[Federal Register Volume 62, Number 193 (Monday, October 6, 1997)]
[Notices]
[Pages 52088-52090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-26389]
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COMMODITY FUTURES TRADING COMMISSION
Performance of Certain Functions by National Futures Association
with Respect to Commodity Pool Operators and Commodity Trading Advisors
AGENCY: Commodity Futures Trading Commission.
ACTION: Notice and Order.
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SUMMARY:The Commodity Futures Trading Commission (Commission) is
authorizing the National Futures Association (NFA) to conduct reviews
of disclosure documents required to be filed with the Commission by
commodity pool operators (CPOs) and commodity trading advisors (CTAs)
pursuant to Rules 4.26(d) and 4.36(d), respectively. In addition, the
Commission is authorizing NFA to process the following: (1) Notices of
eligibility for exclusion for certain otherwise regulated persons from
the definition of CPO, pursuant to Rule 4.5; (2) notices of claim for
exemption from certain Part 4 requirements with respect to commodity
pools (pools) and CTAs whose participants or clients are qualified
eligible participants (QEPs) or qualified eligible clients (QECs),
respectively, pursuant to Rule 4.7; (3) claims of exemption from
certain Part 4 requirements for CPOs with respect to pools that
principally trade securities, pursuant to Rule 4.12(b); (4) statements
of exemption from registration as a CPO, pursuant to Rule 4.13; (5)
notices of exemption from registration as a CTA for certain persons
registered as an investment adviser, pursuant to Rule 4.14(a)(8); and
(6) notices of claim for exemption from provisions of Part 4 for
certain registered CPOs operating offshore pools, pursuant to Advisory
18-96. Further, the Commission is authorizing NFA to maintain and serve
as the official custodian of certain Commission records.
EFFECTIVE DATE: November 1, 1997.
FOR FURTHER INFORMATION CONTACT: Until the effective date of November
1, 1997, comments regarding this Notice and Order may be directed to
Paul H. Bjarnason, Jr., Deputy Director, or Kevin P. Walek, Senior
Special Counsel, Division of Trading and Markets, Commodity Futures
Trading Commission, Three Lafayette Centre, 1155 21st Street, N.W.,
Washington, DC 20581. Telephone: (202) 418-5430.
United States of America
Before the Commodity Futures Trading Commission Order Authorizing the
Performance of Certain Functions With Respect to Commodity Pool
Operators and Commodity Trading Advisors
I. Authority and Background
Section 8a(10) of the Commodity Exchange Act \1\ (Act) provides
that the Commission may authorize any person to perform any portion of
the registration functions under the Act, notwithstanding any other
provision of law, in accordance with rules adopted by such person and
submitted to the Commission for approval or, if applicable, for review
pursuant to Section 17(j) of the Act \2\ and subject to the provisions
of the Act applicable to registrations granted by the Commission.
Section 17(o)(1) of the Act \3\ provides that the Commission may
require NFA to perform Commission registration functions in accordance
with the Act and NFA rules. NFA has confirmed its willingness to
perform certain functions now performed by the Commission and has
provided the Commission with a detailed proposal setting forth
standards and procedures to be followed and reports to be generated in
administering the functions discussed below.\4\
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\1\ 7 U.S.C. 12a(10)(1994).
\2\ 7 U.S.C. 21(j)(1994).
\3\ 7 U.S.C. 21(o)(1)(1994).
\4\ Letter from Robert K. Wilmouth, President of NFA, to
Brooksley Born, Chairperson of the Commission, dated June 20, 1997.
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Upon consideration, the Commission has determined to authorize NFA,
effective November 1, 1997, to perform the following functions: (1) to
conduct reviews of disclosure documents required to be filed with the
Commission by CPOs and CTAs pursuant to Rules 4.26(d) \5\ and 4.36(d),
respectively; (2) to process \6\ notices of eligibility for exclusion
for certain otherwise regulated persons from the definition of CPO,
pursuant to Rule 4.5; (3) to process notices of claim for exemption
from certain Part 4 requirements with respect to commodity pools and
CTAs whose participants or clients are QEPs or QECs, respectively,
pursuant to Rule 4.7; (4) to process claims of exemption from certain
Part 4 requirements for CPOs with respect to pools that principally
trade securities, pursuant to Rule 4.12(b); (5) to process statements
of exemption from registration as a CPO, pursuant to Rule 4.13; (6) to
process notices of exemption from registration as a CTA for certain
persons registered as an investment adviser, pursuant to Rule
4.14(a)(8); (7) to process notices of claim for exemption from
provisions of Part 4 for certain registered CPOs operating offshore
pools, pursuant to Advisory 18-96; \7\ and (8) to maintain and to serve
as the official custodian of records for the filings, notices and
claims required by the rules listed above. As discussed below, each of
these functions involves disclosure requirements or exemptions from
disclosure, reporting, recordkeeping and registration requirements for
CPOs and CTAs.
