[Federal Register Volume 75, Number 174 (Thursday, September 9, 2010)]
[Proposed Rules]
[Pages 54794-54801]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-22395]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 75, No. 174 / Thursday, September 9, 2010 / 
Proposed Rules  

[[Page 54794]]



COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

RIN 3038-AC46


Commodity Pool Operators: Relief From Compliance With Certain 
Disclosure, Reporting and Recordkeeping Requirements for Registered 
CPOs of Commodity Pools Listed for Trading on a National Securities 
Exchange; CPO Registration Exemption for Certain Independent Directors 
or Trustees of These Commodity Pools

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing changes to its regulations as they affect certain 
commodity pool operators (CPOs) of commodity pools whose units of 
participation are listed and traded on a national securities exchange 
(Proposal). Specifically, the Proposal would codify the relief from 
certain disclosure, reporting and recordkeeping requirements that 
Commission staff previously has issued on a case-by-case basis to these 
CPOs. In addition, the Proposal would provide relief from the CPO 
registration requirement for certain independent directors or trustees 
of actively-managed commodity pools.

DATES: Written comments must be received on or before October 25, 2010.

ADDRESSES: Interested persons may submit comments by any of the 
following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: [e-mail address TBD] Include ``Proposed Regulatory 
Relief for CPOs of Exchange-Listed Commodity Pools'' in the subject 
line of the message.
     Fax: (202) 418-5521.
     Mail: Send to David Stawick, Secretary, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W., 
Washington, DC 20581.
     Courier: Same as Mail above.

All comments received will be posted, without change, to http://www.cftc.gov. All comments must be in English or, if in another 
language, accompanied by an English translation.

FOR FURTHER INFORMATION CONTACT: Christopher W. Cummings, Special 
Counsel, Division of Clearing and Intermediary Oversight, or Barbara S. 
Gold, Associate Director, Division of Clearing and Intermediary 
Oversight, Commodity Futures Trading Commission, 1155 21st Street, NW., 
Washington, DC 20581, telephone number: (202) 418-5450; facsimile 
number: (202) 418-5528; and electronic mail: [email protected], or 
[email protected], respectively.

SUPPLEMENTARY INFORMATION:

I. Background

A. Regulation of CPOs

    Section 1a(5) of the Commodity Exchange Act (Act) defines the term 
``commodity pool operator'' to mean:

    [A]ny person engaged in a business that is of the nature of an 
investment trust, syndicate, or similar form of enterprise, and who, 
in connection therewith, solicits, accepts, or receives from others, 
funds, securities, or property, either directly or through capital 
contributions, the sale of stock or other forms of securities, or 
otherwise, for the purpose of trading in any commodity for future 
delivery on or subject to the rules of any contract market or 
derivatives transaction execution facility, * * * \1\

    \1\ 7 U.S.C. 1a(5) (2006).
    The Act and the Commission's regulations may be accessed through 
the Commission's Web site, at: http://www.cftc.gov.
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Section 4m(1) of the Act provides, in relevant part, that it is 
unlawful for any CPO, ``unless registered under [the] Act, to make use 
of the mails or any means or instrumentality of interstate commerce'' 
in connection with its business as a CPO.\2\
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    \2\ 7 U.S.C. 6m(1) (2006).
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    Part 4 of the Commission's regulations governs the operations and 
activities of CPOs.\3\ Generally, CPOs who are, or who are required to 
be, registered with the Commission must deliver to prospective pool 
participants a Disclosure Document containing specified information 
\4\--e.g., the business background of the CPO and its principals, past 
performance of the pool being offered, fees and other expenses, and 
conflicts of interest--and they must distribute to participants in 
their pools periodic unaudited Account Statements and certified Annual 
Reports of their pools' operations.\5\ These CPOs also must make and 
keep specified books and records at their main business office.\6\ 
Additionally, regardless of registration status, all persons who come 
within the CPO definition are subject to certain operational \7\ and 
advertising requirements \8\ under Part 4, to all other provisions of 
the Act and the Commission's regulations prohibiting fraud that apply 
to CPOs,\9\ and to all other relevant provisions of the Act and the 
Commission's regulations that apply to all commodity interest market 
participants, such as the general antifraud provisions, prohibitions 
against manipulation, and the trade reporting requirements.\10\
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    \3\ The Commission's regulations are found at 17 CFR Ch. I 
(2010), and, as noted previously, can be accessed through the 
Commission's Web site. Part 4 of the regulations also governs the 
operations and activities of commodity trading advisors (CTAs), who 
are defined in Section 1a(6) of the Act and, like CPOs, are subject 
to registration under Section 4m(1) of the Act. However, the 
operations and activities of CTAs are not the subject of the 
Proposal.
    \4\ Regulation 4.21.
    \5\ Regulation 4.22.
    \6\ Regulation 4.23.
    \7\ Regulation 4.20.
    \8\ Regulation 4.41.
    \9\ See, e.g., Section 4o of the Act.
    \10\ See, e.g., Section 4b of the Act and Parts 15 and 18 of the 
Regulations.
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B. Relief From CPO Regulation

1. In General
    In implementing its statutory mandate to regulate the activities of 
CPOs, the Commission has endeavored to refine its regulations as 
appropriate to respond to changing market conditions in a manner 
consistent with customer protection. In addition to the issuance of 
relief by Commission staff on a case-by-case basis to facilitate 
application of regulatory requirements to new market conditions, the 
Commission has provided certain exemptions for registered CPOs from 
various of the requirements of Part 4 of its regulations, and where 
appropriate, it has provided exemptions from the CPO registration 
requirement itself. In 1985, the Commission adopted Regulation 4.5 to 
exclude from the CPO

