[Federal Register Volume 62, Number 72 (Tuesday, April 15, 1997)]
[Rules and Regulations]
[Pages 18265-18268]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-9655]



[[Page 18265]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4


Electronic Filing of Disclosure Documents With the Commission

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
announcing the adoption of an optional, permanent program for commodity 
pool operators (``CPOs'') and commodity trading advisors (``CTAs'') 
electronically to file Disclosure Documents with the Commission. This 
permanent filing program is the continuation of a substantially similar 
pilot program, which commenced on October 15, 1996. Additionally, the 
Commission has adopted a series of technical amendments to Part 4 of 
its rules to codify the permanent electronic filing program.

EFFECTIVE DATE: April 15, 1997.

FOR FURTHER INFORMATION CONTACT: Susan C. Ervin, Deputy Director/Chief 
Counsel, or Gary L. Goldsholle, Attorney/Advisor, Division of Trading 
and Markets, Commodity Futures Trading Commission, 1155 21st Street, 
N.W., Washington, D.C. 20581. Telephone Number: (202) 418-5450. 
Facsimile Number: (202) 418-5536. Electronic Mail: [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On August 8, 1996, the Commission announced an optional, six-month 
pilot program for electronic filing of CPO and CTA Disclosure Documents 
with the Commission (``Pilot Program'') and invited public comment on 
issues relevant to the Program.\1\ The Pilot Program commenced on 
October 15, 1996, and has been used by over 100 CPOs and CTAs. Under 
the Pilot Program, CPOs and CTAs have been permitted to file their 
Disclosure Documents by sending them to a designated Internet 
electronic mail address for the Commission. Additionally, any related 
correspondence between Commission staff and the CPOs and CTAs 
concerning the Disclosure Documents filed under the Pilot Program also 
has been conducted by means of electronic mail. Based upon its 
experience administering the Pilot Program and the comments received, 
the Commission has determined to adopt a permanent filing program that 
is substantially similar to the Pilot Program.
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    \1\ 61 FR 42146, 42163-65 (August 14, 1996).
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    The Commission announced the Pilot Program in its Interpretation 
Regarding Use of Electronic Media by Commodity Pool Operators and 
Commodity Trading Advisors (``Release'').\2\ In the Release, the 
Commission set forth the procedures for filing Disclosure Documents 
under the Pilot Program and invited interested parties to comment on a 
wide range of issues relevant to the Pilot Program. Specifically, the 
Commission requested comment concerning: (1) Whether it is preferable 
to require CPOs and CTAs to file Disclosure Documents electronically 
instead of in paper form; (2) whether special encryption procedures or 
other protections against unauthorized interception should be required; 
(3) whether special graphical capabilities are needed; (4) whether the 
Commission should establish uniform formatting requirements for 
electronically filed documents; and (5) whether word processing 
programs or versions in addition to those specified in the Release 
should be permitted. The Commission also noted in the Release that it 
had received an unsolicited proposal from a vendor who had developed a 
prototype electronic filing system. The Commission requested comment 
concerning the advisability of establishing a contractual relationship 
with an independent vendor to facilitate electronic filing and/or to 
serve as a repository or conduit for public access to documents, and 
the willingness of registrants to pay a filing fee to cover the 
potential cost of implementing a third-party filing system. The 
Commission also published a notice seeking information and indications 
of interest from other potential third-party vendors in Commerce 
Business Daily.\3\
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    \2\ 61 FR 42146.
    \3\ Commerce Business Daily, Issue No. PSA-1669, August 29, 
1996, at 4.
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II. Analysis of Comments Received and Use of the Pilot Program

