7976 Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules 

1See Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Public Law 111–203, 124 

Stat. 1376 (2010). The text of the Dodd-Frank Act 

may be accessed at http://www.cftc.gov./ 

LawRegulation/OTCDERIVATIVES/index.htm. 

2 Id. 

3 7 U.S.C. 1, et seq. 

4 7 U.S.C. 6m. 

5 7 U.S.C. 1a(11) and 1a(12). 

6 7 U.S.C. 6n(3)(A). Under part 4 of the 

Commission’s regulations, entities registered as 

CPOs have reporting obligations with respect to 

their operated pools. See 17 CFR 4.22. Although 

CTAs have recordkeeping obligations under part 4, 

the Commission has not required reporting by 

CTAs, See generally, 17 CFR part 4. 

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

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Parts 4, 145, and 147 

RIN 3038–AD30 

Commodity Pool Operators and 

Commodity Trading Advisors: 

Amendments to Compliance 

Obligations 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: The Commodity Futures 

Trading Commission is proposing to 

amend its existing regulations and 

proposing one new regulation regarding 

Commodity Pool Operators and 

Commodity Trading Advisors. The 

Commission is proposing a new data 

collection for CPOs and CTAs that is 

consistent with the data collection 

required under the Dodd-Frank Act. The 

proposed amendments would: Rescind 

the exemptions from registration 

provided in the Commission’s 

regulations; rescind the relief from the 

certification requirement for annual 

reports provided to operators of certain 

pools only offered to qualified eligible 

persons (‘‘QEPs’’); modify the criteria for 

claiming relief under the Commission’s 

regulations; and require the annual 

filing of notices claiming exemptive 

relief. Finally, the proposal includes 

new risk disclosure requirements for 

CPOs and CTAs regarding swap 

transactions. 

DATES: Comments must be in writing 

and received on or before April 12, 

2011. 

ADDRESSES: You may submit comments, 

identified by RIN number 3033–AD30, 

by any of the following methods: 

• Agency Web site, via its Comments 

Online process: http:// 

comments.cftc.gov. Follow the 

instructions for submitting comments 

through the Web site. 

• Mail: David A. Stawick, Secretary of 

the Commission, Commodity Futures 

Trading Commission, Three Lafayette 

Centre, 1155 21st Street, NW., 

Washington, DC 20581. 

• Hand Delivery/Courier: Same as 

mail above. 

• Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

Please submit your comments using 

only one method. 

Please specify the regulation(s) to 

which your comment refers in the 

subject field of comments submitted by 

e-mail, and otherwise clearly indicate 

the regulation(s) on written 

submissions. All comments must be 

submitted in English, or if not, 

accompanied by an English translation. 

Comments will be posted as received to 

http://www.cftc.gov. You should submit 

only information that you wish to make 

available publicly. If you wish the 

Commission to consider information 

that you believe is exempt from 

disclosure under the Freedom of 

Information Act, a petition for 

confidential treatment of the exempt 

information may be submitted according 

to the procedure established in 17 CFR 

145.9. 

The Commission reserves the right, 

but shall have no obligation, to review, 

pre-screen, filter, redact, refuse or 

remove any or all of your submission 

from http://www.cftc.gov that it may 

deem to be inappropriate for 

publication, including, but not limited 

to, obscene language. All submissions 

that have been redacted or removed that 

contain comments on the merits of the 

rulemaking will be retained in the 

public comment file and will be 

considered as required under the 

Administrative Procedure Act and other 

applicable laws, and may be accessible 

under the Freedom of Information Act. 

FOR FURTHER INFORMATION CONTACT: For 

further information about the proposed 

amendments to existing §§ 4.5, 4.7, 4.13, 

4.14, 4.24, 4.34, or 145.5, contact Kevin 

P. Walek, Assistant Director, Telephone: 

(202) 418–5463, E-mail: 

kwalek@cftc.gov, or Amanda Lesher 

Olear, Special Counsel, Telephone: 

(202) 418–5283, E-mail: aolear@cftc.gov, 

Division of Clearing and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

For further information about 

proposed § 4.27 or proposed Forms 

CPO–PQR or CTA–PR, contact Kevin P. 

Walek, Assistant Director, Telephone: 

(202) 418–5463, E-mail: 

kwalek@cftc.gov, or Daniel Konar, 

Attorney-Advisor, Telephone: (202) 

418–5405. E-mail: dkonar@cftc.gov, 

Division of Clearing and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street, NW., Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Statutory and Regulatory Background 

On July 21, 2010, President Obama 

signed the Dodd-Frank Wall Street 

Reform and Consumer Protection Act 

(‘‘Dodd-Frank Act’’).1 The legislation 

was enacted to reduce risk, increase 

transparency, and promote market 

integrity within the financial system by, 

inter alia, enhancing the Commodity 

Futures Trading Commission’s (the 

‘‘Commission’’ or ‘‘CFTC’’) rulemaking 

and enforcement authorities with 

respect to all registered entities and 

intermediaries subject to the 

Commission’s oversight. 

The preamble of the Dodd-Frank Act 

explicitly states that the purpose of the 

legislation is: 

To promote the financial stability of the 

United States by improving accountability 

and transparency in the financial system, to 

end ‘too big to fail’, to protect the American 

taxpayer by ending bailouts, to protect 

consumers from abusive financial services 

practices, and for other purposes.2

Pursuant to this stated objective, the 

Dodd-Frank Act has expanded the scope 

of Federal financial regulation to 

include instruments such as swaps, 

enhanced the rulemaking authorities of 

existing Federal financial regulatory 

agencies including the Commission and 

the Securities and Exchange 

Commission (‘‘SEC’’), and created new 

financial regulatory entities. 

The Commodity Exchange Act 

(‘‘CEA’’) 3 empowers the Commission 

with the authority to register 

Commodity Pool Operators (‘‘CPOs’’) 

and Commodity Trading Advisors 

(‘‘CTAs’’),4 exclude any entity from 

registration as a CPO or CTA,5 and to 

require ‘‘[e]very commodity trading 

advisor and commodity pool operator 

registered under [the CEA to] maintain 

books and records and file such reports 

in such form and manner as may be 

prescribed by the Commission.’’ 6 The 

Commission also has the power to 

‘‘make and promulgate such rules and 

regulations as, in the judgment of the 

Commission, are reasonably necessary 

to effectuate the provisions or to 

accomplish any of the purposes of [the 

CEA].’’ 7 The Commission’s 

discretionary power to exclude or 

exempt persons from registration was 

intended to be exercised ‘‘to exempt 

from registration those persons who 

otherwise meet the criteria for 

registration * * * if, in the opinion of 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules 7977 

8See H.R. Rep. No. 93–975, 93d Cong., 2d Sess. 

(1974), p. 20. 9See section 111 of the Dodd-Frank Act. 10See section 112(a)(1)(A) of the Dodd-Frank Act. 11See sections 112(a)(2)(A) and 112(d)(1) of the 

Dodd-Frank Act. 12See section 112(d)(1) of the Dodd-Frank Act. 

13The Commission and the SEC are jointly 

proposing Form PF with respect to entities 

registered with both agencies in a forthcoming 

release. 

14Section 202(a)(29) of the Investment Advisers 

Act of 1940 (‘‘Investment Advisers Act’’) defines the 

term ‘‘private fund’’ as ‘‘an issuer that would be an 

investment company, as defined in section 3 of the 

Investment Company Act of 1940 (15 U.S.C. 80a– 

3), but for section 3(c)(1) or 3(c)(7) of that Act.’’ 15 

U.S.C. 80a–3(c)(1), 80a–3(c)(7). Section 3(c)(1) of 

the Investment Company Act provides an exclusion 

from the definition of ‘‘investment company’’ for 

any ‘‘issuer whose outstanding securities (other than 

short term paper) are beneficially owned by not 

more than one hundred persons and which is not 

making and does not presently propose to make a 

public offering of its securities.’’ 15 U.S.C. 80a– 

3(c)(1). Section 3(c)(7) of the Investment Company 

Act provides an exclusion from the definition of 

‘‘investment company’’ for any ‘‘issuer, the 

outstanding securities of which are owned 

exclusively by persons who, at the time of 

acquisition of such securities, are qualified 

purchasers, and which is not making and does not 

at that time propose to make a public offering of 

such securities.’’ 15 U.S.C. 80a–3(c)(7). The term 

‘‘qualified purchaser’’ is defined in section 2(a)(51) 

of the Investment Company Act. See 15 U.S.C. 80a– 

2(a)(51). 

15The Dodd-Frank Act requires private fund 

adviser registration by amending section 203(b)(3) 

of the Advisers Act to repeal the exemption from 

registration for any adviser that during the course 

of the preceding 12 months had fewer than 15 

clients and neither held itself out to the public as 

an investment adviser nor advised any registered 

investment company or business development 

company. See section 403 of the Dodd-Frank Act. 

There are exemptions from this registration 

requirement for advisers to venture capital funds 

and advisers to private funds with less than $150 

million in assets under management in the United 

States. There also is an exemption for foreign 

advisers with less than $25 million in assets under 

management from the United States and fewer than 

15 U.S. clients and private fund investors. See 

sections 402, 407 and 408 of the Dodd-Frank Act. 

16See S. Conf. Rep. No. 111–176, at 38 (2010). 

17 In this release, the term ‘‘private fund adviser’’ 

means any investment adviser that is (i) registered 

or required to be registered with the SEC (including 

any investment adviser that is also registered or 

required to be registered with the CFTC as a CPO 

or CTA) and (ii) advises one or more private funds 

(including any commodity pools that satisfy the 

definition of ‘‘private fund’’). 

