[Federal Register Volume 76, Number 29 (Friday, February 11, 2011)]
[Proposed Rules]
[Pages 7976-8066]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2437]



[[Page 7975]]

Vol. 76

Friday,

No. 29

February 11, 2011

Part IV





Commodity Futures Trading Commission





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17 CFR Parts 4, 145, and 147



Commodity Pool Operators and Commodity Trading Advisors: Amendments to 
Compliance Obligations; Proposed Rule

  Federal Register / Vol. 76 , No. 29 / Friday, February 11, 2011 / 
Proposed Rules  

[[Page 7976]]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Parts 4, 145, and 147

RIN 3038-AD30


Commodity Pool Operators and Commodity Trading Advisors: 
Amendments to Compliance Obligations

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commodity Futures Trading Commission is proposing to amend 
its existing regulations and proposing one new regulation regarding 
Commodity Pool Operators and Commodity Trading Advisors. The Commission 
is proposing a new data collection for CPOs and CTAs that is consistent 
with the data collection required under the Dodd-Frank Act. The 
proposed amendments would: Rescind the exemptions from registration 
provided in the Commission's regulations; rescind the relief from the 
certification requirement for annual reports provided to operators of 
certain pools only offered to qualified eligible persons (``QEPs''); 
modify the criteria for claiming relief under the Commission's 
regulations; and require the annual filing of notices claiming 
exemptive relief. Finally, the proposal includes new risk disclosure 
requirements for CPOs and CTAs regarding swap transactions.

DATES: Comments must be in writing and received on or before April 12, 
2011.

ADDRESSES: You may submit comments, identified by RIN number 3033-AD30, 
by any of the following methods:
     Agency Web site, via its Comments Online process: http://comments.cftc.gov. Follow the instructions for submitting comments 
through the Web site.
     Mail: David A. Stawick, Secretary of the Commission, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581.
     Hand Delivery/Courier: Same as mail above.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    Please submit your comments using only one method.
    Please specify the regulation(s) to which your comment refers in 
the subject field of comments submitted by e-mail, and otherwise 
clearly indicate the regulation(s) on written submissions. All comments 
must be submitted in English, or if not, accompanied by an English 
translation. Comments will be posted as received to http://www.cftc.gov. You should submit only information that you wish to make 
available publicly. If you wish the Commission to consider information 
that you believe is exempt from disclosure under the Freedom of 
Information Act, a petition for confidential treatment of the exempt 
information may be submitted according to the procedure established in 
17 CFR 145.9.
    The Commission reserves the right, but shall have no obligation, to 
review, pre-screen, filter, redact, refuse or remove any or all of your 
submission from http://www.cftc.gov that it may deem to be 
inappropriate for publication, including, but not limited to, obscene 
language. All submissions that have been redacted or removed that 
contain comments on the merits of the rulemaking will be retained in 
the public comment file and will be considered as required under the 
Administrative Procedure Act and other applicable laws, and may be 
accessible under the Freedom of Information Act.

FOR FURTHER INFORMATION CONTACT: For further information about the 
proposed amendments to existing Sec. Sec.  4.5, 4.7, 4.13, 4.14, 4.24, 
4.34, or 145.5, contact Kevin P. Walek, Assistant Director, Telephone: 
(202) 418-5463, E-mail: [email protected], or Amanda Lesher Olear, 
Special Counsel, Telephone: (202) 418-5283, E-mail: [email protected], 
Division of Clearing and Intermediary Oversight, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581.
    For further information about proposed Sec.  4.27 or proposed Forms 
CPO-PQR or CTA-PR, contact Kevin P. Walek, Assistant Director, 
Telephone: (202) 418-5463, E-mail: [email protected], or Daniel Konar, 
Attorney-Advisor, Telephone: (202) 418-5405. E-mail: [email protected], 
Division of Clearing and Intermediary Oversight, Commodity Futures 
Trading Commission, Three Lafayette Centre, 1155 21st Street, NW., 
Washington, DC 20581.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    On July 21, 2010, President Obama signed the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (``Dodd-Frank Act'').\1\ The 
legislation was enacted to reduce risk, increase transparency, and 
promote market integrity within the financial system by, inter alia, 
enhancing the Commodity Futures Trading Commission's (the 
``Commission'' or ``CFTC'') rulemaking and enforcement authorities with 
respect to all registered entities and intermediaries subject to the 
Commission's oversight.
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    \1\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Public Law 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at http://www.cftc.gov./
LawRegulation/OTCDERIVATIVES/index.htm.
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    The preamble of the Dodd-Frank Act explicitly states that the 
purpose of the legislation is:

    To promote the financial stability of the United States by 
improving accountability and transparency in the financial system, 
to end `too big to fail', to protect the American taxpayer by ending 
bailouts, to protect consumers from abusive financial services 
practices, and for other purposes.\2\
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    \2\ Id.

Pursuant to this stated objective, the Dodd-Frank Act has expanded the 
scope of Federal financial regulation to include instruments such as 
swaps, enhanced the rulemaking authorities of existing Federal 
financial regulatory agencies including the Commission and the 
Securities and Exchange Commission (``SEC''), and created new financial 
regulatory entities.
    The Commodity Exchange Act (``CEA'') \3\ empowers the Commission 
with the authority to register Commodity Pool Operators (``CPOs'') and 
Commodity Trading Advisors (``CTAs''),\4\ exclude any entity from 
registration as a CPO or CTA,\5\ and to require ``[e]very commodity 
trading advisor and commodity pool operator registered under [the CEA 
to] maintain books and records and file such reports in such form and 
manner as may be prescribed by the Commission.'' \6\ The Commission 
also has the power to ``make and promulgate such rules and regulations 
as, in the judgment of the Commission, are reasonably necessary to 
effectuate the provisions or to accomplish any of the purposes of [the 
CEA].'' \7\ The Commission's discretionary power to exclude or exempt 
persons from registration was intended to be exercised ``to exempt from 
registration those persons who otherwise meet the criteria for 
registration * * * if, in the opinion of

[[Page 7977]]

the Commission, there is no substantial public interest to be served by 
the registration.'' \8\ It is pursuant to this authority that the 
Commission has promulgated the various exemptions from registration as 
a CPO that are enumerated in Sec.  4.13 of its regulations as well as 
the exclusions from the definition of CPO that are delineated in Sec.  
4.5.
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    \3\ 7 U.S.C. 1, et seq.
    \4\ 7 U.S.C. 6m.
    \5\ 7 U.S.C. 1a(11) and 1a(12).
    \6\ 7 U.S.C. 6n(3)(A). Under part 4 of the Commission's 
regulations, entities registered as CPOs have reporting obligations 
with respect to their operated pools. See 17 CFR 4.22. Although CTAs 
have recordkeeping obligations under part 4, the Commission has not 
required reporting by CTAs, See generally, 17 CFR part 4.
    \7\ 7 U.S.C. 12a(5).
    \8\ See H.R. Rep. No. 93-975, 93d Cong., 2d Sess. (1974), p. 20.
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    Following the recent economic turmoil, and consistent with the 
tenor of the provisions of the Dodd-Frank Act, the Commission has 
reconsidered the level of regulation that it believes is appropriate 
with respect to entities participating in the commodity futures and 
derivatives markets. The Commission believes that it is necessary to 
rescind or modify several of its exemptions and exclusions to more 
effectively oversee its market participants and manage the risks that 
such participants pose to the markets. Additionally, the Commission has 
re-evaluated its prior decision not to require reporting by CTAs and 
has concluded that additional information regarding CTAs' activities is 
needed to provide the Commission with a more complete understanding of 
such activities' effects on commodities and derivatives markets.
    In addition to the expansion of the Commission's jurisdiction to 
include swaps under Title VII of the Dodd-Frank Act, Title I of the 
Dodd-Frank Act created the Financial Stability Oversight Council 
(``FSOC'').\9\ The FSOC is composed of the leaders of various State and 
Federal financial regulators and is charged with identifying risks to 
the financial stability of the United States, promoting market 
discipline, and responding to emerging threats to the stability of the 
county's financial system.\10\ The Dodd-Frank Act anticipates that the 
FSOC will be supported in these responsibilities by the Federal 
financial regulatory agencies.\11\ The Commission is among those 
agencies that could be asked to provide information necessary for the 
FSOC to perform its statutorily mandated duties.\12\
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    \9\ See section 111 of the Dodd-Frank Act.
    \10\ See section 112(a)(1)(A) of the Dodd-Frank Act.
    \11\ See sections 112(a)(2)(A) and 112(d)(1) of the Dodd-Frank 
Act.
    \12\ See section 112(d)(1) of the Dodd-Frank Act.
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    Consistent with the Commission's view regarding the appropriate 
level of regulation for its registrants in light of the recent economic 
turmoil and the current regulatory environment, and in anticipation of 
any requests for information from the FSOC, the Commission is 
performing two tasks. First, the Commission is working with the SEC to 
jointly promulgate the rules and forms needed to gather the data 
required under section 406 of Title IV of the Dodd-Frank Act.\13\ 
Second, the Commission is re-evaluating its regulation of CPOs and CTAs 
to ensure that its regulatory structure is appropriately designed to 
effectuate its views regarding the necessary level of regulation in the 
current economic environment and to be responsive to any informational 
requests made to the Commission by other governmental agencies or FSOC.
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    \13\ The Commission and the SEC are jointly proposing Form PF 
with respect to entities registered with both agencies in a 
forthcoming release.
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A. Title IV of the Dodd-Frank Act

    Title IV of the Dodd-Frank Act requires advisers to large private 
funds \14\ to register with the SEC.\15\ Through this registration 
requirement, Congress sought to make available to the SEC ``information 
regarding [the] size, strategies and positions'' of large private 
funds, which Congress believed ``could be crucial to regulatory 
attempts to deal with a future crisis.'' \16\ In section 404 of the 
Dodd-Frank Act, Congress amended section 204(b) of the Investment 
Advisers Act to direct the SEC to require private fund advisers 
registered solely with the SEC \17\ to file reports containing such 
information as is deemed necessary and appropriate in the public 
interest and for investor protection or for the assessment of systemic 
risk. These reports and records must include a description of certain 
prescribed information, such as the amount of assets under management, 
use of leverage, counterparty credit risk exposure, and trading and 
investment positions for each private fund advised by the adviser.\18\ 
Section 406 of the Dodd-Frank Act also requires that the rules 
establishing the form and content of reports filed by private fund 
advisers that are dually registered with the SEC and the CFTC be issued 
jointly by both agencies after consultation with the FSOC.\19\
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    \14\ Section 202(a)(29) of the Investment Advisers Act of 1940 
(``Investment Advisers Act'') defines the term ``private fund'' as 
``an issuer that would be an investment company, as defined in 
section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3), 
but for section 3(c)(1) or 3(c)(7) of that Act.'' 15 U.S.C. 80a-
3(c)(1), 80a-3(c)(7). Section 3(c)(1) of the Investment Company Act 
provides an exclusion from the definition of ``investment company'' 
for any ``issuer whose outstanding securities (other than short term 
paper) are beneficially owned by not more than one hundred persons 
and which is not making and does not presently propose to make a 
public offering of its securities.'' 15 U.S.C. 80a-3(c)(1). Section 
3(c)(7) of the Investment Company Act provides an exclusion from the 
definition of ``investment company'' for any ``issuer, the 
outstanding securities of which are owned exclusively by persons 
who, at the time of acquisition of such securities, are qualified 
purchasers, and which is not making and does not at that time 
propose to make a public offering of such securities.'' 15 U.S.C. 
80a-3(c)(7). The term ``qualified purchaser'' is defined in section 
2(a)(51) of the Investment Company Act. See 15 U.S.C. 80a-2(a)(51).
    \15\ The Dodd-Frank Act requires private fund adviser 
registration by amending section 203(b)(3) of the Advisers Act to 
repeal the exemption from registration for any adviser that during 
the course of the preceding 12 months had fewer than 15 clients and 
neither held itself out to the public as an investment adviser nor 
advised any registered investment company or business development 
company. See section 403 of the Dodd-Frank Act. There are exemptions 
from this registration requirement for advisers to venture capital 
funds and advisers to private funds with less than $150 million in 
assets under management in the United States. There also is an 
exemption for foreign advisers with less than $25 million in assets 
under management from the United States and fewer than 15 U.S. 
clients and private fund investors. See sections 402, 407 and 408 of 
the Dodd-Frank Act.
    \16\ See S. Conf. Rep. No. 111-176, at 38 (2010).
    \17\ In this release, the term ``private fund adviser'' means 
any investment adviser that is (i) registered or required to be 
registered with the SEC (including any investment adviser that is 
also registered or required to be registered with the CFTC as a CPO 
or CTA) and (ii) advises one or more private funds (including any 
commodity pools that satisfy the definition of ``private fund'').
    \18\ See section 404 of the Dodd-Frank Act.
    \19\ See section 406 of the Dodd-Frank Act.
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    To fulfill this statutory mandate, the Commission and the SEC today 
are jointly proposing sections 1 and 2 of Form PF in a forthcoming 
proposal. Additionally, to ensure that necessary data is collected from 
CPOs and CTAs that are not operators or advisors of private funds, the 
Commission is proposing a new Sec.  4.27, which would require quarterly 
reports from all CPOs and CTAs to be electronically filed with NFA. The 
Commission is promulgating proposed Sec.  4.27 pursuant to the 
Commission's authority to require the filing of reports by registered 
CPOs and CTAs under section 4n of the CEA.\20\ In an effort to 
eliminate duplicative filings, proposed Sec.  4.27(d) would allow 
certain CPOs and/or CTAs that are also registered as private fund 
advisers with the SEC pursuant to the securities laws to satisfy 
certain of the Commission's systemic reporting requirements by 
completing and filing the appropriate sections of Form PF with the SEC 
with respect to advised private funds.
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    \20\ 7 U.S.C. 6n(3)(A).
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B. Reason for Amending Existing CPO and CTA Regulations