[[Page 54795]]

definition (and thus from the requirement to register as a CPO) certain 
otherwise highly-regulated persons in connection with their operation 
of specified ``qualifying entities''--i.e., registered investment 
companies, insurance company separate accounts, bank collective trust 
funds and qualifying pension plans.\11\ In 1987, the Commission adopted 
Regulation 4.12(b) to provide relief from specific compliance with 
certain disclosure, reporting and recordkeeping requirements of Part 4 
for certain CPOs who operate pools that trade generally and routinely 
in securities instruments, and who intend to commit no more than 10 
percent of the value of their pools' assets as initial margin or as 
option premiums for commodity interest trading.\12\ In addition, in 
1992, the Commission adopted Regulation 4.7 to make available a 
simplified regulatory framework for CPOs privately offering commodity 
pools to certain highly accredited investors, termed ``qualified 
eligible participants'' or ``QEPs.'' \13\ In 2000, the Commission 
amended Regulation 4.7 to expand the rule's availability.\14\ Most 
recently, in 2003, the Commission adopted Regulations 4.13(a)(3) and 
(a)(4) to exempt, respectively, from the CPO registration requirement 
operators of pools that are offered to certain types of sophisticated 
investors and that restrict their commodity interest trading to 
specified limits and operators of pools that admit exclusively 
investors meeting a higher sophistication standard, but that need not 
restrict their trading.
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    \11\ See 50 FR 15868 (Apr. 23, 1985).
    \12\ See 52 FR 41975 (Nov. 2, 1987).
    \13\ See 57 FR 34853 (Aug. 7, 1992).
    \14\ See 65 FR 47848 (Aug. 4, 2000).
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    As is explained in greater detail below, the Proposal is intended 
to respond to financial market developments by providing relief to 
operators of commodity pools where units of participation in the pool 
are listed for trading on a national securities exchange.
2. Commodity Exchange Traded Funds
    Historically, exchange-traded funds, or ETFs, have been investment 
companies registered as such under the Investment Company Act of 1940 
either as unit investment trusts or as open-end investment companies. 
Shares of ETFs are traded by both institutional and retail investors on 
national securities exchanges, and in the over-the-counter markets. 
ETFs are designed to replicate the holdings, or correspond to the 
performance and yield of, a referenced securities index or a highly-
correlated subset of the securities underlying the index.\15\ More 
recently, ETFs have been offered that seek to use active management of 
the fund's trading.
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    \15\ See Letter from James A. Brigagliano, Esq., Assistant 
Director, SEC Division of Market Regulation, to Stuart M. Strauss, 
Esq., dated October 24, 2006 (re: Class Relief for Exchange Traded 
Index Funds), available at: http://www.sec.gov/divisions/marketreg/mr-noaction/etifclassrelief102406-msr.pdf.
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    In 2005, registered CPOs began offering commodity pools whose units 
of participation (``shares'') are publicly-offered and listed for 
trading on a national securities exchange. These pools have come to be 
known as ``Commodity ETFs'' because they are designed to emulate 
ETFs.\16\ Like ETFs, a Commodity ETF may passively seek to track or 
replicate the performance of a specific commodity index, or it may 
actively trade commodity interests without regard to an index or 
benchmark.
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    \16\ CPOs have operated Commodity ETFs on the basis that the 
units of participation or shares constitute securities for purposes 
of the U.S. federal securities laws and that they can be offered, 
sold and transferred as such. However, in Commission Staff Letters 
cited below at n. 17, staff stated that, while not necessarily 
agreeing with the SEC's or the CPOs' analyses or conclusions on this 
issue, it would not recommend that the Commission commence any 
enforcement action against a Commodity ETF or market participants in 
connection with the offer, sale and transfer of units of 
participation in the Commodity ETFs.
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    CPOs of Commodity ETFs have requested and received from Commission 
staff exemptive relief from certain of the disclosure, reporting and 
recordkeeping requirements of Subpart B of Part 4 of the Commission's 
regulations (Prior Relief Letters).\17\ In each case, the CPO sought 
exemption from certain of the Disclosure Document delivery and 
acknowledgment requirements of Regulation 4.21,\18\ the periodic 
Account Statement distribution requirement of Regulation 4.22,\19\ and 
the requirement under Regulation 4.23 to keep the pool's books and 
records at the CPO's main business office.\20\ In support of their 
requests, the CPOs offered substituted compliance with other 
requirements and various undertakings.\21\ The Proposal would codify 
the exemptions that Commission staff has granted.
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    \17\ See CFTC Staff Letters 10-24 [Current Transfer Binder] 
Comm. Fut. L. Rep. (CCH) ]31,586 (Jun. 28, 2010); 10-23 [Current 
Transfer Binder] Comm. Fut. L. Rep. (CCH) ]31,584 (Jun. 7, 2010); 
10-22 [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ]31,583 
(Jun. 3, 2010); 08-16 [2007-2009 Transfer Binder] Comm. Fut. L. Rep. 
(CCH) ]30,925 (Sep. 3, 2008); 08-15 [2007-2009 Transfer Binder] 
Comm. Fut. L. Rep. (CCH) ]30,924 (Aug. 20, 2008); 08-02 [2007-2009 
Transfer Binder] Comm. Fut. L. Rep. (CCH) ]30,796 (Jan. 29, 2008); 
08-01 [2007-2009 Transfer Binder] Comm. Fut. L. Rep. (CCH) ]30,795 
(Jan. 11, 2008); 06-26 [2005-2007 Transfer Binder] Comm. Fut. L. 
Rep. (CCH) ]30,396 (Sep. 26, 2006); 06-27 [2005-2007 Transfer 
Binder] Comm. Fut. L. Rep. (CCH) ]30,397 (Sep. 26, 2006); 06-16 
[2005-2007 Transfer Binder] Comm. Fut. L. Rep. (CCH) ]30,311 (Jul. 
6, 2006); 06-15 [2005-2007 Transfer Binder] Comm. Fut. L. Rep. (CCH) 
]30,310 (Jul. 12, 2006); and 05-19 [2005-2007 Transfer Binder] Comm. 
Fut. L. Rep. (CCH) ]30,164 (Nov. 10, 2005). The following involve 
actively-traded Commodity ETFs: CFTC Staff Letters 10-06 [Current 
Transfer Binder] Comm. Fut. L. Rep. (CCH) ]31,557 (Mar. 29, 2010) 
and 09-39 [Current Transfer Binder] Comm. Fut. L. Rep. (CCH) ]31,473 
(Jul. 30, 2009). All of the foregoing are accessible at the 
Commission's Internet Web site at http://www.cftc.gov. Staff issued 
these exemptions pursuant to the authority delegated to it by the 
Commission under Regulation 140.93.
    \18\ Regulation 4.21 requires each CPO registered or required to 
be registered to deliver to a prospective participant in a pool that 
it operates or intends to operate, a Disclosure Document prepared in 
accordance with Regulations 4.24 and 4.25. It further provides that 
the CPO may not accept or receive funds, securities or other 
property from a prospective participant unless the CPO first 
receives from the prospective participant a signed and dated 
acknowledgment stating that the prospective participant received a 
Disclosure Document for the pool.
    \19\ Regulation 4.22 provides that each CPO registered or 
required to be registered must periodically distribute to each 
participant in each pool that it operates an Account Statement 
presented in the form of a Statement of Income (Loss) and a 
Statement of Changes in Net Asset Value for the prescribed period. 
The Account Statement must be distributed monthly in the case of 
pools with net assets of more than $500,000, and otherwise at least 
quarterly. CPOs of Commodity ETFs will generally be subject to the 
requirement to distribute Account Statements monthly. The financial 
statements must be presented in accordance with generally accepted 
accounting principles, consistently applied.
    \20\ Regulation 4.23 provides, in relevant part, that each CPO 
who is registered or required to be registered must make and keep 
the books and records specified in the regulation ``at its main 
business office.''
    \21\ See the Prior Exemption Letters for the particular details 
of the Commodity ETF structure and offering mechanics, as well as 
for the exemptive relief and the facts and conditions upon which it 
was based.
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    These CPOs sought relief from the specific Disclosure Document 
delivery and acknowledgment requirements of Regulation 4.21 because the 
prospectus delivery requirements under federal securities laws 
applicable to registered public offerings of exchange-traded shares 
(such as units of participation in Commodity ETFs) differ from 
Commission regulations with respect to timing and other aspects. Thus, 
the CPOs claimed that requiring simultaneous compliance with both sets 
of requirements was unnecessarily cumbersome, and would needlessly 
interfere with the established procedures for conducting a registered 
public offering of shares to be listed on a national securities 
exchange. In support of their requests, the CPOs represented that the 
prospectus required under federal securities laws would contain all of 
the information required to be included in a Disclosure Document under 
Regulations 4.24 and

