[Federal Register: November 26, 2008 (Volume 73, Number 229)]
[Proposed Rules]
[Page 71968-71971]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26no08-36]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AC67
Electronic Filing of Disclosure Documents
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)
is proposing to amend its regulations applicable to the filing of
Disclosure Documents by commodity pool operators (CPOs) and commodity
trading advisors (CTAs) with the National Futures Association (NFA). In
response to a petition from NFA, the CFTC is proposing that CPOs and
CTAs be required to file their Disclosure Documents electronically with
NFA (Proposal).
DATES: Comments must be received on or before December 26, 2008.
ADDRESSES: Comments on the Proposal should be sent to David A. Stawick,
Secretary, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be
sent by facsimile transmission to (202) 418-5521, or by e-mail to
[email protected]. Reference should be made to ``Proposal Regarding
Electronic Filing of Disclosure Documents.'' Comments also may be
submitted by connecting to the Federal eRulemaking Portal at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov http://
www.regulations.gov and following the comment submission instructions.
FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Associate Director,
Compliance and Registration Section, Division of Clearing and
Intermediary Oversight, Commodity Futures Trading Commission, Three
Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,
telephone number: (202) 418-5450; facsimile number: (202) 418-5528; and
electronic mail: [email protected].
SUPPLEMENTARY INFORMATION:
I. Background
A. CPO and CTA Disclosure Documents
Part 4 of the Commission's regulations \1\ governs the operations
and activities of CPOs and CTAs. Regulations 4.21 and 4.31 respectively
require each CPO and CTA registered or required to be registered with
the Commission to deliver a Disclosure Document to prospective pool
participants and clients. Regulations 4.24 and 4.25 specify the
informational content of the CPO Disclosure Document, and Regulations
4.34 and 4.35 specify the informational content for the CTA Disclosure
Document. Regulations 4.26 and 4.36 respectively pertain to the use,
amendment and filing of CPO and CTA Disclosure Documents. Specifically,
under Regulations 4.26(d) and 4.36(d), the CPO or CTA must file one
copy of the Disclosure Document, and any supplements and amendments
thereto, with NFA.\2\ These regulations do not, however, prescribe any
particular manner of filing.
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\1\ 17 CFR Part 4 (2008). The Commission's regulations can be
accessed through the CFTC's Web site, http://www.cftc.gov.
\2\ NFA is a registered futures association pursuant to section
17 of the Commodity Exchange Act (Act), 7 U.S.C. 21 (2000). The Act
also may be accessed through the CFTC's Web site.
The Commission previously authorized NFA to conduct reviews of
Disclosure Documents filed by CPOs and CTAs pursuant to Regulations
4.26(d) and 4.36(d). See 62 FR 52088 (Oct. 6, 1997).
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B. The NFA Petition
By letter dated July 21, 2008, NFA petitioned the Commission to
amend Regulations 4.26 and 4.36 in order to require that CPOs and CTAs
file Disclosure Documents electronically through NFA's electronic
Disclosure Document filing system (Petition).\3\
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\3\ The Petition also adds the word ``each'' before the existing
words ``trading program'' in paragraph (d)(1) of Regulation 4.36 to
make that paragraph read parallel to the existing phrase ``each
trading program'' in paragraph (d)(2) of Regulation 4.36.
The Commission previously authorized NFA to accept notices of
exemptions or exclusions claimed under Part 4 and required that
these notices be filed electronically. See Id. and 72 FR 1658 (Jan.
16, 2007), respectively.
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In its Supporting Arguments, NFA explained the reasoning behind the
Petition as follows:
Currently, while there is nothing to prohibit a firm from filing
a disclosure document in hardcopy form, the vast majority of CPO and
CTA registrants file disclosure documents with NFA primarily via
electronic mail due to its expediency and convenience. While the use
of electronic mail has been a significant improvement over hardcopy
submissions in terms of filing efficiency, the current approach
still requires a considerable amount of staffing resources and has
other disadvantages, e.g., the inability of registrants to obtain
the status of the review of their filing without calling NFA and the
lack of a central location for storing past filings. Accordingly,
NFA has developed a new Internet-based electronic filing system for
disclosure documents that will be significantly less resource
intensive while also streamlining and enhancing the filing process
for registrants. In order to realize the proposed benefits, however,
registrants must be required to file their documents electronically
through NFA's new system. Consequently, NFA is petitioning the
Commission to amend its regulations accordingly.