    In order to ensure that the Commission can adequately oversee the 
commodities and derivatives markets and assess market risk associated 
with pooled investment vehicles under its jurisdiction, the Commission 
is re-

[[Page 7978]]

evaluating its regulation of CPOs and CTAs. Additionally, the 
Commission does not want its registration and reporting regime for 
pooled investment vehicles and their operators and/or advisors to be 
incongruent with the registration and reporting regimes of other 
regulators, such as that of the SEC for investment advisers under the 
Dodd-Frank Act.
    Ultimately, the Commission has determined that to address these 
concerns it will be necessary to amend certain sections of its existing 
regulations. These proposed amendments are designed to (1) bring the 
Commission's CPO and CTA regulatory structure into alignment with the 
stated purposes of the Dodd-Frank Act; (2) encourage more congruent and 
consistent regulation of similarly-situated entities among Federal 
financial regulatory agencies; (3) improve accountability and increase 
transparency of the activities of CPOs, CTAs, and the commodity pools 
that they operate or advise, and (4) facilitate a collection of data 
that will assist the FSOC, acting within the scope of its jurisdiction, 
in the event that the FSOC requests and the Commission provides such 
data. Additionally, these proposed amendments will have the added 
benefit of enabling the Commission to more efficiently deploy its 
regulatory resources and to more expeditiously take necessary action to 
ensure the stability of the commodities and derivatives markets, 
thereby promoting the stability of the financial markets as a whole. 
The existing regulations that the Commission proposes to amend are 
enumerated below.

II. The Proposals

    The Commission's proposed amendments are designed to (1) bring the 
Commission's CPO and CTA regulatory structure into alignment with the 
stated purposes of the Dodd-Frank Act; (2) encourage more congruent and 
consistent regulation of similarly situated entities among Federal 
financial regulatory agencies; (3) improve accountability and increase 
transparency of the activities of CPOs, CTAs, and the commodity pools 
that they operate or advise; and (4) facilitate a collection of data 
that will assist the FSOC, acting within the scope of its jurisdiction, 
in the event that the FSOC requests and the Commission provides such 
data. The proposed amendments will also allow the Commission to more 
effectively oversee its market participants and manage the risks posed 
by the commodities and derivatives markets. To those ends, the 
amendments: (A) Require the periodic reporting of data by CPOs and CTAs 
regarding their direction of commodity pool assets; (B) identify 
certain proposed filings with the Commission as being afforded 
confidential treatment; (C) revise the requirements for determining 
which persons should be required to register as a CPO under Sec.  4.5; 
(D) require the filing of certified annual reports by all registered 
CPOs; (E) rescind the exemptions from registration under Sec. Sec.  
4.13(a)(3) and (a)(4); (F) require periodic affirmation of claimed 
exemptive relief for both CPOs and CTAs; (G) require an additional risk 
disclosure statement from CPOs and CTAs that engage in swaps 
transactions; and (H) make certain conforming amendments to the 
Commission's regulations as described below in subsection (H) of this 
preamble. In addition, the proposed amendments make conforming changes 
to the Commission's regulations in light of certain provisions in the 
Dodd-Frank Act, including updating the accredited investor definition, 
which the Commission has incorporated into the definition of QEP in 
Sec.  4.7.
    The Commission requests comment on all aspects of the proposal, as 
well as comment on the specific provisions and issues highlighted in 
the discussion below.

A. Proposed New Sec.  4.27 and Appendices A and C: Data Collection for 
CPOs and CTAs

1. General Purpose of Forms CPO-PQR and CTA-PR
    Section 4n of the CEA empowers the Commission to require all 
registered CPOs and CTAs to file such reports as the Commission deems 
necessary.\21\ Following the recent economic turmoil, and consistent 
with the tenor of the provisions of the Dodd-Frank Act, the Commission 
has determined that the reports currently required of Commission 
registrants do not provide sufficient information regarding their 
activities for the Commission to effectively monitor the risks posed by 
those participants to the commodity futures and derivatives markets. 
Moreover, the Commission has re-evaluated its prior decision not to 
require reporting by CTAs and has concluded that additional information 
regarding CTAs' activities is needed to provide it with a more complete 
understanding of such activities.
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    \21\ 17 U.S.C. 6n(3)(A).
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    Therefore, the Commission is proposing Forms CPO-PQR (proposed to 
appear in the Commission's regulations as appendix A to part 4), and 
CTA-PR (proposed to appear in the Commission's regulations as appendix 
C to part 4) to collect information from CPOs and CTAs that are solely 
registered with the Commission to permit the Commission to more 
effectively oversee participants acting within its jurisdiction. The 
information that the Commission currently receives is limited, not 
designed to measure systemic or market risk in any meaningful way, and 
is only submitted by registered CPOs on an annual basis. In addition, 
the annual financial reports filed by CPOs do not disclose information 
regarding CPOs' use of stress testing or the tenor of fixed income 
assets held by commodity pools.
    The Commission proposes Forms CPO-PQR and CTA-PR to solicit 
information that is generally identical to that sought through Form PF, 
which is being jointly promulgated in a forthcoming release in 
conjunction with the SEC. These forms were developed in consultation 
with other financial regulators tasked with overseeing the financial 
integrity of the economy. Through the collection of the data delineated 
in proposed Forms CPO-PQR and CTA-PR, the Commission will be able, if 
requested, by other financial regulators or FSOC, to provide them with 
the information needed to identify whether any commodity pools are 
systemically relevant and, as a result, warrant additional examination 
or scrutiny.
    The amount of information that a CPO or CTA will be required to 
disclose on proposed Forms CPO-PQR and CTA-PR will vary depending on 
both the size of the operator or advisor and the size of the advised 
pools. This tiered approach to disclosure acknowledges the fact that 
smaller operators, advisors, and pools are less likely to present 
significant risk to the stability of the commodities futures and 
derivatives markets and the financial market as a whole, and therefore, 
such entities should have a lesser compliance burden. As detailed 
infra, the Commission is proposing to collect more detailed information 
from operators and advisors managing a large amount of commodity pool 
assets.
2. Persons Required To Report on Proposed Forms CPO-PQR and CTA-PR
    Pursuant to proposed Sec.  4.27, any CPO or CTA that is registered 
or required to be registered must complete and submit proposed Forms 
CPO-PQR and CTA-PR, respectively, with NFA as the Commission's 
delegatee.\22\ As discussed

[[Page 7979]]

infra, only certain large CPOs and CTAs would have to complete the 
sections of Forms CPO-PQR and CTA-PR that require the most detailed 
information. It is expected that most CPOs would only have to complete 
schedule A of form CPO-PQR, which contains essentially the same 
information that NFA currently collects through form PQR. In addition, 
the Commission expects that most CTAs only would have to complete 
schedule A of form CTA-PR, which consists of limited questions 
regarding self-identification, general operations of the CTA, and 
whether the CTA directs assets for commodity pools equal to or 
exceeding $150 million.
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    \22\ In a forthcoming release, the Commission and the SEC will 
be jointly promulgating Form PF with respect to the advisers to 
private funds that are registrants with both agencies. CPOs and CTAs 
that are dual registrants and that operate or advise commodity pools 
that are not private funds will still be required to file the 
proposed reports required in this release.
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    Those CPOs with assets under management equal to or greater than 
$150 million would be required to complete schedule B of form CPO-PQR, 
which solicits basic information regarding the commodity pools operated 
by such CPOs. CPOs with assets under management equal to or greater 
than $1 billion would be required to complete schedule C of form CPO-
PQR, which solicits aggregate information regarding the commodity pools 
operated by such CPOs and commodity pools with a net asset value 
exceeding $500 million. Similarly, a CTA with commodity pool assets 
under management equal to or exceeding $150 million would be required 
to complete schedule B of form CTA-PR, which solicits basic information 
regarding the CTA's trading program, the identification of the CTA's 
client pool(s), and the position data of each commodity pool advised by 
the CTA.
    The Commission estimates that the number of CPOs that would have to 
file schedule C of form CPO-PQR will be relatively small. The 
Commission believes that it is appropriate to limit the more extensive 
reporting obligations to the large entities detailed above because it 
would provide information about those entities that are most likely to 
pose market and systemic risk, and it minimizes the burden on smaller 
registrants that are less likely to pose such risk.
    The Commission requests comment on the proposed reporting scheme. 
Should the Commission require that all CPOs and CTAs registered or 
required to be registered with the Commission complete all of the 
information on their respective forms regarding the pools that they 
operate or advise? Please provide detail supporting your position. Are 
there more appropriate thresholds for determining which CPOs and CTAs 
must report more extensive information? Should the assets under 
management thresholds be lower or higher? Is there additional 
information that should be requested?
3. Frequency of Reporting
    The Commission proposes to require the completion and filing of the 
required section(s) of forms CPO-PQR and CTA-PR on a quarterly basis, 
with the exception of mid-sized CPOs filing schedule B of form CPO-PQR 
on an annual basis. The Commission believes that the proposed frequency 
of reporting would permit the Commission to effectively monitor key 
information relevant to the assessment of market risk posed by the 
advisors and operators of commodity pools both on an individual and 
aggregate basis. The proposal would require CPOs and CTAs to file the 
appropriate reports within 15 days of each quarter end as set forth in 
proposed Sec.  4.27. Additionally, proposed form CPO-PQR would require 
schedule B to be filed by mid-sized CPOs within 90 days of the end of 
the calendar year. The Commission believes that this periodic reporting 
for CPOs and CTAs is necessary to provide the Commission with timely 
data to effectively monitor CPOs' and CTAs' activities and to identify 
emerging market issues. It is expected that this reporting would 
coincide with registrants' existing internal reporting and risk 
assessment system cycles. The various reporting schedules for 
Commission registrants are set forth in the charts below.

----------------------------------------------------------------------------------------------------------------
                                  Form PF and Form
                                        ADV             PQR Schedule A      PQR Schedule B      PQR Schedule C
----------------------------------------------------------------------------------------------------------------
Dual Registrant CPO for         Quarterly..........  Quarterly.
 Private Funds Only (Assets
 under Management equal to or
 exceeding $1 Billion).
Dual Registrant CPO for         Annually...........  Quarterly.
 Private Funds Only (Assets
 under Management less than $1
 Billion).
Large CPO--Not Dual...........  ...................  Quarterly..........  Quarterly.........  Quarterly.
Mid-size CPO..................  ...................  Quarterly..........  Annually.
Small CPOs....................  ...................  Quarterly.
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----------------------------------------------------------------------------------------------------------------
                                       Form PF and Form ADV          PR Schedule A            PR Schedule B
----------------------------------------------------------------------------------------------------------------
Dual Registrant CTA (Assets under    Quarterly...............  Quarterly.
 Management equal to or exceeding
 $1 Billion).
Dual Registrant CTA (Assets under    Annually................  Quarterly.
 Management less than $1 Billion).
Large and Mid-size CTAs............  ........................  Quarterly...............  Quarterly.
Small CTAs.........................  ........................  Quarterly.
----------------------------------------------------------------------------------------------------------------

    The Commission requests comment on the proposed filing frequency. 
Is quarterly reporting an appropriate amount of time to gather the 
information necessary to assess risk posed by filers? Is the 15-day 
deadline for reports too long to ensure reporting of timely information 
by filers?
4. Implementation of Reporting Obligation
    The Commission currently anticipates that the proposed rules 
requiring the filing of forms CPO-PQR and CTA-PR would become effective 
six months after the adoption of the proposed forms, which will allow 
sufficient time for the registrants to develop any systems necessary to 
collect the information requested on the forms and prepare them for 
filing. This effective date will also provide NFA with sufficient time 
to modify its ``EasyFile'' system to enable registrants to file the 
forms through that system.
    The Commission has determined to authorize NFA to maintain and 
serve as official custodian of record for the filings, notice, reports, 
and claims

