[Federal Register: March 17, 2003 (Volume 68, Number 51)]
[Page 12684-12685]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



Review by the National Futures Association of Disclosure
Documents Required To Be Filed by Commodity Pool Operators for
Publicly-Offered Commodity Pools

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice and order.


SUMMARY: The Commodity Futures Trading Commission (the "Commission")
is authorizing the National Futures Association ("NFA") to conduct
reviews of Disclosure Documents required to be filed with the
Commission by commodity pool operators ("CPOs") for publicly-offered
commodity pools.

EFFECTIVE DATE: March 17, 2003.

FOR FURTHER INFORMATION CONTACT: Kevin P. Walek, Assistant Director,
Audit and Financial Review Section, or Michael A. Piracci, Attorney
Advisor, 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: (202) 418-5430.


I. Background

    The Commission previously has authorized NFA to perform many
functions that, until that time, were performed by Commission staff.
These functions include: The processing of applications for
registration of intermediaries and floor traders under the Commodity
Exchange Act (the "Act"); \1\ the processing of notices of
eligibility for certain exemptions from registration as a CPO and
commodity trading advisor ("CTA"); the review of certain Disclosure
Documents required to be filed by CPOs and CTAs pursuant to Commission
rules,\2\ and the review of annual financial reports required to be
filed by CPOs.\3\

    \1\ 7 U.S.C. 1 et seq. (2000). See, e.g., 48 FR 35158 (Aug. 3,
1983) (introducing brokers and associated persons thereof); 49 FR
39593 (Oct. 9, 1984) (futures commission merchants, commodity pool
operators, commodity trading advisors, and associated persons
thereof); 51 FR 34490 (Sep. 29, 1986) (floor brokers); 58 FR 19657
(Apr. 15, 1993) (floor traders).
    \2\ See 62 FR 52088 (Oct. 6, 1997).
    \3\ See 67 FR 77470 (Dec. 18, 2002).

    In 1997, the Commission authorized NFA to receive and review
Disclosure Documents required to be filed with the Commission by CPOs,
pursuant to Commission rule 4.26(d), with regard to "privately
offered" commodity pools.\4\ In December 2002, the Commission noted
that, with regard to this area of authorization, as well as others, NFA
has exercised its authority with particular proficiency. Additionally,
the Commission noted that, as a result of authorizing NFA to perform
such functions, Commission staff have been able to devote resources to
other aspects of the Commission's regulatory mission.\5\

    \4\ See note 2 supra. Pursuant to Commission rule 4.24(d)(3)(i),
"privately offered" commodity pools are those offered pursuant to
section 4(2) of the Securities Act of 1933, as amended (15 U.S.C.
77d(2)), or pursuant to Regulation D thereunder (17 CFR 230.501 et
seq.). As discussed herein, "publicly-offered" commodity pools are
pools not offered pursuant to section 4(2) of the Securities Act of
1933 or pursuant to Regulation D.
    \5\ 67 FR at 77470.

    In December 2002, concurrently with authorizing NFA to review
annual financial reports filed by CPOs, the Commission made certain
amendments to part 4 of its rules \6\ so as to, among other things,
make clear that Disclosure Documents with regard to privately offered
commodity pools need only be filed with NFA and need not also be filed
with the Commission.\7\ Additionally, the commission amended rule
4.26(d) by adding paragraph (d)(3) to make clear that Disclosure
Documents, and any amendments to such Disclosure Documents, required to
be filed by CPOs with regard to publicly-offered commodity pools must
be filed with the Commission.\8\

    \6\ Commission rules referred to herein may be found at 17 CFR
ch. I (2002).
    \7\ 67 FR 77409 (Dec. 18, 2002).
    \8\ Id.

    As the Commission noted in December 2002, the futures industry is
continually expanding and transforming itself and as the industry
changes and evolves, the Commission must also change and evolve,
reassessing the manner in which it allocates its resources.\9\
Accordingly, the Commission has now determined that NFA should be
authorized to receive and review Disclosure Documents of publicly-
offered commodity pools. Specifically, by this order, the

[[Page 12685]]

Commission is authorizing NFA to review Disclosure Documents that CPOs
are required to submit pursuant to rule 4.26(d)(3). In final rules
being published elsewhere in the Federal Register, the Commission is
amending rule 4.26(d) so as to make clear that CPOs need only file such
Disclosure Documents with NFA and need not also file them with the

    \9\ 67 FR at 77470.

