[Federal Register Volume 73, Number 229 (Wednesday, November 26, 2008)]
[Proposed Rules]
[Pages 71968-71971]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-28177]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

RIN 3038-AC67


Electronic Filing of Disclosure Documents

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing to amend its regulations applicable to the filing of 
Disclosure Documents by commodity pool operators (CPOs) and commodity 
trading advisors (CTAs) with the National Futures Association (NFA). In 
response to a petition from NFA, the CFTC is proposing that CPOs and 
CTAs be required to file their Disclosure Documents electronically with 
NFA (Proposal).

DATES: Comments must be received on or before December 26, 2008.

ADDRESSES: Comments on the Proposal should be sent to David A. Stawick, 
Secretary, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street, NW., Washington, DC 20581. Comments may be 
sent by facsimile transmission to (202) 418-5521, or by e-mail to 
[email protected]. Reference should be made to ``Proposal Regarding 
Electronic Filing of Disclosure Documents.'' Comments also may be 
submitted by connecting to the Federal eRulemaking Portal at http://www.regulations.gov and following the comment submission instructions.

FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Associate Director, 
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 number: (202) 418-5450; facsimile number: (202) 418-5528; and 
electronic mail: [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

A. CPO and CTA Disclosure Documents

    Part 4 of the Commission's regulations \1\ governs the operations 
and activities of CPOs and CTAs. Regulations 4.21 and 4.31 respectively 
require each CPO and CTA registered or required to be registered with 
the Commission to deliver a Disclosure Document to prospective pool 
participants and clients. Regulations 4.24 and 4.25 specify the 
informational content of the CPO Disclosure Document, and Regulations 
4.34 and 4.35 specify the informational content for the CTA Disclosure 
Document. Regulations 4.26 and 4.36 respectively pertain to the use, 
amendment and filing of CPO and CTA Disclosure Documents. Specifically, 
under Regulations 4.26(d) and 4.36(d), the CPO or CTA must file one 
copy of the Disclosure Document, and any supplements and amendments 
thereto, with NFA.\2\ These regulations do not, however, prescribe any 
particular manner of filing.
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    \1\ 17 CFR Part 4 (2008). The Commission's regulations can be 
accessed through the CFTC's Web site, http://www.cftc.gov.
    \2\ NFA is a registered futures association pursuant to section 
17 of the Commodity Exchange Act (Act), 7 U.S.C. 21 (2000). The Act 
also may be accessed through the CFTC's Web site.
     The Commission previously authorized NFA to conduct reviews of 
Disclosure Documents filed by CPOs and CTAs pursuant to Regulations 
4.26(d) and 4.36(d). See 62 FR 52088 (Oct. 6, 1997).
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B. The NFA Petition

    By letter dated July 21, 2008, NFA petitioned the Commission to 
amend Regulations 4.26 and 4.36 in order to require that CPOs and CTAs 
file Disclosure Documents electronically through NFA's electronic 
Disclosure Document filing system (Petition).\3\
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    \3\ The Petition also adds the word ``each'' before the existing 
words ``trading program'' in paragraph (d)(1) of Regulation 4.36 to 
make that paragraph read parallel to the existing phrase ``each 
trading program'' in paragraph (d)(2) of Regulation 4.36.
    The Commission previously authorized NFA to accept notices of 
exemptions or exclusions claimed under Part 4 and required that 
these notices be filed electronically. See Id. and 72 FR 1658 (Jan. 
16, 2007), respectively.
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    In its Supporting Arguments, NFA explained the reasoning behind the 
Petition as follows:

    Currently, while there is nothing to prohibit a firm from filing 
a disclosure document in hardcopy form, the vast majority of CPO and 
CTA registrants file disclosure documents with NFA primarily via 
electronic mail due to its expediency and convenience. While the use 
of electronic mail has been a significant improvement over hardcopy 
submissions in terms of filing efficiency, the current approach 
still requires a considerable amount of staffing resources and has 
other disadvantages, e.g., the inability of registrants to obtain 
the status of the review of their filing without calling NFA and the 
lack of a central location for storing past filings. Accordingly, 
NFA has developed a new Internet-based electronic filing system for 
disclosure documents that will be significantly less resource 
intensive while also streamlining and enhancing the filing process 
for registrants. In order to realize the proposed benefits, however, 
registrants must be required to file their documents electronically 
through NFA's new system. Consequently, NFA is petitioning the 
Commission to amend its regulations accordingly.

