e9-26789

FR Doc E9-26789[Federal Register: November 9, 2009 (Volume 74, Number 215)]

[Rules and Regulations]

[Page 57585-57593]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr09no09-10]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

[RIN 3038-AC38]

Commodity Pool Operator Periodic Account Statements and Annual

Financial Reports

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

``CFTC'') is amending its regulations governing the periodic account

statements that commodity pool operators (``CPOs'') are required to

provide to commodity pool participants and the annual financial reports

that CPOs are required to provide to commodity pool participants and

file with the National Futures Association (``NFA''). The amendments:

specify detailed information that must be included in the periodic

account statements and annual reports for commodity pools with more

than one series or class of ownership interest; clarify that the

periodic account statements must disclose either the net asset value

per outstanding participation unit in the pool, or the total value of a

participant's interest or share in the pool; extend the time period for

filing and distributing annual reports of commodity pools that invest

in other funds; codify existing Commission staff interpretations

regarding the proper accounting treatment and financial statement

presentation of certain income and expense items in the periodic

account statements and annual reports; streamline annual reporting

requirements for pools ceasing operation; establish conditions for use

of International Financial Reporting Standards (``IFRS'') in lieu of

U.S. Generally Accepted Accounting Principles (``U.S. GAAP'') and a

notice procedure for CPOs to claim such relief; and clarify and update

several other requirements for periodic and annual reports prepared and

distributed by CPOs.

DATES: Effective date: This rule is effective December 9, 2009.

Applicability dates: Amendments to Sec. Sec. 4.7(b)(3) and 4.22(c)

(other than 4.22(c)(7)) are applicable to commodity pool annual reports

for fiscal years ending December 31, 2009 and later.

FOR FURTHER INFORMATION CONTACT: Eileen R. Chotiner, Senior Compliance

Analyst, at (202) 418-5467, Division of Clearing and Intermediary

Oversight, Commodity Futures Trading Commission, Three Lafayette

Centre, 1155 21st Street, NW., Washington, DC 20581. Electronic mail:

([email protected]).

SUPPLEMENTARY INFORMATION:

I. Background

On February 24, 2009, the Commission published \1\ for public

comment proposed amendments to the reporting provisions applicable to

CPOs under Part 4 of its regulations (``Proposed Part 4

Amendments'').\2\ Pursuant to regulations contained in Part 4, a

registered CPO must distribute an account statement to each participant

in each commodity pool that it operates within 30 days of the end of

the reporting period, and must file with NFA, and provide to each

participant, an annual financial report for each commodity pool that it

operates within 90 days of the end of the pool's fiscal year or the

permanent cessation of the pool's trading. The Part 4 Amendments codify

existing staff interpretations, clarify reporting for series funds,

extend financial reporting filing deadlines for CPOs operating

commodity pools that that in invest in other funds, and streamline

certain filing requirements for pools ceasing operation.

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\1\ 74 FR 8220 (February 24, 2009).

\2\ Commission regulations referred to herein are found at 17

CFR Ch. I (2009 edition).

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II. Comments Received

The Commission received four comment letters in response to the

Proposed Part 4 Amendments. Comments were submitted by NFA; the

Committee on Futures Regulation of the New York City Bar Association

(``NYC Bar''); Arthur F. Bell & Associates, LLC,

[[Page 57586]]

an accounting firm (``Arthur Bell CPAs''); and the Managed Funds

Association (``MFA''). All of the commenters generally supported the

proposed amendments. Each of the commenters, however, had specific

suggestions regarding clarification of certain aspects of the proposal.

The commenters' suggestions are discussed below.

III. The Final Regulations

A. Periodic Account Statements for Regulation 4.7-Exempt Pools

Regulation 4.7(b)(2) requires the CPO of a commodity pool for which

the CPO has claimed an exemption under Regulation 4.7 (i.e., a

``Regulation 4.7-exempt commodity pool'') to provide each participant

in the pool with periodic account statements that must indicate: (1)

The net asset value of the exempt pool as of the end of the reporting

period; (2) the change in net asset value of the exempt pool from the

end of the previous reporting period; and (3) the net asset value per

outstanding unit of participation in the exempt pool as of the end of

the reporting period.

The Commission proposed to amend Regulation 4.7(b)(2) to clarify

that the periodic account statement provided to each pool participant

must disclose either the net asset value per outstanding participation

unit, or the total value of the participant's interest or share, in the

commodity pool as of the end of the reporting period. The proposal was

intended to ensure that pool participants receive sufficient

information to determine the value of their investments in the

commodity pool from the periodic account statement, particularly for

non-unitized pools. The proposed amendments also would conform the

account statement requirements for Regulation 4.7-exempt pools to those

for non-exempt pools under Regulation 4.22(a).

