[Federal Register: December 15, 2005 (Volume 70, Number 240)]
[Proposed Rules]
[Page 74240-74246]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15de05-17]
=======================================================================
-----------------------------------------------------------------------
COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AC25
Commodity Pool Operator Electronic Filing of Annual Reports
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rules.
-----------------------------------------------------------------------
SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is proposing to amend Commission regulations to require that
commodity pool annual financial reports submitted by commodity pool
operators (``CPOs'') to the National Futures Association (``NFA'') be
filed electronically.
Commodity pool annual reports filed with a registered futures
association (currently, the NFA is the sole registered futures
association) must contain a manually signed oath or affirmation under
Commission regulations and no provision exists for electronic filing of
annual reports with NFA. The NFA has recently petitioned the Commission
to amend its regulations to require mandatory electronic filing of
commodity pool annual reports. The Commission has considered the NFA
petition and is hereby proposing to amend Commission regulations: (i)
To require CPOs to file a commodity pool annual report with NFA
electronically,
[[Page 74241]]
with the required oath or affirmation to be made through compliance
with NFA's electronic filing procedures; (ii) to require CPOs to
maintain for five years a manually signed copy of each annual report
and to maintain records of how certain key financial balances submitted
to NFA were compiled from the annual report; (iii) to eliminate the
requirement that the annual report filed with NFA be manually signed.
Further, the Commission is proposing additional amendments to
clarify certain aspects of the Commission's regulations applicable to
CPOs with respect to financial reporting, Specifically, the Commission
is proposing amendments that would: explicitly state that commodity
pool monthly and/or quarterly account statements distributed to
participants must be prepared in accordance with generally accepted
accounting principles; clarify that COPs must file a notification of a
change in a public accountant for a commodity pool with the Commission
and with NFA; clarify that a reference to ``segregation'' with respect
to a statement required to be made in an accountant's letter refers to
the prohibition on commingling of funds of a commodity pool with the
assets of any other person; and require that notifications concerning
CPOs' election of fiscal years for commodity pools other than the
calendar year or changes in fiscal year be filed solely with NFA and
not the Commission.
Annual reports to pool participants may continue to be provided as
they have been previously, either through hard-copy distribution via
postal mail or electronically if the pool participant consents thereto.
DATES: Comments must be received on or before January 17, 2005.
ADDRESSES: You may submit comments, identified by RIN 3038-AC25, by any
of the following methods:
• Federal eRulemaking Portal: href="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov" shape="rect">http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov.
Following the instructions for submitting comments.
• E-mail: [email protected]. Include ``Proposed Amendment
to Rule 4.22'' in the subject line of the message.
• Fax: (202) 418-5521.
• Mail: Sent to Jean A Webb, Secretary of the Commission,
Commodity Futures Trading Commission, 1155 21st Street, NW.,
Washington, DC 20581.
• Courier: Same as Mail above.
All comments received will be posted without change to href="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov" shape="rect">http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov
, including any personal information provided.
FOR FURTHER INFORMATION CONTACT: Thomas J. Smith, Deputy Director and
Chief Accountant, at (202) 418-5430 or Jennifer C.P. Bauer, Special
Counsel, at (202) 418-5472, Division of Clearing and Intermediary
Oversight, Commodity Futures Trading Commission, Three Lafayette
Centre, 1155 21st Street, NW., Washington, DC 20581. Electronic mail:
[email protected]) or (jbauer@cftc,gov).
SUPPLEMENTARY INFORMATION:
I. Background
Regulation 4.22(c) requires a CPO to file with NFA and to provide
to each participant an annual financial report, certified by an
independent public accountant, for each commodity pool that it operates
within 90 days of the end of the pool's fiscal year to the permanent
cessation of trading.\1\ Also, Regulation 4.7(b)(3) requires a COP that
has claimed an exemption from certain regulatory requirements pursuant
to Rule 4.7 to file with NFA and to distribute to commodity pool
participants an unaudited annual financial report in lieu of an audited
annual financial report.\2\ Currently a CPO files such annual reports
with NFA in paper form, unless the CPO has voluntarily elected to file
the annual reports electronically pursuant to NFA's pilot program for
electronic filing, which is discussed herein.
---------------------------------------------------------------------------
\1\ The regulations of the Commission cited in this release may
be found at 17 CFR Ch. I (2005).
\2\ CPOs operating pools offered solely to qualified eligible
participants (``QEPs'') pursuant to Regulation 4.7 may claim relief
from the certification requirement of Regulation 4.22(d) with
respect to the exempt pools' financial statements. See Regulation
4.7(b)(3).
