Commodity Futures Trading Commission 17 CFR Part 4 Electronic Filing of Notices of Exemption and Exclusion Under Part 4 of the Commission's Regulations[Federal Register: October 13, 2006 (Volume 71, Number 198)]
[Proposed Rules]
[Page 60454-60460]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13oc06-16]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AC33
Electronic Filing of Notices of Exemption and Exclusion Under
Part 4 of the Commission's Regulations
AGENCY: Commodity Futures Trading Commission.
ACTION: Proposed rule.
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SUMMARY: The Commodity Futures Trading Commission (``Commission'' or
``CFTC'') is proposing to amend Commission regulations to require that
notices of exemption or exclusion under Part 4 of the Commission's
regulations submitted to National Futures Association (``NFA'') be
filed electronically.
The Commission previously has authorized NFA to receive and to
process notices of exemption or exclusion from certain of the
Commission's Part 4 regulations. Currently, these notices are filed in
paper form with NFA. The Commission is proposing to amend the
regulations that require filing of a notice to require that such notice
be filed electronically with NFA. The Commission is further proposing
that the submission of a notice through NFA's electronic exemption
filing system by a person duly authorized to bind the submitter be
permitted in lieu of the manual signature currently required by each of
these regulations.
In addition, the Commission also is proposing technical amendments
that would remove the procedure for making filings with the Commission
required by Part 4, and revise other sections of Part 4 to refer to
filings made with NFA rather than the Commission. Amendments to
Commission regulations adopted in 2002 no longer require that any
filings under Part 4 be submitted to the Commission; therefore, the
regulation specifying the procedure for filing with the Commission is
no longer necessary. Further, two sections of Part 4 that refer to
filings made with the Commission inadvertently were not amended in 2002
to include corresponding changes indicating that such filings would
henceforth be made with NFA.
DATES: Comments must be received on or before November 13, 2006.
ADDRESSES: You may submit comments, identified by RIN 3038-AC33, by any
of the following methods:
Federal eRulemaking Portal: http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: [email protected]. Include ``Electronic Filing of
Part 4 Exemptions'' in the subject line of the message.
Fax: (202) 418-5521.
Mail: Send to Eileen Donovan, Acting 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 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: Eileen R. Chotiner, Futures Trading
Specialist, at (202) 418-5467, or Kevin P. Walek, Assistant Director,
at (202) 418-5463, Division of Clearing and Intermediary Oversight,
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st
Street, NW., Washington, DC 20581. Electronic mail: [email protected]
SUPPLEMENTARY INFORMATION:
I. Background
Part 4 of the Commission's regulations applies to the operation of
commodity pool operators (``CPOs'') and commodity trading advisors
(``CTAs''). Generally, a person who operates a commodity pool must
register as a CPO,\1\ and a person who manages clients' trading must
register as a CTA.\2\ Under Commission Regulation 4.5, certain
``otherwise regulated persons'' are excluded from the CPO definition.
These persons include registered investment companies, banks and trust
companies, insurance companies, and fiduciaries of ERISA pension plans.
A person who qualifies for the exclusion must file a notice of
eligibility with NFA.\3\
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\1\ Regulation 4.10(d)(1) defines a pool as ``any investment
trust, syndicate or similar form of enterprise operated for the
purpose of trading commodity interests.'' Commission regulations
cited to herein are found at 17 CFR Ch. I (2006).
\2\ The Commodity Exchange Act (``Act'') defines a CTA as any
person who ``for compensation or profit, engages in the business of
advising others * * * as to the value of or the advisability of
trading in'' commodity interests. 7 U.S.C. 1a(6) (2000).
\3\ NFA is a registered futures association under the Act. 7
U.S.C. 21 (2000).
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Commission regulations also make certain exemptions from CPO and
CTA registration available to persons who meet specified criteria.
Regulation 4.13 permits exemption from registration for CPOs that limit
their activities to small or family pools; or whose participants are
highly sophisticated; or whose pools limit participants to SEC
``accredited investors'' \4\ as that term is defined in the regulations
promulgated by the Securities and Exchange Commission (``SEC'') and
limit trading of commodity interests to a minimum amount specified in
the regulation. A notice claiming exemption from registration as a CPO
must be filed with NFA.