The Commission did not receive any comments regarding the proposed

amendments to Regulation 4.7(b)(2). For the reasons set forth above and

in the Proposed Part 4 Amendments, the Commission is adopting the

amendments as proposed.

B. Series Pools and Pools With Multiple Classes of Ownership Interests

The ownership structure of a commodity pool may be organized to

include more than one series or class of ownership interest. The

commodity pool may have more than one ownership series or class due to

differences in fees and expenses charged to the series or classes,

currency denomination of the series or classes, trading strategies,

cash management strategies, or other aspects of the operation of the

pool.

Pool financial statements prepared pursuant to both Regulation

4.22(c) and Regulation 4.7(b)(3) must be presented and computed in

accordance with Generally Accepted Accounting Principles (``GAAP'').

GAAP provides guidance regarding the presentation of financial

statements for series funds \3\ and for investment funds with multiple

ownership classes.\4\ As noted in the Proposed Part 4 Amendments,

Commission staff has received several inquiries from CPOs, their

attorneys and accountants, and NFA regarding the proper presentation of

periodic account statements and annual financial reports for series

funds and multi-class pools.

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\3\ American Institute of Certified Public Accountants

(``AICPA'') Audit and Accounting Guide, Investment Companies

paragraph 7.03.

\4\ AICPA Audit and Accounting Guide, Investment Companies,

Chapter 5, Complex Capital Structures.

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In order to address issues raised with series funds and to address

the proper accounting treatment under GAAP, the Commission proposed to

amend Regulations 4.7(b)(2) and 4.22(a) to specify that, for series

funds structured with a limitation on liability among the different

series, the periodic account statement may include only the information

for the series being reported, although additional information on other

series may be provided. The Commission further proposed that for multi-

class funds and for series funds that were not structured with a

limitation on liability among the different series or classes, net

asset value and other information required by the regulations must be

presented for both the pool as a whole as well as for each series or

class of ownership interest.

The Commission also proposed to amend Regulations 4.7(b)(3) and

4.22(c) to clarify that, for series funds structured with a limitation

on liability among the different series, the annual report may include

only the information for the series being reported. The Commission

further noted that for both periodic account statements and annual

financial reports, CPOs of series funds with a limitation on liability

among the different series were not precluded by the proposed

amendments from providing financial information to participants for

other series or classes of a respective pool.

The Commission did not receive any comment regarding the above

proposals. For the reasons set forth above and in the Proposed Part 4

Amendments, the Commission is adopting the amendments as proposed.

C. Changes to Fund of Funds Extension Provisions Under Regulation

4.22(f)(2)

Regulations 4.7(b)(3) and 4.22(c) require a CPO to provide to each

participant in each commodity pool that the CPO operates an annual

report for the commodity pool within 90 calendar days of the end of the

pool's fiscal year. The CPO is further required to submit a copy of the

annual report electronically to NFA.

Regulation 4.22(f)(2) permits a CPO of a commodity pool that

invests in other funds (referred to as a ``fund of funds'') to claim up

to an additional 60 days to distribute the pool's annual report to pool

participants and to file a copy with NFA. A CPO may claim the

Regulation 4.22(f)(2) fund of funds 60-day extension by filing with NFA

an initial notice, containing specified representations, in advance of

the annual report's due date for the first year the extension is

claimed. In subsequent years, the CPO may confirm that the

circumstances necessitating the relief continue to apply by restating

certain representations in a statement filed at the same time as the

pool's annual report.

The self-certification procedures for claiming an extension of the

filing deadline for a fund of funds under Regulation 4.22(f)(2)

currently are applicable only to CPOs that distribute annual reports

that are audited by independent public accountants. CPOs of funds of

funds that distribute unaudited annual financial reports to

participants pursuant to Regulation 4.7(b)(3) may not claim an

extension of the filing deadline under Regulation 4.22(f)(2). Such

CPOs, however, may request from NFA up to a 90-day extension of the

filing deadline under Regulation 4.22(f)(1).

