec.  
5.1(m) of this chapter), for commodity interest transactions; or
    (iii) Owns a portfolio comprised of a combination of the funds or 
property specified in paragraphs (a)(5)(i) and (ii) of this section, in 
which the sum of the funds or property includable under paragraph 
(a)(5)(i) of this section, expressed as a percentage of the minimum 
amount required thereunder, and the amount of initial margin, option 
premiums, and minimum security deposits includable under paragraph 
(a)(5)(ii) of this section, expressed as a percentage of the minimum 
amount required thereunder, equals at least one hundred percent. An 
example of a composite portfolio acceptable under this paragraph 
(a)(5)(iii) would consist of $2,000,000 in securities and other 
property (50% of paragraph (a)(5)(i)) and $200,000 in initial margin, 
option premiums, and minimum security deposits (50% of paragraph 
(a)(5)(ii)).
    (6) Qualified eligible person means any person, acting for its own 
account or for the account of a qualified eligible person, who the 
commodity pool

[[Page 78811]]

operator reasonably believes, at the time of the sale to that person of 
a pool participation in the exempt pool, or who the commodity trading 
advisor reasonably believes, at the time that person opens an exempt 
account, is included in the following list of persons that is divided 
into two categories: Persons who are not required to satisfy the 
Portfolio Requirement defined in paragraph (a)(5) of this section to be 
qualified eligible persons, and those persons who must satisfy the 
Portfolio Requirement in paragraph (a)(5) to be qualified eligible 
persons.
    (i) Persons who need not satisfy the Portfolio Requirement to be 
qualified eligible persons. (A) A futures commission merchant 
registered pursuant to section 4d of the Act, or a principal thereof;
    (B) A retail foreign exchange dealer registered pursuant to section 
2(c)(2)(B)(i)(II)(gg) of the Act, or a principal thereof;
    (C) A swap dealer registered pursuant to section 4s(a)(1) of the 
Act, or a principal thereof;
    (D) A broker or dealer registered pursuant to section 15 of the 
Securities Exchange Act of 1934, or a principal thereof;
    (E) A commodity pool operator registered pursuant to section 4m of 
the Act, or a principal thereof; Provided, That the pool operator:
    (1) Has been registered and active as such for two years; or
    (2) Operates pools which, in the aggregate, have total assets in 
excess of $5,000,000;
    (F) A commodity trading advisor registered pursuant to section 4m 
of the Act, or a principal thereof; Provided, That the trading advisor:
    (1) Has been registered and active as such for two years; or
    (2) Provides commodity interest trading advice to commodity 
accounts which, in the aggregate, have total assets in excess of 
$5,000,000 deposited at one or more futures commission merchants;
    (G) An investment adviser registered pursuant to section 203 of the 
Investment Advisers Act of 1940 (``Investment Advisers Act'') or 
pursuant to the laws of any state, or a principal thereof; Provided, 
That the investment adviser:
    (1) Has been registered and active as such for two years; or
    (2) Provides securities investment advice to securities accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more registered securities brokers;
    (H) A ``qualified purchaser'' as defined in section 2(a)(51)(A) of 
the Investment Company Act of 1940 (``Investment Company Act'');
    (I) A ``knowledgeable employee'' as defined in Sec.  270.3c-5 of 
this title;
    (J) With respect to an exempt pool:
    (1) The commodity pool operator, commodity trading advisor or 
investment adviser of the exempt pool offered or sold, or an affiliate 
of any of the foregoing;
    (2) A principal of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
an affiliate of any of the foregoing;
    (3) An employee of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing (other than an employee 
performing solely clerical, secretarial or administrative functions 
with regard to such person or its investments) who, in connection with 
his or her regular functions or duties, participates in the investment 
activities of the exempt pool, other commodity pools operated by the 
pool operator of the exempt pool or other accounts advised by the 
trading advisor or the investment adviser of the exempt pool, or by the 
affiliate; Provided, That such employee has been performing such 
functions and duties for or on behalf of the exempt pool, pool 
operator, trading advisor, investment adviser or affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the exempt pool 
or the commodity pool operator, commodity trading advisor or investment 
adviser of the exempt pool, or any other employee of, or agent so 
engaged by, an affiliate of any of the foregoing (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its 
investments); Provided, That such employee or agent:
    (i) Is an accredited investor as defined in Sec.  230.501(a)(5) or 
(6) of this title; and
    (ii) Has been employed or engaged by the exempt pool, commodity 
pool operator, commodity trading advisor, investment adviser or 
affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months;
    (5) The spouse, child, sibling or parent of a person who satisfies 
the criteria of paragraph (a)(6)(i)(J)(1), (2), (3), or (4) of this 
section; Provided, That:
    (i) An investment in the exempt pool by any such family member is 
made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(6)(ii)(K) of this section;
    (6) Any person who acquires a participation in the exempt pool by 
gift, bequest or pursuant to an agreement relating to a legal 
separation or divorce from a person listed in paragraph 
(a)(6)(i)(J)(1), (2), (3), (4), or (5) of this section;
    (7) The estate of any person listed in paragraph (a)(6)(i)(J)(1), 
(2), (3), (4), or (5) of this section; or
    (8) A company established by any person listed in paragraph 
(a)(6)(i)(J)(1), (2), (3), (4), or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(6)(i)(J)(6) or (7) of this section;
    (K) With respect to an exempt account:
    (1) An affiliate of the commodity trading advisor of the exempt 
account;
    (2) A principal of the commodity trading advisor of the exempt 
account or of an affiliate of the commodity trading advisor;
    (3) An employee of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor (other than an 
employee performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments) who, in 
connection with his or her regular functions or duties, participates in 
the investment activities of the trading advisor or the affiliate; 
Provided, That such employee has been performing such functions and 
duties for or on behalf of the trading advisor or the affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the commodity 
trading advisor of the exempt account or any other employee of, or 
agent so engaged by, an affiliate of the trading advisor (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its 
investments); Provided, That such employee or agent:
    (i) Is an accredited investor as defined in Sec.  230.501(a)(5) or 
(6) of this title; and