18See section 404 of the Dodd-Frank Act. 19See section 406 of the Dodd-Frank Act. 20 7 U.S.C. 6n(3)(A). 

the Commission, there is no substantial 

public interest to be served by the 

registration.’’ 8 It is pursuant to this 

authority that the Commission has 

promulgated the various exemptions 

from registration as a CPO that are 

enumerated in § 4.13 of its regulations 

as well as the exclusions from the 

definition of CPO that are delineated in 

§ 4.5. 

Following the recent economic 

turmoil, and consistent with the tenor of 

the provisions of the Dodd-Frank Act, 

the Commission has reconsidered the 

level of regulation that it believes is 

appropriate with respect to entities 

participating in the commodity futures 

and derivatives markets. The 

Commission believes that it is necessary 

to rescind or modify several of its 

exemptions and exclusions to more 

effectively oversee its market 

participants and manage the risks that 

such participants pose to the markets. 

Additionally, the Commission has reevaluated its prior decision not to 

require reporting by CTAs and has 

concluded that additional information 

regarding CTAs’ activities is needed to 

provide the Commission with a more 

complete understanding of such 

activities’ effects on commodities and 

derivatives markets. 

In addition to the expansion of the 

Commission’s jurisdiction to include 

swaps under Title VII of the Dodd-Frank 

Act, Title I of the Dodd-Frank Act 

created the Financial Stability Oversight 

Council (‘‘FSOC’’).9 The FSOC is 

composed of the leaders of various State 

and Federal financial regulators and is 

charged with identifying risks to the 

financial stability of the United States, 

promoting market discipline, and 

responding to emerging threats to the 

stability of the county’s financial 

system.10 The Dodd-Frank Act 

anticipates that the FSOC will be 

supported in these responsibilities by 

the Federal financial regulatory 

agencies.11 The Commission is among 

those agencies that could be asked to 

provide information necessary for the 

FSOC to perform its statutorily 

mandated duties.12

Consistent with the Commission’s 

view regarding the appropriate level of 

regulation for its registrants in light of 

the recent economic turmoil and the 

current regulatory environment, and in 

anticipation of any requests for 

information from the FSOC, the 

Commission is performing two tasks. 

First, the Commission is working with 

the SEC to jointly promulgate the rules 

and forms needed to gather the data 

required under section 406 of Title IV of 

the Dodd-Frank Act.13 Second, the 

Commission is re-evaluating its 

regulation of CPOs and CTAs to ensure 

that its regulatory structure is 

appropriately designed to effectuate its 

views regarding the necessary level of 

regulation in the current economic 

environment and to be responsive to 

any informational requests made to the 

Commission by other governmental 

agencies or FSOC. 

A. Title IV of the Dodd-Frank Act 

Title IV of the Dodd-Frank Act 

requires advisers to large private 

funds 14 to register with the SEC.15

Through this registration requirement, 

Congress sought to make available to the 

SEC ‘‘information regarding [the] size, 

strategies and positions’’ of large private 

funds, which Congress believed ‘‘could 

be crucial to regulatory attempts to deal 

with a future crisis.’’ 16 In section 404 of 

the Dodd-Frank Act, Congress amended 

section 204(b) of the Investment 

Advisers Act to direct the SEC to require 

private fund advisers registered solely 

with the SEC 17 to file reports containing 

such information as is deemed 

necessary and appropriate in the public 

interest and for investor protection or 

for the assessment of systemic risk. 

These reports and records must include 

a description of certain prescribed 

information, such as the amount of 

assets under management, use of 

leverage, counterparty credit risk 

exposure, and trading and investment 

positions for each private fund advised 

by the adviser.18 Section 406 of the 

Dodd-Frank Act also requires that the 

rules establishing the form and content 

of reports filed by private fund advisers 

that are dually registered with the SEC 

and the CFTC be issued jointly by both 

agencies after consultation with the 

FSOC.19

To fulfill this statutory mandate, the 

Commission and the SEC today are 

jointly proposing sections 1 and 2 of 

Form PF in a forthcoming proposal. 

Additionally, to ensure that necessary 

data is collected from CPOs and CTAs 

that are not operators or advisors of 

private funds, the Commission is 

proposing a new § 4.27, which would 

require quarterly reports from all CPOs 

and CTAs to be electronically filed with 

NFA. The Commission is promulgating 

proposed § 4.27 pursuant to the 

Commission’s authority to require the 

filing of reports by registered CPOs and 

CTAs under section 4n of the CEA.20 In 

an effort to eliminate duplicative filings, 

proposed § 4.27(d) would allow certain 

CPOs and/or CTAs that are also 

registered as private fund advisers with 

the SEC pursuant to the securities laws 

to satisfy certain of the Commission’s 

systemic reporting requirements by 

completing and filing the appropriate 

sections of Form PF with the SEC with 

respect to advised private funds. 

B. Reason for Amending Existing CPO 

and CTA Regulations 

In order to ensure that the 

Commission can adequately oversee the 

commodities and derivatives markets 

and assess market risk associated with 

pooled investment vehicles under its 

jurisdiction, the Commission is reVerDate Mar<15>2010 19:54 Feb 10, 2011 Jkt 223001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4702 E:\FR\FM\11FEP2.SGM 11FEP2

jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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21 17 U.S.C. 6n(3)(A). 

22 In a forthcoming release, the Commission and 

the SEC will be jointly promulgating Form PF with 

respect to the advisers to private funds that are 

evaluating its regulation of CPOs and 

CTAs. Additionally, the Commission 

does not want its registration and 

reporting regime for pooled investment 

vehicles and their operators and/or 

advisors to be incongruent with the 

registration and reporting regimes of 

other regulators, such as that of the SEC 

for investment advisers under the DoddFrank Act. 

Ultimately, the Commission has 

determined that to address these 

concerns it will be necessary to amend 

certain sections of its existing 

regulations. These proposed 

amendments are designed to (1) bring 

the Commission’s CPO and CTA 

regulatory structure into alignment with 

the stated purposes of the Dodd-Frank 

Act; (2) encourage more congruent and 

consistent regulation of similarlysituated entities among Federal 

financial regulatory agencies; (3) 

improve accountability and increase 

transparency of the activities of CPOs, 

CTAs, and the commodity pools that 

they operate or advise, and (4) facilitate 

a collection of data that will assist the 

FSOC, acting within the scope of its 

jurisdiction, in the event that the FSOC 

requests and the Commission provides 

such data. Additionally, these proposed 

amendments will have the added 

benefit of enabling the Commission to 

more efficiently deploy its regulatory 

resources and to more expeditiously 

take necessary action to ensure the 

stability of the commodities and 

derivatives markets, thereby promoting 

the stability of the financial markets as 

a whole. The existing regulations that 

the Commission proposes to amend are 

enumerated below. 

II. The Proposals 

The Commission’s proposed 

amendments are designed to (1) bring 

the Commission’s CPO and CTA 

regulatory structure into alignment with 

the stated purposes of the Dodd-Frank 

Act; (2) encourage more congruent and 

consistent regulation of similarly 

situated entities among Federal 

financial regulatory agencies; (3) 

improve accountability and increase 

transparency of the activities of CPOs, 

CTAs, and the commodity pools that 

they operate or advise; and (4) facilitate 

a collection of data that will assist the 

FSOC, acting within the scope of its 

jurisdiction, in the event that the FSOC 

requests and the Commission provides 

such data. The proposed amendments 

will also allow the Commission to more 

effectively oversee its market 

participants and manage the risks posed 

by the commodities and derivatives 

markets. To those ends, the 

amendments: (A) Require the periodic 

reporting of data by CPOs and CTAs 

regarding their direction of commodity 

pool assets; (B) identify certain 

proposed filings with the Commission 

as being afforded confidential treatment; 

(C) revise the requirements for 

determining which persons should be 

required to register as a CPO under 

§ 4.5; (D) require the filing of certified 

annual reports by all registered CPOs; 

(E) rescind the exemptions from 

registration under §§ 4.13(a)(3) and 

(a)(4); (F) require periodic affirmation of 

claimed exemptive relief for both CPOs 

and CTAs; (G) require an additional risk 

disclosure statement from CPOs and 

CTAs that engage in swaps transactions; 

and (H) make certain conforming 

amendments to the Commission’s 

regulations as described below in 

subsection (H) of this preamble. In 

addition, the proposed amendments 

make conforming changes to the 

Commission’s regulations in light of 

certain provisions in the Dodd-Frank 

Act, including updating the accredited 

investor definition, which the 

Commission has incorporated into the 

definition of QEP in § 4.7. 

The Commission requests comment 

on all aspects of the proposal, as well as 

comment on the specific provisions and 

issues highlighted in the discussion 

below. 

A. Proposed New § 4.27 and Appendices 

A and C: Data Collection for CPOs and 

CTAs 

1. General Purpose of Forms CPO–PQR 

and CTA–PR 

Section 4n of the CEA empowers the 

Commission to require all registered 

CPOs and CTAs to file such reports as 

the Commission deems necessary.21

Following the recent economic turmoil, 

and consistent with the tenor of the 

provisions of the Dodd-Frank Act, the 

Commission has determined that the 

reports currently required of 

Commission registrants do not provide 

sufficient information regarding their 

activities for the Commission to 

effectively monitor the risks posed by 

those participants to the commodity 

futures and derivatives markets. 

Moreover, the Commission has reevaluated its prior decision not to 

require reporting by CTAs and has 

concluded that additional information 

regarding CTAs’ activities is needed to 

provide it with a more complete 

understanding of such activities. 

Therefore, the Commission is 

proposing Forms CPO–PQR (proposed 

to appear in the Commission’s 

regulations as appendix A to part 4), 

and CTA–PR (proposed to appear in the 

Commission’s regulations as appendix C 

to part 4) to collect information from 

CPOs and CTAs that are solely 

registered with the Commission to 

permit the Commission to more 

effectively oversee participants acting 

within its jurisdiction. The information 

that the Commission currently receives 

is limited, not designed to measure 

systemic or market risk in any 

meaningful way, and is only submitted 

by registered CPOs on an annual basis. 

