Federal Register, Volume 77 Issue 58 (Monday, March 26, 2012)[Federal Register Volume 77, Number 58 (Monday, March 26, 2012)]
[Rules and Regulations]
[Pages 17328-17331]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: C1-2012-3390]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Parts 4, 145, and 147
RIN 3038-AD30
Commodity Pool Operators and Commodity Trading Advisors:
Compliance Obligations
Correction
Editorial Note: FR DOC 2012-3390 appearing on pages 11252-11344
in the issue of Friday, February 24, 2012 is being partially
republished due to numerous errors.
1. On page 11252, in the first column, the SUMMARY section is being
republished in its entirety.
SUMMARY: The Commodity Futures Trading Commission is adopting
amendments to its existing part 4 regulations and promulgating one new
regulation regarding Commodity Pool Operators and Commodity Trading
Advisors. The Commission is also adopting new data collections for CPOs
and CTAs that are consistent with a data collection required under the
Dodd-Frank Act for entities registered with both the Commission and the
Securities and Exchange Commission. The adopted amendments rescind an
exemption from registration as a CPO; rescind relief from the
certification requirement for annual reports provided to operators of
certain pools offered only to qualified eligible persons (``QEPs'');
modify the criteria for claiming exclusion from the definition of CPO;
and require the annual filing of notices claiming exemptive relief
under several sections of the Commision's regulations. Finally, the
adopted amendments include new risk disclosure requirements for CPOs
and CTAs regarding swap transactions.
2. In 17 CFR Part 4, beginning on page 11283, in the second column,
in 31st line of text, amendatory instructions 1-8 and their
corresponding amendments to the Code of Federal Regulations are being
republished as follows:
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
0
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.
0
2. In Sec. 4.5, add paragraphs (c)(2)(iii) and (c)(5) to read as
follows:
Sec. 4.5 Exclusion from the definition of the term ``commodity pool
operator.''
* * * * *
(c) * * *
(2) * * *
(iii) Furthermore, if the person claiming the exclusion is an
investment company registered as such under the Investment Company Act
of 1940, then the notice of eligibility must also contain
representations that such person will operate the qualifying entity as
described in Rule 4.5(b)(1) in a manner such that the qualifying
entity:
(A) Will use commodity futures or commodity options contracts, or
swaps solely for bona fide hedging purposes within the meaning and
intent of Rules 1.3(z)(1) and 151.5 (17 CFR 1.3(z)(1) and 151.5);
Provided however, That in addition, with respect to positions in
commodity futures or commodity option contracts, or swaps which do not
come within the meaning and intent of Rules 1.3(z)(1) and 151.5, a
qualifying entity may represent that the aggregate initial margin and
premiums required to establish such positions will not exceed five
percent of the liquidation value of the qualifying entity's portfolio,
after taking into account unrealized profits and unrealized losses on
any such contracts it has entered into; and, Provided further, That in
the case of an option that is in-the-money at the time of purchase, the
in-the-money amount as defined in Rule 190.01(x) (17 CFR 190.01(x)) may
be excluded in computing such five percent; or
(B) The aggregate net notional value of commodity futures,
commodity options contracts, or swaps positions not used solely for
bona fide hedging purposes within the meaning and intent of Rules
1.3(z)(1) and 151.5 (17 CFR 1.3(z)(1) and 151.5), determined at the
time the most recent position was established, does not exceed 100
percent of the liquidation value of the pool's portfolio, after taking
into account unrealized profits and unrealized losses on any such
positions it has entered into. For the purpose of this paragraph:
(1) The term ``notional value'' shall be calculated for each
futures position by multiplying the number of contracts by the size of
the contract, in contract units
[[Page 17329]]
(taking into account any multiplier specified in the contract), by the
current market price per unit, for each such option position by
multiplying the number of contracts by the size of the contract,
adjusted by its delta, in contract units (taking into account any
multiplier specified in the contract), by the strike price per unit,
for each such retail forex transaction, by calculating the value in
U.S. Dollars for such transaction, at the time the transaction was
established, excluding for this purpose the value in U.S. Dollars of
offsetting long and short transactions, if any, and for any cleared
swap by the value as determined consistent with the terms of 17 CFR
part 45; and
(2) The person may net futures contracts with the same underlying
commodity across designated contract markets and foreign boards of
trade; and swaps cleared on the same designated clearing organization
where appropriate; and (C) Will not be, and has not been, marketing
participations to the public as or in a commodity pool or otherwise as
or in a vehicle for trading in the commodity futures, commodity
options, or swaps markets.
