Font Size: AAA // Print // Bookmark

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



See Also:

OpenGov Logo

CFTC's Commitment to Open Government

Gavel and Book

Follow the Status of Enforcement Actions