In addition, the annual financial reports 

filed by CPOs do not disclose 

information regarding CPOs’ use of 

stress testing or the tenor of fixed 

income assets held by commodity pools. 

The Commission proposes Forms 

CPO–PQR and CTA–PR to solicit 

information that is generally identical to 

that sought through Form PF, which is 

being jointly promulgated in a 

forthcoming release in conjunction with 

the SEC. These forms were developed in 

consultation with other financial 

regulators tasked with overseeing the 

financial integrity of the economy. 

Through the collection of the data 

delineated in proposed Forms CPO– 

PQR and CTA–PR, the Commission will 

be able, if requested, by other financial 

regulators or FSOC, to provide them 

with the information needed to identify 

whether any commodity pools are 

systemically relevant and, as a result, 

warrant additional examination or 

scrutiny. 

The amount of information that a CPO 

or CTA will be required to disclose on 

proposed Forms CPO–PQR and CTA–PR 

will vary depending on both the size of 

the operator or advisor and the size of 

the advised pools. This tiered approach 

to disclosure acknowledges the fact that 

smaller operators, advisors, and pools 

are less likely to present significant risk 

to the stability of the commodities 

futures and derivatives markets and the 

financial market as a whole, and 

therefore, such entities should have a 

lesser compliance burden. As detailed 

infra, the Commission is proposing to 

collect more detailed information from 

operators and advisors managing a large 

amount of commodity pool assets. 

2. Persons Required To Report on 

Proposed Forms CPO–PQR and CTA–PR 

Pursuant to proposed § 4.27, any CPO 

or CTA that is registered or required to 

be registered must complete and submit 

proposed Forms CPO–PQR and CTA– 

PR, respectively, with NFA as the 

Commission’s delegatee.22 As discussed 


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registrants with both agencies. CPOs and CTAs that 

are dual registrants and that operate or advise 

commodity pools that are not private funds will still be required to file the proposed reports 

required in this release. 

infra, only certain large CPOs and CTAs 

would have to complete the sections of 

Forms CPO–PQR and CTA–PR that 

require the most detailed information. It 

is expected that most CPOs would only 

have to complete schedule A of form 

CPO–PQR, which contains essentially 

the same information that NFA 

currently collects through form PQR. In 

addition, the Commission expects that 

most CTAs only would have to 

complete schedule A of form CTA–PR, 

which consists of limited questions 

regarding self-identification, general 

operations of the CTA, and whether the 

CTA directs assets for commodity pools 

equal to or exceeding $150 million. 

Those CPOs with assets under 

management equal to or greater than 

$150 million would be required to 

complete schedule B of form CPO–PQR, 

which solicits basic information 

regarding the commodity pools operated 

by such CPOs. CPOs with assets under 

management equal to or greater than $1 

billion would be required to complete 

schedule C of form CPO–PQR, which 

solicits aggregate information regarding 

the commodity pools operated by such 

CPOs and commodity pools with a net 

asset value exceeding $500 million. 

Similarly, a CTA with commodity pool 

assets under management equal to or 

exceeding $150 million would be 

required to complete schedule B of form 

CTA–PR, which solicits basic 

information regarding the CTA’s trading 

program, the identification of the CTA’s 

client pool(s), and the position data of 

each commodity pool advised by the 

CTA. 

The Commission estimates that the 

number of CPOs that would have to file 

schedule C of form CPO–PQR will be 

relatively small. The Commission 

believes that it is appropriate to limit 

the more extensive reporting obligations 

to the large entities detailed above 

because it would provide information 

about those entities that are most likely 

to pose market and systemic risk, and it 

minimizes the burden on smaller 

registrants that are less likely to pose 

such risk. 

The Commission requests comment 

on the proposed reporting scheme. 

Should the Commission require that all 

CPOs and CTAs registered or required to 

be registered with the Commission 

complete all of the information on their 

respective forms regarding the pools 

that they operate or advise? Please 

provide detail supporting your position. 

Are there more appropriate thresholds 

for determining which CPOs and CTAs 

must report more extensive 

information? Should the assets under 

management thresholds be lower or 

higher? Is there additional information 

that should be requested? 

3. Frequency of Reporting 

The Commission proposes to require 

the completion and filing of the 

required section(s) of forms CPO–PQR 

and CTA–PR on a quarterly basis, with 

the exception of mid-sized CPOs filing 

schedule B of form CPO–PQR on an 

annual basis. The Commission believes 

that the proposed frequency of reporting 

would permit the Commission to 

effectively monitor key information 

relevant to the assessment of market risk 

posed by the advisors and operators of 

commodity pools both on an individual 

and aggregate basis. The proposal would 

require CPOs and CTAs to file the 

appropriate reports within 15 days of 

each quarter end as set forth in 

proposed § 4.27. Additionally, proposed 

form CPO–PQR would require schedule 

B to be filed by mid-sized CPOs within 

90 days of the end of the calendar year. 

The Commission believes that this 

periodic reporting for CPOs and CTAs is 

necessary to provide the Commission 

with timely data to effectively monitor 

CPOs’ and CTAs’ activities and to 

identify emerging market issues. It is 

expected that this reporting would 

coincide with registrants’ existing 

internal reporting and risk assessment 

system cycles. The various reporting 

schedules for Commission registrants 

are set forth in the charts below. 

Form PF and 

Form ADV 

PQR 

Schedule A 

PQR 

Schedule B 

PQR 

Schedule C 

Dual Registrant CPO for Private Funds Only (Assets under Management 

equal to or exceeding $1 Billion).

Quarterly ....... Quarterly. 

Dual Registrant CPO for Private Funds Only (Assets under Management less 

than $1 Billion).

Annually ........ Quarterly. 

Large CPO—Not Dual ........................................................................................ ....................... Quarterly ....... Quarterly ....... Quarterly. 

Mid-size CPO ..................................................................................................... ....................... Quarterly ....... Annually. 

Small CPOs ........................................................................................................ ....................... Quarterly. 

Form PF and 

Form ADV 

PR 

Schedule A 

PR 

Schedule B 

Dual Registrant CTA (Assets under Management equal to or exceeding $1 Billion) .................. Quarterly ....... Quarterly. 

Dual Registrant CTA (Assets under Management less than $1 Billion) ....................................... Annually ........ Quarterly. 

Large and Mid-size CTAs .............................................................................................................. ....................... Quarterly ....... Quarterly. 

Small CTAs .................................................................................................................................... ....................... Quarterly. 

The Commission requests comment 

on the proposed filing frequency. Is 

quarterly reporting an appropriate 

amount of time to gather the 

information necessary to assess risk 

posed by filers? Is the 15-day deadline 

for reports too long to ensure reporting 

of timely information by filers? 

4. Implementation of Reporting 

Obligation 

The Commission currently anticipates 

that the proposed rules requiring the 

filing of forms CPO–PQR and CTA–PR 

would become effective six months after 

the adoption of the proposed forms, 

which will allow sufficient time for the 

registrants to develop any systems 

necessary to collect the information 

requested on the forms and prepare 

them for filing. This effective date will 

also provide NFA with sufficient time to 

modify its ‘‘EasyFile’’ system to enable 

registrants to file the forms through that 

system. 

The Commission has determined to 

authorize NFA to maintain and serve as 

official custodian of record for the 

filings, notice, reports, and claims 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
7980 Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules 

23 67 FR 77470, Dec. 18, 2002. 

24 Id. 

25NFA is currently the only registered futures 

association under the CEA and is the self regulatory 

organization overseeing all CPOs and CTAs 

registered with the Commission. It is also 

responsible for the administration of the 

Commission’s registration program and exemptions 

therefrom. See the Commission’s delegation order 

regarding the registration of CPOs and CTAs at 49 

FR 39593, Oct. 9, 1984. Additionally, NFA 

currently collects certain data from CPOs that are 

NFA members on its form PQR under NFA Rule 

2–46. 

required by § 4.27. This designation is 

consistent with the Commission’s prior 

designation of NFA as the official 

custodian of record for the financial 

information filed as part of the annual 

reports required under §§ 4.7(b)(3) and 

4.22(c).23 This determination is based 

upon NFA’s representations regarding 

procedures for maintaining and 

safeguarding all such records, in 

connection with NFA’s assumption of 

the responsibilities for the activities 

referenced herein. In maintaining the 

Commission’s records, NFA shall be 

subject to all other requirements and 

obligations imposed upon it by the 

Commission in existing or future orders 

or regulations. In this regard, NFA shall 

also implement such additional 

procedures (or modify existing 

procedures) as are acceptable to the 

Commission and as are necessary to: 

Ensure the security and integrity of the 

records in NFA’s custody; to facilitate 

prompt access to those records by the 

Commission and its staff, particularly as 

described in other Commission orders 

or rules; to facilitate disclosure of public 

or nonpublic information in those 

records when permitted by the 

Commission concerning disclosure of 

nonpublic information; and otherwise to 

safeguard the confidentiality of 

records.24

The Commission requests comment as 

to when proposed § 4.27 should become 

effective, requiring the filing of forms 

CPO–PQR and CTA–PR. 