* * * * *
(5) Annual notice. Each person who has filed a notice of exclusion
under this section must affirm on an annual basis the notice of
exemption from registration, withdraw such exemption due to the
cessation of activities requiring registration or exemption therefrom,
or withdraw such exemption and apply for registration within 60 days of
the calendar year end through National Futures Association's electronic
exemption filing system.
* * * * *
0
3. In Sec. 4.7:
0
a. Revise paragraphs (a)(3)(ix), (a)(3)(x), and (b)(3) to read as
follows:
Sec. 4.7 Exemption from certain part 4 requirements for commodity
pool operators with respect to offerings to qualified eligible persons
and for commodity trading advisors with respect to advising qualified
eligible persons.
* * * * *
(a) * * *
(3) * * *
(ix) A natural person whose individual net worth, or joint net
worth with that person's spouse at the time of either his purchase in
the exempt pool or his opening of an exempt account would qualify him
as an accredited investor as defined in Sec. 230.501(a)(5) of this
title;
(x) A natural person who would qualify as an accredited investor as
defined in Sec. 203.501(a)(6) of this title;
* * * * *
(b) * * *
(3) Annual report relief. (i) Exemption from the specific
requirements of Sec. 4.22(c) of this part; Provided, that within 90
calendar days after the end of the exempt pool's fiscal year or the
permanent cessation of trading, whichever is earlier, the commodity
pool operator electronically files with the National Futures
Association and distributes to each participant in lieu of the
financial information and statements specified by that section, an
annual report for the exempt pool, affirmed in accordance with Sec.
4.22(h) which contains, at a minimum:
(A) A Statement of Financial Condition as of the close of the
exempt pool's fiscal year (elected in accordance with Sec. 4.22(g));
(B) A Statement of Operations for that year;
(C) Appropriate footnote disclosure and such further material
information as may be necessary to make the required statements not
misleading. For a pool that invests in other funds, this information
must include, but is not limited to, separately disclosing the amounts
of income, management and incentive fees associated with each
investment in an investee fund that exceeds five percent of the pool's
net assets. The income, management and incentive fees associated with
an investment in an investee fund that is less than five percent of the
pool's net assets may be combined and reported in the aggregate with
the income, management and incentive fees of other investee funds that,
individually, represent an investment of less than five percent of the
pool's net assets. If the commodity pool operator is not able to obtain
the specific amounts of management and incentive fees charged by an
investee fund, the commodity pool operator must disclose the percentage
amounts and computational basis for each such fee and include a
statement that the CPO is not able to obtain the specific fee amounts
for this fund;
(D) Where the pool is comprised of more than one ownership class or
series, information for the series or class on which the financial
statements are reporting should be presented in addition to the
information presented for the pool as a whole; except that, for a pool
that is a series fund structured with a limitation on liability among
the different series, the financial statements are not required to
include consolidated information for all series.
(ii) Legend. If a claim for exemption has been made pursuant to
this section, the commodity pool operator must make a statement to that
effect on the cover page of each annual report.
* * * * *
0
4. In Sec. 4.13:
0
a. Revise paragraphs (a)(3)(ii)(B)(1) and (2);
0
b. Remove and reserve paragraph (a)(4);
0
c. Revise paragraph (b)(1)(ii);
0
d. Redesignate paragraph (b)(4) as paragraph (b)(5) and add new
paragraph (b)(4); and
0
e. Revise paragraph (e)(2).
The revisions and additions read as follows:
Sec. 4.13 Exemption from registration as a commodity pool operator.
