[Federal Register Volume 65, Number 151 (Friday, August 4, 2000)]
[Rules and Regulations]
[Pages 47848-47859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-19445]



[[Page 47848]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 4, 30, 140 and 180

RIN 3038-AB37


Exemption from Certain Part 4 Requirements for Commodity Pool 
Operators With Respect to Offerings to Qualified Eligible Persons and 
for Commodity Trading Advisors With Respect to Advising Qualified 
Eligible Persons

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission (``Commission'') is 
revising Commission Rule 4.7 (``Revision'') \1\ through both 
substantive and technical revisions. Rule 4.7 provides a simplified 
regulatory framework for commodity pool operators (``CPOs'') operating 
commodity pools consisting of certain highly accredited pool 
participants and for commodity trading advisors (``CTAs'') directing or 
guiding the commodity interest trading accounts of certain highly 
accredited clients. These persons formerly were termed ``qualified 
eligible participants'' (or ``QEPs'') and ``qualified eligible 
clients'' (or ``QECs''), respectively. Under the Revision, all such 
persons are termed ``qualified eligible persons.''
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    \1\ Commission rules referred to herein are found at 17 CFR Ch. 
I (2000).
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    The substantive revisions will make Rule 4.7 available to more CPOs 
and CTAs and under more situations, by bringing within the scope of the 
rule additional persons. They add, among others, the following persons 
to the qualified eligible person definition: Principals of certain 
registered investment professionals who themselves are defined as 
qualified eligible persons; certain registered securities investment 
advisers and their principals; ``qualified purchasers'' and 
``knowledgeable employees'' as those terms are defined under the 
federal securities laws; certain employees and agents of pools, CPOs 
and CTAs and certain of those employees' and agents' immediate family 
members; and trusts whose advisors and settlors are qualified eligible 
persons. In addition, these revisions make it easier for certain 
charitable organizations, trusts and collective investment vehicles to 
be qualified eligible persons, and it includes persons who are not 
``United States persons'' in the qualified eligible person definition 
with respect to both Rule 4.7 exempt pools and exempt accounts. Certain 
of the technical revisions, i.e., those which reorganize the rule, will 
facilitate employment of the rule. Other technical revisions conform 
the nomenclature of the text of Rule 4.7 to reflect the revised 
structure of the Rule. The Commission has made similar conforming 
revisions to Rules 30.6(b), 140.99(i)(A) and 180.3(b)(2)(vi), which 
prior to these revisions referred to, e.g., ``qualified eligible 
participants'' in their text.
    In light of the breadth of the revisions to Rule 4.7, the 
Commission is including at Part IV of this release a distribution table 
that indicates where the provisions of the former rule can be found in 
the revised rule and a derivation table that indicates where the 
provisions of the revised rule can be found in the former rule.

DATES: Effective August 4, 2000.

FOR FURTHER INFORMATION CONTACT: Barbara Stern Gold, Assistant Chief 
Counsel, Helene D. Schroeder, Attorney-Advisor or Ky Tran-Trong, 
Attorney-Advisor, Division of Trading and Markets, Commodity Futures 
Trading Commission, 1155 21st Street, NW, Washington, DC 20581. 
Telephone: (202) 418-5450.

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Background

    In 1992, the Commission adopted Rule 4.7 as part of the 
Commission's ongoing program for review of its rules.\2\ Rule 4.7 
provides an exemption from certain disclosure, reporting and 
recordkeeping requirements for registered CPOs in connection with their 
operation of commodity pools whose participants meet specified 
eligibility criteria.\3\ The exemption provides relief from all of the 
specific disclosures required by Rules 4.21 and 4.24 through 4.26 and 
streamlines the reporting and recordkeeping requirements of Rules 4.22 
and 4.23, respectively.\4\ Rule 4.7 provides similar relief from the 
specific disclosure requirements of Rules 4.31 and 4.34 through 4.36 
and recordkeeping requirements of Rule 4.33 to registered CTAs who 
direct or guide the commodity interest trading accounts of clients who 
meet specified eligibility criteria.\5\
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    \2\ 57 FR 34853 (Aug. 7, 1992). The Commission made certain 
technical, non-substantive amendments to Rule 4.7 in 1995. 60 FR 
38146, 38182-93 (July 25, 1995). These amendments were necessary to 
conform certain of the references in Rule 4.7 to other Part 4 rules 
the Commission had renumbered in connection with revising the 
disclosure rules generally applicable to CPOs and CTAs.
    \3\ As stated above, these persons formerly were termed 
``qualified eligible participants.'' As a result of the Revision, 
they are now termed ``qualified eligible persons.''
    \4\ Under Rule 4.7, however, a registered CPO operating a pool 
for which it has claimed Rule 4.7 relief (``exempt pool'') remains 
subject to all other applicable requirements of the Act and the 
Commission's regulations issued thereunder with respect to the 
exempt pool and any other pool the CPO operates or intends to 
operate. Former Rule 4.7(a)(4); Revised Rule 4.7(d)(4)(i). For 
example, it remains subject to the antifraud provisions of Sections 
4b and 4o of the Act, 7 U.S.C. 6b and 6o (1994), the prohibited 
activities and advertising provisions applicable to CPOs in Rules 
4.20 and 4.41, respectively, and the reporting requirements for 
traders set forth in Parts 15, 18 and 19 of the Commission's 
regulations. Moreover, if a CPO distributes an offering memorandum 
in connection with soliciting participations in an exempt pool, the 
memorandum must include all disclosures necessary to make the 
information contained therein, in the context in which it is 
furnished, not misleading. Former Rule 4.7(a)(2)(i)(A); Revised Rule 
4.7(b)(1)(i).
    \5\ As also stated above, these persons formerly were termed 
``qualified eligible clients.'' As a result of the Revision, they, 
too, are termed ``qualified eligible persons.''
    Under Rule 4.7, a CTA that has claimed Rule 4.7 relief with 
respect to a qualified eligible person likewise remains subject to 
all other applicable requirements of the Act and the Commission's 
regulations with respect to the qualified eligible person and any 
other client to which the CTA provides or intends to provide 
commodity interest trading advice. Former Rule 4.7(b)(4); Revised 
Rule 4.7(d)(4)(ii). Similarly, if a CTA delivers a brochure or other 
disclosure statement to qualified eligible persons, the brochure or 
statement must include all disclosures necessary to make the 
information contained therein, in the context in which it is 
furnished, not misleading. Former Rule 4.7(b)(2)(i)(A); Revised Rule 
4.7(c)(1)(i).
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    Subsequent to the adoption of Rule 4.7, and consistent with the 
purposes of the rule, Commission staff permitted various CPOs and CTAs 
to claim relief under the rule with respect to certain persons who did 
not meet the specified eligibility criteria of the rule. In addition, 
in 1996, Congress enacted the National Securities Markets Improvement 
Act of 1996 (``NSMIA'').\6\ Among other things, NSMIA added Section 
3(c)(7) to the ICA \7\ thereby providing an additional exemption from 
the definition of the term ``investment company'' under the ICA with 
respect to funds comprised exclusively of qualified purchasers 
(``QPs''). NSMIA also directed the Securities and Exchange Commission 
(``SEC'') to promulgate rules that would permit ownership by 
knowledgeable employees

[[Page 47849]]

of the securities of the issuer (or affiliate) without loss of the 
issuer's definitional exemption under Section 3(c)(1) \8\ or 3(c)(7) of 
the ICA. In 1997, the SEC adopted Rule 3c-5 under the ICA,\9\ which 
defines the term ``knowledgeable employee.'' \10\
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    \6\ Pub. L. No. 104-290, 110 Stat. 3416 (codified as amended in 
scattered sections of 15 U.S.C. and 29 U.S.C.). Many collective 
investment vehicles trade both securities and commodity interests, 
and absent an exemption, they are subject to registration as an 
investment company under the Investment Company Act of 1940 (the 
``ICA'') and their operators are subject to registration as a CPO 
under the Act. See, e.g., Peavey Commodity Futures Funds I, II, III, 
[1983-1984 Transfer Binder] Fed. Sec. L. Rep. (CCH) para.77,511 
(June 2, 1983).
    \7\ 15 U.S.C. 80a-3(c)(7) (Supp. III 1997).
    \8\ 15 U.S.C. 80a-3(c) (1)(1994 & Supp. III 1997).
    \9\ 17 CFR 270.3c-5 (1999).
    \10\ 62 FR 17512 (Apr. 9, 1997).
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    Based upon staff's experience in administering Rule 4.7 and taking 
into account these recent developments in the federal securities laws, 
on March 2, 2000 the Commission published for comment in the Federal 
Register proposed revisions to Rule 4.7 (the ``Proposal'').\11\ Certain 
of the proposed revisions were substantive in nature--i.e., they would 
expand the definitions employed in Rule 4.7, which would have the 
effect of permitting registered CPOs and CTAs to claim relief in 
additional circumstances under the rule. In proposing this action, the 
Commission noted that it had been guided by the purposes of Rule 4.7. 
With respect to CPOs, these purposes are to: (1) Reduce unnecessary 
regulatory burdens with respect to persons who appear not to need the 
full protections of the Part 4 framework; and (2) coordinate the 
Commission's rules with certain federal securities laws.\12\ As for 
CTAs, the rationale for relief ``is analogous to that for * * * CPOs, 
i.e., that [qualified eligible persons] are sophisticated investors who 
have the financial ability and experience necessary to understand the 
risks of futures trading and to obtain the information they require.'' 
\13\
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    \11\ 65 FR 11253.
    \12\ 57 FR 3148, 3150-51 (Jan. 28, 1992).
    \13\ 57 FR at 3151.
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B. The Comments