The Commission understands that, as with NFA's other electronic
filing systems,\4\ the Disclosure Document system was designed to be
easy and secure, such that Disclosure Documents, supplements and
amendments will be uploaded through the system as either Word or PDF
documents. Thus, although the CPO or CTA must have an Internet
connection to access the system, it could use any public Internet site,
such as those available in most public libraries. Moreover, CPOs and
CTAs will access the system using the same designated login and
password that they currently use for NFA's Online
[[Page 71969]]
Registration System--which, NFA states, is ``a well-tested
authentication model with which participating registrants are already
familiar.'' \5\ NFA additionally states that it has been extremely
careful in the development of the system to ensure that the database it
maintains of Disclosure Document filings will not be compromised in any
way by unauthorized persons.
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\4\ For example, NFA has adopted ``Easyfile'' for introducing
broker and commodity pool financial statements required to be filed
with it.
\5\ The Commission previously delegated to NFA registration
responsibilities for CPOs, CTAs and their associated persons. See 49
FR 39593 (Oct. 9, 1984).
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Further in this regard, NFA explains that once CPOs and CTAs have
accessed the system:
They will be guided through the filing process, which culminates
in the electronic transfer of the disclosure document through the
secure web-based gateway. The system includes extensive help text to
assist registrants with their filings, and the filing process
includes a series of questions that will assist in identifying the
type of filing as well as provide important background information
to assist NFA staff with the analysis of the document itself. After
the document is submitted, the system will automatically assign it
to an available NFA analyst. By accessing the system, registrants
will be able to track the status of their filing and receive comment
letters as they are issued. Additionally, the system will serve as
an electronic filing cabinet for registrants since it will maintain
all previous filings and related comment letters filed through the
system.
The Commission further understands, then, that NFA's process for
the electronic filing of Disclosure Documents will have two components.
One of those components will require CPOs and CTAs to electronically
submit their Disclosure Documents, as well as any amendments and
supplements thereto. The other of these components will require CPOs
and CTAs to enter from their Disclosure Documents certain key
information on their operations and activities into a standardized form
accessed through NFA's Web site.\6\
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\6\ Among other things, this key information concerns
identification of contact persons, relationships with futures
commission merchants or introducing brokers, and the past
performance history and related data for the offered pool or trading
program.
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II. The Proposal
In light of the foregoing, the Commission is proposing to amend
Regulations 4.26(d) and 4.36(d) to require that any documents required
to be filed thereunder be filed electronically with NFA, pursuant to
NFA's electronic filing procedures. The Commission wishes to emphasize,
however, that the Proposal would not impact the delivery of Disclosure
Documents to prospective pool participants and clients, which CPOs and
CTAs could continue to provide through hardcopy distribution via postal
mail or electronically if the intended recipient consented thereto.\7\
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\7\ See Regulations 4.21(b) for CPOs and 4.31(b) for CTAs.
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III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) \8\ requires that agencies, in
proposing rules, consider the impact of those rules on small
businesses. The Commission previously has 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 RFA.\9\ With respect to CPOs, the Commission previously has
determined that a registered CPO is not a small entity for the purpose
of the RFA.\10\ As for CTAs, the Commission previously has stated that
it would evaluate within the context of a particular rule proposal
whether all or some affected CTAs would be considered to be small
entities and, if so, the economic impact on them of the particular
rule.\11\ As noted above, the Commission believes that the Proposal
will not place any significant economic burdens, whether new or
additional, on CPOs and CTAs who will be affected by it. This is
because while the Proposal will require these CPOs and CTAs to have
access to and a certain degree of technical knowledge to file
Disclosure Documents electronically and to enter the required key
information, they will access the system using the same designated
login and password that they currently use for registration purposes
and they will be entering the key information directly from their
Disclosure Documents. Thus, the Proposal simply alters the mechanism
for filing Disclosure Documents, and does not affect the substance or
frequency of those filings. Accordingly, and based on section 3(a) of
the RFA,\12\ the Acting Chairman, on behalf of the Commission,
certifies that the Proposal would not have a significant economic
impact on a substantial number of small entities. However, the
Commission invites the public to comment on this certification.
