[Federal Register Volume 67, Number 243 (Wednesday, December 18, 2002)]
[Rules and Regulations]
[Pages 77409-77411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-31685]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4


Commodity Pool Operators and Commodity Trading Advisors

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rules.

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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'' 
or ``CFTC'') has adopted amendments which govern Commodity Pool 
Operators (``CPOs'') and Commodity Trading Advisors (``CTAs''). These 
amendments make clear that certain Disclosure Documents, annual 
financial reports, notices of eligibility, claims of exemption, and 
requests for extensions of time to file annual financial reports, need 
only be filed with the National Futures Association (``NFA'') and need 
not also be filed with the Commission. The Commission, in separate 
Notices and Orders published elsewhere in the Federal Register, has 
authorized NFA to receive and review these documents.

DATES: Effectice January 1, 2003. Amendments to Commission Rules 
4.7(b)(3)(i) and 4.22 shall be applicable with regard to commodity pool 
annual financial reports for fiscal years ending on December 31, 2002, 
and thereafter.

FOR FURTHER INFORMATION CONTACT: Kevin P. Walek, Assistant Director, 
Eileen R. Chotiner, Futures Trading Specialist, Audit and Financial 
Review Section, or Michael A. Piracci, Attorney Advisor, Compliance and 
Registration Section, Division of Clearing and Intermediary Oversight, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. Telephone: (202) 418-5430.

SUPPLEMENTARY INFORMATION:

I. Background

    In a Notice and Order issued in 1997 (the ``1997 Order''), the 
Commission, among other things, authorized NFA to process: (1) Notices 
of eligibility for exclusion for certain otherwise regulated persons 
from the definition of CPO, pursuant to Commission Rule 4.5; \1\ (2) 
notices of claim for exemption from certain part 4 requirements with 
respect to commodity pools and CTAs whose participants or clients are 
qualified eligible persons, pursuant to Commission Rule 4.7; (3) claims 
of exemption from certain part 4 requirements for CPOs with respect to 
pools that principally trade securities, pursuant to Commission Rule 
4.12(b); (4) statements of exemption from registration as a CPO, 
pursuant to Commission Rule 4.13; and (5) notices of exemption from 
registration as a CTA for certain persons registered as an investment 
adviser, pursuant to Rule 4.14(a)(8).\2\ As part of the 1997 Order, the 
Commission also authorized NFA to receive and review Disclosure 
Documents required to be filed with the Commission by CPOs, pursuant to 
Commission Rule 4.26(d), with regard to ``privately offered'' \3\ 
commodity pools, and CTAs, pursuant to Commission Rule 4.36(d).\4\
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    \1\ Commission rules referred to herein may be found at 17 CFR 
ch. I (2002).
    \2\ See 62 FR 52088 (Oct. 6, 1997).
    \3\ See note 2, supra. Pursuant to Commission Rule 
4.24(d)(3)(i), ``privately offered'' commodity pools are those 
offered pursuant to section 4(2) of the Securities Act of 1933, as 
amended (15 U.S.C. 77d(2)), or pursuant to Regulation D thereunder 
(17 CFR 230.501 et seq.).
    \4\ Pursuant to Commission Rule 4.24(d)(3)(i), privately offered 
commodity pools are those that are offered pursuant to section 4(2) 
of the Securities Act of 1933, as amended (15 U.S.C. 77d(2)), or 
pursuant to Regulation D thereunder (17 CFR 230.501 et seq.).
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    In a separate notice published elsewhere today in the Federal 
Register, the Commission is authorizing NFA, with regard to commodity 
pool annual financial reports for fiscal years ending on December 31, 
2002, and thereafter, to, among other things: (1) Rceive and review 
annual financial reports required to be filed by CPOs pursuant to 
Commission Rules 4.7(b)(3) and 4.22(c); (2) receive and grant or deny 
applications filed pursuant to Commission Rule 4.22(f)(1) for 
extensions of time to distribute annual financial reports; and (3) 
process notices of claims of extension of time to distribute and file 
annual financial reports filed pursuant to Commission Rule 4.22(f)(2).

