[Federal Register: March 10, 2000 (Volume 65, Number 48)]
[Rules and Regulations]
[Page 12938-12943]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10mr00-10]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AB48
Exemption From Registration as a Commodity Trading Advisor
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rule.
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SUMMARY: The Commodity Futures Trading Commission has amended
Commission Rule 4.14 to create an exemption from the Commodity Exchange
Act's registration requirements for commodity trading advisors that
provide standardized advice by means of media such as newsletters,
prerecorded telephone newslines, Internet web sites, and non-customized
computer software.
[[Page 12939]]
DATES: March 10, 2000.
FOR FURTHER INFORMATION CONTACT: J. Douglas Richards, Deputy General
Counsel; Martin White, Attorney; or Michael J. Garawski, Attorney at
(202) 418-5120.
SUPPLEMENTARY INFORMATION:
I. Background
The Commodity Futures Trading Commission (``Commission'') is
adopting CFTC Rule 4.14(a)(9), which exempts certain commodity trading
advisors (``CTAs'') from Section 4m(1) of the Commodity Exchange Act
(``CEA'' or ``Act''), 7 U.S.C. 6m(1) (1994). Section 4m(1) requires
CTAs to register with the Commission. The exemption adopted today is
intended to apply to CTAs that provide standardized commodity trading
advice by means of media such as newsletters, prerecorded telephone
newslines, Internet web sites, and non-customized computer software.\1\
For purposes of convenience, these CTAs will be referred to as
``Section 4.14(a)(9) CTAs.'' \2\
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\1\ In this final rulemaking, the term ``commodity trading
advice'' refers to advice with respect to trading in a ``commodity
interest,'' as defined in Commission Rule 3.1(f), 17 CFR 3.1(f).
\2\ ``Section 4.14(a)(9) is a reference to CFTC Rule 4.1(a)(9),
to be codified at 17 CFR 4.14(a)(9).
A person that provides commodity trading advice by means of
newsletters, Internet web sites, or similar means falls within the
statutory definition of ``commodity trading advisor'' unless the
person is a ``publisher or producer of print or electronic data of
general and regular dissemination'' and the furnishing of commodity
trading advice is ``solely incidental to the conduct of their
business or profession.'' See Sections 1a(5)(B) and (C) of the Act,
7 U.S.C. 1a(5)(B) and (C) (1994); In re R&W Technical Services,
Ltd., [Current Transfer Binder] Comm. Fut. L. Rep.: (CCH) para.
27,582 (CFTC Mar. 16, 1999); In re Armstrong, [1992-1994 Transfer
Binderl Comm. Fut. L. Rep. (CCH) para. 25,657 (CFTC Feb. 8, 1993).
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Over the last several years, the Commission has been involved in
several litigated cases that address whether CTAs that provide advice
through newsletters, Internet web sites, or similar means can be
required to register under Section 4m(1) of the CEA. In two of those
cases, Taucher v. Born, 53 F. Supp. 2d 464 (D.D.C. 1999), appeal
pending, No. 99-5293 (D.C. Cir.) and Commodity Trend Service v. CFTC,
No. 97 C 2362 (N.D. III. Sept. 28, 1999), appeals pending, No. 99-4142
(7th Cir.), federal district courts held that the Section 4m(1)
registration requirement constitutes an unconstitutional prior
restraint in violation of the First Amendment as applied to the
plaintiffs. \3\ In both cases, the plaintiffs provided only
standardized commodity trading advice through a variety of media,
including Internet web sites, computer software, voice recordings
accessible by telephone, e-mails, facsimiles, and periodicals.
Moreover, the district courts found in these cases that the plaintiffs
did not have discretionary control over their clients' accounts, did
not provide advice tailored to the financial situation of any specific
client, and had no personal contact with their clients. All of the
information provided to each client was identical.
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\3\ Both district courts relied on Lowe v. SEC, 472 U.S. 181
(1985), in which the Supreme Court held that the Investment Advisers
Act of 1940, which regulates investment advisers in the securities
industry, should be interpreted to apply only to persons who provide
personalized advice. The district courts relied primarily on the
concurring opinion in Lowe, which rested on constitutional grounds.