[[Page 54796]]

4.25,\22\ and that, in addition to being made available in accordance 
with SEC prospectus delivery requirements, the Disclosure Document 
would be made readily available at the CPO's Internet Web site.\23\ 
Further, the CPOs represented that in acquiring Commodity ETF shares, 
prospective and actual investors would utilize the services of 
registered broker-dealers, who would be directed by the CPO either to 
inform investors where they could obtain the current Disclosure 
Document or to deliver a copy of the Disclosure Document.
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    \22\ The Commission has said that a prospectus can be used to 
satisfy the Disclosure Document requirement so long as the 
prospectus complies with the Commission's content requirements. See 
44 FR 1918, 1922 (Jan. 8, 1979).
    \23\ The CPOs did not seek relief from Regulation 4.21 with 
respect to sales of pool shares on a national securities exchange 
(i.e., sales on the secondary market). A CPO's obligation to deliver 
a Disclosure Document (and the requirement to obtain a signed 
acknowledgment of receipt) extends to the direct purchaser of units 
of participation, and not to persons who subsequently purchase from 
that purchaser. In this regard, the Commission has stated that, with 
respect to the transfer of a participation unit in a commodity pool, 
the CPO of the pool ``is not required to provide a Disclosure 
Document (Rule 4.21) to a person who purchases a unit of 
participation or interest in the pool from a pool participant if the 
pool operator did not solicit the purchase.'' 44 FR 25658, 25659 
(May 2, 1979).
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    The CPOs sought relief from the Account Statement delivery 
requirement for the reason that an issuer of exchange-traded shares 
held in book-entry form through the Depository Trust Company (such as 
the CPO of a Commodity ETF) typically does not readily know the 
identities of the ultimate beneficial owners of the shares. The CPOs 
argued that it would be unduly burdensome and costly to require them to 
ascertain, on a monthly basis, the identities of purchasers of shares 
in the secondary market in order to comply with the requirement under 
Rules 4.22(a) and (b) to deliver monthly Account Statements to those 
participants. Commission staff noted that, while traditional publicly-
offered commodity pools typically provide for redemption of shares no 
more frequently than monthly, because of the secondary market for a 
Commodity ETF's shares on a national securities exchange, ownership of 
those shares was expected to change, frequently on a daily basis, and 
even throughout the day. The CPOs subject to the Prior Exemption 
Letters undertook that the same information that would otherwise be 
provided in the monthly Account Statements, including net asset value 
and the certification required by Regulation 4.22(h),\24\ would be made 
readily available via the CPO's Internet Web site, of which 
availability the Disclosure Document would advise participants.
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    \24\ Pursuant to Regulation 4.22(h), a representative duly 
authorized to bind the CPO must sign an oath or affirmation that, to 
the best of the knowledge and belief of the individual making the 
oath or affirmation, the information contained in the Account 
Statement is accurate and complete.
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    The CPOs also sought exemption from the requirement to keep the 
books and records required under Regulation 4.23 at the CPO's main 
business address, seeking instead to keep books and records with one or 
more banks or professional service providers.\25\ As a condition to 
granting the requested exemption, Commission staff required the CPO to 
provide signed acknowledgments by each alternate recordkeeper that the 
books and records may be inspected and copied by any representative of 
the Commission, the National Futures Association (NFA) or the United 
States Department of Justice and may be inspected and copied during 
normal business hours by pool participants.
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    \25\ For example, in one case, the alternate recordkeepers were 
a CPO-affiliated national banking association, a state-regulated 
bank and a registered broker-dealer. In several other cases, the 
alternate recordkeepers were a state- and Federal Reserve Board-
regulated bank and a registered broker-dealer performing 
distribution-related services.
    The CPOs also asked Commission staff to confirm that none of the 
entities selected as alternate recordkeepers would be deemed to be 
CPOs solely by reason of keeping required books and records of a 
pool. In response, staff noted that the Commission has stated that 
such service providers as a registered investment company's 
depositor, sponsor, underwriter or investment adviser were ``outside 
the CPO definition.'' See 50 FR 15868 at 15871 (Apr. 23, 1985). It 
further noted that, as the Commission previously has acknowledged, 
in determining who is acting in the manner contemplated by the 
statutory CPO definition, Commission staff typically looks at such 
factors as ``who will be promoting the pool by soliciting, accepting 
or receiving from others, property for the purpose of commodity 
interest trading--and who will have the authority to hire (and fire) 
the pool's CTA and to select (and change) the pool's [futures 
commission merchant].'' Id., citing 49 FR 4778, 4780 (Feb. 8, 1984).
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C. CPO Registration Relief for Independent Directors or Trustees of 
Commodity ETFs

