[Federal Register Volume 83, Number 202 (Thursday, October 18, 2018)]
[Proposed Rules]
[Pages 52902-52929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22324]





[[Page 52901]]



Vol. 83



Thursday,



No. 202



October 18, 2018



Part III











 Commodity Futures Trading Commission











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17 CFR Part 4











Registration and Compliance Requirements for Commodity Pool Operators 

and Commodity Trading Advisors; Proposed Rule



  Federal Register / Vol. 83 , No. 202 / Thursday, October 18, 2018 / 

Proposed Rules  



[[Page 52902]]





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COMMODITY FUTURES TRADING COMMISSION



17 CFR Part 4



RIN 3038-AE76




Registration and Compliance Requirements for Commodity Pool 

Operators and Commodity Trading Advisors



AGENCY: Commodity Futures Trading Commission.



ACTION: Notice of proposed rulemaking.



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SUMMARY: The Commodity Futures Trading Commission (CFTC or Commission) 

is proposing amendments to its regulations to permit commodity pool 

operators (CPOs) that only solicit and/or accept funds from non-U.S. 

persons for participation in offshore commodity pools to claim an 

exemption from CPO registration and compliance requirements with 

respect to such pools, while permitting the maintenance of registration 

with respect to commodity pools for which CPO registration is required. 

The Commission also is proposing to allow U.S.-based CPOs of offshore 

commodity pools with U.S. participants to maintain the commodity pool's 

original books and records in the offshore location of the pool, in 

lieu of the CPO's main U.S. business location. Additionally, the 

Commission is proposing to prohibit a person that would be statutorily 

disqualified from registering with the Commission as a CPO from 

claiming or affirming an exemption from CPO registration. The 

Commission also is proposing registration relief for the CPOs and CTAs 

of entities qualifying as ``family offices'' and investment advisers of 

``business development companies,'' as defined in the proposed 

regulations. The Commission is further proposing to permit qualifying 

CPOs to engage in general solicitation in their pool offerings, as 

contemplated by the Jumpstart Our Business Start-ups Act of 2012 (JOBS 

Act). Finally, the Commission is proposing to relieve certain CPOs and 

commodity trading advisors (CTAs) of the requirement to file Forms CPO-

PQR and CTA-PR.



DATES: Comments must be received on or before December 17, 2018.



ADDRESSES: You may submit comments, identified by RIN number 3038-AE76, 

by any of the following methods:

     CFTC Comments Portal: https://comments.cftc.gov. Select 

the ``Submit Comments'' link for this rulemaking and follow the 

instructions on the Public Comment Form.

     Mail: Send to Christopher Kirkpatrick, Secretary of the 

Commission, Commodity Futures Trading Commission, Three Lafayette 

Centre, 1155 21st Street NW, Washington, DC 20581.

     Hand Delivery/Courier: Follow the same instructions as for 

Mail, above.

    Please submit your comments using only one of these methods. To 

avoid possible delays with mail or in-person deliveries, submissions 

through the CFTC Comments Portal are encouraged.

    All comments must be submitted in English, or if not, accompanied 

by an English translation. Comments will be posted as received to 

https://comments.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 (FOIA), a petition for confidential 

treatment of the exempt information may be submitted according to the 

procedures established in Sec.  145.9 of the Commission's 

regulations.\1\

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    \1\ 17 CFR 145.9.

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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 https://comments.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 FOIA.



FOR FURTHER INFORMATION CONTACT: For any of the proposed amendments: 

Amanda Olear, Associate Director, at 202-418-5283 or [email protected]; 

for the proposed amendments to Sec. Sec.  4.7 and 4.13: Elizabeth 

Groover, Special Counsel, at 202-418-5985, [email protected]; for the 

proposed amendments related to family offices: Peter Sanchez, Special 

Counsel, at 202-418-5237, [email protected]; for the proposed 

amendments to Sec.  4.27: Michael Ehrstein, Special Counsel, at 202-

418-5957, [email protected], Division of Swap Dealer and Intermediary 

Oversight, Commodity Futures Trading Commission, Three Lafayette 

Centre, 1151 21st Street NW, Washington, DC 20581.



SUPPLEMENTARY INFORMATION: 



Table of Contents



I. Background

    A. Statutory and Regulatory Background

    B. Advisory 18-96

    1. Introduction

    2. The History of Advisory 18-96 and the Commission's Rationale 

for Proposing Superseding Part 4 Amendments

    3. Expanding the Prohibition on Statutory Disqualifications to 

Exemptions Under Sec.  4.13 and Permitting Non-U.S. Person 

Participants in De Minimis Commodity Pools

    C. Proposed CPO and CTA Registration Exemptions for Qualifying 

Family Offices

    1. Defining Family Offices

    2. Family Offices as Commodity Pools and the Rescission of Sec.  

4.13(a)(4)

    3. The SEC's Exclusion for Family Offices and CFTC Staff Letters 

12-37 and 14-143

    D. Proposed Amendments Permitting General Solicitation by CPOs 

Pursuant to the JOBS Act of 2012

    1. The JOBS Act of 2012, Regulation D, and Rule 144A

    2. Impact of JOBS Act Amendments on CPOs and DSIO's 2014 JOBS 

Act Relief Letter

    E. Proposed Exclusionary Relief for BDCs

    1. The CPO Exclusion in Sec.  4.5

    2. BDCs: Exempt Investment Companies Restricted in Their Use of 

Commodity Interests

    3. CFTC Staff Letter 12-40 and the Proposed Amendments

    F. Relief From Sec.  4.27

    1. History

    2. Reporting Person Definition

    3. Current Commission Staff Letter Relief

    4. Proposing Amendments Consistent With Current Staff Letter 

Relief

    5. Expanding Relief From Sec.  4.27 to Additional Categories of 

CTAs

II. Proposed Regulations

    A. Providing CPOs of Offshore Pools With Registration and 

Recordkeeping Relief Consistent With Advisory 18-96

    1. New Sec.  4.13(a)(4): The 18-96 Exemption

    2. New Sec.  4.13(a)(6): The Proposed Prohibition on Statutory 

Disqualifications

    3. Amendments to Sec.  4.13: Claiming the Proposed 18-96 

Exemption

    4. Making the 18-96 Exemption Available on a Pool-by-Pool Basis

    5. Other Amendments to Miscellaneous Provisions in Sec.  4.13

    6. Preserving Advisory 18-96's Recordkeeping Location Relief 

with Amendments to Sec.  4.23 and Certain Technical Amendments

    B. Proposed Family Office Exemptions

    C. Proposed Amendments Consistent With the JOBS Act Relief 

Letter

    D. Proposed BDC Exclusion

    E. 4.27 Relief

III. Request for Comments

    A. Advisory 18-96 and the Proposed 18-96 Exemption

    B. Proposed Family Office Exemptions

    C. Proposed Amendments Consistent With the JOBS Act Relief 

Letter

    D. Proposed Adoption and Expansion of Exemptive Letter Relief 

From Sec.  4.27 Filings

IV. Related Matters

    A. Regulatory Flexibility Act

    B. Paperwork Reduction Act



[[Page 52903]]



    1. Overview

    2. Revisions to the Collections of Information

    a. OMB Control Number 3038-0005

    b. OMB Control Number 3038-0023

    3. Request for Comments on Collection

    C. Cost-Benefit Considerations

    1. Consideration of the Costs and Benefits of the Commission's 

Action

    a. Summary of the Proposal

    b. Benefits

    i. Benefits Related to the Adoption of the 18-96 Exemption

    ii. Benefits Related to the Proposed Family Office Exemptions 

From CPO and CTA Registration

    iii. Benefits Related to the Proposed JOBS Act Relief

    iv. Benefits Related to the Exclusion of IAs of BDCs From the 

CPO Definition

    v. Benefits Related to Relief Under Sec.  4.27 for CPOs and CTAs

    c. Costs

    i. Costs Related to the Proposed 18-96 Exemption

    ii. Costs Related to the Proposed Family Office Exemptions From 

CPO and CTA Registration

    iii. Costs Related to the Proposed Adoption of JOBS Act Relief

    iv. Costs Related to the Proposed Exclusion of IAs of BDCs From 

the CPO Definition

    v. Costs Related to Relief Under Sec.  4.27 for CPOs and CTAs

    2. Section 15(a) Considerations

    a. Protection of Market Participants and the Public

    b. Efficiency, Competitiveness, and Financial Integrity of 

Markets

    c. Price Discovery

    d. Sound Risk Management

    e. Other Public Interest Considerations

    f. Request for Comment

    D. Antitrust Laws



I. Background



A. Statutory and Regulatory Background



    As amended by the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act),\2\ section 1a(11) of the Commodity 

Exchange Act (CEA or Act) defines the term ``commodity pool operator,'' 

as any person \3\ engaged in a business that is of the nature of a 

commodity pool, investment trust, syndicate, or similar form of 

enterprise, and who, with respect to that commodity pool, solicits, 

accepts, or receives from others, funds, securities, or property, 

either directly or through capital contributions, the sale of stock or 

other forms of securities, or otherwise, for the purpose of trading in 

commodity interests.\4\ CEA section 1a(12) defines a ``commodity 

trading advisor'' as any person who for compensation or profit engages 

in the business of advising others, either directly or through 

publications, writings, or electronic media, as to the value of or the 

advisability of trading in commodity interests.\5\ CEA section 4m(1) 

generally requires each person who satisfies the CPO or CTA definitions 

to register as such with the Commission.\6\ With respect to CPOs, the 

CEA also authorizes the Commission, acting by rule or regulation, to 

include within, or exclude from, the term ``commodity pool operator'' 

any person engaged in the business of operating a commodity pool if the 

Commission determines that the rule or regulation will effectuate the 

purposes of the Act.\7\ CEA section 1a(12)(B) provides multiple 

exclusions from the CTA definition, and similarly affords the 

Commission the authority to exclude such other persons not within the 

intent of that provision as the Commission may specify by rule, 

regulation, or order.\8\

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    \2\ Public Law 111-203, H.R. 4173 (2010).

    \3\ Section 1.3 defines ``person'' as including individuals, 

associations, partnerships, corporations, and trusts. 17 CFR 1.3.

    \4\ 7 U.S.C. 1a(11). The CEA is found at 7 U.S.C. 1 et seq. 

(2017). The Commission's regulations are found at 17 CFR Ch. I 

(2017). Both the Act and the Commission's regulations are accessible 

through the Commission's website, http://www.cftc.gov.

    \5\ 7 U.S.C. 1a(12)(A)(i). The CTA definition also includes any 

person who for compensation or profit, and as part of a regular 

business, issues or promulgates analyses or reports concerning the 

value of or advisability of trading in commodity interests, and any 

person that is registered with the Commission as a CTA. 7 U.S.C. 

1a(12)(A)(ii)-(iii).

    \6\ 7 U.S.C. 6m(1).

    \7\ 7 U.S.C. 1a(11)(B).

    \8\ 7 U.S.C. 1a(12)(B)(vii). The Commission recently utilized 

the authority in this provision in issuing an Order excluding Farm 

Credit System institutions from that definition, due to their 

similarities to banks, a type of entity that is already excluded by 

CEA section 1a(12)(B)(i). See Order Excluding Farm Credit System 

Institutions From the Commodity Exchange Act's Definition of 

``Commodity Trading Advisor,'' 81 FR 89447 (Dec. 12, 2016). CEA 

section 1a(12)(C) requires that the exclusions in the preceding 

paragraph only apply if the furnishing of such excluded CTA services 

is solely incidental to the conduct of their business or profession. 

7 U.S.C. 1a(12)(C).

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    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 purposes of 

the CEA.\9\ Part 4 of the Commission's regulations governs the 

operations and activities of CPOs and CTAs.\10\ Those regulations 

implement the statutory authority provided to the Commission by the CEA 

and establish multiple registration exemptions and exclusions for CPOs 

and CTAs. Part 4 also contains regulations that establish the ongoing 

compliance requirements applicable to CPOs and CTAs registered or 

required to be registered; these requirements pertain to the commodity 

pools and separate accounts that the CPOs and CTAs operate and advise, 

and provide customer protection, disclosure, and reporting to a 

registrant's commodity pool participants or advisory clients.

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    \9\ 7 U.S.C. 12a(5).

    \10\ See 17 CFR part 4, generally.

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    In March of 2017, Commission staff initiated an agency-wide 

internal review of CFTC regulations and practices to identify those 

areas that could be simplified to make them less burdensome.\11\ The 

Commission subsequently published in the Federal Register on May 9, 

2017, a Request for Information soliciting suggestions from the public 

regarding how the Commission's existing rules, regulations, or 

practices could be applied in a simpler, less burdensome manner.\12\

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    \11\ See Remarks of Acting Chairman J. Christopher Giancarlo 

before the 42nd Annual International Futures Industry Conference in 

Boca Raton, FL (Mar. 15, 2017), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/opagiancarlo-20 (last retrieved July 31, 

2018).

    \12\ Project KISS, 82 FR 21494 (May 9, 2017); amended by 82 FR 

23765 (May 24, 2017). The Federal Register Request for Information 

and the suggestion letters filed by the public are available at the 

Commission's website: https://comments.cftc.gov/KISS/KissInitiative.aspx (last retrieved July 31, 2018).

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    The Investment Advisers Association (IAA) submitted suggested 

modifications for numerous rules in response to the Commission's 

Request for Information.\13\ One area identified by the IAA that could 

result in the reduction of regulatory burden would be the incorporation 

into the Commission's regulations of registration and other types of 

relief to members of the asset management industry that meet the 

definitions of CPO and/or CTA that is currently provided in various 

staff letters.

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    \13\ See Letter from Monique Botkin, Associate General Counsel, 

Investment Advisers Association, (Sept. 29, 2017) (IAA Letter), 

available at https://comments.cftc.gov/PublicComments/ViewComment.aspx?id=61480&SearchText (last retrieved July 31, 2018).

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    In response to the information received as part of the Project KISS 

initiative, as well as CFTC staff's internal review of the Commission's 

regulatory regime, the Commission has today determined to propose 

several amendments to part 4 (the Proposal or NPRM). Specifically, the 

CFTC is proposing to amend Sec.  4.13 to permit CPOs that solicit and/

or accept funds from only non-U.S. persons for participation in 

offshore commodity pools to claim an exemption from CPO registration 

requirements with respect to such pools, while permitting the 

maintenance of registration with respect to commodity pools for which 

CPO registration is required. This proposed amendment would have the 

effect of expanding relief currently available



[[Page 52904]]



under Staff Advisory 18-96 (the Advisory or Advisory 18-96),\14\ and 

incorporate it into the Commission's existing regulatory framework in 

17 CFR part 4. In conjunction with this NPRM, the Commission is also 

proposing to adopt a prohibition on statutory disqualifications 

applicable to most exemptions claimed under Sec.  4.13, and to amend 

the de minimis exemption in Sec.  4.13(a)(3) to explicitly permit 

persons located outside of the United States as exempt de minimis 

commodity pool participants without consideration of their financial 

sophistication. The Commission is further proposing to adopt under 

Sec. Sec.  4.13 and 4.14 new CPO and CTA registration exemptions 

consistent with existing Commission staff no-action letter relief 

available to persons considered CPOs or CTAs in connection with the 

operation and advising of qualifying family offices. Similarly, through 

proposed revisions to the exclusion from the definition of CPO in Sec.  

4.5 applicable to registered investment companies (RICs), the 

Commission is proposing to provide relief to the investment advisers of 

business development companies (BDCs) in a manner also consistent with 

existing no-action letter relief.

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    \14\ Advisory 18-96, ``Offshore Commodity Pools--Relief for 

Certain Registered CPOs From Rules 4.21, 4.22 and 4.23(a)(10) and 

(a)(11) and From the Location of Books and Records Requirement of 

Rule 4.23,'' available at https://www.cftc.gov/sites/default/files/tm/advisory18-96.htm (last retrieved July 31, 2018).

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    Moreover, the Commission plans to continue its efforts to amend 17 

CFR part 4 by proposing regulatory exemptions consistent with existing 

CFTC staff exemptive relief letters available to qualifying CPOs. These 

efforts include proposing to add exemptive relief consistent with that 

provided by CFTC Staff Letter 14-116, which permits the use of general 

solicitation by qualifying CPOs, as contemplated by the Jumpstart Our 

Business Start-ups Act of 2012 (as defined above, the JOBS Act), 

through targeted amendments to Sec. Sec.  4.7 and 4.13(a)(3) in a 

manner consistent with that exemptive letter.\15\ Additionally, in its 

Project KISS submission, the IAA recommended that the Commission adopt 

regulatory amendments to incorporate in part 4 exemptive relief from 

filing Form CPO-PQR, provided currently under CFTC Staff Letter 14-115 

for CPOs that only operate commodity pools in accordance with 

Sec. Sec.  4.5 and 4.13.\16\ The IAA also recommended that the 

Commission amend part 4 to adopt the commensurate relief under CFTC 

Staff Letter 15-47 for registered CTAs that do not direct trading of 

any commodity interest accounts.\17\

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    \15\ CFTC Staff Letter 14-116, available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/14-116.pdf (last retrieved July 31, 2018).

    \16\ IAA Letter at 16.

    \17\ Id.

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    In response, the Commission is proposing to adopt amendments that 

would provide relief from filing Form CPO-PQR to registered CPOs that 

only operate commodity pools exempt or excluded under Sec. Sec.  4.5 

and 4.13, consistent with CFTC Staff Letter 14-115,\18\ and from filing 

Form CTA-PR to registered CTAs that do not direct trading of any 

commodity interest accounts, consistent with CFTC Staff Letter 15-

47.\19\ Finally, the Commission further proposes to provide additional 

relief from filing Form CTA-PR to registered CTAs that only advise 

pools for which the CTA is also CPO. Although the Proposal includes 

several potential regulatory amendments in a single notice, the CFTC 

may, in the future, issue separate adopting releases for any aspect of 

today's proposed rulemaking that is finalized.\20\

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    \18\ CFTC Staff Letter 14-115, available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-115.pdf (last retrieved July 31, 2018).

    \19\ CFTC Staff Letter 15-47, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/15-47.pdf (last retrieved July 31, 2018).

    \20\ See Inv. Co. Institute v. CFTC, 720 F.3d 370, 379 (DC Cir. 

2013) (``[A]s the Supreme Court has emphasized, `[n]othing prohibits 

federal agencies from moving in an incremental manner.' '') (quoting 

FCC v. Fox Television Stations, Inc., 556 U.S. 502, 522 (2009)).

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B. Advisory 18-96



1. Introduction

    The Commission is aware that a number of CPOs only operate U.S.-

based commodity pools soliciting and accepting funds from persons 

located in the U.S., whereas other CPOs solicit and accept funds from 

participants, whether U.S. or non-U.S., for investment in commodity 

pools in both domestic and international locales; still others solicit 

and accept funds solely from persons located outside the United States 

for investment in offshore pools. Based on communications with industry 

and Commission registrants, the Commission preliminarily believes that 

the variety of location in CPO business activities continues to grow, 

and that CPOs today frequently participate in the markets of, solicit 

and/or accept funds for investment from potential participants in, and 

operate commodity pools simultaneously in multiple jurisdictions.

    In promulgating relief from registration, through the adoption of 

Sec.  3.10(c)(3),\21\ for firms located outside the U.S. engaged in 

intermediating commodity interest transactions on U.S. designated 

contract markets only on behalf of persons located outside the U.S., 

the Commission cited its own historic statements regarding its 

jurisdictional scope: `` `[G]iven this agency's limited resources, it 

is appropriate at this time to focus [the Commission's] customer 

protection activities upon domestic firms and upon firms soliciting or 

accepting orders from domestic users of the futures markets and that 

the protection of foreign customers of firms confining their activities 

to areas outside this country, its territories, and possessions may 

best be for local authorities in such [jurisdictions].' '' \22\ The 

Commission preliminarily believes that this rationale continues to be 

true with respect to CPOs and commodity pools, notwithstanding the 

expansion of CFTC jurisdiction after the passage of the Dodd-Frank Act.

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    \21\ 17 CFR 3.10(c)(3).

    \22\ Exemption From Registration for Certain Foreign Persons, 

Final Rule, 72 FR 63976, 63976-77 (Nov. 14, 2007) (citing 48 FR 

35248, 35261 (Aug. 3, 1983)).

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    The Commission also preliminarily believes that the operation of 

offshore pools by exempt CPOs, who may also register solely with 

respect to the pools they operate that solicit and/or accept funds from 

persons in the U.S., would pose limited risk to the participants in 

those pools requiring registration due to the application of Sec.  

4.20. Section 4.20(c), in particular, prohibits a CPO from commingling 

the property of any commodity pool that it operates, or that it intends 

to operate, with the property of any other person.\23\ This provision 

thereby limits the potential for trading activity or losses experienced 

in exempt offshore pools to negatively impact U.S. customers invested 

in pools for which a CPO is so registered.

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    \23\ 17 CFR 4.20(c).

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    Consequently, the Commission preliminarily believes that providing 

CPO registration relief beyond that currently provided by Sec.  

3.10(c)(3)(i) and by the staff relief in Advisory 18-96 would be 

beneficial and consistent with the Commission's past prioritization of 

agency resources for the regulation of intermediary activities 

affecting U.S. participants. The Commission is, therefore, proposing to 

adopt, among other amendments, an exemption from CPO registration in 

Sec.  4.13 that would permit a CPO that solicits,\24\ and/or



[[Page 52905]]



accepts funds from, solely persons located outside the U.S. for 

participation in an offshore commodity pool operated by it to claim a 

registration exemption with respect to such pool.\25\ The proposed 

amendments are largely based upon the requirements of Advisory 18-96, 

the conditions of which are presented and explained below.

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    \24\ In adopting Sec.  3.10(c)(3)(i), the Commission emphasized 

the significance of solicitation as a CPO activity, stating ``[a]ny 

person seeking to act in accordance with any of the foregoing 

exemptions from registration should note that the prohibition on 

contact with U.S. customers applies to solicitation as well as 

acceptance of orders. If a person located outside the U.S. were to 

solicit prospective customers located in the U.S. as well as outside 

of the U.S., these exemptions would not be available, even if the 

only customers resulting from the efforts were located outside the 

U.S.'' Id. at 63977-78 (emphasis in original) (footnote omitted).

    \25\ The Commission intends by the proposed amendments to permit 

CPOs to maintain registration with respect to the operation of 

commodity pools soliciting, accepting, or managing assets sourced 

from participants located in the U.S., while availing themselves of 

an exemption from registration with respect to pools located 

offshore for which participants located in the U.S. are solicited or 

permitted as participants.

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2. The History of Advisory 18-96 and the Commission's Rationale for 

Proposing Superseding Part 4 Amendments

    On April 11, 1996, staff from the Commission's Division of Trading 

and Markets (T&M), a predecessor of today's Division of Swap Dealer and 

Intermediary Oversight (DSIO or Division), issued Advisory 18-96,\26\ 

under which two types of relief are currently available. Qualifying, 

registered CPOs operating offshore commodity pools may claim exemptive 

relief from the disclosure, reporting, and recordkeeping requirements 

of Sec. Sec.  4.21, 4.22, and 4.23(a)(10) and (a)(11) with regard to 

their offshore commodity pools.\27\ Alternatively, Advisory 18-96 also 

permits qualifying, registered onshore CPOs to claim exemptive relief 

from solely the books and records location requirement in Sec.  

4.23,\28\ thereby allowing such CPOs to maintain their offshore pool's 

original books and records at the pool's offshore location, rather than 

at the CPO's main business address in the U.S.

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    \26\ Advisory 18-96, ``Offshore Commodity Pools--Relief for 

Certain Registered CPOs From Rules 4.21, 4.22 and 4.23(a)(10) and 

(a)(11) and From the Location of Books and Records Requirement of 

Rule 4.23,'' at p. 1, available at https://www.cftc.gov/sites/default/files/tm/advisory18-96.htm (last retrieved July 31, 2018).

