Release: 4763-03
For Release: March 13, 2003

CFTC Modernizes Rules for Pools, Advisors, and FCMs

WASHINGTON, D.C. – The Commodity Futures Trading Commission announced today that it is proposing to modernize a number of major rules affecting commodity pool operators (CPOs), commodity trading advisors (CTAs), futures commission merchants (FCMs), and others who trade or deal in commodity futures and options. The proposals, to be discussed by CFTC Chairman James E. Newsome at the 28th annual International Futures Industry Conference this week, further implement the Commodity Futures Modernization Act of 2000. The CFTC has already provided substantial rule modernizations to futures exchanges and other trading facilities.

These proposals should promote greater innovation and permit better use of new technologies. The CFTC recently approved a final rule permitting FCMs and clearing organizations greater flexibility in depositing customer funds in foreign depositories as part of an effort by Chairman Newsome to remove obsolete or unnecessary barriers to cross-border transactions. The CFTC will continue to review its other rules to identify opportunities for modernization that benefits the markets, intermediaries, and market participants.

Many of the proposed rule amendments announced today were discussed in the CFTC’s Report on the Study of the Commodity Exchange Act and the Commission’s Rules and Orders Governing the Conduct of Registrants under the Act and during its subsequent Roundtable on Commodity Pool Operator (CPO) and Commodity Trading Advisor (CTA) Issues. Chairman Newsome noted that:

“Modernizing the rules for intermediaries has been a major priority and I am grateful to staff for their hard work and to market participants for their invaluable insights. The rules that we have put in place thus far, and those we are proposing today, do much to further my goals of removing artificial barriers to cross-border business, recognizing technological advances, reducing duplicative regulatory burdens on institutions subject to the oversight of more than one agency, and tailoring our own oversight efforts more appropriately to the nature of the activities of, and the participants involved with, an intermediary. I look forward to the comments of market participants on our most recent proposals.”

Bunched Orders: The Commission is proposing to make these available to all customers and to a greater number of account managers. Account managers would be permitted to bunch customer orders together for execution and to allocate them to individual accounts at the end of the day. The amendments also would simplify the process for executing and allocating bunched orders, and would clarify the respective responsibilities of account managers and FCMs.

CPOs and CTAs: The Commission is proposing to expand existing exemptions and to add several new exemptions from registration requirements for CPOs and CTAs. For example, CPOs would be exempt from registration where their trading in the futures markets is minimal or where their pool participants are sophisticated. The Commission is seeking comment on appropriate thresholds for such minimal activity and participant sophistication.

Notional Funds: The Commission is addressing the longstanding notional funds issue by proposing the use of nominal account size to compute CTAs’ rates of return for disclosure to prospective clients. The proposal includes documentation and disclosure requirements to accommodate various potential concerns. As part of the proposed rulemaking, the Commission is seeking comment on whether a core principle approach should replace the current detailed performance rules.

Delegation to NFA: In an effort to allocate its resources more effectively, the Commission is authorizing the National Futures Association to review the Disclosure Documents required to be filed by CPOs of publicly offered commodity pools.

The rule amendments and delegation order will be published in the Federal Register, with different comment periods for each of the proposed amendments. Copies of these documents may be obtained by contacting the Commission’s Office of the Secretariat, Three Lafayette Centre, 1155 21st Street, N.W., Washington, D.C. 20581, (202) 418-5100 or by accessing the Commission’s website,