    The Commission received six comment letters on the Proposal: one 
from a firm registered as a futures commission merchant, CPO and CTA; 
one from a firm registered as a CPO; one from a designated self-
regulatory organization; one from a bar association; one from a member 
of the commodities bar; and one from a trade association representing 
CPOs and CTAs.\14\ All of the persons who commented on the proposed 
revisions to Rule 4.7 expressed strong support for the Proposal. Among 
the reasons commenters provided for their support were that the 
Proposal: (1) Would coordinate and harmonize the commodities and 
securities laws where they have a common purpose; (2) would relieve 
Commission staff from expending its resources on what have become 
routine and redundant Rule 4.7 letters; (3) would provide similar 
relief to the applicants for those letters; and (4) would make the 
rules more ``user friendly.''
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    \14\ Not all of the comments, however, were directly related to 
the Proposal. One comment recommended adoption of a uniform 
``sophisticated customer definition'' for various of the 
Commission's rules (i.e., Rules 1.3, 1.55, 4.7, 35.1 and 36.1); 
another comment recommended adoption of an exemption from CPO 
registration for operators of privately-offered collective 
investment vehicles limited solely to Non-United States persons; and 
yet another comment recommended adoption of an exclusion from the 
CPO definition for a collective investment vehicle using commodity 
interests solely for recognized risk management purposes. Inasmuch 
as these comments do not specifically concern Rule 4.7, the 
Commission is not by this Federal Register release addressing them 
(although, as discussed below, the Commission has revised Rule 4.7 
so that it now provides relief with respect to ``qualified eligible 
persons'' (emphasis added)). The Commission does, however, intend to 
consider these comments in connection with other regulatory reform 
initiatives that it may propose--e.g., in connection with revisions 
to the registration requirements for CPOs and CTAs that it may 
propose.
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    In light of the comments received, the Commission generally has 
adopted the revisions to Rule 4.7 that it proposed.\15\ In addition, 
the Commission has further reorganized the rule and has included more 
persons in the qualified eligible person definition. Each of the 
changes from the Proposal is discussed below, and distribution and 
derivation tables are provided at Section IV below.
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    \15\ As discussed more fully below, the Commission has adopted 
certain provisions without the qualifying limitations it had 
proposed thereon. These provisions concern the treatment of family 
members of--e.g., the CPO of the exempt pool or the CTA of the 
exempt account--as qualified eligible persons for other purposes of 
Rule 4.7 (see Section II.D.3. below) and the availability of rule 
4.7 relief to a CTA with respect to those of its clients who are 
Non-United States persons (see Section II.E. below).
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    In the Federal Register release announcing the Proposal 
(``Proposing Release''), the Commission gave a detailed explanation of 
each revision it had proposed to make to Rule 4.7.\16\ The scope of 
this Federal Register release generally is restricted to the comments 
received on the Proposal and changes to the Proposal that the 
Commission has made in response thereto. Accordingly, the Commission 
encourages interested persons to read the Proposing Release for a 
discussion of the purpose of each of the revisions the Commission 
proposed to make to the various provisions under Rule 4.7.
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    \16\ The Commission also cited at various places in the 
Proposing Release to the letters its staff had issued granting 
relief from the definitional requirements of Rule 4.7.
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II. Responses to the Comments Received

A. Reorganization of Rule 4.7

    The Commission proposed to reorganize Rule 4.7 to assist CPOs and 
CTAs in determining the availability of the rule to them. This proposed 
reorganization would have put all of the definitions used in Rule 4.7 
in one place, proposed paragraph (a) of the rule.\17\ In particular, 
proposed paragraph (a)(1) would have contained the general definitions 
used throughout Rule 4.7.\18\ One of those definitions was the term 
``Portfolio Requirement'' in proposed paragraph (a)(1)(v).\19\ One of 
the commenters questioned the need for two separate definitions of the 
term ``Portfolio Requirement'' (one for QEPs and one for QECs) because, 
as it noted, these definitions were virtually identical except for 
those references where the definition applicable to QEPs concerned 
``pool participants'' and ``exempt pool'' and the definition applicable 
to QECs concerned ``clients'' and ``exempt account.'' Accordingly, the 
commenter recommended that the Commission should merge the two 
``Portfolio Requirement'' definitions into one definition. The 
Commission believes this is a useful recommendation, and it has thus 
adopted in Rule 4.7(a)(1)(v) a single definition of ``Portfolio 
Requirement'' that equally applies to pool participants and exempt 
pools and to clients and exempt accounts.
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    \17\ See generally 65 FR at 11255-56.
    \18\ 65 FR at 11256.
    \19\ Id.
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    In furtherance of this comment, the Commission additionally has 
streamlined other definitions used in Rule 4.7, such that now the rule 
solely refers to ``qualified eligible persons.'' Under both the former 
rule and the Proposal, persons for whom a CPO or CTA could claim relief 
under Rule 4.7 were termed QEPs and QECs, respectively, and the 
criteria each such person had to satisfy was separately set forth 
depending on whether the person had to meet the Portfolio Requirement. 
Thus, under proposed Rule 4.7(a)(2), two categories of persons were 
defined as QEPs (persons who were QEPs irrespective of the Portfolio 
Requirement and persons who were required to satisfy the Portfolio 
Requirement to be QEPs) and under proposed Rule 4.7(a)(3) two 
categories of persons were defined as QECs (persons who were QECs 
irrespective of the Portfolio Requirement and persons who were required 
to satisfy the Portfolio Requirement to be QECs). This

[[Page 47850]]

made for a total of four eligibility categories under Rule 4.7.\20\ By 
employing solely the term ``qualified eligible person'' in Rule 4.7, 
the Commission has reduced to two from four the categories of persons 
defined under the rule: Persons who do not need to satisfy the 
Portfolio Requirement to be qualified eligible persons (Rule 4.7(a)(2)) 
\21\ and persons who do need to satisfy the Portfolio Requirement to be 
qualified eligible persons (Rule 4.7(a)(3)).\22\
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    \20\ See generally 65 FR at 11256-61 for persons who were 
proposed to be QEPs and QECs irrespective of the Portfolio 
Requirement and 65 FR at 11261-62 for persons who were proposed to 
be QEPs and QECs if they satisfied the Portfolio Requirement.
    \21\ As proposed, the Commission employed the phrase ``persons 
who are QEPs or QECs irrespective of the Portfolio Requirement.'' As 
adopted, the Commission is employing the phrase ``persons who do not 
need to satisfy the Portfolio Requirement to be qualifying eligible 
persons.'' This phrase is consistent with the other phrase employed 
for eligibility status under Rule 4.7 applicable to ``persons who 
must satisfy the Portfolio Requirement to be qualified eligible 
persons.''
    \22\ As a result of this reorganization, Rule 4.7(a)(3)(xi) now 
defines a qualified eligible person as:
    A pool, trust, insurance company separate account or bank 
collective trust, with total assets in excess of $5,000,000, not 
formed for the specific purpose of either participating in the 
exempt pool or opening an exempt account, and whose participation in 
the exempt pool or investment in the exempt account is directed by a 
qualified eligible person (emphasis added.)
    Former Rule 4.7 included pools within the applicable QEP 
definition but it did not include pools within the applicable QEC 
definition. The Commission stated that this difference in 
definitions was ``to ensure that pools generally, that is pools 
whose participants are not all QEPs, continue to receive a 
Disclosure Document from their CTAs.'' 57 FR at 34856. Upon 
reconsideration, the Commission is now of the view that all pools 
which meet the criteria of Rule 4.7(a)(3)(xi) should be defined as 
qualified eligible persons. With respect to exempt accounts in 
particular, this is because investment by a pool in an exempt 
account must be directed by a qualified eligible person--who, as the 
CPO of the pool and on behalf of the participants in the pool, will 
direct the investment in the exempt account.
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    The Commission additionally has streamlined Rule 4.7 by combining 
at one place, Rule 4.7(d), text applicable to the notice of claim for 
exemption that must be made to claim the relief available under Rule 
4.7. Under both the former rule and the Proposal, text applicable to 
this notice was included at two places in Rule 4.7: After the relief 
that CPOs could claim and after the relief that CTAs could claim. 
Inasmuch as this text was virtually identical at both places, the 
Commission has combined it into one location, Rule 4.7(d).
    Finally, to assist CPOs and CTAs in their reading and application 
of Rule 4.7, the Commission has adopted introductory text to the rule, 
which explains the organization of Rule 4.7 as follows: Paragraph (a) 
contains definitions for the purposes of Rule 4.7; paragraph (b) 
contains the relief available to CPOs under Rule 4.7; paragraph (c) 
contains the relief available to CTAs under Rule 4.7; paragraph (d) 
concerns the Notice of Claim for Exemption under Rule 4.7; and 
paragraph (e) concerns insignificant deviations from a term, condition 
or requirement of Rule 4.7.