II. Rule Amendments

    In the 1997 notice and order and the notice and order published 
elsewhere in the Federal Register today, the Commission noted that NFA 
Compliance Rule 2-13 \5\ requires NFA members to file with NFA copies 
of any documents required to be filed with the Commission pursuant to 
part 4 of the Commission's Rules. Moreover, certain of the Commission 
rules that are the subject of the orders explicitly require that the 
document be filed with both NFA and the Commission.\6\ As a result of 
the Commission authorizations, it is no longer necessary for the 
Commission to receive copies of these documents. As discussed more 
fully in the notice published elsewhere today in the Federal Register, 
the Commission will have immediate electronic access to all required 
pertinent information contained in these documents. Moreover, if the 
Commission or Commission staff requires a hard copy of any of the 
subject documents, NFA will make such copies available within 24 hours. 
Accordingly, it is not necessary for the Commission to impose upon the 
persons filing these documents the burden and cost of having to file 
the documents with both NFA and the Commission. The Commission is, 
therefore, amending the subject rules to make clear that the required 
documents

[[Page 77410]]

need only be filed with NFA and need not also be filed with the 
Commission.\7\
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    \5\ NFA Rules may be found on NFA's Web site at: http://www.nfa.futures.org.
    \6\ See, e.g., Commission Rule 4.14(a)(8)(v).
    \7\ The Commission rules being amended herein are rule: (1) 4.5; 
(2) 4.7; (3) 4.12; (4) 4.13; (5) 4.14; (6) 4.22; (7) 4.26; and (8) 
4.36.
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    Generally, the amendments being adopted herein are simply removing 
the phrase ``the Commission'' and, where appropriate, adding in its 
place ``the National Futures Association.'' \8\ In the 1997 Order, the 
Commission authorized NFA to review Disclosure Documents that CPOs are 
required to file, pursuant to Commission Rule 4.26(d), with regard to 
only those Disclosure Documents filed for ``privately offered'' pools. 
The Commission, therefore, continues to receive and review Disclosure 
Documents for pools that are not ``privately offered.'' Accordingly, 
Rule 4.26(d) is being amended by adding paragraph (d)(3) to make clear 
that Disclosure Documents for pools that are not ``privately offered'' 
must be filed with the Commission, as well as any subsequent amendments 
to such Disclosure Documents.
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    \8\ See the amendments to Commission Rule 4.5 being adopted 
herein.
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III. Effective Date

    The amendments adopted by the Commission herein shall be effective 
January 1, 2003, except for the amendments to Commission Rules 
4.7(b)(3) and 4.22, which involve the annual financial reports of 
commodity pools and extensions of time for filing such reports. As 
discussed in the notice published elsewhere today in the Federal 
Register, in order to avoid disruption of outstanding reviews of annual 
financial reports, this authorization is effective only with regard to 
commodity pool annual financial reports for fiscal years ending on 
December 31, 2002, and thereafter. Accordingly, the amendments to Rules 
4.7(b)(3) and 4.22 are similarly effective only with regard to 
commodity pool annual financial reports for fiscal years ending on 
December 31, 2002, and thereafter. CPOs, therefore, must continue to 
file annual financial reports and extensions of time for such reports 
with both the Commission and NFA regarding any commodity pool annual 
financial reports for fiscal years ending prior to December 31, 2002.

IV. Related Matters

A. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (``PRA'') \9\ imposes certain 
requirements on federal agencies (including the Commission) in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA. The rule amendments do not require a 
new collection of information on the part of any entities subject to 
the proposed rule amendments. Accordingly, for purposes of the PRA, the 
Commission certifies that these rule amendments will not impose any new 
reporting or recordkeeping requirements.
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    \9\ 44 U.S.C. 3501 et seq.
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B. Cost-Benefit Analysis