[[Page 7980]]

required by Sec.  4.27. This designation is consistent with the 
Commission's prior designation of NFA as the official custodian of 
record for the financial information filed as part of the annual 
reports required under Sec. Sec.  4.7(b)(3) and 4.22(c).\23\ 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 
herein. In maintaining the Commission's records, 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 
to: Ensure the security and integrity of the records in NFA's custody; 
to facilitate prompt access to those records by the Commission and its 
staff, particularly as described in other Commission orders or rules; 
to facilitate disclosure of public or nonpublic information in those 
records when permitted by the Commission concerning disclosure of 
nonpublic information; and otherwise to safeguard the confidentiality 
of records.\24\
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    \23\ 67 FR 77470, Dec. 18, 2002.
    \24\ Id.
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    The Commission requests comment as to when proposed Sec.  4.27 
should become effective, requiring the filing of forms CPO-PQR and CTA-
PR.
5. Information Required on Form CPO-PQR
    The questions contained in form CPO-PQR reflect the experience of 
the Commission in regulating CPOs, in consultation with staff of the 
FSOC, the SEC, and NFA,\25\ as well as the purpose and requirements of 
the Dodd-Frank Act. The information that the Commission proposes to 
collect from CPOs is largely identical to that required under form PF 
for private fund advisers and incorporates the information already 
being collected by NFA in its form PQR. As stated previously, the 
Commission expects that the collection of the data required by form 
CPO-PQR would enhance the Commission's oversight of CPOs. A discussion 
of the information required by form CPO-PQR follows.
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    \25\ NFA is currently the only registered futures association 
under the CEA and is the self regulatory organization overseeing all 
CPOs and CTAs registered with the Commission. It is also responsible 
for the administration of the Commission's registration program and 
exemptions therefrom. See the Commission's delegation order 
regarding the registration of CPOs and CTAs at 49 FR 39593, Oct. 9, 
1984. Additionally, NFA currently collects certain data from CPOs 
that are NFA members on its form PQR under NFA Rule 2-46.
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a. Proposed Schedule A
    Generally, the information required under proposed schedule A will 
be substantially similar to that required under form PF. Proposed 
schedule A would be required of all CPOs that are registered or 
required to be registered and incorporates all of the information 
currently required by NFA's PQR data collection instrument. Proposed 
part 1 of schedule A seeks basic identifying information about the CPO, 
including its name, NFA identification number, and the CPO's assets 
under management. Proposed part 2 of schedule A requires the reporting 
of information regarding each of the CPO's pools, including the names 
and NFA identification numbers for the pools operated during the 
reporting period, position information for positions comprising five 
percent or more of each pool's net asset value, and the pool's key 
relationships with brokers, other advisors, administrators, etc. CPOs 
that advise multiple pools will be required to complete and file a 
separate part 2 of schedule A for each pool that they advise.
    Proposed part 2 also requires the identification of each operated 
pool's carrying brokers, administrators, trading managers, custodians, 
auditors, and marketers. This information would enable the Commission 
to determine which entities are exposed and connected to commodity 
pools. The Commission is also proposing to include quarterly and 
monthly performance information about each pool. This information would 
permit the Commission to monitor trends regarding the commodity pool 
industry, such as whether certain funds are engaging in investment 
strategies that include significant risks having marketwide or even 
systemic implications. Finally, the Commission is proposing to collect 
information regarding a pool's subscriptions and redemptions, and any 
restrictions thereon. The Commission believes that this information is 
important to ensure adequate oversight of a CPO's decision to restrict 
pool participants' access to their funds, given the recent economic 
conditions that gave rise to the imposition of restrictions on 
redemptions by CPOs.
    The Commission is requesting comment on the appropriateness and 
completeness of the information requested in proposed schedule A of 
form CPO-PQR. Is there additional basic information that the Commission 
should require of all CPOs filing form CPO-PQR or regarding the 
commodity pools that they operate? Is there any information that is 
included in schedules B and C for larger CPOs that should be included 
in schedule A for all CPOs? Conversely, is there any information in 
schedule A that the Commission should not require or that the 
Commission should only require of large CPOs and, if so, why?
b. Proposed Schedule B
    The Commission is proposing that all CPOs that are registered or 
required to be registered that have assets under management equal to or 
exceeding $150 million be required to file schedule B of form CPO-PQR. 
CPOs satisfying the assets under management threshold would be required 
to report detailed information for all operated pools, including 
information regarding each pool's investment strategy; borrowings by 
geographic area and the identities of significant creditors; credit 
counterparty exposure; and entities through which the pool trades and 
clears its positions. The Commission believes that this more detailed 
pool information is necessary from mid-sized and large CPOs as these 
CPOs and their pools are more likely to be a source of risk to both the 
commodity futures and derivatives markets and the financial markets as 
a whole.
    The Commission is requesting comment on the appropriateness and 
completeness of the information proposed to be requested from all CPOs 
with assets under management equal to or exceeding $150 million. Is 
there additional information that the Commission should request of mid-
sized and large CPOs? Is there information that the Commission should 
not require to be reported? Should the Commission set a threshold net 
asset value for pools for which CPOs must report information under 
proposed schedule B, and if so, what threshold would be appropriate?
c. Proposed Schedule C
    The Commission is also proposing that all CPOs with assets under 
management equal to or exceeding $1 billion be required to file 
schedule C of proposed form CPO-PQR. Part 1 of schedule C would require 
certain aggregate information about the commodity pools advised by 
large CPOs, such as the market value of assets invested, on both a long 
and short basis, in different types of securities and derivatives, 
turnover in these categories of financial instruments, and the tenor of 
fixed income portfolio holdings, including asset-backed securities. 
This

[[Page 7981]]

information will assist the Commission in monitoring asset classes in 
which commodity pools may be significant investors and trends in pools' 
exposures to allow the Commission to identify concentrations in 
particular asset classes that are building or transitioning over time. 
It also would aid the Commission in examining large CPOs' roles as a 
source of liquidity in different asset classes.
    Proposed part 2 of schedule C would require large CPOs to report 
certain information about any commodity pool that they advise with a 
net asset value of at least $500 million as of the end of any business 
day during the reporting period. The Commission has selected $500 
million as a threshold for more extensive individual commodity pool 
reporting because the Commission believes that a pool with $500 million 
in net asset value is a substantial fund whose activities could have an 
impact on particular markets in which it invests or on its 
counterparties. The Commission further believes that setting $500 
million as the threshold will lessen the reporting burdens on smaller 
or start-up pools that are less likely to pose systemic risk. This 
threshold is the same threshold proposed by the Commission and the SEC 
in their joint release for form PF.
    Proposed part 2 would require information on the individual pool 
level that is substantially similar to that requested in part 1 of 
schedule C on an aggregate level. Part 2, however, would also require 
additional information. The CPO would be required to report a 
geographic breakdown of the reportable pool's assets as well as 
information regarding asset liquidity, concentration of positions, 
material investment positions, collateral practices with significant 
counterparties, and clearing relationships. This information is 
designed to assist the Commission in monitoring the composition of 
commodity pool exposures over time as well as the liquidity of those 
exposures.\26\
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    \26\ It is noteworthy that the information in this proposed part 
2 also could aid the FSOC, if it so requests such information from 
the Commission and such request is granted, in monitoring: (1) 
Credit counterparties' unsecured exposure to commodity pools, as 
well as the pools' exposure; (2) a CPO's ability to respond to 
market stresses; and (3) a CPO's interconnectedness with certain 
central clearing counterparties.
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    Proposed part 2 of schedule C also proposes to require the 
reporting of data regarding commodity pool risk metrics, financial 
information, and investor information. If during the reporting period 
the CPO regularly calculated a value at risk (``VaR'') metric for the 
reportable pool, the CPO would have to report VaR for each month of the 
reporting period.\27\ Form CPO-PQR would also require the CPO to report 
the impact on the pool's portfolio when stressing certain identified 
market factors, if applicable, broken down by the long and short 
components of the reportable pool's portfolio. It also requires the CPO 
to note whether it regularly performed stress tests in which that 
market factor was considered as part of its risk management 
process.\28\ This information is designed to allow the Commission to 
track basic sensitivities of the commodity pool to common market 
factors, correlations in those factor sensitivities, and trends in 
those factor sensitivities among large commodity pools.
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    \27\ If VaR was calculated, the CPO would have to report the 
confidence interval, time horizon, whether any weighting was used, 
and whether VaR was calculated using historical simulation or Monte 
Carlo simulation. If historical simulation was used, the CPO would 
have to report the historical lookback period used.
    \28\ The market factors are changes in: Equity prices; risk-free 
interest rates; credit spreads; currency rates; commodity prices; 
implied volatilities; implied correlations; default rates; and 
prepayment speeds.
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    Proposed part 2 of schedule C would require a CPO to report certain 
financing information for its reportable pool, including a monthly 
breakdown of its secured, unsecured, and synthetic borrowing, as well 
as information about the collateral supporting the secured and 
synthetic borrowing and the types of creditors. It also would require 
certain information about the term of the fund's committed financing. 
This information would assist the Commission in monitoring the 
reportable pool's leverage, credit counterparties' unsecured exposure 
to the pool, and the committed term of that leverage, which the 
Commission may find important in monitoring if the pool comes under 
stress.
    Finally, proposed part 2 of schedule C would require a CPO to 
report information about the reportable pool's investor composition and 
liquidity. For example, proposed part 2 contains questions regarding 
the pool's use of side pockets and gates, as well as information 
relating to investor liquidity. The Commission believes this 
information may be important in enabling the Commission to monitor the 
commodity pool's susceptibility to failure through investor redemptions 
in the event that the pool experiences stress due to market risks or 
other factors.
    The Commission requests comment on the information proposed in 
schedule C for large CPOs. Is there additional information that should 
be included and, if so, why? Is there information that should be 
omitted and, if so, why? Is there information that the Commission 
should require only on an aggregate basis that the Commission is 
proposing to require CPOs to report on an individual pool basis? Are 
there additional risk metrics or market factors that the Commission 
should require CPOs to employ? Should the Commission require the 
proposed market factors but with different parameters? Is there 
information currently proposed that would not result in comparable or 
meaningful information for the Commission? If so, how can changes to 
the questions or instructions improve the utility of the information? 
Is there information that should be broken down further and reported as 
of smaller time increments, such as weekly? Is there information that 
should be reported to show ranges, high points, or low points during 
the reporting period, rather than as of the last day of the month or 
quarter? Should clearing information be collected with respect to pools 
with a net asset value less than $500 million?
6. Information Required on Proposed Form CTA-PR
    The questions contained in proposed form CTA-PR reflect the 
experience of the Commission in regulating CTAs, its knowledge 
regarding how pools allocate funds among various CTAs, and the purpose 
and requirements of the Dodd-Frank Act. The Commission is proposing 
that all CTAs that direct commodity pool assets would be required to 
report on form CTA-PR. As stated previously, the Commission expects 
that the collection of the data required by form CTA-PR would enhance 
the Commission's oversight of CTAs and its information regarding the 
role that CTAs play in the investment of pool assets. A discussion of 
the information required by form CTA-PR follows.
a. Proposed Schedule A
    Proposed schedule A of form CTA-PR would collect general 
information about the CTA and the pool assets under management by that 
CTA. All CTAs that are registered or required to be registered would be 
required to file proposed schedule A. Proposed schedule A consists of 
general information, including: The name of the CTA; the CTA's NFA 
identification number; the number of offered trading programs and 
whether any pool assets are directed under those trading programs; the 
total assets directed by the CTA; and the total pool assets

[[Page 7982]]

directed by the CTA. The Commission believes that this information will 
assist the Commission in gaining a more complete understanding of CTAs 
and their relationships with commodity pools without imposing any 
significant burden on CTAs that do not manage a substantial amount of 
pool assets. The Commission is proposing that all CTAs be required to 
file proposed schedule A because the Commission believes that basic 
information about entities registered as CTAs will assist the 
Commission in making future determinations regarding their regulatory 
obligations.
    The Commission is seeking comment on the content of proposed 
schedule A and which entities would be required to report under form 
CTA-PR. Should all CTAs be required to file proposed schedule A of form 
CTA-PR? If not, what criteria would be appropriate for limiting which 
CTAs are required to file proposed schedule A of form CTA-PR?
b. Proposed Schedule B
    Under the Commission's proposal, CTAs that direct pool assets equal 
to or exceeding $150 million would be required to complete and file 
proposed schedule B with details regarding the CTA's trading 
program(s). CTAs would be required to file detailed position, 
performance, and trading strategy information for each trading program. 
CTAs also would be required to identify the pools advised under each 
program and the percentage of the pool's assets that are directed by 
the CTA. Finally, the CTA would be required to disclose whether it uses 
the services of an administrator. Through analysis of the information 
collected on form CTA-PR, in conjunction with that collected through 
form CPO-PQR, the Commission will obtain a more complete understanding 
of the relationships between CTAs and pools and interconnectedness of 
the Commission's registrants. This information will also assist the 
Commission in determining whether there is concentration of pool assets 
with particular CTAs that could result in market risk.
    The Commission is seeking comment on the information proposed to be 
required under schedule B of form CTA-PR. Is there additional 
information that should be included and, of so, why? Is there 
information that should be omitted and, if so, why? Is there 
information currently proposed that would not result in comparable or 
meaningful information for the Commission? If so, how can changes to 
the questions or instructions improve the utility of the information?

