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e8-28177

  • [Federal Register: November 26, 2008 (Volume 73, Number 229)]

    [Proposed Rules]

    [Page 71968-71971]

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

    [DOCID:fr26no08-36]

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    COMMODITY FUTURES TRADING COMMISSION

    17 CFR Part 4

    RIN 3038-AC67

    Electronic Filing of Disclosure Documents

    AGENCY: Commodity Futures Trading Commission.

    ACTION: Proposed rules.

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    SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

    is proposing to amend its regulations applicable to the filing of

    Disclosure Documents by commodity pool operators (CPOs) and commodity

    trading advisors (CTAs) with the National Futures Association (NFA). In

    response to a petition from NFA, the CFTC is proposing that CPOs and

    CTAs be required to file their Disclosure Documents electronically with

    NFA (Proposal).

    DATES: Comments must be received on or before December 26, 2008.

    ADDRESSES: Comments on the Proposal should be sent to David A. Stawick,

    Secretary, Commodity Futures Trading Commission, Three Lafayette

    Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be

    sent by facsimile transmission to (202) 418-5521, or by e-mail to

    secretary@cftc.gov. Reference should be made to ``Proposal Regarding

    Electronic Filing of Disclosure Documents.'' Comments also may be

    submitted by connecting to the Federal eRulemaking Portal at http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.regulations.gov http://

    www.regulations.gov and following the comment submission instructions.

    FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Associate Director,

    Compliance and Registration Section, Division of Clearing and

    Intermediary Oversight, Commodity Futures Trading Commission, Three

    Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,

    telephone number: (202) 418-5450; facsimile number: (202) 418-5528; and

    electronic mail: bgold@cftc.gov.

    SUPPLEMENTARY INFORMATION:

    I. Background

    A. CPO and CTA Disclosure Documents

    Part 4 of the Commission's regulations \1\ governs the operations

    and activities of CPOs and CTAs. Regulations 4.21 and 4.31 respectively

    require each CPO and CTA registered or required to be registered with

    the Commission to deliver a Disclosure Document to prospective pool

    participants and clients. Regulations 4.24 and 4.25 specify the

    informational content of the CPO Disclosure Document, and Regulations

    4.34 and 4.35 specify the informational content for the CTA Disclosure

    Document. Regulations 4.26 and 4.36 respectively pertain to the use,

    amendment and filing of CPO and CTA Disclosure Documents. Specifically,

    under Regulations 4.26(d) and 4.36(d), the CPO or CTA must file one

    copy of the Disclosure Document, and any supplements and amendments

    thereto, with NFA.\2\ These regulations do not, however, prescribe any

    particular manner of filing.

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    \1\ 17 CFR Part 4 (2008). The Commission's regulations can be

    accessed through the CFTC's Web site, http://www.cftc.gov.

    \2\ NFA is a registered futures association pursuant to section

    17 of the Commodity Exchange Act (Act), 7 U.S.C. 21 (2000). The Act

    also may be accessed through the CFTC's Web site.

    The Commission previously authorized NFA to conduct reviews of

    Disclosure Documents filed by CPOs and CTAs pursuant to Regulations

    4.26(d) and 4.36(d). See 62 FR 52088 (Oct. 6, 1997).

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    B. The NFA Petition

    By letter dated July 21, 2008, NFA petitioned the Commission to

    amend Regulations 4.26 and 4.36 in order to require that CPOs and CTAs

    file Disclosure Documents electronically through NFA's electronic

    Disclosure Document filing system (Petition).\3\

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    \3\ The Petition also adds the word ``each'' before the existing

    words ``trading program'' in paragraph (d)(1) of Regulation 4.36 to

    make that paragraph read parallel to the existing phrase ``each

    trading program'' in paragraph (d)(2) of Regulation 4.36.

    The Commission previously authorized NFA to accept notices of

    exemptions or exclusions claimed under Part 4 and required that

    these notices be filed electronically. See Id. and 72 FR 1658 (Jan.

    16, 2007), respectively.

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    In its Supporting Arguments, NFA explained the reasoning behind the

    Petition as follows:

    Currently, while there is nothing to prohibit a firm from filing

    a disclosure document in hardcopy form, the vast majority of CPO and

    CTA registrants file disclosure documents with NFA primarily via

    electronic mail due to its expediency and convenience. While the use

    of electronic mail has been a significant improvement over hardcopy

    submissions in terms of filing efficiency, the current approach

    still requires a considerable amount of staffing resources and has

    other disadvantages, e.g., the inability of registrants to obtain

    the status of the review of their filing without calling NFA and the

    lack of a central location for storing past filings. Accordingly,

    NFA has developed a new Internet-based electronic filing system for

    disclosure documents that will be significantly less resource

    intensive while also streamlining and enhancing the filing process

    for registrants. In order to realize the proposed benefits, however,

    registrants must be required to file their documents electronically

    through NFA's new system. Consequently, NFA is petitioning the

    Commission to amend its regulations accordingly.