5. Information Required on Form CPO– 

PQR 

The questions contained in form 

CPO–PQR reflect the experience of the 

Commission in regulating CPOs, in 

consultation with staff of the FSOC, the 

SEC, and NFA,25 as well as the purpose 

and requirements of the Dodd-Frank 

Act. The information that the 

Commission proposes to collect from 

CPOs is largely identical to that required 

under form PF for private fund advisers 

and incorporates the information 

already being collected by NFA in its 

form PQR. As stated previously, the 

Commission expects that the collection 

of the data required by form CPO–PQR 

would enhance the Commission’s 

oversight of CPOs. A discussion of the 

information required by form CPO–PQR 

follows. 

a. Proposed Schedule A 

Generally, the information required 

under proposed schedule A will be 

substantially similar to that required 

under form PF. Proposed schedule A 

would be required of all CPOs that are 

registered or required to be registered 

and incorporates all of the information 

currently required by NFA’s PQR data 

collection instrument. Proposed part 1 

of schedule A seeks basic identifying 

information about the CPO, including 

its name, NFA identification number, 

and the CPO’s assets under 

management. Proposed part 2 of 

schedule A requires the reporting of 

information regarding each of the CPO’s 

pools, including the names and NFA 

identification numbers for the pools 

operated during the reporting period, 

position information for positions 

comprising five percent or more of each 

pool’s net asset value, and the pool’s 

key relationships with brokers, other 

advisors, administrators, etc. CPOs that 

advise multiple pools will be required 

to complete and file a separate part 2 of 

schedule A for each pool that they 

advise. 

Proposed part 2 also requires the 

identification of each operated pool’s 

carrying brokers, administrators, trading 

managers, custodians, auditors, and 

marketers. This information would 

enable the Commission to determine 

which entities are exposed and 

connected to commodity pools. The 

Commission is also proposing to 

include quarterly and monthly 

performance information about each 

pool. This information would permit the 

Commission to monitor trends regarding 

the commodity pool industry, such as 

whether certain funds are engaging in 

investment strategies that include 

significant risks having marketwide or 

even systemic implications. Finally, the 

Commission is proposing to collect 

information regarding a pool’s 

subscriptions and redemptions, and any 

restrictions thereon. The Commission 

believes that this information is 

important to ensure adequate oversight 

of a CPO’s decision to restrict pool 

participants’ access to their funds, given 

the recent economic conditions that 

gave rise to the imposition of 

restrictions on redemptions by CPOs. 

The Commission is requesting 

comment on the appropriateness and 

completeness of the information 

requested in proposed schedule A of 

form CPO–PQR. Is there additional basic 

information that the Commission should 

require of all CPOs filing form CPO– 

PQR or regarding the commodity pools 

that they operate? Is there any 

information that is included in 

schedules B and C for larger CPOs that 

should be included in schedule A for all 

CPOs? Conversely, is there any 

information in schedule A that the 

Commission should not require or that 

the Commission should only require of 

large CPOs and, if so, why? 

b. Proposed Schedule B 

The Commission is proposing that all 

CPOs that are registered or required to 

be registered that have assets under 

management equal to or exceeding $150 

million be required to file schedule B of 

form CPO–PQR. CPOs satisfying the 

assets under management threshold 

would be required to report detailed 

information for all operated pools, 

including information regarding each 

pool’s investment strategy; borrowings 

by geographic area and the identities of 

significant creditors; credit counterparty 

exposure; and entities through which 

the pool trades and clears its positions. 

The Commission believes that this more 

detailed pool information is necessary 

from mid-sized and large CPOs as these 

CPOs and their pools are more likely to 

be a source of risk to both the 

commodity futures and derivatives 

markets and the financial markets as a 

whole. 

The Commission is requesting 

comment on the appropriateness and 

completeness of the information 

proposed to be requested from all CPOs 

with assets under management equal to 

or exceeding $150 million. Is there 

additional information that the 

Commission should request of midsized and large CPOs? Is there 

information that the Commission should 

not require to be reported? Should the 

Commission set a threshold net asset 

value for pools for which CPOs must 

report information under proposed 

schedule B, and if so, what threshold 

would be appropriate? 

c. Proposed Schedule C 

The Commission is also proposing 

that all CPOs with assets under 

management equal to or exceeding $1 

billion be required to file schedule C of 

proposed form CPO–PQR. Part 1 of 

schedule C would require certain 

aggregate information about the 

commodity pools advised by large 

CPOs, such as the market value of assets 

invested, on both a long and short basis, 

in different types of securities and 

derivatives, turnover in these categories 

of financial instruments, and the tenor 

of fixed income portfolio holdings, 

including asset-backed securities. This 


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26 It is noteworthy that the information in this 

proposed part 2 also could aid the FSOC, if it so 

requests such information from the Commission 

and such request is granted, in monitoring: 

(1) Credit counterparties’ unsecured exposure to 

commodity pools, as well as the pools’ exposure; 

(2) a CPO’s ability to respond to market stresses; 

and (3) a CPO’s interconnectedness with certain 

central clearing counterparties. 

27 If VaR was calculated, the CPO would have to 

report the confidence interval, time horizon, 

whether any weighting was used, and whether VaR 

was calculated using historical simulation or Monte 

Carlo simulation. If historical simulation was used, 

the CPO would have to report the historical 

lookback period used. 

28The market factors are changes in: Equity 

prices; risk-free interest rates; credit spreads; 

currency rates; commodity prices; implied 

volatilities; implied correlations; default rates; and 

prepayment speeds. 

information will assist the Commission 

in monitoring asset classes in which 

commodity pools may be significant 

investors and trends in pools’ exposures 

to allow the Commission to identify 

concentrations in particular asset 

classes that are building or transitioning 

over time. It also would aid the 

Commission in examining large CPOs’ 

roles as a source of liquidity in different 

asset classes. 

Proposed part 2 of schedule C would 

require large CPOs to report certain 

information about any commodity pool 

that they advise with a net asset value 

of at least $500 million as of the end of 

any business day during the reporting 

period. The Commission has selected 

$500 million as a threshold for more 

extensive individual commodity pool 

reporting because the Commission 

believes that a pool with $500 million 

in net asset value is a substantial fund 

whose activities could have an impact 

on particular markets in which it invests 

or on its counterparties. The 

Commission further believes that setting 

$500 million as the threshold will 

lessen the reporting burdens on smaller 

or start-up pools that are less likely to 

pose systemic risk. This threshold is the 

same threshold proposed by the 

Commission and the SEC in their joint 

release for form PF. 

Proposed part 2 would require 

information on the individual pool level 

that is substantially similar to that 

requested in part 1 of schedule C on an 

aggregate level. Part 2, however, would 

also require additional information. The 

CPO would be required to report a 

geographic breakdown of the reportable 

pool’s assets as well as information 

regarding asset liquidity, concentration 

of positions, material investment 

positions, collateral practices with 

significant counterparties, and clearing 

relationships. This information is 

designed to assist the Commission in 

monitoring the composition of 

commodity pool exposures over time as 

well as the liquidity of those 

exposures.26

Proposed part 2 of schedule C also 

proposes to require the reporting of data 

regarding commodity pool risk metrics, 

financial information, and investor 

information. If during the reporting 

period the CPO regularly calculated a 

value at risk (‘‘VaR’’) metric for the 

reportable pool, the CPO would have to 

report VaR for each month of the 

reporting period.27 Form CPO–PQR 

would also require the CPO to report the 

impact on the pool’s portfolio when 

stressing certain identified market 

factors, if applicable, broken down by 

the long and short components of the 

reportable pool’s portfolio. It also 

requires the CPO to note whether it 

regularly performed stress tests in 

which that market factor was considered 

as part of its risk management process.28

This information is designed to allow 

the Commission to track basic 

sensitivities of the commodity pool to 

common market factors, correlations in 

those factor sensitivities, and trends in 

those factor sensitivities among large 

commodity pools. 

Proposed part 2 of schedule C would 

require a CPO to report certain financing 

information for its reportable pool, 

including a monthly breakdown of its 

secured, unsecured, and synthetic 

borrowing, as well as information about 

the collateral supporting the secured 

and synthetic borrowing and the types 

of creditors. It also would require 

certain information about the term of 

the fund’s committed financing. This 

information would assist the 

Commission in monitoring the 

reportable pool’s leverage, credit 

counterparties’ unsecured exposure to 

the pool, and the committed term of that 

leverage, which the Commission may 

find important in monitoring if the pool 

comes under stress. 

Finally, proposed part 2 of schedule 

C would require a CPO to report 

information about the reportable pool’s 

investor composition and liquidity. For 

example, proposed part 2 contains 

questions regarding the pool’s use of 

side pockets and gates, as well as 

information relating to investor 

liquidity. The Commission believes this 

information may be important in 

enabling the Commission to monitor the 

commodity pool’s susceptibility to 

failure through investor redemptions in 

the event that the pool experiences 

stress due to market risks or other 

factors. 

The Commission requests comment 

on the information proposed in 

schedule C for large CPOs. Is there 

additional information that should be 

included and, if so, why? Is there 

information that should be omitted and, 

if so, why? Is there information that the 

Commission should require only on an 

aggregate basis that the Commission is 

proposing to require CPOs to report on 

an individual pool basis? Are there 

additional risk metrics or market factors 

that the Commission should require 

CPOs to employ? Should the 

Commission require the proposed 

market factors but with different 

parameters? Is there information 

currently proposed that would not 

result in comparable or meaningful 

information for the Commission? If so, 

how can changes to the questions or 

instructions improve the utility of the 

information? Is there information that 

should be broken down further and 

reported as of smaller time increments, 

such as weekly? Is there information 

that should be reported to show ranges, 

high points, or low points during the 

reporting period, rather than as of the 

last day of the month or quarter? Should 

clearing information be collected with 

respect to pools with a net asset value 

less than $500 million? 

6. Information Required on Proposed 

Form CTA–PR 

The questions contained in proposed 

form CTA–PR reflect the experience of 

the Commission in regulating CTAs, its 

knowledge regarding how pools allocate 

funds among various CTAs, and the 

purpose and requirements of the DoddFrank Act. The Commission is 

proposing that all CTAs that direct 

commodity pool assets would be 

required to report on form CTA–PR. As 

stated previously, the Commission 

expects that the collection of the data 

required by form CTA–PR would 

enhance the Commission’s oversight of 

CTAs and its information regarding the 

role that CTAs play in the investment of 

pool assets. A discussion of the 

information required by form CTA–PR 

follows. 

a. Proposed Schedule A 

Proposed schedule A of form CTA–PR 

would collect general information about 

the CTA and the pool assets under 

management by that CTA. All CTAs that 

are registered or required to be 

registered would be required to file 

proposed schedule A. Proposed 

schedule A consists of general 

information, including: The name of the 

CTA; the CTA’s NFA identification 

number; the number of offered trading 

programs and whether any pool assets 

are directed under those trading 

programs; the total assets directed by 

the CTA; and the total pool assets 


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7982 Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules 

29The nine exemptions are found in 5 U.S.C. 