As discussed in the Proposed Part 4 Amendments, in adopting

Regulation 4.22(f)(2), the Commission anticipated that a substantial

majority of the CPOs of funds of funds would be able to distribute to

the participants and to file with NFA the pools' annual reports within

150 days of the end of the respective commodity pool's fiscal year.\5\

The number of CPOs that have requested additional extensions under

Regulation 4.22(f)(1) after having claimed the 60-day extension under

Regulation 4.22(f)(2), however, has increased significantly in recent

years. To address this issue, the Commission proposed to extend from 60

to 90 days the maximum period of additional time

[[Page 57587]]

that a CPO that operates a commodity pool that invests in other funds

may claim under Regulation 4.22(f)(2).

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\5\ 65 FR 81333 at 81334 (December 26, 2000).

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The Commission also proposed to extend the application of

Regulation 4.22(f)(2) to CPOs that operate Regulation 4.7-exempt

commodity pools that do not prepare financial statements audited by

independent public accountants. As noted in the Proposed Part 4

Amendments, Regulation 4.22(f)(2) was adopted, in large part, to

address difficulties that CPOs experience in obtaining timely

information about their pools' investments in other funds in order for

the pools' public accountants to prepare audited financial statements.

Annual reports that are not audited, however, are still required to be

prepared in accordance with GAAP. CPOs need information establishing

the value of the pools' material investments from the investee funds.

These investments may be in a number of investee funds, such as other

commodity pools, securities funds, or hedge funds, both domestic and

offshore. The information that the CPOs require frequently is

unavailable until the investee funds complete their own audited

financial statements. Thus, in many cases, the CPOs cannot obtain the

information they require about the investee funds in time for the

annual financial reports of the pools to be prepared and distributed by

the due date. To address this issue, the Commission proposed to permit

CPOs of funds of funds for which unaudited annual reports are prepared

to be able to claim the extension under Regulation 4.22(f)(2).

In addition, the Commission proposed to eliminate the requirement

that a CPO that filed a claim of extension under Regulation 4.22(f)(2)

for a particular pool restate certain representations in a statement

filed with the pool's annual reports in subsequent years. Instead,

under the proposal, the CPO would be presumed to operate the pool as a

fund of funds and otherwise continue to qualify for the automatic

extension. The CPO, however, must provide NFA with notice if the pool

no longer operates as a fund of funds and must distribute the pool's

annual report to pool participants and file a copy with NFA within 90

days of the pool's fiscal year-end, as required by Regulation 4.22(c).

The Commission received several comments generally supporting the

proposed amendments, and no commenter opposed the proposed amendments.

NFA and Arthur Bell CPAs supported the proposed amendments to

Regulation 4.22(f)(2) extending the amount of time within which funds

of funds must file their reports from 150 to 180 days after fiscal year

end. NFA, however, commented that multi-tiered funds of funds could

still have difficulty obtaining necessary information if their investee

funds are commodity pools and the CPOs of the investee funds had

claimed an extension under Regulation 4.22(f)(2) of up to 180 days. In

such situations, the CPO of the fund of funds may not receive annual

reports for investee funds until 180 days after the end of the investee

fund's year-end, which would coincide with the due date for the CPO of

the fund of funds to distribute an annual report to participants in the

fund of funds. In its comment letter, NFA suggested that the Commission

amend Regulation 4.22(f)(1) to provide for an additional extension of

up to 210 days after the pool's year end to provide CPOs of funds of

funds with additional time to prepare and to distribute annual reports

for the commodity pool. The Commission did not receive any comments

regarding the proposal to eliminate, after the initial year, the

requirement in Regulation 4.22(f)(2) that a CPO claiming an extension

of time provide a statement containing representations regarding

operating a fund of funds each year after the initial year.

Arthur Bell CPAs further supported the proposal to extend the

availability of the fund of funds extension to Regulation 4.7-exempt

pools for which audited reports are not prepared, noting that even for

an unaudited report, the additional time is necessary due to the

requirement under GAAP to provide a condensed schedule of investments,

which necessitates obtaining information from investee funds.

The Commission has considered the comments received and is adopting

the amendments to Regulations 4.22(f)(1) and (2) as proposed. The

Commission acknowledges that a CPO of a multi-tiered fund of funds may

face challenges in obtaining the appropriate detailed financial

information from each investee fund. The Commission, however, must

balance the challenges faced by the CPO of a fund of funds with the

need of pool participants to receive financial information regarding

the performance of a fund in as timely a manner as possible. Based upon

its review of annual report filings of commodity pools over the last

several years, the Commission does not believe that there is a

sufficient basis to propose additional extension provisions under

Regulation 4.22(f)(1) that would extend the filing deadline to 210 days

after the end of a pool's fiscal year end. Commission staff will

monitor filings under the revised fund of funds timeframe closely to

ascertain whether any further changes may be warranted.