B. Amendments to Sec. Sec.  145.5 and 147.3: Confidential Treatment of 
Data Collected on Forms CPO-PQR and CTA-PR

1. Proposed Amendments to Sec.  145.5
    The Commission's collection of certain proprietary information 
through proposed forms CPO-PQR and CTA-PR raises concerns regarding 
whether the Commission could protect such information from public 
disclosure. If publicly disclosed, this proprietary information could 
put reporting entities at a significant competitive disadvantage. 
Certain questions in both proposed forms request information on pool 
assets under management, key service providers used by operators and 
advisors, position-level information, pool performance, pool 
subscriptions and redemptions, and the market value of pool assets 
invested in different types of securities and swaps. The Commission has 
determined that at least one of the nine exemptions to the Freedom of 
Information Act, 5 U.S.C. 552 et seq., (``FOIA'') \29\ and section 
8(a)(1) of the CEA \30\ protect certain proprietary information like 
the information described above that the Commission would obtain 
through proposed forms CPO-PQR and CTA-PR.\31\ A discussion of the 
specific exemption from FOIA disclosure and the privacy protections 
afforded under section 8(a)(1) of the CEA is described immediately 
below.
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    \29\ The nine exemptions are found in 5 U.S.C. 552(b)(1)-(7).
    \30\ See 7 U.S.C. 12(a)(1).
    \31\ Section 16 of the CEA, 7 U.S.C. 20, also prohibits the 
Commission from disclosing such data and information in market 
reports furnished to the public under that section. Section 16 is 
not, however, applicable to the proposed rulemaking because the 
reports to which it refers are investigations of such conditions as 
supply, demand, and prices in the markets for ``goods, articles, 
services, rights, and interests which are the subject of futures 
contracts.''
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    In general, FOIA requires the Commission and other Federal agencies 
to provide the fullest possible disclosure of information unless such 
information is otherwise exempted pursuant to one (or more) of nine 
exemptions under FOIA.\32\ Accordingly, the Commission is required by 
FOIA to make public its records and actions unless a specific exemption 
is available.
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    \32\ Section 552(b)(3) of FOIA provides that another statute may 
provide a FOIA exemption. Section 404 of the Dodd-Frank Act sets out 
such an exemption. Specifically, section 404 precludes the SEC from 
being compelled under FOIA to reveal proposed Form PF or information 
contained therein required to be filed with the SEC except to 
Congress upon agreement of confidentiality or to comply with a court 
order or other regulatory request. As noted above, the Commission 
and SEC are jointly proposing Form PF in a forthcoming release. The 
Dodd-Frank Act does not include similar language precluding the 
Commission from being compelled to reveal similar information to the 
public.
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    Commercial and financial information and trade secrets are 
generally exempted from public disclosure under FOIA.\33\ Information 
will qualify for this exemption if the public disclosure of such 
information would cause substantial harm to the competitive position of 
the person from whom the information was obtained.\34\ As noted above, 
the Commission believes that proposed forms CPO-PQR and CTA-PR would 
require CPOs and CTAs, respectively, to report a great deal of 
proprietary information that, if publicly disclosed, would cause 
substantial harm to the competitive positions of those entities.
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    \33\ See 5 U.S.C. 552(b)(4). ``Commercial'' and ``financial'' 
are given ``ordinary meanings.'' See Bd. of Trade of the City of 
Chicago v. CFTC, 627 F.2d 392, 394-95 (DC Cir. 1980).
    \34\ See, e.g., Pub. Citizen Health Research Group v. FDA, 704 
F.2d 1280,1291 (DC Cir. 1983).
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    Section 8(a)(1) of the CEA provides, in relevant part, that 
``except as otherwise specifically authorized in the [CEA], the 
Commission may not publish data and information that would separately 
disclose the business transactions or market positions of any person 
and trade secrets or names of customers.'' \35\ The CEA does not 
specifically authorize the Commission to disclose to the public the 
type of proprietary information collected in proposed forms CPO-PQR and 
CTA-PR.
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    \35\ 7 U.S.C. 12(a)(1).
---------------------------------------------------------------------------

    Currently, Sec.  145.5 of the Commission's regulations sets out the 
Commission's general policy to protect from public disclosure those 
portions of ``nonpublic records'' \36\ filed with it, which are 
exempted under the commercial and financial information exemption from 
FOIA.\37\ Specifically, Sec.  145.5 provides that ``[t]he Commission 
shall publish or make available reasonably segregable portions of 
`nonpublic records' * * *'' subject to a FOIA request if those portions 
are not listed in Sec.  145.5.\38\
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    \36\ Nonpublic records are defined as, among other things, 
information published in the Federal Register, final Commission 
opinions, orders, statements of policy and interpretations, 
administrative manuals and instructions, indices, and records 
released in response to FOIA requests that have been, or the 
Commission anticipates will be, the subject of additional FOIA 
requests.
    \37\ See 17 CFR 145.5.
    \38\ Id.
---------------------------------------------------------------------------

    To clarify the Commission's determination to treat certain 
proprietary information collected in proposed forms CPO-PQR and CTA-PR 
as nonpublic records--thereby protecting such information from public 
disclosure--the Commission proposes

[[Page 7983]]

to list such information in Sec.  145.5(d).\39\ Specifically, the 
Commission proposes to list the following schedules and questions in 
proposed forms CPO-PQR and CTA-PR, the responses to which the 
Commission would deem to be nonpublic records:
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    \39\ Section 145.5(d) tracks the language of its FOIA 
counterpart, exemption (b)(4).
---------------------------------------------------------------------------

    Proposed form CPO-PQR:
     Proposed schedule A: Question 2, subparts (b) and (d); 
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d), 
(e), and (g); Question 11; Question 12; and Question 13.
     Proposed schedule B: All.
     Proposed schedule C: All.
    Proposed form CTA-PR:
     Proposed schedule B: Question 4, subparts (b), (c), (d), 
and (e); Question 5; and Question 6.
2. Proposed Amendments to Sec.  147.3
    The Commission's collection of certain proprietary information 
through proposed forms CPO-PQR and CTA-PR raises concerns regarding 
whether the Commission could protect such information from public 
disclosure under The Government in the Sunshine Act, 5 U.S.C. 552b 
(``Sunshine Act''), which are substantively identical to those 
discussed above with respect to FOIA. The Sunshine Act was enacted to 
ensure that agency action is open to public scrutiny and contains 
exceptions to publication to the extent that such agency actions, or 
portions of them, are protected by one or more exemptions,\40\ which 
are identical to those under FOIA, discussed above. Accordingly, the 
Commission is required by the Sunshine Act to make public its records 
and actions unless a specific exemption is available. Commission 
meetings, or portions thereof, may be ``closed'' under the Sunshine Act 
where the Commission determines that open meetings will likely reveal 
information protected by an exemption.\41\
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    \40\ The exemptions from disclosure set forth in the Sunshine 
Act are codified in 5 U.S.C. 552b(c). There are 10 listed 
exemptions.
    \41\ The Commission's Sunshine Act obligations are codified in 
its part 147 rules, 17 CFR part 147.
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    The Commission believes that portions of the filings required by 
proposed Sec.  4.27 through proposed forms CPO-PQR and CTA-PR are 
protected from disclosure as confidential commercial or financial 
information under Sunshine Act exemption (c)(4), which prohibits the 
disclosure of ``trade secrets and commercial or financial information 
obtained from a person and privileged or confidential,'' \42\ for 
reasons that are substantively identical to the rationale discussed 
supra with respect to FOIA.
---------------------------------------------------------------------------

    \42\ 5 U.S.C. 552b(c)(4).
---------------------------------------------------------------------------

    The Commission further believes that the portions of forms CPO-PQR 
and CTA-PR that are protected under Sunshine Act exemption (c)(4) are 
also protected from disclosure by Sunshine Act exemption (c)(8), 
pursuant to which the Commission is authorized to withhold from the 
public matter ``contained in or related to examination, operating, or 
condition reports prepared by, on behalf of, or for the use of an 
agency responsible for the regulation or supervision of financial 
institutions.'' \43\ Section 147.3(b) of the Commission's regulations 
provides that the Commission generally will not make public matters 
that are ``contained in or related to examinations, operating, or 
conditions reports prepared by, on behalf of, or for the use of the 
Commission or any other agency responsible for the regulation or 
supervision of financial institutions.'' The Commission is aware that 
no court has considered directly whether Commission registrants are 
financial institutions for the purposes of Sunshine Act exemption 
(c)(8). The Commission believes, however, that the language of the 
Sunshine Act's legislative history contemplates the inclusion of 
commodities professionals, including futures commission merchants, 
designated contract markets, derivatives transaction execution 
facilities, CPOs, and CTAs.\44\
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    \43\ 5 U.S.C. 552b(c)(8).
    \44\ See S. Rep. No. 354, 94th Cong., 1st Sess. 24 (1975) 
(stating that ``financial institution'' is ``intended to include 
banks, savings and loan associations, credit unions, brokers and 
dealers in securities or commodities, exchanges dealing in 
securities and commodities, such as the New York Stock Exchange, 
investment companies, investment advisors, self-regulatory 
organizations subject to 15 U.S.C. 78s, and institutional managers 
as defined in 15 U.S.C. 78m.'').
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    In light of the foregoing considerations, the Commission is 
proposing to amend Sec.  147.3 to exempt from mandatory disclosure, 
pursuant to Sunshine Act exemptions (c)(4) and (c)(8), the portions of 
proposed forms CPO-PQR and CTA-PR as set forth below:
    Proposed form CPO-PQR:
     Proposed schedule A: Question 2, subparts (b) and (d); 
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d), 
(e), and (g); Question 11; Question 12; and Question 13.
     Proposed schedule B: All.
     Proposed schedule C: All.
    Proposed form CTA-PR:
     Proposed schedule B: Question 4, subparts (b), (c), (d), 
and (e); Question 5; and Question 6.

C. Proposed Amendments to Sec.  4.5: Reinstating Trading Criteria for 
Exclusion From the CPO Definition

    The exclusion from the CPO definition under Sec.  4.5 is available 
to certain otherwise regulated persons, including investment companies 
registered under the Investment Company Act of 1940,\45\ in connection 
with their operation of specified trading vehicles. Prior to amendments 
that the Commission made in 2003, Sec.  4.5 required entities to file a 
notice of eligibility that contained a representation that the use of 
commodity futures for non bona fide hedging purposes will be limited to 
five percent of the liquidation value of the qualifying entity's 
portfolio and that the entity will not market the fund as a commodity 
pool to the public.\46\
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    \45\ 15 U.S.C. 80a-1 et seq.
    \46\ 50 FR 15868, 15883, Apr. 23, 1985.
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    The 2003 amendments revised Sec.  4.5 to require that notices of 
eligibility only include representations that:

    [T]he qualifying entity: (i) Will disclose in writing to each 
participant, whether existing or prospective, that the qualifying 
entity is operated by a person who has claimed an exclusion from the 
definition of the term `commodity pool operator' under the 
[Commodity Exchange] Act, and therefore, who is not subject to 
registration or regulation as a pool operator under the [Commodity 
Exchange] Act * * * and (ii) Will submit to special calls as the 
Commission may require.\47\
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    \47\ 17 CFR 4.5(c)(2).

When adopting the final amendments, the Commission explained that its 
decision to delete the prohibition on marketing was driven by comments 
claiming that ``the `otherwise regulated' nature of the qualifying 
entities * * * would provide adequate customer protection, and, 
further, that compliance with the subjective nature of the marketing 
restriction could give rise to the possibility of unequal enforcement 
where commodity interest trading was restricted.'' \48\
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    \48\ 68 FR 47221, 47223, Aug. 8, 2003.
---------------------------------------------------------------------------

    In 2010, the Commission became aware of certain registered 
investment companies that were offering series of de facto commodity 
pool interests claiming exclusion under Sec.  4.5. The Commission 
consulted with market participants and NFA regarding this practice. 
Following this consultation, NFA submitted a petition for rulemaking in 
which NFA suggested certain revisions to Sec.  4.5 with respect to 
registered investment companies.\49\ On September 17, 2010, the 
Commission solicited comments from the public on

[[Page 7984]]

NFA's petition for rulemaking, which proposed the reinstatement of the 
pre-2003 operating restrictions in Sec.  4.5. In its petition, NFA 
proposed that Sec.  4.5(c)(2) be amended to read as follows:
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    \49\ 75 FR 56997, Sept. 17, 2010.

    (iii) Furthermore, if the person claiming the exclusion is an 
investment company registered as such under the Investment Company 
Act of 1940, then the notice of eligibility must also contain 
representations that such person will operate the qualifying entity 
as described in [Rule] 4.5(b)(1) in a manner such that the 
qualifying entity: (a) Will use commodity futures or commodity 
options contracts solely for bona fide hedging purposes within the 
meaning and intent of [Rule] 1.3(z)(1) \50\; Provided, however, That 
in addition, with respect to positions in commodity futures or 
commodity option contracts that may be held by a qualifying entity 
only which do not come within the meaning and intent of [Rule] 
1.3(z)(1), a qualifying entity may represent that the aggregate 
initial margin and premiums required to establish such positions 
will not exceed five percent of the liquidation value of the 
qualifying entity's portfolio, after taking into account unrealized 
profits and unrealized losses on any such contracts it has entered 
into; and, Provided further, That in the case of an option that is 
in-the-money at the time of purchase, the in-the-money amount as 
defined in [Rule] 190.01(x) may be excluded in computing such [five] 
percent; (b) Will not be, and has not been, marketing participations 
to the public as or in a commodity pool or otherwise as or in a 
vehicle for trading in (or otherwise seeking investment exposure to) 
the commodity futures or commodity options markets.\51\ (Emphasis 
removed).
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    \50\ The revisions to Sec.  4.5 proposed herein contain a 
reference to the definition of ``bona fide hedging'' as it is 
currently set forth in Sec.  1.3(z) of the Commission's regulations. 
The Commission notes that rules proposed in the future regarding 
``bona fide hedging'' may require the proposed revisions to be 
amended to reflect such new regulations.
    \51\ 75 FR 56997, 56998, Sept. 17, 2010.