    \27\ Section 4.21, subject to certain conditions, requires each 

CPO registered or required to be registered under the CEA to deliver 

or cause to be delivered to a prospective participant in a pool that 

it operates or intends to operate a Disclosure Document for the pool 

that complies with Sec. Sec.  4.24 and 4.25 by no later than the 

time it delivers to the prospective participant a subscription 

agreement for the pool. 17 CFR 4.21; see also 17 CFR 4.24-4.25.

    Section 4.22 governs the periodic reporting required for 

commodity pools and generally requires each CPO registered or 

required to be registered to periodically distribute to each 

participant in a pool it operates periodic Account Statements and 

Annual Reports, which also must be filed with the Commission through 

the National Futures Association. 17 CFR 4.22.

    Section 4.23 requires each CPO registered or required to be 

registered to make and keep certain books and records concerning 

both the commodity pool(s) it operates and the CPO itself; 

paragraphs (a)(10) and (a)(11) particularly require a CPO to make 

and keep with respect to a commodity pool it operates a Statement of 

Financial Condition on a monthly or quarterly basis dependent on the 

amount of the net assets of the commodity pool, as well as a 

corresponding Statement of Income (Loss). 17 CFR 4.23(a)(10) and 

(a)(11).

    At the time of its adoption in 1996, Advisory 18-96 provided 

relief from the more robust compliance burdens then applicable to 

CPOs, i.e., the disclosure and periodic reporting requirements.

    \28\ 17 CFR 4.23.

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    Generally, to qualify for the broadest relief available under 

Advisory 18-96, a CPO must meet the following requirements:

    1. The CPO claiming the relief is registered as such with the 

Commission;

    2. The commodity pool is, and will remain, organized and operated 

outside of the United States;

    3. The commodity pool will not hold meetings or conduct 

administrative activities within the United States;

    4. No shareholder of or other participant in the commodity pool is 

or will be a United States person;

    5. The commodity pool will not receive, hold or invest any capital 

directly or indirectly contributed from sources within the United 

States; and

    6. The CPO, the commodity pool and any person affiliated therewith 

will not undertake any marketing activity for the purpose, or that 

could reasonably have the effect, of soliciting participation from 

United States persons.\29\

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    \29\ Advisory 18-96, at 1.

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    To qualify for the recordkeeping location relief under the 

Advisory, a registered CPO must represent the following:

    1. The CPO will maintain the original books and records of the 

commodity pool at the main business office of the commodity pool 

located outside the United States;

    2. The CPO desires to maintain such books and records outside the 

United States in furtherance of compliance with the Internal Revenue 

Service (IRS) requirements for relief from United States federal income 

taxation;

    3. The CPO will maintain duplicate books and records of the 

commodity pool at a designated office in the United States; and

    4. Within 72 hours after the request of a representative from the 

Commission, the United States Department of Justice, or the National 

Futures Association (NFA), the original books and records will be 

provided to such representative at a place located in the United States 

that is specified by the representative.\30\

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    \30\ The Advisory states further, ``[f]iling a notice of a claim 

for exemption under [this section] of the Advisory, however, does 

not eliminate the requirement to comply with the location of the 

CPO's own books and records under Rule 4.23(b) or, in the case of a 

CPO of a Rule 4.7 exempt pool, the location requirement for the 

CPO's own books and records under Rule 4.7(a)(2)(iv).'' Advisory 18-

96 at 2.

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    The Advisory additionally requires all claimants of either type of 

relief thereunder to represent that, ``neither the CPO nor any of its 

principals is subject to any statutory disqualification under CEA 

section 8a(2) or 8a(3) unless such disqualification arises from a 

matter which (a) was previously disclosed in connection with a previous 

application for registration if such registration was granted, or (b) 

was disclosed to the Commission or the NFA more than thirty days prior 

to the filing of this notice.'' \31\ Notices claiming relief under 

Advisory 18-96 were originally required to be submitted in writing and 

filed with both Commission staff and NFA, to provide basic business 

location and contact information for the CPO, to specify which type of 

relief the CPO sought to claim for its commodity pool(s), and to be 

signed by a representative duly authorized to bind the CPO (``if a sole 

proprietorship, by the sole proprietor; if a partnership, by a general 

partner; and if a corporation, by the chief executive officer or chief 

financial officer'').\32\

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    \31\ Advisory 18-96, at 2; see also 7 U.S.C. 12a(2) and 12a(3).

    \32\ Advisory 18-96, at 3. In 1997, the Commission authorized 

the NFA to, among other things, accept and process Advisory 18-96 

notices of claim for exemption from the part 4 requirements. See 

Performance of Certain Functions by National Futures Association 

with Respect to Commodity Pool Operators and Commodity Trading 

Advisors, 62 FR 52088 (Nov. 1, 1997). Notably, ``[n]otwithstanding 

any notice of a claim of exemption filed under this Advisory, 

persons claiming such relief remain subject to all other applicable 

requirements contained in the Act and the Commission's regulations 

issued thereunder, including, without limitation, the antifraud 

provisions of Sections 4b and 4o of the Act, the reporting 

requirements for traders set forth in Parts 15, 18, and 19 of the 

Commissions regulations, and all other provisions of [p]art 4.'' 

Advisory 18-96, at 3.

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    Given the increase in the Commission's jurisdiction resulting from 

the passage of the Dodd-Frank Act,\33\ as well as the adoption of



[[Page 52906]]



additional compliance requirements for which Advisory 18-96 currently 

provides no relief,\34\ the Commission preliminarily believes that the 

adoption of a CPO registration exemption based on the conditions of 

Advisory 18-96 (18-96 Exemption) would benefit industry participants, 

prioritize the use of Commission resources on the customer protection 

of actual and potential commodity pool participants located in the 

U.S., and provide relief to persons with respect to their commodity 

pool operations that have a limited nexus with markets or participants 

within the Commission's jurisdiction. Importantly, a CPO claiming the 

18-96 Exemption, as proposed, would still be subject to the anti-

manipulation and anti-fraud provisions of the CEA, and by virtue of 

Sec.  4.13(c), would be required to make and keep books and records for 

the exempt pool, and to submit to such special calls as the Commission 

may make to demonstrate eligibility for and compliance with the 

criteria of the 18-96 Exemption.\35\

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    \33\ For instance, the Dodd-Frank Act amended the CPO definition 

in CEA section 1a(11) to include any person engaged in a business 

that is of the nature of a commodity pool that trades in swap 

transactions. See 7 U.S.C. 1a(11), as amended by the Dodd-Frank Act, 

Public Law 111-203, sec. 721(a)(2).

    \34\ See, e.g., 17 CFR 4.27 (imposing obligations on certain 

CPOs to periodically file detailed information regarding pools and 

other funds that the CPOs operate on Form CPO-PQR).

    \35\ 17 CFR 4.13(c).

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    The amendments proposed today would incorporate both types of 

relief provided by Advisory 18-96 in their entirety in the Commission's 

existing part 4 regulatory framework by providing registration and 

compliance exemptions for qualifying persons operating offshore pools, 

with respect to CPO registration and, in the case of those domestic, 

registered CPOs operating offshore pools, with respect to the books and 

records location requirement in Sec.  4.23.\36\ The Commission intends 

that the 18-96 Exemption, if adopted as proposed, would replace the 

exemptive relief currently provided to registered CPOs relying upon 

Advisory 18-96 for their offshore pool operations. Similarly, the 

Commission also intends that the proposed amendments to Sec.  4.23, 

which would provide a qualifying, registered onshore CPO an exemption 

from the requirement that the CPO maintain the original books and 

records of its offshore commodity pool(s) at its main business office 

in the U.S., would replace that aspect of the Advisory.\37\ The 

Commission preliminarily believes that these proposed amendments, if 

adopted, would ultimately provide more comprehensive relief from CPO 

and pool regulation than the Advisory alone and more flexibility than 

the terms of Sec.  3.10(c)(3)(i).

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    \36\ In 2006-2007, based on a rulemaking petition from NFA, the 

Commission previously considered and proposed to rescind Advisory 

18-96, which was thought to be rendered superfluous or duplicative 

by the 2003 adoption of the CPO registration exemptions in Sec.  

4.13(a)(3) and (4). See Electronic Filing of Notices of Exemption 

and Exclusion Under Part 4 of the Commission's Regulations, 71 FR 

60454 (Oct. 13, 2006) (Proposing Release), and 72 FR 1658 (Jan. 16, 

2007) (Adopting Release) (declining to supersede Advisory 18-96, in 

light of the 2003 adoption of Sec.  4.13(a)(4)). Section 4.13(a)(4), 

prior to its 2012 rescission, permitted a qualifying person to claim 

an exemption from registration with the Commission as a CPO, where 

the commodity pool it operates is exempt from registration under the 

Securities Act of 1933 and the natural and non-natural person 

participants meet certain levels of sophistication, e.g., qualified 

eligible persons or accredited investors. Although Advisory 18-96 

and Sec.  4.13(a)(4) overlapped significantly, the Commission 

declined to alter Advisory 18-96, in an effort to preserve the 

relief from the books and record location requirement in Sec.  4.23 

for any registered, onshore CPOs utilizing the Advisory18-96 relief 

with respect to their qualifying offshore commodity pools. See 72 FR 

at 1661.

    \37\ The Commission simultaneously proposes certain structural 

amendments to Sec.  4.23 to increase that regulation's readability 

and ease of application.

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3. Expanding the Prohibition on Statutory Disqualifications to 

Exemptions Under Sec.  4.13 and Permitting Non-U.S. Person Participants 

in De Minimis Commodity Pools

    Currently, none of the CPO registration exemptions in Sec.  4.13 

prohibits statutory disqualifications as a condition of relief. In 

contrast, one of the requirements to obtain relief under Advisory 18-96 

is that neither the registered CPO nor its principals is subject to any 

statutory disqualification under sections 8a(2) or 8a(3) of the 

Act,\38\ unless such disqualification arises from a matter which was 

previously disclosed in connection with a previous application, if such 

registration was granted, or which was disclosed more than thirty days 

prior to the claim of this exemption. The Commission is considering, 

therefore, whether there could be a substantial number of CPOs that 

claimed a Sec.  4.13 exemption and are subject to statutory 

disqualifications or that employ statutorily disqualified principals, 

and whether those statutorily disqualified individuals should be 

permitted to operate commodity pools as exempt CPOs.

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    \38\ 7 U.S.C. 12a(2) and 12(a)(3). Under CEA section 8a(2), for 

instance, the Commission may refuse to register a person who has 

been temporarily or permanently enjoined by order not to act as a 

Commission registrant, or to refrain from engaging in financially 

criminal activities, or who, within ten years preceding the 

application for registration with the Commission, has been convicted 

of a felony for criminal activities involving commodity interests or 

securities, or been found by the Commission or another governmental 

body or agency to have violated the CEA, Commission regulations, or 

securities laws. 7 U.S.C. 12a(2).

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    The Commission is concerned that it poses undue risk from a 

customer protection standpoint for its regulations in their current 

form to permit statutorily disqualified persons or entities to legally 

operate exempt commodity pools, especially when those same persons 

would not be permitted to register with the Commission.\39\ The 

Commission preliminarily believes that preserving the prohibition on 

statutory disqualifications from Advisory 18-96 and applying it to 

exemptions under Sec.  4.13 would provide a substantial customer 

protection benefit by prohibiting statutorily disqualified persons from 

operating and soliciting participants for investment in exempt 

commodity pools.

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    \39\ Commission staff previously became aware of a number of 

statutorily disqualified CPOs operating commodity pools pursuant to 

the registration exemption available in former Sec.  4.13(a)(4). 

Because that exemption was rescinded in 2012, those particular CPOs 

would have been required to modify their operations to comply with 

another exemption under Sec.  4.13 that did not bar statutorily 

disqualified CPOs, to cease participating in the commodity interest 

markets, or to receive relief from the Commission to register and 

continue operating.

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    Consequently, the Commission is proposing to require any person 

claiming a registration exemption under Sec.  4.13(a)(1), (2), (3), or 

(5), or proposed Sec.  4.13(a)(4),\40\ to represent that neither the 

claimant nor any of its principals is subject to statutory 

disqualifications under sections 8a(2) or 8a(3) of the CEA. However, 

the Commission also proposes to incorporate certain limited exceptions 

already present in Advisory 18-96 that would permit statutory 

disqualifications that were previously disclosed in registration 

applications that were granted, or that were disclosed more than 30 

days prior to the claim of exemption. The Commission preliminarily 

believes this approach addresses customer protection concerns regarding 

statutory disqualifications, while preserving flexibility in Commission 

regulations applicable to CPOs. As proposed, the prohibition would 

apply to current claimants under Sec.  4.13 as they renew their claims 

on an annual basis--i.e., existing claimants would be required to 

represent that



[[Page 52907]]



neither they nor their principals are subject to statutory 

disqualifications under CEA sections 8a(2) or 8a(3), when they annually 

affirm their continued reliance on a Sec.  4.13 exemption next year. 

CPOs filing new claims of a Sec.  4.13 exemption, however, would be 

required to comply with this prohibition upon filing, if and when the 

amendments are adopted as proposed, and become effective.

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    \40\ The Commission is not proposing to extend the prohibition 

to the proposed exemption for qualifying family offices, discussed 

infra as proposed Sec.  4.13(a)(8). By the terms of that proposed 

exemption, such CPOs would be prohibited from soliciting non-family 

members/clients to participate in their pool(s), necessarily 

limiting their contact with prospective participants drawn from the 

general public, and as a result, reducing the Commission's customer 

protection concerns in that context.

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    Additionally, the Commission is proposing to amend the de minimis 

commodity pool exemption in Sec.  4.13(a)(3) to explicitly permit non-

U.S. person participants, regardless of their financial 

sophistication.\41\ The Commission understands that, relying on CFTC 

Staff Letter 04-13,\42\ for purposes of determining whether a person 

qualifies for exemption from CPO registration under Sec.  4.13(a)(3), 

market participants are generally not considering whether non-U.S. 

person participants meet one of the investor sophistication criteria 

listed in Sec.  4.13(a)(3)(iii).\43\

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    \41\ 17 CFR 4.13(a)(3). Section 4.13(a)(3) provides an exemption 

from CPO registration for any person who offers a pool that: (1) Is 

exempt from registration under the Securities Act of 1933 and 

offered and sold without marketing to the public in the U.S., (2) at 

all times, is traded subject to de minimis trading thresholds, (3) 

is limited to certain types of investors that the person believes to 

be, at the time of investment or conversion to an exempt pool, 

accredited investors and/or qualified eligible persons, and (4) is 

not marketed as or in a vehicle for trading in commodity interests. 

Id.

    \42\ CFTC Staff Letter 04-13 (Apr. 14, 2004), available at 

https://www.cftc.gov/sites/default/files/tm/letters/04letters/tm04-13.htm (last retrieved July 31, 2018).

    \43\ In April 2004, the Division of Clearing and Intermediary 

Oversight (DCIO), the most recent predecessor to DSIO, responded to 

a request for clarification or interpretation of the de minimis 

exemption from CPO registration in Sec.  4.13(a)(3). The requester 

asked DCIO staff for confirmation that ``a [CPO] claiming exemption 

from registration under new Rule 4.13(a)(3) may permit Non-United 

States persons to participate in pools operated pursuant to such 

exemptive relief, regardless of whether such Non-United States 

persons meet the investor sophistication requirements of Rule 

4.13(a)(3)(iii).'' CFTC Staff Letter 04-13, at 1. DCIO staff 

concluded that because the exemption in Sec.  4.13(a)(4) permitted 

non-U.S. person participants in pools exempt thereunder, regardless 

of their financial sophistication, by virtue of the ``qualified 

eligible person'' definition in Sec.  4.7(a)(2), then it would be 

``consistent with the intent and purpose of Rule 4.13(a)(3)'' to 

also generally permit non-U.S. person investors to participate in 

Sec.  4.13(a)(3) pools. Id. at 2. In 2012, the Commission rescinded 

the exemption originally provided by Sec.  4.13(a)(4), the features 

of which comprise the legal underpinnings for the analysis in CFTC 

Staff Letter 04-13. See Commodity Pool Operators and Commodity 

Trading Advisors: Compliance Obligations, 77 FR 11252 (Feb. 24, 

2012); correction notice published at 77 FR 17328 (Mar. 26, 2012) 

(CPO CTA Final Rule).

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    The Commission preliminarily believes that permitting non-U.S. 

person participants, regardless of their financial sophistication, in 

Sec.  4.13(a)(3) exempt pools would generally be consistent with the 

Commission's policy approach in proposing to add the 18-96 Exemption to 

the 17 CFR part 4 regulatory framework. With limited participation in 

U.S. commodity interest markets subject to Commission jurisdiction, 

commodity pools exempt under Sec.  4.13(a)(3) do not trigger the same 

level of regulatory interest for the Commission as commodity pools 

requiring CPO registration and compliance with all or part of the 

requirements in 17 CFR part 4. Additionally, Sec.  4.7 already permits 

non-U.S. persons,\44\ regardless of their ``qualified eligible person'' 

(QEP) status, to participate in commodity pools operated thereunder, 

which are not subject to de minimis commodity interest trading 

thresholds. The Commission also preliminarily believes that it would be 

consistent with the Commission's other part 4 regulations, including 

those amendments proposed today, to generally permit non-U.S. person 

participants in Sec.  4.13(a)(3) exempt pools. Therefore, the 

Commission proposes today to also amend Sec.  4.13(a)(3)(iii) to 

specifically permit non-U.S. person participants.\45\

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    \44\ 17 CFR 4.7(a)(1)(iv).

    \45\ If adopted, the proposed rule would supersede prior staff 

positions on this subject, including CFTC Staff Letter 04-13.

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C. Proposed CPO and CTA Registration Exemptions for Qualifying Family 

Offices



    The Commission is also proposing today amendments consistent with 

two Commission staff no-action letters that currently provide relief 

from CPO \46\ and CTA\47\ registration to qualifying family offices 

(Family Offices) with respect to investment management and advisory 

activities conducted on behalf of their family clients (Family 

Clients).

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    \46\ CFTC Staff Letter 12-37 (Nov. 29, 2012), available at 

https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/12-37.pdf (last retrieved July 31, 2018) (CPO Family Office 

No-Action Letter).

    \47\ CFTC Staff Letter 14-143 (Nov. 5, 2014), available at 

https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-143.pdf (last retrieved July 31, 2018) (CTA Family Office 

No-Action Letter).

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1. Defining Family Offices

    A Family Office is generally understood to be a professional 

organization that is wholly-owned by clients in a family, including 

members of a family and/or entities controlled by a family or family 

member, e.g., charitable trusts, and that is operated as a wealth 

management tool for their benefit.\48\ In granting no-action relief 

from CPO registration to qualifying Family Offices, Commission staff 

has previously stated that, ``[t]ypically, a family office structure is 

employed when one or more direct members of a family create substantial 

wealth, and share that wealth in whole or in part with other members of 

that family, either through direct transfer, inheritance, or similar 

means.'' \49\ The Division noted further that, ``[t]he family office is 

then used to provide personalized services to that family, including 

advice regarding issues of tax, estate planning, investment, and 

charitable giving.'' \50\ According to the Private Investors Coalition, 

which frequently comments on regulatory efforts impacting Family 

Offices and which requested the relief from CTA registration granted by 

DSIO in 2014 via CFTC Staff Letter 14-143, ``single family offices have 

existed for over 100 years . . . [and] were formed to implement very 

important and complex objectives, including investment management, 

corporate succession, estate, gift, and income tax planning and 

charitable giving issues that are important to members of the family.'' 

\51\

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    \48\ See, e.g., Letter from the Vlasic Investments, L.L.C., an 

entity formed to manage the wealth of the Vlasic Family, to the 

Securities and Exchange Commission, at 1 (Nov. 17, 2010), available 

at https://www.sec.gov/comments/s7-25-10/s72510-83.pdf (last 

retrieved July 31, 2018), submitted as a comment to Family Offices, 

Investment Advisers Act Release No. 3098, 75 FR 63753 (Oct. 18, 

2010).

    \49\ CPO Family Office No-Action Letter, at 1.

    \50\ Id.

    \51\ Letter from the Private Investors Coalition to the SEC, at 

2 (Nov. 11, 2010), available at https://www.sec.gov/comments/s7-25-10/s72510-11.pdf (last retrieved July 31, 2018), submitted as a 

comment to Family Offices, Investment Advisers Act Release No. 3098, 

75 FR 63753 (Oct. 18, 2010). The Private Investors Coalition also 

emphasized that although Family Offices may be formed by a single 

family member who created the wealth to be managed, they are also 

commonly formed by one or more lineal descendants of such family 

members. Id.

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2. Family Offices as Commodity Pools and the Rescission of Sec.  

4.13(a)(4)

    As discussed above, the operations of a Family Office frequently 

involve the collective management of pooled assets from a variety of 

sources, notwithstanding that those sources may all be members of a 

single family, or organizations, trusts, or foundations for the benefit 

of those family members. If such pooled assets are invested in 

commodity interests,\52\ then it is highly likely that the managing 

member of the Family Office, or similarly situated persons providing 

services to the Family Office, is engaging in activities that would 

otherwise require registration with the Commission as a CPO or CTA. 

Consequently, absent an exemption,



[[Page 52908]]



exclusion, or other Commission staff letter relief, registration and 

compliance requirements under the CEA and Commission regulations would 

be triggered, requiring such Family Offices or members of their staff 

to register with the Commission as CPOs and/or CTAs with respect to 

those activities.

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    \52\ 17 CFR 1.3.

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    In the 1990s and early 2000s, Commission staff frequently responded 

to individual requests from Family Offices for relief from CPO and CTA 

regulation with one-off relief letters determining the Family Office 

not to be a commodity pool or providing no-action relief from such 

registration to certain family members or staff.\53\ In 2003, the 

Commission adopted former Sec.  4.13(a)(4), which provided an exemption 

from CPO registration for a person operating a commodity pool: (1) 

Whose interests are exempt from registration under the Securities Act 

of 1933,\54\ and are offered and sold without marketing to the public 

in the U.S.; and (2) whose participants are reasonably believed, at the 

time of investment or conversion of the pool to an exempt pool, to be 

QEPs as defined in Sec.  4.7(a)(2) \55\ if natural persons, or QEPs or 

``accredited investors,'' in the case of non-natural person 

participants.\56\

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    \53\ See, e.g., CFTC Staff Letter 00-100 (Nov. 1, 2000) (finding 

that a limited partnership consisting of immediate family members 

that invests family assets in commodity futures is not a pool), 

available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/00-100.pdf (last retrieved July 

31, 2018); CFTC Staff Letter 97-78 (Sept. 24, 1997) (finding that a 

partnership consisting of family members, former family members, and 

trusts for the benefit of family members is not a commodity pool 

within the meaning and intent of Sec.  4.10(d)), available at 

https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/97-78.pdf (last retrieved July 31, 2018).

    \54\ 15 U.S.C. 77a et seq.

    \55\ 17 CFR 4.7(a)(2).

    \56\ 17 CFR 4.13(a)(4) (2010).

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    Prior to the exemption's rescission in 2012, many Family Offices 

claimed former Sec.  4.13(a)(4) to legally operate their investment 

vehicles, invest in commodity interests, and provide commodity trading 

advice to Family Clients, without being required to register with the 

Commission in any capacity.\57\ In 2011, the Commission proposed to 

rescind Sec.  4.13(a)(4) \58\ and the potential impact on Family 

Offices was immediately noted; the Commission received comments 

suggesting that the Commission allow Family Offices already in 

existence and then relying on the exemption in Sec.  4.13(a)(4) to be 

grandfathered, such that they could continue to operate without 

registration even after the exemption's rescission.\59\ In declining to 

do so, the Commission stated in the 2012 Adopting Release:

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    \57\ Further, as CPOs exempt pursuant to Sec.  4.13(a)(4), such 

Family Offices also routinely relied upon the self-executing 

exemption in Sec.  4.14(a)(5), which provides an exemption from CTA 

registration to a person that is exempt from registration as a CPO 

and the person's commodity trading advice is directed solely to, and 

for the sole use of, the pool or pools for which it is so exempt. 