In addition, under the regulations as amended, CPOs that previously

have claimed the fund of funds extension will not need to file new or

revised notices with NFA in order to claim the additional 30 days to

file and to distribute their qualifying pools' annual reports. However,

the Commission continues to expect CPOs to file and to distribute their

pools' annual reports as soon as possible after the pools' fiscal year-

ends to ensure that participants obtain information that is as current

as possible.

D. Procedures for Preparation and Filing of Reports for Liquidating

Pools

The Commission proposed to clarify and to streamline procedures for

CPOs filing final reports for pools that had ceased operation.

Currently, Regulation 4.22(c) requires a CPO of a commodity pool that

has ceased operation to distribute a final annual report to commodity

pool participants and to file a copy with NFA within 90 days of the

pool's permanent cessation of trading, but in no event longer than 90

days after funds are returned to pool participants. The Commission

proposed to eliminate the confusion created by the reference in

Regulation 4.22(c) to two possible timeframes for filing a final annual

report by amending the regulation to specify that the final annual

report must be filed no later than 90 days after the pool ceases

trading. Under the proposed amendment, if a CPO has not distributed all

funds to participants by the date that the report is issued, the CPO

must provide information about the return of funds to pool

participants, including an estimate of the value of funds remaining to

be distributed and the anticipated timeframe of when those funds are

expected to be returned. When the remaining funds are returned to

participants, the CPO should send a notice to all participants and to

NFA. The proposed amendment also would permit CPOs to prepare unaudited

final reports as long as the CPO obtains from all participants, and

files with NFA, written waivers of their right to receive an audited

report.

NFA supported the Commission's proposal to clarify the timeframe

within which the final report must be filed; however, MFA noted that

requiring reports to be filed within 90 days of the cessation of

trading would create reporting inefficiencies for CPOs and participants

of pools that hold assets that are difficult to liquidate. MFA's

comment letter described scenarios in which inefficiencies would be

created, such as when the pool holds assets that

[[Page 57588]]

cannot be liquidated for an extended period of time, or the pool is

involved in bankruptcy. The MFA comment letter also noted that a CPO

may have difficulty in obtaining an audit opinion on financial

statements for a pool that has significant assets that have not been

liquidated.

MFA suggested as an alternative to the proposal that CPOs that have

determined to liquidate a pool provide notice to NFA and pool

participants shortly after the pool ceases trading, and file the pool's

final annual report within 90 days of returning funds to the

participants. NFA suggested an alternative to the proposed requirement

that CPOs that have not distributed all funds by the time the final

report is filed provide notice to NFA when the final distribution is

completed. NFA proposed that only those CPOs that have not returned

funds within the time frame specified in the final annual report would

provide notice to NFA, along with an explanation of why the

distribution has not been completed. NFA would then monitor these pools

until all funds are returned.

The Commission has considered carefully the comments regarding the

timeframe within which a CPO must provide a final report for a pool

that has ceased operation and has determined to modify the proposed

changes to address concerns raised by the commenters, including the

addition of an option for CPOs that are unable to complete the

liquidation of a pool in sufficient time to prepare, distribute and

file the pool's final report within 90 days of the permanent cessation

of trading. Under the amended regulation, a CPO generally would be

required to provide a liquidating pool's final report within 90 days of

the cessation of trading. The final report may contain only the

Statements of Operations and Changes in Net Assets; an explanation of

the winding down of the pool's operations; written disclosure that all

interests in, and assets of, the pool have been redeemed, distributed

or transferred on behalf of the participants; and, if all funds have

not been distributed at the time the report is issued, disclosure of

the value of the assets remaining to be distributed and the expected

timeframe for their distribution. If the CPO has not completed the

distribution of funds within the timeframe specified in the final

report, the CPO will be required to provide notice to NFA and the

pool's participants containing information about the value of the

pool's remaining assets, the expected timeframe for liquidation, any

fees and expenses that will continue to be charged to the pool, and the

extent to which reports will continue to be provided to participants

pursuant to the pool's operative documents. The Commission notes that

the latter requirement is for the purpose of disclosure, and is not

intended to relieve CPOs of their obligation to continue to comply with

the periodic and annual reporting requirements. In this connection, the

Commission notes that MFA requested in its comment letter that CPOs

that are unable to provide a final annual report within 90 days be

permitted to provide quarterly rather than monthly periodic account

statements to participants. Pools operating pursuant to Regulation 4.7

currently are permitted to provide quarterly statements; CPOs that are

required to provide monthly account statements may request relief under

Regulation 4.12(a).

