e8-28177

[Federal Register: November 26, 2008 (Volume 73, Number 229)]

[Proposed Rules]

[Page 71968-71971]

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

[DOCID:fr26no08-36]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

RIN 3038-AC67

Electronic Filing of Disclosure Documents

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC)

is proposing to amend its regulations applicable to the filing of

Disclosure Documents by commodity pool operators (CPOs) and commodity

trading advisors (CTAs) with the National Futures Association (NFA). In

response to a petition from NFA, the CFTC is proposing that CPOs and

CTAs be required to file their Disclosure Documents electronically with

NFA (Proposal).

DATES: Comments must be received on or before December 26, 2008.

ADDRESSES: Comments on the Proposal should be sent to David A. Stawick,

Secretary, Commodity Futures Trading Commission, Three Lafayette

Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be

sent by facsimile transmission to (202) 418-5521, or by e-mail to

[email protected]. Reference should be made to ``Proposal Regarding

Electronic Filing of Disclosure Documents.'' Comments also may be

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

www.regulations.gov and following the comment submission instructions.

FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Associate Director,

Compliance and Registration Section, Division of Clearing and

Intermediary Oversight, Commodity Futures Trading Commission, Three

Lafayette Centre, 1155 21st Street, NW., Washington, DC 20581,

telephone number: (202) 418-5450; facsimile number: (202) 418-5528; and

electronic mail: [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

A. CPO and CTA Disclosure Documents

Part 4 of the Commission's regulations \1\ governs the operations

and activities of CPOs and CTAs. Regulations 4.21 and 4.31 respectively

require each CPO and CTA registered or required to be registered with

the Commission to deliver a Disclosure Document to prospective pool

participants and clients. Regulations 4.24 and 4.25 specify the

informational content of the CPO Disclosure Document, and Regulations

4.34 and 4.35 specify the informational content for the CTA Disclosure

Document. Regulations 4.26 and 4.36 respectively pertain to the use,

amendment and filing of CPO and CTA Disclosure Documents. Specifically,

under Regulations 4.26(d) and 4.36(d), the CPO or CTA must file one

copy of the Disclosure Document, and any supplements and amendments

thereto, with NFA.\2\ These regulations do not, however, prescribe any

particular manner of filing.

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\1\ 17 CFR Part 4 (2008). The Commission's regulations can be

accessed through the CFTC's Web site, http://www.cftc.gov.

\2\ NFA is a registered futures association pursuant to section

17 of the Commodity Exchange Act (Act), 7 U.S.C. 21 (2000). The Act

also may be accessed through the CFTC's Web site.

The Commission previously authorized NFA to conduct reviews of

Disclosure Documents filed by CPOs and CTAs pursuant to Regulations

4.26(d) and 4.36(d). See 62 FR 52088 (Oct. 6, 1997).

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B. The NFA Petition

By letter dated July 21, 2008, NFA petitioned the Commission to

amend Regulations 4.26 and 4.36 in order to require that CPOs and CTAs

file Disclosure Documents electronically through NFA's electronic

Disclosure Document filing system (Petition).\3\

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\3\ The Petition also adds the word ``each'' before the existing

words ``trading program'' in paragraph (d)(1) of Regulation 4.36 to

make that paragraph read parallel to the existing phrase ``each

trading program'' in paragraph (d)(2) of Regulation 4.36.

The Commission previously authorized NFA to accept notices of

exemptions or exclusions claimed under Part 4 and required that

these notices be filed electronically. See Id. and 72 FR 1658 (Jan.

16, 2007), respectively.

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In its Supporting Arguments, NFA explained the reasoning behind the

Petition as follows:

Currently, while there is nothing to prohibit a firm from filing

a disclosure document in hardcopy form, the vast majority of CPO and

CTA registrants file disclosure documents with NFA primarily via

electronic mail due to its expediency and convenience. While the use

of electronic mail has been a significant improvement over hardcopy

submissions in terms of filing efficiency, the current approach

still requires a considerable amount of staffing resources and has

other disadvantages, e.g., the inability of registrants to obtain

the status of the review of their filing without calling NFA and the

lack of a central location for storing past filings. Accordingly,

NFA has developed a new Internet-based electronic filing system for

disclosure documents that will be significantly less resource

intensive while also streamlining and enhancing the filing process

for registrants. In order to realize the proposed benefits, however,

registrants must be required to file their documents electronically

through NFA's new system. Consequently, NFA is petitioning the

Commission to amend its regulations accordingly.

