[Federal Register Volume 76, Number 42 (Thursday, March 3, 2011)]
[Proposed Rules]
[Pages 11701-11705]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-4657]



[[Page 11701]]

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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

RIN 3038-AD49


Amendments to Commodity Pool Operator and Commodity Trading 
Advisor Regulations Resulting From the Dodd-Frank Act

AGENCY: Commodity Futures Trading Commission.

ACTION: Proposed rules.

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SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing to amend its regulations affecting the operations and 
activities of commodity pool operators (CPOs) and commodity trading 
advisors (CTAs) (Proposal) in order to have those regulations reflect 
changes made to the Commodity Exchange Act (CEA) by the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank Act).

DATES: Comments must be received on or before May 2, 2011.

ADDRESSES: You may submit comments, identified by RIN 3038-AD49, 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, Commodity Futures 
Trading Commission, 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.
    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 is exempt from disclosure under the Freedom of 
Information Act (FOIA),\1\ a petition for confidential treatment of the 
exempt information may be submitted according to the procedures set 
forth in Commission Regulation 145.9.\2\
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    \1\ 5 U.S.C. 552.
    \2\ The Commission's regulations are found at 17 CFR Ch. I 
(2010) and can be accessed through the Commission's Web site, http://www.cftc.gov.
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    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, such as 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: Barbara S. Gold, Associate Director, 
or Christopher W. Cummings, Special Counsel, Division of Clearing and 
Intermediary Oversight, 1155 21st Street, NW., Washington, DC 20581. 
Telephone number: 202-418-5450 and electronic mail: [email protected] or 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On July 21, 2010, President Obama signed the Dodd-Frank Act.\3\ 
Title VII of the Dodd-Frank Act \4\ amended the CEA \5\ to establish a 
comprehensive new regulatory framework for swaps and security-based 
swaps. The goal of this legislation was to reduce risk, increase 
transparency, and promote market integrity within the financial system 
by, among other things: (1) Providing for the registration and 
comprehensive regulation of SDs and MSPs; (2) imposing clearing and 
trade execution requirements on standardized derivative products; (3) 
creating robust recordkeeping and real-time reporting regimes; and (4) 
enhancing the Commission's rulemaking and enforcement authorities with 
respect to, among others, all registered entities and intermediaries 
subject to the Commission's oversight. Among the changes made by the 
Dodd-Frank Act to the CEA were to include within the CPO definition the 
operator of a collective investment vehicle that trades swaps, and to 
include within the CTA definition a person who provides advice 
concerning swaps.\6\
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    \3\ See Dodd-Frank Wall Street Reform and Consumer Protection 
Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010). The text of the 
Dodd-Frank Act may be accessed at http://www.cftc.gov/ucm/groups/public/@swaps/documents/file/hr4173_enrolledbill.pdf.
    \4\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may 
be cited as the ``Wall Street Transparency and Accountability Act of 
2010.''
    \5\ 7 U.S.C. 1 et seq. (2006). The CEA also can be accessed 
through the Commission's web site.
    \6\ See Section 721(a) of the Dodd-Frank Act, which re-organized 
(and in some cases amended) existing definitions in, and added new 
definitions to, Section 1a of the CEA. The CPO and CTA definitions, 
as amended, are to be codified respectively at CEA sections 1a(11) 
and 1a(12).
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    Part 4 of the Commission's regulations sets forth a comprehensive 
regulatory scheme for the operations and activities of CPOs and CTAs. 
It includes disclosure, reporting and recordkeeping requirements for 
registered CPOs and CTAs, registration and compliance exemptions for 
CPOs and CTAs, and other provisions, including anti-fraud provisions, 
applicable to CPOs and CTAs regardless of registration status. Many of 
the Part 4 regulations generally apply to CPOs and CTAs and, thus, they 
will be applicable to CPOs and CTAs with respect to their swap 
activities.\7\ In other instances, however, the text of certain Part 4 
regulations is specific to activities involving futures contracts, 
commodity options, and off-exchange retail foreign currency 
transactions, and it does not include, refer to or otherwise take 
account of swap activities.\8\ The Proposal is intended to clarify and 
ensure that the requirements governing the operations and activities of 
CPOs and CTAs continue to apply to these intermediaries in the context 
of their involvement with swap transactions.\9\
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    \7\ See, e.g., Regulations 4.21 and 4.31, which respectively 
require registered CPOs and CTAs to deliver a Disclosure Document to 
prospective pool participants and clients. See also Regulation 4.41, 
which proscribes fraudulent advertising by CPOs, CTAs, and their 
principals.
    \8\ See, e.g., Regulations 4.24(l) and 4.34(k), which currently 
do not include ``swap dealer'' among the intermediaries for whom a 
CPO or CTA must provide information concerning material litigation 
in its Disclosure Document. See also Regulations 4.24(g) and 
4.34(g), which do not specify any risks unique to trading swaps in 
calling for disclosure of principal risk factors.
    \9\ Part 4 applies to CPOs with respect to their activities 
affecting pool participants and to CTAs with respect to their 
activities affecting clients. Depending on the nature of its 
activities, a CPO or CTA may also come within the definition of the 
term ``swap dealer'' or ``major swap participant'' in new CEA 
Section 1a(49) or 1a(33), respectively (added to the CEA by Section 
721(a) of the Dodd-Frank Act). As directed by the Dodd-Frank Act, 
the Commission has proposed new regulations that would establish 
business conduct standards for swap dealers and major swap 
participants. See 75 FR 80638 (Dec. 22, 2010). These new regulations 
would apply to swap dealers and major swap participants with respect 
to the counterparties with whom they transact swap business, and 
would govern different activity than that to which the Part 4 
regulations apply.
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    The Commission is proposing still other rulemakings in response to 
the Dodd-Frank Act that could affect the Part 4 regulations.\10\ The 
Commission intends to resolve any discrepancies that may arise between 
any of these other rulemakings and the Proposal in