See 17 CFR 4.14(a)(5).

    \58\ Commodity Pool Operators and Commodity Trading Advisors: 

Amendments to Compliance Obligations, 76 FR 7976 (Feb. 11, 2011).

    \59\ See comment letters from New York State Bar Association 

(Apr. 12, 2011); Alternative Investment Management Association, Ltd. 

(Apr. 12, 2011); Schulte Roth & Zabel LLP (Apr. 12, 2011); Fulbright 

& Jaworski L.L.P. (Apr. 12, 2011); Securities Industry and Financial 

Markets Association (Apr. 12, 2011); Seward & Kissel, LLP (Apr. 12, 

2011); Katten, Muchin, Rosenman LLP (Apr. 12, 2011); all available 

at https://comments.cftc.gov/PublicComments/CommentList.aspx?id=973 

(last retrieved July 31, 2018).



    The Commission does not believe that ``grandfathering'' is 

appropriate in this context. As the Commission stated in its 

Proposal, part of the purpose of rescinding Sec.  4.13(a)(4) is to 

ensure that entities that are engaged in derivatives trading are 

subject to substantively identical registration and compliance 

obligations and oversight by the Commission. Grandfathering is not 

consistent with the stated goals of the Commission's rescission and 

would result in disparate treatment of similarly situated entities. 

Therefore, the Commission will implement the rescission of Sec.  

4.13(a)(4) for all entities currently claiming exemptive relief 

thereunder.\60\

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    \60\ See CPO CTA Final Rule, 77 FR at 11263.



Alternatively, other commenters requested that ``the Commission adopt 

an exemption from registration for family offices that is consistent 

with the exemption adopted by the [Securities and Exchange Commission 

(SEC)],'' discussed infra.\61\ The Commission declined, however, to 

adopt the SEC's relief for Family Offices in 2012, because:

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    \61\ Id. (citing the SEC's Family Office exclusion from the 

investment adviser definition at 17 CFR 250.202(a)(11)(G)-1).



    The Commission, therefore, believes that it is prudent to 

withhold consideration of a family offices exemption until the 

Commission has developed a comprehensive view regarding such firms 

to enable the Commission to better assess the universe of firms that 

may be appropriate to include within the exemption, should the 

Commission decide to adopt one. Therefore, the Commission is 

directing its staff to look into the possibility of adopting a 

family offices exemption in the future.\62\

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    \62\ Id. (citing 17 CFR 140.99(a)(3) and a variety of historic 

Family Office relief letters).

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    Finally, the Commission stated that Family Offices would ``continue 

to be permitted to write in on a firm by firm basis to request 

interpretative relief from the registration and compliance obligations 

under the Commission's rules and to rely on those interpretative 

letters already issued to the extent permissible under the Commission's 

regulations.'' \63\ Thus, pursuant to the amendments to 17 CFR part 4 

adopted in 2012, among which was the rescission of Sec.  4.13(a)(4), 

many Family Offices were required to register with the Commission as 

CPOs, if they could not qualify for an alternative exemption or 

otherwise obtain relief from Commission staff.\64\

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    \63\ Id. (concluding that ``an exemption for family offices is 

not necessary at this time'').

    \64\ The Commission noted then that ``family offices previously 

relying on the exemption under Regulation Sec.  4.13(a)(3) will not 

be affected by the rules adopted herein, as the Commission is not 

rescinding the Sec.  4.13(a)(3) exemption and it will remain 

available to entities meeting its criteria.'' CPO CTA Final Rule, 77 

FR at 11263.

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3. The SEC's Exclusion for Family Offices and CFTC Staff Letters 12-37 

and 14-143

    In 2011, the SEC adopted an exclusion from the term ``investment 

adviser,'' (IA) as defined by the Investment Advisers Act of 1940, as 

amended (IA Act),\65\ for Family Offices (SEC Family Office Exclusion), 

thus excluding Family Offices from regulation under the IA Act.\66\ 

Specifically, Sec.  275.202(a)(11)(G)-1(a) provides that a family 

office, as defined in that section, shall not be considered to be an 

investment adviser for purpose of the IA Act, and Sec.  

275.202(a)(11)(G)-1(b) defines ``family office'' as a company 

(including its directors, partners, members, managers, trustees, and 

employees acting within the scope of their position or employment) 

that: Has no clients other than family clients, is wholly owned by 

family clients and is exclusively controlled (directly or indirectly) 

by one or more family members and/or family entities; and does not hold 

itself out to the public as an investment adviser.\67\

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    \65\ 15 U.S.C. 80b-1, et seq.

    \66\ Family Offices; Final Rule, 76 FR 37983 (Jun. 29, 2011) 

(SEC Family Office Final Rule).

    \67\ 17 CFR 275.202(a)(11)(G)-1(a) and 275.202(a)(11)(G)-1(b).

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    Because Family Offices, as such term is commonly understood, are 

not intended to be marketed as an option for investing by the general 

public, Family Offices are restricted, by definition and in practice, 

to accepting assets for management from or providing services to solely 

``family clients.'' As a result, the SEC Family Office Exclusion 

defines a Family Client as including family members, including non-

blood relatives such as spouses and adopted children, former family 

members, key employees of the Family Office, former key employees 

(under certain conditions), as



[[Page 52909]]



well as certain organizations, like non-profit organizations, 

charitable foundations, charitable trusts or other charitable 

organizations for which all the funding of such foundation, trust or 

organization came exclusively from one or more other Family 

Clients.\68\ Family Clients also may include the estate of a family 

member, former family member, key employee, or subject to certain 

conditions, former key employees.\69\ Additionally, investment and 

estate planning vehicles, such as irrevocable trusts, in which one or 

more other Family Clients are the only current beneficiaries, are also 

permitted Family Clients.\70\

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    \68\ 17 CFR 275.202(a)(11)(G)-1(d)(4) (extensively defining 

``Family Client'').

    \69\ Id.

    \70\ Id. See Staff Responses to Questions About the Family 

Office Rule, available at https://www.sec.gov/divisions/investment/guidance/familyofficefaq.htm.

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    Pursuant to the Commission's instructions in the CPO CTA Final 

Rule, many Family Offices sought relief from DSIO staff following the 

2012 rescission of Sec.  4.13(a)(4). Certain representatives of the 

Family Office industry requested relief that would be available to 

Family Offices on a global basis and would be based upon the SEC Family 

Office Exclusion. In the request for relief, industry representatives 

asserted that Family Offices are not operations of the type and nature 

that warrant regulatory oversight by the Commission, because, by 

definition, a Family Office is not a vehicle in which non-Family 

Clients would be solicited or permitted to invest. Because a Family 

Office is comprised of participants with close relationships, and there 

is a direct relationship between the clients and the CPO or advisor, it 

was argued that such relationships greatly reduce the need for the 

customer protections available pursuant to the regulations in 17 CFR 

part 4.\71\

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    \71\ CPO Family Office No-Action Letter, at 1-2. This rationale 

is also noted in the adopting release of the SEC Family Office 

Exclusion. See also SEC Family Office Final Rule, 76 FR at 37984.

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    Having met with Family Office industry representatives and observed 

the SEC's experience after adopting the SEC Family Office Exclusion, 

Commission staff thoroughly considered the issue and ultimately 

determined to grant registration relief for Family Offices meeting the 

requirements of the SEC Family Office Exclusion. On November 29, 2012, 

DSIO issued CFTC Staff Letter 12-37, a no-action letter permitting 

Family Offices complying with the SEC Family Office Exclusion to 

operate and manage the assets of Family Clients without having to 

register with the Commission as a CPO.\72\ Subsequently, in responding 

to a request for relief from the Private Investors Coalition, DSIO 

issued another no-action letter permitting Family Offices to provide 

their Family Clients with commodity trading advice, without CTA 

registration, provided that the Family Office did not hold itself out 

to the public as a CTA and restricted any commodity trading advice 

given to the Family Office itself and/or Family Clients.\73\

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    \72\ CPO Family Office No-Action Letter.

    \73\ CTA Family Office No-Action Letter.

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    In granting the no-action relief from CPO registration, DSIO staff 

considered the requesters' assertion that, ``this issue has similarly 

been addressed by the [SEC], which resulted in an exclusion for family 

offices that would otherwise be required to register as an investment 

adviser[,]'' and that ``SEC staff ha[d] devoted substantial time and 

resources to addressing this issue.'' \74\ In determining to issue 

relief, the Division reasoned that ``the fundamental issue of the 

appropriate application of investor protection standards as required by 

each respective agency's regulations is substantially similar.'' \75\ 

Further, the Division concluded that granting the relief would place 

``both agencies on equal footing with respect to the application of 

investor protections relevant to this issue [and] will facilitate 

compliance with both regulatory regimes.'' \76\ Consequently, through 

CFTC Staff Letters 12-37 and 14-143, the Division provided no-action 

relief with respect to CPO registration for any person filing a claim 

that operates a Family Office, as that term is defined in 17 CFR 

275.202(a)(11)(G)-1(b), and with respect to CTA registration, for any 

person filing a claim whose advisory services are limited to a Family 

Office and/or Family Clients, as defined in 17 CFR 275.202(a)(11)(G)-

1(d)(4).\77\ Under each letter, the claimant is required to remain in 

compliance with the SEC Family Office Exclusion, regardless of whether 

the Family Office actually seeks such exclusion.\78\

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    \74\ CPO Family Office No-Action Letter, at 2.

    \75\ CPO Family Office No-Action Letter, at 2.

    \76\ Id.

    \77\ CPO Family Office No-Action Letter, at 2; CTA Family Office 

No-Action Letter, at 3.

    \78\ Id.

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    In the six years since the rescission of Sec.  4.13(a)(4) and the 

issuance of the CPO Family Office No-Action Letter, Commission staff 

has gained additional familiarity with the Family Office industry. This 

experience was gained through the continued availability of the CPO 

Family Office No-Action Letter and the subsequent issuance and 

utilization by industry of the CTA Family Office No-Action Letter, as 

well as through the consideration of and response to the few additional 

requests received by DSIO from Family Offices unable to meet the 

criteria of either of the global no-action letters.\79\ The Commission 

notes that DSIO has received a total of more than 500 claims of the no-

action relief provided by the CPO Family Office No-Action Letter and 

the CTA Family Office No-Action Letter.

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    \79\ See, e.g., CFTC Staff Letter 14-104 (Jun. 20, 2014), 

available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-104.pdf (last retrieved July 

31, 2018) (granting no-action relief to an entity providing advisory 

services to two families with longstanding and extensive financial 

and personal relationships).

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    Based on this experience, and pursuant to the Commission's 

instructions to its staff in 2012 to consider the future adoption of 

registration exemptions for Family Offices, the Commission is proposing 

to adopt for qualifying Family Offices CPO and CTA registration 

exemptions with terms similar to those in the CPO Family Office No-

Action Letter and the CTA Family Office No-Action Letter by amending 

Sec. Sec.  4.13 and 4.14. The Commission preliminarily believes that 

the familial relationships inherent in Family Offices provide a 

reasonable mechanism for protecting the interests of Family Clients and 

resolving disputes amongst them, and that the regulatory interest is 

lower than in typical, arms-length transactions where the CPO and the 

pool participants, or the CTA and its advisory clients, do not have 

close relationships and/or long-standing family history between them. 

The Commission also preliminarily believes that these characteristics 

are a reasonable substitute for the benefits and protections afforded 

by the Commission's regulatory regime for CPOs and CTAs.

    Consistent with its statements in prior rulemakings impacting 

Family Offices, the Commission notes that Family Offices unable to meet 

the requirements of the exemptions proposed herein today may still 

avail themselves of the relief provided in Sec.  4.13(a)(3), if they so 

qualify, or they may continue to seek relief on an individual, firm-by-

firm basis through requests submitted to Commission staff.



D. Proposed Amendments Permitting General Solicitation by CPOs Pursuant 

to the JOBS Act of 2012.



1. The JOBS Act of 2012, Regulation D, and Rule 144A

    On April 5, 2012, Congress enacted the JOBS Act for the stated 

purpose of increasing American job creation and



[[Page 52910]]



economic growth by improving access to the public capital markets for 

emerging growth companies.\80\ Among other things, the JOBS Act amended 

various sections of the Securities Act of 1933 (``33 Act'') and 

required the SEC to revise its regulations to implement certain of the 

new JOBS Act provisions. Certain provisions of the JOBS Act expanded 

the availability and marketability of privately offered securities by 

loosening restrictions otherwise applicable to such offerings.

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    \80\ Public Law 112-106, 126 Stat. 306 (Apr. 5, 2012).

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    Section 5 of the 33 Act requires the registration of securities 

offerings with the SEC and compliance with prospectus delivery 

requirements, unless an exemption is available.\81\ Section 4(a)(2) 

(formerly section 4(2)) of the 33 Act provides a statutory exemption 

from these requirements for ``transactions by an issuer not involving 

any public offering.'' \82\ Rule 506 of the SEC's Regulation D, ``Rules 

Governing the Limited Offer and Sale of Securities Without Registration 

Under the Securities Act,'' (Regulation D) was adopted to provide a 

regulatory analog to the statutory exemption.\83\ Rule 506(b) of 

Regulation D \84\ was originally adopted by the SEC as a non-exclusive 

safe harbor under the 33 Act section 4(a)(2) exemption for securities 

offerings by an issuer, without regard to dollar amount, to an 

unlimited number of ``accredited investors,'' as defined in Sec.  

230.501(a),\85\ and to no more than 35 non-accredited investors who 

meet certain sophistication requirements.\86\ Offerings under Sec.  

230.506(b) are subject to the terms and conditions of Sec. Sec.  

230.501 and 230.502, including Sec.  230.502(c), which states that 

neither the issuer nor any person acting on its behalf shall offer or 

sell the securities by any form of general solicitation (General 

Marketing Restriction).\87\

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    \81\ 15 U.S.C. 77e.

    \82\ 15 U.S.C. 77d(a)(2).

    \83\ Proposed Revision of Certain Exemptions from the 

Registration Provisions of the Securities Act of 1933 for 

Transactions involving Limited Offers and Sales, 33 Act Rel. No. 

6339 (Aug. 7, 1981).

    \84\ 17 CFR 230.506(b).

    \85\ 17 CFR 230.501(a).

    \86\ 17 CFR 230.506(b).

    \87\ 17 CFR 230.501, 230.502; 230.502(c).

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    Through JOBS Act Section 201, Congress directed the SEC to amend 17 

CFR 230.506 of Regulation D, to provide that the prohibition against 

general solicitation or general advertising in section 230.502(c) of 

title 17 shall not apply to offers and sales of securities made 

pursuant to section 230.506, provided that all purchasers are 

accredited investors.\88\ In 2012-2013, the SEC proposed and adopted 

amendments to Sec.  230.506 consistent with the congressional 

directives of the JOBS Act.\89\ By adding Sec.  230.506(c), the SEC 

adopted an exemption that permits issuers to engage in general 

solicitation or advertising to offer and sell securities under 

Regulation D, provided that the issuer meets the terms and conditions 

of Sec. Sec.  230.501 and 230.502(a) and (d), that all purchasers of 

the offered securities are accredited investors, and that the issuer 

takes reasonable steps to verify the accredited investor status of each 

purchaser.\90\ In other words, the General Marketing Restriction in 

Sec.  230.502(c) is not applicable to securities offerings made 

pursuant to Sec.  230.506(c).

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    \88\ JOBS Act, Public Law 112-206, sec. 201(a)(1), 126 Stat. 

306, 313. Further, the JOBS Act amendments made clear that offers 

and sales exempt under Rule 506 (as revised pursuant to JOBS Act 

Section 201) shall not be deemed public offerings under the Federal 

securities laws as a result of general advertising or solicitation. 

Id. at 201(b) (adding 33 Act Section 4(b), 15 U.S.C. 77d(b)).

    \89\ Eliminating the Prohibition Against General Solicitation 

and General Advertising in Rule 506 and Rule 144A Offerings, 77 FR 

54464 (Sept. 5, 2012) and 78 FR 44771 (Jul. 24, 2013) (JOBS Act 

Adopting Release).

    \90\ 17 CFR 230.506(c)(1)-(2). In the JOBS Act Adopting Release, 

the SEC stated that, ``because the issuer has the burden of 

demonstrating that its offering is entitled to an exemption from the 

registration requirements of the [33 Act], it will be important for 

issuers and their verification service providers to retain adequate 

records regarding the steps taken to verify that a purchaser was an 

accredited investor.'' 78 FR at 44779.

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    The SEC explained that it was retaining the exemption for 

traditional Regulation D offerings in Sec.  230.506(b), ``for those 

issuers that either do not wish to engage in general solicitation in 

their Rule 506 offerings . . . or wish to sell privately to non-

accredited investors who meet Rule 506(b)'s sophistication 

requirements.'' \91\ Further, the SEC emphasized that the ``mandate [in 

JOBS Act Section 201(a)(1)] affects only [Sec.  230.506], and not 

Section 4(a)(2) offerings in general, which means that . . . an issuer 

relying on Section 4(a)(2) outside of the Rule 506(c) exemption will be 

restricted in its ability to make public communications to solicit 

investors for its offering because public advertising will continue to 

be incompatible with a claim of exemption under Section 4(a)(2).'' \92\ 

The SEC also adopted substantively similar amendments to Rule 144A \93\ 

eliminating offering and marketing restrictions in the resale of 

certain securities sold to qualified institutional buyers (QIBs).\94\

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    \91\ Id. at 44776.

    \92\ 78 FR at 44774.

    \93\ 17 CFR 230.144A.

    \94\ Rule 144A is a non-exclusive safe harbor exemption from the 

registration and prospectus delivery requirements under the 33 Act 

for resales of certain securities to QIBs, as defined in Sec.  

230.144A(a)(1), provided that certain conditions are met. Through 

the JOBS Act, Congress directed the SEC to also adopt amendments to 

Sec.  230.144A in order to permit general solicitation. JOBS Act, 

Pub. L. 112-206, sec. 201(a)(2), 126 Stat. 306, 313. In the JOBS Act 

Adopting Release, the SEC eliminated references to ``offer'' and 

``offeree'' in Rule 144A, such that, today, the provision only 

requires that such resold securities ``be sold to a QIB or to a 

purchaser that the seller and any person acting on behalf of the 

seller reasonably believe is a QIB.'' 78 FR at 44786.

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2. Impact of JOBS Act Amendments on CPOs and DSIO's 2014 JOBS Act 

Relief Letter

    Under certain circumstances, persons relying on the new exemption 

in Sec.  230.506(c) (506(c) Issuers) or reselling securities pursuant 

to Rule 144A (144A Resellers) may also be issuing interests in a 

commodity pool, the CPOs of which are subject to Commission regulation. 

Certain of the Commission's regulations applicable to CPOs currently 

contain restrictions on marketing and solicitation that conflict with 

the statutory and regulatory amendments effected and prompted by the 

passing of the JOBS Act. Specifically, certain persons who offer, 

market, or sell securities from 506(c) Issuers or 144A Resellers may be 

subject to Commission regulation under Sec. Sec.  4.7 or 4.13(a)(3), 

both of which currently prohibit the general marketing and solicitation 

that is now permitted by the JOBS Act.

    Section 4.7 provides relief from certain of the disclosure, 

periodic and annual reporting, and recordkeeping requirements in Part 4 

of the Commission's regulations to registrants who file claims pursuant 

to Sec.  4.7(d).\95\ The relief in Sec.  4.7(b) is available to: (1) A 

registered CPO who offers or sells pool participations solely to QEPs 

in an offering that qualifies for an exemption from the registration 

requirements of the 33 Act pursuant to section 4(2) (now section 

4(a)(2)) of that Act or pursuant to Regulation S, or (2) any bank 

registered as a CPO in connection with a pool that is a collective 

trust fund whose securities are exempt from registration under the 33 

Act pursuant to section 3(a)(2) of that Act and are offered or sold, 

without marketing to the public, solely to QEPs.\96\ Section 4.13(a)(3) 

provides a registration exemption for CPOs that operate pools meeting 

the conditions enumerated in that regulation. One of those conditions, 

Sec.  4.13(a)(3)(i), requires that interests in



[[Page 52911]]



each pool for which the CPO claims the exemption be exempt from 

registration under the 33 Act and ``offered and sold without marketing 

to the public.'' \97\ Additionally, Sec.  4.13(a)(3)(iii) requires that 

the CPO reasonably believes, at the time of purchase, that each person 

who participates in the exempt pool is, among other things, an 

accredited investor or QEP.\98\

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    \95\ 17 CFR 4.7; 17 CFR 4.7(d).

    \96\ 17 CFR 4.7(b).

    \97\ 17 CFR 4.13(a)(3)(i).

    \98\ 17 CFR 4.13(a)(3)(iii).

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    Generally, all commodity pools relying on the exemption in 33 Act 

section 4(a)(2), including pursuant to Sec.  230.506(b), remain subject 

to prohibitions on general solicitation and general advertising, and 

such pools' CPOs may continue to claim relief under Sec. Sec.  4.7(b) 

or 4.13(a)(3) in their current states. However, as noted above, 

amendments to securities regulations prompted by the JOBS Act and the 

requirements for exemptive relief under Sec. Sec.  4.7(b) or 4.13(a)(3) 

are incompatible. In response to the SEC's amendments, the Division 

issued CFTC Staff Letter 14-116, an exemptive letter clarifying how 

securities issuers and resellers, and their CPOs, could avail 

themselves of relief both in the securities and commodity interest 

sectors.\99\

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    \99\ CFTC Staff Letter 14-116 (Sept. 9, 2014) (JOBS Act Relief 

Letter), available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-116.pdf (last retrieved July 

31, 2018) (JOBS Act Relief Letter).

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    Subject to certain conditions, the JOBS Act Relief Letter provides 

exemptive relief to claimants from the specific provisions of 

Sec. Sec.  4.7(b) or 4.13(a)(3) outlined above, to make the relief 

provided by those regulations compatible with amended Regulation D and 

Rule 144A. Specifically, the CPOs of 506(c) Issuers and 144A Resellers 

that filed a notice with DSIO staff received exemptive relief from the 

requirements in Sec.  4.7(b) that an offering be exempt pursuant to 

section 4(a)(2) of the 33 Act and offered solely to QEPs, and from the 

requirement in Sec.  4.13(a)(3)(i) that the securities ``be offered and 

sold without marketing to the public.'' \100\

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    \100\ JOBS Act Relief Letter, p. 6. The Commission notes that 

Sec.  4.13(a)(3) requires only that interests in an exempt pool be 

``exempt from registration'' under the 33 Act, whereas Sec.  4.7(b) 

has a more restrictive requirement that the pools qualify for 

exemption specifically under 33 Act section 4(a)(2). As noted above, 

the SEC emphasized, while amending Regulation D, that issuers 

claiming a 33 Act section 4(a)(2) exemption or Sec.  230.506(b) 

would still be restricted in marketing or advertising to the public, 

based on the format of the congressional directive in the JOBS Act. 

78 FR at 44774.

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    In an effort to harmonize the impact of the JOBS Act on, and to 

provide legal certainty with respect to the transactions engaged in by, 

dually-regulated CFTC and SEC entities, the Commission is proposing to 

adopt tailored amendments to Sec. Sec.  4.7(b) and 4.13(a)(3) that 

would generally be consistent with the JOBS Act Relief Letter, as 

explained further below.



