[Federal Register: December 18, 2002 (Volume 67, Number 243)]
[Rules and Regulations]
[Page 77409-77411]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18de02-6]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
Commodity Pool Operators and Commodity Trading Advisors
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
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SUMMARY: The Commodity Futures Trading Commission (the "Commission"
or "CFTC") has adopted amendments which govern Commodity Pool
Operators ("CPOs") and Commodity Trading Advisors ("CTAs"). These
amendments make clear that certain Disclosure Documents, annual
financial reports, notices of eligibility, claims of exemption, and
requests for extensions of time to file annual financial reports, need
only be filed with the National Futures Association ("NFA") and need
not also be filed with the Commission. The Commission, in separate
Notices and Orders published elsewhere in the Federal Register, has
authorized NFA to receive and review these documents.
DATES: Effectice January 1, 2003. Amendments to Commission Rules
4.7(b)(3)(i) and 4.22 shall be applicable with regard to commodity pool
annual financial reports for fiscal years ending on December 31, 2002,
and thereafter.
FOR FURTHER INFORMATION CONTACT: Kevin P. Walek, Assistant Director,
Eileen R. Chotiner, Futures Trading Specialist, Audit and Financial
Review Section, or Michael A. Piracci, Attorney Advisor, 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: (202) 418-5430.
SUPPLEMENTARY INFORMATION:
I. Background
In a Notice and Order issued in 1997 (the "1997 Order"), the
Commission, among other things, authorized NFA to process: (1) Notices
of eligibility for exclusion for certain otherwise regulated persons
from the definition of CPO, pursuant to Commission Rule 4.5; \1\ (2)
notices of claim for exemption from certain part 4 requirements with
respect to commodity pools and CTAs whose participants or clients are
qualified eligible persons, pursuant to Commission Rule 4.7; (3) claims
of exemption from certain part 4 requirements for CPOs with respect to
pools that principally trade securities, pursuant to Commission Rule
4.12(b); (4) statements of exemption from registration as a CPO,
pursuant to Commission Rule 4.13; and (5) notices of exemption from
registration as a CTA for certain persons registered as an investment
adviser, pursuant to Rule 4.14(a)(8).\2\ As part of the 1997 Order, the
Commission also authorized NFA to receive and review Disclosure
Documents required to be filed with the Commission by CPOs, pursuant to
Commission Rule 4.26(d), with regard to "privately offered" \3\
commodity pools, and CTAs, pursuant to Commission Rule 4.36(d).\4\
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\1\ Commission rules referred to herein may be found at 17 CFR
ch. I (2002).
\2\ See 62 FR 52088 (Oct. 6, 1997).
\3\ See note 2, supra. Pursuant to Commission Rule
4.24(d)(3)(i), "privately offered" commodity pools are those
offered pursuant to section 4(2) of the Securities Act of 1933, as
amended (15 U.S.C. 77d(2)), or pursuant to Regulation D thereunder
(17 CFR 230.501 et seq.).
\4\ Pursuant to Commission Rule 4.24(d)(3)(i), privately offered
commodity pools are those that are offered pursuant to section 4(2)
of the Securities Act of 1933, as amended (15 U.S.C. 77d(2)), or
pursuant to Regulation D thereunder (17 CFR 230.501 et seq.).
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In a separate notice published elsewhere today in the Federal
Register, the Commission is authorizing NFA, with regard to commodity
pool annual financial reports for fiscal years ending on December 31,
2002, and thereafter, to, among other things: (1) Rceive and review
annual financial reports required to be filed by CPOs pursuant to
Commission Rules 4.7(b)(3) and 4.22(c); (2) receive and grant or deny
applications filed pursuant to Commission Rule 4.22(f)(1) for
extensions of time to distribute annual financial reports; and (3)
process notices of claims of extension of time to distribute and file
annual financial reports filed pursuant to Commission Rule 4.22(f)(2).
II. Rule Amendments
In the 1997 notice and order and the notice and order published
elsewhere in the Federal Register today, the Commission noted that NFA
Compliance Rule 2-13 \5\ requires NFA members to file with NFA copies
of any documents required to be filed with the Commission pursuant to
part 4 of the Commission's Rules. Moreover, certain of the Commission
rules that are the subject of the orders explicitly require that the
document be filed with both NFA and the Commission.\6\ As a result of
the Commission authorizations, it is no longer necessary for the
Commission to receive copies of these documents. As discussed more
fully in the notice published elsewhere today in the Federal Register,
the Commission will have immediate electronic access to all required
pertinent information contained in these documents. Moreover, if the
Commission or Commission staff requires a hard copy of any of the
subject documents, NFA will make such copies available within 24 hours.
Accordingly, it is not necessary for the Commission to impose upon the
persons filing these documents the burden and cost of having to file
the documents with both NFA and the Commission. The Commission is,
therefore, amending the subject rules to make clear that the required
documents
[[Page 77410]]
need only be filed with NFA and need not also be filed with the
Commission.\7\
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\5\ NFA Rules may be found on NFA's Web site at: http://www.nfa.futures.org.