B. Clarification of the Term ``Non-United States Person''

    Under the Proposal, the term ``Non-United States person'' would 
have been defined at proposed Rule 4.7(a)(1)(iv).\23\ Similar to the 
definition of the term ``Portfolio Requirement,'' the Commission did 
not propose to change the definition but, rather, it proposed to change 
its placement within the rule and to replace with the term ``Non-United 
States person'' the former reference in the rule to ``a person that is 
not a United States person.''
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    \23\ 65 FR at 11256 and n.32.
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    Under the Proposal, a Non-United States person would have been 
defined to include, among other persons:

    (D) An entity organized principally for passive investment such 
as a pool, investment company or other similar entity; Provided, 
That units of participation in the entity held by persons who do not 
qualify as Non-United States persons represent in the aggregate less 
than 10% of the beneficial interest in the entity, and that such 
entity was not formed principally for the purpose of facilitating 
investment by persons who do not qualify as Non-United States 
persons in a pool with respect to which the operator is exempt from 
certain requirements of Part 4 of the Commission's regulations by 
virtue of its participants being Non-United States persons.

    One of the commenters stated that it was unclear as to how, if at 
all, persons who did not qualify as Non-United States persons but who 
otherwise were QEPs should be counted for purposes of the 10% 
limitation of this definition. This commenter contended that they 
should not be counted because they were, after all, QEPs in their own 
right.
    The Commission agrees with this commenter, and has revised the rule 
accordingly. Thus, as adopted, the ownership limitation of Rule 
4.7(a)(1)(iv)(D) provides that ``units of participation in the entity 
held by persons who do not qualify as Non-United States persons or 
otherwise as qualified eligible persons represent in the aggregate less 
than 10% of the beneficial interest in the entity'' (emphasis added).

C. The Reasonable Belief Standard

    Because of the organization of the former rule, CPOs and CTAs were 
required to have a ``reasonable belief'' that certain persons defined 
in Rule 4.7 as QEPs and QECs, respectively were, in fact, QEPs and 
QECs. Under the proposed reorganization of the rule, CPOs and CTAs 
would have been required to have a ``reasonable belief'' that all 
persons defined as QEPs and QECs, respectively, were, in fact, QEPs and 
QECs. While the Commission stated that it did not believe that this 
should impose any additional burdens on CPOs and CTAs, it nonetheless 
requested comment on the proposed revision.\24\ The three persons who 
commented on this proposed revision stated that they had no objection 
to it. And, in response to one of those commenters, the Commission is 
clarifying that CPOs and CTAs have latitude in determining how to 
obtain a ``reasonable belief''--e.g., whether by statements from the 
prospective participant or client, its agent, or other similar means. 
Of course, what will establish a ``reasonable belief'' will depend on 
the facts of each particular case.
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    \24\ 65 FR at 11257.
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D. Transferees of Insiders, Agents Engaged by Insiders, and the Family 
Members of Insiders as Qualified Eligible Persons

1. Transferees of Insiders as Qualified Eligible Persons
    Under the Proposal, the QEP definition would have been expanded in 
proposed Rule 4.7(a)(2)(i)(H) to include, in addition to the CPO or the 
CTA of the exempt pool, the following persons: the investment adviser 
of the exempt pool; an affiliate of the exempt pool, CPO, CTA or 
investment adviser; a principal of these persons; certain employees of 
these persons; and certain family members of these persons.\25\ 
Similarly, the QEC definition would have been expanded in proposed Rule 
4.7(a)(3)(i)(B) to include the following persons: an affiliate of the 
CTA of the exempt account; a principal of the CTA or the affiliate; 
certain employees of these persons; and certain family members of these 
persons.\26\ For the purposes of the discussion below, all of the 
foregoing persons collectively are referred to as ``Insiders.''
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    \25\ 65 FR at 11259-61.
    \26\ Id.
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    The Commission has adopted as proposed the provisions that would 
define each of the Insiders as a qualified eligible person. Further, in 
response to the comments received, the Commission

[[Page 47851]]

has included certain other persons as qualified eligible persons and 
has expanded from the Proposal the availability of the qualified 
eligible person definition to certain family members of Insiders.
    For example, one of the commenters on the proposed addition of 
Insiders to the QEP and QEC definitions suggested that the Commission 
include in Rule 4.7 a provision allowing transfers of interests in a 
Rule 4.7 exempt pool or exempt account from Insiders to other persons 
by gift or bequest. This commenter stated that support for including 
such a provision is found in rules under the ICA,\27\ which permit 
transfers of interests in a Section 3(c)(1) or 3(c)(7) fund from a 
knowledgeable employee or QP to another person under specified 
situations. The Commission agrees with this suggestion and has adopted 
it in Rule 4.7(a)(2)(viii), which provides that a qualified eligible 
person includes the following: (1) Asny person who acquires a 
participation in the exempt pool or an interest in the exempt account 
by gift, bequest or pursuant to an agreement relating to a legal 
separation or divorce from an Insider; (2) the estate of an Insider; or 
(3) a company established by an Insider exclusively for the benefit of 
(or owned exclusively by) the Insider and any other permitted 
transferee. This language generally follows the provisions of Rule 3c-
6(b) under the ICA, which applies to transfers of interests in Section 
3(c)(1) and (3)(c)(7) funds.
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    \27\ 17 CFR 270.3c-5 and 3c-6 (1999).
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2. Agents Engaged by Insiders as Qualified Eligible Persons
    Proposed Rule 4.7(a)(2)(i)(H)(4) would have included within the QEP 
definition certain employees of the exempt pool, CPO, CTA, investment 
adviser of the exempt pool, or affiliate thereof, and proposed Rule 
4.7(a)(3)(i)(B)(4) would have included within the QEC definition 
certain employees of the CTA of the exempt account or of an affiliate 
of the CTA, provided that the employee: (1) Was an accredited investor 
as defined in Rule 501(a)(5) or (a)(6) under the Securities Act of 1933 
\28\ (``Accredited Investor''); and (2) had been employed by any of the 
foregoing persons, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months. As the Commission explained, the purpose of these rules was in 
furtherance of the intent of Rule 4.7: to reduce unnecessary regulatory 
prescriptions for CPOs and CTAs with respect to persons who do not 
appear to need the full protections offered by the Part 4 
framework.\29\ The Commission has adopted this proposed definition and, 
in response to a comment received, has additionally included certain 
agents as qualified eligible persons under this rule.
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    \28\ 17 CFR 230.501(a)(5) or (a)(6)(1999), respectively.
    \29\ 65 FR at 11260.
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    One of the commenters on the Proposal suggested that the Commission 
consider including as QEPs and QECs certain attorneys and other persons 
similarly engaged whose activities and degree of sophistication would 
merit their being treated as QEPs and QECs. The Commission agrees with 
this comment and has incorporated it in Rule 4.7. Specifically, Rule 
4.7(a)(2)(viii)(A)(4) defines a qualified eligible person with respect 
to an exempt pool as ``any other employee of, or an agent engaged to 
perform legal, accounting, auditing or other financial services for,'' 
the exempt pool or the CPO, CTA or investment adviser of the exempt 
pool, or for an affiliate of any of the foregoing, provided that the 
employee or agent: (1) Is an Accredited Investor; and (2) has been 
engaged by the exempt pool, CPO, CTA, investment adviser or affiliate, 
or by another person engaged in providing commodity interest, 
securities or other financial services, for at least 24 months. 
Similarly, Rule 4.7(a)(2)(viii)(B)(4) defines a qualified eligible 
person with respect to an exempt account as ``any other employee of, or 
an agent engaged to perform legal, accounting, auditing or other 
financial services for,'' the CTA of the exempt account, or for an 
affiliate of the CTA, provided that the employee or agent: (1) Is an 
Accredited Investor; and (2) has been engaged by the CTA or the 
affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months. Consistent with the treatment of employees under Rule 4.7, this 
definition excludes agents who perform solely clerical, secretarial or 
administrative functions.
3. Restriction on Family Members of Insiders Being Qualified Eligible 
Persons
    Proposed Rule 4.7(a)(2)(i)(H)(5) would have included in the QEP 
definition the spouse, child, sibling or parent of an Insider, provided 
that an investment in the exempt pool by any such family member was 
made with the knowledge and at the direction of the Insider.\30\ 
Proposed Rule 4.7(a)(3)(i)(B)(5) similarly would have included in the 
QEC definition the spouse, child, sibling or parent of an Insider, 
provided that the establishment of an exempt account by any such family 
member was made with the knowledge and at the direction of the trading 
advisor.\31\ The Commission received no comments on these criteria and, 
accordingly, has adopted them as proposed in Rules 
4.7(a)(2)(viii)(A)(5)(i) with respect to exempt pools and 
4.7(a)(2)(viii)(B)(5)(i) with respect to exempt accounts.
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    \30\ Id.
    \31\ Id.
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    The proposed rules also would have strictly limited the application 
of the QEP and QEC definitions, such that these family members would 
not have been QEPs or QECs for any other purposes of Rule 4.7--e.g., 
for the purpose of being a QEP settlor of a trust under proposed Rule 
4.7(a)(2)(i)(I). The commenter on this proposed criterion stated that 
it was unnecessarily opaque, and urged the Commission to treat these 
family members as QEPs and QECs for all purposes of Rule 4.7. Upon 
further reflection, the Commission agrees that the proposed limitation 
may have been overly broad where the source of funds used for 
participating in an exempt pool or investing in an exempt account was 
one of the specified family members. Accordingly, Rules 
4.7(a)(2)(viii)(A)(5)(ii) with respect to exempt pools and 
(a)(2)(viii)(B)(5)(ii) with respect to exempt accounts provide that 
these family members are qualified eligible persons except for the 
purposes of paragraph (a)(3)(xi) of the rule. That paragraph provides 
that certain collective investment vehicles, such as a pool, are 
qualified eligible persons if, among other things, they satisfy the 
Portfolio Requirement, have in excess of $5,000,000 in total assets and 
their ``participation in the exempt pool or investment in the exempt 
account is directed by a qualified eligible person.'' Because the 
source of funds in a collective investment vehicle such as a pool will 
always be either in addition to or other than from the family member, 
the Commission has provided that the family member is not a qualified 
eligible person for the purposes of Rule 4.7(a)(3)(xi).