The Commission understands that, as with NFA's other electronic

filing systems,\4\ the Disclosure Document system was designed to be

easy and secure, such that Disclosure Documents, supplements and

amendments will be uploaded through the system as either Word or PDF

documents. Thus, although the CPO or CTA must have an Internet

connection to access the system, it could use any public Internet site,

such as those available in most public libraries. Moreover, CPOs and

CTAs will access the system using the same designated login and

password that they currently use for NFA's Online

[[Page 71969]]

Registration System--which, NFA states, is ``a well-tested

authentication model with which participating registrants are already

familiar.'' \5\ NFA additionally states that it has been extremely

careful in the development of the system to ensure that the database it

maintains of Disclosure Document filings will not be compromised in any

way by unauthorized persons.

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\4\ For example, NFA has adopted ``Easyfile'' for introducing

broker and commodity pool financial statements required to be filed

with it.

\5\ The Commission previously delegated to NFA registration

responsibilities for CPOs, CTAs and their associated persons. See 49

FR 39593 (Oct. 9, 1984).

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Further in this regard, NFA explains that once CPOs and CTAs have

accessed the system:

They will be guided through the filing process, which culminates

in the electronic transfer of the disclosure document through the

secure web-based gateway. The system includes extensive help text to

assist registrants with their filings, and the filing process

includes a series of questions that will assist in identifying the

type of filing as well as provide important background information

to assist NFA staff with the analysis of the document itself. After

the document is submitted, the system will automatically assign it

to an available NFA analyst. By accessing the system, registrants

will be able to track the status of their filing and receive comment

letters as they are issued. Additionally, the system will serve as

an electronic filing cabinet for registrants since it will maintain

all previous filings and related comment letters filed through the

system.

The Commission further understands, then, that NFA's process for

the electronic filing of Disclosure Documents will have two components.

One of those components will require CPOs and CTAs to electronically

submit their Disclosure Documents, as well as any amendments and

supplements thereto. The other of these components will require CPOs

and CTAs to enter from their Disclosure Documents certain key

information on their operations and activities into a standardized form

accessed through NFA's Web site.\6\

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\6\ Among other things, this key information concerns

identification of contact persons, relationships with futures

commission merchants or introducing brokers, and the past

performance history and related data for the offered pool or trading

program.

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II. The Proposal

In light of the foregoing, the Commission is proposing to amend

Regulations 4.26(d) and 4.36(d) to require that any documents required

to be filed thereunder be filed electronically with NFA, pursuant to

NFA's electronic filing procedures. The Commission wishes to emphasize,

however, that the Proposal would not impact the delivery of Disclosure

Documents to prospective pool participants and clients, which CPOs and

CTAs could continue to provide through hardcopy distribution via postal

mail or electronically if the intended recipient consented thereto.\7\

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\7\ See Regulations 4.21(b) for CPOs and 4.31(b) for CTAs.

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III. Related Matters

A. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) \8\ 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.\9\ With respect to CPOs, the Commission previously has

determined that a registered CPO is not a small entity for the purpose

of the RFA.\10\ As for CTAs, the Commission previously has 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 particular

rule.\11\ As noted above, the Commission believes that the Proposal

will not place any significant economic burdens, whether new or

additional, on CPOs and CTAs who will be affected by it. This is

because while the Proposal will require these CPOs and CTAs to have

access to and a certain degree of technical knowledge to file

Disclosure Documents electronically and to enter the required key

information, they will access the system using the same designated

login and password that they currently use for registration purposes

and they will be entering the key information directly from their

Disclosure Documents. Thus, the Proposal simply alters the mechanism

for filing Disclosure Documents, and does not affect the substance or

frequency of those filings. Accordingly, and based on section 3(a) of

the RFA,\12\ the Acting Chairman, on behalf of the Commission,

certifies that the Proposal would not have a significant economic

impact on a substantial number of small entities. However, the

Commission invites the public to comment on this certification.

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\8\ 5 U.S.C. 601 et seq.

\9\ See 47 FR 18618 (Apr. 30, 1982).

\10\ Id. at 18619.

\11\ Id. at 18620.

\12\ 5 U.S.C. 605(b).

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B. Paperwork Reduction Act

The Paperwork Reduction Act of 1995 (PRA) \13\ imposes certain

requirements on federal agencies (including the Commission) in

conducting or sponsoring any collection of information as defined by

the PRA. If adopted, the Proposal would change the manner in which CPOs

and CTAs file Disclosure Documents with NFA; it would not affect the

substance or frequency of those filings. The Proposal would, however,

authorize the separate collection from CPOs and CTAs of certain key

information from the Disclosure Documents CPOs and CTAs would be filing

electronically. Accordingly, 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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\13\ 44 U.S.C. 3501 et seq.