\6\ See, e.g., Commission Rule 4.14(a)(8)(v).
\7\ The Commission rules being amended herein are rule: (1) 4.5;
(2) 4.7; (3) 4.12; (4) 4.13; (5) 4.14; (6) 4.22; (7) 4.26; and (8)
4.36.
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Generally, the amendments being adopted herein are simply removing
the phrase "the Commission" and, where appropriate, adding in its
place "the National Futures Association." \8\ In the 1997 Order, the
Commission authorized NFA to review Disclosure Documents that CPOs are
required to file, pursuant to Commission Rule 4.26(d), with regard to
only those Disclosure Documents filed for "privately offered" pools.
The Commission, therefore, continues to receive and review Disclosure
Documents for pools that are not "privately offered." Accordingly,
Rule 4.26(d) is being amended by adding paragraph (d)(3) to make clear
that Disclosure Documents for pools that are not "privately offered"
must be filed with the Commission, as well as any subsequent amendments
to such Disclosure Documents.
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\8\ See the amendments to Commission Rule 4.5 being adopted
herein.
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III. Effective Date
The amendments adopted by the Commission herein shall be effective
January 1, 2003, except for the amendments to Commission Rules
4.7(b)(3) and 4.22, which involve the annual financial reports of
commodity pools and extensions of time for filing such reports. As
discussed in the notice published elsewhere today in the Federal
Register, in order to avoid disruption of outstanding reviews of annual
financial reports, this authorization is effective only with regard to
commodity pool annual financial reports for fiscal years ending on
December 31, 2002, and thereafter. Accordingly, the amendments to Rules
4.7(b)(3) and 4.22 are similarly effective only with regard to
commodity pool annual financial reports for fiscal years ending on
December 31, 2002, and thereafter. CPOs, therefore, must continue to
file annual financial reports and extensions of time for such reports
with both the Commission and NFA regarding any commodity pool annual
financial reports for fiscal years ending prior to December 31, 2002.
IV. Related Matters
A. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 ("PRA") \9\ imposes certain
requirements on federal agencies (including the Commission) in
connection with their conducting or sponsoring any collection of
information as defined by the PRA. The rule amendments do not require a
new collection of information on the part of any entities subject to
the proposed rule amendments. Accordingly, for purposes of the PRA, the
Commission certifies that these rule amendments will not impose any new
reporting or recordkeeping requirements.
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\9\ 44 U.S.C. 3501 et seq.
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B. Cost-Benefit Analysis
Section 15(a) of the Act requires the Commission to consider the
costs and benefits of its action before issuing a new regulation under
the Act. By its terms, sction 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 proposed regulation outweigh its costs.
Rather, section 15(a) simply requires the Commission to "consider the
costs and benefits" of its action.
Section 15(a) further specifies that costs and benefits shall be
evaluated in light of five broad areas of market and public concern:
Protection of market participants and the public; efficiency,
competitiveness, and financial integrity of futures markets; price
discovery; sound risk management practices; and other public interest
considerations. 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.
These amendments are intended to minimize the filing burdens
imposed upon CPOs and CTAs by making clear that the subject documents
need only be filed with NFA and not also the Commission. The Commission
is considering the costs and benefits of these rules in light of the
specific provisions of section 15(a) of the Act:
1. Protection of market participants and the public. While the
amendments are expected to lessen the filing burdens imposed upon CPOS
and CTAs, they do not reduce the type of information and documents that
must be provided to customers of CPOs and CTAs. Moreover, these
documents will continue to be reviewed for compliance with the Act and
Commission Rules. Accordingly, the amendments being adopted herein
should have no effect on the Commission's ability to protect market
participants and the public.
2. Efficiency and competition. The amendments, by requiring that
the subject documents need only be filed with NFA and not also the
Commission, should increase the efficiency with which CPOs and CTAs
comply with the applicable regulations.
3. Financial integrity of futures markets and price discovery. The
amendments should have no effect, from the standpoint of imposing costs
or creating benefits, on the financial integrity or price discovery
function of the futures and options markets.
4. Sound risk management practices. The amendments being adopted
herein should have no effect on the risk management practices of the
futures and options industry.
5. Other public interest considerations. The amendments should make
compliance with the applicable Commission rules more efficient without
imposing any costs to the regulatory oversight of commodity
registrants.
After considering these factors, the Commission has determined to
adopt the amendments discussed above.
C. Administrative Procedure Act
The Commission has determined that the amendments discussed herein
relate solely to agency organization, procedure, and practice.
Accordingly, the provisions of the Administrative Procedure Act that
generally require notice of proposed rulemaking and that provide other
opportunities for public participation are not applicable.\10\ The
Commission further finds that, because the amendments relieve a
restriction as to the required filing of documents and the amendments
have no adverse effect upon a member of the public, there is good cause
to make them effective less than thirty days after publication in the
Federal Register.\11\
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\10\ 5 U.S.C. 553(b)(3)(A) (1994).