E. Proposed Exclusionary Relief for BDCs



1. The CPO Exclusion in Sec.  4.5

    Section 4.5 provides an exclusion for certain otherwise regulated 

persons from the CPO definition with respect to the operation of a 

``qualifying entity'' specified in that regulation.\101\ Examples of 

excluded persons include insurance companies regulated by any State 

\102\ with respect to the offering of a separate account; \103\ a bank 

regulated by a State or the United States \104\ with respect to the 

assets of any trust, custodial account, or other separate unit of 

investment for which it is acting as a fiduciary and for which it has 

investment authority; \105\ the trustee of a plan subject to title I of 

the Employee Retirement Income Security Act of 1974 (ERISA) \106\ with 

respect to the operations of that plan; \107\ and most relevant to the 

discussion herein, the operator of an investment company registered as 

such under the Investment Company Act of 1940, as amended (ICA),\108\ 

with respect to the operated RIC.\109\

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    \101\ 17 CFR 4.5(a) and (b).

    \102\ 17 CFR 4.5(a)(2).

    \103\ 17 CFR 4.5(b)(2).

    \104\ 17 CFR 4.5(a)(3).

    \105\ 17 CFR 4.5(b)(3).

    \106\ 17 CFR 4.5(a)(4).

    \107\ 17 CFR 4.5(b)(4).

    \108\ 15 U.S.C. 80a-1, et seq.

    \109\ 17 CFR 4.5(a)(1) and (b)(1). As discussed, infra, Sec.  

4.5 lists the RIC as both the excluded person and the qualifying 

entity. Given that the Commission has previously determined that the 

RIC's investment adviser is the appropriate person to serve as the 

CPO of a RIC for regulatory purposes, the Commission is proposing 

herein to amend Sec.  4.5(a)(1) to designate the investment adviser 

as the excluded entity. See CPO CTA Final Rule, 77 FR at 11259.

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2. BDCs: Exempt Investment Companies Restricted in Their Use of 

Commodity Interests

    BDCs are closed-end companies subject to regulation by the SEC 

under the ICA. Although BDCs meet the definition of an ``investment 

company'' under ICA section 3,\110\ they are exempt from investment 

company registration by virtue of the filing of an election under 

section 54 of the ICA to be subject to various provisions of that 

act.\111\ Despite not being registered as such, BDCs do operate in a 

manner similar to closed-end RICs and are subject to many of the same 

operational requirements of the ICA.\112\ Most BDCs have external 

advisers, which generally must be registered with the SEC as investment 

advisers under the IA Act.\113\ BDCs, like RICs, are subject to 

periodic examination by the SEC. Further, BDCs must either have a class 

of equity securities that is registered under, or filed a registration 

statement for a class of equity securities pursuant to, the Securities 

Exchange Act of 1934, as amended,\114\ which, in turn, requires filing 

with the SEC: Annual reports on Form 10-K,\115\ quarterly reports on 

Form 10-Q,\116\ current reports on Form 8-K,\117\ and proxy 

solicitation statements in connection with annual stockholder 

meetings.\118\ Additionally, almost all BDCs are listed for trading on 

national securities exchanges, and thus, are subject to exchange rules 

governing listed companies.\119\ BDCs are also subject to certain 

regulations and corporate governance guidelines under the Sarbanes-

Oxley Act of 2002.\120\

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    \110\ 15 U.S.C. 80a-3.

    \111\ Id. at 80a-53. See id. at 80a-6(f).

    \112\ See, e.g., 15 U.S.C. 80a-18 (providing asset coverage 

requirements among others subject to certain limitations); 15 U.S.C. 

80a-61 (making section 18 of the ICA applicable to BDCs with certain 

modifications).

    \113\ 15 U.S.C. 80b-1, et seq.

    \114\ 15 U.S.C. 78a et seq.

    \115\ 17 CFR 249.310.

    \116\ 17 CFR 249.308a.

    \117\ 17 CFR 249.308.

    \118\ 17 CFR 240.14a-4.

    \119\ See, e.g., NYSE Listed Company Manual, available at http://wallstreet.cch.com/LCM/ (last retrieved Apr. 25, 2018).

    \120\ Public Law 107-204, 116 Stat. 745 (July 30, 2002) 

(codified in U.S.C. Titles 15, 18, 28, and 29).

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    BDCs are primarily engaged in investing in, and providing 

managerial assistance to, operating companies.\121\ Specifically, BDCs 

are required to invest at least 70% of their assets in ``eligible 

portfolio companies,'' \122\ which are generally defined as small- or 

mid-sized U.S. companies that have no outstanding listed 

securities.\123\ BDCs typically limit their use of commodity interests 

to interest rate and currency swaps, with some limited use of credit 

default swaps and other commodity interests.\124\ Because BDCs 

primarily



[[Page 52912]]



invest in private companies to which they are required to offer 

managerial assistance, BDCs generally use commodity interests for 

purposes of hedging, reducing, or otherwise managing investment and 

commercial risks of the operating companies in which they invest. 

Section 61 of the ICA \125\ applies, among other things, the 

limitations on the issuance of ``senior securities'' of section 18 of 

the ICA to BDCs,\126\ subject to certain modifications to the 

limitation on multiple classes on senior security indebtedness and to 

the asset coverage requirements. BDCs, like registered closed-end 

funds, may issue senior securities that either represent indebtedness 

or stock (e.g., preferred stock), subject to the limitations of ICA 

section 61.\127\

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    \121\ 15 U.S.C. 80a-2(a)(48).

    \122\ Id. See also 15 U.S.C. 80a-54(a).

    \123\ 15 U.S.C. 80a-2(a)(46) (defining ``eligible portfolio 

company''). See 17 CFR 270.2a-46 (providing additional criteria 

regarding ``eligible portfolio companies'').

    \124\ See Use of Derivatives by Registered Investment Companies, 

U.S. Securities and Exchange Commission, Division of Economic Risk 

and Analysis, available at https://www.sec.gov/files/derivatives12-2015.pdf (last retrieved July 31, 2018). Staff in the SEC's Division 

of Economic Risk and Analysis pulled a random sample of investment 

companies, including BDCs, to examine the use of derivatives by such 

companies. Within the sampled BDCs, none used derivatives, which 

appears to be consistent with assertions from members of industry 

that the usage of derivatives by BDCs is generally very limited. Id.

    \125\ 15 U.S.C. 80a-60.

    \126\ Id. at 80a-18.

    \127\ Id. at 80a-18(a)(2), 80a-60.

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3. CFTC Staff Letter 12-40 and the Proposed Amendments

    In 2012, DSIO staff received correspondence requesting 

interpretative guidance from the Division regarding BDCs \128\ and the 

availability of the exclusion from the CPO definition in Sec.  

4.5.\129\ DSIO understood that the request was prompted generally by 

the inclusion of swaps within the jurisdiction of the Commission 

pursuant to the Dodd-Frank Act, as well as the specific addition of 

``swaps'' to the list of commodity interests referenced within the 

CEA's definitions of ``commodity pool'' and CPO.\130\

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    \128\ BDCs are subject to regulation under the ICA, but are not 

RICs.

    \129\ 17 CFR 4.5.

    \130\ 7 U.S.C. 1a(10) and 1a(11).

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    Following internal deliberations and further discussions with the 

requester, the Division determined to issue no-action relief, rather 

than interpretative guidance, which was accomplished on December 4, 

2012, through the publication of CFTC Staff Letter 12-40 (BDC No-Action 

Letter).\131\ In the BDC No-Action Letter, DSIO recited numerous ways 

in which BDCs are regulated in a manner similar to RICs under the 

ICA.\132\ Pursuant to the terms of that letter, an entity claiming 

relief thereunder is subject to the following criteria: (1) The entity 

must have elected to be treated as a BDC under section 54 of the ICA 

\133\ and will remain regulated as such, and (2) the entity has not 

marketed and will not market participations in the BDC to the public as 

investment in a commodity pool, or otherwise as an investment in a 

vehicle for the trading of commodity interests.\134\ Additionally, the 

claimant must represent that it limits its use of commodity interests 

in the BDC consistent with the trading thresholds in Sec.  

4.5(c)(2)(iii)(A)-(B).\135\ Finally, to claim the relief provided, an 

entity must file via email to DSIO the requisite notice, which is then 

electronically forwarded by CFTC staff to the NFA for inclusion in its 

public database, the Background Affiliation Status Information Center 

(BASIC).\136\

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    \131\ CFTC Staff Letter 12-40, available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/12-40.pdf (Dec. 4, 2012) (last retrieved July 31, 2018).

    \132\ Id.

    \133\ 15 U.S.C. 80a-53.

    \134\ BDC No-Action Letter, at 3.

    \135\ Specifically, the BDC must represent that it uses 

commodity interests solely for bona fide hedging purposes within the 

meaning and intent of Sec. Sec.  1.3(z)(1) and 151.5 (17 CFR 1.3 and 

151.5) (2012)); provided, however, that in addition, with respect to 

positions in commodity futures or commodity option contracts, or 

swaps which do not come within the meaning and intent of Sec. Sec.  

1.3(z)(1) and 151.5, as those provisions existed in 2012, the 

aggregate initial margin and premiums required to establish such 

positions does not exceed five percent of the liquidation value of 

the BDC'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 may be 

excluded in computing such five percent; or the aggregate net 

notional value of commodity futures, commodity options contracts, or 

swaps positions not used solely for bona fide hedging purposes 

within the meaning and intent of Sec. Sec.  1.3 and 151.5 (17 CFR 

1.3 and 151.5 (2012)), determined at the time the most recent 

position was established, does not exceed 100 percent of the 

liquidation value of the BDC's portfolio, after taking into account 

unrealized profits and losses on any such position it has entered 

into.

    On September 28, 2012, the U.S. District Court for the District 

of Columbia vacated Sec. Sec.  1.3(z)(1) and 151.5 as part of the 

total vacation of the Commission's position limits rule. See Int'l 

Swaps & Derivatives Ass'n v. CFTC, 887 F.Supp.2d 259 (D.D.C. Sept. 

28, 2012). This created some legal uncertainty as to the effect of 

the incorporation of those regulations in the CFTC's amendments to 

Sec.  4.5. On October 12, 2012, DSIO issued interpretative guidance 

providing that Sec.  4.5(c)(2)(iii)(A) and (B) continue to 

incorporate the substance of vacated Sec. Sec.  1.3(z)(1) and 151.5 

for purposes of those provisions only. See CFTC Staff Letter 12-19 

(Oct. 12, 2012), available at https://www.cftc.gov/idc/groups/public/@lrlettergeneral/documents/letter/12-19.pdf (last retrieved 

July 31, 2018). The Commission is not proposing to remove the cross-

references to Sec. Sec.  1.3(z)(1) and 151.5 (2012) at this time, 

but instead, intends to consider amendments to the ``bona fide 

hedging'' definition in Sec.  4.5, when it adopts final rules 

replacing the vacated regulatory provisions.

    \136\ NFA's BASIC website can be accessed at https://www.nfa.futures.org/basicnet.

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    Since the issuance of CFTC Staff Letter 12-40, the Commission has 

received 55 claims of relief. Division staff issued the BDC No-Action 

Letter because BDCs are subject to oversight by the SEC that is 

comparable to the regulation of RICs, and because BDCs use commodity 

interests primarily for bona fide hedging purposes. For these same 

reasons, the Commission has determined to exercise its authority to 

propose to amend Sec.  4.5 to provide IAs of BDCs with comparable 

exclusionary relief.



F. Relief From Sec.  4.27



1. History

    The Commission adopted Sec.  4.27 on November 16, 2011,\137\ and 

subsequently amended it to implement Forms CPO-PQR and CTA-PR on 

February 24, 2012.\138\ Section 4.27 generally requires each CPO that 

is registered or required to be registered as such to provide 

information regarding its operations as a CPO and each commodity pool 

that it operates.\139\ It also requires each CTA that is registered or 

required to be registered as such to provide information, including 

financial information, regarding its operations and the pool assets 

that it directs.\140\ The data collected is intended to, among other 

things, facilitate monitoring of systemically important impacts to the 

financial markets, as required by the Commission's obligations as part 

of the Financial Stability Oversight Council (FSOC).\141\

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    \137\ Reporting by Investment Advisers to Private Funds and 

Certain Commodity Pool Operators and Commodity Trading Advisors on 

Form PF, 76 FR 71128 (Nov. 16, 2011).

    \138\ CPO CTA Final Rule, 77 FR at 11252.

    \139\ 17 CFR part 4, appendix A.

    \140\ 17 CFR part 4, appendix C.

    \141\ CPO CTA Final Rule, 77 FR at 11267.

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2. Reporting Person Definition

    The entities required to file a Form CPO-PQR for CPOs, or a Form 

CTA-PR for CTAs, are identified by the ``reporting person'' definition 

(Reporting Person) contained in Sec.  4.27(b).\142\ Pursuant to that 

definition, Reporting Persons include CPOs and CTAs that are registered 

or required to be registered under the CEA and the Commission's 

regulations thereunder.\143\ After several filing cycles for both 

forms, the data revealed a substantial number of Reporting Persons that 

were filing Forms CPO-PQR and CTA-PR, but that had no other obligations 

under part 4 of the Commission's regulations. Specifically, the CPOs 

were operating pursuant to an exclusion or exemption from registration 

for all pools and accounts that they operated and/or directed, and the 

CTAs did not direct any client accounts, yet these CPOs and CTAs 

elected to maintain an active



[[Page 52913]]



registration with the Commission. This registration was sufficient to 

qualify the entity as a Reporting Person under Sec.  4.27(b), and 

consequently, it required these entities to file either a Form CPO-PQR 

or Form CTA-PR, as applicable. However, because these Reporting Persons 

did not operate pools or direct any accounts, or operated only exempt 

pools that are not subject to reporting requirements under Sec.  4.27, 

their Form CPO-PQR and Form CTA-PR filings did not contain meaningful 

information to assess systemic risk.

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    \142\ 17 CFR 4.27(b).

    \143\ Id.

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3. Current Commission Staff Letter Relief

    To address this issue, DSIO issued several staff letters that 

provided exemptive relief from the requirement to file either a Form 

CPO-PQR or CTA-PR, for CPOs \144\ and CTAs \145\ that do not otherwise 

have reporting obligations under part 4 of the Commission's 

regulations. In so doing, DSIO believed that the data eliminated from 

the dataset ``provide limited additional information . . . beyond that 

already available to the Commission as part of the registration process 

and the [person's] ongoing obligations as a registrant.'' \146\

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    \144\ CFTC Staff Letter 14-115 (Sept. 8, 2014), available at 

https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-115.pdf (last retrieved July 31, 2018) (providing relief 

from filing a Form CPO-PQR to CPOs that optionally registered as 

such with the Commission, but operated only pools for which they 

were excluded from the definition of ``commodity pool operator,'' 

and/or pursuant to a claim of exemption for registration with 

respect to the operated pools).

    \145\ CFTC Staff Letter 15-47 (July 21, 2015), available at 

https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/15-47.pdf (last retrieved July 31. 2018) (providing similar 

relief from filing a Form CTA-PR to CTAs who are registered as such 

with the Commission, but do not direct trading for any commodity 

interest accounts).

    \146\ CFTC Staff Letter 14-115 at 2. See also CFTC Staff Letter 

15-47 at 2 (``The same rationale applies in the instant scenario--

requiring a registered CTA that does not direct any trading of 

commodity interest accounts to file a Form CTA-PR would similarly 

provide limited additional information regarding that CTA.'').

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4. Proposing Amendments Consistent With Current Staff Letter Relief

    The Commission is proposing today to amend Sec.  4.27 in a manner 

consistent with the exemptive relief currently made available in CFTC 

Staff Letters 14-115 and 15-47, such that CPOs that operate only pools 

for which they are otherwise excluded from the CPO definition or exempt 

from CPO registration are not required to file a Form CPO-PQR, and CTAs 

that do not direct client accounts are not required to file a Form CTA-

PR.\147\ As such, the Commission proposes to exclude these CPOs and 

CTAs from the Reporting Person definition in Sec.  4.27(b).

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    \147\ It should be noted that similar to a discussion in CFTC 

Staff Letter 14-115, where a CPO is registered, but operates no 

pools, it is not required to file a Form CPO-PQR, as the terms of 

that form only require completion if the CPO also operates at least 

one pool. See CFTC Staff Letter 14-115, at 2.

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5. Expanding Relief From Sec.  4.27 to Additional Categories of CTAs

    Section 4.14(a)(4) provides that a person is exempt from 

registering as a CTA, if that person is registered under the CEA and 

the Commission's regulations as a CPO, and the person's commodity 

trading advice is directed solely to the commodity pool or pools for 

which it is registered as a CPO.\148\ Under Sec.  4.14(a)(4), the 

person in question is registered as the CPO of a pool, and therefore, 

already has an obligation to file a Form CPO-PQR with respect to that 

pool, which requires the reporting of more information when compared to 

Form CTA-PR.\149\ As such, the value of any data that would be 

collected by requiring that same Reporting Person to also file a Form 

CTA-PR is significantly outweighed by the burden to that entity of an 

extra filing, as well as any inefficiency resulting from the collecting 

and processing of duplicative data by NFA and Commission staff. As 

such, the Commission today also proposes to exclude from the Reporting 

Person definition under Sec.  4.27(b) those CTAs who comply with the 

terms of the exemption from registration set forth in Sec.  4.14(a)(4), 

and who limit their activities to those described by that exemption, 

but nevertheless elect to register as CTAs.

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    \148\ 17 CFR 4.14(a)(4).

    \149\ See 17 CFR part 4, appendix A and appendix C.

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    Further, consistent with the foregoing, the Commission also 

proposes to exclude from the Reporting Person definition any CTA that 

directs only the accounts of a pool that it operates as an exempt CPO. 

Specifically, Sec.  4.14(a)(5) exempts from CTA registration any person 

that is exempt from CPO registration, if that person's commodity 

trading advice is directed solely to the pool for which it is exempt 

from CPO registration.\150\ Consistent with the relief provided in CFTC 

Staff Letter 14-115, the exempt CPO of the pool would not be required 

to report on a Form CPO-PQR.\151\ It is therefore incongruent to 

require the same person to report on Form CTA-PR with respect to the 

operation of a pool for which it is not required to file a Form CPO-

PQR. Accordingly, the Commission proposes to remove the Sec.  4.27 

filing obligation for such CTAs by excluding from the Reporting Person 

definition any CTA that directs only the accounts of a pool for which 

it is exempt from registration as a CPO, and for which the CTA complies 

with the terms of a registration exemption under Sec.  4.14(a)(5), but 

nevertheless elects to register as a CTA.

---------------------------------------------------------------------------



    \150\ 17 CFR 4.14(a)(5).

    \151\ See CFTC Staff Letter 14-115 at 2.

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II. Proposed Regulations



A. Providing CPOs of Offshore Pools With Registration and Recordkeeping 

Relief Consistent With Advisory 18-96



1. New Sec.  4.13(a)(4): The 18-96 Exemption

    The Commission is proposing to amend Sec.  4.13 by adding a new 

exemption from CPO registration in the currently reserved paragraph 

(a)(4) for qualifying persons operating commodity pools outside of the 

United States. The 18-96 Exemption would incorporate the vast majority 

of the requirements in the Advisory (with the exception of requiring 

CPO registration) and would be limited in application to each pool for 

which the person claims exemption from registration under paragraph 

(a)(4).

    Proposed Sec.  4.13(a)(4)(i) through (vi) explain the substantive 

conditions that must be met to be eligible for the exemption. Because 

the 18-96 Exemption is based on the location of the pool and/or its 

participants, the exemption requirements, much like the Advisory, would 

focus on the location or base of activities for the pool, including the 

location and source of any capital invested in the exempt offshore 

pool. The 18-96 Exemption would include the following parameters: (i) 

The pool is, and will remain, organized and operated outside of the 

United States; (ii) the pool will not hold meetings or conduct 

administrative activities within the United States; (iii) no 

shareholder of or other participant in the pool is or will be a U.S. 

person; (iv) the pool will not receive, hold or invest any capital 

directly or indirectly contributed from sources within the United 

States; and (v) the person, the pool, and any person affiliated 

therewith will not undertake any marketing activity for the purpose, or 

that could reasonably be expected to have the effect, of soliciting 

participation in the pool from U.S. persons.

    Consistent with its past prioritization of resources, the 

Commission intends that the requirements of the 18-96 Exemption would 

limit that exemption's availability to those persons operating 

commodity pools offshore, soliciting, accepting funds from, and 

managing assets from solely persons located



[[Page 52914]]



outside the United States, and otherwise having a very limited nexus 

with the Commission's jurisdiction and regulated markets. By virtue of 

providing a CPO registration exemption, the 18-96 Exemption, once 

claimed by a qualifying CPO for its offshore pool(s),would result in 

the claiming CPO receiving relief from the vast majority of significant 

compliance requirements in part 4, including Sec.  4.27, which requires 

the filing of Form CPO-PQR with respect to the directed assets of each 

commodity pool under the advisement of any CPO that is registered or 

required to be registered, including any CPO currently claiming 

Advisory 18-96.

2. New Sec.  4.13(a)(6): The Proposed Prohibition on Statutory 

Disqualifications

    The Commission also proposes to amend Sec.  4.13(a) by adding a new 

paragraph (a)(6). Proposed Sec.  4.13(a)(6) would require any person 

claiming an exemption under paragraphs (a)(1) through (a)(5) of Sec.  

4.13 to represent that neither the person nor any of its principals is 

subject to any statutory disqualification under sections 8a(2) or 8a(3) 

of the Act, unless such disqualification arises from a matter which was 

previously disclosed in connection with a previous application, if such 

registration was granted, or which was disclosed more than thirty days 

prior to the claim of this exemption. As discussed above, the 

Commission believes preliminarily that this proposed amendment would 

provide additional customer protection because statutorily 

disqualified, unregisterable persons would no longer be permitted to 

claim the CPO exemptions under Sec.  4.13(a)(1) through (a)(5).

3. Amendments to Sec.  4.13: Claiming the Proposed 18-96 Exemption

    The Commission is proposing to amend Sec.  4.13(b) to incorporate 

the 18-96 Exemption into the existing timing and claims process for 

other CPO exemptions, which the Commission preliminarily believes 

establishes a reasonable timing requirement for such claims. Once 

adopted, this provision would apply to persons claiming the 18-96 

Exemption for newly established offshore commodity pools. If this 

rulemaking is adopted, the Commission intends to permit all existing 

claimants under Advisory 18-96 to claim the 18-96 Exemption.

    As proposed, Sec.  4.13(b)(2)(i) would require a person claiming 

the 18-96 Exemption to do so within 30 days of engaging in CPO 

activities that would make relief under Sec.  3.10(c)(3)(i) unavailable 

to that person. Until that point in time, the person could freely rely 

on Sec.  3.10(c)(3)(i), which is self-executing; such reliance would no 

longer be permitted, however, once the person is required to register 

or claim a CPO exemption with respect to a commodity pool that is 

marketed to U.S. persons, that contains funds belonging to U.S. 

persons, or that is otherwise operated in the U.S., its territories, or 

possessions. Therefore, proposed Sec.  4.13(b)(2)(i) would require a 

person to claim the 18-96 Exemption within 30 days of such an 

occurrence, which the Commission preliminarily believes is sufficient 

time for a person to achieve compliance with the terms of the 18-96 

Exemption.

4. Making the 18-96 Exemption Available on a Pool-by-Pool Basis

    It is crucial to the proper functioning of the 18-96 Exemption that 

it be available on a pool-by-pool basis. This feature would permit 

claiming CPOs to be exempt with respect to their qualifying offshore 

commodity pools, while permitting them to maintain CPO registration for 

any commodity pools engaged in activities requiring such registration, 

i.e., the CPO has solicited or accepted funds from U.S. persons for 

investment in the commodity pool. This characteristic would effectively 

differentiate the 18-96 Exemption from the relief currently provided 

under both Advisory 18-96 and Sec.  3.10(c)(3)(i). Therefore, the 

Commission proposes to adopt in Sec.  4.13 a new paragraph (e)(3), 

which would establish the 18-96 Exemption as clearly available on a 

pool-by-pool basis. Specifically, the Commission proposes to add Sec.  

