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  • [Federal Register: January 16, 2007 (Volume 72, Number 9)]

    [Rules and Regulations]

    [Page 1658-1664]

    From the Federal Register Online via GPO Access [wais.access.gpo.gov]

    [DOCID:fr16ja07-3]

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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: Final rulemaking.

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    SUMMARY: The Commodity Futures Trading Commission ("Commission" or

    "CFTC") is amending 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. Under the regulations the Commission is amending, the

    submission of a notice through NFA's electronic exemption filing system

    by a person duly authorized to bind the submitter will be permitted in

    lieu of the manual signature currently required by each of these

    regulations.

    In addition, the Commission also is adopting technical amendments

    that remove the procedure for making filings with the Commission

    required by Part 4, and revising other sections of Part 4 to refer to

    filings made with NFA rather than the Commission.

    DATES: Effective Date: February 15, 2007.

    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: echotiner@cftc.gov

    or kwalek@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Background

    A. Exemptions and Exclusions Under Part 4 of the Commission's

    Regulations

    On October 13, 2006, the Commission published for public comment

    proposed amendments to Part 4 of its regulations.\1\

    [[Page 1659]]

    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 with the Commission as a CPO,\2\ and a person who manages

    clients' trading must register with the Commission as a CTA.\3\ 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.\4\

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    \1\ Commission regulations cited to herein are found at 17 CFR

    Ch. I (2006).

    \2\ 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."

    \3\ 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).

    \4\ NFA is a registered futures association under the Act. 7

    U.S.C. 21 (2000). As discussed below, the Commission has delegated

    to NFA the responsibility for administrating the Commission's

    registration program.

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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" \5\ 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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    \5\ 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 SEC-registered

    investment advisers who meet the criteria set forth in Regulation

    4.14(a)(8); the other exemptions from CTA registration do not require

    the filing of an exemption notice to be effective.\6\

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    \6\ 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 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 also must 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,\7\ 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 with the SEC as an investment

    adviser, pursuant to Regulation 4.14(a)(8). The Commission also made

    NFA the custodian of those records.\8\

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    \7\ 62 FR 52088 (October 6, 1997).

    \8\ 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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    B. Electronic Filing of Part 4 Notices

    NFA 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. After considering the

    comments received, the Commission has determined to amend Regulations

    4.5, 4.7, 4.12(b), 4.13, and 4.14(a)(8) as set forth herein to

    effectuate this purpose.

    Firms that are registered with the Commission in any capacity and

    non-registrants will both access NFA's 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.\9\ In order to

    [[Page 1660]]

    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 person or firm that is making the filing, or on whose

    behalf the filing is made, is responsible for ensuring that only

    persons who are duly authorized to bind the filer are granted the

    ability to submit notices.

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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)). The Commission

    also adopted amendments to its regulations to require electronic

    filing of financial statements of commodity pools (71 FR 8939

    (February 22, 2006)) and introducing brokers (71 FR 67462 (November

    22, 2006)).

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    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.

    The amendments will no longer require persons filing the notices

    with NFA to do so in paper form. Therefore, 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

    amending each of the regulations with a participant notification

    requirement, with the exception of Regulation 4.5, to make explicit

    that notice may be delivered through electronic transmission. In

    adopting 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 email 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.

    As discussed in the proposal, the Commission is not revising

    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\ Therefore, the Commission is amending Regulation 4.5

    to contain 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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    C. Technical Amendments

    As proposed, the Commission is removing and reserving 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 \11\ 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. Further, two provisions within Part 4 inadvertently

    were not amended in 2002 and continue to include references to filing

    with the Commission. Accordingly, the Commission is adopting 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.

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    \11\ See note 2.

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    II. Comments

    The Commission received two comment letters on the proposed

    amendments, from NFA and the Committee on Futures Regulation of the New

    York City Bar Association ("Bar Association"). NFA supported the

    proposed amendments and stated that electronic filing of Part 4 notices

    would increase efficiency, reduce staff time currently devoted to

    processing notices, and eliminate data entry errors because the person

    claiming the notice will enter the information directly into the

    system. Both NFA and the Bar Association commented regarding Advisory

    18-96, which is discussed in detail in Section III, below.

    III. Advisory 18-96

    NFA also 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.\12\ 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.\13\ In considering NFA's

    petition, the Commission reexamined Advisory 18-96 and concluded that

    additional exemptions from CPO registration adopted in 2003 have

    essentially superseded the provisions of Advisory 18-96. 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.

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    \12\ 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.

    \13\ "Non-United States person" is defined in Regulation

    4.7(a)(1)(iv).

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    Based on the overlap between the terms of Advisory 18-96 and

    Regulation 4.13(a)(4), the Commission suggested in the proposing

    release that it may be appropriate to supersede Advisory 18-96

    prospectively, and requested comments on this approach. The Commission

    asked in particular for comment on 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.

    The

    [[Page 1661]]

    Commission proposed that 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).

    The Bar Association's sole comment related to Advisory 18-96. The

    letter noted that, while most the provisions of Advisory 18-96 have

    been superseded, there is still a benefit to retaining Advisory 18-96.

