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  • Commodity Futures Trading Commission 17 CFR Part 4 Electronic Filing of Notices of Exemption and Exclusion Under Part 4 of the Commission's Regulations[Federal Register: October 13, 2006 (Volume 71, Number 198)]

    [Proposed Rules]

    [Page 60454-60460]

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

    [DOCID:fr13oc06-16]

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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: Proposed rule.

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    SUMMARY: The Commodity Futures Trading Commission (``Commission'' or

    ``CFTC'') is proposing to amend 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.

    The Commission previously has authorized NFA to receive and to

    process notices of exemption or exclusion from certain of the

    Commission's Part 4 regulations. Currently, these notices are filed in

    paper form with NFA. The Commission is proposing to amend the

    regulations that require filing of a notice to require that such notice

    be filed electronically with NFA. The Commission is further proposing

    that the submission of a notice through NFA's electronic exemption

    filing system by a person duly authorized to bind the submitter be

    permitted in lieu of the manual signature currently required by each of

    these regulations.

    In addition, the Commission also is proposing technical amendments

    that would remove the procedure for making filings with the Commission

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

    filings made with NFA rather than the Commission. Amendments to

    Commission regulations adopted in 2002 no longer require that any

    filings under Part 4 be submitted to the Commission; therefore, the

    regulation specifying the procedure for filing with the Commission is

    no longer necessary. Further, two sections of Part 4 that refer to

    filings made with the Commission inadvertently were not amended in 2002

    to include corresponding changes indicating that such filings would

    henceforth be made with NFA.

    DATES: Comments must be received on or before November 13, 2006.

    ADDRESSES: You may submit comments, identified by RIN 3038-AC33, by any

    of the following methods:

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

    Follow the instructions for submitting comments.

    E-mail: secretary@cftc.gov. Include ``Electronic Filing of

    Part 4 Exemptions'' in the subject line of the message.

    Fax: (202) 418-5521.

    Mail: Send to Eileen Donovan, Acting Secretary of the

    Commission, Commodity Futures Trading Commission, 1155 21st Street,

    NW., Washington DC 20581.

    Courier: Same as Mail above.

    All comments received will be posted without change to http://frwebgate.access.gpo.gov/cgi-bin/leaving.cgi?from=leavingFR.html&log=linklog&to=http://www.cftc.gov

    , including any personal information provided.

    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

    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 as a CPO,\1\ and a person who manages clients' trading must

    register as a CTA.\2\ 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.\3\

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    \1\ 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.'' Commission regulations

    cited to herein are found at 17 CFR Ch. I (2006).

    \2\ 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).

    \3\ NFA is a registered futures association under the Act. 7

    U.S.C. 21 (2000).

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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'' \4\ 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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    \4\ 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 registered investment

    advisers who meet the criteria set forth in Regulation 4.14(a)(8); the

    other exemptions from CTA registration are self-executing.\5\

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    \5\ 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

    [[Page 60455]]

    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 must

    also 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 \6\ (the ``1997 Order''), 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 as

    an investment adviser, pursuant to Regulation 4.14(a)(8). The

    Commission also made NFA the custodian of those records.\7\

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

    \7\ 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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    Currently, these notices are filed with NFA in paper form. NFA's

    processing includes manual entry of data concerning the notice into

    NFA's database system, optical scanning of the hard copy filing, review

    of the notice to ensure that it contains all required information, and

    follow-up on any notices that are not prepared in accordance with the

    Part 4 requirements. Between November 1, 1997, when NFA was authorized

    to process these notices, and July 31, 2006, NFA has received

    approximately 30,000 notices:

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    \8\ These figures represent the number of notices filed with NFA

    and recorded in its database system. Some of these notices are

    duplicate filings or were made for entities that may be no longer

    operating; therefore, these totals are not representative of the

    number of entities actually operating according to the various

    exemptions.

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    Number of

    Notice type filings \8\

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    4.5........................................................ 5,302

    4.7........................................................ 7,494

    4.12(b).................................................... 401

    4.13....................................................... 15,629

    4.14(a)(8)................................................. 952

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    II. Proposed Amendments

    By letter dated November 28, 2005, NFA has 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. NFA indicated in its petition that although

    the existing procedures have worked fairly well, mandatory electronic

    filing will result in a more efficient process for persons claiming an

    exemption and ensure that NFA's database of such exemption information,

    which is available to Commission staff, remains accurate and updated

    and requires less manual resources of NFA staff.

    Firms that are registered with the Commission in any capacity and

    non-registrants will both access the 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. In order to 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 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. Although internet access

    is necessary for using NFA's electronic filing system, the Commission

    anticipates that any exemption filer without private internet access

    could reasonably be expected to use a public internet site, such as

    those available in public libraries.\9\

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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)), and to require

    electronic filing of financial statements of commodity pools (71 FR

    8939 (February 22, 2006)). The Commission is also proposing

    amendments to its regulations to require electronic filing of

    financial statements of introducing brokers (71 FR ----).

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    The proposed amendments, if adopted, would no longer require

    persons filing the notices with NFA to do so in paper form. Therefore,

    the Commission also has considered the form in which persons claiming

    exclusion or exemption may satisfy various requirements in these

    regulations to notify participants ``in writing'' regarding the claim.

    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 proposing to amend each of the regulations with a

    participant notification requirement, with the

    [[Page 60456]]

    exception of Regulation 4.5, to make explicit that notice may be

    delivered through electronic transmission. In proposing 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 e-mail 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.