    Section 15(a) of the Act requires the Commission to consider the 
costs and benefits of its action before issuing a new regulation under 
the Act. By its terms, sction 15(a) does not require the Commission to 
quantify the costs and benefits of a new regulation or to determine 
whether the benefits of the proposed regulation outweigh its costs. 
Rather, section 15(a) simply requires the Commission to ``consider the 
costs and benefits'' of its action.
    Section 15(a) further specifies that costs and benefits shall be 
evaluated in light of five broad areas of market and public concern: 
Protection of market participants and the public; efficiency, 
competitiveness, and financial integrity of futures markets; price 
discovery; sound risk management practices; and other public interest 
considerations. Accordingly, the Commission could in its discretion 
give greater weight to any one of the five enumerated areas and could 
in its discretion determine that, notwithstanding its costs, a 
particular rule was necessary or appropriate to protect the public 
interest or to effectuate any of the provisions or to accomplish any of 
the purposes of the Act.
    These amendments are intended to minimize the filing burdens 
imposed upon CPOs and CTAs by making clear that the subject documents 
need only be filed with NFA and not also the Commission. The Commission 
is considering the costs and benefits of these rules in light of the 
specific provisions of section 15(a) of the Act:
    1. Protection of market participants and the public. While the 
amendments are expected to lessen the filing burdens imposed upon CPOS 
and CTAs, they do not reduce the type of information and documents that 
must be provided to customers of CPOs and CTAs. Moreover, these 
documents will continue to be reviewed for compliance with the Act and 
Commission Rules. Accordingly, the amendments being adopted herein 
should have no effect on the Commission's ability to protect market 
participants and the public.
    2. Efficiency and competition. The amendments, by requiring that 
the subject documents need only be filed with NFA and not also the 
Commission, should increase the efficiency with which CPOs and CTAs 
comply with the applicable regulations.
    3. Financial integrity of futures markets and price discovery. The 
amendments should have no effect, from the standpoint of imposing costs 
or creating benefits, on the financial integrity or price discovery 
function of the futures and options markets.
    4. Sound risk management practices. The amendments being adopted 
herein should have no effect on the risk management practices of the 
futures and options industry.
    5. Other public interest considerations. The amendments should make 
compliance with the applicable Commission rules more efficient without 
imposing any costs to the regulatory oversight of commodity 
registrants.
    After considering these factors, the Commission has determined to 
adopt the amendments discussed above.

C. Administrative Procedure Act

    The Commission has determined that the amendments discussed herein 
relate solely to agency organization, procedure, and practice. 
Accordingly, the provisions of the Administrative Procedure Act that 
generally require notice of proposed rulemaking and that provide other 
opportunities for public participation are not applicable.\10\ The 
Commission further finds that, because the amendments relieve a 
restriction as to the required filing of documents and the amendments 
have no adverse effect upon a member of the public, there is good cause 
to make them effective less than thirty days after publication in the 
Federal Register.\11\
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    \10\ 5 U.S.C. 553(b)(3)(A) (1994).
    \11\ See 5 U.S.C. 553(d) (1994).
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List of Subjects in 17 CFR Part 4

    Reporting and recordkeeping requirements.


    For the reasons discussed in the foregoing, the Commission hereby 
amends chapter I of title 17 of the Code of Federal Regulations as 
follows:

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

    1. The authority citation for part 4 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6(c), 6l, 6m, 6n, 6o, 12a, 
and 23.


    2. Section 4.5 is amended as follows:
    a. By amending the introductory text of paragraph (c) by removing

[[Page 77411]]

``Commission'' and by adding in its place ``National Futures 
Association'';
    b. By amending paragraph (c)(3) by removing ``Commission'' and 
adding in its place ``National Futures Association'';
    c. By amending paragraph (d)(1) by removing ``Commission'' and 
adding in its place ``National Futures Association'';
    d. By removing paragraph (f)(3); and
    e. Redesignating paragraph (f)(4) as (f)(3).
    3. Section 4.7 is amended as follows:
    a. By amending paragraph (b)(3)(i) by removing ``the Commission 
and'';
    b. By amending paragraph (d)(1)(viii) by removing ``in duplicate 
with the Commission at the address specified in Sec.  4.2 and'';
    c. By amending paragraph (d)(1)(ix) by removing every instance of 
``Commission'' and adding in its place ``National Futures 
Association'';
    d. By revising paragraph (d)(2); and
    e. By amending paragraph (d)(3) by removing ``Commission'' and 
adding in its place ``National Futures Association''.
    The revisions 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.