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\4\ 17 CFR 230.501(a) (2006).
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A CTA is exempt from registration if it meets criteria specified in
Regulation 4.14, including: it furnishes trading advice solely to
commodity pools for which it is the registered CPO or for which it is
exempt from CPO registration; it provides advice solely incidental to
the conduct of one of certain businesses or professions listed in the
Act or the Commission's regulations; it is registered with the
Commission in another capacity and its advice is solely in connection
with acting in that other capacity; it does not manage client accounts
or provide commodity trading advice based on, or tailored to, the
financial positions of particular clients; or it is an SEC-registered
investment adviser whose futures advice is incidental to providing
securities trading advice to the ``otherwise regulated'' trading
vehicles specified in Regulation 4.5, or to CPOs of pools operated
pursuant to the exemptions in Regulations 4.13(a)(3) and (4). A notice
must be filed to claim the exemption available to registered investment
advisers who meet the criteria set forth in Regulation 4.14(a)(8); the
other exemptions from CTA registration are self-executing.\5\
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\5\ A statutory exemption from CTA registration exists in
Section 4m(1) of the Act for a person who has not had more than 15
clients during a 12-month period and is not otherwise holding itself
out as a CTA. 7 U.S.C. 6m (2000). A person who qualifies for this
exemption is not required to file a notice claiming the exemption.
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Registered CPOs are required to provide a disclosure document to
prospective participants that includes disclosure of risks and
information such as the business backgrounds of persons
[[Page 60455]]
involved with the pool, investment objectives, fees, conflicts,
material litigation, and past performance. The CPO must provide
unaudited periodic reports and certified annual reports on the pool's
financial operations to the pool's participants. Disclosure documents
and annual reports also must be filed with NFA. Further, the CPO is
required to make and keep specified books and records for a period of
five years, and make them available for inspection by the CFTC, NFA,
and the United States Department of Justice. Registered CTAs must
provide to prospective participants, and file with NFA, disclosure
documents containing information about their trading programs, and must
also comply with specified recordkeeping requirements.
The Commission has established a simplified regulatory framework
for registered CPOs and CTAs who operate or advise pools and accounts
whose participants meet the criteria specified in Regulation 4.7.
Relief from full compliance with the disclosure, reporting, and
recordkeeping requirements is available where, for example, pool
participants are CFTC or SEC registrants, ``inside employees'' of the
CPO or CTA, or persons who earn $200,000 annually and who have assets
worth at least $2 million. A CPO offering a pool whose futures trading
is incidental to its securities trading and is limited to 10 percent of
the pool's net assets may claim exemption from some disclosure,
reporting and recordkeeping requirements pursuant to Regulation
4.12(b). A person claiming exemption under Regulations 4.7 or 4.12(b)
must file a notice with NFA.
In a Notice and Order issued in 1997 \6\ (the ``1997 Order''), the
Commission authorized NFA to process: (1) Notices of eligibility for
exclusion from the definition of CPO for certain otherwise regulated
persons, pursuant to Commission Regulation 4.5; (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 Regulation 4.7; (3) claims of
exemption from certain Part 4 requirements for CPOs with respect to
pools that principally trade securities, pursuant to Commission
Regulation 4.12(b); (4) statements of exemption from registration as a
CPO, pursuant to Commission Regulation 4.13; and (5) notices of
exemption from registration as a CTA for certain persons registered as
an investment adviser, pursuant to Regulation 4.14(a)(8). The
Commission also made NFA the custodian of those records.\7\
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\6\ 62 FR 52088 (October 6, 1997).
\7\ At the time NFA was authorized to process these notices,
Commission regulations required that copies of the notices also be
filed with the Commission. In December 2002, the Commission revised
its regulations to require that such notices be filed solely with
NFA. 67 FR 77409 (December 18, 2002).