---------------------------------------------------------------------------
Under Commission Rule 4.22(h), each annual financial report filed
with NFA must contain a manually signed oath or affirmation that, to
the best of the knowledge or belief of the individual making the oath
or affirmation, the information contained in the annual report is
accurate and compete. A facsimile of a manual signature is permitted
for annual reports \3\ delivered to participants, and therefore CPOs,
absent the participants' objection, may deliver annual reports to pool
participants by means of electronic media.\4\ However, no regulatory
provision currently permits the electronic filing of the annual report
with NFA.
---------------------------------------------------------------------------
\3\ In addition to annual reports, Commission Regulation 4.22
addresses account statements provided to participants by CPOs.
However, the amendments proposed herein do not substantively change
requirements for delivery to participants of account statements.
Therefore, throughout this release, references will only be made to
annual reports despite the applicability of certain regulations to
account statements as well.
\4\ Under the current rule, if the CPO maintains the annual
report with the manually signed oath or affirmation and the oath or
affirmation on the annual report filed with NFA is manually signed,
the oath or affirmation on an annual report distributed to
participants may contain a facsimile of the manual signature thereby
permitting electronic distribution.
---------------------------------------------------------------------------
II. NFA Pilot Program for CPO Electronic Filing
Beginning with reports filed for the year ended December 31, 2004,
the NFA implemented a pilot program permitting CPOs to voluntarily
elect to file commodity pool annual reports through the use of an
electronic filing system, the ``EasyFile'' system, accessed from the
NFA's Web site.\5\ The NFA pilot program required that the complete
annual report for commodity pools, including the public accountant's
opinion contained in certified statements, be submitted to NFA in the
Portable Document Format (``PDF'') file format. In addition to the
electronic submission of the document in a PDF file format,
participating CPOs were required to directly enter certain key
financial statement balances or aggregated balances from the commodity
pools' annual reports into the NFA's EasyFile system. NFA requested
that the Commission provide CPOs participating in the pilot program
with relief from the requirement of Regulation 4.22(h) that the annual
report filed with NFA include a manually signed oath or affirmation, as
NFA implemented an electronic version of the oath or affirmation
applicable to both the document submitted in PDF file format and the
key financial statement balances directly entered into the EasyFile
system. The Commission's Division of Clearing and Intermediary
Oversight issued exemptive relief in January 2005 to CPOs participating
in the pilot program from the requirement that their pools' annual
reports submitted to NFA be manually signed under Rule 4.22(j).\6\ On
August 26, 2005, the NFA petitioned the Commission to formally amend
Regulations 4.22 and 4.7 to eliminate the requirement that CPOs file
manually signed pool annual reports with NFA, and to further require
COPs to file such annual reports with NFA electronically using the
EasyFile system implemented in the pilot program.
---------------------------------------------------------------------------
\5\ NFA initially adopted the EasyFile electronic filing system
for financial reporting by introducing brokers (``IBs'') in 2004.
The Commission approved NFA's rules adopting EasyFile for IBs on
June 28, 2004.
\6\ CFTC Letter No. 05-01 may be accessed at href="http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov/tm/letters/05letters/tm05-01.htm" shape="rect">http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov/tm/letters/05letters/tm05-01.htm
.
---------------------------------------------------------------------------
[[Page 74242]]
III. NFA's ``EasyFile'' Electronic Filing System
NFA's electronic filing system for commodity pool annual reports
has three components. First, the CPO must submit a PDF file version of
the full annual report, including the balance sheet, income statement,
schedule of investments, and the independent auditor's opinion, if
applicable. Second, the CPO must directly enter approximately 30 key
financial balances into a standardized form accessed through the NFA's
Web site. These balances are obtained directly or aggregated from the
commodity pool's balance sheet, income statement and statement of
changes in net asset value included in the commodity pool's annual
report. NFA's Web site includes on-line instructions for the amounts to
include in the individual fields in the electronic schedule, and the
system also enforces certain edit and validations checks to ensure data
quality.\7\
---------------------------------------------------------------------------
\7\ For example, the system will prompt the user for a
correction if the components listed as assets do not total to the
amount entered for total assets, or if certain types of trading
assets and liabilities are reported in the balance sheet but there
are no gains or losses reported in the income statement with respect
to such assets.
