2010-23310

FR Doc 2010-23310[Federal Register: September 17, 2010 (Volume 75, Number 180)]

[Notices]

[Page 56997-56998]

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

[DOCID:fr17se10-58]

-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

Petition of the National Futures Association, Pursuant to Rule

13.2, to the U.S. Commodity Futures Trading Commission To Amend of the

Rule 4.5

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of Petition and Request for Comment.

-----------------------------------------------------------------------

SUMMARY: The National Futures Association (``NFA'') has petitioned the

Commodity Futures Trading Commission (``Commission'' or ``CFTC'') to

amend a rule that excludes certain otherwise regulated persons from the

definition of the term ``commodity pool operator'' (``CPO'') with

respect to certain qualifying entities. The rule presently requires any

person desiring to claim the exclusion to file a notice of eligibility

with NFA, which must identify the qualifying entity to be operated

pursuant to the exclusion.

NFA requests the Commission amend its rule to limit the scope of

the exclusion for registered investment companies (``RICs'').

Specifically, NFA has requested that any RIC include in its notice of

eligibility a representation that the RIC's qualifying entity (1) Will

use commodity futures or commodity options contracts solely for bona

fide hedging purposes, (2) will not have the initial margin and

premiums required to establish any commodity futures or commodity

options not used for bona fide hedging purposes exceeding five percent

(5%) of the liquidation value of the qualifying entity's portfolio, and

(3) will not be marketed to the public as a commodity pool or as a

vehicle for investment in commodity futures or commodity options.

The Commission seeks comment on NFA's petition and any related

questions. Copies of the petition are available for inspection at the

Office of the Secretariat, by mail at the address listed below, by

telephoning (202) 418-5100, or on the Commission's Web site (http://

www.cftc.gov).

DATES: Comments must be received on or before October 18, 2010.

Comments must be in English or, if not, accompanied by an English

translation.

ADDRESSES: Comments 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

NFAamendrule4.5@cftc.gov. Reference should be made to ``National

Futures Association Petition to Amend Commission Rule 4.5.'' Comments

may also be submitted by connecting to the Federal eRulemaking Portal

at http://www.regulations.gov and following the comment submission

instructions. Comments will be published on the Commission's Web site.

FOR FURTHER INFORMATION CONTACT: Kevin P. Walek, Assistant Director,

Telephone: (202) 418-5463, E-mail: kwalek@cftc.gov or Daniel S. Konar

II, Attorney-Advisor, Telephone: (202) 418-5405, E-mail:

dkonar@cftc.gov, Division of Clearing and Intermediary Oversight,

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st

Street, NW., Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

[[Page 56998]]

I. Background

In 1985, the Commission adopted Rule 4.5, which provides an

exclusion from the definition of ``CPO'' for certain otherwise

regulated persons that operated certain qualifying entities.\1\ At the

time of its adoption, any person seeking to claim the exclusion was

required to file with the Commission a notice of eligibility that

contained a representation that

---------------------------------------------------------------------------

\1\ 50 FR 15868-01 (April 23, 1985).

* * * such person will operate the qualifying entity specified

therein in a manner such that the qualifying entity: (i) Will use

commodity futures or commodity options contracts solely for bona

fide hedging purposes within the meaning and intent of Sec.

1.3(z)(1) [subject to certain provisions] * * * (ii) Will not enter

into commodity futures and commodity options contracts for which the

aggregate initial margin and premiums exceed 5 percent of the fair

market value of the entity's assets, after taking into account

unrealized profits and unrealized losses on any such contracts * * *

and (iii) Will not be, and has not been, marketing participations to

the public as or in a commodity pool or otherwise as or in a vehicle

for trading in the commodity futures or commodity options

markets.\2\

---------------------------------------------------------------------------

\2\ Id. at 15883.

In 2003, the Commission amended Rule 4.5 by deleting the bona fide

hedging requirement, the limitation on aggregate initial margin, and

the prohibition on marketing.\3\ In proposing these amendments to Rule

4.5, the Commission explained that its decision to delete the hedging

requirement and the limitation on aggregate initial margin was driven

by the fact that persons and qualifying entities that are otherwise

regulated ``may not need to be subject to any commodity interest

trading criteria to qualify for the exclusion afforded by Rule 4.5.''

\4\ The Commission further explained when adopting the final amendments

that its decision to delete the prohibition on marketing was driven by

comments claiming that ``the `otherwise regulated' nature of the

qualifying entities * * * would provide adequate customer protection,

and, further, that compliance with the subjective nature of the

marketing restriction could give rise to the possibility of unequal

enforcement where commodity interest trading was restricted.'' \5\

---------------------------------------------------------------------------

\3\ 68 FR 47221-01, 47223 (Aug. 8, 2003).

\4\ 68 FR 12622-02, 12626 (March 17, 2003).

\5\ 68 FR 47223.

---------------------------------------------------------------------------

Rule 4.5 currently requires only that notices of eligibility

include representations that

* * * the qualifying entity: (i) Will disclose in writing to

each participant, whether existing or prospective, that the

qualifying entity is operated be a person who has claimed an

exclusion from the definition of the term `commodity pool operator'

under the [Commodity Exchange] Act, and therefore, who is not

subject to registration or regulation as a pool operator under the

[Commodity Exchange] Act * * * and (ii) Will submit to special calls

as the Commission may require.\6\

---------------------------------------------------------------------------

\6\ 17 CFR 4.5(c)(2).

---------------------------------------------------------------------------

II. NFA's Petition

By letter dated August 18, 2010 (``Petition''), NFA, a registered

futures association, petitioned the Commission under Rule 13.2 \7\ to

amend Rule 4.5. Specifically, NFA requested that, in addition to the

two current representations required in a person's notice of

eligibility, Rule 4.5 should require the following representation:

---------------------------------------------------------------------------

\7\ 17 CFR 13.2 (enumerating the process by which the Commission

may be petitioned for the issuance, amendment or repeal of a rule).

(iii) Furthermore, if the person claiming the exclusion is an

investment company registered as such under the Investment Company

Act of 1940, then the notice of eligibility must also contain

representations that such person will operate the qualifying entity

as described in [Rule] 4.5(b)(1) in a manner such that the

qualifying entity: (a) Will use commodity futures or commodity

options contracts solely for bona fide hedging purposes within the

meaning and intent of [Rule] 1.3(z)(1); Provided however, That in

addition, with respect to positions in commodity futures or

commodity option contracts that may be held by a qualifying entity

only which do not come within the meaning and intent of [Rule]

1.3(z)(1), a qualifying entity may represent that the aggregate

initial margin and premiums required to establish such positions

will not exceed five percent of the liquidation value of the

qualifying entity's portfolio, after taking into account unrealized

profits and unrealized losses on any such contracts it has entered

into; and, Provided further, That in the case of an option that is

in-the-money at the time of purchase, the in-the-money amount as

defined in [Rule] 190.01(x) may be excluded in computing such [five]

percent; (b) Will not be, and has not been, marketing participations

to the public as or in a commodity pool or otherwise as or in a

vehicle for trading in (or otherwise seeking investment exposure to)

the commodity futures or commodity options markets.

III. Request for Comments

The Commission requests public comment on any aspect of the

Petition that commenters believe may raise issues under the Commodity

Exchange Act or Commission regulations.

* * * * *

Issued in Washington, DC, on September 13, 2010 by the

Commission.

David A. Stawick,

Secretary of the Commission.

[FR Doc. 2010-23310 Filed 9-16-10; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: September 17, 2010