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Currently, these notices are filed with NFA in paper form. NFA's
processing includes manual entry of data concerning the notice into
NFA's database system, optical scanning of the hard copy filing, review
of the notice to ensure that it contains all required information, and
follow-up on any notices that are not prepared in accordance with the
Part 4 requirements. Between November 1, 1997, when NFA was authorized
to process these notices, and July 31, 2006, NFA has received
approximately 30,000 notices:
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\8\ These figures represent the number of notices filed with NFA
and recorded in its database system. Some of these notices are
duplicate filings or were made for entities that may be no longer
operating; therefore, these totals are not representative of the
number of entities actually operating according to the various
exemptions.
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Number of
Notice type filings \8\
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4.5........................................................ 5,302
4.7........................................................ 7,494
4.12(b).................................................... 401
4.13....................................................... 15,629
4.14(a)(8)................................................. 952
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II. Proposed Amendments
By letter dated November 28, 2005, NFA has petitioned the
Commission to amend its regulations to require that the notices
required under Regulations 4.5, 4.7, 4.12(b), 4.13, and 4.14(a)(8) be
filed electronically with NFA, and that submission of a notice by a
representative duly authorized to bind the person be permitted in lieu
of the manual signature currently specified under each regulation that
requires a notice filing. NFA indicated in its petition that although
the existing procedures have worked fairly well, mandatory electronic
filing will result in a more efficient process for persons claiming an
exemption and ensure that NFA's database of such exemption information,
which is available to Commission staff, remains accurate and updated
and requires less manual resources of NFA staff.
Firms that are registered with the Commission in any capacity and
non-registrants will both access the electronic filing system through
the use of a designated user ID and password. Registered firms will
establish access for appropriate staff using the security manager
process in place for their existing Online Registration System
(``ORS'') accounts, the process that is currently used for registration
and other electronic filings with NFA. In order to enable non-
registrants, who are not required to have ORS accounts, to file
exemption notices, NFA has established a new process that contains
similar safeguards regarding the identity of the filers and provides
the non-registrant with the ability to establish one or more system
users. For both registrants and non-registrants, the person who submits
a notice must be a representative duly authorized to bind the
submitter.
The electronic filing system will allow filers to select the
applicable exemption type and complete a form that will provide the
information required for the exemption filing. Each form contains a
statement by the representative submitting the form that the
information contained therein is accurate and complete, to the best of
his or her knowledge, and that the submitter is duly authorized to bind
the person making the claim. Submission of the electronic form will
record the data regarding the filing in NFA's database system. The
system also will allow the filer to create a printer-friendly version
of exemption notices for the filer's records. Although internet access
is necessary for using NFA's electronic filing system, the Commission
anticipates that any exemption filer without private internet access
could reasonably be expected to use a public internet site, such as
those available in public libraries.\9\
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\9\ The Commission previously has adopted amendments to its
regulations to enable NFA to utilize an online system for
registration functions (67 FR 38,869 (June 6, 2002)), and to require
electronic filing of financial statements of commodity pools (71 FR
8939 (February 22, 2006)). The Commission is also proposing
amendments to its regulations to require electronic filing of
financial statements of introducing brokers (71 FR ----).
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The proposed amendments, if adopted, would no longer require
persons filing the notices with NFA to do so in paper form. Therefore,
the Commission also has considered the form in which persons claiming
exclusion or exemption may satisfy various requirements in these
regulations to notify participants ``in writing'' regarding the claim.
The Commission has concluded that electronic transmission of a written
notification to participants, such as by electronic mail or facsimile,
is consistent with the requirement to provide the information in
writing and is proposing to amend each of the regulations with a
participant notification requirement, with the
[[Page 60456]]
exception of Regulation 4.5, to make explicit that notice may be
delivered through electronic transmission. In proposing such amendment,
the Commission has reasoned that the provision of written notice
necessarily requires that the exemption filer establish with the
participant a method to deliver the written communication. Should a
participant have provided an e-mail address or facsimile number to the
exemption filer for the purpose of receiving communications from that
person, the participant can reasonably be expected to receive such
written communications from the party, including the written
notification required under Commission regulations, through such method
of electronic transmission.