* * * * *
(a) * * *
(3) * * *
(ii) * * *
(B) * * *
(1) The term ``notional value'' shall be calculated for each
futures position by multiplying the number of contracts by the size of
the contract, in contract units (taking into account any multiplier
specified in the contract), by the current market price per unit, for
each such option position by multiplying the number of contracts by the
size of the contract, adjusted by its delta, in contract units (taking
into account any multiplier specified in the contract), by the strike
price per unit, for each such retail forex transaction, by calculating
the value in U.S. Dollars of such transaction, at the time the
transaction was established, excluding for this purpose the value in
U.S. Dollars of offsetting long and short transactions, if any, and for
any cleared swap by the value as determined consistent with the terms
of 17 CFR part 45; and
(2) The person may net futures contracts with the same underlying
commodity across designated contract markets and foreign boards of
trade; and swaps cleared on the same derivatives clearing organization
where appropriate; and
* * * * *
(b) * * *
(2) * * *
(ii) Contain the section number pursuant to which the operator is
filing the notice (i.e., Sec. 4.13(a)(1), (2), or (3)) and represent
that the pool will be operated in accordance with the criteria of that
paragraph; and
* * * * *
(4) Annual Notice. Each person who has filed a notice of exemption
from registration under this section must
[[Page 17330]]
affirm on an annual basis the notice of exemption from registration,
withdraw such exemption due to the cessation of activities requiring
registration or exemption therefrom, or withdraw such exemption and
apply for registration within 60 days of the calendar year end through
National Futures Association's electronic exemption filing system.
* * * * *
(e) * * *
(2) If a person operates one or more commodity pools described in
paragraph (a)(3) of this section, and one or more commodity pools for
which it must be, and is, registered as a commodity pool operator, the
person is exempt from the requirements applicable to a registered
commodity pool operator with respect to the pool or pools described in
paragraph (a)(3) of this section; Provided, That the person:
(i) Furnishes in written communication physically delivered or
delivered through electronic transmission to each prospective
participant in a pool described in paragraph (a)(3) of this section
that it operates:
(A) A statement that it will operate the pool as if the person was
exempt from registration as a commodity pool operator;
(B) A description of the criteria pursuant to which it will so
operate the pool;
(ii) Complies with paragraph (c) of this section; and
(iii) Provides each existing participant in a pool that the person
elects to operate as described in paragraph (a)(3) of this section a
right to redeem the participant's interest in the pool, and informs
each such participant of that right no later than the time the person
commences to operate the pool as described in paragraph (a)(3) of this
section.
* * * * *
0
5. In Sec. 4.14:
0
a. Revise paragraph (a)(8)(i)(D); and
0
b. Redesignate paragraph (a)(8)(iii)(D) as (a)(8)(iii)(E) and add a new
paragraph (a)(8)(iii)(D).
The revision and addition read as follows:
Sec. 4.14 Exemption from registration as a commodity trading adviser.
* * * * *
(a) * * *
(8) * * *
(i) * * *
(D) A commodity pool operator who has claimed an exemption from
registration under Sec. 4.13(a)(3), or, if registered as a commodity
pool operator, who may treat each pool it operates that meets the
criteria of Sec. 4.13(a)(3) as if it were not so registered; and
* * * * *
(iii) * * *
(D) Annual notice. Each person who has filed a notice of exemption
from registration under this section must affirm on an annual basis the
notice of exemption from registration, withdraw such exemption due to
the cessation of activities requiring registration or exemption
therefrom, or withdraw such exemption and apply for registration within
60 days of the calendar year end through National Futures Association's
electronic exemption filing system.
* * * * *
0
6. In Sec. 4.24, add paragraph (b)(5) to read as follows:
Sec. 4.24 General disclosures required.
* * * * *
(b) * * *
(5) If the pool may engage in swaps, the Risk Disclosure Statement
must further state:
SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A
VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A
PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK,
COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND OPERATIONAL
RISK.
HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE
LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. HIGHLY
LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR LOSSES IN
VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE OR LEVEL OF
AN UNDERLYING OR RELATED MARKET FACTOR.
IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH
A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP
TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE
ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED
TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR THE COMMODITY POOL
OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE POOL'S OBLIGATIONS OR THE
POOL'S EXPOSURE TO THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS
SCHEDULED TERMINATION DATE.
* * * * *
0
7. In Sec. 4.34, add paragraph (b)(4) to read as follows:
Sec. 4.34 General disclosures required.
* * * * *
(b) * * *
(4) If the commodity trading advisor may engage in swaps, the Risk
Disclosure Statement must further state:
SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A
VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A
PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK,
FUNDING RISK, AND OPERATIONAL RISK.
HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE
LIQUIDITY RISK, WHICH MAY RESULT IN YOUR ABILITY TO WITHDRAW YOUR FUNDS
BEING LIMITED. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL
GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE
VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.
IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED WITH
A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT A SWAP
TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL CONSENT OF THE
ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON INDIVIDUALLY NEGOTIATED
TERMS. THEREFORE, IT MAY NOT BE POSSIBLE TO MODIFY, TERMINATE, OR
OFFSET YOUR OBLIGATIONS OR YOUR EXPOSURE TO THE RISKS ASSOCIATED WITH A
TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.
* * * * *
0
8. Effective July 2, 2012, revise Sec. 4.27, as added November 16,
2011, at 76 FR 71114, and effective March 31, 2012 to read as follows:
[[Page 17331]]
Sec. 4.27 Additional reporting by advisors of certain large commodity
pools.
(a) General definitions. For the purposes of this section:
(1) Commodity pool operator or CPO has the same meaning as
commodity pool operator defined in section 1a(11) of the Commodity
Exchange Act;
(2) Commodity trading advisor or CTA has the same meaning as
defined in section 1a(12);
(3) Direct has the same meaning as defined in section 4.10(f);
(4) Net asset value or NAV has the same meaning as net asset value
as defined in section 4.10(b);
(5) Pool has the same meaning as defined in section 1(a)(10) of the
Commodity Exchange Act;
(6) Reporting period means the reporting period as defined in the
forms promulgated hereunder;
(b) Persons required to report. A reporting person is:
(1) Any commodity pool operator that is registered or required to
be registered under the Commodity Exchange Act and the Commission's
regulations thereunder; or
(2) Any commodity trading advisor that is registered or required to
be registered under the Commodity Exchange Act and the Commission's
regulations thereunder.
(c) Reporting. (1) Except as provided in paragraph (c)(2) of this
section, each reporting person shall file with the National Futures
Association, a report with respect to the directed assets of each pool
under the advisement of the commodity pool operator consistent with
appendix A to this part or commodity trading advisor consistent with
appendix C to this part.
(2) All financial information shall be reported in accordance with
generally accepted accounting principles consistently applied.
(d) Investment advisers to private funds. Except as otherwise
expressly provided in this section, CPOs and CTAs that are dually
registered with the Securities and Exchange Commission and are required
to file Form PF pursuant to the rules promulgated under the Investment
Advisers Act of 1940, shall file Form PF with the Securities and
Exchange Commission in lieu of filing such other reports with respect
to private funds as may be required under this section. In addition,
except as otherwise expressly provided in this section, CPOs and CTAs
that are dually registered with the Securities and Exchange Commission
and are required to file Form PF pursuant to the rules promulgated
under the Investment Advisers Act of 1940, may file Form PF with the
Securities and Exchange Commission in lieu of filing such other reports
with respect to commodity pools that are not private funds as may be
required under this section. Dually registered CPOs and CTAs that file
Form PF with the Securities and Exchange Commission will be deemed to
have filed Form PF with the Commission for purposes of any enforcement
action regarding any false or misleading statement of a material fact
in Form PF.
(e) Filing requirements. Each report required to be filed with the
National Futures Association under this section shall:
(1)(i) Contain an oath and affirmation that, to the best of the
knowledge and belief of the individual making the oath and affirmation,
the information contained in the document is accurate and complete;
Provided, however, That it shall be unlawful for the individual to make
such oath or affirmation if the individual knows or should know that
any of the information in the document is not accurate and complete and
(ii) Each oath or affirmation must be made by a representative duly
authorized to bind the CPO or CTA.
(2) Be submitted consistent with the National Futures Association's
electronic filing procedures.
(f) Termination of reporting requirement. All reporting persons
shall continue to file such reports as are required under this section
until the effective date of a Form 7W filed in accordance with the
Commission's regulations.
(g) Public records. Reports filed pursuant to this section shall
not be considered Public Records as defined in Sec. 145.0 of this
chapter.
Editorial Note: FR DOC 2012-3390 appearing on pages 11252-11344
in the issue of Friday, February 24, 2012 is being partially
republished due to numerous errors.
[FR Doc. C1-2012-3390 Filed 3-23-12; 8:45 a.m.]
BILLING CODE 1505-01-D
Last Updated: March 26, 2012