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The Commission has not itself determined that applying Section
4m(1) to Section 4.14(a)(9) CTAs represent a complete and accurate
statement of the constitutional limits of Congress's power with respect
to the regulation of Section 4.14(a)(9) CTAs. The Commission has
nevertheless determined that it is appropriate to exempt Section
4.14(a)(9) CTAs from registration.
An implicit purpose of the Act is to achieve a regulatory scheme
that is consistent with the public interest and that promotes just and
equitable principles of trade. This purpose is evident in provisions
dealing with the CTA registration scheme, including Sections 41, 4n(1),
4p, 8a(8), as well as other provisions of the Act (see, e.g., Sections
4(c), 4c, 4g, 4j(a)(5)(C), 5, 6(f), 15, 17). Consistent with that, the
Act reflects a corollary purpose that the Commission continue to refine
its regulatory framework, including its registration scheme, where
appropriate in light of other purposes of the Act. See, e.g., Sections
3, 4b, 4k, 4n, 4o. The rule adopted today advances these purposes.
Taucher and CTS have created legal uncertainty as to whether
Section 4.14(a)(9) CTAs may be required to register with the
Commission.\4\ Absent a Supreme Court decision on the issue, continued
litigation is unlikely to eliminate this uncertainty for a considerable
period of time. Moreover, litigation of First Amendment issues has
required the expenditure of considerable resources by the Commission
and, in some instances, has complicated the Commission's investigation
and prosecution of fraud by CTAs.
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\4\ Significantly, CTS and Taucher left the Commission's fraud
jurisdiction intact.
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Furthermore, whatever the courts may determine to be the precise
constitutional limits of Congressional authority in this area, the
Commission believes that minimizing impact on speech, other than false,
deceptive or misleading speech, is a relevant policy consideration in
determining the Commission's regulatory approach toward CTAs whose
relationship with their clients is limited to standardized advice
through media such as newsletters, prerecorded telephone newslines,
Internet web sites, and non-customized computer software.
On December 2, 1999, the Commission proposed to exempt from Section
4m1) of the CEA certain CTAs that are not engaged in the type of
advisory activities specified in proposed Section 4.14(a)(9) and
invited comments. 64 FR 68304 (Dec. 7, 1999). The Commission received
eight comment letters on this proposal: One from a bar association
committee on futures regulation; two from nonprofit legal advocacy
groups; one from a trade association; three from clients of CTAs; and
one from a member of the general public. All generally supported the
adoption of a rule like CFTC Rule 4.14(a)(9). In light of comments
received on that proposed rule, the Commission is adopting a modified
version of the proposed rule.
II. CFTC Rule 4.14(a)(9)
CFTC Rule 4.14(a)(9) (to be codified at 17 CFR 4.14(a)(9)) adds a
new paragraph to Commission Rule 4.14 to create an additional exemption
from registration for certain CTAs. The new exemption is expressed in
negative terms: the rule exempts CTAs that are not engaged in the types
of advisory activities specified in the new paragraph. A CTA must meet
both of the specified conditions to qualify for the proposed exemption.
Paragraph 4.14(a)(9)(i) provides that, to quality for the
exemption, a CTA may not direct client accounts. As defined by
Commission Rule 4.10(f), ``[d]irect, as used in the context of trading
commodity interest accounts, refers to agreements whereby a person is
authorized to cause transactions to be effected for a client's
commodity interest account without the client's specific
authorization.'' The granting of such authority creates a business
relationship between the CTA and the client that goes beyond speech.
Registration of CTAs that direct client accounts thus raises no First
Amendment issue.\5\
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\5\ One commenter, expressed a similar opinion, stating that
paragraph (a)(9)(i) does not raise First Amendment concerns.