The Commission is not proposing to revise Regulation 4.5 with
respect to disclosure to participants. Regulation 4.5 requires that the
qualifying entity disclose in writing to participants that it is
operating pursuant to the terms of Regulation 4.5. When it adopted
Regulation 4.5, the Commission noted that the qualifying entity may
satisfy this requirement by including the information in any document
that its other federal or state regulator requires to be furnished
routinely to participants. If no such document is furnished routinely,
the information may be disclosed in any instrument establishing the
entity's investment policies and objectives that the other regulator
requires to be made available to the entity's participants.\10\ The
other regulators to which a 4.5-qualfiying entity is subject may or may
not permit electronic provision of the information; therefore, the
Commission is not proposing to revise Regulation 4.5 in the same manner
as the other Part 4 provisions with respect to electronic delivery of
notice to participants. Rather, the Commission is proposing to amend
Regulation 4.5 to contain the clarification regarding the provision of
disclosure according to the requirements of other regulators.
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\10\ 50 FR 15879 (April 23, 1985).
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In addition to the electronic filing of exemption notices, NFA also
has petitioned the Commission to amend Advisory 18-96, which was issued
by the Commission's former Division of Trading and Markets, now the
Division of Clearing and Intermediary Oversight.\11\ Advisory 18-96
makes available exemptions from disclosure and reporting requirements
under Regulations 4.21 and 4.22, and specified recordkeeping
requirements under Regulation 4.23, to registered CPOs of commodity
pools organized and operated outside the United States and offered
solely to non-United States persons.\12\ In considering NFA's petition,
the Commission has reexamined Advisory 18-96 and concluded that
additional exemptions from CPO registration adopted in 2003 have
essentially superseded the provisions of Advisory 18-96.
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\11\ In 1997, the Commission also authorized NFA to process
notices of exemption pursuant to Advisory 18-96. See note 1. Since
1997, NFA has received approximately 500 notices of exemption
pursuant to Advisory 18-96.
\12\ ``Non-United States person'' is defined in Regulation
4.7(a)(1)(iv).
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Specifically, Regulation 4.13(a)(4) permits a CPO to claim
exemption from CPO registration where the pool is offered pursuant to
an exemption from registration under the Securities Act of 1933 and its
participants are limited to natural persons who are qualified eligible
persons (``QEPs'') under Regulation 4.7(a)(2), and non-natural persons
that are either QEPs under Regulation 4.7 or accredited investors under
17 CFR 230.501(a)(1)-(3), (a)(7) and (a)(8). Since non-United States
persons are included in the definition of QEP in Regulation 4.7(a)(2),
CPOs meeting the criteria of Advisory 18-96 may instead claim the
exemption available under Regulation 4.13(a)(4), which offers more
extensive relief than that available under Advisory 18-96. Therefore,
the Commission is considering whether Advisory 18-96 should be
superseded prospectively. The Commission is interested in obtaining
comments on this approach, particularly whether there are any conflicts
between the criteria and relief in Advisory 18-96 and Regulation
4.13(a)(4), and whether the unavailability of Advisory 18-96 on a
prospective basis would result in any adverse consequences for CPOs.
CPOs that have previously claimed relief under Advisory 18-96 would be
permitted to continue to rely on the terms of Advisory 18-96, or could
choose to claim exemption pursuant to Regulation 4.13(a)(4).
In addition, the Commission is proposing to remove and reserve
Regulation 4.2, which specifies technical requirements, such as
address, for material filed with the Commission under Part 4 of its
regulations. Amendments to Commission regulations adopted in 2002 \13\
no longer require that any filings required under Part 4 be submitted
to the Commission and thus the continued existence of Regulation 4.2 is
no longer necessary. The sole remaining provision in Part 4 that could
possibly result in a filing with the Commission is Regulation 4.12(a),
which permits the Commission to exempt any person or class of persons
from any provision of Part 4 if the Commission finds that granting the
exemption is not contrary to the public interest or to the purposes of
the provisions from which exemption is sought. However, technical
requirements as to the filing of such requests for exemption are
contained in Regulation 140.99, not Regulation 4.2. Therefore, the
Commission proposes that the removal of Regulation 4.2 is advisable.
