71fr60454

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: [email protected] 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: [email protected]

or [email protected]

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