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Paragraph 4.14(a)(9)(ii) also provides that, to qualify for the
exemption, a CTA may not provide commodity trading
[[Page 12940]]
advice based on, or tailored to, the commodity interest or cash market
positions or other circumstances or characteristics of particular
clients. A CTA that provides this kind of advice carries out a function
comparable to that of a traditional professional. See Lowe v. SEC, 472
U.S. 181, 232-33 (1985) (White, J., concurring). This provision is
intended to preserve the registration requirement for CTAs whose
commodity trading advice depends on and reflects information concerning
its advisee(s), such as information concerning a particular commodity
interest account, particular commodity interest trading activity, and/
or other similar types of information. Moreover, so long as the CTA's
advice is based on or tailored to such information, the CTA remains
required to register even if it gives the same advice to groups of
similarly situated clients.
Retaining the registration scheme for those that engage in the
activities described by Rule 4.14(a)(9) is justified because the nature
of these activities creates a professional relationship. A client that
provides a power of attorney to trade his or her account, or that
receives commodity trading advice that is based on or tailored to his
or her circumstances, will very likely substitute the CTA's expertise
for his or her own judgment and use the advice as a direct basis for
action.
The Commission received several comments concerning proposed
paragraph 4.14(a)(9)(ii). One commenter suggested that the Commission
adopt a proviso to the rule that would, in effect, narrow the
activities described in paragraph (ii), thereby expanding the scope of
the exemption. The commenter maintained that a CTA that provides advice
via a web site that is interactive in nature and that requires a client
to select among inquiry paths or categories of information should be
exempt from the registration requirement. The commenter suggested that
the Rule adopt a proviso that explains that nothing in paragraph (9) be
construed to prohibit the use of electronic or other interactive
exchanges between clients and advisors that do not include
individualized investment advice.
A second commenter voiced a similar concern and suggested that
proposed Rule 4.14(a)(9)(ii) be narrowed to maintain the registration
requirement only for CTAs that provide commodity trading advice based
on, or tailored to, the commodity interest or cash market positions or
other circumstances or characteristics of particular clients ``with
whose circumstances or characteristics the CTA is directly
acquainted.''
The Commission has determined not to adopt these proposals.\6\
These commenters' suggestions fail to reflect that the medium through
which advice is communicated is, for the most part, not relevant to
whether the CTA can be said to be ``exercis[ing] judgment on behalf on
the client in the light of the client's individual needs and
circumstances.'' See Lowe, 472 U.S. at 232 (J. White, concurring).
Instead, the Commission agrees with the statement of another commenter
that ``the new rule * * * should emphasize that the exemption is based
on the nature of the advice that is provided, regardless of how it is
communicated to the client.'' \7\ As explained by the district court in
Taucher, ``[i]n today's technologically advanced society a professional
can exercise judgment on behalf of another without ever having
`personal' [or direct] contact.'' \8\
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\6\ The Commission notes that paragraph (a)(9)(ii), as
interpreted in Example C below, substantially accomplishes the
result intended by the proviso suggested by one commenter.
\7\ In a borderline case as to whether advice is ``based on or
tailored to'' within the meaning of Section (a)(9)(ii), however, the
context of the advice might be taken into account. For example, in
such a borderline case, if the advice is provided in a book or a
periodical, that factor may weigh against a finding that the CTA is
providing advice ``based on or tailored to'' the client's
characteristics, since such modes of communication are ordinarily
used as sources of information and ideas that the reader assimilates
into his or her own thought process. On the other hand, if the
advice is provided to a particular client in a face-to-face
communication or over the telephone, that factor may weigh in favor
of a finding that the CTA's advice is ``based on or tailored to''
the customer's characteristics, since such a context suggests that
the CTA is being responsive to the client's particular needs.
\8\ Taucher v. Born, No. 97-1711 (RMU) (Jan. 14, 1999) (denying
plaintiff's motion for summary judgment). In its later decision
finding that the plaintiff CTAs did not ``exercise judgment'' on
behalf of their clients, the district court found that the
plaintiffs had no personal contact with their customers. The court,
however, did not rely exclusively on this factor, which was only one
of several circumstances supporting the court's finding. Taucher, 53
F. Supp. 2d at 478. In light of the court's statement made in
denying the motion for summary judgment, its position appear to be
that lack of personal contacts is a factor, but not a dispositive
one, in determining whether the CTA is exercising judgment on behalf
of its clients.