    As directed by the Sarbanes-Oxley Act of 2002,\26\ the SEC has 
adopted rules requiring national securities exchanges to prohibit the 
listing of the securities of any issuer (e.g., units of participation 
in a Commodity ETF) that does not comply with specified requirements 
for audit committees.\27\ Pursuant to Rule 10A-3 \28\ under the 
Securities Exchange Act of 1934 ('34 Act), in order for a national 
securities exchange to permit an issuer to list its securities, the 
members of the issuer's audit committee must be members of its board of 
directors but otherwise independent.\29\ The audit committee is to be 
responsible for appointing, compensating and overseeing the public 
accountant employed to prepare the issuer's audit report. National 
securities exchanges have amended their listing requirements to conform 
to, and carry out, the SEC rule.
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    \26\ Public Law 107-204, 116 Stat. 745, enacted July 30, 2002.
    \27\ The requirements, set forth in 15 U.S.C. 78j-1(m)(2) 
through (6) (2006), concern: Responsibility for appointing, 
compensating and overseeing the issuer's public accounting firm; 
independence of audit committee members; procedures for handling 
complaints regarding accounting and auditing matters; and the audit 
committee's authority to engage outside advisers.
    \28\ 17 CFR 240.10A-3 (2010).
    \29\ Audit committee members may not accept any consulting, 
advisory or other compensatory fee from the issuer, other than as a 
member of the board or of a committee thereof, and they may not be 
affiliated persons of the issuer or any of its subsidiaries. See 17 
CFR Sec.  240.10A-3(b)(1)(ii) (2010).
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    Under SEC Rule 10A-3(c)(7), a trust or other unincorporated 
organization that does not have a board of directors or persons acting 
in a similar capacity is not subject to the audit committee 
requirements if the organization's activities are limited to passively 
owning or holding securities or other assets for the benefit of the 
organization's security holders. Commodity ETFs that track commodity 
indices have relied upon this provision. Now that Commodity ETFs are 
being formed to trade commodity interests in an active manner, such 
Commodity ETFs must have independent directors (or trustees). Because a 
director (or trustee) of a commodity pool is presumed to be a CPO by 
virtue of the power such person can exercise, these independent 
directors (trustees) must either register as CPOs or seek registration 
relief.\30\
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    \30\ See CFTC Staff Letter 10-06 [Current Transfer Binder] Comm. 
Fut. L. Rep. (CCH) ] 31,557 (Mar. 29, 2010), for additional 
explanation of this point.
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II. Relief From Compliance With Subpart B of Part 4 for CPOs of 
Commodity ETFs: New Regulation 4.12(c)

    Regulation 4.12 currently contains paragraph (a), which states the 
Commission's power to exempt persons from the provisions of Part 4, 
consistent with the public interest and subject to appropriate terms 
and conditions, and paragraph (b), which makes an exemption from 
certain disclosure,

[[Page 54797]]

reporting and recordkeeping requirements available to registered CPOs 
whose pools, among other requirements, trade commodity interests in a 
manner solely incidental to their securities trading activities and do 
not enter into commodity interest transactions for which the aggregate 
initial margin and premiums exceed 10 percent of the fair market value 
of the pool's assets (after taking into account unrealized profits and 
losses). To make generally available the relief its staff has issued to 
the registered CPOs of Commodity ETFs, the Commission is proposing to 
add a new paragraph (c) to existing Regulation 4.12.\31\ The new 
paragraph would first specify the eligibility requirements for the 
exemption, and would then set forth the relief that an eligible CPO 
could claim.
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    \31\ In addition, the Commission is proposing certain technical 
changes to Regulation 4.12 to accommodate this new paragraph. 
Specifically, existing subparagraphs (b)(3) through (b)(6) of 
Regulation 4.12 (which currently set forth the filing requirements 
to claim relief under Regulation 4.12(b)) would be re-designated as 
a separate paragraph (d) and revised to include similar filing 
requirements for CPOs seeking to claim the proposed new relief.
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A. Eligibility

    Under proposed paragraph (c)(1), a registered CPO, or a person who 
has applied for CPO registration, would be able to claim the relief 
available under the rule with respect to any pool that meets the 
following criteria: that the units of participation be offered and sold 
pursuant to an effective registration statement under the '33 Act, and 
that they be listed for trading on a national securities exchange 
registered as such under the '34 Act.\32\
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    \32\ The claimed relief would become effective upon filing the 
notice, for registered CPOs, and upon CPO registration for 
applicants.
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B. The Proposed Relief