    To stop the practice of registered investment companies offering 
futures-only investment products without Commission oversight, the 
Commission is proposing to amend Sec.  4.5 to reinstate the pre-2003 
operating criteria consistent with the language proposed by NFA in its 
petition. The Commission believes that NFA's proposed language is an 
appropriate point at which to begin discussions regarding the 
Commission's concerns. Moreover, the Commission believes that imposing 
such restrictions would limit the possibility of entities engaging in 
regulatory arbitrage whereby operators of otherwise regulated entities 
that have significant holdings in commodity interests would avoid 
registration and compliance obligations under the Commission's 
regulations. The Commission believes that this is appropriate to ensure 
consistent treatment of operators of commodity pools regardless of 
registration status with other regulators. In addition, the Commission 
has determined that adopting the restrictions proposed by NFA would 
ensure that entities that operate funds that are de facto commodity 
pools would be required to report the activities of such pools on the 
proposed form CPO-PQR. The Commission, however, is cognizant of the 
fact that the structure of these otherwise regulated entities may 
result in operational difficulties with respect to compliance with part 
4 of the Commission's regulations. To that end, the Commission poses 
several questions, immediately below, derived from comments received 
with respect to NFA's petition to solicit comments regarding what the 
Commission should consider with respect to the regulation of such 
entities:
     Several commenters to NFA's petition have suggested that 
the marketing strategies used by entities claiming relief under Sec.  
4.5 would be prohibited under NFA's proposal. Specifically, it has been 
argued that marketing these funds under proposed Sec.  4.5 would be 
impossible, or nearly impossible, as it would be cost prohibitive. The 
Commission solicits comments on how these marketing strategies would be 
affected by the proposed rule change. Specifically, should the proposed 
restriction on marketing as a commodity pool or as a vehicle for 
providing exposure to commodity interests be broader or more narrow?
     It has been suggested that funds operated pursuant to 
relief under Sec.  4.5 are now following numerous trading strategies, 
including ``life cycle'' fund strategies, which are set to maximize 
trading successes for certain trading periods, or horizons. The 
Commission seeks comment on the differential impact the proposed 
rulemaking would have on the various trading strategies implemented by 
funds operated under Sec.  4.5, including which types of funds might be 
more severely impacted than others, and, if so, why?
     Some commenters to the NFA petition have suggested that 
the term ``marketing'' needs to be clarified. What considerations 
should be made with respect to such a definition? Further, what 
specific areas related to marketing are most problematic and, if so, 
why?
     Commenters to the NFA petition have suggested that the 
changes to Sec.  4.5 would result in direct conflicts with SEC 
regulations relating to registered investment companies. Please detail 
which rules and regulations are in conflict, and indicate how these 
could be best addressed by the two Commissions.
     Is a limit of five percent of the liquidation value of the 
portfolio attributable to non-bona fide hedging purposes the 
appropriate threshold? Should a higher or lower limit apply? Should the 
calculation of the limit include swaps, or be limited to futures and 
options? Is a portfolio based criterion appropriate or is there another 
more effective means for identifying entities that should be registered 
as CPOs?
     Additionally, the Commission is soliciting comment 
regarding the implementation of the proposed changes to Sec.  4.5. What 
issues should the Commission consider with respect to the ability of 
registered investment companies to comply with the disclosure document 
and reporting delivery requirements; recordkeeping; and related fund 
performance disclosure requirements under part 4 of the Commission's 
regulations? How much time will be necessary for entities that have 
previously claimed exclusion under this section to comply with the 
proposed changes? Should any entities that have previously claimed 
exclusion under this section be exempted from compliance with the 
proposed revisions to Sec.  4.5?

D. Proposed Amendments to Sec.  4.7: Removing Exemptive Relief From the 
Certification Requirement for Pool Annual Reports and Incorporating 
Accredited Investor Definition

1. Removing Exemptive Relief From the Certification Requirement for 
Financial Statements in Pool Annual Reports
    In 1992, the Commission proposed and adopted Sec.  4.7, which 
provided relief from disclosure, reporting, and recordkeeping 
obligations under part 4 of the Commission's regulations for CPOs and 
CTAs that are privately offered to sophisticated persons.\52\ Section 
4.7(b)(3) provides relief from the certification requirement for 
financial statements contained in annual reports distributed to 
participants and filed with NFA.\53\
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    \52\ See 17 CFR 4.7.
    \53\ See 17 CFR 4.7(b)(3).
---------------------------------------------------------------------------

    Despite the availability of the exemption from the audit 
requirement under Sec.  4.7(b)(3)(i), the vast majority of CTAs and 
CPOs that operate commodity pools under Sec.  4.7 have their annual 
reports for those pools audited by certified public accountants. For 
example, 759 of the 892 pools that operated pursuant to exemptive 
relief

[[Page 7985]]

under Sec.  4.7 in fiscal year 2009 (i.e., 85% of all pools operated 
under Sec.  4.7 in that year) filed certified annual reports despite 
being eligible for exemptive relief from certification in Sec.  
4.7(b)(3).
    In light of the stated purposes of the Dodd-Frank Act (i.e., 
transparency and accuracy of information across market participants), 
the Commission proposes to extend the requirement for certified 
financial statements in commodity pool annual reports to commodity 
pools with participants who are QEPs. The Commission believes that 
requiring certification of financial information by an independent 
accountant in accordance with established accounting standards will 
ensure the accuracy of the financial information submitted by its 
registrants. Accordingly, proposed section 3 of the amendatory text 
would remove the exemption in Sec.  4.7(b)(3)(C)(ii) from the 
requirement that certified financial statements be included in the 
annual reports to participants in their commodity pools. Commission 
staff will continue to consider requests for exemption from the audit 
requirement pursuant to the general exemptive provisions of Sec.  
4.12(a), in accordance with the criteria under which such relief 
previously has been granted.\54\
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    \54\ See, e.g., CFTC Staff Letters 10-02, Feb. 23, 2010; 10-07, 
Jan. 7, 2010; 10-08, Feb. 23, 2010; 10-09, Feb. 25, 2010; 10-11, 
Mar. 3, 2010; 10-18, Apr. 12, 2010, at: http://www.cftc.gov/LawRegulation/CFTCStaffLetters/LettersAcrchive/2010/index.htm.
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2. Incorporating by Reference the Accredited Investor Standard
    The Commission is also proposing to amend Sec. Sec.  4.7(a)(3)(ix) 
and (a)(3)(x), which list those persons required to satisfy the 
portfolio requirement to be QEPs.\55\ In 1992, when the Commission 
proposed and adopted Sec.  4.7, it stated that the relief provided in 
Sec.  4.7 was intended for persons who were ``highly accredited 
investors'',\56\ which was defined as ``accredited investors'', per the 
terms of Sec.  230.501 of regulation D \57\ under the Securities Act of 
1933,\58\ who also satisfy a portfolio value requirement.\59\ Section 
4.7(a)(3)(ix) incorporates the specific net worth provision set forth 
in Sec.  230.501(a)(5) of the SEC's regulations.\60\ Similarly, Sec.  
4.7(a)(3)(x) incorporates the income standards of Sec.  230.501(a)(6) 
of the SEC's regulations.\61\
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    \55\ See 17 CFR 4.7(a)(3)(ix).
    \56\ See 57 FR 34853, Aug. 7, 1992.
    \57\ See 17 CFR 203.501.
    \58\ See 15 U.S.C. 77a, et seq.
    \59\ See 57 FR at 34855.
    \60\ See id. at 34855.
    \61\ See id.
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    Section 413 of the Dodd-Frank Act instructs the SEC to examine and 
adjust the threshold for ``accredited investor'' status under its 
regulations and initially increases the threshold amount so that it is 
significantly greater than the current provisions of regulation D. 
Because the Commission has incorporated the ``accredited investor'' 
definition from regulation D into its definition of QEP, the Commission 
has determined that it is necessary to amend Sec. Sec.  4.7(a)(3)(ix) 
and (a)(3)(x) to incorporate the new accredited investor standard. 
Thus, the Commission's proposal seeks to amend Sec.  4.7 to incorporate 
the accredited investor standard from Regulation D by reference, rather 
than by direct inclusion of its terms. Incorporation by reference will 
permit the Commission's definition of QEP to continue to include the 
specific terms of the accredited investor standard in the event that it 
is later modified by the SEC without requiring the Commission to amend 
Sec.  4.7 each time to maintain parity.

E. Proposed Amendments to Sec. Sec.  4.13(a)(3) and (a)(4): Rescission 
of Exemption From Registration

    The Commission proposes to rescind certain exemptions from 
registration provided in Sec. Sec.  4.13(a)(3) and (a)(4). Section 
4.13(a)(3) of the Commission's regulations currently provides that a 
person is exempt from registration as a CPO if the interests in the 
pool are exempt from registration under the Securities Act of 1933 and 
offered only to QEPs, accredited investors, or knowledgeable employees, 
and the pool's aggregate initial margin and premiums attributable to 
commodity interests do not exceed five percent of the liquidation value 
of the pool's portfolio.\62\ Section 4.13(a)(4) of the Commission's 
regulations provides that a person is exempt from registration as a CPO 
if the interests in the pool are exempt from registration under the 
Securities Act of 1933 and the operator reasonably believes that the 
participants are all QEPs.\63\
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    \62\ See 17 CFR 4.13(a)(3). CPOs claiming relief under Sec.  
4.13 are required to submit to special calls by the Commission to 
demonstrate eligibility, however, even if the Commission determined 
to make a special call, it would not be entitled to information 
regarding the pool's activities beyond those implicated by the claim 
for exemptive relief. Therefore, the efficacy of special calls as a 
tool to gain any information on par with that required by Part 4 of 
the Commission's regulations is limited.
    \63\ See id. 4.13(a)(4). Natural persons who are required to 
satisfy the portfolio requirement to be considered QEPs are not 
included in the persons to whom a pool operating under this 
exemption may be offered.
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    As a result of the creation of exemptions from registration as a 
CPO under Sec. Sec.  4.13(a)(3) and (a)(4), a large group of market 
participants have fallen outside of the oversight of regulators (i.e., 
there is very little if any transparency or accountability over the 
activities of these participants). The Commission has concluded that 
continuing to grant an exemption from registration and reporting 
obligations for these market participants is outweighed by the 
Commission's concerns of regulatory arbitrage.
    To address the lack of transparency and accountability, the 
Commission's proposal would eliminate the exemption under Sec.  
4.13(a)(3). Indeed, the Commission believes that it is possible for a 
commodity pool to have a portfolio that is sizeable enough that even if 
just five percent of the pool's portfolio were committed to margin for 
futures, the pool's portfolio could be so significant that the 
commodity pool would constitute a major participant in the futures 
market.
    In addition, the Commission proposes to eliminate the exemption in 
Sec.  4.13(a)(4) because there are no limits on the amount of commodity 
interest trading in which pools operating under this regulation can 
engage. That is, it is possible that a commodity pool that is exempted 
from registration under Sec.  4.13(a)(4) could be invested solely in 
commodities.
    With the passage of the Dodd-Frank Act, the regulatory environment 
has changed from that which was in existence when Sec. Sec.  4.13(a)(3) 
and (a)(4) were promulgated in 2003. As stated previously, one of the 
primary purposes of the Dodd-Frank Act is to promote transparency with 
respect to the activities of participants in the financial markets. 
Sections 403 and 404 of the Dodd-Frank Act generally require 
registration and reporting by investment advisers to private funds.\64\ 
Many private funds claim an exemption from SEC registration under 
sections 3(c)(1) and (7) of the Investment Company Act of 1940 (the 
``Investment Company Act'').\65\ The Dodd-Frank Act, although not 
rescinding these exemptions from registration under the Investment 
Company Act, requires the advisers of such funds to register with the 
SEC as ``private fund investment advisers''.\66\ The Commission's 
proposal seeks to eliminate the exemptions under

[[Page 7986]]

Sec. Sec.  4.13(a)(3) and (4) for operators of pools that are similarly 
situated to private funds that previously relied on the exemptions 
under Sec. Sec.  3(c)(1) and (7) of the Investment Company Act and 
Sec.  203(b)(3) of the Investment Advisers Act. It is the Commission's 
view that the operators of these pools should be subject to similar 
regulatory obligations, including proposed form CPO-PQR, in order to 
provide improved transparency and increased accountability with respect 
to these pools. The Commission has determined that it is appropriate to 
limit regulatory arbitrage through harmonization of the scope of its 
data collection with respect to pools that are similarly situated to 
private funds so that operators of such pools will not be able to avoid 
oversight by either the Commission or the SEC through claims of 
exemption under the Commission's regulations.
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    \64\ See sections 403 and 404 of the Dodd-Frank Act. The Dodd-
Frank Act does grant a few exemptions from the registration 
requirement. For example, section 407 provides that [venture 
capital] funds are not required to register with the SEC.
    \65\ See 15 U.S.C. 80a-3.
    \66\ See sections 403 and 404 of the Dodd-Frank Act for the 
general registration provisions for private fund investment 
advisers.
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    The Commission is soliciting comment regarding the implementation 
of the proposed rescission of Sec. Sec.  4.13(a)(3) and (a)(4). How 
much time will be necessary for entities that have previously claimed 
exemption under these sections to comply with the proposed changes? How 
should the Commission address entities whose activities do not require 
registration; i.e., should such entities be required to file notice 
with the Commission to avoid registration? Should any entities that 
have previously claimed exemption under these sections be exempted from 
compliance with the proposed revisions to Sec. Sec.  4.13(a)(3) and 
(a)(4)? Should the Commission consider an alternative de minimis 
exemption under Sec.  4.13, and, if so, what criteria should be 
required to claim such exemption?