4.13(e)(3), which would permit a CPO to claim the 18-96 Exemption with 

respect to qualifying offshore pools and to simultaneously register as 

a CPO with respect to other pools that require registration or are 

otherwise not exempt pools, and also to amend Sec.  4.13(e)(1) to note 

the addition of new Sec.  4.13(e)(3).

5. Other Amendments to Miscellaneous Provisions in Sec.  4.13

    Without any additional amendment, current Sec.  4.13(a)(6) 

(proposed to be renumbered as paragraph (a)(7)) contains a reference to 

Sec.  4.13(a)(4), where the 18-96 Exemption is proposed to be housed. 

That reference is a holdover from the original exemption in Sec.  

4.13(a)(4) rescinded by the Commission in 2012, and would require any 

person claiming the 18-96 Exemption to furnish in written communication 

physically delivered or delivered through electronic transmission to 

each prospective participant in the pool: (A) A statement that the 

person is exempt from registration with the Commission as a commodity 

pool operator, and that therefore, unlike a registered commodity pool 

operator, it is not required to deliver a Disclosure Document and a 

certified annual report to participants in the pool; and (B) a 

description of the criteria pursuant to which it qualifies for such 

exemption from registration.\152\ Section 4.13(a)(6)(ii) (proposed 

paragraph (a)(7)(ii)) would also require a person claiming any 

exemption thereunder to make these disclosures by no later than the 

time it delivers a subscription agreement for the pool to a prospective 

participant in the pool.

---------------------------------------------------------------------------



    \152\ 17 CFR 4.13(a)(6).

---------------------------------------------------------------------------



    Because disclosure documents and certified annual reports are two 

of the most significant compliance burdens in part 4 of the 

Commission's regulations, it is critical that prospective participants 

be informed as to which, if any, customer protections apply to them and 

their investment, and as to what information they are entitled to 

receive from the CPO of their pool. Nonetheless, the Commission 

understands that currently, as proposed, only non-U.S. persons would be 

the participants in qualifying pools operated by persons claiming the 

18-96 Exemption. The Commission notes that such disclosures generally 

would be more informative or helpful to U.S. person investors in exempt 

pools, but inquires whether non-U.S. persons would expect or otherwise 

benefit from such disclosures, such that the reference to Sec.  

4.13(a)(4) should be retained.\153\ The Commission specifically 

requests comment on this issue below.

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    \153\ Indeed, one of several comments received on the 

Commission's 2006 proposal to rescind Advisory 18-96 stated that, 

``it is unnecessary and confusing to the non-U.S. domiciled 

investors to explain why the sponsor is not registered with a U.S. 

futures regulator, and recommended that Advisory 18-96 be retained 

as an option for CPOs,'' because of the required disclosures in 

Sec.  4.13. See 72 FR at 1661.

---------------------------------------------------------------------------



    The Commission is also amending Sec.  4.13(a)(3)(iii)(E) to remove 

a cross-reference to rescinded Sec.  4.13(a)(4) and replace it with 

``non-U.S. persons.'' This amendment would effectively adopt the 

interpretation in CFTC Staff Letter 04-13, discussed supra, by 

permitting non-U.S. person participants, regardless of their financial 

sophistication, to invest in Sec.  4.13(a)(3) exempt pools.



[[Page 52915]]



6. Preserving Advisory 18-96's Recordkeeping Location Relief With 

Amendments to Sec.  4.23 and Certain Technical Amendments

    As discussed above, the Commission has also determined to preserve 

Advisory 18-96's relief from the generally applicable recordkeeping 

location requirement in Sec.  4.23. Specifically, the Commission is 

proposing to amend Sec.  4.23 by adding a new paragraph (c), such that 

registered onshore CPOs operating offshore commodity pools may seek 

relief from the requirement in that regulation that all books and 

records concerning the pool and CPO be kept at the CPO's main business 

office, provided that the person meets the requirements thereunder 

incorporated from the Advisory. Proposed Sec.  4.23(c) contains 

exemptive relief for this specific type of CPO with regard to the 

offshore commodity pool(s) it operates, and contains the vast majority 

of the requirements for claiming the equivalent relief under Advisory 

18-96. Because Sec.  4.23 applies to CPOs registered or required to be 

registered, the Commission preliminarily believes it is not necessary 

to incorporate the prohibition on statutory disqualifications in the 

requirements for claiming this proposed exemptive relief.

    The Commission is also proposing a series of organizational, non-

substantive amendments to Sec.  4.23, which the Commission 

preliminarily believes would clarify the existing recordkeeping 

location requirement applicable to all CPOs registered or required to 

be registered, would retain current exemptive relief provided by that 

regulation, and overall, would make the regulation easier to read and 

understand, even with the addition of the exemptive relief also being 

proposed today. The Commission requests comment on whether these 

proposed amendments effectively incorporate in Sec.  4.23 the 

recordkeeping location requirement relief currently found in Advisory 

18-96, and whether the proposed technical amendments improve or 

otherwise alter that regulation or its application in any way.



B. Proposed Family Office Exemptions



    Consistent with the CPO Family Office No-Action Letter, the 

Commission proposes to adopt for qualifying Family Offices a new 

regulatory exemption in Sec.  4.13(a)(8). New Sec.  4.13(a)(8) would 

provide relief from registration equivalent to the CPO Family Office 

No-Action letter, and the exemption's availability would be contingent 

on the Family Office: (1) Meeting the requirements for being deemed a 

Family Office pursuant to the SEC Family Office Exclusion in 17 CFR 

275.202(a)(11)G-1; (2) restricting its investing and advisory 

activities solely to Family Clients, as defined in the SEC Family 

Office Exclusion; and (3) not engaging in the solicitation of persons 

other than Family Clients permitted under the SEC Family Office 

Exclusion. The prohibition against solicitation of non-Family Clients 

ensures that the exempt CPO is limiting its activities to those 

associated with the operation of a Family Office, as contemplated by 

the SEC Family Office Exclusion, which the Commission preliminarily 

believes would reduce its regulatory interest in such investment 

vehicles, when compared to other commodity pools.

    As part of claiming exemptive relief under Sec.  4.13, each person 

must file an annual notice under Sec.  4.13(b)(4) confirming that the 

person remains exempt from registration. The Commission proposes to 

maintain the annual notice filing for all persons claiming relief under 

Sec.  4.13, including persons claiming the new proposed exemption for 

Family Offices. The Commission believes that the notice requirement 

should ensure at least an annual assessment of whether the CPO of the 

Family Office remains eligible to rely upon the proposed exemption.

    With respect to the CTA Family Office No-Action Letter, the 

Commission also proposes adding a new CTA registration exemption at 

Sec.  4.14(a)(11) consistent with that relief. The Commission 

preliminarily believes that Family Offices that are also claiming 

relief from CPO registration under proposed Sec.  4.13(a)(8) would 

already be eligible for relief from CTA registration by virtue of the 

existing exemption in Sec.  4.14(a)(5), which provides an exemption 

from CTA registration for persons exempt from CPO registration that 

only advise a pool or pools for which the person is so exempt.\154\ 

Therefore, the Commission is proposing to limit the new exemption in 

Sec.  4.14(a)(11) to the advice provided to individual Family Clients. 

Consistent with most exemptions available under Sec.  4.14, the 

Commission is also proposing that the new exemption for qualifying CTAs 

of Family Offices and Family Clients be self-executing, and is, 

therefore, not proposing to require a notice filing from claimants 

thereunder.

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    \154\ 17 CFR 4.14(a)(5).

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C. Proposed Amendments Consistent With the JOBS Act Relief Letter



    The Commission proposes today to add to part 4 regulatory 

harmonization consistent with the JOBS Act Relief Letter, through 

specific amendments to Sec. Sec.  4.7(b) and 4.13(a)(3). In Sec.  4.7, 

the paragraph (b) introductory text currently sets forth the 

eligibility requirements for CPOs claiming relief thereunder with 

respect to certain pools they operate. The Commission proposes to 

remove the reference to ``section 4(2) of [the 33] Act,'' to remove 

references to the act of ``offering'' the Sec.  4.7 exempt pool, and to 

delete the text, ``without marketing to the public.'' The Commission 

intends that these amendments would permit CPOs claiming the exemptive 

relief in Sec.  4.7(b) to engage in general solicitation or marketing, 

if eligible to do so under their securities law exemptions.\155\

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    \155\ The Commission notes that the amendments effectively give 

claiming CPOs the option to rely on the JOBS Act relief. CPOs 

continuing to offer traditional Regulation D issuances will still be 

able to rely on Sec.  4.7(b) for relief as well.

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    Additionally, the Commission is proposing to break out the eligible 

claimants of the relief in Sec.  4.7(b) into two new paragraphs, 

paragraphs (b)(1)(i) and (b)(1)(ii), and to renumber the remaining 

subparagraphs of Sec.  4.7(b). These changes are intended to improve 

the readability and clarity of that regulation. With today's proposed 

amendments, the operative requirements remaining in Sec.  4.7(b) for 

non-bank CPOs claiming relief thereunder are that: (1) The CPO must be 

registered with respect to the exempt pool/offering; (2) participations 

in the exempt pool must be exempt from the Securities Act and/or 

offered and sold pursuant to Regulation D (under either Sec.  

230.506(b) or 230.506(c)) or resold pursuant to Rule 144A, 17 CFR 

230.144A, or offered pursuant to Regulation S; \156\ (3) the 

participations must be sold solely to QEPs; and (4) the registered CPO 

must file the required notice and otherwise comply with the 

requirements in Sec.  4.7(d) \157\ in operating the exempt pool. The 

Commission preliminarily believes that the amendments, as proposed, 

would achieve its goal of permitting commodity pools operated by CPOs 

claiming relief under Sec.  4.7(b) to avail themselves of the JOBS Act 

relief adopted by the SEC, while retaining the other requirements 

currently set forth in that regulation.

---------------------------------------------------------------------------



    \156\ 17 CFR 230.901-230.904.

    \157\ 17 CFR 4.7(d).

---------------------------------------------------------------------------



    The Commission is also proposing similar amendments to the 

registration exemption provided to eligible CPOs in Sec.  4.13(a)(3). 

In Sec.  4.13(a)(3)(i), the Commission proposes to delete the language, 

``such interests are offered and sold without marketing to the public 

in the United States,'' and to replace it with a conditional statement



[[Page 52916]]



incorporating Regulation D and Rule 144A by reference. Consequently, 

the proposed amendments to Sec.  4.13(a)(3)(i) would require the 

interests to be exempt from registration under the 33 Act, and to the 

extent those interests are marketed and advertised in the U.S., the 

amendments would also require those interests only be so marketed or 

advertised in compliance with the provisions of Regulation D or of Rule 

144A, as amended by the JOBS Act. Consistent with the proposed 

amendments to Sec.  4.7(b) discussed above, the Commission 

preliminarily believes that the amendments, as proposed, would achieve 

its goal of permitting CPOs claiming relief under Sec.  4.13(a)(3) to 

avail themselves of the JOBS Act relief adopted by the SEC with respect 

to those exempt commodity pools, while retaining the other requirements 

currently set forth under that section.



D. Proposed BDC Exclusion



    The Commission proposes to amend Sec.  4.5 to include investment 

advisers (as defined above, IAs) of BDCs under paragraph (a) as a type 

of entity that shall be excluded from the CPO definition with respect 

to the operation of a ``qualifying entity,'' \158\ and to include BDCs 

as a type of ``qualifying entity'' under paragraph (b), for which an 

exclusion may be so claimed.\159\ Because BDCs are similarly situated 

to RICs, the Commission preliminarily believes that IAs of BDCs should 

be subject to the same operational requirements as CPOs of RICs, an 

approach consistent with that taken by Commission staff through the BDC 

No-Action Letter. Because the CPOs of both RICs and BDCs would be their 

IAs, the Commission also proposes revising Sec.  4.5(a)(1) \160\ to 

refer to the registered IA, rather than the investment company itself, 

as the entity claiming the CPO exclusion. Because of the similarities 

between BDCs and RICs, the Commission preliminarily believes IAs of 

BDCs should be required to reaffirm their Sec.  4.5 exclusion claim on 

an annual basis, which is consistent with the existing requirements for 

IAs of RICs under Sec.  4.5(c)(5).\161\ Finally, the Commission 

concludes that the existing language in Sec.  4.6 should be sufficient 

to provide exclusionary relief for IAs of BDCs with respect to the CTA 

definition without additional proposed amendments.\162\

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    \158\ 17 CFR 4.5(a).

    \159\ 17 CFR 4.5(b).

    \160\ 17 CFR 4.5(a)(1).

    \161\ 17 CFR 4.5(c)(5).

    \162\ 17 CFR 4.6. Section 4.6 provides an exclusion from the CTA 

definition to, among others, a person excluded from the CPO 

definition by Sec.  4.5, whose commodity interest advisory 

activities are solely incidental to its operation of those trading 

vehicles for which Sec.  4.5 provides relief, i.e., in this case, an 

IA of a BDC. Id.

---------------------------------------------------------------------------



E. Sec.  4.27 Relief



    The Commission proposes to amend Sec.  4.27 to exclude certain 

registered CPOs and CTAs from the definition of ``reporting person'' in 

Sec.  4.27(b). Specifically, the Commission proposes to place the 

definition of ``reporting person'' in a new paragraph (b)(1) and to add 

a new paragraph Sec.  4.27(b)(2) that would limit the application of 

the ``reporting person'' definition, such that the registered CPOs and 

CTAs discussed above would no longer be required to report on Forms 

CPO-PQR and CTA-PR, as applicable. The Commission is also proposing to 

revise the title of Sec.  4.27 to more accurately reflect the substance 

of the section.



III. Request for Comments



    The Commission requests comment on all aspects of the Proposal. 

Additionally, the Commission would appreciate consideration of the 

following specific questions.



A. Advisory 18-96 and the Proposed 18-96 Exemption



    1. Should CPOs claiming the 18-96 Exemption be required to disclose 

the exemption to participants in their offshore commodity pools? Would 

such disclosure be meaningful to offshore investors? If the Commission 

were to require such disclosure, what timing requirement should be 

established? Should it be identical to, or different from, the timing 

requirement proposed in the NPRM for claiming the 18-96 Exemption?

    2. Do the proposed amendments to Sec.  4.13(e) clearly establish 

that the 18-96 Exemption is available to CPOs for each individual 

commodity pool meeting the terms therein, without regard to the 

claimant's registration status? If not, how could the amendments be 

improved?

    3. The Commission also requests comment on the prohibition on 

statutory disqualifications proposed in Sec.  4.13 generally, the 

impact of adopting this provision on industry participants and 

currently exempt CPOs, and also, on what, if any, other statutory 

disqualifications should be permissible for exempt CPOs and their 

principals. In particular, comments should address any or all of the 

following questions: What are the concerns and benefits associated with 

the expansion of the prohibition on statutory disqualifications to the 

CPO registration exemptions set forth in Sec.  4.13(a)(1), (a)(2), 

(a)(3), and (a)(5), or proposed to be set forth in Sec.  4.13(a)(4)? Do 

the limited exceptions that would permit certain statutory 

disqualifications successfully address any unintended consequences of 

adding the prohibition to Sec.  4.13, while still providing a base 

level of customer protection by preventing statutorily disqualified 

individuals from legally operating exempt commodity pools? Generally, 

how should the Commission handle the implementation of the statutory 

disqualification prohibition? Specifically, how should the prohibition 

apply to current claimants under Sec.  4.13? How much time should the 

Commission allow for filing updated exemption claims subject to the 

prohibition? How much time should the Commission allow for an exempt 

CPO to replace statutorily disqualified principals, in order to 

maintain eligibility for a Sec.  4.13 exemption?

    4. When a qualifying CPO is transitioning from reliance upon Sec.  

3.10(c)(3)(i) to the 18-96 Exemption, is 30 days sufficient time in 

which to claim the 18-96 Exemption for qualifying offshore pools? 

Generally, please provide comment on whether the interaction between 

Sec.  3.10(c)(3)(i) and the 18-96 Exemption, as proposed, is 

understood.

    5. Is the language in proposed Sec.  4.13(e)(3) effective to make 

the 18-96 Exemption available on a pool-by-pool basis, such that a 

claim for the 18-96 Exemption would be able to co-exist with a 

simultaneous CPO registration or even other exemption claims? If not, 

why not?

    6. Should the Commission adopt all of the proposed requirements for 

the relief under proposed Sec.  4.23(c)? Which requirements could be 

dropped? Why? Are there additional or different conditions to this 

relief that the Commission should consider adopting?



B. Proposed Family Office Exemptions



    7. Should CPOs of Family Offices organized as commodity pools be 

required to annually recertify their eligibility for the proposed 

exemption under Sec.  4.13(a)(8)? What are the costs and burdens that 

an annual notice requirement would impose?

    8. Information on BASIC is provided to the public as a means of 

ensuring that basic information regarding a person's registration 

status with the Commission is readily available. Given that the persons 

claiming the proposed CPO exemption for the operation of Family Offices 

are proposed to be prohibited from soliciting non-Family Client 

participants, should notices filed by



[[Page 52917]]



Family Offices claiming the proposed CPO exemption in Sec.  4.13(a)(8) 

be included in NFA's public BASIC database?

    9. Does the proposed bifurcation of the CTA relief provided to (a) 

CTAs of Family Offices organized as commodity pools, and (b) CTAs of 

individual Family Clients clearly and effectively provide relief from 

registration for CTAs that advise Family Offices in their capacity as 

an exempt CPO and/or as a CTA to individual Family Clients? Is there a 

clearer or more advantageous way to effectuate such relief?

    10. Should a notice be required in order to claim the proposed 

exemption in Sec.  4.14(a)(11) for CTAs of Family Clients? If so, 

should such CTAs be required to recertify eligibility for such 

exemption on an annual, or longer term, basis? What are the costs and 

burdens that such an annual notice requirement would impose on those 

CTAs?



C. Proposed Amendments Consistent With the JOBS Act Relief Letter



    11. Do the amendments to Sec. Sec.  4.7(b) and 4.13(a)(3) 

effectively incorporate in 17 CFR part 4 the general marketing and 

solicitation permitted by the JOBS Act, consistent with the JOBS Act 

Relief Letter? Are there additional amendments the Commission should 

consider that would ensure this relief is completely added to the part 

4 regulatory regime?



D. Proposed Adoption and Expansion of Exemptive Letter Relief From 

Sec.  4.27 Filings



    12. Are there any additional classes of registered CPOs or CTAs 

that should be excluded from the definition of ``Reporting Person'' in 

Sec.  4.27(b)? If yes, please identify the class or classes, and 

explain why they should be so excluded.



IV. Related Matters



A. Regulatory Flexibility Act



    The Regulatory Flexibility Act (RFA) requires Federal agencies, in 

promulgating regulations, to consider whether the rules they propose 

will have a significant economic impact on a substantial number of 

small entities and, if so, to provide a regulatory flexibility analysis 

regarding the economic impact on those entities. Each Federal agency is 

required to conduct an initial and final regulatory flexibility 

analysis for each rule of general applicability for which the agency 

issues a general notice of proposed rulemaking.\163\

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    \163\ 5 U.S.C. 601 et seq.

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    The regulatory amendments proposed by the Commission in this 

release would affect only persons registered or required to be 

registered as CPOs and CTAs, persons claiming exemptions from 

registration as such, and certain persons excluded from the CPO 

definition. The Commission has previously established certain 

definitions of ``small entities'' to be used by the Commission in 

evaluating the impact of its rules on such entities in accordance with 

the requirements of the RFA.\164\ With respect to CPOs, the Commission 

previously has determined that a CPO is a small entity for purposes of 

the RFA, if it meets the criteria for an exemption from registration 

under Sec.  4.13(a)(2).\165\ Because these proposed regulations 

generally apply to persons registered or required to be registered as 

CPOs with the Commission, and/or provide relief to qualifying persons 

from registration as such, as well as from related compliance burdens, 

the RFA is not applicable to this Proposal with respect to CPOs.

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    \164\ See, e.g., Policy Statement and Establishment of 

Definitions of ``Small Entities'' for Purposes of the Regulatory 

Flexibility Act, 47 FR 18618, 18620 (Apr. 30, 1982).

    \165\ Id. at 18619-20. Section 4.13(a)(2) exempts a person from 

registration as a CPO when: (1) None of the pools operated by that 

person has more than 15 participants at any time, and (2) when 

excluding certain sources of funding, the total gross capital 

contributions the person receives for units of participation in all 

of the pools it operates or intends to operate do not, in the 

aggregate, exceed $400,000. See 17 CFR 4.13(a)(2).

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    Regarding CTAs, the Commission has previously considered whether 

such registrants should be deemed small entities for purposes of the 

RFA on a case-by-case basis, in the context of the particular 

Commission regulation at issue.\166\ As certain of these registrants 

may be small entities for purposes of the RFA, the Commission 

considered whether this rulemaking would have a significant economic 

impact on such registrants.

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    \166\ See id. at 18620.

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    The portions of this Proposal directly impacting CTAs propose a 

registration exemption consistent with DSIO's CTA Family Office No-

Action Letter, as well as expanded exemptive relief from the Form CTA-

PR filing requirement in Sec.  4.27 for certain categories of CTAs. 

These proposed amendments are not expected to impose any new burdens on 

market participants or Commission registrants. Rather, to the extent 

that this Proposal provides an exemption from the requirement to 

register as a CTA or from the Form CTA-PR filing requirement in Sec.  

4.27, the Commission preliminarily believes it is reasonable to infer 

that such exemptions would be much less burdensome to those persons 

than either CTA registration or the preparation and filing of Form CTA-

PR. In fact, the Commission has not proposed herein to require a notice 

filing for either the proposed exemption for CTAs of Family Offices and 

Family Clients, or the expanded relief proposed for certain CTAs under 

Sec.  4.27.\167\ Consequently, the Commission does not expect small 

entities to incur any additional costs as a result of the Proposal, as 

applicable to CTAs.

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    \167\ The Commission notes that it requests comment on whether 

the Commission should adopt regulations requiring CPOs of Family 

Offices to file a notice to claim the proposed exemption under Sec.  

4.13(a)(8) and to annually affirm that claim, and/or requiring CTAs 

of Family Offices to file a notice to claim the proposed exemption 

in Sec.  4.14(a)(11). See supra pt. III, Request for Comments.

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    Similarly, the Commission preliminarily does not believe that the 

benefits associated with the exemption from CTA registration for CTAs 

of Family Offices and Family Clients, or the expanded relief from the 

requirement to prepare and file Form CTA-PR, will result in a 

significant economic impact on small CTAs. The regulatory obligations 

associated with CTA registration and compliance are not significantly 

burdensome, being limited to the completion of a registration 

application, the preparation and distribution of a disclosure document 

(if required), the maintenance of certain books and records, and the 

annual completion of Form CTA-PR, which consists of two questions with 

several subparts. Although relief from these obligations is beneficial 

to small CTAs, the Commission preliminarily believes that this does not 

rise to the level of significant economic impact.

    Therefore, the Commission has preliminarily determined that, to the 

extent that the Proposal affects CTAs, it will not create a significant 

economic impact on a substantial number of small entities. Accordingly, 

the Chairman, on behalf of the Commission, hereby certifies pursuant to 

5 U.S.C. 605(b) that these proposed amendments, if adopted, will not 

have a significant economic impact on a substantial number of small 

entities.