    Proposed paragraph (c)(2) would specify the exemptive relief 
available under the Proposal, as well as the duties and obligations of 
the CPO who claims the relief.
1. Relief From the Disclosure Document Delivery and Acknowledgment 
Requirement of Regulation 4.21
    Proposed paragraph (c)(2)(i) would provide certain relief from the 
Disclosure Document delivery requirement of Regulation 4.21(a), and 
relief from the signed acknowledgment requirement of Regulation 4.21(b) 
for an eligible CPO. The CPO claiming relief would be required to make 
the pool's Disclosure Document readily accessible on an Internet Web 
site maintained by the CPO.\33\ The CPO must also comply with the 
requirements of Regulation 4.26 to keep the Disclosure Document current 
and to correct the Disclosure Document as necessary. The CPO must 
clearly inform prospective pool participants of the availability of the 
Disclosure Document and the Internet address for accessing it, and to 
direct any selling agent to whom the pool operator sells units of 
participation to so inform prospective participants. Finally, the CPO 
must comply with all other requirements in Part 4 applicable to 
Disclosure Documents, which includes the form and content requirements 
of Regulations 4.24 and 4.25.
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    \33\ In its Interpretation Regarding Use of Electronic Media by 
Commodity Pool Operators and Commodity Trading Advisors for Delivery 
of Disclosure Documents and Other Materials, 62 FR 39104 (July 22, 
1997), the Commission said ``[i]n stating that the Disclosure 
Document be `readily accessible,' the Commission requires that the 
Disclosure Document be accessible on a comparable basis to other 
promotional material on the CPO's or CTA's Web site.'' 62 FR at 
39108-39109. In other words, the user should not have to proceed 
through a confusing series of menus or hyperlinks in order to reach 
the desired item. The process of retrieving an item cannot be so 
burdensome that the intended user cannot effectively access the 
information in a manner comparable to receiving a hard-copy 
document.
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    Proposed paragraph (c)(2)(ii) would state that the CPO may satisfy 
the requirement of Regulation 4.26(b) to attach to the Disclosure 
Document a copy of the pool's most current Account Statement and Annual 
Report by making the same readily accessible on an Internet Web site 
maintained by the CPO.
2. Relief From the Periodic Account Statement Distribution Requirement 
of Regulation 4.22
    Proposed paragraph (c)(2)(iii) would provide certain substituted 
compliance relief from Regulations 4.22(a) and (b). In lieu of 
compliance with the requirement in the regulation that the CPO 
distribute a monthly Account Statement to each pool participant, the 
Proposal would permit the CPO to maintain the pool's Account Statement, 
including the certification required by Regulation 4.22(h), readily 
accessible on a Web site operated by the CPO. This relief, however, 
would be subject to the CPO: (1) Keeping the Account Statement readily 
accessible on the Web site for a period of 30 days following the date 
the Account Statement is first posted on the Web site; \34\ (2) 
indicating in the Disclosure Document that the information required to 
be included in the Account Statement will be readily accessible on the 
CPO's Web site; and (3) including in the Disclosure Document the 
Internet address of the pool's Account Statement. (Proposed Regulations 
4.12(c)(2)(iii)(A) and (B)).\35\
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    \34\ A requirement to make each Account Statement readily 
accessible for a 30-day period corresponds to the existing 
requirement as to currency of the information in the Account 
Statement. Unlike a Disclosure Document that is required to be 
updated and kept current, each Account Statement is superseded by 
the succeeding Account Statement. This 30-day requirement does not 
affect the CPO's obligation under Regulation 4.23(a)(12) to retain 
for a period of five years a manually signed copy of each Account 
Statement for the pool.
    \35\ The CPOs did not request, and the Commission is not now 
proposing, relief from the requirement that a CPO prepare and 
deliver an Annual Report for the pool at this time. The Commission 
does not believe that the burden involved in distributing an Annual 
Report to pool participants is outweighed by the benefit to the 
participants of receiving certified financial statements at least 
annually.
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3. Relief From the Books and Records Location Requirement of Regulation 
4.23
    Proposed paragraph (c)(2)(iv) would provide relief from the 
location requirement of Regulation 4.23. The proposed regulation would 
permit such of the required books and records as are not kept at the 
CPO's main business address to be kept at the office of the pool's 
administrator, its distributor, or a bank or registered broker dealer 
that is providing services to the CPO or the pool similar to those 
provided by an administrator or distributor.
    Under proposed paragraph (c)(2)(iv)(B), the CPO would be required 
to provide certain information about storage of books and records at 
the time that the CPO files to claim relief under Regulation 4.12(c). 
When filing the notice claiming relief (discussed in greater detail 
below), the CPO would include a statement identifying, by name and 
specified contact information, each person other than the CPO who will 
be keeping required pool books and records, and it would identify each 
of the categories of books and records, as set forth in various 
numbered paragraphs of Regulation 4.23, that each such person will be 
keeping.
    Proposed paragraph (c)(2)(iv)(B)(4) would require that the CPO's 
statement contain representations from the CPO that: (1) It will 
promptly amend the statement if the contact information or location of 
any required books and records change; \36\ (2) the CPO ultimately 
remains responsible for maintenance and availability of all books and 
records required under

[[Page 54798]]

Regulation 4.23; (3) it will obtain and provide to Commission, NFA or 
Department of Justice representatives within 48 hours of any request, 
original books and records from whatever location they are being kept; 
\37\ and (4) it will disclose in the pool's Disclosure Document the 
location of its books and records that are required under Regulation 
4.23.
---------------------------------------------------------------------------

    \36\ The CPO would be required to file a separate claim of 
exemption and accompanying statement if additional required books 
and records are subsequently kept at a location other than the CPO's 
main business address, or if the CPO chooses to keep books and 
records subsequently at an additional location other than its main 
business address.
    \37\ If original books and records are maintained at a location 
outside the United States, the CPO is required to provide them at 
its main business office within seventy-two hours of a request.
---------------------------------------------------------------------------

    Finally, proposed paragraph (c)(2)(iv)(C) would require that the 
statement contain an acknowledgment by each person keeping pool books 
and records (other than the CPO) that the person will be keeping the 
books and records identified by the CPO, and that the person will make 
those books and records available in accordance with Regulation 4.23.