E. Non-United States Persons as Qualified Eligible Persons for the 
Purpose of Opening an Exempt Account With a CTA

    Proposed Rule 4.7(a)(3)(i)(A)(2) would have defined Non-United 
States persons as QECs, provided that the CTA who sought to direct or 
guide the commodity interest trading account of the Non-United States 
person: (1) Provided

[[Page 47852]]

commodity interest trading advice exclusively to persons who were QECs 
(including persons who were Non-United States persons); and (2) had 
filed a notice of claim for exemption under Rule 4.7. In the Proposing 
Release, the Commission noted that a CTA who directs or guides the 
accounts of United States persons who are not QECs would be subject to 
the Disclosure Document requirements of Rules 4.31, 4.34, 4.35 and 4.36 
and the recordkeeping requirements of Rule 4.33. Accordingly, the 
Commission reasoned that requiring the CTA to comply with requirements 
to which it already would be subject would not impose any additional 
burden on the CTA with respect to clients who are Non-United States 
persons.\32\
---------------------------------------------------------------------------

    \32\ 65 FR at 11261.
---------------------------------------------------------------------------

    Four persons commented on this proposed provision. While they 
generally expressed support for expanding the QEC definition to include 
Non-United States persons, they objected to the proposed limitation on 
permitting CTAs to claim relief under Rule 4.7 where the CTA has both 
United States and Non-United States persons as clients. Commenters 
disagreed with the Commission's argument that this framework would not 
impose any additional burdens on these CTAs because they would already 
be subject to disclosure and recordkeeping requirements with regard to 
their (other) Non-QEC clients. One of these commenters further stated 
that while this may be true where the trading programs and solicitation 
documents are substantially the same, this frequently will impose a 
significant burden on CTAs where the trading programs and solicitation 
documents are different--thereby requiring significant additional work 
for the CTA in what is likely to be a very different context. In 
support of permitting CTAs to treat Non-United States persons as QECs 
without limitation, commenters noted that a CTA soliciting Non-United 
States persons is subject to the requirements of applicable foreign 
law, including any mandatory disclosure requirements. On the whole, 
then, the commenters on this proposed provision saw no reason why the 
Commission should treat Non-United States persons differently for the 
purpose of participating in an exempt pool or opening an exempt 
account.
    Based upon the comments received, and in light of the increasing 
globalization of the futures markets and competitiveness concerns, the 
Commission has decided not to adopt the proposed limitation. Thus, Rule 
4.7(a)(2)(xi) defines a Non-United States person as a qualified 
eligible person, without regard to whether the Non-United States person 
is seeking to participate in an exempt pool or to open an exempt 
account.\33\
---------------------------------------------------------------------------

    \33\ CTAs claiming relief under Rule 4.7 are nonetheless 
required under paagraph (c)(1)(i) of the rule to display a 
prescribed disclaimer statement on the cover page of any brochure or 
other disclosure statement they provide to prospective clients or, 
if none is provided, immediately above the signature line of the 
agreement the client must execute before it opens an account. CPOs 
claiming relief under Rule 4.7 are subject to a similar requirement 
under paragraph (b)(1)(i).
---------------------------------------------------------------------------

III. QPs and Knowledgeable Employees as Qualified Eligible Persons

    By the Proposal the Commission proposed to add QPs and 
knowledgeable employees to the QEP and QEC definitions, \34\ and by the 
Revision the Commission has included QPs and knowledgeable employees in 
the qualified eligible person definition. As the Commission stated in 
the Proposing Release:
---------------------------------------------------------------------------

    \34\ 65 FR at 11258-59.

    The Commission intends to follow interpretations issued by the 
SEC and its staff of the QP and knowledgeable employee definitions. 
The Commission has the right further to interpret or to amend Rule 
4.7 to exclude from the [qualified eligible person definition] any 
person that the SEC or its staff found to be a QP or knowledgeable 
employee or to include in the [qualified eligible person definition] 
any person the SEC or its staff excluded from the QP or 
knowledgeable employee definition, if such action is found to be 
necessary to effectuate the purposes of the Act and the Commission's 
regulations. The Commission expects that it would exercise this 
right infrequently.\35\
---------------------------------------------------------------------------

    \35\ 65 FR at 11259 (footnote omitted).
---------------------------------------------------------------------------

    In particular, the Commission noted that in April of 1999, staff of 
the SEC's Division of Investment Management responded to a series of 
inquiries from the Subcommittee on Private Investment Entities of the 
Federal Regulation of Securities Committee, Section of Business Law of 
the American Bar Association concerning the scope of both the qualified 
purchaser and knowledgeable employee definitions.\36\ As stated in the 
SEC staff's letter:
---------------------------------------------------------------------------

    \36\ American Bar Ass'n [Current Transfer Binder] Fed. Sec. L. 
Rep. (CCH) para. 77,548 (Apr. 22, 1999).

    Whether an employee actively participates in the investment 
activities of a Fund is a factual determination that must be made on 
a case-by-case basis by the Fund. Nevertheless, as a general matter, 
with the possible exception of some research analysts (e.g., a 
research analyst who researches all potential portfolio investments 
and provides recommendations to the portfolio manager), we believe 
that the types of employees described * * * [i.e., certain marketing 
and investor relations professionals, research analysts, attorneys, 
brokers, traders and financial, compliance, operational and 
accounting officers of a fund] would not qualify as knowledgeable 
employees under Rule 3c-5.\37\
---------------------------------------------------------------------------

    \37\ Id. at 78,746 (footnote omitted).

IV. Distribution and Derivation Tables

    The following distribution table indicates where the provisions of 
former Rule 4.7 can be found in revised Rule 4.7 and the derivation 
table indicates where the provisions of revised Rule 4.7 can be found 
in former Rule 4.7. The derivation table indicates by ``--'' any 
provision in the revised rule that is not derived from the former rule 
(i.e., it is an entirely new provision). To avoid what otherwise would 
be a very lengthy presentation, as appropriate each table groups 
together certain paragraphs.

                                              A. Distribution Table
----------------------------------------------------------------------------------------------------------------
         Former rule 4.7                                          Revised rule 4.7
----------------------------------------------------------------------------------------------------------------
(a)(1)...........................  (a)(1)
(a)(1)(i)........................  (a)(1)(iii)
(a)(1)(ii)(A)....................  (a)(2)
(a)(1)(ii)(A)(1)-(4).............  a)(2)(i)-(iv)
(a)(1)(ii)(A)(5).................  (a)(2)(viii)(A)(1)
(a)(1)(ii)(B)(1).................  (a)(1)(v)
(a)(1)(ii)(B)(2)(i)-(xii)........  (a)(3)(i)-(xii)
(a)(1)(ii)(C)....................  (a)(1)(iv); (a)(1)(vi); (a)(2)(xi)
(a)(1)(ii)(D)....................  (a)(1)(xii)(A)
(a)(2)...........................  (b)
(a)(3)...........................  (d)

[[Page 47853]]

 
(b)(1)...........................  (a)(1)
(b)(1)(i)........................  (a)(1)(ii)
(b)(1)(ii)(A)....................  (a)(2)(i)-(iv)
(b)(1)(ii)(B)(1 )................  (a)(1)(v)
(b)(1)(ii)(B)(2 )(i )-(xii)......  (a)(3)(i)-(xii)
(b)(1)(ii)(C)....................  (a)(2)(xii)(B)
(b)(1)(ii)(D)....................  (a)(2)(xii)(A)
(b)(1)(ii)(E)....................  (a)(2)(xii)(C)
(b)(2)...........................  (c)
(b)(3)...........................  (d)
(c)..............................  (e)
----------------------------------------------------------------------------------------------------------------