---------------------------------------------------------------------------
Third, when the CPO submits the electronic filing, NFA's system
prompts the submitter to read and to indicate agreement to an
electronic oath or affirmation. The submitter will have already
securely accessed NFA's system through the input of a personal
identification number (``PIN'').\8\ This oath or affirmation is made
with respect to the PDF file of the annual report and the financial
data entered into the NFA's database of key financial statement
balances through the NFA Web site. The user interface and system
security for NFA's CPO electronic filing system are patterned after
NFA's existing EasyFile system for IBs' unaudited financial reports.
Similar to EasyFile for IBs, the CPO's Security Manager can establish
users and assign them abilities to enter data and/or submit the report
and data in the NFA electronic filing system.\9\ A user such as the
CPO's certified public accountant (``CPA'') may be provided with the
ability to enter the key financial statement balances into NFA's
database and save the form and report for later submission. However,
only persons duly authorized to bind the pool operator in accordance
with Rule 4.22(h)(3) may submit the data by entering a PIN and making
the required oath or affirmation. The CPO is responsible for ensuring
that only persons who are duly authorized to bind the CPO, in
accordance with Rule 4.22(h)(3), are granted the ability to submit the
financial statements and key financial statement balances to NFA. The
electronic version of the oath or affirmation will appear in dialog
boxes when reports or data are submitted, and completion of the
submission will require an affirmative acceptance of the oath or
affirmation by a user who has accessed the system with a secure PIN
number and has been granted permission to submit reports. The Security
Manager for each CPO will have the ability to access the firm's
``Security'' tab within the electronic filing system to administer
users and permissions. The Security Manager will be the person at the
CPO responsible for ensuring that only duly authorized persons who may
bind the CPO have system permissions to submit the annual reports and
data.
---------------------------------------------------------------------------
\8\ The CPO has responsibility for establishing users and their
on-line capabilities through a person designated as its Security
Manager with NFA.
\9\ The Security Manager procedure is part of NFA's existing
electronic system for registration processing. The Commission
adopted regulation amendments in 2002 to enable NFA to utilize an
online system for registration functions. See 67 FR 38,869 (June 6,
2002).
---------------------------------------------------------------------------
CPOs who distribute reports to participants through electronic
media are required to maintain a manually signed copy of the oath or
affirmation in their records, as specified currently in Rule
4.22(j)(2), and to provide such oath or affirmation to NFA upon
request. In the amendments as proposed, CPOs will be required to
maintain the manually signed oath or affirmation for all reports
regardless of whether the CPOs use electronic media for distribution to
participants. In addition, CPOs will be required to maintain records
indicating where the key financial statement balances directly entered
into NFA's database appear in the commodity pool's annual report or how
such balances are aggregated from amounts appearing in the pool's
annual report.
The key financial statement balances field electronically through
the pilot program include all the data elements that NFA staff
currently manually enter into the FACTS 2000 database from the
information contained in hard copy annual reports, as well as several
data elements that NFA staff added after consultation with members of
the commodity pool industry, CPAs that serve the commodity pool
industry, and Commission staff. NFA's FACTS 2000 database serves as the
primary means by which NFA and Commission staff access commodity pool
financial information.
IV. Benefits of Electronic Filing of Pool Annual Reports
Mandatory electronic filing of commodity pool annual reports is
anticipated to benefit both the Commission and NFA by increasing the
quality of the financial data from commodity pool annual reports that
will be collected in FACTS 2000 and be available to the Commission.
Direct data entry by the CPO or its CPA, who are most familiar with the
information being submitted, and the system-enforced edit and
validation checks, should enhance the integrity and quality of data
collected. Also, the prepared guidance for CPO members and their CPAs
will promote more uniformity in the classification of the key data
elements. Further, NFA reported that approximately 15 percent of the
filed commodity pool annual reports for the year ended December 31,
2004 were filed electronically through participation in the pilot
program and that the electronic filing process is anticipated to be
relatively simple and cost effective for CPOs, requiring only Internet
access and a PDF file of the annual report.