[[Page 11702]]

the course of finalizing its rulemaking under the Dodd-Frank Act.
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    \10\ See, e.g., Commodity Pool Operators and Commodity Trading 
Advisors: Amendments to Compliance Obligations, 76 FR 7976 (Feb. 11, 
2011); and Swap Data Recordkeeping and Reporting Requirements; 
Proposed Rule, 75 FR 76574 (Dec. 8, 2010).
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II. The Proposal

    The Part 4 regulations employ the term ``commodity interest'' 
throughout.\11\ This term currently is defined in Regulation 1.3(yy) to 
mean:
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    \11\ See, e.g., Regulations 4.10(f) and (g), which respectively 
define the terms ``direct'' and ``trading program;'' 
4.12(b)(1)(i)(D), which provides an exemption from CPO registration 
where, among other things, the pool at issue ``will trade * * * 
commodity interests in a manner solely incidental to its securities 
trading activities;'' 4.22(a)(1), which requires itemization in a 
pool's periodic Account Statement of certain information concerning 
commodity interest trading; 4.23 and 4.33, which respectively 
require CPOs and CTAs to make and keep certain books and records 
relating to commodity interest trading; and 4.24 and 4.34, which 
respectively require CPOs and CTAs to disclose specified information 
with respect to ``commodity interests.''

    (1) Any contract for the purchase or sale of a commodity for 
future delivery;
    (2) Any contract, agreement or transaction subject to Commission 
regulation under section 4c or 19 of the Act; and
    (3) Any contract, agreement or transaction subject to Commission 
jurisdiction under section 2(c)(2) of the Act.