                                               B. Derivation Table
----------------------------------------------------------------------------------------------------------------
         Revised rule 4.7                                         Former rule 4.7
----------------------------------------------------------------------------------------------------------------
(a)..............................  (a)(1)
(a)(1)...........................  - -
(a)(1)(i)........................  - -
(a)(1)(ii).......................  (b)(1)(i)
(a)(1)(iii)......................  (a)(1)(i)
(a)(1)(iv).......................  (a)(1)(ii)(C)
(a)(1)(v)........................  (a)(1)(ii)(b)(1); (b)(1)(ii)(B)(1)
(a)(1)(vi).......................  (a)(1)(ii)(C)
(a)(2)...........................  (a)(1)(ii)(A); (b)(1)(ii)(A)
(a)(2)(i)-(iv)...................  (a)(1)(ii)(A)(1)-(4); (b)(1)(ii)(A)
(a)(2)(v)-(vii)..................  - -
(a)(2)(viii)(A)(1)...............  (a)(1)(ii)(A)(5)
(a)(2)(viii)(A)(2)-(6)...........  - -
(a)(2)(viii)(B)..................  - -
(a)(2)(ix)-(x)...................  - -
(a)(2)(xi).......................  (a)(1)(ii)(C)
(a)(2)(xii)(A)...................  (a)(1)(ii)(D); (b)(1)(ii)(D)
(a)(2)(xii)(B)...................  (b)(1)(ii)(C)
(a)(2)(xii)(C)...................  (b)(1)(ii)(E)
(a)(3)...........................  (a)(1)(ii)(B)(2); (b)(1)(ii)(B)(2)
(a)(3)(i)-(xii)..................  (a)(1)(ii)(B)(2)(i)-(xii); (b)(1)(ii)(B)(2)(i)-(xii)
(b)..............................  (a)(2)
(c)..............................  (b)(2)
(d)..............................  (a)(3); (b)(3)
(e)..............................  (c)
----------------------------------------------------------------------------------------------------------------

V. Technical Revisions to Rules 30.6(b), 140.99(i)(A) and 
180.3(b)(2)

A. Rule 30.6(b)

    Part 30 of the Commission's rules governs the offer and sale of 
foreign futures and foreign options contracts to persons located in the 
United States. Rule 30.6 sets forth the disclosure requirements that 
apply to domestic and foreign persons who are registered or required to 
be registered under Part 30 or who have obtained an exemption from such 
registration under Rule 30.5. Specifically, Rule 30.6(b) sets forth 
those requirements with respect to CPOs and CTAs, differentiating 
between disclosures applicable in the context of participants and 
clients, respectively, who meet the requirements of Rule 4.7 (Rule 
30.6(b)(1)) and those who do not (Rule 30.6(b)(2)).
    As discussed above, under the Revision persons who formerly were 
termed ``qualified eligible participants'' or ``qualified eligible 
clients'' are now all termed ``qualified eligible persons'' and the 
provisions of Rule 4.7 have been reorganized. The Commission 
accordingly has conformed the nomenclature of Rule 30.6(b) to that of 
revised Rule 4.7.

B. Rule 140.99(i)(A)

    Rule 140.99 governs requests for exemptive, no-action and 
interpretative letters. Among other things, it sets forth the 
procedures that an applicant must follow in making a request for a 
letter. Paragraph (i)(A) makes clear that Rule 140.99 does not affect 
the requirements of, or is otherwise applicable to, notice filings 
required to be made to claim relief from the Act or from a Commission 
rule--e.g., pursuant to Rule 4.7.
    As stated above, all claims for relief under Rule 4.7 are now found 
in paragraph (d) of the rule. Accordingly, the Commission has revised 
Rule 140.99(i)(A) such that it similarly refers to Rule 4.7(d).

C. Rule 180.3(b)(2)

    Part 180 of the Commission's rules governs arbitration or other 
dispute settlement procedures. Rule 180.3(b)(2) concerns the signing of 
a pre-dispute arbitration agreement and certain endorsement procedures 
that may be followed by certain persons. The Commission similarly has 
conformed the nomenclature of Rule 180.3(b)(2)(vi) so that it now 
refers to ``A person who is a `qualified eligible person' under 
Sec. 4.7(a) of this chapter.'' \38\
---------------------------------------------------------------------------

    \38\ This action is consistent with the Commission's recent 
regulatory reform proposals, which, among other things, would 
provide in new Rule 166.5 for the use of pre-dispute arbitration 
agreements for certain customer claims and grievances and which 
``expands the use of the `single-signature format' for account 
opening agreements to include * * * `qualified eligible clients' as 
defined in Rule 4.7.'' 65 FR 39008, 39016 n. 31 (June 22, 2000). As 
footnote 31 sates, the Commission has proposed to delete Part 180 in 
its entirety. If the Commission adopts these regulatory reform 
proposals, references in Rule 166.5 solely will be to ``qualified 
eligible persons.''

---------------------------------------------------------------------------

[[Page 47854]]

VI. Related Matters

A. Paperwork Reduction Act

    Rule 4.7 affects information collection requirements. As required 
by the Paperwork Reduction Act of 1995, the Commission has submitted a 
copy of this Rule 4.7 to the Office of Management and Budget (OMB) for 
its review.\39\ The Commission did not receive any comments on any 
potential paperwork burden associated with the Proposal.
---------------------------------------------------------------------------

    \39\ 44 U.S.C. 3507(d) (Supp. I 1995).
---------------------------------------------------------------------------

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \40\ requires each federal 
agency to consider the impact of proposed rules on small entities. 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 small entities in accordance with the RFA.\41\ The 
Commission has determined that registered CPOs are not small entities 
for the purposes of the RFA.\42\ 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 should be considered to 
be small entities and, if so, that it would analyze the economic impact 
on them of any rule.\43\
---------------------------------------------------------------------------

    \40\ 5 U.S.C. 601 et seq. (1994 & Supp. II 1996).
    \41\ 47 FR 18618 (Apr. 30, 1982).
    \42\ Id. at 18619-20.
    \43\ Id. at 18620.
---------------------------------------------------------------------------

    Rule 4.7 reduces the regulatory burdens on registered CPOs and CTAs 
by providing exemptive relief from the disclosure, reporting and 
recordkeeping requirements that are otherwise applicable to these 
registrants. As revised, Rule 4.7 makes this relief available to more 
CPOs and CTAs and under more situations. This expanded relief, 
moreover, is available to all CPOs and CTAs, regardless of size.

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.'' \44\ Rule 4.7 makes available an exemption from certain 
Part 4 requirements for CPOs who operate commodity pools consisting of 
qualified eligible persons and for CTAs who direct or guide the 
commodity interest trading accounts of qualified eligible persons. 
Accordingly, the Commission has determined to make the proposed 
amendments to Rule 4.7 effective immediately.
---------------------------------------------------------------------------

    \44\ 5 U.S.C. 553(d) (1994).
---------------------------------------------------------------------------

List of Subjects

17 CFR Part 4

    Advertising, Commodity futures, Commodity pool operators, Commodity 
trading advisors, Consumer protection, Reporting and recordkeeping 
requirements.

17 CFR Part 30

    Definitions, Foreign futures, Foreign options, Reporting and 
recordkeeping requirements, Registration requirements, Risk disclosure 
statements, Treatment of foreign futures and options secured amount, 
Customer protection.

17 CFR Part 140

    Authority delegations (Government agencies), Organization and 
functions (Government agencies).

17 CFR Part 180

    Arbitration or other dispute settlement procedures, Consumer 
protection.

    In consideration of the foregoing, and pursuant to the authority 
contained in the Commodity Exchange Act, and in particular, sections 
1a(4), 1a(5), 4b, 4l, 4m, 4n, 4o and 8a, 7 U.S.C. 1a, 6b, 6l, 6m, 6n, 
6o and 12a, the Commission hereby amends Parts 4, 30, 140 and 180 of 
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 4.7 is revised to read as follows:


Sec. 4.7  Exemption from certain part 4 requirements for commodity pool 
operators with respect to offerings to qualified eligible persons and 
for commodity trading advisors with respect to advising qualified 
eligible persons.

    This section is organized as follows: Paragraph (a) contains 
definitions for the purposes of Sec. 4.7; paragraph (b) contains the 
relief available to commodity pool operators under Sec. 4.7; paragraph 
(c) contains the relief available to commodity trading advisors under 
Sec. 4.7; paragraph (d) concerns the Notice of Claim for Exemption 
under Sec. 4.7; and paragraph (e) addresses the effect of an 
insignificant deviation from a term, condition or requirement of 
Sec. 4.7.
    (a) Definitions. Paragraph (a)(1) of this section contains general 
definitions, paragraph (a)(2) of this section contains the definition 
of the term qualified eligible person with respect to those persons who 
do not need to satisfy the Portfolio Requirement and paragraph (a)(3) 
of this section contains the definition of the term qualified eligible 
person with respect to those persons who must satisfy the Portfolio 
Requirement. For the purposes of this section:
    (1) In general.
    (i) Affiliate of, or a person affiliated with, a specified person 
means a person that directly or indirectly through one or more persons, 
controls, is controlled by, or is under common control with the 
specified person.
    (ii) Exempt account means the account of a qualified eligible 
person that is directed or guided by a commodity trading advisor 
pursuant to an effective claim for exemption under Sec. 4.7.
    (iii) Exempt pool means a pool that is operated pursuant to an 
effective claim for exemption under Sec. 4.7.
    (iv) Non-United States person means:
    (A) A natural person who is not a resident of the United States;
    (B) A partnership, corporation or other entity, other than an 
entity organized principally for passive investment, organized under 
the laws of a foreign jurisdiction and which has its principal place of 
business in a foreign jurisdiction;
    (C) An estate or trust, the income of which is not subject to 
United States income tax regardless of source;
    (D) An entity organized principally for passive investment such as 
a pool, investment company or other similar entity; Provided, That 
units of participation in the entity held by persons who do not qualify 
as Non-United States persons or otherwise as qualified eligible persons 
represent in the aggregate less than 10% of the beneficial interest in 
the entity, and that such entity was not formed principally for the 
purpose of facilitating investment by persons who do not qualify as 
Non-United States persons in a pool with respect to which the operator 
is exempt from certain