C. Procedure for Claiming Relief

    As noted previously \38\ the Proposal would redesignate existing 
paragraphs (b)(3) through (b)(6) of Regulation 4.12, which currently 
set forth the filing requirements to claim relief under Regulation 
4.12(b), as a separate paragraph (d). The Proposal would also revise 
the existing language to include filing requirements for CPOs claiming 
the proposed new relief (as well as those claiming relief under 
Regulation 4.12(b)).
---------------------------------------------------------------------------

    \38\ See footnote 31.
---------------------------------------------------------------------------

    As with Regulation 4.12(b), a CPO wishing to obtain the exemption 
provided under Regulation 4.12(c) would electronically file a claim of 
exemption with NFA through NFA's electronic exemptions filing system, 
which claim will be effective upon filing. The claim would provide the 
specified identifying information, representations that the pool will 
be operated in compliance with the requirements of Regulation 
4.12(c)(1), and specify the relief sought. As discussed above, the 
claim of exemption must also include the statements required under 
paragraphs (c)(2)(iii)(B) and (c)(2)(iii)(C) concerning books and 
records kept and maintained at a location other than the CPO's main 
business office.\39\
---------------------------------------------------------------------------

    \39\ If the Proposal is adopted, the Commission will issue an 
order authorizing NFA to accept electronically the notices and other 
documents called for by Regulation 4.12(c).
---------------------------------------------------------------------------

    Failure to meet the criteria for exemption as set forth in the 
Proposal will mean that the person claiming exemption is not exempt and 
that the full range of Part 4 requirements continue to apply to it.

III. CPO Registration Relief for Certain Directors or Trustees of 
Commodity ETFs: New Regulation 4.13(a)(5)

    The Commission is proposing to provide an exemption from the 
requirement to register as a CPO for persons who serve as a pool's 
director, trustee or in a similar position, solely for the purpose of 
complying with the audit committee requirements of SEC Rule 10A-3. The 
new exemption would be contained in paragraph (a)(5) of Regulation 4.13 
(and existing paragraph (a)(5) would be re-numbered as paragraph 
(a)(6)). Like the other exemptions provided in Regulation 4.13, the new 
exemption would require a notice to be filed electronically with NFA 
before the exemption became effective.\40\ The notice would be filed by 
the individual director or trustee. The pool's registered CPO would be 
liable for any violation of the Act or of the Commission's regulations 
by the director or trustee in connection with serving as a director or 
trustee of the pool.
---------------------------------------------------------------------------

    \40\ The Commission has delegated to NFA the authority to 
process statements of exemption from registration as a CPO pursuant 
to Regulation 4.13. See 62 FR 52088 (Oct. 6, 1997).
---------------------------------------------------------------------------

IV. Effect of Final Rulemaking on Prior Relief Letters

    If the requirements for obtaining relief in the final rule are no 
more restrictive than those set forth in a Prior Relief Letter, then 
the person or persons granted relief under that Prior Relief Letter 
will not be required to do anything further in order to continue 
operating under that relief. If, however, the requirements for 
obtaining relief in the final rule are more restrictive than those set 
forth in a Prior Relief Letter, then the person or persons granted 
relief under that Prior Relief Letter may not continue operating under 
that relief and will be required to file a Notice under the final rule. 
Also, if the facts and representations upon which the Prior Relief 
Letter was based materially change, the person will be required to file 
a Notice under the final rule, or cease engaging in the activities that 
prompted the request for the Prior Relief Letter.

V. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \41\ 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.\42\ With respect to CPOs, the Commission has previously 
determined that a CPO is a small entity if it meets the criteria for 
exemption from registration under current Regulation 4.13(a)(2).\43\ 
Therefore, the requirements of the RFA do not apply to CPOs who do not 
meet those criteria. The Commission believes that the Proposal will not 
place any burdens, whether new or additional, on CPOs who would be 
affected hereunder. This is because the instant proposal, if adopted, 
would provide disclosure, reporting and recordkeeping relief for more 
CPOs.
---------------------------------------------------------------------------

    \41\ 5 U.S.C. 601 et seq.
    \42\ 47 FR 18618 (Apr. 30, 1982).
    \43\ Id. at 18619-20.
---------------------------------------------------------------------------

B. Paperwork Reduction Act

    The Proposal 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.
    If adopted, the Proposal will require existing and new CPO 
registrants that operate pools whose units of participation are listed 
on a national securities exchange, and that wish to claim the exemptive 
relief provided by the proposed amended regulations, to submit certain 
filings to the Commission that had not been required previously. As 
registered CPOs, persons claiming exemption under the Proposal will 
also be subject to the same information collection requirements under 
Regulations 4.22 and 4.23 as other registered CPOs, and the burden 
previously approved by OMB for Collection 3038-005 will be adjusted to 
account for the additional registrants. Because the information 
required under Regulation 4.21 will already have been collected under 
the requirements of the Federal securities laws for which Paperwork 
Reduction Act collections and burdens have already been established, 
the burden attributable to Commission Regulation 4.21 will not be 
affected.
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 burden associated with Commission Regulation 4.12 is expected 
to be increased by 5 hours:
    Estimated number of respondents: 35.

[[Page 54799]]

    Annual responses by each respondent: 1.
    Estimated average hours per response: .5.
    Annual reporting burden: 17.5.
    This annual reporting burden of 17.5 hours represents an increase 
of 5 hours as a result of the proposed amendments to Regulation 4.12.
    The burden associated with Commission Regulations 4.22(a) and (b) 
is expected to be increased by 1,039.5 hours, due solely to additional, 
new registrants:
    Estimated number of respondents: 519.
    Pools by each respondent: 3
    Annual responses by each respondent: 9.
    Estimated average hours per response: 3.85.
    Annual reporting burden: 53,950.05.
    This annual reporting burden of 53,950.05 hours represents an 
increase of 1,039.5 hours as a result of the proposed amendments to 
Regulation 4.12.
    The burden associated with Commission Rule 4.23 is expected to be 
increased by 520 hours:
    Estimated number of respondents: 516.
    Annual responses by each respondent: 1.
    Estimated average hours per response: 52.
    Annual reporting burden: 26,832
    This annual reporting burden of 26,832 hours represents an increase 
of 520 hours as a result of the proposed amendments to Regulation 4.12.
    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 
delivery of information via Internet Web sites.
    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 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, NW., 
Washington, DC 20581, (202) 418-5160.