    The Commission understands that, as with NFA's other electronic 
filing systems,\4\ the Disclosure Document system was designed to be 
easy and secure, such that Disclosure Documents, supplements and 
amendments will be uploaded through the system as either Word or PDF 
documents. Thus, although the CPO or CTA must have an Internet 
connection to access the system, it could use any public Internet site, 
such as those available in most public libraries. Moreover, CPOs and 
CTAs will access the system using the same designated login and 
password that they currently use for NFA's Online

[[Page 71969]]

Registration System--which, NFA states, is ``a well-tested 
authentication model with which participating registrants are already 
familiar.'' \5\ NFA additionally states that it has been extremely 
careful in the development of the system to ensure that the database it 
maintains of Disclosure Document filings will not be compromised in any 
way by unauthorized persons.
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    \4\ For example, NFA has adopted ``Easyfile'' for introducing 
broker and commodity pool financial statements required to be filed 
with it.
    \5\ The Commission previously delegated to NFA registration 
responsibilities for CPOs, CTAs and their associated persons. See 49 
FR 39593 (Oct. 9, 1984).
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    Further in this regard, NFA explains that once CPOs and CTAs have 
accessed the system:

    They will be guided through the filing process, which culminates 
in the electronic transfer of the disclosure document through the 
secure web-based gateway. The system includes extensive help text to 
assist registrants with their filings, and the filing process 
includes a series of questions that will assist in identifying the 
type of filing as well as provide important background information 
to assist NFA staff with the analysis of the document itself. After 
the document is submitted, the system will automatically assign it 
to an available NFA analyst. By accessing the system, registrants 
will be able to track the status of their filing and receive comment 
letters as they are issued. Additionally, the system will serve as 
an electronic filing cabinet for registrants since it will maintain 
all previous filings and related comment letters filed through the 
system.

    The Commission further understands, then, that NFA's process for 
the electronic filing of Disclosure Documents will have two components. 
One of those components will require CPOs and CTAs to electronically 
submit their Disclosure Documents, as well as any amendments and 
supplements thereto. The other of these components will require CPOs 
and CTAs to enter from their Disclosure Documents certain key 
information on their operations and activities into a standardized form 
accessed through NFA's Web site.\6\
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    \6\ Among other things, this key information concerns 
identification of contact persons, relationships with futures 
commission merchants or introducing brokers, and the past 
performance history and related data for the offered pool or trading 
program.
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II. The Proposal

    In light of the foregoing, the Commission is proposing to amend 
Regulations 4.26(d) and 4.36(d) to require that any documents required 
to be filed thereunder be filed electronically with NFA, pursuant to 
NFA's electronic filing procedures. The Commission wishes to emphasize, 
however, that the Proposal would not impact the delivery of Disclosure 
Documents to prospective pool participants and clients, which CPOs and 
CTAs could continue to provide through hardcopy distribution via postal 
mail or electronically if the intended recipient consented thereto.\7\
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    \7\ See Regulations 4.21(b) for CPOs and 4.31(b) for CTAs.
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III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \8\ requires that agencies, in 
proposing rules, consider the impact of those rules on small 
businesses. 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 entities in accordance with 
the RFA.\9\ With respect to CPOs, the Commission previously has 
determined that a registered CPO is not a small entity for the purpose 
of the RFA.\10\ As for CTAs, the Commission previously has stated that 
it would evaluate within the context of a particular rule proposal 
whether all or some affected CTAs would be considered to be small 
entities and, if so, the economic impact on them of the particular 
rule.\11\ As noted above, the Commission believes that the Proposal 
will not place any significant economic burdens, whether new or 
additional, on CPOs and CTAs who will be affected by it. This is 
because while the Proposal will require these CPOs and CTAs to have 
access to and a certain degree of technical knowledge to file 
Disclosure Documents electronically and to enter the required key 
information, they will access the system using the same designated 
login and password that they currently use for registration purposes 
and they will be entering the key information directly from their 
Disclosure Documents. Thus, the Proposal simply alters the mechanism 
for filing Disclosure Documents, and does not affect the substance or 
frequency of those filings. Accordingly, and based on section 3(a) of 
the RFA,\12\ the Acting Chairman, on behalf of the Commission, 
certifies that the Proposal would not have a significant economic 
impact on a substantial number of small entities. However, the 
Commission invites the public to comment on this certification.
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    \8\ 5 U.S.C. 601 et seq.
    \9\ See 47 FR 18618 (Apr. 30, 1982).
    \10\ Id. at 18619.
    \11\ Id. at 18620.
    \12\ 5 U.S.C. 605(b).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \13\ imposes certain 
requirements on federal agencies (including the Commission) in 
conducting or sponsoring any collection of information as defined by 
the PRA. If adopted, the Proposal would change the manner in which CPOs 
and CTAs file Disclosure Documents with NFA; it would not affect the 
substance or frequency of those filings. The Proposal would, however, 
authorize the separate collection from CPOs and CTAs of certain key 
information from the Disclosure Documents CPOs and CTAs would be filing 
electronically. Accordingly, pursuant to the PRA, the Commission has 
submitted a copy of this section to the Office of Management and Budget 
(OMB) for its review.
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    \13\ 44 U.S.C. 3501 et seq.
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    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 amended regulations will be to 
reduce the burden previously approved by OMB for this collection of 
information by 239.5 hours. This is because, while it will result in an 
increase in the estimated average number of hours per response under 
Regulations 4.26 and 4.36, there will be fewer CPOs and CTAs subject to 
the filing requirements of these regulations owing to increased claims 
of exemption under Regulation 4.7 from Disclosure Document requirements 
and under Regulations 4.13 and 4.14 from registration altogether.
    Specifically:
    The burden associated with Regulation 4.26 is expected to be 
decreased by 422.4 hours:
    Estimated number of respondents: 160.
    Annual responses by each respondent: 3.
    Estimated average hours per response: 3.25.
    Annual reporting burden: 1560.
    This annual reporting burden of 1560 hours represents a decrease of 
422.4 hours as a result of the proposed amendment to Regulation 4.26.
    The burden associated with Regulation 4.36 is expected to be 
increased by 182.9:
    Estimated number of respondents: 450.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 1.85.
    Annual reporting burden: 832.5.
    This annual reporting burden of 832.5 hours represents an increase 
of 182.9