552(b)(1)–(7). 

30See 7 U.S.C. 12(a)(1). 

31Section 16 of the CEA, 7 U.S.C. 20, also 

prohibits the Commission from disclosing such data 

and information in market reports furnished to the 

public under that section. Section 16 is not, 

however, applicable to the proposed rulemaking 

because the reports to which it refers are 

investigations of such conditions as supply, 

demand, and prices in the markets for ‘‘goods, 

articles, services, rights, and interests which are the 

subject of futures contracts.’’ 

32Section 552(b)(3) of FOIA provides that another 

statute may provide a FOIA exemption. Section 404 

of the Dodd-Frank Act sets out such an exemption. 

Specifically, section 404 precludes the SEC from 

being compelled under FOIA to reveal proposed 

Form PF or information contained therein required 

to be filed with the SEC except to Congress upon 

agreement of confidentiality or to comply with a 

court order or other regulatory request. As noted 

above, the Commission and SEC are jointly 

proposing Form PF in a forthcoming release. The 

Dodd-Frank Act does not include similar language 

precluding the Commission from being compelled 

to reveal similar information to the public. 

33See 5 U.S.C. 552(b)(4). ‘‘Commercial’’ and 

‘‘financial’’ are given ‘‘ordinary meanings.’’ See Bd. 

of Trade of the City of Chicago v. CFTC, 627 F.2d 

392, 394–95 (DC Cir. 1980). 

34See, e.g., Pub. Citizen Health Research Group 

v. FDA, 704 F.2d 1280,1291 (DC Cir. 1983). 

35 7 U.S.C. 12(a)(1). 

36Nonpublic records are defined as, among other 

things, information published in the Federal 

Register, final Commission opinions, orders, 

statements of policy and interpretations, 

administrative manuals and instructions, indices, 

and records released in response to FOIA requests 

that have been, or the Commission anticipates will 

be, the subject of additional FOIA requests. 

37See 17 CFR 145.5. 

38 Id. 

directed by the CTA. The Commission 

believes that this information will assist 

the Commission in gaining a more 

complete understanding of CTAs and 

their relationships with commodity 

pools without imposing any significant 

burden on CTAs that do not manage a 

substantial amount of pool assets. The 

Commission is proposing that all CTAs 

be required to file proposed schedule A 

because the Commission believes that 

basic information about entities 

registered as CTAs will assist the 

Commission in making future 

determinations regarding their 

regulatory obligations. 

The Commission is seeking comment 

on the content of proposed schedule A 

and which entities would be required to 

report under form CTA–PR. Should all 

CTAs be required to file proposed 

schedule A of form CTA–PR? If not, 

what criteria would be appropriate for 

limiting which CTAs are required to file 

proposed schedule A of form CTA–PR? 

b. Proposed Schedule B 

Under the Commission’s proposal, 

CTAs that direct pool assets equal to or 

exceeding $150 million would be 

required to complete and file proposed 

schedule B with details regarding the 

CTA’s trading program(s). CTAs would 

be required to file detailed position, 

performance, and trading strategy 

information for each trading program. 

CTAs also would be required to identify 

the pools advised under each program 

and the percentage of the pool’s assets 

that are directed by the CTA. Finally, 

the CTA would be required to disclose 

whether it uses the services of an 

administrator. Through analysis of the 

information collected on form CTA–PR, 

in conjunction with that collected 

through form CPO–PQR, the 

Commission will obtain a more 

complete understanding of the 

relationships between CTAs and pools 

and interconnectedness of the 

Commission’s registrants. This 

information will also assist the 

Commission in determining whether 

there is concentration of pool assets 

with particular CTAs that could result 

in market risk. 

The Commission is seeking comment 

on the information proposed to be 

required under schedule B of form 

CTA–PR. Is there additional information 

that should be included and, of so, why? 

Is there information that should be 

omitted and, if so, why? Is there 

information currently proposed that 

would not result in comparable or 

meaningful information for the 

Commission? If so, how can changes to 

the questions or instructions improve 

the utility of the information? 

B. Amendments to §§ 145.5 and 147.3: 

Confidential Treatment of Data 

Collected on Forms CPO–PQR and 

CTA–PR 

1. Proposed Amendments to § 145.5 

The Commission’s collection of 

certain proprietary information through 

proposed forms CPO–PQR and CTA–PR 

raises concerns regarding whether the 

Commission could protect such 

information from public disclosure. If 

publicly disclosed, this proprietary 

information could put reporting entities 

at a significant competitive 

disadvantage. Certain questions in both 

proposed forms request information on 

pool assets under management, key 

service providers used by operators and 

advisors, position-level information, 

pool performance, pool subscriptions 

and redemptions, and the market value 

of pool assets invested in different types 

of securities and swaps. The 

Commission has determined that at least 

one of the nine exemptions to the 

Freedom of Information Act, 5 U.S.C. 

552 et seq., (‘‘FOIA’’) 29 and section 

8(a)(1) of the CEA 30 protect certain 

proprietary information like the 

information described above that the 

Commission would obtain through 

proposed forms CPO–PQR and CTA– 

PR.31 A discussion of the specific 

exemption from FOIA disclosure and 

the privacy protections afforded under 

section 8(a)(1) of the CEA is described 

immediately below. 

In general, FOIA requires the 

Commission and other Federal agencies 

to provide the fullest possible disclosure 

of information unless such information 

is otherwise exempted pursuant to one 

(or more) of nine exemptions under 

FOIA.32 Accordingly, the Commission is 

required by FOIA to make public its 

records and actions unless a specific 

exemption is available. 

Commercial and financial information 

and trade secrets are generally exempted 

from public disclosure under FOIA.33

Information will qualify for this 

exemption if the public disclosure of 

such information would cause 

substantial harm to the competitive 

position of the person from whom the 

information was obtained.34 As noted 

above, the Commission believes that 

proposed forms CPO–PQR and CTA–PR 

would require CPOs and CTAs, 

respectively, to report a great deal of 

proprietary information that, if publicly 

disclosed, would cause substantial harm 

to the competitive positions of those 

entities. 

Section 8(a)(1) of the CEA provides, in 

relevant part, that ‘‘except as otherwise 

specifically authorized in the [CEA], the 

Commission may not publish data and 

information that would separately 

disclose the business transactions or 

market positions of any person and 

trade secrets or names of customers.’’ 35

The CEA does not specifically authorize 

the Commission to disclose to the 

public the type of proprietary 

information collected in proposed forms 

CPO–PQR and CTA–PR. 

Currently, § 145.5 of the 

Commission’s regulations sets out the 

Commission’s general policy to protect 

from public disclosure those portions of 

‘‘nonpublic records’’ 36 filed with it, 

which are exempted under the 

commercial and financial information 

exemption from FOIA.37 Specifically, 

§ 145.5 provides that ‘‘[t]he Commission 

shall publish or make available 

reasonably segregable portions of 

‘nonpublic records’ * * *’’ subject to a 

FOIA request if those portions are not 

listed in § 145.5.38

To clarify the Commission’s 

determination to treat certain 

proprietary information collected in 

proposed forms CPO–PQR and CTA–PR 

as nonpublic records—thereby 

protecting such information from public 

disclosure—the Commission proposes 


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39Section 145.5(d) tracks the language of its FOIA 

counterpart, exemption (b)(4). 

40The exemptions from disclosure set forth in the 

Sunshine Act are codified in 5 U.S.C. 552b(c). 

There are 10 listed exemptions. 

41The Commission’s Sunshine Act obligations 

are codified in its part 147 rules, 17 CFR part 147. 

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

43 5 U.S.C. 552b(c)(8). 

44See S. Rep. No. 354, 94th Cong., 1st Sess. 24 

(1975) (stating that ‘‘financial institution’’ is 

‘‘intended to include banks, savings and loan 

associations, credit unions, brokers and dealers in 

securities or commodities, exchanges dealing in 

securities and commodities, such as the New York 

Stock Exchange, investment companies, investment 

advisors, self-regulatory organizations subject to 15 

U.S.C. 78s, and institutional managers as defined in 

15 U.S.C. 78m.’’). 

45 15 U.S.C. 80a–1 et seq. 

46 50 FR 15868, 15883, Apr. 23, 1985. 

47 17 CFR 4.5(c)(2). 

48 68 FR 47221, 47223, Aug. 8, 2003. 

49 75 FR 56997, Sept. 17, 2010. 

to list such information in § 145.5(d).39

Specifically, the Commission proposes 

to list the following schedules and 

questions in proposed forms CPO–PQR 

and CTA–PR, the responses to which 

the Commission would deem to be 

nonpublic records: 

Proposed form CPO–PQR: 

• Proposed schedule A: Question 2, 

subparts (b) and (d); Question 3, 

subparts (g) and (h); Question 10, 

subparts (b), (c), (d), (e), and (g); 

Question 11; Question 12; and Question 

13. 

• Proposed schedule B: All. 

• Proposed schedule C: All. 

Proposed form CTA–PR: 

• Proposed schedule B: Question 4, 

subparts (b), (c), (d), and (e); Question 

5; and Question 6. 