[[Page 78812]]

    (ii) Has been employed or engaged by the commodity trading advisor 
or the affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months;
    (5) The spouse, child, sibling or parent of the commodity trading 
advisor of the exempt account or of a person who satisfies the criteria 
of paragraph (a)(6)(i)(K)(1), (2), (3), or (4) of this section; 
Provided, That:
    (i) The establishment of an exempt account by any such family 
member is made with the knowledge and at the direction of the person; 
and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(6)(ii)(K) of this section;
    (6) Any person who acquires an interest in an exempt account by 
gift, bequest or pursuant to an agreement relating to a legal 
separation or divorce from a person listed in paragraph 
(a)(6)(i)(K)(1), (2), (3), (4), or (5) of this section;
    (7) The estate of any person listed in paragraph (a)(6)(i)(K)(1), 
(2), (3), (4), or (5) of this section; or
    (8) A company established by any person listed in paragraph 
(a)(6)(i)(K)(1), (2), (3), (4), or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(6)(i)(K)(6) or (7) of this section;
    (L) A trust; Provided, That:
    (1) The trust was not formed for the specific purpose of either 
participating in the exempt pool or opening an exempt account; and
    (2) The trustee or other person authorized to make investment 
decisions with respect to the trust, and each settlor or other person 
who has contributed assets to the trust, is a qualified eligible 
person;
    (M) An organization described in section 501(c)(3) of the Internal 
Revenue Code (the ``IRC''); Provided, That the trustee or other person 
authorized to make investment decisions with respect to the 
organization, and the person who has established the organization, is a 
qualified eligible person;
    (N) A Non-United States person;
    (O) An entity in which all of the unit owners or participants, 
other than the commodity trading advisor claiming relief under this 
section, are qualified eligible persons;
    (P) An exempt pool; or
    (Q) Notwithstanding paragraph (a)(6)(ii) of this section, an entity 
as to which a notice of eligibility has been filed pursuant to Sec.  
4.5 which is operated in accordance with such rule and in which all 
unit owners or participants, other than the commodity trading advisor 
claiming relief under this section, are qualified eligible persons.
    (ii) Persons who must satisfy the Portfolio Requirement to be 
qualified eligible persons. With respect to the persons listed in 
paragraphs (a)(6)(ii)(A) through (L) of this section, the commodity 
pool operator must reasonably believe, at the time of the sale to such 
person of a participation in the exempt pool, or the commodity trading 
advisor must reasonably believe, at the time such person opens an 
exempt account, that such person satisfies the Portfolio Requirement in 
paragraph (a)(5) of this section:
    (A) An investment company registered under the Investment Company 
Act or a business development company as defined in section 2(a)(48) of 
such Act not formed for the specific purpose of either investing in the 
exempt pool or opening an exempt account;
    (B) A bank as defined in section 3(a)(2) of the Securities Act of 
1933 (the ``Securities Act'') or any savings and loan association or 
other institution as defined in section 3(a)(5)(A) of the Securities 
Act acting for its own account or for the account of a qualified 
eligible person;
    (C) An insurance company as defined in section 2(13) of the 
Securities Act acting for its own account or for the account of a 
qualified eligible person;
    (D) A plan established and maintained by a state, its political 
subdivisions, or any agency or instrumentality of a state or its 
political subdivisions, for the benefit of its employees, if such plan 
has total assets in excess of $5,000,000;
    (E) An employee benefit plan within the meaning of the Employee 
Retirement Income Security Act of 1974; Provided, That the investment 