    Although the Commission received over eighty comments on the issues 
discussed in the Release, only two commenters addressed issues 
pertaining to the Pilot Program: the National Futures Association 
(``NFA'') and a CTA.
    NFA commended the Commission's decision to initiate the Pilot 
Program. Indeed, to facilitate the use of the Pilot Program, NFA 
adopted procedures essentially identical to those established for the 
Pilot Program, thus allowing CPOs and CTAs to file Disclosure Documents 
electronically with both the Commission and NFA under the same basic 
procedures and protocols.\4\ NFA opposed the use of a private vendor to 
provide an electronic filing system for the Commission. In particular, 
NFA was concerned about the costs likely to be associated with the use 
or implementation of a third-party system, regardless of whether such 
costs are ultimately born by registrants or the Commission. NFA 
commented that it was ``not aware of any potential regulatory benefits 
which would justify these additional costs.'' NFA also expressed 
concern that a private vendor might have possession of or access to 
confidential or sensitive information.
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    \4\ NFA Rule 2-13 requires that CPOs and CTAs who file a 
Disclosure Document with the Commission also must file such 
Disclosure Document with the NFA at its Chicago office.
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    The CTA who submitted comments also strongly opposed the suggestion 
that the Commission might contract with a private vendor to provide an 
electronic filing service. Like the NFA, this commenter expressed 
concern regarding the costs of a privately operated system, stating 
that he was unwilling to bear any additional costs for an electronic 
filing system. With respect to issues of format, this commenter opposed 
the creation of uniform formatting requirements and suggested that the 
Commission expand the list of acceptable word processing programs. This 
commenter also expressed the view that an encryption requirement would 
represent ``overkill'' in the context of filing of Disclosure 
Documents. The commenter favored a universal requirement that CPOs and 
CTAs file Disclosure Documents electronically and urged the Commission 
to make such documents publicly available in a system analogous to the 
Securities and Exchange Commission's (``SEC's'') EDGAR system.\5\
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    \5\ EDGAR, which is an acronym for Electronic Data Gathering, 
Analysis and Retrieval, performs automated collection, validation, 
indexing, acceptance, and forwarding of submissions by companies and 
others who are required by law to file forms with the SEC. As of May 
6, 1996, all public domestic companies were required to make their 
filings on EDGAR. Among the items filed on EDGAR are annual and 
quarterly reports, mutual fund prospectuses and proxy statements. 
Filings under EDGAR must be prepared in accordance with Regulation 
S-T (17 CFR Part 232 (1996)) and the SEC's EDGAR Filer Manual. EDGAR 
filings must be made in ASCII format. On October 19, 1996, the SEC 
released a Request for Proposals soliciting offers for the 
construction and operation of a new, modernized, privatized EDGAR 
electronic filing system.
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    Based upon the comments received and its experience with the Pilot 
Program, the Commission has determined to make the pilot program for 
the electronic filing of CPO and CTA Disclosure Documents permanent. In

