[Federal Register: November 7, 2000 (Volume 65, Number 216)]
[Proposed Rules]
[Page 66663-66665]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]



17 CFR Part 4

Extension of Time To File Annual Reports for Commodity Pools

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rule amendments.


SUMMARY: Commodity Futures Trading Commission (``Commission'') Rules
4.22(c) and (d) \1\ require that commodity pool operators (``CPOs'')
distribute annual reports containing specified information, certified
by an independent public accountant, to each pool participant within 90
calendar days after the end of the pool's fiscal year.\2\ The proposed
revisions to Rule 4.22 would permit CPOs to file a claim for an
extension of time to file the pool's annual report where the pool is
invested in other collective investment vehicles, and the CPO's
independent accountant cannot obtain the information necessary to
comply with the rule in a timely manner.

    \1\ Commission rules referred to herein can be found at 17 CFR
Ch. I (2000).
    \2\ Rule 4.7(b)(3) provides the requirements for annual report
filings for pools for which exemption from the specific requirements
of Rules 4.22(c) and (d) has been claimed pursuant to Rule

DATES: Comments must be received by December 7, 2000.

ADDRESSES: Interested persons should submit their views and comments to
Jean A. Webb, Secretary of the Commission, Commodity Futures Trading
Commission, 1155 21st Street, N.W., Washington, DC 20581. In addition,
comments may be sent by facsimile transmission to facsimile number
(202) 418-5521, or by electronic mail to secretary@cftc.gov. Reference
should be made to ``Extension of Time to File Annual Reports for
Commodity Pools.''

FOR FURTHER INFORMATION CONTACT: Kevin P. Walek, Assistant Director,
Division of Trading and Markets, Commodity Futures Trading Commission,
1155 21st Street, NW., Washington, DC 20581. Telephone: (202) 418-5463;
electronic mail: kwalek@cftc.gov'.


I. Background

    Commission Rule 4.22(c) requires a CPO to distribute to pool
participants, and file with the Commission, an Annual Report containing
specified financial information for each pool that it operates. The
annual report requirement is intended to ensure that the CPO is dealing
fairly with its participants and to provide a mechanism to facilitate
the Commission's inspection of the registrant's operations. Rule
4.22(d) requires that an independent public accountant certify the
financial statements contained in the Annual Report. The CPO must file
this certified Annual Report within 90 days of the close of the pool's
fiscal year. Rule 4.22(f) currently allows CPOs to apply for extensions
of the 90-day time requirement where the CPO cannot distribute the
report in the required time period without ``substantial undue
hardship.'' The Commission has had the benefit of the assistance of
National Futures Association (``NFA'') in processing these requests.
    In recent years, the number of extensions has risen dramatically.
\3\ The majority of such requests are made by CPOs of commodity pools
that invest in other collective investment vehicles. (These commodity
pools are commonly referred to as ``funds of funds.'') The CPOs of
these funds of funds have explained that they cannot obtain the
information necessary for their independent public accountants to
finish auditing the pools' financial statements by the time specified
in Rule 4.22(c). In order to complete the audit of the financial
statements of the pool, the independent public accountant needs
information establishing the value of the pool's material investments.
These investments may be in a number of collective investment vehicles,
such as other commodity pools, securities funds, or hedge funds, both
domestic and offshore. The information that the independent accountant
requires is frequently unavailable until the collective investment
vehicles complete their own certified financial statements. Thus, in
many cases, the CPO cannot obtain the information its independent
accountant requires about the collective investment vehicle in time for
the pool's Annual Report to be prepared, audited, and distributed by
the due date.

    \3\ For filing year 1998 there were more than 200 such
extensions and for filing year 1999 there were over 300 such

    Due to the increasing number of requests for extensions of time to
file annual reports for funds of funds, the Commission proposes to
amend its

[[Page 66664]]

regulations to make these extensions available on a standardized basis.
In order to treat similarly situated pools fairly and equitably, the
Commission proposes that the rules contained herein apply whether or
not a CPO was previously granted an extension of time to file the
annual reports of funds of funds. As detailed in the next section, CPOs
would file the initial notice, containing specified representations, in
advance of the annual report's due date for the first year the
extension is claimed. In subsequent years, the representations could be
made in a statement filed at the same time as the pool's Annual Report.