decision is made by a plan fiduciary, as defined in section 3(21) of 
such Act, which is a bank, savings and loan association, insurance 
company, or registered investment adviser; or that the employee benefit 
plan has total assets in excess of $5,000,000; or, if the plan is self-
directed, that investment decisions are made solely by persons that are 
qualified eligible persons;
    (F) A private business development company as defined in section 
202(a)(22) of the Investment Advisers Act;
    (G) An organization described in section 501(c)(3) of the IRC, with 
total assets in excess of $5,000,000;
    (H) A corporation, Massachusetts or similar business trust, or 
partnership, limited liability company or similar business venture, 
other than a pool, which has total assets in excess of $5,000,000, and 
is not formed for the specific purpose of either participating in the 
exempt pool or opening an exempt account;
    (I) 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;
    (J) A natural person who would qualify as an accredited investor as 
defined in Sec.  230.501(a)(6) of this title;
    (K) A pool, trust, insurance company separate account or bank 
collective trust, with total assets in excess of $5,000,000, not formed 
for the specific purpose of either participating in the exempt pool or 
opening an exempt account, and whose participation in the exempt pool 
or investment in the exempt account is directed by a qualified eligible 
person; or
    (L) Except as provided for the governmental entities referenced in 
paragraph (a)(6)(ii)(D) of this section, if otherwise authorized by law 
to engage in such transactions, a governmental entity (including the 
United States, a state, or a foreign government) or political 
subdivision thereof, or a multinational or supranational entity or an 
instrumentality, agency, or department of any of the foregoing.
    (7) United States means the United States, its states, territories 
or possessions, or an enclave of the United States government, its 
agencies or instrumentalities.
    (b) * * *
    (3) * * *
    (iv) Where the exempt pool is invested in one or more other pools 
or funds operated by third parties, the commodity pool operator may 
choose instead to prepare and distribute to its pool participants 
statements signed and affirmed in accordance with Sec.  4.22(h) on a 
monthly basis within 45 days of the month-end; Provided, that the 
statements otherwise meet the conditions of paragraphs (b)(3)(i) and 
(ii) of this section, and that the commodity pool operator notifies its 
pool participants of this alternate distribution schedule in the exempt 
pool's offering memorandum distributed prior to the initial investment, 
or upon its adoption of this reporting schedule, for then existing pool 
participants.
* * * * *
    (5) Recordkeeping relief. Exemption from the specific requirements 
of Sec.  4.23; Provided, That the commodity pool operator must maintain 
the offering memoranda and reports referred to in

[[Page 78813]]

paragraphs (b)(3) and (4) of this section, and all other books and 
records prepared in connection with its activities as the pool operator 
of the exempt pool (including, without limitation, records relating to 
the qualifications of qualified eligible persons and substantiating any 
performance representations). Books and records that are not maintained 
at the pool operator's main business office shall be maintained by one 
or more of the following: the pool's administrator, distributor, or 
custodian, or a bank or registered broker or dealer acting in a similar 
capacity with respect to the pool. Such books and records must be made 
available to any representative of the Commission, the National Futures 
Association and the United States Department of Justice in accordance 
with the provisions of Sec.  1.31 of this chapter.
* * * * *

0
7. In Sec.  4.14, revise paragraph (a)(8)(i)(C)(2) to read as follows:


Sec.  4.14  Exemption from registration as a commodity trading advisor.