B. Paperwork Reduction Act



1. Overview

    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.\168\ Under the PRA, an 

agency may not conduct or sponsor, and a person is not required to 

respond to, a



[[Page 52918]]



collection of information unless it displays a currently valid control 

number from the Office of Management and Budget (OMB). This Proposal, 

if adopted, would result in a collection of information within the 

meaning of the PRA, as discussed below. The Commission is therefore 

submitting this NPRM to OMB for review.

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    \168\ See 44 U.S.C. 3501 et seq.

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    The Proposal amends two collections of information for which the 

Commission has previously received control numbers from OMB. The first 

collection of information is, ``Rules Relating to the Operations and 

Activities of Commodity Pool Operators and Commodity Trading Advisors 

and to Monthly Reporting by Futures Commission Merchants, OMB control 

number 3038-0005'' (Collection 3038-0005). Collection 3038-0005 

primarily accounts for the burden associated with part 4 of the 

Commission's regulations that concern compliance obligations generally 

applicable to CPOs and CTAs, as well as certain enumerated exemptions 

from registration as such and exclusions from those definitions, and 

available relief from compliance with certain regulatory requirements. 

The Commission is proposing to amend this collection to reflect the 

notices proposed to be required to claim certain of the registration 

exemptions and the CPO exclusion proposed herein, as well as the 

expected reduction in the number of registered CPOs and CTAs filing 

Forms CPO-PQR and CTA-PR, pursuant to the proposed revisions to Sec.  

4.27.

    The Commission also proposes to amend a second collection entitled, 

``Part 3--Registration, OMB control number 3038-0023'' (Collection 

3038-0023), which pertains to the registration of intermediaries 

generally, to reduce the number of persons registering as CPOs and CTAs 

as a result of the regulatory amendments proposed herein. Therefore, 

the Commission is proposing adjustments to each of these collections 

accordingly. The responses to these collections of information are 

mandatory.

    The collections of information in the Proposal would make available 

to eligible persons: (1) The 18-96 Exemption in proposed Sec.  

4.13(a)(4), which incorporates the majority of the relief provided by 

Advisory 18-96, and which would exempt from CPO registration qualifying 

CPOs with regard to their offshore pools; (2) the Advisory 18-96 

recordkeeping location relief for qualifying, registered CPOs, which is 

proposed to be added to Sec.  4.23; (3) the exemptions from CPO and CTA 

registration for qualifying Family Offices in proposed Sec. Sec.  

4.13(a)(8) and 4.14(a)(11); (4) the proposed expansion of the exclusion 

in Sec.  4.5 for IAs of BDCs; and (5) the proposed exemptive relief 

made available through amendments to the Reporting Person definition in 

Sec.  4.27(b), such that qualifying CPOs and CTAs no longer have to 

file Forms CPO-PQR or CTA-PR.

    In each instance, eligible persons have the option to elect the 

proposed registration or compliance exemption or exclusion if they are 

so qualified, but have no obligation to do so. For this reason, except 

to the extent that the Commission is amending Collection 3038-0005 for 

PRA purposes to reflect these alternatives, and Collection 3038-0023 to 

reduce the number of persons registering as CPOs or CTAs, today's 

Proposal is not expected to impose any significant new burdens on CPOs 

or CTAs. Rather, to the extent that the proposed amendments provide 

registration exemptions or definitional exclusions, and/or alternatives 

to comprehensive compliance with Commission regulations, through the 

adoption of amendments consistent with existing exemptive and no-action 

letter relief, it is reasonable for the Commission to infer that the 

proposed amendments will generally prove to be less burdensome for 

persons eligible to claim the proposed alternative relief.

2. Revisions to the Collections of Information

a. OMB Control Number 3038-0005

    Collection 3038-0005 is currently in force with its control number 

having been provided by OMB, and it was renewed recently on March 14, 

2017.\169\ As stated above, Collection 3038-0005 governs responses made 

pursuant to part 4 of the Commission's regulations, pertaining to the 

operations of CPOs and CTAs. Generally, under Collection 3038-0005, the 

estimated average time spent per response will not be altered; however, 

the Commission has made adjustments, discussed below, to the collection 

to account for new and/or lessened burdens expected under the NPRM due 

to persons claiming the proposed registration exemptions or exclusion 

and proposed relief.

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    \169\ See Notice of Office of Management and Budget Action, OMB 

Control No. 3038-0005, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=201701-3038-005 (last retrieved July 31, 

2018).

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    For example, the Commission estimates that the number of persons 

responding to the portion of the collection associated with Sec.  

4.13(b)(1) (the requirement to file a claim for an exemption under that 

section) will increase by at least the number of persons currently 

claiming the CPO Family Office No-Action Letter, i.e., 200 CPOs.\170\ 

The Commission also preliminarily believes that there may be increased 

notice filings under Sec.  4.13(b)(1), if the 18-96 Exemption is 

adopted as proposed. Due to the flexibility of the proposed 18-96 

Exemption as compared to Sec.  3.10(c)(3)(i), its adoption may cause 

more CPOs to claim relief from registration on a pool-by-pool basis 

through the 18-96 Exemption with respect to their offshore pools, 

rather than with respect to their operations as a whole.

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    \170\ No adjustments are proposed to be made to account for the 

CTA Family Office No-Action Letter claims (100 claims received) 

because the Commission has not proposed a filing requirement for 

that new exemption. Rather, like the majority of the exemptions in 

Sec.  4.14, the Commission has proposed to add that relief as a 

self-executing exemption in Sec.  4.14, though it has requested 

comment on this feature of the Proposal.

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    Conversely, no adjustments need to be made to Collection 3038-0005 

to account for the proposed JOBS Act amendments because persons relying 

on the exemptive relief therein are, as a condition of relief, 

currently required to claim an exemption under Sec. Sec.  4.7 or 4.13, 

as applicable to them, and therefore, are already counted in this 

collection. The Commission further proposes an increase to the number 

of respondents under Sec.  4.5, which will account for new claims the 

Commission anticipates receiving from IAs of BDCs seeking to claim the 

expanded exclusion from the CPO definition.

    With regard to Sec.  4.27, the Commission is proposing to reduce 

the number of persons filing all schedules of Forms CPO-PQR and CTA-PR 

to reflect the categories of registered CPOs and CTAs that are proposed 

to be considered outside the Reporting Person definition in Sec.  

4.27(b). Because there is no notice filing required for this relief, 

there is no new burden associated with the actual claiming of the 

relief provided under the revisions to Sec.  4.27 proposed herein.

    The currently approved total burden associated with Collection 

3038-0005, in the aggregate, is as follows:

    Estimated number of respondents: 45,270.

    Annual responses for all respondents: 129,042.

    Estimated average hours per response: 2.83.\171\

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    \171\ The Commission rounded the average hours per response to 

the second decimal place for ease of presentation.

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    Annual reporting burden: 365,764.

    The Commission estimates that the proposed amendments to Sec.  4.23 

will add the following burden:

    Estimated number of respondents: 50.



[[Page 52919]]



    Annual responses by each respondent: 3.

    Estimated average hours per response: 0.5.

    Annual reporting burden: 75.

    The Commission estimates that the proposed CPO registration 

exemptions under Sec.  4.13(a)(4) and 4.13(a)(8) will result in 250 

additional notice filings under Sec.  4.13(b)(1). Therefore, the 

Commission proposes to increase the burden associated with Sec.  

4.13(b)(1) to be as follows:

    Estimated number of respondents: 3,872.

    Annual responses by each respondent: 3.

    Estimated average hours per response: 0.5.

    Annual reporting burden: 1,936.

    The Commission estimates that the proposed exclusion for IAs of 

BDCs under Sec.  4.5 will result in 50 additional notice filings under 

Sec.  4.5. Therefore, the Commission proposes to increase the burden 

associated with Sec.  4.5 to be as follows:

    Estimated number of respondents: 7,940.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 0.5.

    Annual reporting burden: 3,970.

    With respect to the burden associated with the proposed amendments 

to Sec.  4.27, the Commission is updating the number of respondents. 

Specifically, the Commission is modifying the number of respondents to 

better reflect the average number of CPOs registered with the 

Commission, less those CPOs that will be eligible for the relief 

provided by the proposed amendments to the Reporting Person definition 

in Sec.  4.27. The Commission has historically averaged approximately 

1,800 registered CPOs. Based on the number of exemptions filed by CPOs 

pursuant to Sec. Sec.  4.5 and 4.13, and filed under Advisory 18-96, 

the Commission estimates that approximately 100 of those CPOs would be 

eligible for relief from filing Form CPO-PQR under the proposed 

amendments to Sec.  4.27. Therefore, the Commission is proposing to set 

the number of respondents filing Schedule A of Form CPO-PQR on an 

annual basis at 1,700. The total respondents for this revised 

collection is further broken out below into two categories, based on 

the size of the CPO and whether the CPO files Form PF: 1,450 

respondents on Schedule A of Form CPO-PQR for non-large CPOs and CPOs 

filing Form PF, and 250 respondents on Schedule A of Form CPO-PQR for 

Large CPOs not filing Form PF.

    The Commission is similarly considering the number of registered 

CTAs with respect to the filing of Form CTA-PR, and then reducing the 

number of filers by the number of CTAs the Commission anticipates will 

be eligible for the relief proposed herein. Specifically, the 

Commission has historically averaged approximately 1,600 registered 

CTAs. Based on the information collected on Form CTA-PR, the Commission 

estimates that 720 registered CTAs would be eligible for the relief 

proposed herein, resulting in the difference of 880 CTAs being required 

to file Form CTA-PR. Therefore, the Commission estimates that the total 

burden associated with the proposed amendments to Sec.  4.27, 

reflecting the revised average number of CPOs and CTAs registered with 

the Commission, to be as follows:

    For Schedule A of Form CPO-PQR for non-Large CPOs and Large CPOs 

filing Form PF:

    Estimated number of respondents: 1,450.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 6.

    Annual reporting burden: 8,700.

    For Schedule A of Form CPO-PQR for Large CPOs not filing Form PF:

    Estimated number of respondents: 250.

    Annual responses by each respondent: 4.

    Estimated average hours per response: 6.

    Annual reporting burden: 6,000.

    For Schedule B of Form CPO-PQR for Mid-size CPOs:

    Estimated number of respondents: 400.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 4.

    Annual reporting burden: 1,600.

    For Schedule B of Form CPO-PQR for Large CPOs not filing Form PF:

    Estimated number of respondents: 250.

    Annual responses by each respondent: 4.

    Estimated average hours per response: 4.

    Annual reporting burden: 4,000.

    For Schedule C of Form CPO-PQR for Large CPOs not filing Form PF:

    Estimated number of respondents: 250.

    Annual responses by each respondent: 4.

    Estimated average hours per response: 18.

    Annual reporting burden: 18,000.

    For Form CTA-PR:

    Estimated number of respondents: 880.

    Annual responses by each respondent: 1.

    Estimated average hours per response: 0.5.

    Annual reporting burden: 440.

    The total new burden associated with Collection 3038-0005, in the 

aggregate, reflecting the reduction in burden associated with Sec.  

4.27 and the new burden associated with the other amendments proposed 

by the NPRM, is as follows:

    Estimated number of respondents: 43,912.

    Annual responses for all respondents: 112,715.

    Estimated average hours per response: 3.13.

    Annual reporting burden: 352,279.

b. OMB Control Number 3038-0023

    The Commission expects that persons that are currently counted 

among the estimates for Collection 3038-0023 with respect to CPO and 

CTA registration with the Commission will deregister as such, due to 

the availability of the additional registration exemptions and 

exclusion proposed herein. Therefore, the Commission proposes to deduct 

the expected claimants of that relief from the total number of persons 

required to register with the Commission as CPOs and CTAs.

    The currently approved total burden associated with Collection 

3038-0023, in the aggregate, excluding the burden associated with Sec.  

3.21(e), is as follows:

    Respondents/Affected Entities: 77,857.

    Estimated number of responses: 78,109.

    Estimated average hours per response: 0.09.

    Estimated total annual burden on respondents: 7,029.8.

    Frequency of collection: Periodically.

    The currently approved total burden associated with Sec.  3.21(e) 

under Collection 3038-0023, which remains unchanged under the Proposal, 

is as follows:

    Respondents/Affected Entities: 396.

    Estimated number of responses: 396.

    Estimated average hours per response: 1.25.

    Estimated total annual burden on respondents: 495.

    Frequency of collection: Annually.

    The Commission is proposing to reduce the number of registrants by 

the estimated number of claimants with respect to each of the 

registration exemptions and exclusion proposed today. Specifically, the 

Commission estimates 50 persons will claim relief from CPO registration 

under the 18-96



[[Page 52920]]



Exemption, 200 persons will claim relief from registration as the CPO 

of a qualifying Family Office, 100 persons will claim relief from 

registration as the CTA of a qualifying Family Office or Family 

Clients, and 50 persons will claim relief from registration associated 

with the operation of a BDC pursuant to the expanded exclusion in Sec.  

4.5. Therefore, the Commission proposes to reduce the burden associated 

with Collection 3038-0023, such that the total burden associated with 

the collection, excluding the burden associated with Sec.  3.21(e), 

will be as follows:

    Respondents/Affected Entities: 77,457.

    Estimated number of responses: 77,689.

    Estimated average hours per response: 0.09.

    Estimated total annual burden on respondents: 6,992 hours.

3. Request for Comments on Collection

    The Commission invites the public and other Federal agencies to 

comment on any aspect of the proposed information collection 

requirements discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments in order to (i) evaluate whether the 

proposed collections of information are 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 collections of 

information; (iii) determine whether there are ways to enhance the 

quality, utility, and clarity of the information proposed to be 

collected; and (iv) minimize the burden of the proposed collections of 

information on those who are to respond, including through the use of 

appropriate automated collection techniques or other forms of 

information technology.

    Those desiring to submit comments on the proposed information 

collection requirements should submit them directly to the Office of 

Information and Regulatory Affairs, OMB, by fax at (202) 395-6566, or 

by email at [email protected]. Please provide the Commission 

with a copy of submitted documents, so that all comments can be 

summarized and addressed in the final rule preamble. Refer to the 

ADDRESSES section of this NPRM 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 http://www.RegInfo.gov. OMB is required to make a decision concerning the 

collections of information between 30 and 60 days after publication of 

this document in the Federal Register. Therefore, a comment is best 

assured of having its full effect if OMB receives it within 30 days of 

publication.



C. Cost-Benefit Considerations



    Section 15(a) of the CEA requires the Commission to consider the 

costs and benefits of its actions before promulgating a regulation 

under the CEA.\172\ Section 15(a) further specifies that the costs and 

benefits shall be evaluated in light of the following 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 

considers the costs and benefits resulting from its discretionary 

determinations with respect to the CEA section 15(a) considerations.

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    \172\ 7 U.S.C. 19(a).

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    The Commission notes that the consideration of costs and benefits 

below is based on the understanding that the markets function 

internationally, with many transactions involving U.S. firms taking 

place across international boundaries; with some Commission registrants 

being organized outside of the United States; with some leading 

industry members typically conducting operations both within and 

outside the United States; and with industry members commonly following 

substantially similar business practices wherever located. Where the 

Commission does not specifically refer to matters of location, the 

discussion of costs and benefits below refers to the effects of this 

NPRM on all activity subject to the proposed regulations, whether by 

virtue of the activity's physical location in the United States or by 

virtue of the activity's connection with or effect on U.S. commerce 

under CEA section 2(i).\173\ In particular, the Commission notes that 

some CPOs and CTAs are located outside of the United States.

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    \173\ 7 U.S.C. 2(i).

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1. Consideration of the Costs and Benefits of the Commission's Action

    The baseline for the Commission's consideration of the costs and 

benefits of the Proposal is the regulatory status quo, as determined by 

the CEA and the Commission's existing regulations in 17 CFR part 4. The 

Commission recognizes, however, that to the extent that market 

participants have relied on relevant Commission staff action, the 

actual costs and benefits of the proposed rulemaking, as realized in 

the market, may not be as significant. Because each proposed amendment 

addresses a discrete issue, which may impact a unique subgroup within 

the universe of entities captured by the CPO and CTA statutory 

definitions, the Commission has determined to analyze the costs and 

benefits associated with each proposed change separately, as presented 

below. The Commission has endeavored to assess the expected costs and 

benefits of the proposed amendments in quantitative terms wherever 

possible. Where estimation or quantification is not feasible, however, 

the Commission has provided its assessment in qualitative terms.

a. Summary of the Proposal

    As discussed in greater detail below, and in the foregoing 

preamble, the Commission preliminarily believes that the amendments 

proposed herein enable the Commission to discharge its regulatory 

oversight function with respect to the commodity interest markets, 

while reducing the potential burden on persons whose commodity interest 

activities are subject to the Commission's regulations applicable to 

CPOs and CTAs. Specifically, the CFTC is proposing to amend Sec. Sec.  

4.13 and 4.23 by adopting new exemptions that would permit a CPO that 

solicits and/or accepts funds from solely non-U.S. persons to 

participate in offshore commodity pools it operates to claim a 

registration exemption with respect to such pools, and to permit an 

onshore, registered CPO of an offshore commodity pool to keep the 

pool's original books and records at the pool's offshore location, 

rather than with the onshore CPO.

    Importantly, a CPO claiming the 18-96 Exemption, as proposed in new 

Sec.  4.13(a)(4), would still be subject to the anti-manipulation and 

anti-fraud provisions of the CEA (just like Advisory 18-96 claimants 

currently), and by virtue of Sec.  4.13(c), would be required to make 

and keep books and records for an exempt pool, and to submit to such 

special calls as the Commission may make to demonstrate eligibility for 

and compliance with the criteria of the 18-96 Exemption. In conjunction 

with the proposed 18-96 Exemption, the Commission is also proposing to 

adopt a prohibition on statutory disqualifications applicable to any 

exemption claimed under Sec.  4.13, and to amend the de minimis 

exemption in Sec.  4.13(a)(3) to explicitly permit non-



[[Page 52921]]



U.S. persons as exempt commodity pool participants.

    The Commission is also proposing to amend existing 17 CFR part 4 

regulations in a manner consistent with DSIO's CPO Family Office Letter 

and CTA Family Office Letter by adopting new CPO and CTA registration 

exemptions under Sec. Sec.  4.13 and 4.14. The Commission further 

proposes regulatory amendments consistent with current letter relief 

available to BDCs, through certain revisions to the exclusion from the 

definition of CPO for IAs of RICs in Sec.  4.5. Additionally, the 

Commission is proposing to amend 17 CFR part 4 to incorporate the 

relief in CFTC Staff Letter 14-115 \174\ from Sec.  4.27 filings 

provided to CPOs that only operate commodity pools in accordance with 

Sec. Sec.  4.5 and 4.13, as well as the relief provided under CFTC 

Staff Letter 15-47 \175\ to CTAs that do not direct trading of any 

commodity interest accounts. The Commission further proposes to extend 

this relief to registered CTAs that only advise commodity pools for 

which the CTA is also the commodity pool's CPO.

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    \174\ CFTC Staff Letter 14-115, available at https://www.cftc.gov/idc/groups/public/%40lrlettergeneral/documents/letter/14-115.pdf (last retrieved July 31, 2018).

    \175\ CFTC Staff Letter 15-47, available at https://www.cftc.gov/sites/default/files/idc/groups/public/@lrlettergeneral/documents/letter/15-47.pdf (last retrieved July 31, 2018).

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b. Benefits

i. Benefits Related to the Adoption of the 18-96 Exemption

    The Commission intends that the 18-96 Exemption, as proposed, will 

ultimately provide more comprehensive relief from CPO and pool 

regulation. As stated above, the Commission preliminarily believes that 

providing CPO registration relief beyond that currently provided by 

Sec.  3.10(c)(3)(i) or available in Advisory 18-96 would be beneficial 

and consistent with the Commission's past prioritization of agency 

resources for the regulation of intermediary activities affecting U.S. 

participants in commodity interest markets. Consequently, the 

Commission also preliminarily believes that eligible persons will 

receive several benefits from the adoption of the proposed 18-96 

Exemption. Because the relief available under the proposed 18-96 

Exemption would primarily be an exemption from CPO registration with 

respect to the operated offshore pools, a claiming CPO would no longer 

be required to include such offshore pools on Form CPO-PQR filings, 

relief which is currently not provided by the terms of Advisory 18-96. 

This will result in a meaningful, significant reduction in the burdens 

imposed by the Commission's regulations on CPOs of commodity pools, 

whose only connections with the U.S. are the location of the CPO and 

participation in the U.S. commodity interest markets.

    Moreover, by enabling the 18-96 exemption to be claimed on a pool-

by-pool basis, the Commission is providing additional flexibility to 

CPOs that operate and offer to participants a mix of onshore and 

offshore pools. Under Sec.  3.10(c)(3)(i), an offshore CPO that wished 

to operate pools offered to U.S. persons would be required to choose 

between the potentially more costly options of having such pools 

operated by an affiliate registered with the Commission or otherwise 

eligible for other relief, operating all pools (regardless of location) 

consistent with another registration exemption, or registering as a CPO 

and listing all operated pools with the Commission. In contrast, the 

proposed 18-96 Exemption would enable the CPO to register, or claim an 

alternative registration exemption such as Sec.  4.13(a)(3), with 

respect to its commodity pools offered to U.S. persons, but remain 

exempt from CPO registration, pursuant to proposed Sec.  4.13(a)(4), 

with respect to its qualifying offshore pools. This would permit the 

CPO to utilize the operational efficiencies inherent in being able to 

deploy the same institutional resources across all pools it operates, 

rather than bifurcating staff and assets across affiliates for purposes 

of minimizing regulatory costs.

    The Commission is aware of some offshore CPOs that are currently 

limiting their CPO activities solely to offshore pools with offshore 

participants precisely to remain eligible for the exemption provided by 

Sec.  3.10(c)(3)(i). By making proposed Sec.  4.13(a)(4) available on a 

pool-by-pool basis, the Commission preliminarily believes it likely 

that more offshore CPOs may choose to create pools available to U.S. 

participants because such CPOs would no longer be required to bear the 

costs of compliance for offshore pools qualifying for the proposed 18-

96 Exemption. Therefore, such CPOs may provide additional investment 

choices to domestic participants and additional competition for CPOs 

already operating onshore.

    Furthermore, by proposing new exemptions with respect to both the 

CPO registration of an offshore pool's operator, and the recordkeeping 

location of an offshore pool's books and records, the Commission 

intends to confirm the continued availability of Advisory 18-96 relief 

in the form of amendments to 17 CFR part 4. The Commission is hopeful 

that the adoption of these new regulatory exemptions will eliminate the 

need for persons to search for a Commission staff advisory that is over 

20 years old, and which, even in 2018, may only be claimed by eligible 

persons through a paper filing with the Commission. Rather, under the 

Proposal, a person would now be able to utilize NFA's Online 

Registration System (ORS) to submit claims of relief electronically, 

consistent with the mechanism used to claim all other regulatory 

registration and compliance exemptions available to CPOs and CTAs. This 

amendment would modernize the effort needed to effectuate such claims 

and eliminate the costs and expenses to claimants associated with paper 

filings, e.g., drafting, faxing and/or mailing the requisite notice to 

both the Commission and NFA.

    The proposed amendments also would require persons claiming new 

Sec.  4.13(a)(4) to annually affirm their claims of exemption for 

qualifying exempt pools. The Commission preliminarily believes that 

this requirement promotes transparency regarding the number of entities 

that would be exempt from CPO registration pursuant to the 18-96 

Exemption as proposed, and would also enable the Commission to reassess 

the exemption's efficacy over time by collecting data on its usage by 

industry. Consistent with the annual notice requirement for the other 

exemptions in Sec.  4.13, the Commission proposes to mandate the filing 

of these notices within 60 days of the calendar year end; the 

Commission preliminarily believes this to be the most operationally 

efficient time for filing such an annual notice.