    The Commission understands that, as with NFA's other electronic

    filing systems,\4\ the Disclosure Document system was designed to be

    easy and secure, such that Disclosure Documents, supplements and

    amendments will be uploaded through the system as either Word or PDF

    documents. Thus, although the CPO or CTA must have an Internet

    connection to access the system, it could use any public Internet site,

    such as those available in most public libraries. Moreover, CPOs and

    CTAs will access the system using the same designated login and

    password that they currently use for NFA's Online

    [[Page 71969]]

    Registration System--which, NFA states, is ``a well-tested

    authentication model with which participating registrants are already

    familiar.'' \5\ NFA additionally states that it has been extremely

    careful in the development of the system to ensure that the database it

    maintains of Disclosure Document filings will not be compromised in any

    way by unauthorized persons.

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    \4\ For example, NFA has adopted ``Easyfile'' for introducing

    broker and commodity pool financial statements required to be filed

    with it.

    \5\ The Commission previously delegated to NFA registration

    responsibilities for CPOs, CTAs and their associated persons. See 49

    FR 39593 (Oct. 9, 1984).

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    Further in this regard, NFA explains that once CPOs and CTAs have

    accessed the system:

    They will be guided through the filing process, which culminates

    in the electronic transfer of the disclosure document through the

    secure web-based gateway. The system includes extensive help text to

    assist registrants with their filings, and the filing process

    includes a series of questions that will assist in identifying the

    type of filing as well as provide important background information

    to assist NFA staff with the analysis of the document itself. After

    the document is submitted, the system will automatically assign it

    to an available NFA analyst. By accessing the system, registrants

    will be able to track the status of their filing and receive comment

    letters as they are issued. Additionally, the system will serve as

    an electronic filing cabinet for registrants since it will maintain

    all previous filings and related comment letters filed through the

    system.

    The Commission further understands, then, that NFA's process for

    the electronic filing of Disclosure Documents will have two components.

    One of those components will require CPOs and CTAs to electronically

    submit their Disclosure Documents, as well as any amendments and

    supplements thereto. The other of these components will require CPOs

    and CTAs to enter from their Disclosure Documents certain key

    information on their operations and activities into a standardized form

    accessed through NFA's Web site.\6\

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    \6\ Among other things, this key information concerns

    identification of contact persons, relationships with futures

    commission merchants or introducing brokers, and the past

    performance history and related data for the offered pool or trading

    program.

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    II. The Proposal

    In light of the foregoing, the Commission is proposing to amend

    Regulations 4.26(d) and 4.36(d) to require that any documents required

    to be filed thereunder be filed electronically with NFA, pursuant to

    NFA's electronic filing procedures. The Commission wishes to emphasize,

    however, that the Proposal would not impact the delivery of Disclosure

    Documents to prospective pool participants and clients, which CPOs and

    CTAs could continue to provide through hardcopy distribution via postal

    mail or electronically if the intended recipient consented thereto.\7\

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    \7\ See Regulations 4.21(b) for CPOs and 4.31(b) for CTAs.

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    III. Related Matters

    A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \8\ 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.\9\ With respect to CPOs, the Commission previously has

    determined that a registered CPO is not a small entity for the purpose

    of the RFA.\10\ As for CTAs, the Commission previously 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 the particular

    rule.\11\ As noted above, the Commission believes that the Proposal

    will not place any significant economic burdens, whether new or

    additional, on CPOs and CTAs who will be affected by it. This is

    because while the Proposal will require these CPOs and CTAs to have

    access to and a certain degree of technical knowledge to file

    Disclosure Documents electronically and to enter the required key

    information, they will access the system using the same designated

    login and password that they currently use for registration purposes

    and they will be entering the key information directly from their

    Disclosure Documents. Thus, the Proposal simply alters the mechanism

    for filing Disclosure Documents, and does not affect the substance or

    frequency of those filings. Accordingly, and based on section 3(a) of

    the RFA,\12\ the Acting Chairman, on behalf of the Commission,

    certifies that the Proposal would not have a significant economic

    impact on a substantial number of small entities. However, the

    Commission invites the public to comment on this certification.

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    \8\ 5 U.S.C. 601 et seq.

    \9\ See 47 FR 18618 (Apr. 30, 1982).

    \10\ Id. at 18619.

    \11\ Id. at 18620.

    \12\ 5 U.S.C. 605(b).

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    B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \13\ imposes certain

    requirements on federal agencies (including the Commission) in

    conducting or sponsoring any collection of information as defined by

    the PRA. If adopted, the Proposal would change the manner in which CPOs

    and CTAs file Disclosure Documents with NFA; it would not affect the

    substance or frequency of those filings. The Proposal would, however,

    authorize the separate collection from CPOs and CTAs of certain key

    information from the Disclosure Documents CPOs and CTAs would be filing

    electronically. Accordingly, 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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    \13\ 44 U.S.C. 3501 et seq.

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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 expected effect of the proposed amended regulations will be to

    reduce the burden previously approved by OMB for this collection of

    information by 239.5 hours. This is because, while it will result in an

    increase in the estimated average number of hours per response under

    Regulations 4.26 and 4.36, there will be fewer CPOs and CTAs subject to

    the filing requirements of these regulations owing to increased claims

    of exemption under Regulation 4.7 from Disclosure Document requirements

    and under Regulations 4.13 and 4.14 from registration altogether.