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\13\ See note 2.
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The 2002 amendments to Part 4 specify that all filings be made with
NFA. However, two provisions within Part 4 inadvertently were not
amended at that time and continue to include references to filing with
the Commission. Accordingly, the Commission is proposing technical
amendments to Regulations 4.8 and 4.12(b) to conform these sections to
the current filing requirements in the other regulations to which they
refer.
III. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq.,
requires that agencies, in proposing rules, consider the impact of
those rules on small businesses. The Commission 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.\14\ With respect to CPOs, the Commission has
previously determined that a CPO is a small entity if it meets the
criteria for exemption from registration under current Rule 4.13(a)(2);
however, other registered and exempt CPOs are not small entities for
the purpose of the RFA.\15\ With respect to CTAs, the Commission has
previously 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 proposal.\16\ The Commission believes that the instant proposed
rules will not place any burdens, whether new or additional, on CPOs
and CTAs who would be affected hereunder, as the proposed amendments
simply alter the mechanism for filing notices of exemption and do not
affect the substance of those filings or the nature of the qualifying
criteria.
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\14\ 47 FR 18618 (April 30, 1982).
\15\ Id. at 18619.
\16\ Id. at 18620.
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[[Page 60457]]
The Commission's definitions of small entities do not address the
persons and qualifying entities set forth in Rule 4.5 because, by the
very nature of the rule, the operations and activities of such persons
and entities generally are regulated by federal and state authorities
other than the Commission.
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (``PRA'') \17\ 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 Commission regulations, but would not alter the substance of the
filings. 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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\17\ 44 U.S.C. 3507(d).
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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 proposed amendments to Commission regulations
would change only the manner in which notices are filed with NFA, but
would not affect the substance of the filings. Accordingly, for
purposes of the PRA, the Commission certifies that the proposed rule
amendments, if promulgated in final form, would not impact the total
annual reporting or recordkeeping burden associated with the above-
referenced collection of information, which has been approved
previously by OMB. Pursuant to the PRA, the Commission has submitted a
copy of this section to the Office of Management and Budget (``OMB'')
for its review.
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 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 proposed amendments to Regulations 4.5, 4.7, 4.12, 4.13 and
4.14 would require CPOs to file electronically notices of exemption,
which would no longer be required to include a manual signature.
The Commission is considering the costs and benefits of this
proposed rule 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 filing notices of
exemption or exclusion from Part 4 of the Commission's regulations, but
does not substantively alter the character of such information or the
requirement that such information be submitted by a person duly
authorized to bind the submitter.
2. Efficiency and competition. The Commission anticipates that the
proposed amendment will benefit efficiency by permitting NFA to
streamline its process for receiving exemption filings. 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 rule requiring electronic filing for the submission
of notices of exemption or exclusion from Part 4 of the Commission's
regulations is beneficial in that it should streamline the timeliness
of delivery and electronic accessibility of such notices, and permit
NFA to retain such notices 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.
[[Page 60458]]
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, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a,
and 23.
2. Remove and reserve Sec. 4.2.
3. Revise paragraphs (c) introductory text, (c)(2)(i), (d)(1) and
(2), and (f) of Sec. 4.5 to read as follows:
Sec. 4.5 Exclusion for certain otherwise regulated persons from the
definition of the term ``commodity pool operator.''
* * * * *
(c) Any person who desires to claim the exclusion provided by this
section shall file electronically a notice of eligibility with the
National Futures Association through its electronic exemption filing
system; Provided, however, That a plan fiduciary who is not a named
fiduciary as described in paragraph (a)(4) of this section may claim
the exclusion through the notice filed by the named fiduciary.