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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 expected effect of the proposed amended regulations will be to

reduce the burden previously approved by OMB for this collection of

information by 239.5 hours. This is because, while it will result in an

increase in the estimated average number of hours per response under

Regulations 4.26 and 4.36, there will be fewer CPOs and CTAs subject to

the filing requirements of these regulations owing to increased claims

of exemption under Regulation 4.7 from Disclosure Document requirements

and under Regulations 4.13 and 4.14 from registration altogether.

Specifically:

The burden associated with Regulation 4.26 is expected to be

decreased by 422.4 hours:

Estimated number of respondents: 160.

Annual responses by each respondent: 3.

Estimated average hours per response: 3.25.

Annual reporting burden: 1560.

This annual reporting burden of 1560 hours represents a decrease of

422.4 hours as a result of the proposed amendment to Regulation 4.26.

The burden associated with Regulation 4.36 is expected to be

increased by 182.9:

Estimated number of respondents: 450.

Annual responses by each respondent: 1.

Estimated average hours per response: 1.85.

Annual reporting burden: 832.5.

This annual reporting burden of 832.5 hours represents an increase

of 182.9

[[Page 71970]]

hours as a result of the proposed amendment to Regulation 4.36.

The net result of the proposed amendments to Regulations 4.26 and

4.36, then, is a decrease in the annual reporting burden of 239.5.

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 Trading Commission. OMB is required to make a

decision concerning the collection of information contained in the

Proposal 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 Proposal.

C. Cost-Benefit Analysis

Section 15(a) of the Act \14\ 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) 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.

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\14\ 7 U.S.C. 19(a).

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Section 15(a) further specifies that costs and benefits shall be

evaluated in light of five broad areas of market and public concern,

enumerated below. 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 Proposal would amend Regulations 4.26(d) and 4.36(d) to require

that CPOs and CTAs file Disclosure Documents, and any supplements and

amendments thereto, electronically with NFA. The Commission is

considering the costs and benefits of the Proposal in light of the

specific provisions of section 15(a) as follows:

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

should not affect the protection of market participants and the public,

as it provides an alternate method of filing Disclosure Documents, but

does not alter the character or frequency of those filings.

2. Efficiency and competition. The Commission anticipates that the

Proposal will benefit efficiency by permitting NFA to streamline its

process for receiving and reviewing Disclosure Document filings. Thus,

the Commission considers the Proposal as benefiting efficiency and not

impacting competition.

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

Proposal 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 Proposal 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 Proposal is beneficial in that it should streamline the

timeliness of filing, review and delivery of, and electronic

accessibility to, Disclosure Documents.

After considering these factors, the Commission has determined to

propose the amendments to Regulations 4.26(d) and 4.36(d) 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.

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, 6b, 6c, 6l, 6m, 6n, 6o, 12a, and

23.

2. Revise paragraph (d) of Sec. 4.26 to read as follows:

Sec. 4.26 Use, Amendment and Filing of Disclosure Document.

* * * * *

(d) Except as provided by Sec. 4.8:

(1) The commodity pool operator must electronically file with the

National Futures Association, pursuant to the electronic filing

procedures of the National Futures Association, the Disclosure Document

and, where used, profile document for each pool that it operates or

that it intends to operate not less than 21 calendar days prior to the

date the pool operator first intends to deliver such Document or

documents to a prospective participant in the pool; and

(2) The commodity pool operator must electronically file with the

National Futures Association, pursuant to the electronic filing

procedures of the National Futures Association, the subsequent

amendments to the Disclosure Document and, where used, profile document

for each pool that it operates or that it intends to operate within 21

calendar days of the date upon which the pool operator first knows or

has reason to know of the defect requiring the amendment.

3. Revise paragraph (d) of Sec. 4.36 to read as follows:

Sec. 4.36 Use, amendment and filing of Disclosure Document.

* * * * *

(d)(1) The commodity trading advisor must electronically file with

the National Futures Association, pursuant to the electronic filing

procedures of the National Futures Association, the Disclosure Document

for each trading program that it offers or that it intends to offer not

less than 21 calendar days

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prior to the date the trading advisor first intends to deliver the

Document to a prospective client in the trading program; and

(2) The commodity trading advisor must electronically file with the

National Futures Association, pursuant to the electronic filing

procedures of the National Futures Association, the subsequent

amendments to the Disclosure Document for each trading program that it

offers or that it intends to offer within 21 calendar days of the date

upon which the trading advisor first knows or has reason to know of the

defect requiring the amendment.

Issued in Washington, DC, on November 21, 2008 by the

Commission.

David A. Stawick,

Secretary of the Commission.

[FR Doc. E8-28177 Filed 11-25-08; 8:45 am]

BILLING CODE 6351-01-P

Last Updated: May 9, 2012