[Federal Register Volume 68, Number 51 (Monday, March 17, 2003)]
[Notices]
[Pages 12684-12685]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-6178]


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COMMODITY FUTURES TRADING COMMISSION


Review by the National Futures Association of Disclosure 
Documents Required To Be Filed by Commodity Pool Operators for 
Publicly-Offered Commodity Pools

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice and order.

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SUMMARY: The Commodity Futures Trading Commission (the ``Commission'') 
is authorizing the National Futures Association (``NFA'') to conduct 
reviews of Disclosure Documents required to be filed with the 
Commission by commodity pool operators (``CPOs'') for publicly-offered 
commodity pools.

EFFECTIVE DATE: March 17, 2003.

FOR FURTHER INFORMATION CONTACT: Kevin P. Walek, Assistant Director, 
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

    The Commission previously has authorized NFA to perform many 
functions that, until that time, were performed by Commission staff. 
These functions include: The processing of applications for 
registration of intermediaries and floor traders under the Commodity 
Exchange Act (the ``Act''); \1\ the processing of notices of 
eligibility for certain exemptions from registration as a CPO and 
commodity trading advisor (``CTA''); the review of certain Disclosure 
Documents required to be filed by CPOs and CTAs pursuant to Commission 
rules,\2\ and the review of annual financial reports required to be 
filed by CPOs.\3\
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    \1\ 7 U.S.C. 1 et seq. (2000). See, e.g., 48 FR 35158 (Aug. 3, 
1983) (introducing brokers and associated persons thereof); 49 FR 
39593 (Oct. 9, 1984) (futures commission merchants, commodity pool 
operators, commodity trading advisors, and associated persons 
thereof); 51 FR 34490 (Sep. 29, 1986) (floor brokers); 58 FR 19657 
(Apr. 15, 1993) (floor traders).
    \2\ See 62 FR 52088 (Oct. 6, 1997).
    \3\ See 67 FR 77470 (Dec. 18, 2002).
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    In 1997, the Commission 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'' commodity pools.\4\ In December 2002, the Commission noted 
that, with regard to this area of authorization, as well as others, NFA 
has exercised its authority with particular proficiency. Additionally, 
the Commission noted that, as a result of authorizing NFA to perform 
such functions, Commission staff have been able to devote resources to 
other aspects of the Commission's regulatory mission.\5\
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    \4\ 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.). As discussed herein, ``publicly-offered'' commodity pools are 
pools not offered pursuant to section 4(2) of the Securities Act of 
1933 or pursuant to Regulation D.
    \5\ 67 FR at 77470.
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    In December 2002, concurrently with authorizing NFA to review 
annual financial reports filed by CPOs, the Commission made certain 
amendments to part 4 of its rules \6\ so as to, among other things, 
make clear that Disclosure Documents with regard to privately offered 
commodity pools need only be filed with NFA and need not also be filed 
with the Commission.\7\ Additionally, the commission amended rule 
4.26(d) by adding paragraph (d)(3) to make clear that Disclosure 
Documents, and any amendments to such Disclosure Documents, required to 
be filed by CPOs with regard to publicly-offered commodity pools must 
be filed with the Commission.\8\
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    \6\ Commission rules referred to herein may be found at 17 CFR 
ch. I (2002).
    \7\ 67 FR 77409 (Dec. 18, 2002).
    \8\ Id.
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    As the Commission noted in December 2002, the futures industry is 
continually expanding and transforming itself and as the industry 
changes and evolves, the Commission must also change and evolve, 
reassessing the manner in which it allocates its resources.\9\ 
Accordingly, the Commission has now determined that NFA should be 
authorized to receive and review Disclosure Documents of publicly-
offered commodity pools. Specifically, by this order, the

[[Page 12685]]

Commission is authorizing NFA to review Disclosure Documents that CPOs 
are required to submit pursuant to rule 4.26(d)(3). In final rules 
being published elsewhere in the Federal Register, the Commission is 
amending rule 4.26(d) so as to make clear that CPOs need only file such 
Disclosure Documents with NFA and need not also file them with the 
Commission.
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    \9\ 67 FR at 77470.
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II. Authority