[[Page 71970]]

hours as a result of the proposed amendment to Regulation 4.36.
    The net result of the proposed amendments to Regulations 4.26 and 
4.36, then, is a decrease in the annual reporting burden of 239.5.
    Copies of the information collection submission to OMB are 
available from the CFTC Clearance Officer, 1155 21st Street, NW., 
Washington, DC 20581 (202) 418-5160. 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, utility, and clarity of the information to 
be collected; and
    Minimizing the burden of the 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.
    Organizations and individuals desiring to submit comments on the 
information collection should contact the Office of Information and 
Regulatory Affairs, Office of Management and Budget, Room 10235, New 
Executive Office Building, Washington, DC 20503, Attn: Desk Officer of 
the Commodity Futures Trading Commission. OMB is required to make a 
decision concerning the collection of information contained in the 
Proposal between 30 and 60 days after publication of this document in 
the 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 Proposal.

C. Cost-Benefit Analysis

    Section 15(a) of the Act \14\ requires the Commission to consider 
the costs and benefits of its action before issuing a new regulation 
under the Act. By its terms, section 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 regulation outweigh its costs. 
Rather, section 15(a) simply requires the Commission to ``consider the 
costs and benefits'' of its action.
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    \14\ 7 U.S.C. 19(a).
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    Section 15(a) further specifies that costs and benefits shall be 
evaluated in light of five broad areas of market and public concern, 
enumerated below. 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.
    The Proposal would amend Regulations 4.26(d) and 4.36(d) to require 
that CPOs and CTAs file Disclosure Documents, and any supplements and 
amendments thereto, electronically with NFA. The Commission is 
considering the costs and benefits of the Proposal in light of the 
specific provisions of section 15(a) as follows:
    1. Protection of market participants and the public. The Proposal 
should not affect the protection of market participants and the public, 
as it provides an alternate method of filing Disclosure Documents, but 
does not alter the character or frequency of those filings.
    2. Efficiency and competition. The Commission anticipates that the 
Proposal will benefit efficiency by permitting NFA to streamline its 
process for receiving and reviewing Disclosure Document filings. Thus, 
the Commission considers the Proposal as benefiting efficiency and not 
impacting competition.
    3. Financial integrity of futures markets and price discovery. The 
Proposal should have no effect, from the standpoint of imposing costs 
or creating benefits, on the financial integrity of futures markets or 
the price discovery function of such markets.
    4. Sound risk management practices. The Proposal should have no 
effect, from the standpoint of imposing costs or creating benefits, on 
sound risk management practices.
    5. Other public interest considerations. The Commission believes 
that the Proposal is beneficial in that it should streamline the 
timeliness of filing, review and delivery of, and electronic 
accessibility to, Disclosure Documents.
    After considering these factors, the Commission has determined to 
propose the amendments to Regulations 4.26(d) and 4.36(d) discussed 
above. The Commission invites public comment on its application of the 
cost-benefit provision. Commenters also are invited to submit any data 
that they may have quantifying the costs and benefits of the Proposal 
with their comment letters.

List of Subjects in 17 CFR Part 4

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

    Accordingly, 17 CFR Chapter I is proposed to be amended 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. Revise paragraph (d) of Sec.  4.26 to read as follows:


Sec.  4.26  Use, Amendment and Filing of Disclosure Document.

* * * * *
    (d) Except as provided by Sec.  4.8:
    (1) The commodity pool operator must electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, 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 electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, 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. Revise paragraph (d) of Sec.  4.36 to read as follows:


Sec.  4.36  Use, amendment and filing of Disclosure Document.

* * * * *
    (d)(1) The commodity trading advisor must electronically file with 
the National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the Disclosure Document 
for each trading program that it offers or that it intends to offer not 
less than 21 calendar days

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prior to the date the trading advisor first intends to deliver the 
Document to a prospective client in the trading program; and
    (2) The commodity trading advisor must electronically file with the 
National Futures Association, pursuant to the electronic filing 
procedures of the National Futures Association, the subsequent 
amendments to the Disclosure Document for each trading program that it 
offers or that it intends to offer within 21 calendar days of the date 
upon which the trading advisor first knows or has reason to know of the 
defect requiring the amendment.

    Issued in Washington, DC, on November 21, 2008 by the 
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. E8-28177 Filed 11-25-08; 8:45 am]
BILLING CODE 6351-01-P