V. Proposed Amendment
Regulation 4.22(c) requires that a registered CPO file with NFA an
annual report for each pool that it operates within 90 days of the end
of the pool's fiscal year or the permanent cessation of trading. The
Commission is proposing to amend Regulation 4.22(c) and Regulation
4.7(b)(3) to specifically require that the commodity pool annual
reports be submitted to NFA electronically through NFA's established
electronic filing procedures. Further, the Commission is proposing to
amend Regulation 4.22(h), pursuant to which each such report, including
those provided under Rule 4.7 and Rule 4.12(b), must contain an oath or
affirmation that, to the best of the knowledge and belief of the person
making the oath or affirmation, the information contained in the
document is accurate and complete. The amendment will require the oath
or affirmation on annual reports filed with NFA to be made through the
use of electronic filing procedures and will continue to permit the
oath or affirmation on copies distributed to participants to contain
facsimile signatures so long as a manually signed copy is maintained by
the CPO. The Commission is also proposing to delete Rule 4.22(j) and
add a provision to Rule 4.23(a) to require CPOs to maintain in their
books and records a manually signed oath or affirmation for all annual
[[Page 74243]]
reports and account statements, and to maintain records of the key
financial balances submitted to NFA that clearly demonstrate how such
balances were derived. The Commission hereby requests comment on the
foregoing amendments proposed to implement electronic filing of
commodity pool annual reports with NFA.
The Commission also requests comment on the following proposed
amendments intended to clarify certain aspects of the Commission's
regulations applicable to CPOs with respect to financial reporting.
Regulation 4.7(b)(2) requires that an account statement signed and
affirmed by the CPO be prepared and distributed to pool participants no
less frequently than quarterly within 30 calendar days after the end of
the reporting period. The account statement 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 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 Rule 4.7(b)(2) to clarify that the
account statement provided to participants must be prepared in
accordance with generally accepted accounting principles as are other
financial reports required in Part 4 of the Commission's Regulations.
By requiring that the financial information contained in the account
statement is computed and presented in accordance with generally
accepted accounting principles, the Commission is assuring that
participants receive information that is computed and presented in
compliance with established professional standards.
Regulation 4.22(d) requires that the certification of commodity
pool annual reports by independent accountants be made in accordance
with the certification requirements of Regulation 1.16 that are
applicable to the financial statements of FCMs and IBs, with specific
exceptions. Rule 4.22(d) does not exempt CPOs from Regulation 1.16(g),
which requires written notification to be given to the NFA and to the
Commission of changes in the entity's independent accountant. In order
to make clear that this requirement applies to CPOs, the Commission
hereby proposes to amend Regulation 4.22(d) to specifically state that
Rule 1.16(g) is also applicable to CPOs with respect to notifications
of changes in the independent accountants engaged for the certification
of commodity pool financial statements. By clarifying this
responsibility for compliance, the Commission will be assured of
receiving proper notice of important circumstances with regards to
changes of independent accountants, which changes may be indicative of
disagreements with auditors or other matters of interest to the
Commission concerning the commodity pool.
Regulation 4.22(f)(1) provides a mechanism for CPOs that cannot
distribute annual reports for pools within the required timeframe
without substantial undue hardship to file applications of extensions
of time with NFA. In the context of requesting such an extension, the
application to NFA must be accompanied by a letter from the pool's
independent public accountant. One of the items that must be addressed
in the letter is whether the independent accountant has any indication
from the audit work in process to indicate that the CPO is not meeting
``segregation'' requirements. The Commission hereby proposes to amend
Regulation 4.22(f)(1)(ii)(B) to clarify that this does not refer to the
segregation requirements of Regulation 1.20 applicable to FCMs, but
instead refers to the prohibition on commingling of funds of a
commodity pool with the assets of any other person contained in
Regulation 4.20(c).\10\
---------------------------------------------------------------------------
\10\ The language originally proposed was ``the segregation
requirements of Sec. 4.20(c)'' showing the intent of the reference
to reflect Regulation 4.20 and not FCM segregation requirements
contained in Commission Regulation 1.20. 45 FR 51,600 at 51,610
(August 4, 1980).
---------------------------------------------------------------------------
Regulations 4.22(g)(2) and (3) require notifications to be made to
the Commission concerning CPOs' election of fiscal years for commodity
pools other than the calendar year or subsequent changes in fiscal
year-ends. The Commission hereby proposes to amend these Regulations so
that such notifications are solely required to be filed with NFA and
not the Commission, consistent with other financial reporting filings
that are now made to NFA directly as a result of functions the
Commission has authorized NFA to preform.\11\ The Commission has
determined this function to be sufficiently related to other functions
delegated to NFA with respect to the review of commodity pool financial
reporting that it would be beneficial for this notice also to be made
directly by CPOs to NFA and for NFA to process and maintain the records
of these notices. As a result, the Commission believes the receiving
and processing of CPOs' election of fiscal years and subsequent changes
in fiscal years for commodity pools should similarly be delegated to
NFA by rule amendment.