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Given the specific comments received on paragraph 4.14(a)(9)(ii),
however, further clarity as to the scope of that paragraph may be
desirable. Section III of this preamble provides examples of how Rule
4.14(a)(9)(ii) would be applied in specific situations. To the extent
that the examples do not resolve how the Commission would apply the new
rule to other specific situations, such situations are best addressed
in response to specific facts and circumstances.\9\
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\9\ The Commission uses various means to assess the
applicability of a rule in light of specific factual situations,
such as determinations made in its adjudicated decisions. Commission
staff also provides interpretative guidance, such as issuing
interpretative letters or responding to requests for no-action
relief.
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The Commission has decided not to adopt proposed paragraph
4.14(a)(9)(iii), which provided that a CTA would qualify for the
exemption only if it does not provide commodity trading advice through
personally interactive communications with individual clients, such as
face-to-face conversations, telephone conversations, or electronic mail
exchanges between individuals. In the Notice of Proposed Rulemaking,
the Commission explained that the use of such means of communications
implies that the advisor is giving advice in the context of a
relationship with the client that is more personal than the remote and
standardized relationship between the publisher of a newsletter or non-
customized software and its readers or users.
Several commenters opposed the adoption of proposed paragraph
(a)(9)(iii). One commenter anticipated two serious problems in
implementing proposed paragraph (a)(9)(iii). First, the rapid
development of communications technology may require periodic
reexamination of the language of paragraph (iii), and second, the
emphasis in paragraph (iii) on the method of communication would
complicate policing the terms of the exemption.
Other commenters questioned whether paragraph (a)(9)(iii) would be
constitutionally permissible. One commenter opined that the references
in proposed paragraph (a)(9)(iii) to the mode of communication are not
appropriate given the recent judicial decisions in this area.
Similarly, other commenters opposed proposed paragraph (a)(9)(iii) on
the ground that it would be inconsistent with the First Amendment,
except in cases where the advice is given in light of the client's
individual needs and circumstances.
The Commission has not determined that the application of proposed
paragraph (a)(9)(iii) would violate the Constitution under any
particular circumstances. The Commission notes that none of the cases
upon which the commentators rely for their constitutional positions
involved the ``interactive communications'' situation involved in
paragraph (a)(9)(iii). Rather, those cases involved only the provision
of advice in a non-interactive setting,
[[Page 12941]]
such as through periodicals, books, newsletters, or software
programs.\10\
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\10\ These cases include Lowe v. SEC, 472 U.S. 181 (1985), and
the Taucher and CTS district court decisions.
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Nevertheless, the Commission has decided not to adopt proposed
paragraph 4.14(a)(9)(iii). By this rulemaking, the Commission intends
to reduce the legal uncertainty created by the First Amendment
decisions in this area and to curtail the impediments that such First
Amendment litigation imposes on the Commission's enforcement of the
antifraud provisions of the CEA. Considering the comments received,
adoption of proposed paragraph (a)(9)(iii) might undermine the
accomplishment of those purposes.\11\
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\11\ In light of the decision not to adopt proposed paragraph
(a)(9)(iii), the Commission need not address whether implementation
problems would provide an independent reason not to adopt that
paragraph.
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As explained in the Notice of Proposed Rulemaking, the Commission
intends that a CTA who manages a client's trading under some type of
informal arrangement be required to register even if the CTA is not
authorized to effect transactions without the client's specific
authorization, and therefore does not ``direct'' the client's accounts.
In the Notice of Proposed Rulemaking, the Commission solicited comments
on whether a separate paragraph dealing with CTAs that manage their
clients' trading under informal arrangements would be necessary to
realize this intention.