F. Proposed Amendments to Sec. Sec.  4.5, 4.13, and 4.14: Requiring 
Annual Filings of Notices of Claims of Exemption

    The Commission has the power to ``make and promulgate such rules 
and regulations as, in the judgment of the Commission, are reasonably 
necessary to effectuate the provisions or to accomplish the purposes of 
[the CEA].'' \67\ It is pursuant to this authority that the Commission 
promulgated the various exemptions from registration set forth in 
Sec. Sec.  4.5, 4.13, and 4.14. It is also pursuant to this authority 
that the Commission may revise the criteria for claiming such exemptive 
relief.
---------------------------------------------------------------------------

    \67\ 7 U.S.C. 12a(5).
---------------------------------------------------------------------------

    Under the current provisions of part 4 of the Commission's 
regulations, persons claiming exemptive relief from inclusion in the 
definition of a CPO or from registration as a CPO or CTA are required 
to file only a notice of such claim with NFA and to comply with a few 
ministerial requirements.\68\ For entities claiming relief under 
Sec. Sec.  4.5, 4.13, or 4.14, the filing of an exemption notice is the 
end of these entities' interaction with the Commission or NFA (in the 
absence of a special call or their capture by the large trader 
reporting system). The Commission's regulations do not explicitly 
require these entities to inform the Commission in the event that these 
entities cease operating as a going concern.\69\
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    \68\ Under the Commission's regulations, persons claiming such 
relief remain subject to special calls (17 CFR 4.5(c)(2)(ii), 
4.13(c)(2), 4.14(a)(8)(iv)(B)) and remain subject to all 
requirements applicable to traders on our markets (i.e., large 
trader reporting, position limits, anti-fraud provisions, etc.).
    \69\ Since 2003, the Commission, through NFA, has received over 
10,000 notices of claim for exemptive relief under Sec. Sec.  
4.13(a)(3) and (a)(4), which represent approximately 30,000 pools. 
The Commission has no simple and economical way of determining 
whether all of the approximately 10,000 entities filing the notices 
claiming relief remain going concerns. Therefore, it is difficult to 
estimate the number of exempt entities currently operating in the 
derivative markets.
---------------------------------------------------------------------------

    Based on the foregoing, the Commission proposes to require all 
persons claiming exemptive or exclusionary relief under Sec. Sec.  4.5, 
4.13, and 4.14 of the Commission's regulations to confirm their notice 
of claim of exemption or exclusion on an annual basis.\70\ The 
Commission believes that an annual notice requirement would promote 
improved transparency regarding the number of entities either exempt or 
excluded from the Commission's registration and compliance programs, 
which is consistent with one of the primary purposes of the Dodd-Frank 
Act. An annual notice requirement would enable the Commission to 
determine whether exemptions and exclusions should be modified, 
repealed, or maintained as part of the Commission's ongoing assessment 
of its regulatory scheme. If a person chooses to withdraw their 
certification other than due to the cessation of activities requiring 
registration or exemption therefrom, the Commission's proposal would 
require such person to file a registration application with NFA within 
30 days of the anniversary date of the initial claim for exemptive 
relief. Because persons are required to file electronically with NFA, 
NFA would conduct the annual confirmation process through its 
electronic system, similar to the annual updates to registration 
information that are required of registered firms under Sec.  3.10(d). 
The Commission's proposal would make the failure to comply with the 
annual notice requirement result in a deemed withdrawal of the 
exemption or exclusion and under those circumstances could result in 
the initiation of an enforcement action.
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    \70\ If the proposed repeal of Sec. Sec.  4.13(a)(3) and (a)(4) 
is adopted, annual notices will still be required to be filed 
pursuant to Sec. Sec.  4.13(a)(1) and (a)(2) under this proposal. 
Regardless of whether the repeal of Sec. Sec.  4.13(a)(3) and (a)(4) 
is adopted, all CPOs will be required to file annual notices in 
order to claim exemptive relief under all provisions of Sec.  4.13.
---------------------------------------------------------------------------

    The Commission invites comment on whether 30 days is an adequate 
period of time in which to affirm. Does it make sense to require a 
filing within 30 days of the anniversary date of the initial filing, or 
within 30 days of the end of the calendar year?

G. Proposed Amendments to Sec. Sec.  4.24 and 4.34: New Risk Disclosure 
Statement for CPOs and CTAs

    The enactment of the Dodd-Frank Act expanded the scope of the 
Commission's authority to include swaps.\71\ In light of this expansion 
of the Commission's jurisdiction, the Commission has determined that it 
is necessary to amend the mandatory Risk Disclosure Statements \72\ 
under Sec. Sec.  4.24(b) and 4.34(b) for CPOs and CTAs to describe 
certain risks specific to swaps transactions. Specifically, the 
Commission believes that it is critical that registered CPOs and CTAs 
inform pool participants and clients about the potential risks that 
swaps may have limited liquidity and may be hard to value, which may 
result in difficulties regarding the pool participants' ability to 
redeem their interests in the pool and clients' ability to liquidate 
their accounts. The Commission believes that the significance of these 
risks should be appropriately highlighted by including a discussion in 
the Risk Disclosure Statement at the beginning of the document.
---------------------------------------------------------------------------

    \71\ See generally Title VII of the Dodd-Frank Act.
    \72\ See 17 CFR 4.24(b), 4.34(b).
---------------------------------------------------------------------------

    The Commission is specifically soliciting comment as to whether the 
risks discussed in the proposed Risk Disclosure Statement are the 
significant risks to pool participants and clients that are posed by 
the use of swaps by CPOs and CTAs? Should any other risks be included 
in the proposed Risk Disclosure Statement? Should any proposed language 
be omitted?

H. Proposed Amendments to Part 4: Conforming Amendments

    As a result of the amendments discussed in this proposal, the 
Commission proposes to amend various provisions of part 4 of the 
Commission's regulations for the purposes of making confirming changes. 
Specifically, the proposal would delete references to repealed rules 
(e.g., Sec. Sec.  4.13(a)(3) and

[[Page 7987]]

(a)(4), etc.) in other sections of the Commission's regulations.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \73\ requires that agencies, 
in proposing rules, consider the impact of those rules on small 
businesses.
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    \73\ See 5 U.S.C. 601, et seq.
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    CPOs: The Commission has determined previously that registered CPOs 
are not small entities for the purpose of the RFA.\74\ With respect to 
CPOs exempt from registration, the Commission has previously determined 
that a CPO is a small entity if it meets the criteria for exemption 
from registration under current Rule 4.13(a)(2).\75\ Such CPOs will 
continue to qualify for either exemption or exclusion from registration 
and therefore will not be required to report on proposed form CPO-PQR; 
however, they will have an annual notice filing obligation confirming 
their eligibility for exemption or exclusion from registration and 
reporting. The Commission estimates that the time required to complete 
this new requirement will be approximately 0.25 of an hour, which the 
Commission has concluded will not be a significant time expenditure. 
The Commission has determined that the proposed regulation will not 
create a significant economic impact on a substantial number of small 
entities.
---------------------------------------------------------------------------

    \74\ See 47 FR 18618, 18619, Apr. 30, 1982.
    \75\ See 47 FR at 18619-20.
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    CTAs: The Commission has previously decided to evaluate, within the 
context of a particular rule proposal, whether all or some CTAs should 
be considered to be small entities, and if so, to analyze the economic 
impact on them of any such rule.\76\ Schedule A of proposed form CTA-PR 
is proposed to be required of all registered CTAs, which necessarily 
includes entities that would be considered small. The majority of the 
information requested on schedule A is information that is readily 
available to the CTA or readily calculable by the CTA, regardless of 
size. Therefore, the Commission estimates that the time required to 
complete the items contained in schedule A will be approximately 0.5 
hours as it is comprised of only two questions, which solicit 
information that is expected to be readily available. The Commission 
has determined that proposed schedule A will not create a significant 
economic impact on a substantial number of small entities. With respect 
to proposed form CTA-PR, only CTAs directing pool assets equal to or in 
excess of $150 million will be obligated to file schedule B. The 
Commission is hereby determining that for purposes of this rulemaking 
that CTAs directing pool assets equal to or in excess of $150 million 
are not small entities for RFA purposes. Accordingly, the Chairman, on 
behalf of the Commission hereby certifies pursuant to 5 U.S.C. 605(b) 
that the proposed rules, will not have a significant impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \76\ See 47 FR at 18620.
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B. Paperwork Reduction Act

    The Paperwork Reduction Act (``PRA'') imposes certain requirements 
on Federal agencies in connection with their conducting or sponsoring 
any collection of information as defined by the PRA.\77\ An agency may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a currently valid control 
number from the Office of Management and Budget (``OMB''). The 
Commission is proposing to amend Collection 3038-0023 to allow for an 
increase in response hours for the proposed rulemaking resulting from 
the rescission of Sec. Sec.  4.13(a)(3) and (a)(4) and the modification 
of Sec.  4.5. The Commission is also proposing to amend Collection 
3038-0005 to allow for an increase in response house for the proposed 
rulemaking associated with new and modified compliance obligations 
under part 4 of the Commission's regulations resulting from this 
proposal. The Commission, therefore, is submitting this proposal to the 
OMB for its review in accordance with 44 U.S.C. 3507(d) and 5 CFR 
1320.11. The titles for these collections are ``Part 3--Registration'' 
(OMB Control number 3038-0023) and ``Part 4--Commodity Pool Operators 
and Commodity Trading Advisors'' (OMB Control number 3038-0005). 
Responses to this collection of information would be mandatory.
---------------------------------------------------------------------------

    \77\ See 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    The Commission will protect proprietary information according to 
the Freedom of Information Act (``FOIA'') and 17 CFR part 145, 
``Commission Records and Information.'' In addition, section 8(a)(1) of 
the CEA strictly prohibits the Commission, unless specifically 
authorized by the CEA, from making public ``data and information that 
would separately disclose the business transactions or market position 
of any person and trade secrets or names of customers.'' \78\ The 
Commission is also required to protect certain information contained in 
a government system of records according to the Privacy Act of 
1974.\79\
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    \78\ See 7 U.S.C. 12.
    \79\ See 5 U.S.C. 552a.
---------------------------------------------------------------------------

1. Additional Information Provided by CPOs and CTAs
a. OMB Control Number 3038-0023
    Part 3 of the Commission's regulations concern registration 
requirements. Existing Collection 3038-0023 has been amended to reflect 
the obligations associated with the registration of new entrants, i.e., 
CPOs that were previously exempt from registration under Sec. Sec.  
4.5, 4.13(a)(3) and 4.13(a)(4), that had not previously been required 
to register. Because the registration requirements are in all respects 
the same as for current registrants, the collection has been amended 
only insofar as it concerns the increased estimated number of 
respondents and the corresponding estimated annual burden.
    Estimated number of respondents: 77,857.
    Annual responses by each respondent: 78,109.
    Annual reporting burden: 7,029.8.
b. OMB Control Number 3038-0005
    Part 4 of the Commission's regulations concerns the operations of 
CTAs and CPOs, and the circumstances under which they may be exempted 
from registration. Under existing Collection 3038-0005 the estimated 
average time spent per response has not been altered; however, 
adjustments have been made to the collection to account for current 
information available from NFA concerning CPOs and CTAs registered or 
claiming exemptive relief under the part 4 regulations, and the new 
burden expected under proposed Sec.  4.27. The total burden associated 
with Collection 3038-005 is expected to be:
    Estimated number of respondents: 31,322.
    Annual responses by each respondent: 69,082.
    Estimated average hours per response: 8.77.
    Annual reporting burden: 272,419.6.
    Proposed Sec.  4.27 is expected to be the main reason for the 
increased burden under Collection 3038-005. Specifically, the 
Commission expects the following burden with respect to the various 
schedules of proposed forms CPO-PQR and CTA-PR:
    Form CPO-PQR: Schedule A:

    Estimated number of respondents: 4,060.
    Annual responses by each respondent: 4.
    Estimated average hours per response: 8.