To ensure that the Part 4 regulations adequately and accurately 
encompass swap transactions, the Proposal would adopt in new Regulation 
4.10(a) a definition of the term ``commodity interest'' to be employed 
for the purposes of Part 4. That definition would include the text of 
existing Regulation 1.3(yy) along with reference to the term ``swap'' 
as defined in Section 1a(47) of the CEA.\12\
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    \12\ Section 721(a) of the Dodd-Frank Act added this new 
definition to Section 1a of the CEA.
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    At various regulations throughout Part 4, the Proposal would insert 
``swap,'' ``swap transaction'' or a similar term. See the proposed 
amendments to Regulations 4.23(a)(1), 4.24(g), (h)(1), and (i)(2) for 
CPOs and Regulations 4.34(g) and 4.34(i)(2) for CTAs. For example, 
regulation 4.23(a)(1) would be amended to include ``swap type and 
counterparty'' in the itemized daily record that a CPO must make and 
keep with respect to a pool's commodity interest transactions.
    At other Part 4 regulations, the Proposal would include the term 
``swap dealer'' among the persons for whom a CPO or CTA must provide 
information in its Disclosure Document and a CPO must provide 
information in a pool's periodic Account Statement. See the proposed 
amendments to Regulations 4.22(a)(3), 4.24(j)(1), (j)(3), (l)(1), and 
(l)(2) for CPOs and Regulations 4.34(j)(1), (j)(3), (k)(1) and (k)(2) 
for CTAs. For example, Regulations 4.24(j) and 4.34(j) would be amended 
to include swap dealers in the group of persons as to which conflicts 
of interest must be disclosed by CPOs and CTAs. Also, the Proposal 
would include a registered swap dealer among the persons listed in 
Regulation 4.7(a)(2) that do not have to satisfy a portfolio 
requirement in order to be a qualified eligible person (QEP), such that 
a CPO or CTA that has claimed relief under Regulation 4.7 may accept 
the swap dealer as a pool participant or advisory client without regard 
to the size of its investment portfolio. This would be consistent with 
the current treatment of other financial intermediaries registered with 
the Commission (such as futures commission merchants and retail foreign 
exchange dealers) as QEPs under Regulation 4.7(a)(2).
    Yet other proposed amendments would require a CPO or CTA to make 
and keep certain books and records generated by the swap transactions 
in which they engage on behalf of not only their pool participants and 
clients, but also themselves. See the proposed amendments to 
Regulations 4.23(a)(7) and (b)(1) for CPOs and Regulations 4.33(a)(6) 
and (b)(1) for CTAs. The proposed amendments to Regulations 4.23(a)(7) 
and 4.33(a)(6) would require CPOs and CTAs to retain each 
acknowledgment of a swap transaction received from a swap dealer. The 
proposed amendments to Regulations 4.23(b)(1) and 4.33(b)(1) would make 
clear that if a CPO or CTA was a counterparty to a swap transaction, 
then it would be subject to the swap data recordkeeping and reporting 
requirements of Part 45.\13\
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    \13\ See Proposed Regulation 45.2, 75 FR 76574. In this regard, 
the Commission notes that it intends to propose regulations 
concerning recordkeeping and reporting requirements for ``pre-
enactment swaps'' and ``transition swaps,'' as those terms will be 
defined in that proposal. The Commission further intends to provide 
a cross-reference in Regulations 4.23(b)(1) and 4.33(b)(1) to any 
such requirements it may adopt.
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    The Proposal would also amend Regulation 4.30. Currently, this 
regulation provides:

    No commodity trading advisor may solicit, accept or receive from 
an existing or prospective client funds, securities or other 
property in the trading advisor's name (or extend credit in lieu 
thereof) to purchase, margin, guarantee or secure any commodity 
interest of the client; Provided, however, That this section shall 
not apply to a futures commission merchant that is registered as 
such under the Act or to a leverage transaction merchant that is 
registered as a commodity trading advisor under the Act or to a 
retail foreign exchange dealer that is registered as such under the 
Act.

Because swap dealers will generally fall within the statutory 
definition of CTA, and because a swap dealer engaging in uncleared swap 
transactions may be accepting funds or other property from its 
counterparties as variation and initial margin payments,\14\ the 
Commission is proposing to amend Regulation 4.30 by excluding a 
registered swap dealer from the regulation's prohibition in connection 
with a swap that is not cleared through a derivatives clearing 
organization. This action would result in four distinct categories of 
intermediaries being excluded from the operative requirements of 
Regulation 4.30. Accordingly, the Commission also is proposing to amend 
the regulation by reorganizing its text where applicable to these 
exclusions.
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    \14\ The Commission intends to address the circumstances in 
which non-bank swap dealers may be required or permitted to accept 
margin payments in uncleared swap transactions in a future proposed 
rulemaking. Accordingly, this proposed amendment to Regulation 4.30 
should not be interpreted to impose or authorize any such margin 
requirements.
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    Finally, the Proposal would delete Regulation 4.32. This regulation 
deals with trading by a registered CTA on or subject to the rules of a 
derivatives transaction execution facility (DTEF) for non-institutional 
numbers. Section 734(a) of the Dodd-Frank Act repeals Section 5a of the 
CEA, which is the section establishing and providing for the regulation 
of DTEFs. Accordingly, because subsequent to the effective date of the 
Dodd-Frank Act \15\ Regulation 4.32 will no longer have a statutory 
basis or purpose, the Proposal would remove and reserve Regulation 
4.32.
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    \15\ Subject to certain limited exceptions, the provisions of 
the Dodd-Frank Act become effective 360 days after its enactment 
(Jul. 21, 2010).
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    The Commission requests comment on the foregoing. In addition, the 
Commission seeks comment on any other amendments it should make to the 
Part 4 regulations to clarify and ensure that that the requirements 
governing the operations and activities of CPOs and CTAs continue to 
apply to these intermediaries in the context of their involvement with 
swap transactions.

III. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA'') \16\ requires that 
agencies, in proposing rules, consider the impact of those rules on 
small businesses.\17\ The Commission previously has established certain 
definitions of ``small entities'' to be used by the Commission in 
evaluating the impact of its rules on such entities in accordance with 
the

[[Page 11703]]

RFA.\18\ With respect to CPOs, the Commission previously has determined 
that a CPO is a small entity for the purpose of the RFA if it meets the 
criteria for an exemption from registration under Regulation 
4.13(a)(2).\19\ Thus, because the Proposal applies to registered CPOs, 
the RFA is not applicable to it. As for CTAs, the Commission previously 
has stated that it would evaluate within the context of a particular 
rule proposal whether all or some affected CTAs would be considered to 
be small entities and, if so, the economic impact on them of the 
particular rule. In this regard, the Commission notes that the Proposal 
applies to registered CTAs. Moreover, the Proposal would not have a 
significant economic impact on any CPO or CTA who would be affected 
thereby, because it would merely bring within the current Part 4 
regulatory structure of disclosure, reporting and recordkeeping 
information with respect to swap activities. It would not impose any 
additional operative requirements or otherwise direct or confine the 
activities of CPOs and CTAs.\20\ Accordingly, the Chairman, on behalf 
of the Commission, hereby certifies pursuant to 5 U.S.C. 605(b) that 
the Proposal would not have a significant economic impact on a 
substantial number of small entities. However, the Commission invites 
the public to comment on this certification.
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    \16\ 5 U.S.C. 601 et seq.
    \17\ By its terms, the RFA does not apply to ``individuals.'' 
See 48 FR 14933, n. 115 (Apr. 6, 1983).
    \18\ See 47 FR 18618 (Apr. 30, 1982).
    \19\ Id. at 18619-20.
    \20\ While the Proposal would amend Regulation 4.30, which 
concerns prohibited activities by a CTA regardless of registration 
status, that amendment would extend to persons registered as a swap 
dealer the existing exclusion from the regulation's scope.
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) \21\ imposes certain 
requirements on Federal agencies (including the Commission) in 
connection with their conducting or sponsoring any collection of 
information as defined by the PRA. The Proposal would not, if adopted, 
require any new collection of information from any entity that would be 
subject to the affected regulations. Accordingly, for purposes of the 
PRA, the Chairman, on behalf of the Commission, certifies that the 
proposed amendments to Part 4, if adopted, would not impose any new 
reporting or recordkeeping requirements.
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    \21\ 44 U.S.C. 3501 et seq.
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C. Cost-Benefit Analysis