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\8\ 5 U.S.C. 601 et seq.
\9\ See 47 FR 18618 (Apr. 30, 1982).
\10\ Id. at 18619.
\11\ Id. at 18620.
\12\ 5 U.S.C. 605(b).
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B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) \13\ imposes certain
requirements on federal agencies (including the Commission) in
conducting or sponsoring any collection of information as defined by
the PRA. If adopted, the Proposal would change the manner in which CPOs
and CTAs file Disclosure Documents with NFA; it would not affect the
substance or frequency of those filings. The Proposal would, however,
authorize the separate collection from CPOs and CTAs of certain key
information from the Disclosure Documents CPOs and CTAs would be filing
electronically. Accordingly, pursuant to the PRA, the Commission has
submitted a copy of this section to the Office of Management and Budget
(OMB) for its review.
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\13\ 44 U.S.C. 3501 et seq.
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Collection of Information. [Rules Relating to the Operations and
Activities of Commodity Pool Operators and Commodity Trading Advisors
and to Monthly Reporting by Futures Commission Merchants, OMB Control
Number 3038-0005.]
The expected effect of the proposed amended regulations will be to
reduce the burden previously approved by OMB for this collection of
information by 239.5 hours. This is because, while it will result in an
increase in the estimated average number of hours per response under
Regulations 4.26 and 4.36, there will be fewer CPOs and CTAs subject to
the filing requirements of these regulations owing to increased claims
of exemption under Regulation 4.7 from Disclosure Document requirements
and under Regulations 4.13 and 4.14 from registration altogether.
Specifically:
The burden associated with Regulation 4.26 is expected to be
decreased by 422.4 hours:
Estimated number of respondents: 160.
Annual responses by each respondent: 3.
Estimated average hours per response: 3.25.
Annual reporting burden: 1560.
This annual reporting burden of 1560 hours represents a decrease of
422.4 hours as a result of the proposed amendment to Regulation 4.26.
The burden associated with Regulation 4.36 is expected to be
increased by 182.9:
Estimated number of respondents: 450.
Annual responses by each respondent: 1.
Estimated average hours per response: 1.85.
Annual reporting burden: 832.5.
This annual reporting burden of 832.5 hours represents an increase
of 182.9
[[Page 71970]]
hours as a result of the proposed amendment to Regulation 4.36.
The net result of the proposed amendments to Regulations 4.26 and
4.36, then, is a decrease in the annual reporting burden of 239.5.
Copies of the information collection submission to OMB are
available from the CFTC Clearance Officer, 1155 21st Street, NW.,
Washington, DC 20581 (202) 418-5160. The Commission considers comments
by the public on this proposed collection of information in--
Evaluating whether the proposed collection of information is
necessary for the proper performance of the functions of the
Commission, including whether the information will have a practical
use;
Evaluating the accuracy of the Commission's estimate of the burden
of the proposed collection of information, including the validity of
the methodology and assumptions used;
Enhancing the quality, utility, and clarity of the information to
be collected; and
Minimizing the burden of the collection of information on those who
are to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology, e.g., permitting electronic
submission of responses.
Organizations and individuals desiring to submit comments on the
information collection should contact the Office of Information and
Regulatory Affairs, Office of Management and Budget, Room 10235, New
Executive Office Building, Washington, DC 20503, Attn: Desk Officer of
the Commodity Futures Trading Commission. OMB is required to make a
decision concerning the collection of information contained in the
Proposal between 30 and 60 days after publication of this document in
the Federal Register. Therefore, a comment to OMB is best assured of
having its full effect if OMB receives it within 30 days of
publication. This does not affect the deadline for the public to
comment to the Commission on the Proposal.
C. Cost-Benefit Analysis
Section 15(a) of the Act \14\ requires the Commission to consider
the costs and benefits of its action before issuing a new regulation
under the Act. By its terms, section 15(a) does not require the
Commission to quantify the costs and benefits of a new regulation or to
determine whether the benefits of the regulation outweigh its costs.