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\5\ Commission rules referred to herein can be found at 17 CFR
Ch. I (1997).
\6\ As used in this Notice and Order, the term ``process''
generally refers to the review of the filing, notice or claim for
compliance with applicable requirements and, as appropriate,
provision of notice of any deficiency in the filing, notice or
claim.
\7\ Advisory No. 18-96, (1994-1996 Transfer Binder) Comm. Fut.
L. Rep. (CCH) para.26,659 (April 11, 1996).
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A. CPO and CTA Compliance with Rule 4.26(d) and 4.36(d)
Rule 4.26(d)(1) requires that a CPO file a disclosure document \8\
with the Commission for each pool that it operates or intends to
operate not less
[[Page 52089]]
than 21 calendar days prior to the date the CPO first intends to
deliver the document to a prospective participant in the pool.\9\
Similarly, Rule 4.36(d)(1) requires that a CTA file a disclosure
document \10\ with the Commission for each trading program that it
offers or intends to offer not less than 21 calendar days prior to the
date the CTA first intends to deliver the document to a prospective
client in the trading program. Further, pursuant to Rules 4.26(d)(2)
and 4.36(d)(2), CPOs and CTAs, respectively, must file with the
Commission all subsequent amendments to their disclosure documents
within 21 calendar days of the date upon which the CPO or CTA first
knows or has reason to know of the defect requiring the amendment. In
addition, CPOs and CTAs may not use their disclosure documents for more
than nine months from the effective dates of such documents, in
accordance with Rules 4.26(a)(2) and 4.36(b), respectively. The
Commission's Division of Trading and Markets reviews disclosure
documents filed by CPOs and CTAs, issues comment letters noting any
compliance issues, and works with registrants to resolve these
issues.\11\
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\8\ Pursuant to Rule 4.21(a), a CPO may not solicit, accept or
receive funds, securities or other property from a prospective
participant in a pool that it operates or intends to operate unless,
on or before the date it engages in that activity, the COP delivers
or causes to be delivered to the prospective participant a
Disclosure Document for the pool containing the information set
forth in Rule 4.24.
\9\ Rule 4.8 provides an exemption from the 21-day prefiling
requirement of Rule 4.26(d)(1) to CPOs with respect to pools offered
or sold solely to ``accredited investors'' in an offering exempt
from registration under the Securities Act of 1933, as well as to
CPOs of 4.12(b) pools in an exempt offering under the Securities Act
of 1933.
\10\ Pursuant to Rule 4.31(a), a CTA may not solicit or enter
into an agreement with a prospective client to direct or to guide
the client's commodity interest account or trading unless, at or
before the time it engages in the solicitation or enters into the
agreement (whichever is earlier), the CTA delivers or causes to be
delivered to the prospective client a disclosure document for the
trading program containing the information set forth in the Rule
4.34.
\11\ 45 FR 51600, 51603 (August 4, 1980); 46 FR 26004, 26010
(May 8, 1981).
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NFA Compliance Rule 2-13 requires that NFA members file with NFA a
copy of any document required to be filed with the Commission pursuant
to Part 4 of the regulations. NFA staff review CPO and CTA disclosure
documents during the course of on-site audits as well as through a desk
review program, as part of its audit priority system. In light of NFA's
experience in receiving and reviewing disclosure documents of CPOs and
CTAs, the Commission believes that it is appropriate for NFA to
undertake the performance of this function. Accordingly, by this Order,
NFA is authorized to review all disclosure documents filed by CTAs and
all disclosure documents filed by CPOs for privately offered commodity
pools \12\ and to provide notice of deficiencies. Such review of CTA
and CPO disclosure documents will include those documents filed
pursuant to the instant filing procedure set forth in Commission
Advisory 95-44.\13\
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\12\ Pursuant to Rule 4.24(d)(3)(i), privately offered commodity
pools are those offered pursuant to section 4(2) of the Securities
Act of 1933, as amended (15 U.S.C. 77d(2)), or pursuant to
Regulation D thereunder (17 CFR 230.501 et seq.).
\13\ CFTC Interpretative Letter No. 95-44, [1994-1996 Transfer
Binder] Comm. Fut. L. Rep. (CCH) para. 26,385 (April 20, 1995).