    Specifically, unlike Regulation 4.13(a)(4), the Advisory does not

    contain a requirement that a CPO inform participants in writing

    regarding the CPO's unregistered status and exemption from certain

    requirements. The Bar Association asserted that practitioners who

    advise offshore hedge funds believe that it is unnecessary and

    potentially confusing to the non-U.S. domiciled investors to explain

    why the sponsor is not registered with a U.S. futures regulator, and

    recommended that Advisory 18-96 be retained as an option for CPOs.

    NFA agreed in its comment letter that section (a) of Advisory 18-96

    could be retired without consequence due to the existence of Regulation

    4.13(a)(4), but suggested that the Commission consider the consequences

    of superseding section (b) of the Advisory. Section (b) of Advisory 18-

    96 provides relief from the requirement that a CPO maintain a pool's

    books and records at the CPO's main business office inside the U.S.

    where the main business office of the pool is located outside the U.S.,

    as long as the CPO maintains the pool's original books and records at

    the pool's main office located outside the U.S., keeps duplicate books

    and records of the commodity pool at a designated office in the U.S.,

    and makes the original records available within 72 hours upon the

    request of the Commission, the United States Department of Justice or

    NFA. NFA noted that pools that qualify for relief under Section (b) of

    Advisory 18-96 do not necessarily qualify for relief under Regulation

    4.13(a)(4); therefore, superseding the Advisory would preclude new

    offshore pools from taking advantage of this relief.

    Based on the comments received, the Commission has determined that

    it should retain provisions of Advisory 18-96 that continue to be

    applicable to the activities of U.S. CPOs operating offshore pools.

    Accordingly, Advisory 18-96 will remain in effect, and relief may

    continue to be claimed by CPOs by filing a paper notice with NFA. The

    Commission will further consider whether it would be appropriate to

    propose future amendments to Part 4 to codify the relief provided by

    Advisory 18-96.

    IV. Amendments

    Regulations 4.5, 4.7, 4.12(b), 4.13, and 4.14(a)(8) require that

    the notice claiming the exclusion or exemption available pursuant to

    each such regulation must be filed in paper form. The Commission is

    amending Regulations 4.5, 4.7, 4.12(b), 4.13, and 4.14(a)(8) Regulation

    to provide that the notice claiming exclusion or exemption must be

    filed electronically with NFA through compliance with NFA's electronic

    filing procedures.

    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 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\ The proposed rule amendments 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.

    The Commission's proposal solicited public comment on this

    analysis.\15\ No comments were received. Accordingly, the Chairman, on

    behalf of the Commission, hereby certifies, pursuant to 5 U.S.C.

    605(b), that the action it is taking herein will not have a significant

    economic impact on a substantial number of small entities.

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    \14\ 47 FR 18618 (April 30, 1982).

    \15\ 71 FR 60454 at 60456 (October 1, 2006).

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    B. Paperwork Reduction Act

    This rulemaking alters the method of collection of information

    required under Commission regulations, but does not alter the substance

    of the filings. Therefore, the Commission certified in its proposal

    that the proposed rule amendments, if promulgated in final form, would

    not impact the total annual reporting or recordkeeping burden

    associated with the applicable collection of information. As required

    by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), the

    Commission submitted a copy of this section to the Office of Management

    and Budget ("OMB") for its review. No comments were received in

    response to the Commission's invitation in the notice of proposed

    rulemaking \16\ to comment on any change in the potential paperwork

    burden associated with these rule amendments.

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    \16\ Id.

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    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) 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 Commission's proposal contained an analysis of its

    consideration of these costs and benefits and solicited public comment

    thereon.\17\ No comments were received with respect to the analysis of

    the Commission's consideration. Therefore, pursuant to such

    consideration, the Commission has decided to adopt these amendments as

    discussed above.

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    \17\ 71 FR at 54791-2.

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    List of Subjects in 17 CFR Part 4

    Advertising, Brokers, Commodity futures, Commodity pool operators,

    Commodity trading advisors, Consumer Protection, Reporting and

    recordkeeping requirements.

    0

    Accordingly, 17 CFR Chapter I is amended as follows:

    PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

    0

    1. The authority citation for part 4 continues to read as follows:

    [[Page 1662]]

    Authority: 7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a,

    and 23.

    0

    2. Remove and reserve Sec. 4.2.

    0

    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.

    * * * * *

    0

    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.

    (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.

    * * * * *

    0

    5. In Sec. 4.8, revise paragraphs (a) and (b) to read as follows:

    [[Page 1663]]

    Sec. 4.8 Exemption from certain requirements of rule 4.26 with

    respect to pools offered or sold in certain offerings exempt from

    registration under the Securities Act.

    (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.

    * * * * *

    0

    6. In Sec. 4.12, revise paragraphs (b)(1)(ii), (b)(3) and (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.

    * * * * *

    0

    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;

    (B) A description of the criteria pursuant to which it will so

    operate the pool;

    (ii) Complies with paragraph (c) of this section; and

    [[Page 1664]]

    (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.

    * * * * *

    0

    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), (a)(8)(iii)(B) and

    (a)(8)(iii)(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 January 5, 2007 by the Commission.

    Eileen A. Donovan,

    Acting Secretary of the Commission.

    [FR Doc. E7-174 Filed 1-12-07; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: June 29, 2007



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