* * * * *
(2) * * *
(i) Will disclose in writing to each participant, whether existing
or prospective, that the qualifying entity is operated by a person who
has claimed an exclusion from the definition of the term ``commodity
pool operator'' under the Act and, therefore, who is not subject to
registration or regulation as a pool operator under the Act; Provided,
that such disclosure is made in accordance with the requirements of any
other federal or state regulatory authority to which the qualifying
entity is subject. The qualifying entity may make such disclosure by
including the information in any document that its other federal or
state regulator requires to be furnished routinely to participants or,
if no such document is furnished routinely, the information may be
disclosed in any instrument establishing the entity's investment
policies and objectives that the other regulator requires to be made
available to the entity's participants; and
* * * * *
(d)(1) Each person who has claimed an exclusion hereunder must, in
the event that any of the information contained or representations made
in the notice of eligibility becomes inaccurate or incomplete, amend
the notice electronically through National Futures Association's
electronic exemption filing system as may be necessary to render the
notice of eligibility accurate and complete.
(2) This amendment required by paragraph (d)(1) of this section
shall be filed within fifteen business days after the occurrence of
such event.
* * * * *
(f) Any notice required to be filed hereunder must be filed by a
representative duly authorized to bind the person specified in
paragraph (a) of this section.
* * * * *
4. In Sec. 4.7, revise paragraph (d)(1) 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.
* * * * *
(d) Notice of claim for exemption.
(1) A notice of a claim for exemption under this section must:
(i) Provide the name, main business address, main business
telephone number and the National Futures Association commodity pool
operator or commodity trading advisor identification number of the
person claiming the exemption;
(ii)(A) Where the claimant is a commodity pool operator, provide
the name(s) of the pool(s) for which the request is made; Provided,
That a single notice representing that the pool operator anticipates
operating single-investor pools may be filed to claim exemption for
single-investor pools and such notice need not name each such pool;
(B) Where the claimant is a commodity trading advisor, contain a
representation that the trading advisor anticipates providing commodity
interest trading advice to qualified eligible persons;
(iii) Contain representations that:
(A) Neither the commodity pool operator or commodity trading
advisor nor any of its principals is subject to any statutory
disqualification under section 8a(2) or 8a(3) of the Act unless such
disqualification arises from a matter which was previously disclosed in
connection with a previous application for registration if such
registration was granted or which was disclosed more than thirty days
prior to the filing of the notice under this paragraph (d);
(B) The commodity pool operator or commodity trading advisor will
comply with the applicable requirements of Sec. 4.7; and
(C) Where the claimant is a commodity pool operator, that the
exempt pool will be offered and operated in compliance with the
applicable requirements of Sec. 4.7;
(iv) Specify the relief claimed under Sec. 4.7;
(v) Where the claimant is a commodity pool operator, state the
closing date of the offering or that the offering will be continuous;
(vi) Be filed by a representative duly authorized to bind the
commodity pool operator or commodity trading advisor;
(vii) Be filed electronically with the National Futures Association
through its electronic exemption filing system; and
(viii) (A)(1) Where the claimant is a commodity pool operator,
except as provided in paragraph (d)(1)(ii)(A) of this section with
respect to single-investor pools and in paragraph (d)(1)(viii)(A)(2) of
this section, be received by the National Futures Association:
(i) Before the date the pool first enters into a commodity interest
transaction, if the relief claimed is limited to that provided under
paragraphs (b)(2), (3) and (4) of this section; or
(ii) Prior to any offer or sale of any participation in the exempt
pool if the claimed relief includes that provided under paragraph
(b)(1) of this section.
(2) Where participations in a pool have been offered or sold in
full compliance with Part 4, the notice of a claim for exemption may be
filed with the National Futures Association at any time; Provided, That
the claim for exemption is otherwise consistent with the duties of the
commodity pool operator and the rights of pool participants and that
the commodity pool operator notifies the pool participants of his
intention, absent objection by the holders of a majority of the units
of participation in the pool who are unaffiliated with the commodity
pool operator within twenty-one days after the date of the
notification, to file a notice of claim for exemption under Sec. 4.7
and such holders have not objected within such period. A commodity pool
operator filing a notice under this paragraph (d)(1)(viii)(A)(2) shall
either provide disclosure and reporting in accordance with the
requirements of Part 4 to those participants objecting to the filing of
such notice or allow such participants to redeem their units of
participation in the pool within three months of the filing of such
notice.
