[Federal Register Volume 65, Number 80 (Tuesday, April 25, 2000)]
[Rules and Regulations]
[Pages 24127-24128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-10087]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

RIN 3038-AB34


Commodity Pool Operators; Exclusion for Certain Otherwise 
Regulated Persons From the Definition of the Term ``Commodity Pool 
Operator''

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission''or 
``CFTC'') is adopting Rule 4.5(a)(4)(v), which adds a plan defined as a 
church plan in Section 3(33) of Title I of the Employee Retirement 
Income Security Act of 1974 (``ERISA'') \1\ (``Church Plan'') to the 
types of employee benefit plans that Rule 4.5(a)(4) currently provides 
shall not be construed to be commodity pools. The CFTC also is adopting 
conforming amendments to Rule 4.5(a)(4).
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    \1\ 29 U.S.C. 1002(33) (1994).

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EFFECTIVE DATE: April 25, 2000.

FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Assistant Chief 
Counsel, or Christopher W. Cummings, Special Counsel, Division of 
Trading and Markets, Commodity Futures Trading Commission, Three 
Lafayette Center, 1155 21st Street, NW., Washington, DC 20581. 
Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION: On March 1, 2000 the Commission published 
for comment proposed amendments to Rule 4.5(a)(4)(the ``Proposal''.\2\ 
The sole substantive amendment the Commission proposed was to add a 
plan defined as a church plan in section 3(33) of the Employee 
Retirement Income Security Act of 1974 (``ERISA'') to the types of 
employee benefit plans that the rule provided shall not be construed to 
be commodity pools. This was proposed to be accomplished by adding a 
new paragraph (a)(4)(v) to the rule. In proposing this action, the 
Commission discussed generally the history of Rule 4.5,\3\ it noted 
that Congress had exempted Church Plans from coverage under Titles I 
and IV of ERISA \4\ ``to avoid excessive Government entanglement with 
religion in violation of the First Amendment to the Constitution'' \5\ 
and it further noted that more recently, in connection with the 
adoption of the National Securities Markets Improvement Act of 1996 
(``NSMIA''),\6\ Congress provided that Church Plans are not investment 
companies under the Investment Company Act of 1940 and therefore that 
they are not subject to registration as such.\7\
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    \2\ 65 FR 10939, corrected at 65 FR 12318 (March 8, 2000).
    \3\ See 65 FR 10939 at 10940-41.
    \4\ 29 U.S.C. 1001 (1994 and Supp. III 1997) and 1301 (1994), 
respectively.
    \5\ See 65 FR 10939 at 10941-42.
    \6\ Pub. L. No. 104-290, 110 Stat. 3416 (1996).
    \7\ See 65 FR 10939 at 10942. This exemption has been codified 
at 15 U.S.C. 80a-3(c)(14) (Supp II 1996).
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    The various technical amendments the Commission proposed to Rule 
4.5(a)(4) were to conform the punctuation of the rule and to 
accommodate grammatically proposed paragraph 4.5(a)(4)(v). The 
Commission did not propose to change the text of any of the paragraphs 
Rule 4.5(a)(4)(i)-(iv).
    The Commission specifically requested comment on two aspects of the 
proposal. As the Commission stated:

    The proposal would be broader than the [commodity pool operator 
(``CPO'')] registration no-action positions that its staff 
previously has issued to the operators of Church Plans.\8\ Also, 
under this proposal the operators of Church Plans would not need to 
file a Notice of Eligibility to claim relief and they would not need 
to restrict their Plans' activities to the operating criteria of 
Rule 4.5(c). The Commission believes the breadth of its proposal is 
appropriate in light of Congress' rationale in excluding Church 
Plans from coverage under Titles I and IV of ERISA. The Commission 
nonetheless requests comment on whether rather than adding Church 
Plans to the list of plans that should not be construed to be a pool 
as proposed, the Commission should include the operator of a Church 
Plan as an eligible person who may claim an exclusion from the CPO 
definition. The Commission also requests comment on whether relief 
under Rule 4.5 should be available solely to those Church Plans that 
have not made an election under Section 410(d) of the Internal 
Revenue Code [``IRC''] to be subject to certain provision of 
ERISA.\9\
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    \8\ In its footnote to this statement, the Commission explained 
that:
    If a collective investment vehicle (such as a Church Plan) is 
not a commodity pool, the operator of the vehicle would not be a 
CPO. The operator would nonetheless be a person for all other 
purposes of the [Commodity Exchange Act (``Act'')] and CFTC rules--
e.g., it would be subject to the general antifraud provisions of 
section 4b of the Act, 7 U.S.C. 6b(1994), and to the large trader 
reporting requirements of Part 18 of the regulations. If a 
collective investment vehicle is a pool, in addition to being a 
person for the purposes of the Act and the rules, its operator would 
be a CPO subject to all provisions of the Act and Commission rules 
applicable to CPOs regardless of registration status--e.g., to the 
special antifraud provisions for CPOs (and [commodity trading 
advisors (``CTAs'')] in section 4o of the Act, 7 U.S.C. 6o (1994), 
the operational requirements for CPOs in Rule 4.20 and the 
advertising requirements for CPOs (and CTAs) in Rule 4.41.
    In this regard, the Commission wishes to emphasize that the 
status of a collective investment vehicle as a pool or a ``non-
pool'' does not affect the registration or Part 4 requirements of 
any CTA to the vehicle. But see Rule 4.14(a)(8), which makes 
available an exemption from CTA registration to certain registered 
investment advisers who, among other things, provide commodity 
interest trading advice to Rule 4.5 trading vehicles in a manner 
solely incidental to their business of providing securities advice 
to those vehicles. 65 FR 10939 at 10942, n.26.
    \9\ 65 FR 10939 at 10942.