One commenter supported clarifying the breadth of the proposed rule
to retain the registration requirement for CTAs that have informal
arrangements with clients and that perform any of the activities
outlined in the rule. Although the commenter did not advocate defining
the meaning of ``informal arrangements,'' it proposed that the
introductory language of Section 4.14(a)(9) be expanded to add the
words ``directly or indirectly'' after the word ``engage.'' \12\ The
Commission has decided not to adopt the commenter's suggested language
in Rule 4.14(a)(9) and instead to rely on the language of paragraph
4.14(a)(9)(ii) to cover CTAs that informally manage their customers'
trading.
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\12\ The commenter's proposed introductory language would read:
``A person is not required to register under the Act as a commodity
trading advisor if * * * [i]t does not engage, directly or
indirectly, in any of the following activities * * *''
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Any CTA that meets the conditions of Rule 4.14(a)(9) is no longer
required to register with the Commission as a requirement for doing
business as a CTA. Such a CTA, unless it chooses to register
voluntarily, also is now exempt from the various regulatory
requirements set forth in the CEA and the Commission's rules that, by
their terms, apply only to registrants or persons required to be
registered. For example, an exempt CTA is not subject to the
recordkeeping and production requirements of Section 4n(3)(A) of the
CEA and Commission Rule 4.33, or the ethics training requirement of
Section 4p(b) of the CEA. Moreover, an exempt CTA is not subject to the
CFTC's reparations jurisdiction under Section 14 of the CEA.\13\
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\13\ In response to a question posed in the Notice of Proposed
Rulemaking, one commenter stated that exempt CTAs should not be
subject to the recordkeeping, production or ethics training
requirements because to do so would raise ``significant
constitutional issues.'' The Commission has not determined that
applying these requirements would violate the Constitution. The
Commission, however, agrees that CTAs that are exempt from
registration under Rule 4.14(a)(9) should not be subject to
regulatory requirements like these, which apply only to registered
CTAs.
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An exempt CTA is still subject to those provisions of the CEA and
the Commission's rules that, by their terms, apply to CTAs without
regard to registration. These include Section 4o of the CEA, which
prohibits fraud by CTAs; Commission Rule 4.30, which, broadly speaking,
prohibits CTAs from handling clients' funds; Commission Rule 4.41(a),
which prohibits deceptive advertising by CTAs; and Commission Rule
4.41(b), which requires representations concerning simulated or
hypothetical performance results by CTAs to be accompanied by
disclosures describing the limitations of such results as an indicator
of actual performance. Exempt CTAs also are subject to those provisions
of the CEA that apply to any person, including, for example, Section 4b
of the CEA, which is the Act's general anti-fraud provision. Similarly,
the proposed exemption does not alter the duty of a Section 4.14(a)(9)
CTA to register with the Commission in a capacity other than as a CTA,
if the CTA, in addition to its advisory activities, engages in other
business activities that require such registration.
A CTA exempt under rule 4.14(a)(9) that wishes to apply for
registration or retain its current registration may do so. Pursuant to
Rule 4.14(c), a CTA that registers voluntarily is subject to those
provisions of the Act and the Commission's regulations that apply to
registered CTAs (i.e., the disclosure requirements of Rules 4.31, 4.35
and 4.36, and the recordkeeping requirements of Rule 4.33) as if it
were not exempt from registration. The decision to register voluntarily
also would subject the CTA to ethics training requirements and the
Commission's reparations jurisdiction.
III. Examples \14\
In order to convey the intent of the exemption that we adopt
today, the Commission offers the following illustrative examples: \15\
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\14\ The following examples of the application of Rule
4.14(a)(9) supercede the examples provided in the Notice of Proposed
Rulemaking. Examples are illustrative and not intended to be
statements of law. As noted above, persons are free to seek advice
regarding their specific activities.
\15\ In each of the following examples, the CTA does not have
powers of attorney from any of its clients to trade accounts. In
addition, the CTA in each example remains subject to requirements of
the Act and the Commission's regulations that apply to all CTAs
without regard to registration, such as Section 4o of the Act and
Commission Rules 4.30, 4.41(a) and 4.41(b), as well as to provisions
that apply to any person, such as Section 4b of the Act.