* * * * *
    (d) * * *
    (2) The notice will be effective upon receipt by the National 
Futures Association 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 National Futures Association 
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 National Futures Association and that in such case an exemption may 
be denied by the Commission or the National Futures Association or made 
subject to such conditions as the Commission or the National Futures 
Association may impose.
* * * * *


Sec.  4.12  [Amended]

    4. Section 4.12 is amended as follows:
    a. By amending the introductory text of paragraph (b)(3) by 
removing ``Commission'' and adding in its place ``National Futures 
Association'';
    b. By removing paragraph (b)(3)(vii);
    c. By redesignating paragraph (b)(3)(viii) as (b)(3)(vii) and by 
amending paragraph (b)(3)(vii) as redesignated by removing ``A copy 
also must be'' and adding in its place ``Be''; and
    d. By amending paragraph (b)(5)(ii) by removing ``Commission'' and 
adding in its place ``National Futures Association''.


Sec.  4.13  [Amended]

    5. Section 4.13 is amended as follows:
    a. By removing paragraph (b)(1)(iv)(A); and
    b. By redesignating paragraph (b)(1)(iv)(B) as (b)(1)(iv)(A).

    6. Section 4.14 is amended as follows:
    a. By amending paragraph (a)(8)(iii) by removing ``Commission'' and 
adding in its place ``National Futures Association'';
    b. By removing paragraph (a)(8)(v)(C); and
    c. By redesignating paragraph (a)(8)(v)(D) as (a)(8)(v)(C) and by 
amending paragraph (a)(8)(v)(C) as redesignated by removing ``A copy 
also must be filed'' and adding in its place ``Filed''.


Sec.  4.22  [Amended]

    7. Section 4.22 is amended as follows:
    a. By amending the introductory text of paragraph (c) by removing 
``two copies of the Report with the Commission'' and adding in its 
place ``a copy of the Report with the National Futures Association'' 
and by removing ``Commission'' and adding in its place ``National 
Futures Association'';
    b. By amending paragraph (f)(1) by removing every instance of 
``Commission' and adding in its place ``National Futures Association''; 
and
    c. By amending paragraph (f)(2)(i) by removing ``and the 
Commission''.

    8. Section 4.26 is amended by revising paragraph (d) to read as 
follows:


Sec.  4.26  Use, amendment and filing of Disclosure Document.

* * * * *
    (d) Except as provided by Sec.  4.8 and paragraph (d)(3) of this 
section:
    (1) The commodity pool operator must file with the National Futures
    Association one copy of the Disclosure Document and, where used, 
profile document for each pool that it operates or that it intends to 
operate not less than 21 calendar days prior to the date the pool 
operator first intends to deliver such Document or documents to a 
prospective participant in the pool; and
    (2) The commodity pool operator must file with the National Futures
    Association one copy of the subsequent amendments to the Disclosure
    Document and, where used, profile document for each pool that it 
operates or that it intends to operate within 21 calendar days of the 
date upon which the pool operator first knows or has reason to know of 
the defect requiring the amendment.
    (3) With respect to pools that are not offered pursuant to section 
4(2) of the Securities Act of 1933, as amended (15 U.S.C. 77d(2)), or 
pursuant to Regulation D thereunder (17 CFR 230.501 et seq.), a 
commodity pool operator must:
    (i) File with the Commission one copy of the Disclosure Document 
and, where used, profile document for each pool that it operates or 
that it intends to operate not less than 21 calendar days prior to the 
date the pool operator first intends to deliver such Document or 
documents to a prospective participant in the pool; and
    (ii) File with the Commission one copy of the subsequent amendments 
to the Disclosure Document and, where used, profile document for each 
pool that it operates or that it intends to operate within 21 calendar 
days of the date upon which the pool operator first knows or has reason 
to know of the defect requiring the amendment.


Sec.  4.36  [Amended]

    9. Section 4.36(d) is amended by removing every instance of 
``Commission'' and adding in its place ``National Futures 
Association''.

    Issued in Washington, DC, on December 11, 2002, by the 
Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 02-31685 Filed 12-17-02; 8:45 am]
BILLING CODE 6351-01-P