2. Proposed Amendments to § 147.3 

The Commission’s collection of 

certain proprietary information through 

proposed forms CPO–PQR and CTA–PR 

raises concerns regarding whether the 

Commission could protect such 

information from public disclosure 

under The Government in the Sunshine 

Act, 5 U.S.C. 552b (‘‘Sunshine Act’’), 

which are substantively identical to 

those discussed above with respect to 

FOIA. The Sunshine Act was enacted to 

ensure that agency action is open to 

public scrutiny and contains exceptions 

to publication to the extent that such 

agency actions, or portions of them, are 

protected by one or more exemptions,40

which are identical to those under 

FOIA, discussed above. Accordingly, 

the Commission is required by the 

Sunshine Act to make public its records 

and actions unless a specific exemption 

is available. Commission meetings, or 

portions thereof, may be ‘‘closed’’ under 

the Sunshine Act where the 

Commission determines that open 

meetings will likely reveal information 

protected by an exemption.41

The Commission believes that 

portions of the filings required by 

proposed § 4.27 through proposed forms 

CPO–PQR and CTA–PR are protected 

from disclosure as confidential 

commercial or financial information 

under Sunshine Act exemption (c)(4), 

which prohibits the disclosure of ‘‘trade 

secrets and commercial or financial 

information obtained from a person and 

privileged or confidential,’’ 42 for 

reasons that are substantively identical 

to the rationale discussed supra with 

respect to FOIA. 

The Commission further believes that 

the portions of forms CPO–PQR and 

CTA–PR that are protected under 

Sunshine Act exemption (c)(4) are also 

protected from disclosure by Sunshine 

Act exemption (c)(8), pursuant to which 

the Commission is authorized to 

withhold from the public matter 

‘‘contained in or related to examination, 

operating, or condition reports prepared 

by, on behalf of, or for the use of an 

agency responsible for the regulation or 

supervision of financial institutions.’’ 43

Section 147.3(b) of the Commission’s 

regulations provides that the 

Commission generally will not make 

public matters that are ‘‘contained in or 

related to examinations, operating, or 

conditions reports prepared by, on 

behalf of, or for the use of the 

Commission or any other agency 

responsible for the regulation or 

supervision of financial institutions.’’ 

The Commission is aware that no court 

has considered directly whether 

Commission registrants are financial 

institutions for the purposes of 

Sunshine Act exemption (c)(8). The 

Commission believes, however, that the 

language of the Sunshine Act’s 

legislative history contemplates the 

inclusion of commodities professionals, 

including futures commission 

merchants, designated contract markets, 

derivatives transaction execution 

facilities, CPOs, and CTAs.44

In light of the foregoing 

considerations, the Commission is 

proposing to amend § 147.3 to exempt 

from mandatory disclosure, pursuant to 

Sunshine Act exemptions (c)(4) and 

(c)(8), the portions of proposed forms 

CPO–PQR and CTA–PR as set forth 

below: 

Proposed form CPO–PQR: 

• Proposed schedule A: Question 2, 

subparts (b) and (d); Question 3, 

subparts (g) and (h); Question 10, 

subparts (b), (c), (d), (e), and (g); 

Question 11; Question 12; and Question 

13. 

• Proposed schedule B: All. 

• Proposed schedule C: All. 

Proposed form CTA–PR: 

• Proposed schedule B: Question 4, 

subparts (b), (c), (d), and (e); Question 

5; and Question 6. 

C. Proposed Amendments to § 4.5: 

Reinstating Trading Criteria for 

Exclusion From the CPO Definition 

The exclusion from the CPO 

definition under § 4.5 is available to 

certain otherwise regulated persons, 

including investment companies 

registered under the Investment 

Company Act of 1940,45 in connection 

with their operation of specified trading 

vehicles. Prior to amendments that the 

Commission made in 2003, § 4.5 

required entities to file a notice of 

eligibility that contained a 

representation that the use of 

commodity futures for non bona fide 

hedging purposes will be limited to five 

percent of the liquidation value of the 

qualifying entity’s portfolio and that the 

entity will not market the fund as a 

commodity pool to the public.46

The 2003 amendments revised § 4.5 to 

require that notices of eligibility only 

include representations that: 

[T]he qualifying entity: (i) Will disclose in 

writing to each participant, whether existing 

or prospective, that the qualifying entity is 

operated by a person who has claimed an 

exclusion from the definition of the term 

‘commodity pool operator’ under the 

[Commodity Exchange] Act, and therefore, 

who is not subject to registration or 

regulation as a pool operator under the 

[Commodity Exchange] Act * * * and (ii) 

Will submit to special calls as the 

Commission may require.47

When adopting the final amendments, 

the Commission explained that its 

decision to delete the prohibition on 

marketing was driven by comments 

claiming that ‘‘the ‘otherwise regulated’ 

nature of the qualifying entities * * * 

would provide adequate customer 

protection, and, further, that compliance 

with the subjective nature of the 

marketing restriction could give rise to 

the possibility of unequal enforcement 

where commodity interest trading was 

restricted.’’ 48

In 2010, the Commission became 

aware of certain registered investment 

companies that were offering series of 

de facto commodity pool interests 

claiming exclusion under § 4.5. The 

Commission consulted with market 

participants and NFA regarding this 

practice. Following this consultation, 

NFA submitted a petition for 

rulemaking in which NFA suggested 

certain revisions to § 4.5 with respect to 

registered investment companies.49 On 

September 17, 2010, the Commission 

solicited comments from the public on 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
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50The revisions to § 4.5 proposed herein contain 

a reference to the definition of ‘‘bona fide hedging’’ 

as it is currently set forth in § 1.3(z) of the 

Commission’s regulations. The Commission notes 

that rules proposed in the future regarding ‘‘bona 

fide hedging’’ may require the proposed revisions to 

be amended to reflect such new regulations. 

51 75 FR 56997, 56998, Sept. 17, 2010. 

52See 17 CFR 4.7. 

53See 17 CFR 4.7(b)(3). 

NFA’s petition for rulemaking, which 

proposed the reinstatement of the pre2003 operating restrictions in § 4.5. In 

its petition, NFA proposed that 

§ 4.5(c)(2) be amended to read as 

follows: 

(iii) Furthermore, if the person claiming 

the exclusion is an investment company 

registered as such under the Investment 

Company Act of 1940, then the notice of 

eligibility must also contain representations 

that such person will operate the qualifying 

entity as described in [Rule] 4.5(b)(1) in a 

manner such that the qualifying entity: (a) 

Will use commodity futures or commodity 

options contracts solely for bona fide hedging 

purposes within the meaning and intent of 

[Rule] 1.3(z)(1) 50; Provided, however, That in 

addition, with respect to positions in 

commodity futures or commodity option 

contracts that may be held by a qualifying 

entity only which do not come within the 

meaning and intent of [Rule] 1.3(z)(1), a 

qualifying entity may represent that the 

aggregate initial margin and premiums 

required to establish such positions will not 

exceed five percent of the liquidation value 

of the qualifying entity’s portfolio, after 

taking into account unrealized profits and 

unrealized losses on any such contracts it has 

entered into; and, Provided further, That in 

the case of an option that is in-the-money at 

the time of purchase, the in-the-money 

amount as defined in [Rule] 190.01(x) may be 

excluded in computing such [five] percent; 

(b) Will not be, and has not been, marketing 

participations to the public as or in a 

commodity pool or otherwise as or in a 

vehicle for trading in (or otherwise seeking 

investment exposure to) the commodity 

futures or commodity options markets.51

(Emphasis removed). 

To stop the practice of registered 

investment companies offering futuresonly investment products without 

Commission oversight, the Commission 

is proposing to amend § 4.5 to reinstate 

the pre-2003 operating criteria 

consistent with the language proposed 

by NFA in its petition. The Commission 

believes that NFA’s proposed language 

is an appropriate point at which to 

begin discussions regarding the 

Commission’s concerns. Moreover, the 

Commission believes that imposing 

such restrictions would limit the 

possibility of entities engaging in 

regulatory arbitrage whereby operators 

of otherwise regulated entities that have 

significant holdings in commodity 

interests would avoid registration and 

compliance obligations under the 

Commission’s regulations. The 

Commission believes that this is 

appropriate to ensure consistent 

treatment of operators of commodity 

pools regardless of registration status 

with other regulators. In addition, the 

Commission has determined that 

adopting the restrictions proposed by 

NFA would ensure that entities that 

operate funds that are de facto 

commodity pools would be required to 

report the activities of such pools on the 

proposed form CPO–PQR. The 

Commission, however, is cognizant of 

the fact that the structure of these 

otherwise regulated entities may result 

in operational difficulties with respect 

to compliance with part 4 of the 

Commission’s regulations. To that end, 

the Commission poses several 

questions, immediately below, derived 

from comments received with respect to 

NFA’s petition to solicit comments 

regarding what the Commission should 

consider with respect to the regulation 

of such entities: 

• Several commenters to NFA’s 

petition have suggested that the 

marketing strategies used by entities 

claiming relief under § 4.5 would be 

prohibited under NFA’s proposal. 

Specifically, it has been argued that 

marketing these funds under proposed 

§ 4.5 would be impossible, or nearly 

impossible, as it would be cost 

prohibitive. The Commission solicits 

comments on how these marketing 

strategies would be affected by the 

proposed rule change. Specifically, 

should the proposed restriction on 

marketing as a commodity pool or as a 

vehicle for providing exposure to 

commodity interests be broader or more 

narrow? 

• It has been suggested that funds 

operated pursuant to relief under § 4.5 

are now following numerous trading 

strategies, including ‘‘life cycle’’ fund 

strategies, which are set to maximize 

trading successes for certain trading 

periods, or horizons. The Commission 

seeks comment on the differential 

impact the proposed rulemaking would 

have on the various trading strategies 

implemented by funds operated under 

§ 4.5, including which types of funds 

might be more severely impacted than 

others, and, if so, why? 

• Some commenters to the NFA 

petition have suggested that the term 

‘‘marketing’’ needs to be clarified. What 

considerations should be made with 

respect to such a definition? Further, 

what specific areas related to marketing 

are most problematic and, if so, why? 