[[Page 47855]]

requirements of Part 4 of the Commission's regulations by virtue of its 
participants being Non-United States persons; and
    (E) A pension plan for the employees, officers or principals of an 
entity organized and with its principal place of business outside the 
United States.
    (v) Portfolio Requirement means that a person:
    (A) Owns securities (including pool participations) of issuers not 
affiliated with such person and other investments with an aggregate 
market value of at least $2,000,000;
    (B) Has had on deposit with a futures commission merchant, for its 
own account at any time during the six-month period preceding either 
the date of sale to that person of a pool participation in the exempt 
pool or the date that the person opens an exempt account with the 
commodity trading advisor, at least $200,000 in exchange-specified 
initial margin and option premiums for commodity interest transactions; 
or
    (C) Owns a portfolio comprised of a combination of the funds or 
property specified in paragraphs (a)(1)(v)(A) and (B) of this section 
in which the sum of the funds or property includable under paragraph 
(a)(1)(v)(A), expressed as a percentage of the minimum amount required 
thereunder, and the amount of futures margin and option premiums 
includable under paragraph (a)(1)(v)(B), expressed as a percentage of 
the minimum amount required thereunder, equals at least one hundred 
percent. An example of a composite portfolio acceptable under this 
paragraph (a)(1)(v)(C) would consist of $1,000,000 in securities and 
other property (50% of paragraph (a)(1)(v)(A)) and $100,000 in 
exchange-specified initial margin and option premiums (50% of paragraph 
(a)(1)(v)(B)).
    (vi) United States means the United States, its states, territories 
or possessions, or an enclave of the United States government, its 
agencies or instrumentalities.
    (2) Persons who do not need to satisfy the Portfolio Requirement to 
be qualified eligible persons. Qualified eligible person means any 
person, acting for its own account or for the account of a qualified 
eligible person, who the commodity pool operator reasonably believes, 
at the time of the sale to that person of a pool participation in the 
exempt pool, or who the commodity trading advisor reasonably believes, 
at the time that person opens an exempt account, is:
    (i) A futures commission merchant registered pursuant to section 4d 
of the Act, or a principal thereof;
    (ii) A broker or dealer registered pursuant to section 15 of the 
Securities Exchange Act of 1934, or a principal thereof;
    (iii) A commodity pool operator registered pursuant to section 4m 
of the Act, or a principal thereof; Provided, That the pool operator:
    (A) Has been registered and active as such for two years; or
    (B) Operates pools which, in the aggregate, have total assets in 
excess of $5,000,000;
    (iv) A commodity trading advisor registered pursuant to section 4m 
of the Act, or a principal thereof; Provided, That the trading advisor:
    (A) Has been registered and active as such for two years; or
    (B) Provides commodity interest trading advice to commodity 
accounts which, in the aggregate, have total assets in excess of 
$5,000,000 deposited at one or more futures commission merchants;
    (v) An investment adviser registered pursuant to section 203 of the 
Investment Advisers Act of 1940 (``Investment Advisers Act'') or 
pursuant to the laws of any state, or a principal thereof; Provided, 
That the investment adviser:
    (A) Has been registered and active as such for two years; or
    (B) Provides securities investment advice to securities accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more registered securities brokers;
    (vi) A ``qualified purchaser'' as defined in section 2(51)(A) of 
the Investment Company Act of 1940 (the ``Investment Company Act'');
    (vii) A ``knowledgeable employee'' as defined in Sec. 270.3c-5 of 
this title;
    (viii)(A) With respect to an exempt pool:
    (1) The commodity pool operator, commodity trading advisor or 
investment adviser of the exempt pool offered or sold, or an affiliate 
of any of the foregoing;
    (2) A principal of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing;
    (3) An employee of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing (other than an employee 
performing solely clerical, secretarial or administrative functions 
with regard to such person or its investments) who, in connection with 
his or her regular functions or duties, participates in the investment 
activities of the exempt pool, other commodity pools operated by the 
pool operator of the exempt pool or other accounts advised by the 
trading advisor or the investment adviser of the exempt pool, or by the 
affiliate; Provided, That such employee has been performing such 
functions and duties for or on behalf of the exempt pool, pool 
operator, trading advisor, investment adviser or affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the exempt pool 
or the commodity pool operator, commodity trading advisor or investment 
adviser of the exempt pool, or any other employee of, or agent so 
engaged by, an affiliate of any of the foregoing (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its 
investments); Provided, That such employee or agent:
    (i) Is an accredited investor as defined in Sec. 230.501(a)(5) or 
(6) of this title; and
    (ii) Has been employed or engaged by the exempt pool, commodity 
pool operator, commodity trading advisor, investment adviser or 
affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months;
    (5) The spouse, child, sibling or parent of a person who satisfies 
the criteria of paragraph (a)(2)(viii)(A)(1), (2), (3) or (4) of this 
section; Provided, That:
    (i) An investment in the exempt pool by any such family member is 
made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(3)(xi) of this section;
    (6)(i) Any person who acquires a participation in the exempt pool 
by gift, bequest or pursuant to an agreement relating to a legal 
separation or divorce from a person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section;
    (ii) The estate of any person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section; or
    (iii) A company established by any person listed in paragraph 
(a)(2)(viii)(A)(1), (2), (3), (4) or (5) of this section exclusively 
for the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(2)(viii)(A)(6)(i) or (ii) of this section;

[[Page 47856]]

    (B) With respect to an exempt account:
    (1) An affiliate of the commodity trading advisor of the exempt 
account;
    (2) A principal of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor;
    (3) An employee of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor (other than an 
employee performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments) who, in 
connection with his or her regular functions or duties, participates in 
the investment activities of the trading advisor or the affiliate; 
Provided, That such employee has been performing such functions and 
duties for or on behalf of the trading advisor or the affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the commodity 
trading advisor of the exempt account or any other employee of, or 
agent so engaged by, an affiliate of the trading advisor (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its 
investments); Provided, That such employee or agent:
    (i) Is an accredited investor as defined in Sec. 230.501(a)(5) or 
(a)(6) of this title; and
    (ii) Has been employed or engaged by the commodity trading advisor 
or the affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months; or
    (5) The spouse, child, sibling or parent of the commodity trading 
advisor of the exempt account or of a person who satisfies the criteria 
of paragraph (a)(2)(viii)(B)(1), (2), (3) or (4) of this section; 
Provided, That:
    (i) The establishment of an exempt account by any such family 
member is made with the knowledge and at the direction of the person; 
and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(3)(xi) of this section;
    (6)(i) Any person who acquires an interest in an exempt account by 
gift, bequest or pursuant to an agreement relating to a legal 
separation or divorce from a person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section;
    (ii) The estate of any person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section; or
    (iii) A company established by any person listed in paragraph 
(a)(2)(viii)(B)(1), (2), (3), (4) or (5) of this section exclusively 
for the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(2)(viii)(B)(6)(i) or (ii) of this section;
    (ix) A trust; Provided, That:
    (A) The trust was not formed for the specific purpose of either 
participating in the exempt pool or opening an exempt account; and
    (B) The trustee or other person authorized to make investment 
decisions with respect to the trust, and each settlor or other person 
who has contributed assets to the trust, is a qualified eligible 
person;
    (x) An organization described in section 501(c)(3) of the Internal 
Revenue Code (the ``IRC''); Provided, That the trustee or other person 
authorized to make investment decisions with respect to the 
organization, and the person who has established the organization, is a 
qualified eligible person;
    (xi) A Non-United States person;
    (xii)(A) An entity in which all of the unit owners or participants, 
other than the commodity trading advisor claiming relief under this 
section, are qualified eligible persons;
    (B) An exempt pool; or
    (C) Notwithstanding paragraph (a)(3) of this section, an entity as 
to which a notice of eligibility has been filed pursuant to Sec. 4.5 
which is operated in accordance with such rule and in which all unit 
owners or participants, other than the commodity trading advisor 
claiming relief under this section, are qualified eligible persons.
    (3) Persons who must satisfy the Portfolio Requirement to be 
qualified eligible persons. Qualified eligible person means any person 
who the commodity pool operator reasonably believes, at the time of the 
sale to that person of a pool participation in the exempt pool, or any 
person who the commodity trading advisor reasonably believes, at the 
time that person opens an exempt account, satisfies the Portfolio 
Requirement and is:
    (i) An investment company registered under the Investment Company 
Act or a business development company as defined in section 2(a)(48) of 
such Act not formed for the specific purpose of either investing in the 
exempt pool or opening an exempt account;
    (ii) A bank as defined in section 3(a)(2) of the Securities Act of 
1933 (the ``Securities Act'') or any savings and loan association or 
other institution as defined in section 3(a)(5)(A) of the Securities 
Act acting for its own account or for the account of a qualified 
eligible person;
    (iii) An insurance company as defined in section 2(13) of the 
Securities Act acting for its own account or for the account of a 
qualified eligible person;
    (iv) A plan established and maintained by a state, its political 
subdivisions, or any agency or instrumentality of a state or its 
political subdivisions, for the benefit of its employees, if such plan 
has total assets in excess of $5,000,000;
    (v) An employee benefit plan within the meaning of the Employee 
Retirement Income Security Act of 1974; Provided, That the investment 
decision is made by a plan fiduciary, as defined in section 3(21) of 
such Act, which is a bank, savings and loan association, insurance 
company, or registered investment adviser; or that the employee benefit 
plan has total assets in excess of $5,000,000; or, if the plan is self-
directed, that investment decisions are made solely by persons that are 
qualified eligible persons;
    (vi) A private business development company as defined in section 
202(a)(22) of the Investment Advisers Act;
    (vii) An organization described in section 501(c)(3) of the IRC, 
with total assets in excess of $5,000,000;
    (viii) A corporation, Massachusetts or similar business trust, or 
partnership, other than a pool, which has total assets in excess of 
$5,000,000, and is not formed for the specific purpose of either 
participating in the exempt pool or opening an exempt account;
    (ix) A natural person whose individual net worth, or joint net 
worth with that person's spouse, at the time of either his purchase in 
the exempt pool or his opening of an exempt account exceeds $1,000,000;
    (x) A natural person who had an individual income in excess of 
$200,000 in each of the two most recent years or joint income with that 
person's spouse in excess of $300,000 in each of those years and has a 
reasonable expectation of reaching the same income level in the current 
year;
    (xi) A pool, trust, insurance company separate account or bank 
collective trust, with total assets in excess of $5,000,000, not formed 
for the specific purpose of either participating in the exempt pool or 
opening an exempt account, and whose participation in the exempt pool 
or investment in the exempt account is directed by a qualified eligible 
person; or
    (xii) Except as provided for the governmental entities referenced 
in paragraph (a)(3)(iv) of this section, if