    Additionally, the Commission preliminarily believes that there are 

significant benefits to adopting the prohibition on statutory 

disqualifications from the terms of Advisory 18-96, as a criteria for 

all exemptions under Sec.  4.13(a)(1) through (a)(5). The Commission 

also preliminarily believes that currently, pool participants may be 

exposed to risk posed by regulations permitting the operation of an 

offered pool by a person who, generally, would not otherwise be 

permitted to register with the Commission. Even if the activities of a 

CPO do not rise to a level warranting Commission oversight through 

registration, a prospective participant should be able to be confident 

that a collective investment vehicle using commodity interests is not 

operated by a person who, for example, is enjoined from engaging in 

fraud or



[[Page 52922]]



embezzlement.\176\ As noted above,\177\ prior to the rescission of 

Sec.  4.13(a)(4), Commission staff became aware that a number of 

persons who were statutorily disqualified from CPO registration were 

operating commodity pools pursuant to that exemption, and thereby, were 

continuing to participate in the commodity interest markets with funds 

solicited and accepted from members of the American public, 

notwithstanding those disqualifications. The proposed adoption of this 

prohibition should eliminate the unintended loophole that currently 

exists, and would permit participants in commodity pools exempt under 

Sec.  4.13(a)(1)-(a)(5) to be assured that the CPO managing their 

assets is, at least not statutorily disqualified.

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    \176\ 7 U.S.C. 12a(2)(C)(ii).

    \177\ See, supra, section 1.B.3.

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    Finally, consistent with prioritizing the application of 17 CFR 

part 4 requirements to CPOs with respect to pools offered and operated 

on behalf of U.S. person participants, the 18-96 Exemption, as 

proposed, would permit a claiming CPO thereunder to remain registered 

with respect to its operation of commodity pools onshore and/or on 

behalf of U.S. persons. The Commission would retain all of its 

authority associated with oversight of its registrants and could still 

take corrective action, should the CPO engage in wrongdoing in the U.S. 

commodity interest markets.

ii. Benefits Related to the Proposed Family Office Exemptions From CPO 

and CTA Registration

    The Commission expects that the addition of CPO and CTA 

registration exemptions for qualifying Family Offices will result in 

two main benefits. First, qualifying Family Offices will not be subject 

to the costs associated with registration, NFA membership, or 

compliance with part 4 of the Commission's regulations. The elimination 

of these costs should result in a reduction of the costs associated 

with the establishment and operation of a Family Office, which should 

ultimately benefit the Family Clients.

    Second, because the proposed exemptions harmonize the Commission's 

treatment of Family Offices with that of the SEC, Family Offices will 

generally only be required to comply with one standard to determine 

their registration and compliance obligations with respect to both 

their securities and commodity interest transactions. Although DSIO had 

previously issued no-action relief letters for both CPO and CTA 

registration, Family Offices wishing to avail themselves of this relief 

were required to prepare a notice making specific representations and 

to submit the document electronically to a specific email inbox. It is 

anticipated that, upon finalization of the Proposal, Family Offices 

would be able to claim the proposed exemption under new Sec.  

4.13(a)(8) through NFA's ORS without having to create and submit their 

own document to claim the exemption. Moreover, for Family Offices 

claiming relief from CTA registration, the Commission is proposing to 

make that exemption available without a notice filing, consistent with 

the majority of the existing exemptions available to CTAs under Sec.  

4.14.

    Like the other exemptions available under Sec.  4.13, the 

Commission is proposing to require Family Offices claiming relief from 

CPO registration to file an annual notice affirming their eligibility. 

The Commission preliminarily believes that this annual assessment of 

eligibility would promote transparency regarding the number of entities 

exempt from registration pursuant to the proposed Family Office 

exemption and would enable the Commission to assess its efficacy over 

time. Consistent with the notices required to annually affirm 

compliance with other exemptions in Sec.  4.13, the notices would be 

required to be filed within 60 days of the end of the calendar year. 

The Commission preliminarily believes proposing a timeframe consistent 

with that already required for annual notices of other existing CPO 

registration exemptions would reduce complexity in the regulation, and 

would employ a requirement to which claiming CPOs have already grown 

accustomed.

iii. Benefits Related to the Proposed JOBS Act Relief

    The Commission preliminarily believes that the proposed alignment 

of Sec. Sec.  4.7(b) and 4.13(a)(3) with the SEC's JOBS Act amendments 

to Regulation D and Rule 144A would result in several benefits. By 

harmonizing Commission regulations that specifically reference the 

statutory and regulatory provisions governing unregistered, exempt 

securities offerings, the proposed amendments would facilitate full 

implementation of the JOBS Act by making the relief from the 

prohibition on general solicitation more widely available. Moreover, 

the Proposal would eliminate the distinction between private offerings 

of commodity pools and other privately offered collective investment 

vehicles that do not transact in commodity interests, thereby treating 

similarly situated offerors in a consistent manner.

    The Commission notes that persons complying with the terms of Rule 

506(c) or Rule 144A and claiming relief under either Sec.  4.7 or Sec.  

4.13(a)(3), as proposed to be amended, would still generally be 

required to limit participants in the offered pool to QEPs. As such, 

the Commission preliminarily believes that adopting these proposed 

amendments would neither result in an erosion of the customer 

protections provided to non-sophisticated pool participants under 17 

CFR part 4, nor would it cause an expansion of the relief available 

under Sec. Sec.  4.7 and 4.13(a)(3), beyond the discrete issue of 

solicitation with respect to an exempt securities offering. Thus, the 

Commission preliminarily believes that there would be a substantial 

benefit in aligning its regulations with those of its sister regulator, 

in the interest of fostering cooperation and comity, especially where 

there is limited customer protection risk for the retail public.

iv. Benefits Related to the Exclusion of IAs of BDCs From the CPO 

Definition

    The Commission preliminarily believes that there would be several 

benefits arising from the proposed exclusion of IAs of BDCs \178\ from 

the definition of CPO in Sec.  4.5. First, the proposed exclusion would 

enable IAs of BDCs to continue to use commodity interests, consistent 

with the no-action relief currently in place, as an economical option 

for reducing the risks related to BDCs' investments in eligible 

portfolio companies. The proposed exclusion would permit this without 

subjecting BDCs to the costs associated with having its IA registered 

as a CPO, and without requiring BDCs and their IAs to comply with the 

applicable provisions of part 4 of the Commission's regulations. This 

should enable BDCs and their IAs to deploy more of their resources in 

furtherance of their statutory purpose, investing in and providing 

managerial assistance to small- and mid-sized U.S. companies, which 

would thereby also further one of the statutory goals of the Investment



[[Page 52923]]



Company Act of 1940 (as defined above, ICA).

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    \178\ The Commission has previously determined that a RIC's IA 

is the appropriate person to serve as the CPO of a RIC for 

regulatory purposes, and consequently, the Commission is proposing 

herein to amend Sec.  4.5(a)(1) to designate the IA as the person 

excluded from the CPO definition. See CPO CTA Final Rule, 77 FR at 

11259. Due to the similarities between BDCs and RICs, the amendments 

proposed by the Commission today are based on the conclusion that 

the registered IA is also an appropriate selection as the excluded 

entity in the BDC context.

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    As described more fully above, BDCs are subject to oversight by the 

SEC that is comparable to that agency's regulation of RICs, and BDCs 

use commodity interests primarily for bona fide hedging purposes. 

Because of this similarity to a type of investment vehicle that is 

already included within the universe of ``qualifying entities'' under 

Sec.  4.5, the proposed amendments would treat substantively comparable 

entities in a consistent manner, thereby enabling members of the public 

and industry to better predict their regulatory obligations when 

establishing new investment vehicles. Absent these amendments, IAs of 

BDCs wishing to avail themselves of the no-action relief from CPO 

registration are required to prepare a notice filing containing 

specific representations and to submit the document electronically to a 

specific email inbox. The Commission anticipates that, upon 

finalization of this NPRM, registered IAs operating and advising BDCs 

would be able to claim the proposed exclusion under Sec.  4.5 through 

NFA's ORS without having to create their own document to claim the 

proposed exclusion.

v. Benefits Related to Relief Under Section 4.27 for CPOs and CTAs

    The Commission preliminarily believes that there would be several 

benefits associated with providing relief from the filings required by 

Sec.  4.27 to registered CPOs only operating pools pursuant to claimed 

exclusions under Sec.  4.5 or exemptions under Sec.  4.13, and to 

registered CTAs that, during the Reporting Period, either only advised 

pools of which they were also the registered or exempt CPO, or did not 

direct the trading of any commodity interest accounts whatsoever. 

Removing the Sec.  4.27 reporting requirement for these persons would 

eliminate the costs associated with the preparation and filing of Forms 

CPO-PQR or CTA-PR. The Commission preliminarily believes that this 

could provide a significant cost savings for these persons, and 

ultimately, for their participants or clients.

c. Costs

i. Costs Related to the Proposed 18-96 Exemption

    The Commission preliminarily believes there would be some costs 

associated with the 18-96 Exemption, as proposed. For instance, persons 

claiming the proposed exemption under new Sec.  4.13(a)(4) would be 

required to file an annual notice affirming their eligibility for the 

exemption, consistent with the requirement applicable to persons 

claiming all other exemptions available under Sec.  4.13. For purposes 

of calculating costs of this proposed amendment, the Commission has 

estimated that a CPO may require 0.5 hours per pool to complete and 

electronically file the notice with NFA, at an average salary cost of 

$57 per hour.\179\ The Commission further estimates that 50 CPOs may be 

affected,\180\ each with an average of 3 pools subject to the notice 

requirement. On this basis, the Commission anticipates an annual cost 

per entity of approximately $86.\181\ Across all affected entities, the 

Commission estimates a total annual cost of approximately $4,300.\182\

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    \179\ The Commission notes that the salary estimates are based 

upon the May 2017 Findings of National Occupational Employment and 

Wage Estimates from the Bureau of Labor Statistics. See Occupational 

Employment Statistics, Bureau of Labor Statistics, available at 

https://www.bls.gov/oes/ (last visited July 23, 2018). The 

Commission's estimate incorporates the mean hourly wage of persons 

employed in the ``Securities, Commodity Contracts and Other 

Financial Investments and Related Activities'' Industry, under the 

following occupation codes: Compliance Officers (13-1041) at $43.27, 

Lawyers (23-1011) at $94.20, and Paralegals and Legal Assistants 

(23-2011) at $33.53. The Commission chose these occupational 

categories in recognition of the types of staff the Commission 

preliminarily believes would most commonly be responsible for 

evaluating eligibility and filing claims for the registration 

exemptions and exclusion proposed herein. The $57 per hour wage 

estimate is derived from a weighted average, rounded to the nearest 

dollar, with the salaries attributable to each of the three 

occupation codes given equal weight.

    \180\ This number is based on the number of claims filed under 

Advisory 18-96 for the relief for offshore pools as of June 4, 2018.

    \181\ The Commission calculates this amount as follows: (3 pools 

per CPO) x (0.5 hours per pool) x ($57 per hour) = $86.

    \182\ The Commission calculates this amount as follows: ($86 per 

CPO) x (50 CPOs) = $4,300.

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    With respect to the expansion of the statutory disqualification 

prohibition to exemption claimants under Sec.  4.13(a)(1) through 

(a)(5), the Commission lacks data sufficient to determine how many CPOs 

might be required to cease operating commodity pools pursuant to the 

exemptions available thereunder, due to the presence of statutorily 

disqualified principals. There are certainly costs associated with 

either divesting from commodity interests held within a collective 

investment vehicle, or in completely winding up a commodity pool's 

operations, some of which may be experienced by pool participants as 

opportunity costs and possibly realized losses. The Commission 

preliminarily believes, however, that these costs would be limited to 

the first year following adoption of the Proposal, and that, in 

subsequent years, participants would benefit from the assurance that 

any CPO that is soliciting them or accepting their funds for investment 

in an exempt pool operated pursuant to Sec.  4.13(a)(1)-(a)(5) is, at a 

minimum, registerable.

    With respect to the new exemption under Sec.  4.23, which proposes 

relief consistent with Advisory 18-96 permitting a domestic, registered 

CPO to keep its pool's original books and records at the office of the 

operated offshore pool, the Commission has estimated, for purposes of 

calculating the costs of this proposed amendment, that a CPO may 

require 0.5 hours per pool to complete and file the notice with NFA at 

an average salary cost of $57 per hour. The Commission further 

estimates that 50 CPOs may be affected,\183\ each with an average of 3 

pools subject to the notice requirement. On this basis, the Commission 

anticipates a one-time cost per entity of approximately $86.\184\ 

Across all affected entities, the Commission estimates a total annual 

cost of approximately $4,300.\185\ The Commission preliminarily 

believes that this would be the extent of the costs associated with the 

proposed incorporation in 17 CFR part 4 of the recordkeeping relief in 

Advisory 18-96.

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    \183\ This number is based on the number of claims filed under 

Advisory 18-96 for the relief for offshore pools as of June 4, 2018.

    \184\ The Commission calculates this amount as follows: (3 pools 

per sponsor) x (0.5 hours per pool) x ($57 per hour) = $86.

    \185\ The Commission calculates this amount as follows: ($86 per 

CPO) x (50 CPOs) = $4,300.

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ii. Costs Related to the Proposed Family Office Exemptions From CPO and 

CTA Registration

    The Commission preliminarily believes there would be some costs 

associated with the proposed exemptions from CPO and CTA registration 

for Family Offices. As proposed herein, persons claiming relief under 

proposed Sec.  4.13(a)(8) would be required to file an annual notice 

affirming their eligibility, consistent with the requirement applicable 

to persons claiming most other exemptions available under Sec.  4.13. 

For purposes of calculating costs of the Proposal, the Commission has 

estimated that a CPO may require 0.5 hours per pool to complete and 

electronically file the notice with NFA at an average salary cost of 

$57 per hour. The Commission further estimates that 200 CPOs may be 

affected,\186\ each with an average of 3 pools subject to the notice 

requirement. On this basis, the Commission



[[Page 52924]]



anticipates an annual cost per entity of approximately $86.\187\ Across 

all affected entities, the Commission estimates a total annual cost of 

approximately $17,200.\188\ Family Offices would also be required to 

incur expenses associated with the initial determination as to their 

eligibility for the proposed exemptions. The Commission currently does 

not have the necessary data to estimate the amount of this expense. The 

Commission seeks comment as to the amount of such expenses and how this 

expenditure compares to the costs associated with registration as a CPO 

and compliance with 17 CFR part 4.

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    \186\ This number is based on the number of claims received 

pursuant to the CPO Family Office No-Action Letter, as of July 17, 

2018.

    \187\ The Commission calculates this amount as follows: (3 pools 

per CPO) x (0.5 hours per pool) x ($57 per hour) = $86.

    \188\ The Commission calculates this amount as follows: ($86 per 

CPO) x (200 CPOs) = $17,200.

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    With respect to persons claiming relief under proposed Sec.  

4.14(a)(11), because the Commission is not proposing to require a 

notice filing to claim the relief, the Commission expects that the 

costs associated with the exemption would be limited to the expenses 

associated with making the determination as to the person's initial and 

ongoing eligibility for the proposed exemption. The Commission 

currently does not have the necessary data to estimate the magnitude of 

that expense, but would encourage commenters to submit information as 

to the costs and benefits associated with the exemption from CTA 

registration, and how such expenses would compare to those required to 

register as a CTA and to generally comply with 17 CFR part 4.

iii. Costs Related to the Proposed Adoption of JOBS Act Relief

    The Commission does not anticipate any costs associated with this 

proposed rulemaking beyond those already identified and analyzed by the 

SEC when it finalized its amendments to Regulation D and Rule 144A 

pursuant to the JOBS Act.

iv. Costs Related to the Proposed Exclusion of IAs of BDCs From the CPO 

Definition

    The Commission preliminarily believes there would be some costs 

associated with the exclusion from the definition of CPO for registered 

IAs of BDCs proposed today. As proposed herein, persons claiming the 

new exclusion from the definition of CPO with respect to the operation 

of BDCs under Sec.  4.5 would be required to file an annual notice 

affirming eligibility, consistent with that required of the registered 

IAs of RICs. For purposes of calculating costs of the proposed 

amendment, the Commission has estimated that a person may require 0.5 

hours per pool to complete and electronically file the notice with NFA 

at an average salary cost of $57 per hour. The Commission further 

estimates that 50 persons may be affected,\189\ each with an average of 

1 BDC subject to the notice requirement. On this basis, the Commission 

anticipates an annual cost per entity of approximately $29.\190\ Across 

all affected entities, the Commission estimates a total annual cost of 

approximately $1,450.\191\

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    \189\ This number is based on the number of claims received 

pursuant to CFTC Staff Letter 12-40, as of July 17, 2018.

    \190\ The Commission calculates this amount as follows: (1 pool 

per CPO) x (0.5 hours per pool) x ($57 per hour) = $29.

    \191\ The Commission calculates this amount as follows: ($29 per 

CPO) x (50 CPOs) = $1,450.

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    Registered IAs of BDCs that claim the proposed exclusion under 

Sec.  4.5 would also have to expend resources to monitor compliance 

with the applicable trading thresholds in proposed Sec.  

4.5(c)(2)(iii). The Commission preliminarily believes that the initial 

year of compliance with those thresholds would likely be the most 

costly, as the IAs would possibly need to increase compliance staff 

and/or provide training for existing compliance staff to ensure 

effective monitoring of ongoing compliance with the exclusion's terms. 

The Commission anticipates that certain aspects of this compliance 

program might be automated to lower substantially the annual costs in 

subsequent years.

v. Costs Related to Relief Under Section 4.27 for CPOs and CTAs

    The Commission does not anticipate any costs associated with this 

proposed amendment, as it is not requiring any action to be taken by 

CPOs and CTAs that qualify for the proposed exemptions from the 

Reporting Person definition in Sec.  4.27 to claim that relief.

2. Section 15(a) Considerations

    Section 15(a) of the CEA requires the Commission to consider the 

effects of its actions in light of the following five factors:

a. Protection of Market Participants and the Public

    The Commission preliminarily believes that the amendments proposed 

in this release maintain the efficacy of the customer protections of 

the Commission's regulatory regime while reducing costs. Specifically, 

with respect to the 18-96 Exemption, as proposed, the Commission would 

maintain its oversight with respect to commodity pools with U.S. person 

participants, while providing relief with respect to the operation of 

offshore pools, the potential and actual participants of which are 

generally located outside of the U.S. Moreover, by extending the 

prohibition on statutory disqualifications to CPOs claiming exemptive 

relief under Sec.  4.13(a)(1) through (a)(5), the Commission 

preliminarily believes that it would be providing additional protection 

to members of the public by reducing the possibility of fraud and other 

illegal conduct in exempt pools offered by such persons.

    The Commission preliminarily believes that the proposed exemptions 

for Family Offices would also have a limited impact on the protections 

provided to market participants and the public--because Family Offices, 

by definition, are not offered to persons other than Family Clients, 

the general public would not be negatively affected by their failure to 

register as CPOs and CTAs with the Commission. Moreover, as discussed 

above, the Commission preliminarily believes that the familial 

relationships inherent in Family Offices would provide a reasonable 

alternative mechanism to protect the interests of Family Clients. The 

Commission preliminarily believes that its regulatory interest in 

Family Offices is distinct from and much lower than in the case of 

arms-length transactions between CPOs and pool participants, or CTAs 

and advisory clients.

    With respect to the proposed alignment with the SEC's revisions to 

Regulation D and Rule 144A pursuant to the JOBS Act, the Commission 

does not believe that its proposed amendments to Sec. Sec.  4.7 and 

4.13(a)(3) would alter the protections currently available to market 

participants and the public. Pools offered pursuant to claims of relief 

under either Sec.  4.7 or Sec.  4.13(a)(3) would still be limited in 

their permitted participants to QEPs, and the relief provided by those 

regulations would otherwise remain unchanged. As such, less 

sophisticated members of the American public would not be able to 

purchase interests in pools that would not be subject to the full 

panoply of the compliance obligations under 17 CFR part 4. Therefore, 

there would be no reduction in the protections in place now by virtue 

of the proposed JOBS Act amendments.

    The Commission preliminarily believes that the proposed exclusion 

for registered IAs of BDCs would not negatively impact the protection 

of market participants or the public. BDCs, as well as their registered 

IAs, continue to be regulated by the SEC under the



[[Page 52925]]



ICA, and pursuant to the terms of the proposed exclusion, BDCs operated 

thereunder will be limited in the extent to which they can use 

commodity interests by the trading thresholds discussed above.

    With respect to the relief provided to certain CPOs and CTAs from 

the reporting requirements of Sec.  4.27, the Commission does not 

believe, preliminarily, that eliminating reporting from those persons 

described herein would have a deleterious impact on the Commission's 

protection of market participants and the public because of such 

persons' extremely limited activity in the commodity interest markets.

b. Efficiency, Competitiveness, and Financial Integrity of Markets

    Section 15(a)(2)(B) of the CEA requires the Commission to evaluate 

the costs and benefits of a proposed regulation in light of efficiency, 

competitiveness, and financial integrity considerations. The Commission 

has not identified a specific effect on the efficiency, 

competitiveness, and financial integrity of markets as a result of the 

proposed regulations.

c. Price Discovery

    Section 15(a)(2)(C) of the CEA requires the Commission to evaluate 

the costs and benefits of a proposed regulation in light of price 

discovery considerations. The Commission preliminarily believes that 

the proposed amendments will not have a significant impact on price 

discovery.

d. Sound Risk Management

    Section 15(a)(2)(D) of the CEA requires the Commission to evaluate 

the costs and benefits of a proposed regulation in light of sound risk 

management practices. The proposed amendments to the regulations 

reflect the Commission's preliminary determination that such amendments 

should harmonize Commission regulations with other federal laws to 

exempt and reduce the regulatory burden on certain entities.

e. Other Public Interest Considerations

    Section 15(a)(2)(E) of the CEA requires the Commission to evaluate 

the costs and benefits of a proposed regulation in light of other 

public interest considerations. The Commission has not identified other 

public interest considerations relevant to the costs and benefits of 

the proposed regulations.

f. Request for Comment

    The Commission invites comment on its preliminary consideration of 

the costs and benefits associated with the various changes to 17 CFR 

part 4 proposed herein, especially with respect to the five factors 

that the Commission is required to consider under section 15(a) of the 

CEA. In addressing these areas and any other aspect of the Commission's 

preliminary cost-benefit considerations, the Commission encourages 

commenters to submit any data or other information they may have 

quantifying and/or qualifying the costs and benefits of the Proposal. 

The Commission specifically requests comment on the following 

questions, in addition to those posed above:

    13. Has the Commission accurately identified the benefits of the 

Proposal? Are there other benefits to market participants or the public 

that may result from the adoption of this NPRM that the Commission 

should consider? Please provide specific examples and explanations of 

any such benefits.

    14. Has the Commission accurately identified the costs of the 

Proposal? Are there additional costs to market participants or the 

public that may result from the adoption of this NPRM that the 

Commission should consider? Please provide specific examples and 

explanations of any such costs.

    15. Does the Proposal impact the section 15(a) factors in any way 

that is not described above? Please provide specific examples and 

explanations of any such impact.



D. Antitrust Laws



    Section 15(b) of the CEA requires the Commission to take into 

consideration the public interest to be protected by the antitrust laws 

and endeavor to take the least anticompetitive means of achieving the 

purposes of the CEA, in issuing any order or adopting any Commission 

rule or regulation (including any exemption under CEA section 4(c) or 

4c(b)), or in requiring or approving any bylaw, rule, or regulation of 

a contract market or registered futures association established 

pursuant to section 17 of the CEA.\192\

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    \192\ 7 U.S.C. 19(b).

---------------------------------------------------------------------------



    The Commission preliminarily believes that the public interest to 

be protected by the antitrust laws is generally to protect competition. 