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A. A CTA provides commodity trading advice only through
newsletters, books and periodicals. The advice includes specific
recommendations, such as recommendations to buy or sell specific
futures contracts should a particular price level be reached.
Recipients of publications all receive the same advice. Under Rule
4.14(a)(9), this CTA is exempt from the Section 4m registration
requirement.
B. A CTA provides specific commodity trading advice through e-
mails, facsimiles, an Internet web site, telephone calls and face-to-
face meetings with customers. The advice is based on a computerized
trading system, which also is available for purchase and use on a
personal computer. Such advice is provided on a daily basis and is
reactive to the latest market activity. The advice consists only of an
instruction to buy or sell a futures contract and where, if at all, to
place a stop order. The CTA's clients all receive the same advice.
Under Rule 4.14(a)(9), this CTA is exempt from the Section 4m
registration requirement.
C. A CTA provides commodity trading advice through an Internet web
site. The web site requires the user to indicate whether he or she has
a preference for trading agricultural futures contracts or financial
futures contracts. Users who indicate that their preference is
agricultural futures contracts receive different advice from those who
indicate that financial futures contracts are their preference. The
CTA's advice is not ``based on, or tailored to, the commodity interest
or cash market positions or other circumstances or characteristics of
particular clients,'' within the meaning of Rule 4.14(a)(9)(ii).
Rather, the CTA is merely allowing its clients to select which advisory
services they wish to
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purchase. Therefore, this CTA is exempt from the Section 4m
registration requirement under Rule 4.14(a)(9).
D. A CTA conducts seminars at which it teaches attendees how to
trade commodity futures contracts aided by a software program that the
CTA sells. After the seminar, the CTA invites seminar attendees to
participate in a question-and-answer session. In response to questions,
the CTA provides commodity trading advice without asking or receiving
information about the personal characteristics of the attendees. Such
advice is not ``based on, or tailored to, the commodity interest or
cash market positions or other circumstances or characteristics of
particular clients,'' within the meaning of Rule 4.14(a)(9)(ii).
Consequently, this CTA is exempt from the Section 4m registration
requirement.
E. A CTA conducts seminars at which it teaches attendees how to
trade commodity futures contracts aided by a software program that the
CTA sells. Before each seminar commences, the CTA polls the attendees
to discover their level of ability and knowledge. The CTA presents a
more advanced seminar for classes that have a higher degree of
experience. Because such advice is not ``based on, or tailored to, the
commodity interest or cash market positions or other circumstances or
characteristics of particular clients,'' within the meaning of Rule
4.14(a)(9)(ii), this CTA is exempt from the Section 4m registration
requirement.
F. A CTA provides commodity trading advice only through facsimile
messages, without further discussion with its clients. Before advising
any client, the CTA gathers current information about the client, such
as information about his or her net assets and liabilities, annual
income, annual expenses, imminent large purchases, tolerance for risk,
purposes for trading, investment goals and expectations, preferred
contracts for trading, any existing futures positions, and other
current investments. The CTA's advice is different for different
clients, depending on their profile, but the CTA sends similar advice
to groups of clients with similar profiles. Under Rule 4.14(a)(9)(ii),
this CTA provides commodity trading advice ``based on, or tailored to,
the commodity interest or cash market positions or other circumstances
or characteristics of particular clients'' and, consequently, is not
exempt from the registration requirement.
G. A CTA gives seminars on commodity interest trading. During the
seminar, the CTA takes questions from the attendees concerning the
trades that the CTA recommends for the upcoming week. Before responding
to the question of an attendee, the CTA asks the attendee for specific
information about him or herself, such as the types of information
listed in Example F. The CTA provides different recommendations to
different attendees, based on the information provided. Under Rule
4.14(a)(9)(ii), this CTA provides commodity trading advice ``based on,
or tailored to, the commodity interest or cash market positions or
other circumstances or characteristics of particular clients'' and
therefore is not exempt from the registration requirement.
H. A CTA monitors a client's trading positions and amount of margin
in the client's account. Based on that information, along with general
technical and fundamental market information, the CTA gives the client
commodity trading advice. Because he provides commodity trading advice
``based on, or tailored to, the commodity interest or cash market
positions or other circumstances or characteristics of particular
clients,'' this CTA is not exempt from the registration requirement
under Rule 4.14(a)(9)(ii).