[[Page 7988]]

    Annual reporting burden: 129,920.

    Form CPO-PQR: Schedule B:

Estimated number of respondents: 920.
Annual responses by each respondent: 4.
Estimated average hours per response: 4.
Annual reporting burden: 14,720.

    Form CPO-PQR: Schedule C:

Estimated number of respondents: 260.
Annual responses by each respondent: 4.
Estimated average hours per response: 18.
Annual reporting burden: 18,720.

    Form CTA-PR: Schedule A:

Estimated number of respondents: 450.
Annual responses by each respondent: 4.
Estimated average hours per response: 0.5.
Annual reporting burden: 900.

    Form CTA-PR: Schedule B:

Estimated number of respondents: 150.
Annual responses by each respondent: 4.
Estimated average hours per response: 7.
Annual reporting burden: 4,200.
2. Information Collection Comments
    The Commission invites the public and other Federal agencies to 
comment on any aspect of the reporting and recordkeeping burdens 
discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission 
solicits comments in order to: (i) Evaluate whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the Commission, including whether the information will 
have practical utility; (ii) evaluate the accuracy of the Commission's 
estimate of the burden of the proposed collection of information; (ii) 
determine whether there are ways to enhance the quality, utility, and 
clarity of the information collected; and (iv) minimize the burden of 
the collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Comments may be submitted directly to the Office of Information and 
Regulatory Affairs, by fax at (202) 395-6566 or by e-mail at 
[email protected]. Please provide the Commission with a copy 
of submitted comments so that they can be summarized and addressed in 
the final rule. Refer to the ADDRESSES section of this notice of 
proposed rulemaking for comment submission instructions to the 
Commission. A copy of the supporting statements for the collections of 
information discussed above may be obtained by visiting RegInfo.gov. 
OMB is required to make a decision concerning the collection of 
information between 30 and 60 days after publication of this release. 
Consequently, a comment to OMB is most assured of being fully effective 
if received by OMB (and the Commission) within 30 days after 
publication of this notice of proposed rulemaking.

C. Cost-Benefit Analysis

    Section 15(a) of the CEA \80\ requires the Commission to consider 
the costs and benefits of its actions before issuing rules, 
regulations, or orders under the CEA. By its terms, section 15(a) does 
not require the Commission to quantify the costs and benefits of its 
rules, regulations or orders or to determine whether the benefits 
outweigh the costs. Rather, section 15(a) requires that the Commission 
``consider'' the costs and benefits of its actions. Section 15(a) 
further specifies that the costs and benefits shall be evaluated in 
light of the following five broad areas of concern: (1) Protection of 
market participants and the public; (2) efficiency, competitiveness and 
financial integrity of futures markets; (3) price discovery; (4) sound 
risk management practices; and (5) other public interest 
considerations. The Commission may in its discretion give greater 
weight to any one of the five enumerated areas and could in its 
discretion determine that, notwithstanding the costs, a particular 
rule, regulation, or order is necessary or appropriate to protect the 
public interest or to effectuate any of the provisions or accomplish 
any of the purposes of the CEA.
---------------------------------------------------------------------------

    \80\ See 7 U.S.C. 19(a); see also 5 U.S.C. 801(a)(1)(B)(i).
---------------------------------------------------------------------------

    The proposed amendments to the Commission's regulations require 
CPOs and CTAs registered with the CFTC to file in an electronic format 
the proposed forms CPO-PQR and CTA-PR, respectively. Under the proposed 
rule, most CPOs and CTAs would be required to provide quarterly a 
limited amount of basic information on forms CPO-PQR and CTA-PR about 
the operations of their commodity pools. Only large CPOs and CTAs would 
have to submit on a quarterly basis the full complement of systemic 
risk related information required by forms CPO-PQR and CTA-PR.
    With respect to costs, the Commission has determined that: (1) 
Although they are necessary to U.S. financial stability, the proposed 
reporting requirements will create additional compliance costs for 
these registrants; (2) without the proposed reporting requirements 
imposed on CPOs and CTAs, the Commission may not have sufficient 
information to provide effective oversight of participants in the 
futures and derivatives markets; and (3) the proposed reporting 
requirements, once finalized, will provide the Commission with better 
information regarding the business operations, creditworthiness, use of 
leverage, and other material information of certain registered CPOs and 
CTAs.
    In addition to the costs associated with the proposed data 
collection instruments, the Commission has determined the following 
with respect to the costs of the other proposed changes to part 4 of 
the Commission's regulations impacting entitlement to exemptive relief 
from registration: (1) Unless the Commission rescinds the exemptive 
relief delineated in Sec. Sec.  4.13(a)(3) and 4.13(a)(4), the 
information collected under proposed forms CPO-PQR and CTA-PR will not 
provide a complete understanding of the risks arising from the 
activities of CPOs and CTAs in the commodity derivatives markets; (2) 
failing to adopt revisions to Sec.  4.5 that are substantively similar 
to those proposed in NFA's petition for rulemaking would result in 
disparate treatment of similarly situated collective investment 
schemes; (3) requiring the filing of an annual notice to claim 
exemptive relief under Sec. Sec.  4.5, 4.13, and 4.14 enables the 
Commission to better understand the universe of entities claiming 
relief from the Commission's regulatory scheme; and (4) although the 
Commission believes that the abovementioned amendments are necessary, 
the proposed changes will result in additional costs to certain market 
participants due to registration and compliance obligations.
    The Commission has determined that the proposed changes will 
provide a benefit to all investors and market participants by providing 
the Commission and other policy makers with more complete information 
about these registrants. In turn, this information would enhance the 
Commission's ability to form and frame appropriately tailored 
regulatory policies to the commodity pool industry and its operators 
and advisors. As mentioned above, the Commission does not have access 
to this information today and has instead made use of information from 
other, less reliable sources.
    The Commission invites public comment on its cost-benefit 
considerations. Commenters are also invited to submit any data and 
other information that they may have

[[Page 7989]]

quantifying or qualifying the costs and benefits of this proposed rule 
with their comment letters.

List of Subjects

17 CFR Part 4

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

17 CFR Part 145

    Commission records and information, Confidential business 
information.

17 CFR Part 147

    Open commission meetings, Sunshine Act.

    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, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, 
and 23.

    2. In Sec.  4.5, add paragraphs (c)(2)(iii) and (c)(5) to read as 
follows:


Sec.  4.5  Exclusion from the definition of the term ``commodity pool 
operator.''

* * * * *
    (c) * * *
    (2) * * *
    (iii) Furthermore, if the person claiming the exclusion is an 
investment company registered as such under the Investment Company Act 
of 1940, then the notice of eligibility must also contain 
representations that such person will operate the qualifying entity as 
described in Rule 4.5(b)(1) in a manner such that the qualifying 
entity:
    (A) Will use commodity futures or commodity options contracts, or 
swaps solely for bona fide hedging purposes within the meaning and 
intent of [Rule] 1.3(z)(1); Provided however, That in addition, with 
respect to positions in commodity futures or commodity option 
contracts, or swaps that may be held by a qualifying entity only which 
do not come within the meaning and intent of Rule 1.3(z)(1), a 
qualifying entity may represent that the aggregate initial margin and 
premiums required to establish such positions will not exceed five 
percent of the liquidation value of the qualifying entity's portfolio, 
after taking into account unrealized profits and unrealized losses on 
any such contracts it has entered into; and, Provided further, That in 
the case of an option that is in-the-money at the time of purchase, the 
in-the-money amount as defined in Rule 190.01(x) may be excluded in 
computing such five percent;
    (B) Will not be, and has not been, marketing participations to the 
public as or in a commodity pool or otherwise as or in a vehicle for 
trading in (or otherwise seeking investment exposure to) the commodity 
futures, commodity options, or swaps markets.
* * * * *
    (5) Annual notice: Each person who has filed a notice of exclusion 
under this section must affirm the notice of exemption from 
registration, withdraw such exemption due to the cessation of 
activities requiring registration or exemption therefrom, or withdraw 
such exemption and apply for registration within 30 days of the 
anniversary of the initial filing date through National Futures 
Association's electronic exemption filing system.
* * * * *
    3. In Sec.  4.7, revise paragraphs (a)(3)(ix) and (x) and (b)(3) to 
read as follows:


Sec.  4.7  Exemption from certain part 4 requirements for commodity 
pool operators with respect to offerings to qualified eligible persons 
and for commodity trading advisors with respect to advising qualified 
eligible persons.

* * * * *
    (a) * * *
    (3) * * *
    (ix) A natural person whose individual net worth, or joint net 
worth with that person's spouse at the time of either his purchase in 
the exempt pool or his opening of an exempt account would qualify him 
as an accredited investor as defined in Sec. 230.501(a)(5) of this 
title;
    (x) A natural person who would qualify as an accredited investor as 
defined in Sec. 203.501(a)(6) of this title;
* * * * *
    (b) * * *
    (3) Annual report relief. (i) Exemption from the specific 
requirements of Sec.  4.22(c) of this part; Provided, that within 90 
calendar days after the end of the exempt pool's fiscal year or the 
permanent cessation of trading, whichever is earlier, the commodity 
pool operator electronically files with the National Futures 
Association and distributes to each participant in lieu of the 
financial information and statements specified by that section, an 
annual report for the exempt pool, affirmed in accordance with Sec.  
4.22(h) which contains, at a minimum:
    (A) A Statement of Financial Condition as of the close of the 
exempt pool's fiscal year (elected in accordance with Sec.  4.22(g));
    (B) A Statement of Operations for that year;
    (C) Appropriate footnote disclosure and such further material 
information as may be necessary to make the required statements not 
misleading. For a pool that invests in other funds, this information 
must include, but is not limited to, separately disclosing the amounts 
of income, management and incentive fees associated with each 
investment in an investee fund that exceeds five percent of the pool's 
net assets. The income, management and incentive fees associated with 
an investment in an investee fund that is less than five percent of the 
pool's net assets may be combined and reported in the aggregate with 
the income, management and incentive fees of other investee funds that, 
individually, represent an investment of less than five percent of the 
pool's net assets. If the commodity pool operator is not able to obtain 
the specific amounts of management and incentive fees charged by an 
investee fund, the commodity pool operator must disclose the percentage 
amounts and computational basis for each such fee and include a 
statement that the CPO is not able to obtain the specific fee amounts 
for this fund;
    (D) Where the pool is comprised of more than one ownership class or 
series, information for the series or class on which the financial 
statements are reporting should be presented in addition to the 
information presented for the pool as a whole; except that, for a pool 
that is a series fund structured with a limitation on liability among 
the different series, the financial statements are not required to 
include consolidated information for all series.
    (ii) Legend. If a claim for exemption has been made pursuant to 
this section, the commodity pool operator must make a statement to that 
effect on the cover page of each annual report.
* * * * *
    4. In Sec.  4.13:
    a. Remove and reserve paragraphs (a)(3), (4), and (e)
    b. Revise paragraph (b)(1)(ii)
    c. Redesignate paragraph (b)(4) as paragraph (b)(5), and add new 
paragraph (b)(4).
    The revision and addition read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (ii) Contain the section number pursuant to which the operator is 
filing the notice (i.e., Sec.  4.13(a)(1) or (2)) and

[[Page 7990]]

represent that the pool will be operated in accordance with the 
criteria of that paragraph; and
* * * * *
    (4) Annual notice: Each person who has filed a notice of exemption 
from registration under this section must affirm the notice of 
exemption from registration, withdraw such exemption due to the 
cessation of activities requiring registration or exemption therefrom, 
or withdraw such exemption and apply for registration within 30 days of 
the anniversary of the initial filing date through National Futures 
Association's electronic exemption filing system.
* * * * *
    5. In Sec.  4.14:
    a. Remove paragraph (a)(8)(i)(D)
    b. Redesignate paragraph (a)(8)(iii)(D) as (a)(8)(iii)(E) and add 
new paragraph (a)(8)(iii)(D) to read as follows:


Sec.  4.14  Exemption from registration as a commodity trading adviser.

* * * * *
    (a) * * *
    (8) * * *
    (iii) * * *
    (D) Annual notice: Each person who has filed a notice of exemption 
from registration under this section must affirm the notice of 
exemption from registration, withdraw such exemption due to the 
cessation of activities requiring registration or exemption therefrom, 
or withdraw such exemption and apply for registration within 30 days of 
the anniversary of the initial filing date through National Futures 
Association's electronic exemption filing system.
* * * * *
    6. In Sec.  4.24, add paragraph (b)(5) to read as follows:


Sec.  4.24  General disclosures required.