II. Description of the Proposed Extension

    The proposed extension provisions would be added to existing Rule
4.22(f), which will be reorganized and renumbered, as discussed further
below. The salient features of the extension provisions are proposed to
be included in Rule 4.22(f)(2) as follows.
    Subparagraph (i) requires that the pool's first notice claiming the
extension be filed within 90 days after the end of the pool's fiscal
year (the normal deadline for filing the annual report). Subparagraph
(ii) requires that the CPO identify itself and the pool for which the
request is being made. Subparagraph (iii) requires that the CPO
indicate the date by which it intends to file and distribute the annual
report, which date must be no more than 150 calendar days after the end
of the pool's fiscal year (that is, a maximum extension of 60 days).
Thus, the CPO must analyze the circumstances related to the operation
of its pool and specify the period for which relief is needed.
Commission staff have reviewed past requests and found that, in
general, the requested extension period ranged from 30 to 60 days.
Thus, the Commission believes that up to a 60 day extension should be
sufficient in most situations. Subparagraph (iv) requires that the CPO
provide, as part of the notice, specified representations demonstrating
the need for the extension. The CPO will not be required to obtain a
written statement from the independent accountant selected to audit the
pool confirming that information in the CPO's notice. The CPO will be
required to name the independent accountant who has informed the CPO of
the necessity of that information. Subparagraph (v) provides that, in
subsequent years, the requisite representations may be made in a
statement filed at the same time as the annual report. Finally,
subparagraph (vi) requires that the CPO responsible for the pool's
operation sign the notice or statement.

III. Technical Changes to Rule 4.22(f)

    The new fund of funds extension provisions are proposed to be added
as Rule 4.22(f)(2). Existing Rule 4.22(f) would be retained. Current
subsections 4.22(f)(1), 4.22(f)(2) and 4.22(f)(3) are proposed to be
renumbered as subsections 4.22(f)(1)(i) through (iii), respectively.

IV. Additional Consideration Regarding Rule 4.7 Entities

    Pursuant to Commission Rule 4.7, CPOs of pools whose participants
are limited to qualified eligible persons \4\ may claim exemption from
certain Part 4 requirements. Among the provisions from which the CPO
may claim relief is the requirement that the exempt pool's financial
statements distributed to pool participants be certified by an
independent public accountant. In the experience of Commission staff,
most CPOs operating pools for which relief under Rule 4.7 has been
claimed nonetheless obtain certified financial statements to include in
their annual report. The Commission does not wish to discourage this
practice. Therefore, CPOs may claim the relief provided in proposed
Rule 4.22(f)(2) without regard to whether they have claimed relief
pursuant to Rule 4.7. This point is clarified in proposed Rule

    \4\ The criteria for qualified eligible persons are contained in
Rule 4.7(a), as amended effective August 4, 2000 (65 FR 67848
(August 4, 2000)).

V. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601-611 (1994),
requires that agencies, in proposing rules, consider the impact of
those rules on small businesses. The Commission has previously
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.\5\ The Commission previously has determined
that registered CPOs are not small entities for the purpose of the
RFA.\6\ Therefore, the Chairman, on behalf of the Commission, hereby
certifies, pursuant to 5 U.S.C. 605(b), that the rule amendments
proposed herein, if adopted, will not have a significant economic
impact on a substantial number of small entities.

    \5\ 47 FR 18618-18621 (April 30, 1982).
    \6\ 47 FR 18619-18620.