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B. Notices of Eligibility for Exclusion From the Definition of CPO
Rule 4.5 provides an exclusion from the definition of commodity
pool operator for certain persons who would otherwise be considered
commodity pool operators. This exclusion is available for certain
otherwise regulated persons, as set forth in Rule 4.5 (a)(1) through
(a)(4) in connection with the operation of a qualified entity as
described in Rule 4.5(b).\14\ Eligible persons claiming exclusion
pursuant to Rule 4.5 must file with the Commission and NFA a notice of
eligibility containing the information specified in Rule 4.5(c). By
this Order, NFA is authorized to process notices of eligibility for
exclusion from the definition of the term commodity pool operator
pursuant to Rule 4.5.
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\14\ Rule 4.5 also excludes certain trading vehicles from the
commodity pool definition, and thus, their operators are not
required to file any notice or make any specified representations to
claim exclusion from the commodity pool operator definition.
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C. Claims for Exemption From Certain Part 4 Requirements With Respect
to Commodity Pools and CTAs Whose Participants or Clients Are QEPs or
QECs
Rule 4.7 provides an exemption from certain Part 4 requirements
with respect to the operators of commodity pools whose participants are
limited to QEPs and with respect to commodity trading advisors whose
clients are QECs, as those terms are defined by the Rule. Any
registered commodity pool operator meeting the requirements of Rule
4.7(a)(2) may claim relief from certain disclosure, reporting, and
recordkeeping requirements by filing with the Commission and NFA a
notice of claim for exemption pursuant to Rule 4.7(a)(3). Any
registered commodity trading advisor meeting the requirements of Rule
4.7(b)(2) may claim relief from disclosure and recordkeeping
requirements with respect to the accounts or qualified eligible clients
who have given due consent to their account being an exempt account
under Rule 4.7 by filing with the Commission and NFA a notice of claim
for exemption pursuant to paragraph 4.7(b)(3). By this Order, NFA is
authorized to process notices of claim for exemption filed by
qualifying CPOs and CTAs pursuant to Rule 4.7.
D. Exemption From Certain Part 4 Requirements for CPOs With Respect to
Pools That Principally Trade Securities
Rule 4.12(b) provides an exemption from certain disclosure and
reporting requirements for registered CPOs of pools which principally
trade securities and meet the criteria set forth in Rule 4.12(b)(1).
Eligible CPOs must file a claim of exemption with the Commission and
NFA pursuant to Rule 4.12(b)(3). By this Order, NFA is authorized to
process claims for exemption filed by qualifying CPOs pursuant to Rule
4.12(b).
E. Exemption From Registration as a CPO
Rule 4.13 provides for an exemption from registration as a CPO for
persons operating pools which meet the criteria set forth in either
Rule 4.13(a)(1) or Rule 4.13(a)(2). Eligible persons must file with the
Commission and NFA copies of the statement provided to pool
participants setting forth the information specified in Rule
4.13(b)(1). By this Order, NFA is authorized to process statements of
exemption from CPO registration filed by qualifying persons pursuant to
Rule 4.13.
F. Exemption From Registration as a CTA for Certain Persons Registered
as Investment Advisers
Rule 4.14(a)(8) provides exemption from registration as a CTA for
registered investment advisers whose commodity advice is directed to
Rule 4.5 entities and who meet the other criteria set forth in Rule
4.14(a)(8) (i)-(ii). Persons claiming exemption from CTA registration
pursuant to Rule 4.14(a)(8) must file with the Commission and NFA a
notice of exemption in accordance with Rule 4.14(a)(8) (iii) and (v).
By this Order, NFA is authorized to process notices of exemption from
CTA registration filed by qualifying persons pursuant to Rule
4.14(a)(8).
G. Claims for Exemption From Provisions of Part 4 for Certain
Registered CPOs Operating Offshore Pools
Commission Advisory 18-96 makes generally available to certain
registered CPOs relief from disclosure, reporting and certain
recordkeeping requirements in connection with the operation of offshore
commodity pools. Registered CPOs who operate offshore commodity pools
may claim such relief by filing a notice of a claim for exemption with
the
[[Page 52090]]
Commission and NFA that sets forth the representations specified in the
Advisory. By this Order, NFA is authorized to process notices of claims
for exemption filed by qualifying CPOs pursuant to Advisory 18-96.