Both NFA and MFA commented on the waiver provisions of the proposed

requirement that CPOs be permitted to prepare unaudited final reports

as long as the CPO obtains from all participants, and files with NFA,

written waivers of their right to receive an audited report. NFA

recommended that rather than filing all waivers with NFA, the CPO file

a certification with NFA that a waiver has been received from each

participant. The CPO would be required to make the waivers available to

NFA on request. MFA noted that for pools with many participants,

obtaining the waivers would be difficult and suggested that the

Commission instead adopt a negative consent procedure. The Commission

has determined that it is not in the public interest to permit CPOs to

provide unaudited reports to participants who are entitled to receive

audited reports without the affirmative consent of the participants.

However, it will be sufficient for the CPO to certify to NFA that it

has obtained waivers from all of the pool's participants, provided that

the CPO maintain all the waivers and make them available to NFA or the

Commission upon request.

Finally, in order to accommodate the appropriate numbering of

changes to Regulation 4.22(c), the Commission is redesignating existing

paragraph 4.22(c)(6) as 4.22(c)(8).

E. Codifying Existing Policies Regarding Special Allocations of

Ownership Equity, Unrealized Gains and Losses, and Investee Funds'

Income and Expenses

The Commission proposed to codify staff interpretations regarding

reporting in a pool's annual financial report special allocations of

partnership equity from limited partners to the general partner or any

other special class of partner; combining gains and losses on regulated

futures transactions with gains and losses on non-CFTC regulated

transactions that are part of the same trading strategy in the

Statement of Operations; and disclosing in the notes to the financial

statements the amounts of management and incentive fees and expenses

indirectly incurred as a result of investing in any fund where the

investment in the fund exceeded five percent of the pool's net asset

value. One commenter specifically addressed the proposed requirement to

disclose information on the amounts of income and expenses associated

with a pool's investments in investee funds. Arthur Bell CPAs noted

that in some cases, it may not be possible for CPOs to obtain the

information about investee funds' fees and expenses that would be

required under proposed Regulation 4.22(c)(5)(i), stating that some

investee funds are not obligated to report this information, and other

funds may not maintain records of allocations of management and

incentive fees or indirect expenses relative to the fund of fund's

investment. The comment letter from Arthur Bell CPAs suggested that the

proposed regulation be revised to state that in such cases, a CPO would

be permitted to disclose that certain information required under this

section is not available, if the CPO has made a good faith effort to

obtain the information.

As noted in the proposing release, Division of Clearing and

Intermediary Oversight (``DCIO'') staff has encouraged CPOs to disclose

income and fee information for investee pools for many years, on the

basis that such information is material for pool participants to

comprehend fully the investment strategy and fee structure of a

commodity pool. However, the illustration of investee fund disclosure

that has been included as an attachment to DCIO's annual guidance

letter to CPOs allows that in unusual circumstances, a CPO may state

that it does not have information on specific fees and expenses. In

order to address the issue noted in the comment, the Commission is

adopting this regulation generally as proposed, with the addition of an

option for a CPO that does not have the specific amounts of fees and

expenses to disclose instead the percentage amounts and computational

basis for each such fee and include a statement that the CPO is not

able to obtain the specific fee amounts for this fund.

[[Page 57589]]

F. Use of International Financial Reporting Standards in the

Preparation of Commodity Pool Annual Financial Reports

Regulation 4.22(d) requires that audited and unaudited financial

statements of commodity pools, as well as periodic account statements,

be presented and computed in accordance with GAAP. This provision

consistently has been interpreted by Commission staff to mean GAAP as

established in the United States (``U.S. GAAP'').

The Commission proposed to amend Regulation 4.22(d) to permit CPOs

that operate commodity pools organized under the laws of a foreign

jurisdiction to prepare financial statements for such pools using

International Financial Reporting Standards (``IFRS'') as issued by the

International Accounting Standards Board in lieu of U.S. GAAP. The

proposal specified that the IFRS financial statements contain a

condensed Schedule of Investments as set forth in Statement of

Accounting Positions 95-2, 01-1, and 03-04 issued by the AICPA; report

special allocations of partnership equity in accordance with Commission

Interpretative Letter 94-3; and, in the event that IFRS would require

that the pool consolidate its financial statements with another entity,

such as a feeder fund consolidating with its master fund, all

applicable disclosures required by U.S. GAAP for the feeder must be

presented with the reporting pool's consolidated financial statements.