* * * * *
    (a) * * *
    (8) * * *
    (i) * * *
    (C) * * *
    (2) With the exception of the pool's operator, advisor, and their 
principals, solely ``Non-United States persons,'' as that term is 
defined in Sec.  4.7(a)(4), will contribute funds or other capital to, 
and will own beneficial interests in, the pool; Provided, That units of 
participation in the pool held by persons who do not qualify as Non-
United States persons or otherwise qualified eligible persons represent 
in the aggregate less than 10 percent of the beneficial interest of the 
pool;
* * * * *

0
8. In Sec.  4.21, revise paragraph (a)(2) to read as follows:


Sec.  4.21  Required delivery of pool Disclosure Document.

    (a) * * *
    (2) For the purpose of the Disclosure Document delivery requirement 
in this part, including any offering memorandum delivered pursuant to 
Sec.  4.7(b)(2)(i) or Sec.  4.12(b)(2)(i), the term ``prospective pool 
participant'' does not include a commodity pool operated by a pool 
operator that is the same as, or that controls, is controlled by, or is 
under common control with, the pool operator of the offered pool.
* * * * *

0
9. In Sec.  4.22:
0
a. Revise paragraph (a)(4), the introductory text of paragraph (c)(7), 
paragraph (c)(8), the introductory text of paragraph (d)(1), the 
introductory text of paragraph (d)(2)(i), the introductory text of 
paragraph (f)(2), and paragraph (f)(2)(iv)(B); and
0
b. Remove paragraph (f)(2)(iv)(D).
    The revisions read as follows:


Sec.  4.22  Reporting to pool participants.

    (a) * * *
    (4) For the purpose of the Account Statement delivery requirement 
in this part, including any Account Statement distributed pursuant to 
Sec.  4.7(b)(3) or Sec.  4.12(b)(2)(ii), the term ``participant'' does 
not include a commodity pool operated by a pool operator that is the 
same as, or that controls, is controlled by, or is under common control 
with, the pool operator of a pool in which the commodity pool has 
invested.
* * * * *
    (c) * * *
    (7) For a pool that has ceased operation prior to, or as of, the 
end of the fiscal year, the commodity pool operator may provide the 
following, within 90 days of the permanent cessation of trading, in 
lieu of the annual report that would otherwise be required by this 
paragraph (c) or Sec.  4.7(b)(4):
* * * * *
    (8) For the purpose of the Annual Report distribution requirement 
in this part, including any annual report distributed pursuant to Sec.  
4.7(b)(4) or Sec.  4.12(b)(2)(iii), the term ``participant'' does not 
include a commodity pool operated by a pool operator that is the same 
as, or that controls, is controlled by, or is under common control 
with, the pool operator of a pool in which the commodity pool has 
invested; Provided, That the Annual Report of such investing pool 
contains financial statements that include such information as the 
Commission may specify concerning the operations of the pool in which 
the commodity pool has invested.
    (d)(1) Subject to the provisions of paragraphs (d)(2) and (g)(2) of 
this section, the financial statements in the Annual Report required by 
this section or by Sec.  4.7(b)(4) must be presented and computed in 
accordance with United States generally accepted accounting principles 
consistently applied and must be audited by an independent public 
accountant; Provided, however, and subject to the exception in 
paragraph (c)(7)(iii)(B) of this section, that the requirement that the 
Annual Report be audited by an independent public accountant does not 
apply for any fiscal year during which the only participants in the 
pool are one or more of the pool operator, the pool's commodity trading 
advisor, any person controlling, controlled by, or under common control 
with the pool operator or trading advisor, and any principal of the 
foregoing; and Provided further, that the commodity pool operator 
obtains a written waiver from each such pool participant of their right 
to receive an audited Annual Report for such fiscal year, maintains 
such waivers in accordance with Sec.  4.23, and makes such waivers 
available to the Commission or National Futures Association upon 
request. The requirements of Sec.  1.16(g) of this chapter shall apply 
with respect to the engagement of such independent public accountants, 
except that any related notifications to be made may be made solely to 
the National Futures Association, and the certification must be in 
accordance with Sec.  1.16 of this chapter, except that the following 
requirements of Sec.  1.16 shall not apply:
* * * * *
    (2)(i) Where a pool is organized in a jurisdiction other than the 
United States, the financial statements in the Annual Report required 
by this section or by Sec.  4.7(b)(4) may be presented and computed in 
accordance with the generally accepted accounting principles, standards 
or practices followed in such other jurisdiction; Provided, That:
* * * * *
    (f) * * *
    (2) In the event a commodity pool operator finds that it cannot 
obtain information necessary to prepare annual financial statements for 
a pool that it operates within the time specified in paragraph (c) of 
this section or Sec.  4.7(b)(4)(i), as a result of the pool investing 
in another collective investment vehicle, it may claim an extension of 
time under the following conditions:
* * * * *
    (iv) * * *
    (B) For all reports prepared under paragraph (c) of this section 
and for reports prepared under Sec.  4.7(b)(4)(i) that are audited by 
an independent public accountant, the commodity pool operator has been 
informed by the independent public accountant engaged to audit the 
commodity pool's financial statements that specified information 
required to complete the pool's Annual Report is necessary in order for 
the accountant to render an opinion on the commodity pool's financial 
statements. The notice must include the name, main business address, 
main telephone number, and contact person of the accountant; and
* * * * *