    Section 4n(3)(A) of the Act provides, among other things, that each 
CPO shall ``file such reports in such form and manner as may be 
prescribed by the Commission.'' The Commission also notes that, in 
amending the Act through passage of the Commodity Futures Modernization 
Act of 2000 (the ``CFMA''),\10\ Congress intended, as evidenced in 
section 2 of the CFMA, to transform the role of the Commission from 
that of a frontline regulator to that of an oversight regulator of the 
futures industry. Moreover, section 125 of the CFMA required the 
Commission to conduct a study of the Act and the Commission's rules and 
orders governing the conduct of registrants under the Act, identifying, 
among other things, regulatory functions the Commission performs that 
can be delegated to a registered futures association.\11\ Additionally, 
the Commission notes that NFA, as a registered futures association, is 
obligated to establish a program for the protection of customers and 
customer funds and to prevent fraudulent acts and practices.\12\
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    \10\ Pub. L. No. 106-554, 114 Stat. 2763 (codified as amended in 
scattered sections of 7 U.S.C.).
    \11\ A copy of the study may be viewed on the Commission's Web 
site at: www.cftc.gov/files/opa/opaintermediarystudy.pdf.
    \12\ See Commission rule 170.5; see also section 17(b)(7) of the 
Act.
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III. Maintenance of and Access to Disclosure Document Filings

    The Commission has also determined to authorize NFA to maintain and 
serve as official custodian of record for the Disclosure Documents 
filed by CPOs with regard to publicly-offered pools, as required under 
rule 4.26(d). This determination is based upon NFA's representations 
regarding procedures for maintaining and safeguarding all such records, 
in connection with NFA's assumption of the responsibilities for the 
activities referenced above. In maintaining the Commission's records 
pursuant to this Order, NFA shall be subject to all other requirements 
and obligations imposed upon it by the Commission in existing or future 
orders or regulations. In this regard, NFA shall also implement such 
additional procedures (or modify existing procedures) as are acceptable 
to the Commission and as are necessary: (1) To ensure the security and 
integrity of the records in NFA's custody; (2) to facilitate prompt 
access to those records by the Commission and its staff, particularly 
as described in other Commission orders or rules; (3) to facilitate 
disclosure of public or nonpublic information in those records when 
permitted by Commission orders or rules and to keep logs as required by 
the Commission concerning disclosure of nonpublic information; and (4) 
to otherwise safeguard the confidentiality of the records.

IV. Conclusion and Order

    For the reasons discussed above, and pursuant to its authority 
under the Act, the Commission has determined to authorize NFA to 
receive and review Disclosure Documents filed by CPOs pursuant to rule 
4.26(d) with regard to publicly-offered commodity pools. In addition, 
the Commission has determined to authorize NFA to maintain and to serve 
as the official custodian of such records.
    These determinations are based upon: (1) The Congressional intent 
that the Commission be permitted to determine the best manner in which 
to oversee CPOs; (2) the Congressional intent that a registered futures 
association, where appropriate, assume responsibility under the Act for 
regulatory functions the Commission has deemed unnecessary to retain; 
and (3) NFA's representation and demonstration of its willingness and 
ability to administer the required regulatory functions in accordance 
with the standards established by the Act, the Commission's regulations 
and orders promulgated thereunder, any supplemental direction 
established by the Commission or Commission staff, and relevant case 
law, and to provide the Commission with whatever information, reports, 
summaries, or records the Commission may determine are necessary for 
effective oversight of NFA's administration of the functions delegated 
herein, or for the Commission to fulfill its role of regulatory 
oversight of the futures markets.
    This order does not authorize NFA to accept or act upon requests 
for exemption from the requirements of rule 4.26(d). Moreover, NFA is 
not authorized to issue any interpretations, ``no-action'' positions, 
or exemptions with respect to the requirements of rule 4.26(d).
    NFA is authorized to perform all functions specified in this order 
until the Commission orders otherwise. Nothing in this order shall 
prevent the Commission from exercising the authority delegated herein. 
NFA may submit to the Commission for decision any specific matter 
regarding the functions delegated to it by this order. Nothing in this 
order affects the applicability of any previous orders issued by the 
Commission.

    Issued in Washington, DC, on March 10, 2003, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 03-6178 Filed 3-14-03; 8:45 am]
BILLING CODE 6351-01-P