[[Page 47857]]

otherwise authorized by law to engage in such transactions, a 
governmental entity (including the United States, a state, or a foreign 
government) or political subdivision thereof, or a multinational or 
supranational entity or an instrumentality, agency, or department of 
any of the foregoing.
    (b) Relief available to commodity pool operators. Upon filing the 
notice required by paragraph (d) of this section, and subject to 
compliance with the conditions specified in paragraph (d) of this 
section, any registered commodity pool operator who offers or sells 
participations in a pool solely to qualified eligible persons in an 
offering which qualifies for exemption from the registration 
requirements of the Securities Act pursuant to section 4(2) of that Act 
or pursuant to Regulation S, 17 CFR 230.901 et seq., and any bank 
registered as a commodity pool operator in connection with a pool that 
is a collective trust fund whose securities are exempt from 
registration under the Securities Act pursuant to section 3(a)(2) of 
that Act and are offered or sold, without marketing to the public, 
solely to qualified eligible persons, may claim any or all of the 
following relief with respect to such pool:
    (1) Disclosure relief. (i) Exemption from the specific requirements 
of Secs. 4.21, 4.24, 4.25 and 4.26 with respect to each exempt pool; 
Provided, That if an offering memorandum is distributed in connection 
with soliciting prospective participants in the exempt pool, such 
offering memorandum must include all disclosures necessary to make the 
information contained therein, in the context in which it is furnished, 
not misleading; and that the following statement is prominently 
disclosed on the cover page of the offering memorandum, or, if none is 
provided, immediately above the signature line on the subscription 
agreement or other document that the prospective participant must 
execute to become a participant in the pool:

    ``PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED 
TO QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL 
IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. 
THE COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE 
MERITS OF PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY 
OF AN OFFERING MEMORANDUM. CONSEQUENTLY, THE COMMODITY FUTURES 
TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS OFFERING OR ANY 
OFFERING MEMORANDUM FOR THIS POOL.''

    (ii) Exemption from disclosing the past performance of exempt pools 
in the Disclosure Document of non-exempt pools except to the extent 
that such past performance is material to the non-exempt pool being 
offered; Provided, That a pool operator that has claimed exemption 
hereunder and elects not to disclose any such performance in the 
Disclosure Document of non-exempt pools shall state in a footnote to 
the performance disclosure therein that the operator is operating or 
has operated exempt pools whose performance is not disclosed in this 
Disclosure Document.
    (2) Periodic reporting relief. Exemption from the specific 
requirements of Secs. 4.22(a) and (b); Provided, That a statement 
signed and affirmed in accordance with Sec. 4.22(h) is prepared and 
distributed to pool participants no less frequently than quarterly 
within 30 calendar days after the end of the reporting period. This 
statement must indicate:
    (i) The net asset value of the exempt pool as of the end of the 
reporting period;
    (ii) The change in net asset value from the end of the previous 
reporting period; and
    (iii) The net asset value per outstanding unit of participation in 
the exempt pool as of the end of the reporting period.
    (3) Annual report relief. (i) Exemption from the specific 
requirements of Secs. 4.22(c) and (d); Provided, That within 90 
calendar days after the end of the exempt pool's fiscal year, the 
commodity pool operator files with the Commission and with the National 
Futures Association and distributes to each participant in lieu of the 
financial information and statements specified by those sections, an 
annual report for the exempt pool, signed and affirmed in accordance 
with Sec. 4.22(h) which contains, at a minimum:
    (A) A Statement of Financial Condition as of the close of the 
exempt pool's fiscal year (elected in accordance with Sec. 4.22(g));
    (B) A Statement of Income (Loss) for that year; and
    (C) Appropriate footnote disclosure and any other material 
information.
    (ii) Such annual report must be presented and computed in 
accordance with generally accepted accounting principles consistently 
applied and, if certified by an independent public accountant, so 
certified in accordance with Sec. 1.16 as applicable.
    (iii) Legend. (A) If a claim for exemption has been made pursuant 
to this section, the commodity pool operator must make a statement to 
that effect on the cover page of each annual report.
    (B) If the annual report is not certified in accordance with 
Sec. 1.16, the pool operator must make a statement to that effect on 
the cover page of each annual report and state that a certified audit 
will be provided upon the request of the holders of a majority of the 
units of participation in the pool who are unaffiliated with the 
commodity pool operator.
    (4) Recordkeeping relief. Exemption from the specific requirements 
of Sec. 4.23; Provided, That the commodity pool operator must maintain 
the reports referred to in paragraphs (b)(2) and (b)(3) of this section 
and all books and records prepared in connection with his activities as 
the pool operator of the exempt pool (including, without limitation, 
records relating to the qualifications of qualified eligible persons 
and substantiating any performance representations) at his main 
business address and must make such books and records available to any 
representative of the Commission, the National Futures Association and 
the United States Department of Justice in accordance with the 
provisions of Sec. 1.31.
    (c) Relief available to commodity trading advisors. Upon filing the 
notice required by paragraph (d) of this section, and subject to 
compliance with the conditions specified in paragraph (d) of this 
section, any registered commodity trading advisor who anticipates 
directing or guiding the commodity interest accounts of qualified 
eligible persons may claim any or all of the following relief with 
respect to the accounts of qualified eligible persons who have given 
due consent to their account being an exempt account under Sec. 4.7:
    (1) Disclosure relief. (i) Exemption from the specific requirements 
of Secs. 4.31, 4.34, 4.35 and 4.36; Provided, That if the commodity 
trading advisor delivers a brochure or other disclosure statement to 
such qualified eligible persons, such brochure or statement shall 
include all additional disclosures necessary to make the information 
contained therein, in the context in which it is furnished, not 
misleading; and that the following statement is prominently displayed 
on the cover page of the brochure or statement or, if none is provided, 
immediately above the signature line of the agreement that the client 
must execute before it opens an account with the commodity trading 
advisor:


[[Page 47858]]


    ``PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE 
PERSONS, THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, 
AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES 
TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN 
A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY 
TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES 
TRADING COMMISSION HAS NOT REVIEWED OR APPROVED THIS TRADING PROGRAM 
OR THIS BROCHURE OR ACCOUNT DOCUMENT.''