In addition, the use of accounting standards other than U.S. GAAP must

not conflict with any representations made in offering memoranda or

similar documents provided to participants or potential participants in

the pool. The proposal further required that a CPO may claim the above

relief by filing a notice with NFA within 90 days of the end of the

commodity pool's fiscal year.

The NYC Bar commented on two technical aspects of the proposal.

First, with respect to the timeframe within which a CPO that is seeking

relief from the U.S. GAAP requirement under proposed Regulation

4.22(d)(2)(ii), the NYC Bar stated that the proposed regulation and

accompanying explanatory text were confusing as to when the notice must

be filed. The NYC Bar suggested that the adopting release clarify that

a notice claiming relief must be filed within 90 days after the end of

the pool's fiscal year in order to be effective. The Commission has

considered the NYC Bar's comments and has amended Regulation

4.22(d)(2)(ii) to provide that the notice must be filed with NFA within

90 days after the end of the pool's fiscal year.

Second, the NYC Bar suggested that the provision in proposed

Regulation 4.22(d)(2)(i)(C) requiring that the CPO represent that the

use of IFRS for the preparation of the commodity pool's financial

statements was not inconsistent with the pool's ``offering memorandum

or similar document'' be replaced with ``offering memorandum or other

operative document.'' This suggestion was intended to provide for a

broader range of operating documents in which such information may be

provided. The Commission has considered the comment and agrees that

including the information on the accounting standards to be followed by

the pool in any operative document that is provided or available to

participants is consistent with the objectives of the proposed

regulation, and therefore is adopting a final regulation that requires

such disclosure in the pool's offering memorandum or any other

operative document that is made available to participants or

prospective participants.

In addition, in developing these final regulations, the Commission

has noted that the use of IFRS for preparing pool financial statements

generally would extend to the computations that form the basis for the

information reported in periodic account statements required by

Regulations 4.22(a) and 4.7(b)(2). Therefore, the Commission is

adopting changes to Regulations 4.22(a) and 4.7(b)(2) to permit CPOs

that have claimed the relief available in Regulation 4.22(d), as

amended, to present the pool's periodic account statements on the same

basis as they are computing and presenting the pool's financial

statements.

G. GAAP Requirements in Regulation 4.13

Regulation 4.13 provides an exemption from registration for CPOs

that operate only one pool at a time, for which no advertising is done

and no compensation is received; or that operate pools that include no

more than 15 participants each, and the aggregate subscriptions to all

pools do not exceed $400,000. Regulation 4.13 further provides an

exemption from registration for CPOs of pools whose participants are

SEC ``accredited investors'' \6\ and that limit the pool's trading of

commodity interests to a de minimis amount, or that limit participation

in the pool to certain highly sophisticated investors. Regulation

4.13(c) specifies that, if a CPO that has claimed an exemption from

registration under Regulation 4.13 distributes an annual report to pool

participants, the annual report must be presented and computed in

accordance with GAAP and, if audited by an independent public

accountant, certified in accordance with Regulation 1.16.

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\6\ 17 CFR 230.501(a) (2009).

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The Commission proposed to amend Regulation 4.13(c) to delete the

requirement that the annual reports for pools for which the CPO has

claimed exemption from registration under Regulation 4.13 must be

presented and computed in accordance with GAAP and, if audited by an

independent public accountant, certified in accordance with Regulation

1.16. As noted in the Proposed Part 4 Amendments, the annual reports

are not required by Commission regulations to be prepared, distributed,

or filed, and therefore the Commission does not need to prescribe the

form of such reports.

The Commission did not receive any comments regarding the proposed

amendments to Regulation 4.13(c). The Commission has determined to

adopt the amendments as proposed.

H. Updating References to Financial Schedules

The Commission proposed to update both the periodic and annual

reporting provisions of Part 4 to conform with current accounting

practices with respect to the references to various financial

schedules. No comments were received on this proposal. Therefore, the

Commission is adopting amendments to delete references to the Statement

of Changes in Financial Position, which no longer exists; rename the

Statement of Income (Loss) as the Statement of Operations; and rename

the Statement of Changes in Net Asset Value as the Statement of Changes

in Net Assets.