    The Commission received two comment letters on the Proposal. 
Neither of the letters the Commission received on the proposed 
amendments to Rule 4.5(a)(4) addressed specifically the two issues on 
which the Commission had requested comment. One letter, from counsel to 
a Church Plan, expressed strong approval of the Proposal. The letter 
also stated that an additional support for the Proposal's adoption is 
that the rights of Church Plan participants are fully protected by the 
exclusive benefits requirements imposed on Church Plans by the IRC. The 
other letter, from a member of the commodities bar, asked the 
Commission to adopt a policy and implementing regulations to the effect 
that ``a collective investment vehicle using commodity interests solely 
for recognized risk management purposes is not `commodity pool' within 
the intent of the [commodity pool operator] definition in section 1a(4) 
of the Commodity Exchange Act.'' While this comment is outside the 
scope of this

[[Page 24128]]

rulemaking, the Commission does intend to consider this issue in the 
near future.
    In light of the comments received, the Commission is adopting the 
amendments to Rule 4.5(a)(4) as proposed.

III. Related Matters

A. Paperwork Reduction Act

    When publishing proposed rules, the Paperwork Reduction Act of 1995 
(``PRA'') \10\ 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. In 
compliance with the PRA, the Commission previously has submitted Rule 
4.5 in proposed form and its associated information collection 
requirements to the Office of Management and Budget. The Office of 
Management and Budget has approved the collection of information of 
which this proposed rule is a part through September 30, 2001, OMB 
Control Number 3038-0005: Rules Relating to the Operations and 
Activities of Commodity Pool Operators and Commodity Trading Advisors 
and to Monthly Reporting by Futures Commission Merchants. While this 
proposed rule has no burden, the group of rules (3038-0005) of which it 
is a part has the following burden:
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    \10\ 44 U.S.C. 3501 et seq. (Supp. II 1996).
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    Average Burden Hours Per Response: 7.49.
    Number of Respondents: 6,949.
    Frequency of Response: Monthly, Quarterly, Annually, On Occasion.
    Copies of the OMB approved information collection package 
associated with this rule are available from the Desk Officer, CFTC, 
Office of Management and Budget, Room 10202, NEOB, Washington, DC, 
20503, (202) 395-7340.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \11\ requires each federal 
agency to consider in the course of proposing substantive rules the 
effect of those rules on small entities. The definitions of small 
entities that the Commission has established for this purpose 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. Assuming, arguendo, that 
Church Plans would be small entities for purposes of the RFA, the 
Commission believes that the amendment to Rule 4.5(a)(4) would not have 
a significant economic impact on them because it would not require the 
filing of a notice containing specified operating criteria with the 
Commission to claim the relief available under the rule. Moreover, the 
Commission notes that the amendment potentially would relieve a greater 
number of persons (i.e., the operators of Church Plans) from the 
requirement to register as a CPO and from the disclosure, reporting and 
recordkeeping requirements applicable to registered CPOs.
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    \11\ 5 U.S.C. 601 et seq. (1994 and Supp. II 1996).
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    Accordingly, the Chairman, on behalf of the Commission, certifies 
pursuant to Section 3(a) of the RFA \12\ that amended Rule 4.5(a)(4) 
will not have a significant economic impact on a substantial number of 
small entities.
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    \12\ 5 U.S.C. 605(b) (1994).
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C. Administrative Procedure Act.

    The Administrative Procedure Act provides that the required 
publication of a substantive rule shall be made not less than 30 days 
before its effective date, but provides an exception for ``a 
substantive rule which grants or recognizes an exemption or relieves a 
restriction.'' \13\ Because Rule 4.5(a)(4)(v) provides that Church 
Plans shall not be construed to be pools, the operators of Church Plans 
are not CPOs and they are not subject to regulation as CPOs under the 
Act. Accordingly, the Commission has determined to make the proposed 
amendments to Rule 4.5 effective immediately.
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    \13\ 5 U.S.C. 553(d) (1994).
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List of Subjects in 17 CFR Part 4

    Commodity pool operators, Commodity futures.

    In consideration of the foregoing and pursuant to the authority 
contained in the Commodity Exchange Act and, in particular, sections 
1a(4), 4k, 4l, 4m, 4n, 4o and 8a, 7 U.S.C. 1a(4), 6k, 6l, 6m, 6n, 6o 
and 12a, the Commodity Futures Trading 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

    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. In Sec. 4.5, in paragraph (a)(4) introductory text, the proviso 
text is republished and paragraph (a)(4) is amended by removing the 
word ``and'' at the end of paragraph (a)(4)(ii), by removing the period 
and adding a semi-colon at the end of paragraph (a)(4)(iii), by 
removing the period at the end of paragraph (a)(4)(iv) and adding ``; 
and'' in its place, and by adding paragraph (a)(4)(v) to read as 
follows:


Sec. 4.5  Exclusion for certain otherwise regulated persons from the 
definition of the term ``commodity pool operator.''

    (a) * * *
    (4) * * * Provided, however, That for purposes of this Sec. 4.5 the 
following employee benefit plans shall be construed to be pools:
* * * * *
    (v) A plan defined as a church plan in Section 3(33) of title I of 
the Employee Retirement Income Security Act of 1974 with respect to 
which no election has been made under 26 U.S.C. 410(d).
* * * * *

    Issued in Washington, D.C. on April 18, 2000, by the Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 00-10087 Filed 4-25-00; 8:45 am]
BILLING CODE 6351-01-M