 C. 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, 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 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.
    The Proposal is intended to facilitate market innovation, and to 
rationalize application of Commission regulations to entities subject 
to other regulatory frameworks. The Commission is considering the costs 
and benefits of these rules in light of the specific provisions of 
Section 15(a) of the Act as follows:
1. Protection of Market Participants and the Public
    While the proposed amendments are expected to lessen the burden 
that would otherwise be imposed upon CPOs of Commodity ETFs, any 
exemption of persons from regulatory requirements would be based on 
such factors as substituted compliance with other similar requirements. 
Accordingly, the Proposal should have no effect on the Commission's 
ability to protect market participants and the public.
2. Efficiency and Competition
    The Proposal is expected to benefit efficiency and competition by 
facilitating the listing and trading on national securities exchanges 
of units of participation in commodity pools.
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 or price 
discovery function of the commodity futures and options markets.
4. Sound Risk Management Practices
    The Proposal should increase the available range of risk management 
alternatives for CPOs and other market participants.
5. Other Public Interest Considerations
    The Proposal will also take into account new product developments 
in the financial services industry (i.e., the offering of Commodity 
ETFs).
    After considering these factors, the Commission has determined to 
propose the amendments discussed above. The Commission invites public 
comment on its application of the cost-benefit considerations. 
Commenters also are invited to submit with their comment letters any 
data that they may have quantifying the costs and benefits of the 
Proposal.

List of Subjects in 17 CFR Part 4

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

    For the reasons presented above, the Commission 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:


[[Page 54800]]


    Authority:  7 U.S.C. 1a, 2, 4, 6b, 6c, 6l, 6m, 6n, 6o, 12a and 
23.

    2. Section 4.12 is amended by:
    a. Revising the heading of paragraph (b);
    b. Revising the introductory text of paragraph (b)(1);
    c. Amending paragraph (b)(2) by adding a heading;
    d. Redesignating paragraphs (b)(3) through (b)(6) as paragraphs 
(d)(1) through (d)(4) and revising the redesignated paragraphs; and
    e. Adding new paragraph (c), to read as follows:


Sec.  4.12  Exemption from provisions of part 4.

* * * * *
    (b) Exemption from Subpart B for certain commodity pool operators 
based on amount and nature of commodity interest trading. (1) 
Eligibility. Subject to compliance with the provisions of paragraph (d) 
of this section, any person who is registered as a commodity pool 
operator, or has applied for such registration, may claim any or all of 
the relief available under paragraph (b)(2) of this section if:
* * * * *
    (2) Relief available to pool operator. * * *
    (c) Exemption from Subpart B for certain commodity pool operators 
based on listing of pool participation units for trading on a national 
securities exchange. (1) Eligibility. Subject to compliance with the 
provisions of paragraph (d) of this section, any person who is 
registered as a commodity pool operator, or has applied for such 
registration, may claim any or all of the relief available under 
paragraph (c)(2) of this section if the units of participation in the 
pool for which it makes such claim:
    (i) Will be offered and sold pursuant to an effective registration 
statement under the Securities Act of 1933; and
    (ii) Will be listed for trading on a national securities exchange.
    (2) Relief available to pool operator. The commodity pool operator 
of a pool whose units of participation meet the criteria of paragraph 
(c)(1) of this section may claim the following relief:
    (i) In the case of Sec.  4.21, exemption from the specific 
requirements of that section, Provided, however, that the pool 
operator:
    (A) Cause the pool's Disclosure Document to be readily accessible 
on an Internet Web site maintained by the pool operator;
    (B) Cause the Disclosure Document to be kept current in accordance 
with the requirements of Sec.  4.26(a);
    (C) Clearly inform prospective pool participants of the Internet 
address of such Web site and direct any broker, dealer or other selling 
agent to whom the pool operator sells units of participation in the 
pool to so inform prospective pool participants; and
    (D) Comply with all other requirements applicable to pool 
Disclosure Documents under Part 4. The pool operator may satisfy the 
requirement of Sec.  4.26(b) to attach to the Disclosure Document a 
copy of the pool's most current Account Statement and Annual Report if 
the pool operator makes such Account Statement and Annual Report 
readily accessible on an Internet Web site maintained by the pool 
operator.
    (ii) In the case of Sec.  4.22, exemption from the Account 
Statement distribution requirement of that section; Provided, however, 
that the pool operator:
    (A) Cause the pool's Account Statements, including the 
certification required by Sec.  4.22(h), to be readily accessible on an 
Internet Web site maintained by the pool operator within 30 calendar 
days after the last day of the applicable reporting period and 
continuing for a period of not less than 30 calendar days; and
    (B) Cause the Disclosure Document for the pool to clearly indicate:
    (1) That the information required to be included in the Account 
Statements will be readily accessible on an Internet Web site 
maintained by the pool operator; and
    (2) The Internet address or URL of such Web sitse.
    (iii) In the case of Sec.  4.23, exemption from the requirement to 
keep the books and records specified by that section at the pool 
operator's main business office; Provided, however, that:
    (A) The books and records that the pool operator will not keep at 
its main business office will be maintained by one or more of the 
following: The pool's administrator, distributor or custodian, or a 
bank or registered broker or dealer acting in a similar capacity with 
respect to the pool;
    (B) At the time it files electronically with the National Futures 
Association the notice required under paragraph (d) of this section, 
the pool operator files a statement that:
    (1) Identifies the name, main business address, and main business 
telephone number of the person(s) who will be keeping required books 
and records in lieu of the pool operator;
    (2) Sets forth the name and telephone number of a contact for each 
person who will be keeping required books and records in lieu of the 
pool operator;
    (3) Specifies, by reference to the respective paragraph of Sec.  
4.23, the books and records that such person will be keeping; and
    (4) Contains representations from the pool operator that:
    (i) It will promptly amend the statement if the contact information 
or location of any of the books and records required to be kept by 
Sec.  4.23 changes, by identifying in such amendment the new location 
and any other information that has changed;
    (ii) It remains responsible for ensuring that all books and records 
required by Sec.  4.23 are kept in accordance with Sec.  1.31;
    (iii) Within forty-eight hours after a request by a representative 
of the Commission, it will obtain the original books and records from 
the location at which they are maintained, and provide them for 
inspection at the pool operator's main business office; Provided, 
however, that if the original books and records are permitted to be, 
and are maintained, at a location outside the United States, its 
territories or possessions, the pool operator will obtain and provide 
such original books and records for inspection at the pool operator's 
main business office within seventy-two hours of such a request; and
    (iv) It will disclose in the pool's Disclosure Document the 
location of its books and records that are required under Sec.  4.23.
    (C) At the time it files the notice required under paragraph (d) of 
this section, the pool operator files electronically with the National 
Futures Association a statement from each person who will be keeping 
required books and records in lieu of the pool operator wherein such 
person:
    (1) Acknowledges that the pool operator intends that the person 
keep and maintain required pool books and records;
    (2) Agrees to keep and maintain such required books and records in 
accordance with Sec.  1.31 of this chapter; and
    (3) Agrees to keep such required books and records open to 
inspection by any representative of the Commission or the United States 
Justice Department in accordance with Sec.  1.31 of this chapter and to 
make such required books and records available to pool participants in 
accordance with Sec.  4.23 of this chapter.
    (d)(1) Notice of claim for exemption. Any registered commodity pool 
operator, or applicant for commodity pool operator registration, who 
desires to claim the relief available under paragraph (b) or (c) of 
this section must file electronically a claim of exemption