    Section 15(a) of the CEA \22\ requires the Commission to consider 
the costs and benefits of its actions before issuing a rulemaking under 
the CEA. By its terms, Section 15(a) does not require the Commission to 
quantify the costs and benefits of a rule or to determine whether the 
benefits of the rulemaking outweigh its costs; rather, it simply 
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 five broad areas of market and public 
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 its costs, a 
particular rule 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.
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    \22\ 7 U.S.C. 19(a).
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    Summary of Proposed Amendments. As is explained above, the proposed 
amendments to Part 4 would ensure that the Commission's regulations 
governing the operations and activities of CPOs and CTAs reflect 
changes made to the CEA by the Dodd-Frank Act by, e.g., including swap 
dealers among the intermediaries for whom CPOs and CTAs must disclose 
information to prospective pool participants and clients, and swap 
transaction confirmations among the books and records that CPOs and 
CTAs must make and keep.
    Costs. With respect to costs, the Commission has determined that 
the costs of the Proposal would not be significant. This is because the 
Proposal would simply conform the language of the existing Part 4 
regulatory scheme to take into account the changes made to the 
Commission's overall regulatory scheme as a result of the Dodd-Frank 
Act. There will be additional disclosure and recordkeeping requirements 
on CPOs and CTAs as a result of the Proposal. The information required 
for compliance should be readily available, with minimal administrative 
burdens, to CPOs and CTAs.
    Benefits. With respect to benefits, the Commission has determined 
that the benefits of the Proposal would be significant. This is because 
it would enhance the customer protections currently provided under Part 
4 by increasing the transparency of swap activities by CPOs and CTAs to 
their pool participants and clients. This will be accomplished by 
including information on swap activities in the disclosure, reporting 
and recordkeeping scheme already existing under Part 4.
    Public Comment. The Commission invites public comment on its cost-
benefit considerations. Commenters are also invited to submit any data 
or other information that they may have quantifying or qualifying the 
costs and benefits of the Proposal with their comment letters.

List of Subjects in 17 CFR Part 4

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

    For the reasons presented above, the Commission proposes to amend 
Chapter I of Title 17 of the Code of Federal Regulations as follows:

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

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

    Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6l, 6m, 6n, 6o, 12a and 23, 
as amended by Title VII of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (Jul. 21, 
2010).

    2. Section 4.7 is amended by adding paragraph (a)(2)(i)(C) 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) * * *
    (2) * * *
    (i) * * *
    (C) A swap dealer registered pursuant to section 4s(a)(1) of the 
Act, or a principal thereof;
* * * * *
    3. Section 4.10 is amended by adding paragraph (a) to read as 
follows:


Sec.  4.10  Definitions.

     * * *
    (a) Commodity interest means:
    (1) Any contract for the purchase or sale of a commodity for future 
delivery;
    (2) Any contract, agreement or transaction subject to Commission 
regulation under section 4c or 19 of the Act;
    (3) Any contract, agreement or transaction subject to Commission 
jurisdiction under section 2(c)(2) of the Act; and

[[Page 11704]]

    (4) A swap as defined under section 1a(47) of the Act and any 
Commission regulations implemented thereunder.
* * * * *
    4. Section 4.22 is amended by revising paragraph (a)(3) to read as 
follows:


Sec.  4.22  Reporting to pool participants.

    (a) * * *
    (3) The Account Statement must also disclose any material business 
dealings between the pool, the pool's operator, commodity trading 
advisor, futures commission merchant, retail foreign exchange dealer, 
swap dealer, or the principals thereof that previously have not been 
disclosed in the pool's Disclosure Document or any amendment thereto, 
other Account Statements or Annual Reports.
* * * * *
    5. Section 4.23 is amended by:
    a. Revising paragraphs (a)(1) and (a)(7); and
    b. Revising paragraph (b)(1), to read as follows:


Sec.  4.23  Recordkeeping.

* * * * *
    (a) * * *
    (1) An itemized daily record of each commodity interest transaction 
of the pool, showing the transaction date, quantity, commodity 
interest, and, as applicable, price or premium, delivery month or 
expiration date, whether a put or a call, strike price, underlying 
contract for future delivery or underlying physical, swap type and 
counterparty, the futures commission merchant and/or retail foreign 
exchange dealer carrying the account and the introducing broker, if 
any, whether the commodity interest was purchased, sold (including, in 
the case of a retail forex transaction, offset), exercised, expired 
(including, in the case of a retail forex transaction, whether it was 
rolled forward), and the gain or loss realized.
* * * * *
    (7) Copies of each confirmation or acknowledgment of a commodity 
interest transaction of the pool, and each purchase and sale statement 
and each monthly statement for the pool received from a futures 
commission merchant or retail foreign exchange dealer or swap dealer.
* * * * *
    (b) * * *
    (1) An itemized daily record of each commodity interest transaction 
of the commodity pool operator and each principal thereof, showing the 
transaction date, quantity, commodity interest, and, as applicable, 
price or premium, delivery month or expiration date, whether a put or a 
call, strike price, underlying contract for future delivery or 
underlying physical, the futures commission merchant or retail foreign 
exchange dealer carrying the account and the introducing broker, if 
any, whether the commodity interest was purchased, sold, exercised, or 
expired, and the gain or loss realized; Provided, however, that if the 
pool operator is a counterparty to a swap, it must comply with the swap 
data recordkeeping and reporting requirements of part 45 of this 
chapter.
* * * * *
    6. Section 4.24 is amended by:
    a. Revising paragraph (g);
    b. Revising paragraph (h)(1)(i);
    c. Revising paragraph (i)(2)(xii);
    d. Revising paragraphs (j)(1)(vi) and (j)(3); and
    e. Revising paragraphs (l)(1)(iii), (l)(2) introductory text and 
(l)(2)(i), to read as follows:


Sec.  4.24  General disclosures required.

* * * * *
    (g) Principal risk factors. A discussion of the principal risk 
factors of participation in the offered pool. This discussion must 
include, without limitation, risks relating to volatility, leverage, 
liquidity, counterparty creditworthiness, as applicable to the types of 
trading programs to be followed, trading structures to be employed and 
investment activity (including retail forex and swap transactions) 
expected to be engaged in by the offered pool.
    (h) * * *
    (1) * * *
    (i) The approximate percentage of the pool's assets that will be 
used to trade commodity interests, securities and other types of 
interests, categorized by type of commodity or market sector, type of 
swap, type of security (debt, equity, preferred equity), whether traded 
or listed on a regulated exchange market, maturity ranges and 
investment rating, as applicable;
* * * * *
    (i) * * *
    (2) * * *
    (xii) Any costs or fees included in the spread between bid and 
asked prices for retail forex or, if known, swap transactions; and
* * * * *
    (j) * * *
    (1) * * *
    (vi) Any other person providing services to the pool, soliciting 
participants for the pool, or acting as a counterparty to the pool's 
retail forex transactions, acting as a swap dealer with respect to the 
pool, or acting as a counterparty to the pool's swap transactions.
* * * * *
    (3) Included in the description of such conflicts must be any 
arrangement whereby a person may benefit, directly or indirectly, from 
the maintenance of the pool's account with the futures commission 
merchant and/or retail foreign exchange dealer and/or from the 
maintenance of the pool's positions with a swap dealer, or from the 
introduction of the pool's account to a futures commission merchant 
and/or retail foreign exchange dealer and/or swap dealer by an 
introducing broker (such as payment for order flow or soft dollar 
arrangements) or from an investment of pool assets in investee pools or 
funds or other investments.
* * * * *
    (l) * * *
    (1) * * *
    (iii) The pool's futures commission merchants and/or retail foreign 
exchange dealers and/or swap dealers and its introducing brokers, if 
any.
    (2) With respect to a futures commission merchant and/or retail 
foreign exchange dealer and/or swap dealer or an introducing broker, an 
action will be considered material if:
    (i) The action would be required to be disclosed in the notes to 
the futures commission merchant's, retail foreign exchange dealer's, 
swap dealer's or introducing broker's financial statements prepared 
pursuant to generally accepted accounting principles;
* * * * *
    7. Section 4.30 is revised to read as follows:


Sec.  4.30  Prohibited activities.

    (a) Except as provided in paragraph (b) of this section, no 
commodity trading advisor may solicit, accept or receive from an 
existing or prospective client funds, securities or other property in 
the trading advisor's name (or extend credit in lieu thereof) to 
purchase, margin, guarantee or secure any commodity interest of the 
client.
    (b) The prohibition in paragraph (a) of this section shall not 
apply to:
    (1) A futures commission merchant that is registered as such under 
the Act;
    (2) A leverage transaction merchant that is registered as a 
commodity trading advisor under the Act;
    (3) A retail foreign exchange dealer that is registered as such 
under the Act; or
    (4) A swap dealer that is registered as such under the Act, with 
respect to funds, securities or other property accepted to purchase, 
margin, guarantee

[[Page 11705]]

or secure any swap that is not cleared through a derivatives clearing 
organization.


Sec.  4.32  [Removed and Reserved]

    7. Section 4.32 is removed and reserved.
    8. Section 4.33 is amended by
    a. Revising paragraph (a)(6); and
    b. Revising paragraph (b)(1), to read as follows:


Sec.  4.33  Recordkeeping.