\11\ See 5 U.S.C. 553(d) (1994).
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List of Subjects in 17 CFR Part 4
Reporting and recordkeeping requirements.
For the reasons discussed in the foregoing, the Commission hereby
amends chapter I of title 17 of the Code of Federal Regulations as
follows:
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
1. The authority citation for part 4 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6(c), 6l, 6m, 6n, 6o, 12a,
and 23.
2. Section 4.5 is amended as follows:
a. By amending the introductory text of paragraph (c) by removing
[[Page 77411]]
"Commission" and by adding in its place "National Futures
Association";
b. By amending paragraph (c)(3) by removing "Commission" and
adding in its place "National Futures Association";
c. By amending paragraph (d)(1) by removing "Commission" and
adding in its place "National Futures Association";
d. By removing paragraph (f)(3); and
e. Redesignating paragraph (f)(4) as (f)(3).
3. Section 4.7 is amended as follows:
a. By amending paragraph (b)(3)(i) by removing "the Commission
and";
b. By amending paragraph (d)(1)(viii) by removing "in duplicate
with the Commission at the address specified in Sec. 4.2 and";
c. By amending paragraph (d)(1)(ix) by removing every instance of
"Commission" and adding in its place "National Futures
Association";
d. By revising paragraph (d)(2); and
e. By amending paragraph (d)(3) by removing "Commission" and
adding in its place "National Futures Association".
The 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.
* * * * *
(d) * * *
(2) The notice will be effective upon receipt by the National
Futures Association with respect to each pool for which it was made
where the claimant is a commodity pool operator and otherwise generally
where the claimant is a commodity trading advisor; Provided, That any
notice which does not include all the required information shall not be
effective, and that if at the time the National Futures Association
receives the notice an enforcement proceeding brought by the Commission
under the Act or the regulations is pending against the pool operator
or trading advisor or any of its principals, the exemption will not be
effective until twenty-one calendar days after receipt of the notice by
the National Futures Association and that in such case an exemption may
be denied by the Commission or the National Futures Association or made
subject to such conditions as the Commission or the National Futures
Association may impose.
* * * * *
Sec. 4.12 [Amended]
4. Section 4.12 is amended as follows:
a. By amending the introductory text of paragraph (b)(3) by
removing "Commission" and adding in its place "National Futures
Association";
b. By removing paragraph (b)(3)(vii);
c. By redesignating paragraph (b)(3)(viii) as (b)(3)(vii) and by
amending paragraph (b)(3)(vii) as redesignated by removing "A copy
also must be" and adding in its place "Be"; and
d. By amending paragraph (b)(5)(ii) by removing "Commission" and
adding in its place "National Futures Association".
Sec. 4.13 [Amended]
5. Section 4.13 is amended as follows:
a. By removing paragraph (b)(1)(iv)(A); and
b. By redesignating paragraph (b)(1)(iv)(B) as (b)(1)(iv)(A).
6. Section 4.14 is amended as follows:
a. By amending paragraph (a)(8)(iii) by removing "Commission" and
adding in its place "National Futures Association";
b. By removing paragraph (a)(8)(v)(C); and
c. By redesignating paragraph (a)(8)(v)(D) as (a)(8)(v)(C) and by
amending paragraph (a)(8)(v)(C) as redesignated by removing "A copy
also must be filed" and adding in its place "Filed".
Sec. 4.22 [Amended]
7. Section 4.22 is amended as follows:
a. By amending the introductory text of paragraph (c) by removing
"two copies of the Report with the Commission" and adding in its
place "a copy of the Report with the National Futures Association"
and by removing "Commission" and adding in its place "National
Futures Association";
b. By amending paragraph (f)(1) by removing every instance of
"Commission' and adding in its place "National Futures Association";
and
c. By amending paragraph (f)(2)(i) by removing "and the
Commission".
8. Section 4.26 is amended by revising paragraph (d) to read as
follows:
Sec. 4.26 Use, amendment and filing of Disclosure Document.
* * * * *
(d) Except as provided by Sec. 4.8 and paragraph (d)(3) of this
section:
(1) The commodity pool operator must file with the National Futures
Association one copy of 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 file with the National Futures
Association one copy of 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) With respect to pools that are not offered pursuant to section
4(2) of the Securities Act of 1933, as amended (15 U.S.C. 77d(2)), or
pursuant to Regulation D thereunder (17 CFR 230.501 et seq.), a
commodity pool operator must:
(i) File with the Commission one copy of 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
(ii) File with the Commission one copy of 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.
Sec. 4.36 [Amended]
9. Section 4.36(d) is amended by removing every instance of
"Commission" and adding in its place "National Futures
Association".
Issued in Washington, DC, on December 11, 2002, by the
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 02-31685 Filed 12-17-02; 8:45 am]
BILLING CODE 6351-01-P