[[Page 54801]]

with the National Futures Association through its electronic exemption 
filing system. Such claim must:
    (i) Provide the name, main business address and main business 
telephone number of the registered commodity pool operator, or 
applicant for such registration, making the request;
    (ii) Provide the name of the commodity pool for which the request 
is being made;
    (iii) Contain representations, as appropriate, that:
    (A) The pool will be operated in compliance with paragraph 
(b)(1)(i) of this section and the pool operator will comply with the 
requirements of paragraph (b)(1)(ii) of this section; or
    (B) The pool will be operated in compliance with paragraph (c)(1) 
of this section;
    (iv) Specify the relief sought under paragraph (b)(2) or (c)(2), as 
the case may be, of this section; and
    (v) Be filed by a representative duly authorized to bind the pool 
operator.
    (2)(i) The claim of exemption must be filed before the date the 
commodity pool first enters into a commodity interest transaction.
    (ii) The claim of exemption shall be effective upon filing; 
Provided, however, That any exemption claimed hereunder:
    (A) Will not be effective unless and until the notice required by 
this paragraph (d) contains all information called for herein and any 
statements required under paragraph (c)(2)(iii) of this section have 
been provided; and
    (B) Will cease to be effective upon any change which would render 
the representations made pursuant to paragraph (d)(1)(iii) of this 
section inaccurate or the continuation of such representations false or 
misleading.
    (3)(i) If a claim of exemption has been made under paragraph 
(b)(2)(i) of this section, the commodity pool operator must make a 
statement to that effect on the cover page of each offering memorandum, 
or amendment thereto, that it is required to file with the National 
Futures Association pursuant to Sec.  4.26.
    (ii) If a claim of exemption has been made with respect to 
paragraph (b)(2)(iii) of this section, the pool operator must make a 
statement to that effect on the cover page of each annual report that 
it is required to file with the National Futures Association pursuant 
to Sec.  4.22(c).
    (4)(i) Any claim of exemption effective hereunder shall be 
effective only with respect to the pool for which it has been made.
    (ii) The effectiveness of such claim shall not affect the 
obligations of the commodity pool operator to comply with all other 
applicable provisions of this part 4, the Act and the Commission's 
regulations issued thereunder with respect to the pool and any other 
pool the pool operator operates or intends to operate.
    3. Section 4.13 is amended by:
    a. Removing the word ``or'' at the end of paragraph (a)(3)(iv);
    b. Removing the period at the end of paragraph (a)(4)(ii)(B) and 
adding ``; or'';
    c. Redesignating paragraph (a)(5) as paragraph (a)(6), and revising 
newly designated paragraph (a)(6)(i) introductory text;
    d. Adding new paragraph (a)(5); and
    e. Revising paragraphs (b)(1)(ii) and (b)(2), to read as follows:


Sec.  4.13  Exemption from registration as a commodity pool operator.

* * * * *
    (a) * * *
    (5) The person is acting as a director or trustee with respect to a 
pool whose operator is registered as a commodity pool operator and is 
eligible to claim relief under Sec.  4.12(c) of this chapter, Provided, 
however, that:
    (i) The person acts in such capacity solely to comply with a 
requirement under the Federal securities laws that the pool have an 
audit committee comprised exclusively of independent directors or 
trustees;
    (ii) The person has no power or authority to manage or control the 
operations or activities of the pool except as necessary to comply with 
such requirement; and
    (iii) The registered pool operator of the pool is and will be 
liable for any violation of the Act or the Commission's regulations by 
the person in connection with the person's serving as a director or 
trustee with respect to the pool.
    (6)(i) Eligibility for exemption under paragraph (a)(1), (a)(2), 
(a)(3) or (a)(4) of this section is subject to the person furnishing in 
written communication physically delivered or delivered through 
electronic transmission to each prospective participant in the pool: * 
* *
* * * * *
    (b)(1) * * *
    (ii) Contain the section number pursuant to which the operator is 
filing the notice (i.e., Sec.  4.13(a)(1), (a)(2), (a)(3), (a)(4) or 
(a)(5), or both (a)(3) and (a)(4)) and represent that the pool will be 
operated in accordance with the criteria of that paragraph or 
paragraphs; and
* * * * *
    (2) The person must file the notice by no later than the time that 
the pool operator delivers a subscription agreement for the pool to a 
prospective participant in the pool; Provided, however, that in the 
case of a claim for relief under Sec.  4.13(a)(5), the person must file 
the notice by the later of the effective date of the pool's 
registration statement under the Securities Act of 1933 or the date on 
which the person first becomes a director or trustee; and Provided, 
further, that where a person registered with the Commission as a 
commodity pool operator intends to withdraw from registration in order 
to claim exemption hereunder, the person must notify its pool's 
participants in written communication physically delivered or delivered 
through electronic transmission that it intends to withdraw from 
registration and claim the exemption, and it must provide each such 
participant with a right to redeem its interest in the pool prior to 
the person filing a notice of exemption from registration.
* * * * *

    Issued in Washington, DC, on September 1, 2010 by the 
Commission.
David Stawick,
Secretary of the Commission.
[FR Doc. 2010-22395 Filed 9-8-10; 8:45 am]
BILLING CODE P