* * * * *
    (a) * * *
    (6) Copies of each confirmation or acknowledgment of a commodity 
interest transaction, and each purchase and sale statement and each 
monthly statement received from a futures commission merchant or a 
retail foreign exchange dealer or a swap dealer.
* * * * *
    (b) * * *
    (1) An itemized daily record of each commodity interest transaction 
of the commodity trading advisor, showing the transaction date, 
quantity, commodity interest, and, as applicable, price or premium, 
delivery month or expiration date, whether a put or a call, strike 
price, underlying contract for future delivery or underlying physical, 
the futures commission merchant and/or retail foreign exchange dealer 
carrying the account and the introducing broker, if any, whether the 
commodity interest was purchased, sold (including, in the case of a 
retail forex transaction, offset), exercised, expired (including, in 
the case of a retail forex transaction, whether it was rolled forward), 
and the gain or loss realized; Provided, however, that if the trading 
advisor is a counterparty to a swap, it must comply with the swap data 
recordkeeping and reporting requirements of part 45 of this chapter.
* * * * *
    9. Section 4.34 is amended by
    a. Revising paragraph (g);
    b. Revising paragraph (i)(2);
    c. Revising paragraph (j)(3); and
    d. Revising paragraphs (k)(1)(iii), (k)(2) introductory text and 
(k)(2)(i), to read as follows:


Sec.  4.34  General disclosures required.

* * * * *
    (g) Principal risk factors. A discussion of the principal risk 
factors of this trading program. This discussion must include, without 
limitation, risks due to volatility, leverage, liquidity, and 
counterparty creditworthiness, as applicable to the trading program and 
the types of transactions and investment activity expected to be 
engaged in pursuant to such program (including retail forex and swap 
transactions, if any).
* * * * *
    (i) * * *
    (2) Where any fee is determined by reference to a base amount 
including, but not limited to, ``net assets,'' ``gross profits,'' ``net 
profits,'' ``net gains,'' ``pips'' or ``bid-asked spread,'' the trading 
advisor must explain how such base amount will be calculated. Where any 
fee is based on the difference between bid and asked prices on retail 
forex or swap transactions, the trading advisor must explain how such 
fee will be calculated;
* * * * *
    (j) * * *
    (3) Included in the description of any such conflict must be any 
arrangement whereby the trading advisor or any principal thereof may 
benefit, directly or indirectly, from the maintenance of the client's 
commodity interest account with a futures commission merchant and/or 
retail foreign exchange dealer, and/or from the maintenance of the 
client's positions with a swap dealer or from the introduction of such 
account through an introducing broker (such as payment for order flow 
or soft dollar arrangements).
    (k) * * *
    (1) * * *
    (iii) Any introducing broker through which the client will be 
required to introduce its account to the futures commission merchant 
and/or retail foreign exchange dealer and/or swap dealer.
    (2) With respect to a futures commission merchant, retail foreign 
exchange dealer, swap dealer or introducing broker, an action will be 
considered material if:
    (i) The action would be required to be disclosed in the notes to 
the futures commission merchant's, retail foreign exchange dealer's, 
swap dealer's or introducing broker's financial statements prepared 
pursuant to generally accepted accounting principles;
* * * * *

    Issued in Washington, DC, on February 24, 2011, by the 
Commission.
David A. Stawick,
Secretary of the Commission.

Appendices to Amendments to Commodity Pool Operator and Commodity 
Trading Advisor Regulations Resulting from the Dodd-Frank Act--
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, 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 rule that will amend certain provisions 
of Part 4 of the Commission's regulations regarding the operations 
and activities of commodity pool operators (CPOs) and commodity 
trading advisors (CTAs). The proposed amendments would ensure that 
CFTC regulations with regard to CPOs and CTAs reflect changes made 
to the Commodity Exchange Act by the Dodd-Frank Act. Consistent with 
the Dodd-Frank Act revisions to the definitions of CPOs and CTAs to 
include pools involved in swaps and advising on swaps, the proposed 
amendments will enhance current customer protections by increasing 
the transparency of swap activities by CPOs and CTAs to their pool 
participants and clients. The proposed rule would require that this 
information be included in the disclosure, reporting and 
recordkeeping scheme that currently exists for CPOs and CTAs under 
Part 4.

[FR Doc. 2011-4657 Filed 3-2-11; 8:45 am]
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