• Commenters to the NFA petition 

have suggested that the changes to § 4.5 

would result in direct conflicts with 

SEC regulations relating to registered 

investment companies. Please detail 

which rules and regulations are in 

conflict, and indicate how these could 

be best addressed by the two 

Commissions. 

• Is a limit of five percent of the 

liquidation value of the portfolio 

attributable to non-bona fide hedging 

purposes the appropriate threshold? 

Should a higher or lower limit apply? 

Should the calculation of the limit 

include swaps, or be limited to futures 

and options? Is a portfolio based 

criterion appropriate or is there another 

more effective means for identifying 

entities that should be registered as 

CPOs? 

• Additionally, the Commission is 

soliciting comment regarding the 

implementation of the proposed 

changes to § 4.5. What issues should the 

Commission consider with respect to 

the ability of registered investment 

companies to comply with the 

disclosure document and reporting 

delivery requirements; recordkeeping; 

and related fund performance disclosure 

requirements under part 4 of the 

Commission’s regulations? How much 

time will be necessary for entities that 

have previously claimed exclusion 

under this section to comply with the 

proposed changes? Should any entities 

that have previously claimed exclusion 

under this section be exempted from 

compliance with the proposed revisions 

to § 4.5? 

D. Proposed Amendments to § 4.7: 

Removing Exemptive Relief From the 

Certification Requirement for Pool 

Annual Reports and Incorporating 

Accredited Investor Definition 

1. Removing Exemptive Relief From the 

Certification Requirement for Financial 

Statements in Pool Annual Reports 

In 1992, the Commission proposed 

and adopted § 4.7, which provided relief 

from disclosure, reporting, and 

recordkeeping obligations under part 4 

of the Commission’s regulations for 

CPOs and CTAs that are privately 

offered to sophisticated persons.52

Section 4.7(b)(3) provides relief from the 

certification requirement for financial 

statements contained in annual reports 

distributed to participants and filed 

with NFA.53

Despite the availability of the 

exemption from the audit requirement 

under § 4.7(b)(3)(i), the vast majority of 

CTAs and CPOs that operate commodity 

pools under § 4.7 have their annual 

reports for those pools audited by 

certified public accountants. For 

example, 759 of the 892 pools that 

operated pursuant to exemptive relief 


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54See, e.g., CFTC Staff Letters 10–02, Feb. 23, 

2010; 10–07, Jan. 7, 2010; 10–08, Feb. 23, 2010; 

10–09, Feb. 25, 2010; 10–11, Mar. 3, 2010; 10–18, 

Apr. 12, 2010, at: http://www.cftc.gov/ 

LawRegulation/CFTCStaffLetters/LettersAcrchive/ 

2010/index.htm. 

55See 17 CFR 4.7(a)(3)(ix). 

56See 57 FR 34853, Aug. 7, 1992. 

57See 17 CFR 203.501. 

58See 15 U.S.C. 77a, et seq. 

59See 57 FR at 34855. 

60See id. at 34855. 

61See id. 

62See 17 CFR 4.13(a)(3). CPOs claiming relief 

under § 4.13 are required to submit to special calls 

by the Commission to demonstrate eligibility, 

however, even if the Commission determined to 

make a special call, it would not be entitled to 

information regarding the pool’s activities beyond 

those implicated by the claim for exemptive relief. 

Therefore, the efficacy of special calls as a tool to 

gain any information on par with that required by 

Part 4 of the Commission’s regulations is limited. 

63See id. 4.13(a)(4). Natural persons who are 

required to satisfy the portfolio requirement to be 

considered QEPs are not included in the persons to 

whom a pool operating under this exemption may 

be offered. 

64See sections 403 and 404 of the Dodd-Frank 

Act. The Dodd-Frank Act does grant a few 

exemptions from the registration requirement. For 

example, section 407 provides that [venture capital] 

funds are not required to register with the SEC. 

65See 15 U.S.C. 80a–3. 

66See sections 403 and 404 of the Dodd-Frank 

Act for the general registration provisions for 

private fund investment advisers. 

under § 4.7 in fiscal year 2009 (i.e., 85% 

of all pools operated under § 4.7 in that 

year) filed certified annual reports 

despite being eligible for exemptive 

relief from certification in § 4.7(b)(3). 

In light of the stated purposes of the 

Dodd-Frank Act (i.e., transparency and 

accuracy of information across market 

participants), the Commission proposes 

to extend the requirement for certified 

financial statements in commodity pool 

annual reports to commodity pools with 

participants who are QEPs. The 

Commission believes that requiring 

certification of financial information by 

an independent accountant in 

accordance with established accounting 

standards will ensure the accuracy of 

the financial information submitted by 

its registrants. Accordingly, proposed 

section 3 of the amendatory text would 

remove the exemption in 

§ 4.7(b)(3)(C)(ii) from the requirement 

that certified financial statements be 

included in the annual reports to 

participants in their commodity pools. 

Commission staff will continue to 

consider requests for exemption from 

the audit requirement pursuant to the 

general exemptive provisions of 

§ 4.12(a), in accordance with the criteria 

under which such relief previously has 

been granted.54

2. Incorporating by Reference the 

Accredited Investor Standard 

The Commission is also proposing to 

amend §§ 4.7(a)(3)(ix) and (a)(3)(x), 

which list those persons required to 

satisfy the portfolio requirement to be 

QEPs.55 In 1992, when the Commission 

proposed and adopted § 4.7, it stated 

that the relief provided in § 4.7 was 

intended for persons who were ‘‘highly 

accredited investors’’,56 which was 

defined as ‘‘accredited investors’’, per 

the terms of § 230.501 of regulation D 57

under the Securities Act of 1933,58 who 

also satisfy a portfolio value 

requirement.59 Section 4.7(a)(3)(ix) 

incorporates the specific net worth 

provision set forth in § 230.501(a)(5) of 

the SEC’s regulations.60 Similarly, 

§ 4.7(a)(3)(x) incorporates the income 

standards of § 230.501(a)(6) of the SEC’s 

regulations.61

Section 413 of the Dodd-Frank Act 

instructs the SEC to examine and adjust 

the threshold for ‘‘accredited investor’’ 

status under its regulations and initially 

increases the threshold amount so that 

it is significantly greater than the 

current provisions of regulation D. 

Because the Commission has 

incorporated the ‘‘accredited investor’’ 

definition from regulation D into its 

definition of QEP, the Commission has 

determined that it is necessary to amend 

§§ 4.7(a)(3)(ix) and (a)(3)(x) to 

incorporate the new accredited investor 

standard. Thus, the Commission’s 

proposal seeks to amend § 4.7 to 

incorporate the accredited investor 

standard from Regulation D by 

reference, rather than by direct 

inclusion of its terms. Incorporation by 

reference will permit the Commission’s 

definition of QEP to continue to include 

the specific terms of the accredited 

investor standard in the event that it is 

later modified by the SEC without 

requiring the Commission to amend 

§ 4.7 each time to maintain parity. 

E. Proposed Amendments to 

§§ 4.13(a)(3) and (a)(4): Rescission of 

Exemption From Registration 

The Commission proposes to rescind 

certain exemptions from registration 

provided in §§ 4.13(a)(3) and (a)(4). 

Section 4.13(a)(3) of the Commission’s 

regulations currently provides that a 

person is exempt from registration as a 

CPO if the interests in the pool are 

exempt from registration under the 

Securities Act of 1933 and offered only 

to QEPs, accredited investors, or 

knowledgeable employees, and the 

pool’s aggregate initial margin and 

premiums attributable to commodity 

interests do not exceed five percent of 

the liquidation value of the pool’s 

portfolio.62 Section 4.13(a)(4) of the 

Commission’s regulations provides that 

a person is exempt from registration as 

a CPO if the interests in the pool are 

exempt from registration under the 

Securities Act of 1933 and the operator 

reasonably believes that the participants 

are all QEPs.63

As a result of the creation of 

exemptions from registration as a CPO 

under §§ 4.13(a)(3) and (a)(4), a large 

group of market participants have fallen 

outside of the oversight of regulators 

(i.e., there is very little if any 

transparency or accountability over the 

activities of these participants). The 

Commission has concluded that 

continuing to grant an exemption from 

registration and reporting obligations for 

these market participants is outweighed 

by the Commission’s concerns of 

regulatory arbitrage. 

To address the lack of transparency 

and accountability, the Commission’s 

proposal would eliminate the 

exemption under § 4.13(a)(3). Indeed, 

the Commission believes that it is 

possible for a commodity pool to have 

a portfolio that is sizeable enough that 

even if just five percent of the pool’s 

portfolio were committed to margin for 

futures, the pool’s portfolio could be so 

significant that the commodity pool 

would constitute a major participant in 

the futures market. 

In addition, the Commission proposes 

to eliminate the exemption in 

§ 4.13(a)(4) because there are no limits 

on the amount of commodity interest 

trading in which pools operating under 

this regulation can engage. That is, it is 

possible that a commodity pool that is 

exempted from registration under 

§ 4.13(a)(4) could be invested solely in 

commodities. 

With the passage of the Dodd-Frank 

Act, the regulatory environment has 

changed from that which was in 

existence when §§ 4.13(a)(3) and (a)(4) 

were promulgated in 2003. As stated 

previously, one of the primary purposes 

of the Dodd-Frank Act is to promote 

transparency with respect to the 

activities of participants in the financial 

markets. Sections 403 and 404 of the 

Dodd-Frank Act generally require 

registration and reporting by investment 

advisers to private funds.64 Many 

private funds claim an exemption from 

SEC registration under sections 3(c)(1) 

and (7) of the Investment Company Act 

of 1940 (the ‘‘Investment Company 

Act’’).65 The Dodd-Frank Act, although 

not rescinding these exemptions from 

registration under the Investment 

Company Act, requires the advisers of 

such funds to register with the SEC as 

‘‘private fund investment advisers’’.66

The Commission’s proposal seeks to 

eliminate the exemptions under 


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

68Under the Commission’s regulations, persons 

claiming such relief remain subject to special calls 

(17 CFR 4.5(c)(2)(ii), 4.13(c)(2), 4.14(a)(8)(iv)(B)) 

and remain subject to all requirements applicable 

to traders on our markets (i.e., large trader reporting, 

position limits, anti-fraud provisions, etc.). 