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general, the Commission's experience administering the Pilot Program 
has been favorable. The CPOs and CTAs who have used the program have 
expressed support for the additional flexibility and efficiency 
fostered by electronic filing. Since October 15, 1996, over 100 CPOs 
and CTAs have filed Disclosure Documents under the program.
    The permanent electronic filing program will be nearly identical to 
the Pilot Program. The Commission encourages NFA to make permanent its 
procedures for electronic filing, incorporating the modifications 
announced in this release as well as any subsequent modifications, such 
as those concerning acceptable word processing programs. Given the 
relatively modest usage of the Pilot Program, the Commission is 
reluctant at this time to incur the costs necessary to expand the 
electronic filing system beyond its current structure or to develop a 
mechanism for passing such costs on to CPOs and CTAs. Although the 
Commission's notice in Commerce Business Daily generated proposals and 
expressions of interest from more than a dozen firms, in light of the 
commenters' views that the costs of using a third-party vendor's 
electronic filing system would likely outweigh the benefits, the 
Commission will continue to monitor usage of its and NFA's electronic 
filing program to determine whether development of a more elaborate 
filing system or solicitation of bids from third-party vendors becomes 
appropriate in the future.
    While the Commission agrees with the CTA commenter that it may be 
advantageous for certain CPOs and CTAs to be able to file documents in 
additional word processing programs and operating systems, this benefit 
must be weighed against the effects on efficiency of access and review 
that would result if CPOs and CTAs filed Disclosure Documents in myriad 
formats. Currently, the relevant Commission staff have access only to 
the word processing formats identified in the Pilot Program, i.e., 
WordPerfect for DOS and Microsoft Word for Windows. However, the 
Commission recognizes the rapid pace at which computer software evolves 
and thus that word processing standards common today may soon become 
obsolete. Accordingly, the Commission intends the electronic filing 
program to accommodate additional word processing or electronic formats 
as technologies evolve. The Commission will maintain a list of 
acceptable formats for filing Disclosure Documents and amendments on 
its Internet website or other publicly accessible source. However, 
since most word processing programs in use today are able to convert 
documents into the formats identified in the Pilot Program, the 
Commission does not believe that it is necessary to expand the list of 
available formats at the present time. Persons who wish to use the 
electronic filing program but are unable to use the formats currently 
permitted may contact the Division of Trading and Markets, Managed 
Funds Review Branch for assistance.
    The Commission also agrees with the CTA commenter that it is not 
necessary to mandate uniform electronic formatting requirements, other 
than the specification of acceptable word processing programs.\6\ In 
addition, based upon the comments received and the Commission's 
experience in operating the Pilot Program, the Commission does not 
believe that it is necessary to mandate encryption procedures or 
standards for use in the electronic filing program as currently 
designed. Since the use of electronic filing procedures remains 
entirely voluntary, CTAs or CPOs who are unwilling to assume the risk 
of having an electronic filing intercepted or altered may continue to 
rely on hardcopy filings. However, the Commission does not wish to 
preclude CPOs or CTAs from using encryption procedures they believe to 
be necessary, and registrants who desire to use their own encryption or 
other security measures may contact the Managed Funds Review Branch to 
discuss the feasibility of filing encrypted material. The Commission 
may revisit this issue as encryption technologies and systems develop.
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    \6\ In the future, the Commission may wish to give guidance 
concerning voluntary formatting measures that could be taken to 
facilitate the staff's review of Disclosure Documents.
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    Finally, the Commission does not believe that, at current usage 
levels, the electronic filing program would justify the expense of 
creating an ``EDGAR-like'' public access system. Currently, such a 
system would capture only about one percent of public pool documents 
and CTA Disclosure Documents. Based upon the SEC's experience with 
EDGAR, substantial costs are associated with operating a public 
electronic repository.\7\ Moreover, many CPOs and CTAs may not wish to 
undertake the procedures necessary for electronic filing. The 
Commission will continue to monitor the progress of EDGAR and other 
electronic repositories to determine if implementing such a system for 
Disclosure Documents becomes feasible and appropriate.\8\
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    \7\ The SEC began developing EDGAR in the early 1980s, and the 
cost of development has exceeded $111 million, 85% higher than 
projected. ``SEC System Shows Need For Upgrades,'' USA Today, March 
6, 1996, at 2B. In addition, EDGAR has been receiving so many 
filings that the system recently overflowed and the SEC was forced 
temporarily to purge data from 1994 to accommodate new submissions. 
Lisa Bransten, ``SEC Dumps Data as Website Overflows,'' Financial 
Times (USA Edition), February 26, 1997, at 8.
    \8\ Of course, the Commission does not intend to preclude a 
third party from voluntarily compiling Disclosure Documents and 
making such facilities available to the public.
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III. Procedures for Filing Disclosure Documents Electronically

    In establishing a permanent electronic filing program for 
Disclosure Documents, the Commission encourages CPOs and CTAs to take 
advantage of the efficiencies this new medium offers. Because 
electronic mail transmissions are nearly instantaneous, in the limited 
context of the Pilot Program, the Commission found that the review 
process for electronically submitted Disclosure Documents was generally 
completed more quickly than would be the case for paper-based 
submissions. The Commission expects that, as increasing numbers of 
registrants connect to the Internet, use of electronic filing 
procedures will increase.
    Upon the effective date of this release, CPOs and CTAs may file a 
Disclosure Document, or amendments thereto, with the Commission by 
taking the following steps.
    1. Save the Disclosure Document or amendments as either a 
WordPerfect for DOS (version 5.1 or earlier) or Microsoft Word for 
Windows (version 6.0 or earlier) file, or another acceptable format as 
specified on the Commission's Internet website (www.cftc.gov/tm/efile) 
or publicly available source of guidance. As noted above, CPOs or CTAs 
who are unable to file Disclosure Documents using these formats may 
contact the Division of Trading and Markets.
    2. Use the CTA's NFA identification number or CPO's pool 
identification number as the file name for the saved document, with a 
successively numbered file extension (DD1, DD2, DD3, * * * D10, D11, * 
* * D99, EE1, EE2, etc.) for each item of correspondence.\9\ Note that 
the