---------------------------------------------------------------------------
\11\ By order dated December 11, 2002, the Commission authorized
NFA to: (1) Receive and review annual financial reports required to
be filed by CPOs pursuant to Regulations 4.7(b)(3) and 4.22(c),
including annual financial reports required to be filed by CPOs that
have claimed relief pursuant to Regulation 4.12(b) with respect to
qualifying pools, and to review such reports for compliance with the
Act and the Commission regulations thereunder and to provide notice
of deficiencies; (2) receive and grant or deny applications filed
pursuant to Regulation 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 Regulation 4.22(f)(2). In addition, the
Commission authorized NFA to maintain and to serve as the official
custodian of such records. 67 FR 77,470 (December 18, 2002).
---------------------------------------------------------------------------
VI. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires that agencies, in proposing regulations, consider the impact
of those regulations 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 regulations on such entities
in accordance with the RFA.\12\ The Commission has determined
previously that registered CPOs are not small entities for the purpose
of the RFA.\13\ The proposed amendments to Regulation 4.7 and
Regulation 4.22 would apply only to registered CPOs. Therefore, the
Chairman, on behalf of the Commission, hereby certifies, pursuant to 5
U.S.C. 605(b), that the action proposed to be taken herein will not
have a significant economic impact on a substantial number of small
entities.
---------------------------------------------------------------------------
\12\ 47 FR 18618 (April 30, 1982).
\13\ 47 FR at 18619.
---------------------------------------------------------------------------
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \14\ 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 amendment being proposed would,
if approved, alter the method of collection of information required
under Regulation 4.22. Pursuant to the PRA, the Commission has
submitted a copy of this section to the Office of Management and Budget
(``OMB'') for its review.
---------------------------------------------------------------------------
\14\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------
Collection of Information. (Rules Relating to the Operations and
Activities of Commodity Pool Operators and Commodity Trading Advisors
and to Monthly Reporting by Futures
[[Page 74244]]
Commission Merchants, OMB Control Number 3038-0005.)
The expected effect of the proposed amended regulations will be to
slightly increase the burden for this collection of information due to
an estimated increase by one quarter hour of the filing of annual
reports electronically. However, the burden most recently approved by
OMB for this collection was submitted in 2002 based on estimates of
anticipated changes resulting from significant amendments to Part 4
requirements. Although this proposed amendment will slightly impact the
estimated average hours per response for annual report filings, the
other assumptions concerning average hours per response have not
changed. However, the burden is being recalculated and submitted in its
entirety for this collection due to availability of updated information
on annual responses and respondents since the Part 4 regulation
amendments went into effect, which updated information does not reflect
the realization of the decrease in burden that was previously estimated
to occur. The Commission estimates the burden of this collection of
information as follows:
Estimated Annual Reporting Burden
Number of Respondents: 8,500.
Total Annual Responses: 27,575.
Total Annual Hours: 166,360.
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 Commission. OMB is required to make a decision
concerning the collection of information contained in these proposed
Regulations 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 proposed Regulations.
C. Cost-Benefit Analysis
Section 15(a) of the Act, as amended by Section 119 of the CFMA,
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) as amended 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.
Section 15(a) of the Act 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 regulation 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 proposed amendments to Regulation 4.7 and 4.22 would require
CPOs to electronically file commodity pool annual reports with NFA with
an oath or affirmation submitted electronically instead of with a
manual signature.
The Commission is considering the costs and benefits of this
proposed regulation in light of the specific provisions of Section
15(a) of the Act, as follows:
1. Protection of market participants and the public. The proposed
amendment should not affect the protection of market participants and
the public as it provides an alternate method of delivery of
information contained in commodity pool annual reports but does not
substantively alter the character of such information or the nature of
the oath or affirmation that must accompany the submission or
distribution of such information.
2. Efficiency and competition. The Commission anticipates that the
proposed amendment will benefit efficiency by permitting NFA to
streamline its process for receiving annual report submissions from
CPOs. The proposed amendment is considered by the Commission as
benefiting efficiency and not impacting competition.
3. Financial integrity of futures markets and price discovery. The
proposed amendment 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 proposed amendment 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 proposed regulation requiring electronic filing for the
submission by CPOs of annual reports to NFA is beneficial in that is
should streamline the timeliness of delivery and electronic
accessibility of such reports, and permit NFA to retain such reports in
a more streamlined and accessible manner.
After considering these factors, the Commission has determined to
propose the amendments 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, Commodity futures, 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.
[[Page 74245]]
2. Section 4.7 is amended by revising paragraphs (b)(2) and
(b)(3)(i) introductory text 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.