[[Page 60459]]
(B) Where the claimant is a commodity trading advisor, be received
by the Commission before the date the trading advisor first enters into
an agreement to direct or guide the commodity interest account of a
qualified eligible person pursuant to Sec. 4.7.
* * * * *
5. In Sec. 4.8, revise (a) and (b) to read as follows:
(a) Notwithstanding paragraph (d) of Sec. 4.26 and subject to the
conditions specified herein, the registered commodity pool operator of
a pool offered or sold solely to ``accredited investors'' as defined in
17 CFR 230.501 in an offering exempt from the registration requirements
of the Securities Act of 1933 pursuant to Rule 505 or 506 of Regulation
D, 17 CFR 230.505 or 230.506, may solicit, accept and receive funds,
securities and other property from prospective participants in that
pool upon filing with the National Futures Association and providing to
such participants the Disclosure Document for the pool.
(b) Notwithstanding paragraph (d) of Sec. 4.26 and subject to the
conditions specified herein, the registered commodity pool operator of
a pool offered or sold in an offering exempt from the registration
requirements of the Securities Act of 1933 pursuant to Rule 505 or 506
of Regulation D, 17 CFR 230.505 or 230.506, that is operated in
compliance with, and has filed the notice required by, Sec. 4.12(b)
may solicit, accept and receive funds, securities and other property
from prospective participants in that pool upon filing with the
National Futures Association and providing to such participants the
Disclosure Document for the pool.
* * * * *
6. In Sec. 4.12, revise (b)(1)(ii) and (b)(3)) and add (b)(5)(i)
to read as follows:
Sec. 4.12 Exemption from provisions of part 4.
* * * * *
(b) * * *
(1) * * *
(ii) Each existing participant and prospective participant in the
pool for which it makes such request is informed in writing of the
restrictions set forth in paragraph (b)(1)(i) (C) and (D) of this
section prior to the date the pool commences trading commodity
interests. The pool operator may furnish this information by way of the
pool's Disclosure Document, Account Statement, a separate notice or
other similar means, including written communication delivered through
electronic transmission.
* * * * *
(3) Any registered commodity pool operator who desires to claim the
relief available under this Sec. 4.12(b) must file electronically a
claim of exemption with National Futures Association through its
electronic exemption filing system. Such claim must:
(i) Provide the name, main business address and main business
telephone number of the registered commodity pool operator, or
applicant for such registration, making the request;
(ii) Provide the name of the commodity pool for which the request
is being made;
(iii) Contain representations that the pool will be operated in
compliance with Sec. 4.12(b)(1)(i) and the pool operator will comply
with the requirements of Sec. 4.12(b)(1)(ii);
(iv) Specify the relief sought under Sec. 4.12(b)(2); and
(v) Be filed by a representative duly authorized to bind the pool
operator.
* * * * *
(5) * * *
(i) If a claim of exemption has been made under Sec.
4.12(b)(2)(i), the commodity pool operator must make a statement to
that effect on the cover page of each offering memorandum, or amendment
thereto, that it is required to file with the National Futures
Association pursuant to Sec. 4.26.
* * * * *
7. In Sec. 4.13, revise paragraphs (a)(5), (b)(1) introductory
text, (b)(1)(iii), (b)(2) and (b)(4), and revise paragraph (e)(2), to
read as follows:
Sec. 4.13 Exemption from registration as a commodity pool operator.
* * * * *
(a)(5)(i) Eligibility for exemption under this section is subject
to the person furnishing in written communication physically delivered
or delivered through electronic transmission to each prospective
participant in the pool:
(A) A statement that the person is exempt from registration with
the Commission as a commodity pool operator and that therefore, unlike
a registered commodity pool operator, it is not required to deliver a
Disclosure Document and a certified annual report to participants in
the pool; and
(B) A description of the criteria pursuant to which it qualifies
for such exemption from registration.