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requirement for CPOs to use the pool identification number represents a 
change from the Pilot Program and is necessary to assist Commission 
staff in distinguishing among multiple pools operated by a CPO. CTAs 
who file more than one Disclosure Document are requested to indicate in 
the text of the electronic mail message the name of each trading 
program for which it is filing a Disclosure Document as an attachment. 
Other than this minor change in nomenclature, registrants who have 
filed documents under the Pilot Program should continue numbering their 
submissions sequentially and should not revert back to DD1 for purposes 
of the permanent electronic filing program.
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    \9\ For example, XYZ, whose NFA identification number is 
99999999, is a CTA with separate Disclosure Documents for two 
trading programs. XYZ names one Disclosure Document ``99999999.DD1'' 
and the other ``99999999.DD2.'' The first amendment to either 
Disclosure Document would be named ``99999999.DD3,'' and each 
subsequent submission for either Disclosure Document would follow 
sequentially, e.g., 99999999.DD4, 99999999.DD5, etc. In the event 
that a registrant has more than one version of the Disclosure 
Document for a particular trading program or pool offering, each 
version would similarly be given a separate file extension.
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    3. Add the file as an attachment to an electronic mail message 
addressed to [email protected].\10\ Persons who file Disclosure 
Documents electronically must agree to receive comments from Commission 
staff by electronic mail. Accordingly, the message text should include 
the electronic mail address to which comments, if any, may be sent. 
Confirmation of receipt of the filed Disclosure Document will be 
provided by Commission staff to the electronic mail address supplied by 
the registrant, and the Disclosure Document will proceed through the 
normal staff review process. Following review of the filed document, 
staff comments also will be transmitted to the registrant's electronic 
mail address.
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    \10\ Persons participating in the pilot program are not required 
to make duplicate filings under Rules 4.26(d) or 4.36(d), as 
clarified in rule amendments discussed infra. 
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    4. The registrant's response to staff comments, if any, should be 
sent by electronic mail message directly to the Commission staff 
reviewer's Internet address provided in the staff comment letter. The 
message should indicate the date of the staff comment message, and any 
revised text or pages should be attached in the same manner as the 
original filing (using the registrant's NFA identification number and 
the appropriate sequential file extension as described in No. 2, 
above). For instance, if a Disclosure Document is submitted as 
99999999.DD9, then the revised text or pages comprising the next 
document submitted to the Commission should be numbered 99999999.D10.
    For purposes of the electronic filing program, a document of up to 
one megabyte (approximately 230 pages) can be received as an electronic 
mail attachment. Registrants who have a Disclosure Document in excess 
of one megabyte should contact the Managed Funds Review Branch.

IV. Final Rules

    On August 19, 1996, the Commission authorized publication of a 
series of proposed technical changes to Part 4 of its rules to reflect 
interpretations set forth in the Release and the proposed establishment 
of an electronic filing program.\11\ In connection with the institution 
of the Pilot Program for electronic filing and the eventual creation of 
a permanent electronic filing system, the Commission proposed technical 
amendments to Rules 4.2(a), 4.26(d) and 4.36(d) to accommodate 
electronic filing with the Commission. The Commission also proposed 
amendments to Rules 4.1, 4.21 and 4.31, which pertain to the delivery 
of Disclosure Documents to prospective pool participants and managed 
account customers and the receipt of electronic acknowledgments of such 
delivery. Although the Commission requested public comment on the 
proposed amendments to Rules 4.2(a), 4.26(d) and 4.36(d), no comments 
were received. The Commission plans to address the proposed amendments 
to Rules 4.1, 4.21 and 4.31 in a subsequent release.
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    \11\ 61 FR 44009 (August 27, 1996).
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A. Rule 4.2(a)--Requirements as to Filing

    Rule 4.2(a) currently provides a postal address for all material to 
be filed with the Commission under Part 4. Rule 4.2(a) was proposed to 
be amended to provide that Disclosure Documents and amendments to 
Disclosure Documents may be filed at an electronic mail address as 
specified by the Commission in addition to the designated postal 
address. In light of the Commission's decision to adopt the permanent 
electronic Disclosure Document filing program announced in this 
release, the Commission has determined to amend Rule 4.2(a) as set 
forth in the rule proposal, with minor modifications to the language 
more accurately to reflect the Commission's intent.

B. Rules 4.26(d) and 4.36(d)--Use, Amendment and Filing of Disclosure 
Document

    The Commission also proposed several technical modifications of 
Rules 4.26(d) and 4.36(d), which relate to filing of Disclosure 
Documents. The proposed amendments would have clarified that persons 
filing Disclosure Documents electronically are required to file the 
document only once, rather than in duplicate as is required for paper-
based filings. In light of the Commission's decision to establish the 
permanent electronic Disclosure Document filing program announced in 
this release, the Commission has determined to amend Rules 4.26(d) and 
4.36(d) as set forth in the rule proposal, with minor modifications to 
the language more accurately to reflect the Commission's intent.