* * * * *
(b) * * *
(2) Periodic reporting relief. Exemption from the specific
requirements of Sec. Sec. 4.22(a) and (b); Provided, That a statement
signed and affirmed in accordance with Sec. 4.22(h) is prepared and
distributed to pool participants no less frequently than quarterly
within 30 calendar days after the end of the reporting period. This
statement must be prepared in accordance with generally accepted
accounting principles and indicate:
(i) The net asset value of the exempt pool as of the end of the
reporting period;
(ii) The change in net asset value from the end of the previous
reporting period; and
(iii) The net asset value per outstanding unit of participation in
the exempt pool as of the end of the reporting period.
(3) Annual report relief. (i) Exemption from the specific
requirements in Sec. Sec. 4.22(c) and (d); Provided, That within 90
calendar days after the end of the exempt pool's fiscal year, 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:
* * * * *
3. Section 4.22 is amended by:
a. revising paragraph (c) introductory text;
b. revising paragraph (d) introductory text;
c. revising paragraph (f)(1)(ii)(B);
d. revising paragraphs (g)(2) and (3);
e. revising paragraph (h); and
f. removing paragraph (j), to read as follows:
Sec. 4.22 Reporting to pool participants.
* * * * *
(c) Except as provided in paragraph (c)(6) of this 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, but in no event longer than 90 days after funds are
returned to pool participants; Provided, however, That if during an
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:
* * * * *
(d) The financial statement in the Annual Report must be presented
and computed in accordance with generally accepted accounting
principles consistently applied and must be certified by an independent
public accountant. The requirements of Sec. 1.16(g) of this chapter
shall apply with respect to the engagement of such independent public
accountants and the certification must be in accordance with Sec. 1.16
of this chapter, except that the following requirements of that section
shall not apply:
* * * * *
(f) * * *
(1) * * *
(ii) * * *
(B) Do you have any indication from the part of your audit
completed to date that would lead you to believe that the commodity
pool operator was or is not meeting the recordkeeping requirements of
this part 4 or was or is not complying with the Sec. 4.20(c)
prohibition on commingling of property of any pool with the property of
any other person?
* * * * *
(g)(1) * * *
(2) If a commodity pool operator elects a fiscal year other than
the calendar year, it must give written notice of the election to all
participants and must file the notice with the National Futures
Association within 90 calendar days after the date of the pool's
formation. If this notice is not given, the pool operator will be
deemed to have elected the calendar year as the pool's fiscal year.
(3) The commodity pool operator must continue to use the elected
fiscal year for the pool unless it provides written notice of any
proposed change to all participants and files such notice with the
National Futures Association at least 90 days before the change and the
National Futures Association does not disapprove the change within 30
days after the filing of the notice.
(h)(1) Each Account Statement and Annual Report, including an
Account Statement or Annual Report provided pursuant to Sec. 4.7(b) or
4.12(b), must contain an oath or affirmation that, to the best of the
knowledge and belief of the individual making the oath or 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.
(2) Each oath or affirmation must be made by a representative duly
authorized to bind the pool operator, and
(i) For the copy of a commodity pool's Annual Report submitted to
the National Futures Association, such representative shall satisfy the
required oath or affirmation through compliance with the National
Futures Association's electronic filing procedures, and
(ii) for a commodity pool Account Statement or Annual Report
distributed to participants, a facsimile of the manually signed oath or
affirmation of such representative may be used so long as the manually
signed original is retained in accordance with Sec. 4.23.
(3) For each manually signed oath or affirmation, there must be
typed beneath the signed oath or affirmation:
(i) The name of the individual signing the document;
(ii) The capacity in which he is signing;
(iii) The name of the commodity pool operator for whom he is
signing; and
(iv) The name of the commodity pool for which the document is being
distributed.
* * * * *
4. Section 4.23 is amended by adding a new paragraph (a)(12) to
read as follows:
Sec. 4.23 Recordkeeping.
* * * * *
(a) * * *
(12) A manually signed copy of each Account Statement and Annual
Report provided pursuant to Sec. 4.22, Sec. 4.7(b) or 4.12(b), and
records of the key financial balances submitted to the National Futures
Association for each commodity pool Annual Report, which records must
clearly demonstrate how the key financial balances were compiled from
the Annual Report.
* * * * *
[[Page 74246]]
Issued in Washington, DC, on December 7, 2005 by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 05-23965 Filed 12-14-05; 8:45 am]
BILLING CODE 6351-01-M