(ii) The person must make these disclosures by no later than the
time it delivers a subscription agreement for the pool to a prospective
participant in the pool.
* * * * *
(b)(1) Any person who desires to claim the relief from registration
provided by this section, must file electronically a notice of
exemption from commodity pool operator registration with the National
Futures Association through its electronic exemption filing system. The
notice must:
* * * * *
(iii) Be filed by a representative duly authorized to bind the
person.
(2) The person must file the notice by no later than the time it
delivers a subscription agreement for the pool to a prospective
participant in the pool; Provided, That where a person registered with
the Commission as a commodity pool operator intends to withdraw from
registration in order to claim exemption hereunder, the person must
notify its pool's participants in written communication physically
delivered or delivered through electronic transmission that it intends
to withdraw from registration and claim the exemption, and it must
provide each such participant with a right to redeem its interest in
the pool prior to the person filing a notice of exemption from
registration.
* * * * *
(4) Each person who has filed a notice of exemption from
registration under this section must, in the event that any of the
information contained or representations made in the notice becomes
inaccurate or incomplete, amend the notice through National Futures
Association's electronic exemption filing system as may be necessary to
render the notice accurate and complete. This amendment must be filed
electronically within 15 business days after the pool operator becomes
aware of the occurrence of such event.
* * * * *
(e)(2) If a person operates one or more commodity pools described
in paragraph (a)(3) or (a)(4) 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) or (a)(4) 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) or (a)(4) 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;
[[Page 60460]]
(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 to each existing participant in a pool that the
person elects to operate as described in paragraph (a)(3) or (a)(4) 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) or (a)(4) of this section.
* * * * *
8. In Sec. 4.14, introductory text of paragraph (a) and
introductory text of paragraph (a)(8) is republished and paragraph
(a)(8)(iii)(A) introductory text and paragraphs (a)(8)(iii)(A)(3), (B)
and (D) are revised to read as follows:
Sec. 4.14 Exemption from registration as a commodity trading advisor.
* * * * *
(a) A person is not required to register under the Act as a
commodity trading advisor if:
* * * * *
(8) It is a registered as an investment adviser under the
Investment Advisers Act of 1940 or with the applicable securities
regulatory agency of any State, or it is exempt from such registration,
or it is excluded from the definition of the term ``investment
adviser'' pursuant to the provisions of section 202(a)(2) and
202(a)(11) of the Investment Advisers Act of 1940, Provided, That:
* * * * *
(iii)(A) A person who desires to claim the relief from registration
provided by this Sec. 4.14(a)(8) must file electronically a notice of
exemption from commodity trading advisor registration with the National
Futures Association through its electronic exemption filing system. The
notice must:
* * * * *
(3) Be filed by a representative duly authorized to bind the
person.
(B) The person must file the notice by no later than the time it
delivers an advisory agreement for the trading program pursuant to
which it will offer commodity interest advice to a client; Provided,
That where the advisor is registered with the Commission as a commodity
trading advisor, it must notify its clients in written communication
physically delivered or delivered through electronic transmission that
it intends to withdraw from registration and claim the exemption and
must provide each such client with a right to terminate its advisory
agreement prior to the person filing a notice of exemption from
registration.
* * * * *
(D) Each person who has filed a notice of exemption from
registration under this section must, in the event that any of the
information contained or representations made in the notice becomes
inaccurate or incomplete, amend the notice electronically through
National Futures Association's electronic exemption filing system as
may be necessary to render the notice accurate and complete. This
amendment must be filed within 15 business days after the trading
advisor becomes aware of the occurrence of such event.
* * * * *
Issued in Washington, DC, on October 6, 2006 by the Commission.
Eileen A. Donovan,
Acting Secretary of the Commission.
[FR Doc. E6-16947 Filed 10-12-06; 8:45 am]
BILLING CODE 6351-01-P
Updated October 13, 2006
Last Updated: June 26, 2007