IV. Statutory Authority
Pursuant to Section 8a(5) of the CEA, 7 U.S.C. 12a(5), the
Commission has statutory authority to promulgate the proposed rule. As
explained above, this rule is consistent with the legislative purposes
of the CEA.
In the Notice of Proposed Rulemaking, the Commission indicated that
it also would rely on Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), as
authority to adopt Rule 4.14(a)(9). Upon further consideration, the
Commission has determined that reliance on Section 4(c) is unnecessary.
The Commission previously has relied upon its rulemaking power, as
provided in Section 8a(5), to exempt CTAs from the registration
requirement. The authority citation for Part 4 of the Commission's
rules, therefore, is unchanged.
V. 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 entities. The Commission has previously
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.\16\ With respect to CTAs, the Commission has
stated that it would evaluate within the context of a particular rule
proposal whether all or some affected CTAs would be considered to be
small entities and, if so, the economic impact on them of any rule.
As the Commission noted when proposing the rule, some of the CTAs
that would be affected by Rule 4.14(a)(9) could reasonably be
considered to be small entities. The rule amendment adopted herein,
however, will reduce or remove existing economic burdens. Moreover, the
registration requirements that will be affected by the proposed rule
involve only minimal economic burdens.
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\16\ 47 FR 18618-21 (Apr. 30, 1982).
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B. Paperwork Reduction Act
Rule 4.14(a)(9) affects information collection requirements. As
required by the Paperwork Reduction Act of 1995, the Commission has
submitted a copy of Rule 4.14(a)(9) to the Office of Management and
Budget (OMB) for its review. 44 U.S.C. 3507(h). In response to the
Commission's invitation in the notice of proposed rulemaking to comment
on any potential paperwork burden associated with this regulation, no
comments were received.
As described in detail above, the Commission received comments
concerning the substance of the Rule 4.14(a)(9). In recognition of
certain comments received, the Commission has decided not to adopt
proposed paragraph 4.14(a)(9)(iii) as part of the final rule. This
modification, however, is not expected to change the information
collection burden information as described in the notice of proposed
rulemaking.
C. Administrative Procedure Act
The Administrative Procedure Act provides that the required
publication of a substantive rule shall be made not less than 30 days
before its effective date, but provides an exception for ``a
substantive rule which grants or recognizes an exemption or relieves a
restriction.'' 5 U.S.C. 553(d). Because Rule 4.14(a)(9) grants an
exemption from registration, the Commission has determined to make the
rule effective immediately.
List of Subjects in 17 CFR Part 4
Advertising, Brokers, Commodity futures, Commodity Pool Operators,
Commodity Trading Advisors, Consumer protection, Reporting and
recordkeeping requirements.
For the reasons stated in the preamble, the Commodity Futures
Trading Commission amends 17 CFR part 4 as follows:
[[Page 12943]]
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
1. The authority citation for part 4 continues to read as follows:
Authority: 7 U.S.C. 1a, 2, 4, 6b, 6c, 6l, 6m, 6n, 6o, 12a, and
23.
2. Section 4.14 is amended by removing the word ``or'' at the end
of paragraph (a)(5), by removing the period at the end of paragraphs
(a)(6), and (a)(7) and adding a semicolon in its place, by removing the
period at the end of paragraph (a)(8)(v)(D) and adding ``; or'' in its
place, and by adding paragraph (a)(9) to read as follows:
Sec. 4.14 Exemption from registration as a commodity trading advisor.
(a) * * *
(9) It does not engage in any of the following activities:
(i) Directing client accounts; or
(ii) Providing commodity trading advice based on, or tailored to,
the commodity interest or cash market positions or other circumstances
or characteristics of particular clients.
* * * * *
Issued in Washington, D.C. on March 3, 2000, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 00-5823 Filed 3-9-00; 8:45 am]
BILLING CODE 6351-01-M
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