II. Authority

    Section 4n(3)(A) of the Act provides, among other things, that each
CPO shall "file such reports in such form and manner as may be
prescribed by the Commission." The Commission also notes that, in
amending the Act through passage of the Commodity Futures Modernization
Act of 2000 (the "CFMA"),\10\ Congress intended, as evidenced in
section 2 of the CFMA, to transform the role of the Commission from
that of a frontline regulator to that of an oversight regulator of the
futures industry. Moreover, section 125 of the CFMA required the
Commission to conduct a study of the Act and the Commission's rules and
orders governing the conduct of registrants under the Act, identifying,
among other things, regulatory functions the Commission performs that
can be delegated to a registered futures association.\11\ Additionally,
the Commission notes that NFA, as a registered futures association, is
obligated to establish a program for the protection of customers and
customer funds and to prevent fraudulent acts and practices.\12\

    \10\ Pub. L. No. 106-554, 114 Stat. 2763 (codified as amended in
scattered sections of 7 U.S.C.).
    \11\ A copy of the study may be viewed on the Commission's Web
site at: http://www.cftc.gov/files/opa/opaintermediarystudy.pdf.
    \12\ See Commission rule 170.5; see also section 17(b)(7) of the


III. Maintenance of and Access to Disclosure Document Filings

    The Commission has also determined to authorize NFA to maintain and
serve as official custodian of record for the Disclosure Documents
filed by CPOs with regard to publicly-offered pools, as required under
rule 4.26(d). This determination is based upon NFA's representations
regarding procedures for maintaining and safeguarding all such records,
in connection with NFA's assumption of the responsibilities for the
activities referenced above. In maintaining the Commission's records
pursuant to this Order, NFA shall be subject to all other requirements
and obligations imposed upon it by the Commission in existing or future
orders or regulations. In this regard, NFA shall also implement such
additional procedures (or modify existing procedures) as are acceptable
to the Commission and as are necessary: (1) To ensure the security and
integrity of the records in NFA's custody; (2) to facilitate prompt
access to those records by the Commission and its staff, particularly
as described in other Commission orders or rules; (3) to facilitate
disclosure of public or nonpublic information in those records when
permitted by Commission orders or rules and to keep logs as required by
the Commission concerning disclosure of nonpublic information; and (4)
to otherwise safeguard the confidentiality of the records.

IV. Conclusion and Order

    For the reasons discussed above, and pursuant to its authority
under the Act, the Commission has determined to authorize NFA to
receive and review Disclosure Documents filed by CPOs pursuant to rule
4.26(d) with regard to publicly-offered commodity pools. In addition,
the Commission has determined to authorize NFA to maintain and to serve
as the official custodian of such records.
    These determinations are based upon: (1) The Congressional intent
that the Commission be permitted to determine the best manner in which
to oversee CPOs; (2) the Congressional intent that a registered futures
association, where appropriate, assume responsibility under the Act for
regulatory functions the Commission has deemed unnecessary to retain;
and (3) NFA's representation and demonstration of its willingness and
ability to administer the required regulatory functions in accordance
with the standards established by the Act, the Commission's regulations
and orders promulgated thereunder, any supplemental direction
established by the Commission or Commission staff, and relevant case
law, and to provide the Commission with whatever information, reports,
summaries, or records the Commission may determine are necessary for
effective oversight of NFA's administration of the functions delegated
herein, or for the Commission to fulfill its role of regulatory
oversight of the futures markets.
    This order does not authorize NFA to accept or act upon requests
for exemption from the requirements of rule 4.26(d). Moreover, NFA is
not authorized to issue any interpretations, "no-action" positions,
or exemptions with respect to the requirements of rule 4.26(d).
    NFA is authorized to perform all functions specified in this order
until the Commission orders otherwise. Nothing in this order shall
prevent the Commission from exercising the authority delegated herein.
NFA may submit to the Commission for decision any specific matter
regarding the functions delegated to it by this order. Nothing in this
order affects the applicability of any previous orders issued by the

    Issued in Washington, DC, on March 10, 2003, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 03-6178 Filed 3-14-03; 8:45 am]