IV. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,

requires that agencies, in proposing rules, consider the impact of

those rules on small businesses. The Commission has determined

previously that registered CPOs are not small entities for the purpose

of the RFA.\7\ The proposed amendments to Regulation 4.7 and Regulation

4.22 would apply only to registered CPOs. With respect to CPOs exempt

from registration, the Commission has previously determined that a CPO

is a small entity if it meets the criteria for exemption from

registration under current Regulation 4.13(a)(2). The proposed

amendment to

[[Page 57590]]

Regulation 4.13 would remove an existing requirement and does not

impose any significant burdens. The Commission's proposal solicited

public comment on this analysis.\8\ No comments were received.

Accordingly, the Chairman, on behalf of the Commission, hereby

certifies, pursuant to 5 U.S.C. 605(b), that the action it is taking

herein will not have a significant economic impact on a substantial

number of small entities.

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\7\ 47 FR 18618, 18619 (April 30, 1982).

\8\ 74 FR 8225 (February 24, 2009).

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B. Paperwork Reduction Act

This rulemaking modifies existing regulatory requirements by

clarifying information that must be included in required periodic and

annual reports, increasing slightly the burden for this collection of

information due to including specific fee and expense information in

annual reports for funds of funds. The proposing release included an

estimate of the impact of these changes on the paperwork burden under

existing information collection 3038-0005, and also corrected a

previous calculation error with respect to the total number of

respondents. As required by the Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)), the Commission submitted a copy of this section to the

Office of Management and Budget (``OMB'') for its review. No comments

were received in response to the Commission's invitation in the notice

of proposed rulemaking \9\ to comment on any change in the potential

paperwork burden associated with these rule amendments. The information

collection burdens created by the Commission's proposed rules, which

were discussed in detail in the proposing release, are identical to the

information collection burdens of the final rules.

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\9\ Id.

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List of Subjects in 17 CFR Part 4

Advertising, Brokers, Commodity futures, Commodity pool operators,

Commodity trading advisors, Consumer protection, Reporting and

recordkeeping requirements.

Accordingly, 17 CFR Chapter I is amended as follows:

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

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

Authority: 7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 6l, 6m, 6n, 6o,

12a, and 23.

2. In Sec. 4.7:

a. Add paragraphs (b)(2)(iii)(A) and (B) and (b)(2)(iv) and (v);

b. Revise paragraphs (b)(3)(i) introductory text and (b)(3)(i)(B) and

(C);

c. Add paragraph (b)(3)(i)(D); and

d. Revise paragraph (b)(3)(ii).

The additions and revisions read as follows:

Sec. 4.7 Exemption from certain part 4 requirements for commodity

pool operators with respect to offerings to qualified eligible persons

and for commodity trading advisors with respect to advising qualified

eligible persons.

* * * * *

(b) * * *

(2) * * *

(iii)(A) Either the net asset value per outstanding participation

unit in the exempt pool as of the end of the reporting period, or

(B) The total value of the participant's interest or share in the

exempt pool as of the end of the reporting period.

(iv) Where the pool is comprised of more than one ownership class

or series, the net asset value of the series or class on which the

account statement is reporting, and the net asset value per unit or

value of the participant's share, also must be included in the

statement required by this paragraph (b)(2); except that, for a pool

that is a series fund structured with a limitation on liability among

the different series, the account statement required by this paragraph

(b)(2) is not required to include the consolidated net asset value of

all series of the pool.

(v) A commodity pool operator of a pool that meets the conditions

specified in Sec. 4.22(d)(2)(i) of this part to present and compute

the commodity pool's financial statements contained in the Annual

Report in accordance with International Financial Reporting Standards

issued by the International Accounting Standards Board and has filed

notice pursuant to Sec. 4.22(d)(2)(ii) of this part also may use such

International Financial Reporting Standards in the computation and

presentation of the account statement.

(3) Annual report relief. (i) Exemption from the specific

requirements of Sec. 4.22(c) and (d) of this part; Provided, That

within 90 calendar days after the end of the exempt pool's fiscal year

or the permanent cessation of trading, whichever is earlier, the

commodity pool operator electronically files with the National Futures

Association and distributes to each participant in lieu of the

financial information and statements specified by those sections, an

annual report for the exempt pool, affirmed in accordance with Sec.

