Concurring Statement of CFTC Commissioner Rostin Behnam Regarding Amendments to Compliance Requirements for Commodity Pool Operators and Form CPO-PQR
April 14, 2020
I respectfully concur with the Commodity Futures Trading Commission’s (the “Commission” or “CFTC”) issuance of a proposed rule (the “Proposal”) to amend Regulation 4.27 and Form CPO-PQR. In devising the Proposal, Commission staff judiciously evaluated several years of returns on the Commission’s collection of detailed data from commodity pool operators (CPOs)—data anticipated to provide valuable insights to both the Commission and the Financial Stability Oversight Counsel (FSOC) as we collectively moved into a new era of Wall Street reform on the heels of the 2008 financial crisis. In my view, the general conclusion that the Proposal elucidates: the information collected in the current Form CPO-PQR as well as its frequency of collection is simply not fit for purpose.
The determination to bring seven years of data collection aimed at supporting the goals of the Dodd-Frank Act[1] to an abrupt end may, in this particular instance, be an appropriate revision. The Proposal intends to markedly reduce the Commission’s collection of granular, pool-specific data from a significant population of CPOs. However, the evidence suggests that the challenges of working with such data have undercut its potential value. Therefore, any data loss should not undermine the Commission’s oversight or FSOC’s current monitoring efforts. At this point in time, the Commission should take the opportunity to make strategic, programmatic and disciplined changes.
In terms of the data and the transactions the Commission thought possible within our Form CPO-PQR database, results have been mixed. The Proposal aims to make targeted corrections, without forgoing the possibility of future adjustments should the Commission later determine that additional data collection would support regulatory initiatives or would be responsive to FSOC requirements to fulfill statutorily mandated duties and initiatives aimed at identifying and monitoring risks to financial stability.[2]
The 2008 financial crisis exposed numerous weaknesses in the U.S. financial regulatory framework. Unfortunately, many were at the expense of main street Americans. The legislative response was swift and effective in reforming our nation’s financial regulatory regime. One of the more pressing needs that the Dodd-Frank Act addressed relates to data collection and analysis as a tool to monitor, surveil and detect financial market risk. All with the intention of anticipating and catching stability and resiliency concerns before it is too late. As all U.S. regulators continue to adapt to the new framework – even a decade later – adopting reforms quickly in some cases, and more gradually in others, we all collectively continue to learn and develop better practices at data collection and analysis. Although not perfect, our regulatory purpose and mission is clear, and the importance of efficient and effective data to fulfilling our statutory mandate cannot be understated. As we all are experiencing the evolution of the nation’s tech economy, it is hard to ignore the engine of its success: data. This is the world we live in, and policymakers and regulators alike must keep pace while exercising appropriate discipline in collecting, handling, and managing data.
This Proposal focuses on the Commission’s data needs in support of CPO and commodity pool oversight. The Proposal seeks to account for: (1) other data streams, regulatory initiatives, and risk surveillance programs that support the Commission’s monitoring of CPO and commodity pool activities as enhanced by improvements to the Commission’s data integration and analysis capabilities; (2) the Commission’s statutory obligations to make data available to the FSOC and the impact of the proposed amendments on FSOC’s monitoring abilities; (3) the duties of CPOs that are dually registered with the Securities and Exchange Commission (SEC) as private fund advisors and are required to file Form PF as well as the scope of current Form PF; (4) the data elicited by the National Futures Association’s (NFA’s) Form PQR, a form comparable to Form CPO-PQR filed by all CFTC-registered CPOs, regardless of size, used to support NFA’s risk-based examination program for CPOs; and (5) reduced reporting burdens and increased filing efficiencies for affected CPOs. I appreciate the Commission’s and its staff’s ongoing engagement with the SEC and FSOC, as well as with NFA, throughout the drafting of this Proposal and am encouraged that discussions are ongoing. I also appreciate staff’s consideration and inclusion of several of my suggested edits to this Proposal.
I support issuance of the Proposal; however, I am concerned that in proposing to amend Regulation 4.27(d) to no longer accept Form PF filing in lieu of the proposed revised Form CPO-PQR, less data may be collected on Form PF from dually regulated CPOs.[3] Should the Proposal be finalized in its current form, FSOC may receive less data from certain CPOs who have been reporting information on commodity pools that are not private funds in the data they report on Form PF in lieu of filing Form CPO-PQR for such pools, as currently permitted under Regulation 4.27(d). To the extent the Proposal may have the side-effect of undermining ongoing FSOC surveillance and monitoring efforts by eliminating the incentivized reporting of CFTC-pool only information on Form PF, I urge members of the public to respond to related requests for comment embedded in the Proposal.[4] Notwithstanding my concerns, I am pleased that, to the extent the interests of the SEC and FSOC may be impacted, each has had and continues to have ample opportunity to weigh-in. Moreover, should the FSOC determine that it requires additional data from dually regulated CPOs or CPOs generally; it has authority to request such data submissions directly from the Commission or, alternatively, consult with the SEC—and more indirectly, with the CFTC—regarding the form and content of Form PF.[5]
I would like to close by again thanking staff for all of their hard work on this important Proposal, specifically in these difficult and unique times, and look forward to considering comments from the public. To that end, if needed, I encourage market participants to request an extension of the comment period. As we all continue to endure the challenges of new realities at home and in the workplace as a result of the Covid-19 pandemic, I firmly believe the Commission needs to be as flexible as necessary to accommodate market participants and the general public in their efforts to provide us with the best comments to rulemakings. I have made my position clear on what and how the Commission should be allocating its resources during these unprecedented times.
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[1] The Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (2010) (the “Dodd-Frank Act”).
[2] See Proposal at I. Not only is the Commission among those agencies that could be asked to provide information necessary for the FSOC to perform its statutorily mandated duties, but the FSOC may issue recommendations to the Commission regarding more stringent regulation of financial activities that FSOC determines may create or increase systemic risk. See Dodd-Frank Act §§ 112(d)(1), 120; See also Reporting by Investment Advisers to Private Funds and Certain Commodity Pool Operators and Commodity Trading Advisors on Form PF, 76 FR 71128, 71129 (Nov. 16, 2011); Commodity Pool Operators and Commodity Trading Advisors: Compliance Obligations, 77 FR 11252, 11253 (Feb. 24, 2012).
[3] See Proposal at III.C.
[4] See Proposal
[5] See note 2.