* * * * *
    (b) * * *
    (5) If the pool may engage in swaps, the Risk Disclosure Statement 
must further state:

    SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A 
VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A 
PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE 
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL, HOWEVER, ALL SWAPS 
TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET RISK, CREDIT RISK, 
COUNTERPARTY CREDIT RISK, FUNDING RISK, LIQUIDITY RISK, AND 
OPERATIONAL RISK.
    HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE 
LIQUIDITY RISK, WHICH MAY RESULT IN A SUSPENSION OF REDEMPTIONS. 
HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE SUBSTANTIAL GAINS OR 
LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL CHANGES IN THE VALUE 
OR LEVEL OF AN UNDERLYING OR RELATED MARKET FACTOR.
    IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED 
WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT 
A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL 
CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON 
INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE FOR 
THE COMMODITY POOL OPERATOR TO MODIFY, TERMINATE, OR OFFSET THE 
POOL'S OBLIGATIONS OR THE POOL'S EXPOSURE TO THE RISKS ASSOCIATED 
WITH A TRANSACTION PRIOR TO ITS SCHEDULED TERMINATION DATE.
* * * * *

    7. Add Sec.  4.27 to read as follows:


Sec.  4.27  Additional reporting by advisors of certain large commodity 
pools.

    (a) General definitions. For the purposes of this section:
    (1) Commodity pool operator or CPO has the same meaning as 
commodity pool operator defined in section 1a(11) of the Commodity 
Exchange Act;
    (2) Commodity trading advisor or CTA has the same meaning as 
commodity trading advisor defined in section 1a(12);
    (3) Direct has the same meaning as direct defined in section 
4.10(f);
    (4) Net asset value or NAV has the same meaning as net asset value 
as defined in section 4.10(b);
    (5) Pool has the same meaning as pool as defined in section 
1(a)(10) of the Commodity Exchange Act;
    (6) Reporting period means each quarter ending March 31, June 30, 
September 30, or December 31;
    (b) Persons required to report. A reporting person is:
    (1) Any commodity pool operator that is registered or required to 
be registered under the Commodity Exchange Act and the Commission's 
regulations thereunder; or
    (2) Any commodity trading advisor that is registered or required to 
be registered under the Commodity Exchange Act and the Commission's 
regulations thereunder.
    (c) Reporting. (1) Except as provided in section (c)(2) of this 
section, each reporting person shall file with the National Futures 
Association, not later than 15 days after the end of the first 
reporting period during which such reporting person satisfies the 
requirements of paragraph (b) of this section, and not later than 15 
days after the end of each quarter during the calendar year subsequent 
thereto, a report with respect to the directed assets of each pool 
under the advisement of the commodity pool operator consistent with 
appendix A to this part or commodity trading advisor consistent with 
appendix C to this part.
    (2) Mid-Sized CPOs, as that term is defined in appendix A to this 
part, shall file with the National Futures Association such reports 
consistent with the time period described in appendix A.
    (3) All financial information shall be reported in accordance with 
generally accepted accounting principles consistently applied.
    (d) [Reserved]
    (e) Filing requirements. Each report required to be filed with the 
National Futures Association under this section shall:
    (1)(i) Contain an oath and affirmation that, to the best of the 
knowledge and belief of the individual making the oath and affirmation, 
the information contained in the document is accurate and complete; 
Provided, however, That it shall be unlawful for the individual to make 
such oath or affirmation if the individual knows or should know that 
any of the information in the document is not accurate and complete and
    (ii) Each oath or affirmation must be made by a representative duly 
authorized to bind the CPO or CTA.
    (2) Be submitted consistent with the National Futures Association's 
electronic filing procedures.
    (f) Termination of reporting requirement. All reporting persons 
shall continue to file such reports as are required under this section 
until the effective date of a Form 7W filed in accordance with the 
Commission's regulations.
    (g) Public records. Reports filed pursuant to this section shall 
not be considered Public Records as defined in Sec.  145.0 of this 
chapter.
    8. In Sec.  4.34, add paragraph (b)(4) to read as follows:


Sec.  4.34  General disclosures required.

* * * * *
    (b) * * *
    (4) If the commodity trading advisor may engage in swaps, the Risk 
Disclosure Statement must further state:

    SWAPS TRANSACTIONS, LIKE OTHER FINANCIAL TRANSACTIONS, INVOLVE A 
VARIETY OF SIGNIFICANT RISKS. THE SPECIFIC RISKS PRESENTED BY A 
PARTICULAR SWAP TRANSACTION NECESSARILY DEPEND UPON THE TERMS OF THE 
TRANSACTION AND YOUR CIRCUMSTANCES. IN GENERAL,

[[Page 7991]]

HOWEVER, ALL SWAPS TRANSACTIONS INVOLVE SOME COMBINATION OF MARKET 
RISK, CREDIT RISK, FUNDING RISK, AND OPERATIONAL RISK.
    HIGHLY CUSTOMIZED SWAPS TRANSACTIONS IN PARTICULAR MAY INCREASE 
LIQUIDITY RISK, WHICH MAY RESULT IN YOUR ABILITY TO WITHDRAW YOUR 
FUNDS BEING LIMITED. HIGHLY LEVERAGED TRANSACTIONS MAY EXPERIENCE 
SUBSTANTIAL GAINS OR LOSSES IN VALUE AS A RESULT OF RELATIVELY SMALL 
CHANGES IN THE VALUE OR LEVEL OF AN UNDERLYING OR RELATED MARKET 
FACTOR.
    IN EVALUATING THE RISKS AND CONTRACTUAL OBLIGATIONS ASSOCIATED 
WITH A PARTICULAR SWAP TRANSACTION, IT IS IMPORTANT TO CONSIDER THAT 
A SWAP TRANSACTION MAY BE MODIFIED OR TERMINATED ONLY BY MUTUAL 
CONSENT OF THE ORIGINAL PARTIES AND SUBJECT TO AGREEMENT ON 
INDIVIDUALLY NEGOTIATED TERMS. THEREFORE, IT MAY NOT BE POSSIBLE TO 
MODIFY, TERMINATE, OR OFFSET YOUR OBLIGATIONS OR YOUR EXPOSURE TO 
THE RISKS ASSOCIATED WITH A TRANSACTION PRIOR TO ITS SCHEDULED 
TERMINATION DATE.
* * * * *

    9. Appendix A is revised to read as follows:

Appendix A to Part 4--Form CPO-PQR

BILLING CODE P
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    10. Appendix C is added to read as follows:

Appendix C--Form CTA-PR
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BILLING CODE C

PART 145--COMMISSION RECORDS AND INFORMATION

    11. The authority citation for part 145 continues to read as 
follows:

    Authority: Pub. L. 99-570, 100 Stat. 3207; Pub. L. 89-554, 80 
Stat. 383; Pub. L. 90-23, 81 Stat. 54; Pub. L. 98-502, 88 Stat. 
1561-1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93-463, 88 Stat. 1389 
(5 U.S.C. 4a(j)).

    12. In Sec.  145.5, revise paragraphs (d)(1)(viii) and (h) to read 
as follows:


Sec.  145.5  Disclosure of nonpublic records.

* * * * *
    (d) * * *
    (1) * * *
    (viii) The following reports and statements that are also set forth 
in paragraph (h) of this section, except as specified in 17 CFR 
1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed pursuant 
to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 1-FR 
pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed pursuant to 
17 CFR 31.13; the accountant's report on material inadequacies filed in 
accordance with 17 CFR 1.16(c)(5); all reports and statements required 
to be filed pursuant to 17 CFR 1.17(c)(6); and
    (A) The following portions of Form CPO-PQR required to be filed 
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and D; 
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d), 
(e), and (g); Question 11; Question 12; and Question 13; and Schedules 
B and C;
    (B) The following portions of Form CTA-PR required to be filed 
pursuant to 17 CFR 4.27: Schedule B: Question 4,

[[Page 8066]]

subparts (b), (c), (d), and (e); Question 5; and Question 6;
* * * * *
    (h) Contained in or related to examinations, operating, or 
condition reports prepared by, on behalf of, or for the use of the 
Commission or any other agency responsible for the regulation or 
supervision of financial institutions, including, but not limited to 
the following reports and statements that are also set forth in 
paragraph (d)(1)(viii) of this section, except as specified in 17 CFR 
1.10(g)(2) and 17 CFR 31.13(m): Forms 1-FR required to be filed 
pursuant to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 
1-FR pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed 
pursuant to 17 CFR 31.13; the accountant's report on material 
inadequacies filed in accordance with 17 CFR 1.16(c)(5); all reports 
and statements required to be filed pursuant to 17 CFR 1.17(c)(6); and
    (1) The following portions of Form CPO-PQR required to be filed 
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and D; 
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d), 
(e), and (g); Question 11; Question 12; and Question 13; and Schedules 
B and C;
    (2) The following portions of Form CTA-PR required to be filed 
pursuant to 17 CFR 4.27: Schedule B: Question 4, subparts (b), (c), 
(d), and (e); Question 5; and Question 6; and
* * * * *

PART 147--OPEN COMMISSION MEETINGS

    13. The authority citation for part 147 continues to read as 
follows:

    Authority: Sec. 3(a), Pub. L. 94-409, 90 Stat. 1241 (5 U.S.C. 
552b); sec. 101(a)(11), Pub. L. 93-463, 88 Stat. 1391 (7 U.S.C. 
4a(j) (Supp. V, 1975)).

    14. In Sec.  147.3, revise (b)(4)(i)(H) and (b)(8) to read as 
follows:


Sec.  147.3  General requirement of open meetings; grounds upon which 
meetings may be closed.

* * * * *
    (b) * * *
    (4)(i) * * *
    (H) The following reports and statements that are also set forth in 
paragraph (b)(8) of this section, except as specified in 17 CFR 
1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed pursuant 
to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 1-FR 
pursuant to 17 CFR 1.10(h); Forms 2-FR required to be filed pursuant to 
17 CFR 31.13; the accountant's report on material inadequacies filed in 
accordance with 17 CFR 1.16(c0(5); all reports and statements required 
to be filed pursuant to 17 CFR 1.17(c)(6); the following portions of 
Form CPO-PQR required to be filed pursuant to 17 CFR 4.27: Schedule A: 
Question 2, subparts (b) and D; Question 3, subparts (g) and (h); 
Question 10, subparts (b), (c), (d), (e), and (g); Question 11; 
Question 12; and Question 13; and Schedules B and C; and the following 
portions of Form CTA-PR required to be filed pursuant to 17 CFR 4.27: 
Schedule B: Question 4, subparts (b), (c), (d), and (e); Question 5; 
and Question 6;
* * * * *
    (8) Disclose information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the Commission or any other agency responsible for the 
regulation or supervision of financial institutions, including, but not 
limited to the following reports and statements that are also set forth 
in paragraph (b)(4)(i)(H) of this section, except as specified in 17 
CFR 1.10(g)(2) or 17 CFR 31.13(m): Forms 1-FR required to be filed 
pursuant to 17 CFR 1.10; FOCUS reports that are filed in lieu of Forms 
1-FR pursuant to 17 CFR 1.10(h); Forms 2-FR pursuant to 17 CFR 31.13; 
the accountant's report on material inadequacies filed in accordance 
with 1.16(c)(5); and all reports and statements required to be filed 
pursuant to 17 CFR 1.17(c)(6); and
    (i) The following portions of Form CPO-PQR required to be filed 
pursuant to 17 CFR 4.27: Schedule A: Question 2, subparts (b) and D; 
Question 3, subparts (g) and (h); Question 10, subparts (b), (c), (d), 
(e), and (g); Question 11; Question 12; and Question 13; and Schedules 
B and C; and
    (ii) The following portions of Form CTA-PR required to be filed 
pursuant to 17 CFR 4.27: Schedule B: Question 4, subparts (b), (c), 
(d), and (e); Question 5; and Question 6;
* * * * *

    Issued in Washington, DC on January 26, 2011 by the Commission.
David A. Stawick,
Secretary of the Commission.

Appendices to Commodity Pool Operators and Commodity Trading Advisors: 
Amendments to Compliance Obligations--Commission Voting Summary and 
Statements of Commissioners

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendix 1--Commission Voting Summary

    On this matter, Chairman Gensler and Commissioners Dunn, Sommers 
(by proxy), Chilton and O'Malia voted in the affirmative; no 
Commissioner voted in the negative.

Appendix 2--Statement of Chairman Gary Gensler

    I support the proposed joint rulemaking with the Securities and 
Exchange Commission (SEC) that requires reporting by investment 
advisers to private funds that are also registered as commodity pool 
operators (CPOs) or commodity trading advisors (CTAs) with the CFTC. 
I also support the CFTC's proposed amendment to compliance 
obligations of CPOs and CTAs. The joint rule requires private fund 
investment advisers with assets under management totaling more than 
$150 million to provide the SEC with financial and other trading 
information. Private fund investment advisers with assets under 
management totaling more than $1 billion would be subject to 
heightened reporting requirements. I support the CFTC rule that 
would bring similar reporting to CPOs and CTAs with assets under 
management greater than $150 million that are not otherwise jointly 
regulated. This is to ensure that similar entities in the asset 
management arena are regulated consistently. Lastly, the proposal 
repeals certain exemptions issued under Part 4 of the Commission's 
regulations so the Commission will have a more complete picture of 
the activity of operators of and advisors to pooled investment 
vehicles in the commodities marketplace.

[FR Doc. 2011-2437 Filed 2-10-11; 8:45 am]
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