[[Page 78814]]

PART 30--FOREIGN FUTURES AND FOREIGN OPTIONS TRANSACTIONS

0
10. The authority citation for part 30 continues to read as follows:

    Authority:  7 U.S.C. 1a, 2, 6, 6c, and 12a, unless otherwise 
noted.


0
11. In Sec.  30.6, revise paragraph (b)(1)(i) to read as follows:


Sec.  30.6  Disclosure.

* * * * *
    (b) * * *
    (1) * * *
    (i) A commodity pool operator registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec.  30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec.  30.4(c) unless the pool operator, at or 
before the time it engages in such activities, first provides each 
prospective qualified eligible person with the Risk Disclosure 
Statement set forth in Sec.  4.24(b)(2) of this chapter and the 
statement in Sec.  4.7(b)(2)(i) of this chapter;
* * * * *

PART 43--REAL-TIME PUBLIC REPORTING

0
12. The authority citation for part 43 continues to read as follows:

    Authority:  7 U.S.C. 2(a), 12a(5) and 24a, as amended by Pub. L. 
111-203, 124 Stat. 1376 (2010).


0
13. In Sec.  43.6, revise paragraphs (i)(6)(i)(B) and (j)(1)(ii) to 
read as follows:


Sec.  43.6  Block trades and large notional off-facility swaps.

* * * * *
    (i) * * *
    (6) * * *
    (i) * * *
    (B) Is an investment adviser who has discretionary trading 
authority or directs client accounts and satisfies the criteria of 
Sec.  4.7(a)(6)(i)(G) of this chapter; or
* * * * *
    (j) * * *
    (1) * * *
    (ii) An investment adviser who has discretionary trading authority 
or directs client accounts and satisfies the criteria of Sec.  
4.7(a)(6)(i)(G) of this chapter, or
* * * * *

PART 75--PROPRIETARY TRADING AND CERTAIN INTEREST IN AND 
RELATIONSHIPS WITH COVERED FUNDS

0
14. The authority citation for part 75 continues to read as follows:

    Authority:  12 U.S.C. 1851.


0
15. In Sec.  75.10, revise paragraphs (b)(1)(ii)(B)(2) and (3) to read 
as follows:


Sec.  75.10  Prohibition on acquiring or retaining an ownership 
interest in and having certain relationships with a covered fund.

* * * * *
    (b) * * *
    (1) * * *
    (ii) * * *
    (B) * * *
    (2) Substantially all participation units of the commodity pool are 
owned by qualified eligible persons defined under Sec.  4.7(a)(6)(i) 
and (ii) of this chapter; and
    (3) Participation units of the commodity pool have not been 
publicly offered to persons who are not qualified eligible persons 
defined under Sec.  4.7(a)(6)(i) and (ii) of this chapter; or
* * * * *

    Issued in Washington, DC, on September 18, 2024, by the 
Commission.
Robert Sidman,
Deputy Secretary of the Commission.

    Note:  The following appendices will not appear in the Code of 
Federal Regulations.