4.22(h) which contains, at a minimum:

* * * * *

(B) A Statement of Operations for that year;

information as may be necessary to make the required statements not

misleading. For a pool that invests in other funds, this information

must include, but is not limited to, separately disclosing the amounts

of income, management and incentive fees associated with each

investment in an investee fund that exceeds five percent of the pool's

net assets. The income, management and incentive fees associated with

an investment in an investee fund that is less than five percent of the

pool's net assets may be combined and reported in the aggregate with

the income, management and incentive fees of other investee funds that,

individually, represent an investment of less than five percent of the

pool's net assets. If the commodity pool operator is not able to obtain

the specific amounts of management and incentive fees charged by an

investee fund, the commodity pool operator must disclose the percentage

amounts and computational basis for each such fee and include a

statement that the CPO is not able to obtain the specific fee amounts

for this fund;

(D) Where the pool is comprised of more than one ownership class or

series, information for the series or class on which the financial

statements are reporting should be presented in addition to the

information presented for the pool as a whole; except that, for a pool

that is a series fund structured with a limitation on liability among

the different series, the financial statements are not required to

include consolidated information for all series.

(ii) Except as provided in Sec. 4.22(d)(2) of this part, such

annual report must be presented and computed in accordance with

generally accepted accounting principles consistently applied and, if

certified by an independent public accountant, so certified in

accordance with Sec. 1.16 of this chapter as applicable.

* * * * *

Sec. 4.13 [Amended]

3. Amend Sec. 4.13 by removing paragraph (c)(2) and redesignating

paragraph (c)(3) as (c)(2).

4. In Sec. 4.22:

a. Revise paragraphs (a) introductory text, (a)(1) introductory text,

and (a)(2) introductory text;

b. Add paragraphs (a)(5) and (6);

[[Page 57591]]

c. Revise paragraphs (c) introductory text, (c)(4), and (c)(5);

d. Redesignate paragraph (c)(6) as paragraph (c)(8), and add new

paragraphs (c)(6) and (7); and

e. Revise paragraphs (d), (e) and (f)(2).

The revisons and additions read as follows:

Sec. 4.22 Reporting to pool participants.

(a) Except as provided in paragraph (a)(4) or (a)(6) of this

section, each commodity pool operator registered or required to be

registered under the Act must periodically distribute to each

participant in each pool that it operates, within 30 calendar days

after the last date of the reporting period prescribed in paragraph (b)

of this section, an Account Statement, which shall be presented in the

form of a Statement of Operations and a Statement of Changes in Net

Assets, for the prescribed period. These financial statements must be

presented and computed in accordance with generally accepted accounting

principles consistently applied. The Account Statement must be signed

in accordance with paragraph (h) of this section.

(1) The portion of the Account Statement which must be presented in

the form of a Statement of Operations must separately itemize the

following information:

* * * * *

(2) The portion of the Account Statement that must be presented in

the form of a Statement of Changes in Net Assets must separately

itemize the following information:

* * * * *

(5) Where the pool is comprised of more than one ownership class or

series, information for the series or class on which the account

statement is reporting should be presented in addition to the

information presented for the pool as a whole; except that, for a pool

that is a series fund structured with a limitation on liability among

the different series, the account statement is not required to include

consolidated information for all series.

(6) A commodity pool operator of a pool that meets the conditions

specified in paragraph (d)(2)(i) of this section and has filed notice

pursuant to paragraph (d)(2)(ii) of this section may elect to follow

the same accounting treatment with respect to the computation and

presentation of the account statement.

* * * * *

section, each commodity pool operator registered or required to be

registered under the Act must distribute an Annual Report to each

participant in each pool that it operates, and must electronically

submit a copy of the Report and key financial balances from the Report

to the National Futures Association pursuant to the electronic filing

procedures of the National Futures Association, within 90 calendar days

after the end of the pool's fiscal year or the permanent cessation of

trading, whichever is earlier; Provided, however, that if during any

calendar year the commodity pool operator did not operate a commodity

pool, the pool operator must so notify the National Futures Association

within 30 calendar days after the end of such calendar year. The Annual

Report must be affirmed pursuant to paragraph (h) of this section and

must contain the following:

* * * * *

(4) Statements of Operations, and Changes in Net Assets, for the

period between--

(i) The later of:

(A) The date of the most recent Statement of Financial Condition

delivered to the National Futures Association pursuant to this

paragraph (c); or

(B) The date of the formation of the pool; and

(ii) The close of the pool's fiscal year, together with Statements

of Operations, and Changes in Net Assets for the corresponding period

of the previous fiscal year.

(5) Appropriate footnote disclosure and such further material

information as may be necessary to make the required statements not

misleading. For a pool that invests in other funds, this information

must include, but is not limited to, separately disclosing the amounts

of income, management and incentive fees associated with each

investment in an investee fund that exceeds five percent of the pool's

net assets. The management and incentive fees associated with an

investment in an investee fund that is less than five percent of the