H. Recordkeeping Requirements
By prior orders, the Commission has authorized NFA to maintain
various other Commission registration records and has certified NFA as
the official custodian of such records for this agency.\15\ The
Commission has now determined, in accordance with its authority under
Section 8a(10) of the Act, to authorize NFA to maintain and to serve as
the official custodian of records for the filings, notices and claims
required by Rules 4.26(d), 4.36(d), 4.5, 4.7, 4.12(b), 4.13 and
4.14(a)(8) and Commission Advisory 18-96. This determination is based
upon NFA's representations regarding the implementation of rules and
procedures for maintaining and safeguarding all such records, in
connection with NFA's assumption of responsibility for the above-
mentioned activities.
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\15\ 49 FR 39593 (October 9, 1984); 50 FR 34885 (August 28,
1985); 51 FR 25929 (July 17, 1986); 54 FR 19594 (May 8, 1989); 54 FR
41133 (October 5, 1989); 58 FR 19657 (April 15, 1993).
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In maintaining the Commission's records pursuant to this Order, NFA
shall be subject to all other requirements and obligations imposed upon
it by the Commission in existing or future orders or regulations. In
this regard, NFA shall also implement such additional procedures (or
modify existing procedures) as are acceptable to the Commission and as
are necessary: to ensure the security and integrity of the records in
NFA's custody; to facilitate prompt access to those records by the
Commission and its staff, particularly as described in other Commission
orders or rules; to facilitate disclosure of public or nonpublic
information in those records when permitted by Commission orders or
rules and to keep logs as required by the Commission concerning
disclosure of nonpublic information; and otherwise to safeguard the
confidentiality of the records.
II. Conclusion and Order
The Commission has determined, in accordance with the provisions of
Sections 8a(10) and 17(o)(1) of the Act and NFA's letter dated August
27, 1997, to authorize NFA to perform the following functions:
(1) To conduct reviews of disclosure documents required to be filed
with the Commission by CPOs and CTAs pursuant to Rules 4.26(d) and
4.36(d), respectively;
(2) To process notices of eligibility for exclusion for certain
otherwise regulated persons from the definition of CPO, pursuant to
Rule 4.5;
(3) to process notices of claim for exemption from certain Part 4
requirements with respect to commodity pools and CTAs whose
participants or clients are QEPs or QECs, respectively, pursuant to
Rule 4.7;
(4) To process claims of exemption from certain Part 4 requirements
for CPOs with respect to pools that principally trade securities,
pursuant to Rule 4.12(b);
(5) To process statements of exemption from registration as a CPO,
pursuant to Rule 4.13;
(6) To process notices of exemption from registration as a CTA for
certain persons registered as an investment adviser, pursuant to Rule
4.14(a)(8);
(7) To process notices of claim for exemption from provisions of
Part 4 for certain registered CPOs operating offshore pools, pursuant
to Advisory 18-96; and
(8) To maintain and to serve as the official custodian of records
for the filings, notices and claims required by the rules listed above.
NFA shall perform these functions in accordance with the standards
established by the Act and the regulations and orders promulgated
thereunder, particularly Part 4 of the regulations and Commission
orders issued thereunder, and shall provide the Commission with such
summaries and periodic reports as the Commission may determine are
necessary for effective oversight of this program.
These determinations are based upon the Congressional intent
expressed in Sections 8a(10) and 17(o) of the Act that the Commission
have the authority to delegate to NFA any portion of the Commission's
registration responsibilities under the Act for purposes of carrying
out these responsibilities in the most efficient and cost-effective
manner and upon NFA's representations concerning the standards and
procedures to be followed and the reports to be generated in
administering these functions.
This Order does not, however, authorize NFA to render ``no-action''
positions, exemptions or interpretations with respect to applicable
disclosure, reporting, recordkeeping and registration requirements.
Nothing in this Order or in Sections 8a(10) or 17(o) of the Act
shall affect the Commission's authority to review NFA's performance of
the Commission functions listed in paragraphs 1-8 above.
NFA is authorized to perform all functions specified herein until
such time as the Commission orders otherwise. Nothing in this Order
shall prevent the Commission from exercising the authority delegated
herein. NFA may submit to the Commission for decision any specific
matters that have been delegated to it, and Commission staff will be
available to discuss with NFA staff issues relating to the
implementation of this Order. Nothing in this Order affects the
applicability of any previous orders issued by the Commission under
Part 4.
Issued in Washington, D.C., on September 30, 1997 by the
Commission.
Catherine D. Dixon,
Assistant Secretary of the Commission.
[FR Doc. 97-26389 Filed 10-3-97; 8:45 am]
BILLING CODE 6351-01-P