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 rule amendments discussed herein 
would affect registered CPOs and CTAs. 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.\12\ The Commission previously determined that 
registered CPOs are not small entities for the purpose of the 
RFA.13 With respect to CTAs, the Commission 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 any 
rule.14
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    \12\ 47 FR 18618-21 (April 30, 1982).
    \13\ 47 FR at 18619-20.
    \14\ 47 FR at 18620.
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    The amendments adopted herein do not impose any new burdens upon 
CPOs or CTAs. The proposed amendments enable CPOs and CTAs 
electronically to file Disclosure Documents with the Commission. 
Consequently, the Commission believes that the adoption of these rule 
amendments will in many cases reduce the burden of compliance by CPOs 
and CTAs.
    In certifying pursuant to section 3(a) of the RFA that the proposed 
revisions would not have a significant economic impact on a substantial 
number of small entities, the Commission invited comments from any CPOs 
and CTAs who believed that the proposed revisions, if adopted, would 
have a significant economic impact on their activities. No such 
comments were received on the revisions adopted herein.
    Accordingly, pursuant to Rule 3(a) of the RFA (5 U.S.C. 605(b)), 
the Chairperson, on behalf of the Commission, certifies that the action 
taken herein will not have a significant impact on a substantial number 
of small entities.

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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995, Pub. L. 104-13 (May 13, 1995), 
imposes certain requirements on federal agencies (including the 
Commission) in connection with their conducting or sponsoring any 
collection of information as defined by the Paperwork Reduction Act. 
While this rule has no burden, the group of rules (3038-0005) of which 
this is a part has the following burden:
    Average Burden Hours per Response: 124.75.
    Number of Respondents: 4,654.
    Frequency of Response: On occasion.
    Copies of the OMB approved information collection package 
associated with this rule may be obtained from: Desk Officer, CFTC, 
Office of Management and Budget, Room 10202, NEOB Washington DC 20503, 
(202) 395-7340.

C. List of Subjects in 17 CFR Part 4

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

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

Subpart A--General Provisions, Definitions and Exemptions

    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. Section 4.2 paragraph (a) is to be revised to read as follows:


Sec. 4.2  Requirements as to filing.

    (a) All material filed with the Commission under this part 4 must 
be filed with the Commission at its Washington, DC office (Att: Special 
Counsel, Front Office Audit Unit, Division of Trading and Markets, 
C.F.T.C., Three Lafayette Centre, 1155 21st Street, NW., Washington, DC 
20581; Provided, however, that Disclosure Documents and amendments 
thereto may be filed at an electronic mail address for the Commission, 
as specified by the Commission.
* * * * *

Subpart B--Commodity Pool Operators

    3. Section 4.26 paragraph (d) is to be revised 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 file with the Commission two 
copies of the Disclosure 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 the Document to a 
prospective participant in the pool; Provided, however, that a pool 
operator electing to file electronically pursuant to Sec. 4.2(a) may 
file a single copy of the Disclosure Document by that method; and
    (2) The commodity pool operator must file with the Commission two 
copies of the subsequent amendments to the Disclosure 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; Provided, however, that 
a pool operator electing to file electronically pursuant to Sec. 4.2(a) 
may file a single copy of each such amendment by that method.

Subpart C--Commodity Trading Advisors

    4. Section 4.36 paragraph (d) is to be revised to read as follows:


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

* * * * *
    (d) (1) The trading advisor must file with the Commission two 
copies of the Disclosure Documents for each trading program that it 
offers or that it intends to offer not less than 21 calendar days prior 
to the date the trading advisor first intends to deliver the Document 
to a prospective client in the trading program; Provided, however, that 
a trading advisor electing to file electronically pursuant to 
Sec. 4.2(a) may file a single copy of the Disclosure Document by that 
method.
    (2) The commodity trading advisor must file with the Commission two 
copies of all 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; Provided, 
however, that a trading advisor electing to file electronically 
pursuant to Sec. 4.2(a) may file a single copy of each such amendment 
by that method.

    Issued in Washington, DC on April 9, 1997, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 97-9655 Filed 4-14-97; 8:45 am]
BILLING CODE 6351-01-P