[Federal Register Volume 65, Number 216 (Tuesday, November 7, 2000)]
[Proposed Rules]
[Pages 66663-66665]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-28367]


=======================================================================
-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4


Extension of Time To File Annual Reports for Commodity Pools

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rule amendments.

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

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

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

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

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

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

SUPPLEMENTARY INFORMATION:

I. Background

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

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

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

[[Page 66664]]

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

II. Description of the Proposed Extension

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

III. Technical Changes to Rule 4.22(f)

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

IV. Additional Consideration Regarding Rule 4.7 Entities

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

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

V. Related Matters

A. Regulatory Flexibility Act

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

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

B. Paperwork Reduction Act

    Proposed Rule 4.22(f)(2) affects information collection 
requirements. As required by the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)), the Commission has submitted a copy of this section to 
the Office of Management and Budget for its review. Collection of 
Information Rules Relating to the Operations and Activities of 
Commodity Pool Operators and Commodity Trading Advisors and to Monthly 
Reporting by Futures Commission Merchants, OMB Control Number 3038-
0005.
    The expected effect of the proposed rule will be to increase the 
burden previously approved by OMB for this collection of information by 
175 hours. Specifically, the burden associated with proposed Rule 
4.22(f)(2) is expected to be increased by 175 hours:
    Estimated number of respondents (after proposed extension): 350.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 0.5.
    Annual reporting burden: 175.
    Organizations and individuals desiring to submit comments on the 
information collection requirements should direct them to the Office of 
Information and Regulatory Affairs, OMB, Room 10235 New Executive 
Office Building, Washington, DC 20503; Attention: Desk Officer for the 
Commodity Futures Trading Commission. The Commission considers comments 
by the public on this proposed collection of information in--
     Evaluating whether the proposed collection of information 
is necessary for the proper performance of the functions of the 
Commission, including whether the information will have a practical 
use;
     Evaluating the accuracy of the Commission's estimate of 
the burden of the proposed collection of information, including the 
validity of the methodology and assumptions used;
     Enhancing the quality, usefulness, and clarity of the 
information to be collected; and
    Minimizing the burden of collection of information on those 
who are to respond, including through the use of appropriate automated 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g., permitting electronic 
submission of responses.
    OMB is required to make a decision concerning the collection of 
information contained in these proposed regulations between 30 and 60 
days after publication of this document in the

[[Page 66665]]

Federal Register. Therefore, a comment to OMB is best assured of having 
its full effect if OMB receives it within 30 days of publication. This 
does not affect the deadline for the public to comment to the 
Commission on the proposed regulations. Copies of the information 
collection submission to OMB are available from the CFTC Clearance 
Officer, 1155 21st Street N.W., Washington, DC 20581, (202) 418-5160.

List of Subjects in 17 CFR Part 4

    Brokers, Commodity futures.

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

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


Sec. 4.22  Reporting to pool participants.

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

    Issued in Washington, D.C. on October 31, 2000 by the 
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 00-28367 Filed 11-6-00; 8:45 am]
BILLING CODE 6351-01-P