B. Paperwork Reduction Act

    Proposed Rule 4.22(f)(2) affects information collection
requirements. As required by the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)), the Commission has submitted a copy of this section to
the Office of Management and Budget for its review. 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-
    The expected effect of the proposed rule will be to increase the
burden previously approved by OMB for this collection of information by
175 hours. Specifically, the burden associated with proposed Rule
4.22(f)(2) is expected to be increased by 175 hours:
    Estimated number of respondents (after proposed extension): 350.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 0.5.
    Annual reporting burden: 175.
    Organizations and individuals desiring to submit comments on the
information collection requirements should direct them to the Office of
Information and Regulatory Affairs, OMB, Room 10235 New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for the
Commodity Futures Trading Commission. 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
     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, usefulness, and clarity of the
information to be collected; and
    Minimizing the burden of 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.
    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

[[Page 66665]]

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. Copies of the information
collection submission to OMB are available from the CFTC Clearance
Officer, 1155 21st Street N.W., Washington, DC 20581, (202) 418-5160.

List of Subjects in 17 CFR Part 4

    Brokers, Commodity futures.

    In consideration of the foregoing and pursuant to the authority
contained in the Commodity Exchange Act and in particular sections
2(a)(1), 4l, 4m, 4n, 4o, and 8a, 7 U.S.C. 2, 6l, 6m, 6n, 6o, and 12(a),
the Commission hereby proposes to amend Chapter I of Title 17 of the
Code of Federal Regulations as follows:


    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

    2. Section 4.22 is amended by:
    a. redesignating paragraphs (f)(1) introductory text, (f)(1)(i),
(f)(1)(ii), (f)(1)(iii), and (f)(1)(iv) as (f)(1)(i) introductory text,
(f)(1)(i)(A), (f)(1)(i)(B), (f)(1)(i)(C), and (f)(1)(i)(D);
    b. redesignating paragraphs (f)(2) introductory text, (f)(2)(i),
and (f)(2)(ii) as (f)(1)(ii) introductory text, (f)(1)(ii)(A), and
    c. redesignating paragraphs (f)(3) introductory text, (f)(3)(i),
and (f)(3)(ii) as (f)(1)(iii) introductory text, (f)(1)(iii)(A), and
(f)(1)(iii)(B); and
    d. adding a new paragraph (f)(2) to read as follows:

Sec. 4.22  Reporting to pool participants.

* * * * *
    (f) * * *
    (2) In the event a commodity pool operator finds that it cannot
obtain information necessary to prepare certified financial statements
for a pool that it operates within the time specified in either
paragraph (c) of this section or Sec. 4.7(b)(3)(i), as a result of the
pool investing in another collective investment vehicle, it may claim
an extension of time under the following conditions:
    (i) The commodity pool operator must, within 90 calendar days of
the end of the pool's fiscal year, file a notice with National Futures
Association and the Commission, except as provided in paragraph
(f)(2)(v) of this section.
    (ii) The notice must contain the name, main business address, main
telephone number and the National Futures Association registration
identification number of the commodity pool operator, and name and the
identification number of the commodity pool.
    (iii) The notice must state the date by which the Annual Report
will be distributed and filed (the ``Extended Date''), which must be no
more than 150 calendar days after the end of the pool's fiscal year.
The Annual Report must be distributed and filed by the Extended Date.
    (iv) The notice must include representations by the commodity pool
operator that:
    (A) The pool for which the Annual Report is being prepared has
investments in one or more collective investment vehicles (the
    (B) The commodity pool operator has been informed by the certified
public accountant selected to audit the commodity pool's financial
statements that specified information establishing the value of the
Investments is necessary in order for the accountant to render an
opinion on the commodity pool's financial statements. The notice must
include the name of the accountant; and
    (C) The information specified by the accountant cannot be obtained
in sufficient time for the Annual Report to be prepared, audited, and
distributed before the Extended Date.
    (v) For each fiscal year following the filing of the notice
described in paragraph (f)(2)(i) of this section, the commodity pool
operator may claim the extension of time by filing a statement
containing the representations specified in paragraph (f)(2)(iv) of
this section, at the same time as the pool's annual report.
    (vi) Any notice or statement filed pursuant to paragraph (f)(2) of
this section must be signed by the commodity pool operator in
accordance with paragraph (h) of this section.
* * * * *

    Issued in Washington, D.C. on October 31, 2000 by the
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 00-28367 Filed 11-6-00; 8:45 am]

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