The Commission requests comment on whether the Proposal implicates any 

other specific public interest to be protected by the antitrust laws.

    The Commission has considered the Proposal to determine whether it 

is anticompetitive and has preliminarily identified no anticompetitive 

effects. The Commission requests comment on whether the Proposal is 

anticompetitive and, if it is, what the anticompetitive effects are.

    Because the Commission has preliminarily determined that the 

Proposal is not anticompetitive and has no anticompetitive effects, the 

Commission has not identified any less anticompetitive means of 

achieving the purposes of the Act. The Commission requests comment on 

whether there are less anticompetitive means of achieving the relevant 

purposes of the Act that would otherwise be served by adopting the 

Proposal.



List of Subjects in 17 CFR Part 4



    Advertising, Brokers, Commodity futures, Commodity pool operators, 

Commodity trading advisors, Consumer protection, Reporting and 

recordkeeping requirements.



    For the reasons stated in the preamble, the Commodity Futures 

Trading Commission proposes to amend 17 CFR chapter I as follows:



PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS



0

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



    Authority:  7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, 

and 23.



0

2. In Sec.  4.5, revise paragraphs (a)(1), (b)(1), introductory text of 

paragraph (c)(2), (c)(2)(i), (c)(2)(ii), and introductory text of 

paragraph (c)(2)(iii) to read as follows:





Sec.  4.5  Exclusion for certain otherwise regulated persons from the 

definition of the term ``commodity pool operator.''



    (a) * * *

    (1) An investment adviser registered as such under the Investment 

Advisers Act of 1940, as amended;

* * * * *

    (b) * * *

    (1) With respect to any person specified in paragraph (a)(1) of 

this section, an investment company registered as such, under the 

Investment Company Act of 1940, as amended, or a business development 

company that elected an exemption from registration as an investment 

company under the Investment Company Act of 1940;

* * * * *

    (c) * * *

    (2) The notice of eligibility must contain representations that 

such person will operate the qualifying entity specified therein in the 

following ways, as applicable:

    (i) The person will disclose in writing to each participant, 

whether existing or prospective, that the qualifying entity is



[[Page 52926]]



operated by a person who has claimed an exclusion from the definition 

of the term ``commodity pool operator'' under the Act and, therefore, 

who is not subject to registration or regulation as a pool operator 

under the Act; Provided, that such disclosure is made in accordance 

with the requirements of any other federal or state regulatory 

authority to which the qualifying entity is subject. The qualifying 

entity may make such disclosure by including the information in any 

document that its other Federal or State regulator requires to be 

furnished routinely to participants or, if no such document is 

furnished routinely, the information may be disclosed in any instrument 

establishing the entity's investment policies and objectives that the 

other regulator requires to be made available to the entity's 

participants; and

    (ii) The person will submit to such special calls as the Commission 

may make to require the qualifying entity to demonstrate compliance 

with the provisions of this paragraph (c); Provided, however, that the 

making of such representations shall not be deemed a substitute for 

compliance with any criteria applicable to commodity futures or 

commodity options trading established by any regulator to which such 

person or qualifying entity is subject; and

    (iii) If the person is an investment adviser claiming an exclusion 

with respect to the operation of a qualifying entity under paragraph 

(b)(1) of this section, then the notice of eligibility must also 

contain representations that such person will operate that qualifying 

entity in a manner such that the qualifying entity:

* * * * *

0

3. Amend Sec.  4.7 paragraph (b) by:

0

a. Revising introductory text of paragraph (b);

0

b. Renumbering paragraphs (b)(1) through (b)(5) as paragraphs (b)(2) 

through (b)(6);

0

c. Adding a new paragraph (b)(1); and

0

d. Revising renumbered paragraph (b)(3).

    The addition and revisions 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.



* * * * *

    (b) Relief available to commodity pool operators--(1) Eligibility. 

Relief from specific compliance obligations is available to certain 

registered commodity pool operators with respect to the pool(s) they 

operate, provided that the registered commodity pool operator files the 

required notice under paragraph (d) of this section and otherwise 

complies with the conditions of paragraph (d) of this section in 

operating the exempt pool(s).

    (i) Regarding an offering that is exempt from registration under 

section 4(a)(2) of the Securities Act of 1933 and/or offered and sold 

pursuant to Regulation D, Sec. Sec.  230.500-230.508 of this title, or 

resold pursuant to Rule 144A, Sec.  230.144A of this title, or an 

offering that is offered and sold pursuant to Regulation S, Sec. Sec.  

230.901-230.905 of this title, any registered commodity pool operator 

who sells participations in such a pool solely to qualified eligible 

persons may claim any or all of the relief described in this paragraph 

(b) with respect to such pool.

    (ii) Regarding the operation of a pool that is a collective trust 

fund, the securities of which are exempt from registration pursuant to 

section 3(a)(2) of the Securities Act of 1933 and sold solely to 

qualified eligible persons, any bank registered as a commodity pool 

operator may claim any or all of the relief described in this paragraph 

(b) with respect to such pool.

* * * * *

    (3) Periodic reporting relief. (i) Exemption from the specific 

requirements of Sec.  4.22(a) and (b); Provided, That a statement 

signed and affirmed in accordance with Sec.  4.22(h) is prepared and 

distributed to pool participants no less frequently than quarterly 

within 30 calendar days after the end of the reporting period. This 

statement must be presented and computed in accordance with generally 

accepted accounting principles and indicate:

    (A) The net asset value of the exempt pool as of the end of the 

reporting period;

    (B) The change in net asset value from the end of the previous 

reporting period; and

    (C) Either the net asset value per outstanding participation unit 

in the exempt pool as of the end of the reporting period, or the total 

value of the participant's interest or share in the exempt pool as of 

the end of the reporting period.

    (ii) Where the pool is comprised of more than one ownership class 

or series, the net asset value of the series or class on which the 

account statement is reporting, and the net asset value per unit or 

value of the participant's share, also must be included in the 

statement required by this paragraph (b)(3); except that, for a pool 

that is a series fund structured with limitation on liability among the 

different series, the account statement required by this paragraph 

(b)(3) is not required to include the consolidated net asset value of 

all series of the pool.

    (iii) A commodity pool operator that meets the conditions specified 

in Sec.  4.22(d)(2)(i) to present and compute the commodity pool's 

financial statements contained in the Annual Report other than in 

accordance with generally accepted accounting principles and has filed 

notice pursuant to Sec.  4.22(d)(2)(iii) may also use the alternative 

accounting principles, standards or practices identified in the notice 

with respect to the computation and presentation of the account 

statement.

* * * * *

0

4. Amend Sec.  4.13 by:

0

a. Revising paragraphs (a)(3)(i) and (a)(3)(iii)(E);

0

b. Adding paragraph (a)(4);

0

c. Renumbering paragraph (a)(6) as paragraph (a)(7);

0

d. Adding a new paragraph (a)(6) and paragraph (a)(8);

0

e. Revising paragraphs (b)(1)(ii), (b)(2), and (e)(1); and

0

f. Adding paragraph (e)(3).

    The revisions and additions read as follows:





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



* * * * *

    (a) * * *

    (3) * * *

    (i) Interests in the pool are exempt from registration under the 

Securities Act of 1933, and the interests are marketed and advertised 

to the public in the United States solely, if at all, in compliance 

with Regulation D, Sec. Sec.  230.500 through 230.508 of this title, or 

with Rule 144A, Sec.  230.144A of this title;

* * * * *

    (iii) * * *

    (E) A non-U.S. person; and

* * * * *

    (4) For each pool for which the person claims exemption from 

registration under this paragraph (a)(4):

    (i) The pool is, and will remain, organized and operated outside of 

the United States;

    (ii) The pool will not hold meetings or conduct administrative 

activities within the United States;

    (iii) No shareholder of or other participant in the pool is or will 

be a U.S. person;

    (iv) The pool will not receive, hold or invest any capital directly 

or indirectly contributed from sources within the United States; and



[[Page 52927]]



    (v) The person, the pool, and any person affiliated therewith will 

not undertake any marketing activity for the purpose, or that could 

reasonably be expected to have the effect, of soliciting participation 

in the pool from U.S. persons.

* * * * *

    (6) Any person who desires to claim an exemption under paragraphs 

(a)(1), (a)(2), (a)(3), (a)(4), or (a)(5) of this section must 

represent that neither the person nor any of its principals is subject 

to any statutory disqualification under section 8a(2) or 8a(3) of the 

Act, unless such disqualification arises from a matter which was 

previously disclosed in connection with a previous application, if such 

registration was granted, or which was disclosed more than thirty days 

prior to the claim of this exemption.

* * * * *

    (8) For each pool for which the person claims exemption from 

registration under this paragraph (a)(8):

    (i) Interests in the pool are exempt from registration under the 

Securities Act of 1933, and such interests are offered and sold only to 

``family clients,'' as defined in Sec.  275.202(a)(11)(G)-1 of this 

title;

    (ii) The pool qualifies as a ``family office,'' as defined in Sec.  

275.202(a)(11)(G)-1 of this title; and

    (iii) The person reasonably believes, at the time of investment, or 

in the case of an existing pool, at the time of conversion to a pool 

meeting the criteria of paragraph (a)(8) of this section, that each 

person who participates in the pool is a ``family client'' of a 

``family office,'' as defined in Sec.  275.202(a)(11)(G)-1 of this 

title.

    (b)(1) * * *

    (ii) Contain the section number pursuant to which the operator is 

filing the notice (i.e., Sec.  4.13(a)(1), (2), (3), (4), (5) or (8)) 

and represent that the pool will be operated in accordance with the 

criteria of that paragraph; and

* * * * *

    (2)(i) The person must file the notice by no later than the time 

that the pool operator delivers a subscription agreement for the pool 

to a prospective participant in the pool; Provided, however that:

    (A) In the case of a claim for relief under Sec.  4.13(a)(4), the 

person must file the notice within 30 days of registering as a 

commodity pool operator, or claiming an exemption pursuant to this 

section with respect to pools marketed to U.S. persons, containing 

funds belonging to U.S. persons, or otherwise operated in the U.S., its 

territories, or possessions.

    (B) In the case of a claim for relief under Sec.  4.13(a)(5), the 

person must file the notice by the later of the effective date of the 

pool's registration statement under the Securities Act of 1933 or the 

date on which the person first becomes a director or trustee; and

    (C) Where a person registered with the Commission as a commodity 

pool operator intends to withdraw from registration in order to claim 

exemption hereunder, the person must notify its pool's participants in 

written communication physically delivered or delivered through 

electronic transmission that it intends to withdraw from registration 

and claim the exemption, and it must provide each such participant with 

a right to redeem its interest in the pool prior to the person filing a 

notice of exemption from registration.

* * * * *

    (e)(1) Subject to the provisions of paragraphs (e)(2) and (e)(3) of 

this section, if a person who is eligible for exemption from 

registration as a commodity pool operator under this section 

nonetheless registers as a commodity pool operator, the person must 

comply with the provisions of this part with respect to each commodity 

pool identified on its registration application or supplement thereto.

* * * * *

    (3) If a person operates one or more commodity pools described in 

paragraph (a)(4) of this section, and one or more commodity pools for 

which it must be, and is, registered as a commodity pool operator, the 

person is exempt from the requirements applicable to a registered 

commodity pool operator with respect to the pool or pools described in 

paragraph (a)(4) of this section.

* * * * *

0

5. In Sec.  4.14, add paragraph (a)(11) to read as follows:





Sec.  4.14   Exemption from registration as a commodity trading 

advisor.



* * * * *

    (a) * * *

    (11) The person's commodity trading advice is solely directed to, 

and is for the sole use of, ``family clients,'' as defined in Sec.  

275.202(a)(11)(G)-1 of this title.

* * * * *

0

6. Revise Sec.  4.23 to read as follows:





Sec.  4.23   Recordkeeping.



    (a) Each commodity pool operator registered or required to be 

registered under the Act must make and keep the following books and 

records concerning any commodity pool it operates, as well as the pool 

operator itself, in an accurate, current and orderly manner, and 

maintain such books and records in accordance with Sec.  1.31 of this 

chapter.

    Unless otherwise noted, all books and records required to be kept 

under this section shall be kept and maintained at the pool operator's 

main business office. Books and records that are not maintained at the 

pool operator's main business office shall be maintained by one or more 

of the pool's administrator, distributor, or custodian, or a bank or 

registered broker or dealer acting in a similar capacity with respect 

to the pool, pursuant to the relief provided in paragraphs (b) or (c) 

of this section.

    (1) Concerning the commodity pool. (i) 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 commodity, 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.

    (ii) A journal of original entry or other equivalent record showing 

all receipts and disbursements of money, securities and other property.

    (iii) The acknowledgment specified by Sec.  4.21(b) for each 

participant in the pool.

    (iv) A subsidiary ledger or other equivalent record for each 

participant in the pool showing the participant's name and address and 

all funds, securities and other property that the pool received from or 

distributed to the participant. This requirement may be satisfied 

through a transfer agent's maintenance of records or through a list of 

relevant intermediaries where shares are held in an omnibus account or 

through intermediaries.

    (v) Adjusting entries and any other records of original entry or 

their equivalent forming the basis of entries in any ledger.

    (vi) A general ledger or other equivalent record containing details 

of all asset, liability, capital, income and expense accounts.

    (vii) 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



[[Page 52928]]



received from a futures commission merchant, retail foreign exchange 

dealer or swap dealer.

    (viii) Cancelled checks, bank statements, journals, ledgers, 

invoices, computer generated records, and all other records, data and 

memoranda prepared or received in connection with the operation of the 

pool.

    (ix) The original or a copy of each report, letter, circular, 

memorandum, publication, writing, advertisement or other literature or 

advice (including the texts of standardized oral presentations and of 

radio, television, seminar or similar mass media presentations) 

distributed or caused to be distributed by the commodity pool operator 

to any existing or prospective pool participant or received by the pool 

operator from any commodity trading advisor of the pool, showing the 

first date of distribution or receipt if not otherwise shown on the 

document.

    (x) A Statement of Financial Condition as of the close of:

    (A) Each regular monthly period if the pool had net assets of 

$500,000 or more at the beginning of the pool's fiscal year, or

    (B) Each regular quarterly period for all other pools. The 

Statement must be completed within 30 days after the end of that 

period.

    (xi) A Statement of Income (Loss) for the period between:

    (A) The later of: The date of the most recent Statement of 

Financial Condition furnished to the Commission pursuant to Sec.  

4.22(c), April 1, 1979 or the formation of the pool, and

    (B) The date of the Statement of Financial Condition required by 

paragraph (a)(1)(x) of this section. The Statement must be completed 

within 30 days after the end of that period.

    (xii) A manually signed copy of each Account Statement and Annual 

Report provided pursuant to Sec.  4.22, 4.7(b) or 4.12(b), and records 

of the key financial balances submitted to the National Futures 

Association for each commodity pool Annual Report, which records must 

clearly demonstrate how the key financial balances were compiled from 

the Annual Report.

    (2) Concerning the commodity pool operator. (i) 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 commodity, 

swap type and counterparty, 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, as applicable.

    (ii) Each confirmation of a commodity interest transaction, each 

purchase and sale statement and each monthly statement furnished by a 

futures commission merchant or retail foreign exchange dealer to:

    (A) The commodity pool operator relating to a personal account of 

the pool operator; and

    (B) Each principal of the pool operator relating to a personal 

account of such principal.

    (iii) Books and records of all other transactions in all other 

activities in which the pool operator engages. Those books and records 

must include cancelled checks, bank statements, journals, ledgers, 

invoices, computer generated records and all other records, data and 

memoranda which have been prepared in the course of engaging in those 

activities.

    (3) All books and records required to be kept by this section, 

except those required by paragraphs (a)(1)(iii), (a)(1)(iv), (a)(2)(i), 

(a)(2)(ii), and (a)(2)(iii), must be made available to participants for 

inspection and copying during normal business hours. Upon request, 

copies must be sent by mail to any participant within five business 

days if reasonable reproduction and distribution costs are paid by the 

pool participant.

    (4) If the books and records are maintained at the commodity pool 

operator's main business address that is outside the United States, its 

territories or possessions, then upon the request of a Commission 

representative, the pool operator must provide such books and records 

as requested at the place in the United States, its territories or 

possessions designated by the representative within 72 hours after the 

pool operator receives the request.

    (b) If the pool operator does not maintain its books and records at 

its main business office, the pool operator shall:

    (1) At the time it registers with the Commission or delegates its 

recordkeeping obligations, whichever is later, file a statement that:

    (i) Identifies the name, main business address, and main business 

telephone number of the person(s) who will be keeping required books 

and records in lieu of the pool operator;

    (ii) Sets forth the name and telephone number of a contact for each 

person who will be keeping required books and records in lieu of the 

pool operator;

    (iii) Specifies, by reference to the respective paragraph of this 

section, the books and records that such person will be keeping; and

    (iv) Contains representations from the pool operator that:

    (A) It will promptly amend the statement if the contact information 

or location of any of the books and records required to be kept by this 

section changes, by identifying in such amendment the new location and 

any other information that has changed;

    (B) It remains responsible for ensuring that all books and records 

required by this section are kept in accordance with Sec.  1.31;

    (C) Within 48 hours after a request by a representative of the 

Commission, it will obtain the original books and records from the 

location at which they are maintained, and provide them for inspection 

at the pool operator's main business office; Provided, however, that if 

the original books and records are permitted to be, and are maintained, 

at a location outside the United States, its territories or 

possessions, the pool operator will obtain and provide such original 

books and records for inspection at the pool operator's main business 

office within 72 hours of such a request; and

    (D) It will disclose in the pool's Disclosure Document the location 

of its books and records that are required under this section.

    (2) The pool operator shall also file electronically with the 

National Futures Association a statement from each person who will be 

keeping required books and records in lieu of the pool operator wherein 

such person:

    (i) Acknowledges that the pool operator intends that the person 

keep and maintain required pool books and records;

    (ii) Agrees to keep and maintain such records required in 

accordance with Sec.  1.31 of this chapter; and

    (iii) Agrees to keep such required books and records open to 

inspection by any representative of the Commission or the United States 

Department of Justice in accordance with Sec.  1.31 of this chapter and 

to make such required books and records available to pool participants 

in accordance with this section.

    (c) Each registered commodity pool operator whose main business 

office is located in the United States, its territories or possessions, 

and who operates a commodity pool that has its main business office 

outside of the United States, its territories or



[[Page 52929]]



possessions, may claim relief from the requirement in paragraph (a) of 

this section that such books and records be kept at the pool operator's 

main business office, provided however, that the registered pool 

operator files a claim for exemptive relief with the National Futures 

Association representing that:

    (1) The pool operator will maintain the original books and records 

of the commodity pool at the main office of the commodity pool located 

outside the United States, its territories or possessions, and states 

the name, title, full mailing address, telephone number, and 

relationship to the commodity pool of the person who will have custody 

of the pool's original books and records and the location outside the 

United States where those books and records will be kept;

    (2) The pool operator desires to maintain such books and records 

outside the United States in furtherance of compliance with Internal 

Revenue Service requirements for relief from U.S. federal income 

taxation;

    (3) The pool operator will maintain duplicate books and records of 

the commodity pool at a designated office in the United States, its 

territories or possessions listed in the notice;

    (4) The claim is electronically signed by an individual duly 

authorized to bind the pool operator; and

    (5) Within 72 hours after the request from the Commission, the 

United States Department of Justice, or the National Futures 

Association, the original books and records will be provided to such 

representative at a place located in the United States that is 

specified by the representative.

0

7. Amend Sec.  4.27 by revising the section heading and paragraph (b) 

to read as follows:





Sec.  4.27   Additional reporting by commodity pool operators and 

commodity trading advisors.



* * * * *

    (b) Persons required to report. (1) Except as provided in paragraph 

(b)(2) of this section, a reporting person is:

    (i) Any commodity pool operator that is registered or required to 

be registered under the Commodity Exchange Act and the Commission's 

regulations thereunder; or

    (ii) Any commodity trading advisor that is registered or required 

to be registered under the Commodity Exchange Act and the Commission's 

regulations thereunder.

    (2) The following categories of persons shall not be considered 

reporting persons, as that term is defined in paragraph (b)(1) of this 

section:

    (i) A commodity pool operator that is registered, but operates only 

pools for which it maintains an exclusion from the definition of the 

term ``commodity pool operator'' in Sec.  4.5 and/or an exemption from 

registration as a commodity pool operator in Sec.  4.13;

    (ii) A commodity trading advisor that is registered, but does not 

direct, as that term is defined in Sec.  4.10(f), the trading of any 

commodity interest accounts;

    (iii) A commodity trading advisor that is registered, but directs 

only the accounts of commodity pools for which it is registered as a 

commodity pool operator and, though registered, complies with Sec.  

4.14(a)(4); and

    (iv) A commodity trading advisor that is registered, but directs 

only the accounts of commodity pools for which it is exempt from 

registration as a commodity pool operator, and though registered, 

complies with Sec.  4.14(a)(5).

* * * * *



    Issued in Washington, DC, on October 9, 2018, by the Commission.

Christopher Kirkpatrick,

Secretary of the Commission.



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

Federal Regulations.



Appendices to Registration and Compliance Requirements for Commodity 

Pool Operators and Commodity Trading Advisors--Commission Voting 

Summary and Chairman's Statement



Appendix 1--Commission Voting Summary



    On this matter, Chairman Giancarlo and Commissioners Quintenz, 

Behnam, Stump, and Berkovitz voted in the affirmative. No 

Commissioner voted in the negative.



Appendix 2--Statement of Chairman J. Christopher Giancarlo



    In response to the Request for Information issued as part of 

Project KISS, the Commission received a number of letters from 

members of the asset management industry suggesting areas of 

potential rulemaking that, in their view, would make the 

Commission's regulations more efficient and less burdensome. I 

believe that today's notice of proposed rulemaking furthers both of 

those interests.

    This proposal would incorporate relief from registration and 

compliance obligations for commodity pool operators (CPOs) and 

commodity trading advisors (CTAs) consistent with relief currently 

provided by staff letters and advisories. By integrating this relief 

now into the Commission's regulations, the Commission is eliminating 

the need to search for a staff advisory that is over 20 years old 

and is providing legal certainty to entities currently relying upon 

the staff relief. This will make regulatory obligations clearer and 

thereby facilitate compliance.

    Specifically, today's notice of proposed rulemaking would reduce 

burdens for CPOs that operate pools in multiple jurisdictions by 

permitting them to register with respect to the pools that solicit 

or accept U.S. domiciled participants. It would maintain an 

exemption with respect to those offshore activities whose only nexus 

to the U.S. is that the CPO also manages some U.S. derived assets. 

It would also shore up our consumer protection provisions by 

prohibiting statutorily disqualified persons from operating exempt 

pools and soliciting and accepting funds, thereby giving such pool 

participants more confidence in their pool's operator. It would 

ensure that the Commission's regulations treat similarly situated 

entities in a commensurate manner by excluding the investment 

advisers of business development companies under terms identical to 

those under which the investment advisers of registered investment 

companies are already excluded. It would also eliminate the burden 

of filing data collection forms for persons with no meaningful, 

reportable information. Finally, it would provide appropriate relief 

to the operators and advisors of asset management vehicles whose 

clients are limited to a single family, consistent with the terms of 

a comparable regulation adopted by the SEC, furthering our efforts 

at harmonizing with our fellow regulators in how we treat market 

participants in this space.

    In short, this proposal appropriately tailors regulation and 

codifies decades-old no action relief in line with the goals of the 

CFTC's Project KISS. I expect this proposal to be the first in a 

series of staff recommendations to streamline and simplify 

regulation of commodity pool operators and commodity trading 

advisors.



[FR Doc. 2018-22324 Filed 10-17-18; 8:45 am]

 BILLING CODE 6351-01-P