Appendices to Commodity Pool Operators, Commodity Trading Advisors, and 
Commodity Pools Operated: Updating the `Qualified Eligible Person' 
Definition; Adding Minimum Disclosure Requirements for Pools and 
Trading Programs; Permitting Monthly Account Statements for Funds of 
Funds; Technical Amendments--Commission Voting Summary and 
Commissioners' Statements

Appendix 1--Commission Voting Summary

    On this matter, Chairman Behnam, Commissioners Johnson, 
Goldsmith Romero, Mersinger, and Pham voted in the affirmative. No 
Commissioner voted in the negative.

Appendix 2--Supporting Statement of Commissioner Summer K. Mersinger

    Today, the Commission \1\ achieved balance in adopting the 
amendments to Regulation 4.7 and for that reason I can support this 
final rule. I would like to thank the staff in the Market 
Participants Division for their hard work on this rulemaking effort 
and for their consideration of my suggestions and comments 
throughout this process.
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    \1\ This statement will refer to the Commodity Futures Trading 
Commission as the ``Commission'', ``CFTC'', or ``Agency.'' All web 
pages cited herein were last visited on September 11, 2024.
---------------------------------------------------------------------------

    But the balance achieved in this final rule was sorely missing 
in the original amendment proposal, as well as in recent drafts of 
this final rule presented to the Commission. As I identified in my 
prior dissent, the proposed amendment to Regulation 4.7 was flawed 
in applying a new minimum disclosure regime on sophisticated 
investors who had always been exempt from such disclosures.\2\
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    \2\ Dissenting Statement of Commissioner Summer K. Mersinger On 
Proposal to Narrow Historical Exemptions for Qualified Eligible 
Persons in Rule 4.7, Oct. 2, 2023, available at: https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement100223.
---------------------------------------------------------------------------

    This flawed proposal led to a unanimous comment file, without a 
single commenter supporting the Commission's new minimum disclosure 
regime. The proposal was a textbook example of overregulation. 
Thankfully, the Commission avoided the temptation to overregulate 
under this rule, dropping the minimum disclosure regime from the 
final rule adopted today.
    I am pleased that I can support this final rule. However, we 
should always remember that we do not regulate in a vacuum. We must 
work with market participants to carefully calibrate all rulemaking 
efforts. Additionally, we must harmonize our regulations, not only 
with the interests of our market participants, but with other 
regulators, including self-regulatory organizations.
    While I am relieved that the final rule reflects a balanced 
approach and aims to achieve the overarching goal without 
overregulation, I remain concerned about the adopting release's 
mention of possible future efforts to expand Regulation 4.7 after 
this amendment.\3\ I urge the Commission to avoid such future 
expansions, unless the Commission finds concrete evidence 
establishing a need for modifications and only after robust 
discussions with industry.
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    \3\ See Final Rule, Section II. B. 3.
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    Additionally, I must caution the Commission from making the same 
mistake on other pending rulemaking proposals where feedback from 
commenters reflects a similar imbalance in the Agency's approach. We 
must seek balance and compromise in our regulations, not only 
because we are legally obligated to do so, but also because it is 
the right thing to do.

Appendix 3--Statement of Commissioner Caroline D. Pham

    I am pleased that the Commission is taking additional time to 
understand how to best protect market participants and to consider 
the various disclosure proposals submitted by the public in 
connection with the amendments to Regulation 4.7. As a market 
regulator with material impact on the risk management of the savings 
of millions of Americans, it is imperative that the Commission takes 
its time when considering new requirements to ensure that we get it 
right.
    This is especially the case when the unintended consequences of 
our rules could create new obstacles to market participation that 
draw a distinction between the ``have-a-lot's'' and the ``have-not-
enough's''. Ultimately, using regulation to pick winners and losers 
that increases the wealth gap not

[[Page 78815]]

only betrays the American public's expectation of Washington to 
create and maintain fair markets, but it also undermines financial 
inclusion. The government must keep the people's trust that we will 
help every American achieve economic mobility for them and their 
families--not construct artificial barriers to the American Dream.
    For those reasons, I applaud the Commission taking the time for 
careful consideration of the public comments and further study 
including data. I thank Chairman Behnam and the Market Participants 
Division for working with me on this important rulemaking.

[FR Doc. 2024-21682 Filed 9-25-24; 8:45 am]
BILLING CODE 6351-01-P