    The Commission is not proposing to revise 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\ The

    other regulators to which a 4.5-qualfiying entity is subject may or may

    not permit electronic provision of the information; therefore, the

    Commission is not proposing to revise Regulation 4.5 in the same manner

    as the other Part 4 provisions with respect to electronic delivery of

    notice to participants. Rather, the Commission is proposing to amend

    Regulation 4.5 to contain the 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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    In addition to the electronic filing of exemption notices, NFA also

    has 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.\11\ 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.\12\ In considering NFA's petition,

    the Commission has reexamined Advisory 18-96 and concluded that

    additional exemptions from CPO registration adopted in 2003 have

    essentially superseded the provisions of Advisory 18-96.

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    \11\ 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.

    \12\ ``Non-United States person'' is defined in Regulation

    4.7(a)(1)(iv).

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    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. Therefore,

    the Commission is considering whether Advisory 18-96 should be

    superseded prospectively. The Commission is interested in obtaining

    comments on this approach, particularly 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.

    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).

    In addition, the Commission is proposing to remove and reserve

    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 \13\

    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. The sole remaining provision in Part 4 that could

    possibly result in a filing with the Commission is Regulation 4.12(a),

    which permits the Commission to exempt any person or class of persons

    from any provision of Part 4 if the Commission finds that granting the

    exemption is not contrary to the public interest or to the purposes of

    the provisions from which exemption is sought. However, technical

    requirements as to the filing of such requests for exemption are

    contained in Regulation 140.99, not Regulation 4.2. Therefore, the

    Commission proposes that the removal of Regulation 4.2 is advisable.

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    \13\ See note 2.

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    The 2002 amendments to Part 4 specify that all filings be made with

    NFA. However, two provisions within Part 4 inadvertently were not

    amended at that time and continue to include references to filing with

    the Commission. Accordingly, the Commission is proposing 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.

    III. 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\ With respect to CPOs, the Commission has

    previously determined that a CPO is a small entity if it meets the

    criteria for exemption from registration under current Rule 4.13(a)(2);

    however, other registered and exempt CPOs are not small entities for

    the purpose of the RFA.\15\ With respect to CTAs, the Commission has

    previously 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 proposal.\16\ The Commission believes that the instant proposed

    rules 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.

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

    \15\ Id. at 18619.

    \16\ Id. at 18620.

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    [[Page 60457]]

    The Commission's definitions of small entities do not address the

    persons and qualifying entities set forth in Rule 4.5 because, by the

    very nature of the rule, the operations and activities of such persons

    and entities generally are regulated by federal and state authorities

    other than the Commission.

    B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \17\ imposes certain

    requirements on federal agencies (including the Commission) in

    connection with their conducting or sponsoring any collection of

    information as defined by the PRA. The amendment being proposed would,

    if approved, alter the method of collection of information required

    under Commission regulations, but would not alter the substance of the

    filings. 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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    \17\ 44 U.S.C. 3507(d).

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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 proposed amendments to Commission regulations

    would change only the manner in which notices are filed with NFA, but

    would not affect the substance of the filings. Accordingly, for

    purposes of the PRA, the Commission certifies that the proposed rule

    amendments, if promulgated in final form, would not impact the total

    annual reporting or recordkeeping burden associated with the above-

    referenced collection of information, which has been approved

    previously by OMB. Pursuant to the PRA, the Commission has submitted a

    copy of this section to the Office of Management and Budget (``OMB'')

    for its review.

    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 Commission. OMB is required to make a decision

    concerning the collection of information contained in these proposed

    regulations 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 proposed regulations.

    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) as amended 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 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 proposed amendments to Regulations 4.5, 4.7, 4.12, 4.13 and

    4.14 would require CPOs to file electronically notices of exemption,

    which would no longer be required to include a manual signature.

    The Commission is considering the costs and benefits of this

    proposed rule in light of the specific provisions of Section 15(a) of

    the Act, as follows:

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

    amendment should not affect the protection of market participants and

    the public as it provides an alternate method of filing notices of

    exemption or exclusion from Part 4 of the Commission's regulations, but

    does not substantively alter the character of such information or the

    requirement that such information be submitted by a person duly

    authorized to bind the submitter.

    2. Efficiency and competition. The Commission anticipates that the

    proposed amendment will benefit efficiency by permitting NFA to

    streamline its process for receiving exemption filings. The proposed

    amendment is considered by the Commission as benefiting efficiency and

    not impacting competition.

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

    proposed amendment 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 proposed amendment 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 proposed rule requiring electronic filing for the submission

    of notices of exemption or exclusion from Part 4 of the Commission's

    regulations is beneficial in that it should streamline the timeliness

    of delivery and electronic accessibility of such notices, and permit

    NFA to retain such notices in a more streamlined and accessible manner.

    After considering these factors, the Commission has determined to

    propose the amendments 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.

    [[Page 60458]]

    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, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a,

    and 23.

    2. Remove and reserve Sec. 4.2.

    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.

    * * * * *

    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.

    [[Page 60459]]

    (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.

    * * * * *

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

    (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.

    * * * * *

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

    * * * * *

    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;

    [[Page 60460]]

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

    operate the pool;

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

    (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.

    * * * * *

    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), (B)

    and (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 October 6, 2006 by the Commission.

    Eileen A. Donovan,

    Acting Secretary of the Commission.

    [FR Doc. E6-16947 Filed 10-12-06; 8:45 am]

    BILLING CODE 6351-01-P

    Updated October 13, 2006

    Last Updated: June 26, 2007



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