Rather, section 15(a) simply requires the Commission to ``consider the
costs and benefits'' of its action.
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\14\ 7 U.S.C. 19(a).
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Section 15(a) further specifies that costs and benefits shall be
evaluated in light of five broad areas of market and public concern,
enumerated below. Accordingly, the Commission could in its discretion
give greater weight to any one of the five enumerated areas and could
in its discretion determine that, notwithstanding its costs, a
particular rule was necessary or appropriate to protect the public
interest or to effectuate any of the provisions or to accomplish any of
the purposes of the Act.
The Proposal would amend Regulations 4.26(d) and 4.36(d) to require
that CPOs and CTAs file Disclosure Documents, and any supplements and
amendments thereto, electronically with NFA. The Commission is
considering the costs and benefits of the Proposal in light of the
specific provisions of section 15(a) as follows:
1. Protection of market participants and the public. The Proposal
should not affect the protection of market participants and the public,
as it provides an alternate method of filing Disclosure Documents, but
does not alter the character or frequency of those filings.
2. Efficiency and competition. The Commission anticipates that the
Proposal will benefit efficiency by permitting NFA to streamline its
process for receiving and reviewing Disclosure Document filings. Thus,
the Commission considers the Proposal as benefiting efficiency and not
impacting competition.
3. Financial integrity of futures markets and price discovery. The
Proposal should have no effect, from the standpoint of imposing costs
or creating benefits, on the financial integrity of futures markets or
the price discovery function of such markets.
4. Sound risk management practices. The Proposal should have no
effect, from the standpoint of imposing costs or creating benefits, on
sound risk management practices.
5. Other public interest considerations. The Commission believes
that the Proposal is beneficial in that it should streamline the
timeliness of filing, review and delivery of, and electronic
accessibility to, Disclosure Documents.
After considering these factors, the Commission has determined to
propose the amendments to Regulations 4.26(d) and 4.36(d) discussed
above. The Commission invites public comment on its application of the
cost-benefit provision. Commenters also are invited to submit any data
that they may have quantifying the costs and benefits of the Proposal
with their comment letters.
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 proposed to be amended as follows:
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
1. The authority citation for part 4 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 4, 6b, 6c, 6l, 6m, 6n, 6o, 12a, and
23.
2. Revise paragraph (d) of Sec. 4.26 to read as follows:
Sec. 4.26 Use, Amendment and Filing of Disclosure Document.
* * * * *
(d) Except as provided by Sec. 4.8:
(1) The commodity pool operator must electronically file with the
National Futures Association, pursuant to the electronic filing
procedures of the National Futures Association, the Disclosure Document
and, where used, profile document for each pool that it operates or
that it intends to operate not less than 21 calendar days prior to the
date the pool operator first intends to deliver such Document or
documents to a prospective participant in the pool; and
(2) The commodity pool operator must electronically file with the
National Futures Association, pursuant to the electronic filing
procedures of the National Futures Association, the subsequent
amendments to the Disclosure Document and, where used, profile document
for each pool that it operates or that it intends to operate within 21
calendar days of the date upon which the pool operator first knows or
has reason to know of the defect requiring the amendment.
3. Revise paragraph (d) of Sec. 4.36 to read as follows:
Sec. 4.36 Use, amendment and filing of Disclosure Document.
* * * * *
(d)(1) The commodity trading advisor must electronically file with
the National Futures Association, pursuant to the electronic filing
procedures of the National Futures Association, the Disclosure Document
for each trading program that it offers or that it intends to offer not
less than 21 calendar days
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prior to the date the trading advisor first intends to deliver the
Document to a prospective client in the trading program; and
(2) The commodity trading advisor must electronically file with the
National Futures Association, pursuant to the electronic filing
procedures of the National Futures Association, the subsequent
amendments to the Disclosure Document for each trading program that it
offers or that it intends to offer within 21 calendar days of the date
upon which the trading advisor first knows or has reason to know of the
defect requiring the amendment.
Issued in Washington, DC, on November 21, 2008 by the
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8-28177 Filed 11-25-08; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: May 9, 2012