    Specifically:

    The burden associated with Regulation 4.26 is expected to be

    decreased by 422.4 hours:

    Estimated number of respondents: 160.

    Annual responses by each respondent: 3.

    Estimated average hours per response: 3.25.

    Annual reporting burden: 1560.

    This annual reporting burden of 1560 hours represents a decrease of

    422.4 hours as a result of the proposed amendment to Regulation 4.26.

    The burden associated with Regulation 4.36 is expected to be

    increased by 182.9:

    Estimated number of respondents: 450.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 1.85.

    Annual reporting burden: 832.5.

    This annual reporting burden of 832.5 hours represents an increase

    of 182.9

    [[Page 71970]]

    hours as a result of the proposed amendment to Regulation 4.36.

    The net result of the proposed amendments to Regulations 4.26 and

    4.36, then, is a decrease in the annual reporting burden of 239.5.

    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 Trading Commission. OMB is required to make a

    decision concerning the collection of information contained in the

    Proposal 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 Proposal.

    C. Cost-Benefit Analysis

    Section 15(a) of the Act \14\ 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.

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    \14\ 7 U.S.C. 19(a).

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    Section 15(a) further specifies that costs and benefits shall be

    evaluated in light of five broad areas of market and public concern,

    enumerated below. 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 Proposal would amend Regulations 4.26(d) and 4.36(d) to require

    that CPOs and CTAs file Disclosure Documents, and any supplements and

    amendments thereto, electronically with NFA. The Commission is

    considering the costs and benefits of the Proposal in light of the

    specific provisions of section 15(a) as follows:

    1. Protection of market participants and the public. The Proposal

    should not affect the protection of market participants and the public,

    as it provides an alternate method of filing Disclosure Documents, but

    does not alter the character or frequency of those filings.

    2. Efficiency and competition. The Commission anticipates that the

    Proposal will benefit efficiency by permitting NFA to streamline its

    process for receiving and reviewing Disclosure Document filings. Thus,

    the Commission considers the Proposal as benefiting efficiency and not

    impacting competition.

    3. Financial integrity of futures markets and price discovery. The

    Proposal 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 Proposal 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 Proposal is beneficial in that it should streamline the

    timeliness of filing, review and delivery of, and electronic

    accessibility to, Disclosure Documents.

    After considering these factors, the Commission has determined to

    propose the amendments to Regulations 4.26(d) and 4.36(d) discussed

    above. The Commission invites public comment on its application of the

    cost-benefit provision. Commenters also are invited to submit any data

    that they may have quantifying the costs and benefits of the Proposal

    with their comment letters.

    List of Subjects in 17 CFR Part 4

    Advertising, 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, 6b, 6c, 6l, 6m, 6n, 6o, 12a, and

    23.

    2. Revise paragraph (d) of Sec. 4.26 to read as follows:

    Sec. 4.26 Use, Amendment and Filing of Disclosure Document.

    * * * * *

    (d) Except as provided by Sec. 4.8:

    (1) The commodity pool operator must electronically file with the

    National Futures Association, pursuant to the electronic filing

    procedures of the National Futures Association, the Disclosure Document

    and, where used, profile document for each pool that it operates or

    that it intends to operate not less than 21 calendar days prior to the

    date the pool operator first intends to deliver such Document or

    documents to a prospective participant in the pool; and

    (2) The commodity pool operator must electronically file with the

    National Futures Association, pursuant to the electronic filing

    procedures of the National Futures Association, the subsequent

    amendments to the Disclosure Document and, where used, profile document

    for each pool that it operates or that it intends to operate within 21

    calendar days of the date upon which the pool operator first knows or

    has reason to know of the defect requiring the amendment.

    3. Revise paragraph (d) of Sec. 4.36 to read as follows:

    Sec. 4.36 Use, amendment and filing of Disclosure Document.

    * * * * *

    (d)(1) The commodity trading advisor must electronically file with

    the National Futures Association, pursuant to the electronic filing

    procedures of the National Futures Association, the Disclosure Document

    for each trading program that it offers or that it intends to offer not

    less than 21 calendar days

    [[Page 71971]]

    prior to the date the trading advisor first intends to deliver the

    Document to a prospective client in the trading program; and

    (2) The commodity trading advisor must electronically file with the

    National Futures Association, pursuant to the electronic filing

    procedures of the National Futures Association, the subsequent

    amendments to the Disclosure Document for each trading program that it

    offers or that it intends to offer within 21 calendar days of the date

    upon which the trading advisor first knows or has reason to know of the

    defect requiring the amendment.

    Issued in Washington, DC, on November 21, 2008 by the

    Commission.

    David A. Stawick,

    Secretary of the Commission.

    [FR Doc. E8-28177 Filed 11-25-08; 8:45 am]

    BILLING CODE 6351-01-P

    Last Updated: May 9, 2012



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