    (ii) Exemption from disclosing the past performance of exempt 
accounts in the Disclosure Document for non-exempt accounts except to 
the extent that such past performance is material to the non-exempt 
account being offered; Provided, That a commodity trading advisor that 
has claimed exemption hereunder and elects not to disclose any such 
performance in the Disclosure Document for non-exempt accounts shall 
state in a footnote to the performance disclosure therein that the 
advisor is advising or has advised exempt accounts for qualified 
eligible persons whose performance is not disclosed in this Disclosure 
Document.
    (2) Recordkeeping relief. Exemption from the specific requirements 
of Sec. 4.33; Provided, That the commodity trading advisor must 
maintain, at its main business office, all books and records prepared 
in connection with his activities as the commodity trading advisor of 
qualified eligible persons (including, without limitation, records 
relating to the qualifications of such qualified eligible persons and 
substantiating any performance representations) and must make such 
books and records available to any representative of the Commission, 
the National Futures Association and the United States Department of 
Justice in accordance with the provisions of Sec. 1.31.
    (d) Notice of claim for exemption.
    (1) A notice of a claim for exemption under this section must:
    (i) Be in writing;
    (ii) Provide the name, main business address, main business 
telephone number and the National Futures Association commodity pool 
operator or commodity trading advisor identification number of the 
person claiming the exemption;
    (iii)(A) Where the claimant is a commodity pool operator, provide 
the name(s) of the pool(s) for which the request is made; Provided, 
That a single notice representing that the pool operator anticipates 
operating single-investor pools may be filed to claim exemption for 
single-investor pools and such notice need not name each such pool;
    (B) Where the claimant is a commodity trading advisor, contain a 
representation that the trading advisor anticipates providing commodity 
interest trading advice to qualified eligible persons;
    (iv) Contain representations that:
    (A) Neither the commodity pool operator or commodity trading 
advisor nor any of its principals is subject to any statutory 
disqualification under section 8a(2) or 8a(3) of the Act unless such 
disqualification arises from a matter which was previously disclosed in 
connection with a previous application for registration if such 
registration was granted or which was disclosed more than thirty days 
prior to the filing of the notice under this paragraph (d);
    (B) The commodity pool operator or commodity trading advisor will 
comply with the applicable requirements of Sec. 4.7; and
    (C) Where the claimant is a commodity pool operator, that the 
exempt pool will be offered and operated in compliance with the 
applicable requirements of Sec. 4.7;
    (v) Specify the relief claimed under Sec. 4.7;
    (vi) Where the claimant is a commodity pool operator, state the 
closing date of the offering or that the offering will be continuous;
    (vii) Be signed by the commodity pool operator or commodity trading 
advisor as follows: If it is a sole proprietorship, by the sole 
proprietor; if a partnership, by a general partner; and if a 
corporation, by the chief executive officer or chief financial officer;
    (viii) Be filed in duplicate with the Commission at the address 
specified in Sec. 4.2 and with the National Futures Association at its 
headquarters office (Attn: Director of Compliance, Compliance 
Department); and
    (ix)(A)(1) Where the claimant is a commodity pool operator, except 
as provided in paragraph (d)(1)(iii)(A) of this section with respect to 
single-investor pools and in paragraph (d)(1)(ix)(A)(2) of this 
section, be received by the Commission:
    (i) Before the date the pool first enters into a commodity interest 
transaction, if the relief claimed is limited to that provided under 
paragraphs (b)(2), (3) and (4) of this section; or
    (ii) Prior to any offer or sale of any participation in the exempt 
pool if the claimed relief includes that provided under paragraph 
(b)(1) of this section.
    (2) Where participations in a pool have been offered or sold in 
full compliance with Part 4, the notice of a claim for exemption may be 
filed with the Commission at any time; Provided, That the claim for 
exemption is otherwise consistent with the duties of the commodity pool 
operator and the rights of pool participants and that the commodity 
pool operator notifies the pool participants of his intention, absent 
objection by the holders of a majority of the units of participation in 
the pool who are unaffiliated with the commodity pool operator within 
twenty-one days after the date of the notification, to file a notice of 
claim for exemption under Sec. 4.7 and such holders have not objected 
within such period. A commodity pool operator filing a notice under 
this paragraph (d)(1)(ix)(A)(2) shall either provide disclosure and 
reporting in accordance with the requirements of Part 4 to those 
participants objecting to the filing of such notice or allow such 
participants to redeem their units of participation in the pool within 
three months of the filing of such notice.
    (B) Where the claimant is a commodity trading advisor, be received 
by the Commission before the date the trading advisor first enters into 
an agreement to direct or guide the commodity interest account of a 
qualified eligible person pursuant to Sec. 4.7.
    (2) The notice will be effective upon receipt by the Commission 
with respect to each pool for which it was made where the claimant is a 
commodity pool operator and otherwise generally where the claimant is a 
commodity trading advisor; Provided, That any notice which does not 
include all the required information shall not be effective, and that 
if at the time the Commission receives the notice, an enforcement 
proceeding brought by the Commission under the Act or the regulations 
is pending against the pool operator or trading advisor or any of its 
principals, the exemption will not be effective until twenty-one 
calendar days after receipt of the notice by the Commission and that in 
such case an exemption may be denied by the Commission or made subject 
to such conditions as the Commission may impose.
    (3) Any exemption claimed hereunder shall cease to be effective 
upon any change which would cause the commodity pool operator of an 
exempt pool to be ineligible for the relief claimed with respect to 
such pool or which would cause a commodity trading advisor to be 
ineligible for the relief claimed. The pool operator or trading advisor 
must promptly file a

[[Page 47859]]

notice advising the Commission of such change.
    (4)(i) Any exemption from the requirements of Sec. 4.21, 4.22, 
4.23, 4.24, 4.25 or 4.26 claimed hereunder with respect to a pool shall 
not affect the obligation of the commodity pool operator to comply with 
all other applicable provisions of Part 4, the Act and the Commission's 
rules and regulations, with respect to the pool and any other pool the 
pool operator operates or intends to operate.
    (ii) Any exemption from the requirements of Sec. 4.31, 4.33, 4.34, 
4.35 or 4.36 claimed hereunder shall not affect the obligation of the 
commodity trading advisor to comply with all other applicable 
provisions of Part 4, the Act and the Commission's rules and 
regulations, with respect to any qualified eligible person and any 
other client to which the commodity trading advisor provides or intends 
to provide commodity interest trading advice.
    (e) Insignificant deviations from a term, condition or requirement 
of Sec. 4.7.
    (1) A failure to comply with a term or condition of Sec. 4.7 will 
not result in the loss of the exemption with respect to a particular 
pool or client if the commodity pool operator or the commodity trading 
advisor relying on the exemption shows that:
    (i) The failure to comply did not pertain to a term, condition or 
requirement directly intended to protect that particular qualified 
eligible person;
    (ii) The failure to comply was insignificant with respect to the 
exempt pool as a whole or to the particular exempt account; and
    (iii) A good faith and reasonable attempt was made to comply with 
all applicable terms, conditions and requirements of Sec. 4.7.
    (2) A transaction made in reliance on Sec. 4.7 must comply with all 
applicable terms, conditions and requirements of Sec. 4.7. Where an 
exemption is established only through reliance upon paragraph (e)(1) of 
this section, the failure to comply shall nonetheless be actionable by 
the Commission.

PART 30--FOREIGN FUTURES AND OPTIONS TRANSACTIONS

    3. The authority citation for part 30 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 4, 6, 6c and 12a, unless otherwise 
noted.


    4. Section 30.6 is amended by revising paragraph (b) to read as 
follows:


Sec. 30.6  Disclosure.

* * * * *
    (b) Commodity pool operators and commodity trading advisors. (1) 
With respect to persons who satisfy the requirements of qualified 
eligible persons, as defined in Sec. 4.7(a) of this chapter:
    (i) A commodity pool operator registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec. 30.4(c) unless the pool operator, at or 
before the time it engages in such activities, first provides each 
prospective qualified eligible person with the Risk Disclosure 
Statement set forth in Sec. 4.24(b)(2) of this chapter and the 
statement in Sec. 4.7(b)(1)(i) of this chapter;
    (ii) A commodity trading advisor registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec. 30.4(d) unless the trading advisor, at or 
before the time it engages in such activities, first provides each 
qualified eligible person with the Risk Disclosure Statement set forth 
in Sec. 4.34(b)(2) of this chapter and the statement in 
Sec. 4.7(c)(1)(i) of this chapter.
    (2) With respect to persons who do not satisfy the requirements of 
qualified eligible persons, as defined in Sec. 4.7(a) of this chapter:
    (i) A commodity pool operator registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec. 30.4(c) unless the pool operator, at or 
before the time it engages in such activities, first provides each 
prospective participant with the Disclosure Document required to be 
furnished to customers or potential customers pursuant to Sec. 4.21 of 
this chapter and files the Disclosure Document in accordance with 
Sec. 4.26 of this chapter;
    (ii) A commodity trading advisor registered or required to be 
registered under this part, or exempt from registration pursuant to 
Sec. 30.5, may not, directly or indirectly, engage in any of the 
activities described in Sec. 30.4(d) unless the trading advisor, at or 
before the time it engages in such activities, first provides each 
prospective client with the Disclosure Document required to be 
furnished customers or potential customers pursuant to Sec. 4.31 of 
this chapter and files the Disclosure Document in accordance with 
Sec. 4.36 of this chapter.
* * * * *

PART 140--ORGANIZATION, FUNCTIONS, AND PROCEDURES OF THE COMMISSION

    5. The authority citation for part 140 continues to read as 
follows:

    Authority: 7 U.S.C. 4a and 12a.


Sec. 140.99  [Amended]

    6. In Sec. 140.99, paragraphs (i)(A) and (B) are correctly 
designated as paragraphs (i)(1) and (2). In paragraph (i)(1), the 
phrase ``Secs. 4.5, 4.7(a), 4.7(b), 4.12(b), 4.13(b) and 4.14(a)(8) of 
this chapter'' is revised to read ``Secs. 4.5, 4.7(d), 4.12(b), 4.13(b) 
and 4.14(a)(8) of this chapter''.

PART 180--ARBITRATION OR OTHER DISPUTE SETTLEMENT PROCEDURES

    7. The authority citation for part 180 continues to read as 
follows:

    Authority: 7 U.S.C. 6c, 6d, 6f, 6k, 7a, 12a, and 21, unless 
otherwise noted.


    8. Section 180.3 is amended by revising paragraph (b)(2)(vi) to 
read as follows:


Sec. 180.3  Voluntary procedure and compulsory payments.

* * * * *
    (b) * * *
    (2) * * *
    (vi) A person who is a ``qualified eligible person'' as defined in 
Sec. 4.7(a) of this chapter.
* * * * *

    Issued in Washington, D.C., on July 27, 2000, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 00-19445 Filed 8-3-00; 8:45 am]
BILLING CODE 6351-01-P