69Since 2003, the Commission, through NFA, has 

received over 10,000 notices of claim for exemptive 

relief under §§ 4.13(a)(3) and (a)(4), which represent 

approximately 30,000 pools. The Commission has 

no simple and economical way of determining 

whether all of the approximately 10,000 entities 

filing the notices claiming relief remain going 

concerns. Therefore, it is difficult to estimate the 

number of exempt entities currently operating in 

the derivative markets. 

70 If the proposed repeal of §§ 4.13(a)(3) and (a)(4) 

is adopted, annual notices will still be required to 

be filed pursuant to §§ 4.13(a)(1) and (a)(2) under 

this proposal. Regardless of whether the repeal of 

§§ 4.13(a)(3) and (a)(4) is adopted, all CPOs will be 

required to file annual notices in order to claim 

exemptive relief under all provisions of § 4.13. 

71See generally Title VII of the Dodd-Frank Act. 

72See 17 CFR 4.24(b), 4.34(b). 

§§ 4.13(a)(3) and (4) for operators of 

pools that are similarly situated to 

private funds that previously relied on 

the exemptions under §§ 3(c)(1) and (7) 

of the Investment Company Act and 

§ 203(b)(3) of the Investment Advisers 

Act. It is the Commission’s view that the 

operators of these pools should be 

subject to similar regulatory obligations, 

including proposed form CPO–PQR, in 

order to provide improved transparency 

and increased accountability with 

respect to these pools. The Commission 

has determined that it is appropriate to 

limit regulatory arbitrage through 

harmonization of the scope of its data 

collection with respect to pools that are 

similarly situated to private funds so 

that operators of such pools will not be 

able to avoid oversight by either the 

Commission or the SEC through claims 

of exemption under the Commission’s 

regulations. 

The Commission is soliciting 

comment regarding the implementation 

of the proposed rescission of 

§§ 4.13(a)(3) and (a)(4). How much time 

will be necessary for entities that have 

previously claimed exemption under 

these sections to comply with the 

proposed changes? How should the 

Commission address entities whose 

activities do not require registration; i.e., 

should such entities be required to file 

notice with the Commission to avoid 

registration? Should any entities that 

have previously claimed exemption 

under these sections be exempted from 

compliance with the proposed revisions 

to §§ 4.13(a)(3) and (a)(4)? Should the 

Commission consider an alternative de 

minimis exemption under § 4.13, and, if 

so, what criteria should be required to 

claim such exemption? 

F. Proposed Amendments to §§ 4.5, 

4.13, and 4.14: Requiring Annual Filings 

of Notices of Claims of Exemption 

The Commission has the power to 

‘‘make and promulgate such rules and 

regulations as, in the judgment of the 

Commission, are reasonably necessary 

to effectuate the provisions or to 

accomplish the purposes of [the 

CEA].’’ 67 It is pursuant to this authority 

that the Commission promulgated the 

various exemptions from registration set 

forth in §§ 4.5, 4.13, and 4.14. It is also 

pursuant to this authority that the 

Commission may revise the criteria for 

claiming such exemptive relief. 

Under the current provisions of part 

4 of the Commission’s regulations, 

persons claiming exemptive relief from 

inclusion in the definition of a CPO or 

from registration as a CPO or CTA are 

required to file only a notice of such 

claim with NFA and to comply with a 

few ministerial requirements.68 For 

entities claiming relief under §§ 4.5, 

4.13, or 4.14, the filing of an exemption 

notice is the end of these entities’ 

interaction with the Commission or 

NFA (in the absence of a special call or 

their capture by the large trader 

reporting system). The Commission’s 

regulations do not explicitly require 

these entities to inform the Commission 

in the event that these entities cease 

operating as a going concern.69

Based on the foregoing, the 

Commission proposes to require all 

persons claiming exemptive or 

exclusionary relief under §§ 4.5, 4.13, 

and 4.14 of the Commission’s 

regulations to confirm their notice of 

claim of exemption or exclusion on an 

annual basis.70 The Commission 

believes that an annual notice 

requirement would promote improved 

transparency regarding the number of 

entities either exempt or excluded from 

the Commission’s registration and 

compliance programs, which is 

consistent with one of the primary 

purposes of the Dodd-Frank Act. An 

annual notice requirement would enable 

the Commission to determine whether 

exemptions and exclusions should be 

modified, repealed, or maintained as 

part of the Commission’s ongoing 

assessment of its regulatory scheme. If a 

person chooses to withdraw their 

certification other than due to the 

cessation of activities requiring 

registration or exemption therefrom, the 

Commission’s proposal would require 

such person to file a registration 

application with NFA within 30 days of 

the anniversary date of the initial claim 

for exemptive relief. Because persons 

are required to file electronically with 

NFA, NFA would conduct the annual 

confirmation process through its 

electronic system, similar to the annual 

updates to registration information that 

are required of registered firms under 

§ 3.10(d). The Commission’s proposal 

would make the failure to comply with 

the annual notice requirement result in 

a deemed withdrawal of the exemption 

or exclusion and under those 

circumstances could result in the 

initiation of an enforcement action. 

The Commission invites comment on 

whether 30 days is an adequate period 

of time in which to affirm. Does it make 

sense to require a filing within 30 days 

of the anniversary date of the initial 

filing, or within 30 days of the end of 

the calendar year? 

G. Proposed Amendments to §§ 4.24 

and 4.34: New Risk Disclosure 

Statement for CPOs and CTAs 

The enactment of the Dodd-Frank Act 

expanded the scope of the 

Commission’s authority to include 

swaps.71 In light of this expansion of the 

Commission’s jurisdiction, the 

Commission has determined that it is 

necessary to amend the mandatory Risk 

Disclosure Statements 72 under 

§§ 4.24(b) and 4.34(b) for CPOs and 

CTAs to describe certain risks specific 

to swaps transactions. Specifically, the 

Commission believes that it is critical 

that registered CPOs and CTAs inform 

pool participants and clients about the 

potential risks that swaps may have 

limited liquidity and may be hard to 

value, which may result in difficulties 

regarding the pool participants’ ability 

to redeem their interests in the pool and 

clients’ ability to liquidate their 

accounts. The Commission believes that 

the significance of these risks should be 

appropriately highlighted by including a 

discussion in the Risk Disclosure 

Statement at the beginning of the 

document. 

The Commission is specifically 

soliciting comment as to whether the 

risks discussed in the proposed Risk 

Disclosure Statement are the significant 

risks to pool participants and clients 

that are posed by the use of swaps by 

CPOs and CTAs? Should any other risks 

be included in the proposed Risk 

Disclosure Statement? Should any 

proposed language be omitted? 

H. Proposed Amendments to Part 4: 

Conforming Amendments 

As a result of the amendments 

discussed in this proposal, the 

Commission proposes to amend various 

provisions of part 4 of the Commission’s 

regulations for the purposes of making 

confirming changes. Specifically, the 

proposal would delete references to 

repealed rules (e.g., §§ 4.13(a)(3) and 


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73See 5 U.S.C. 601, et seq. 

74See 47 FR 18618, 18619, Apr. 30, 1982. 

75See 47 FR at 18619–20. 

76See 47 FR at 18620. 

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

78See 7 U.S.C. 12. 79See 5 U.S.C. 552a. 

(a)(4), etc.) in other sections of the 

Commission’s regulations. 

III. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(RFA) 73 requires that agencies, in 

proposing rules, consider the impact of 

those rules on small businesses. 

CPOs: The Commission has 

determined previously that registered 

CPOs are not small entities for the 

purpose of the RFA.74 With respect to 

CPOs exempt from registration, the 

Commission has previously determined 

that a CPO is a small entity if it meets 

the criteria for exemption from 

registration under current Rule 

4.13(a)(2).75 Such CPOs will continue to 

qualify for either exemption or 

exclusion from registration and 

therefore will not be required to report 

on proposed form CPO–PQR; however, 

they will have an annual notice filing 

obligation confirming their eligibility for 

exemption or exclusion from 

registration and reporting. The 

Commission estimates that the time 

required to complete this new 

requirement will be approximately 0.25 

of an hour, which the Commission has 

concluded will not be a significant time 

expenditure. The Commission has 

determined that the proposed regulation 

will not create a significant economic 

impact on a substantial number of small 

entities. 

CTAs: The Commission has 

previously decided to evaluate, within 

the context of a particular rule proposal, 

whether all or some CTAs should be 

considered to be small entities, and if 

so, to analyze the economic impact on 

them of any such rule.76 Schedule A of 

proposed form CTA–PR is proposed to 

be required of all registered CTAs, 

which necessarily includes entities that 

would be considered small. The 

majority of the information requested on 

schedule A is information that is readily 

available to the CTA or readily 

calculable by the CTA, regardless of 

size. Therefore, the Commission 

estimates that the time required to 

complete the items contained in 

schedule A will be approximately 0.5 

hours as it is comprised of only two 

questions, which solicit information 

that is expected to be readily available. 

The Commission has determined that 

proposed schedule A will not create a 

significant economic impact on a 

substantial number of small entities. 

With respect to proposed form CTA–PR, 

only CTAs directing pool assets equal to 

or in excess of $150 million will be 

obligated to file schedule B. The 

Commission is hereby determining that 

for purposes of this rulemaking that 

CTAs directing pool assets equal to or 

in excess of $150 million are not small 

entities for RFA purposes. Accordingly, 

the Chairman, on behalf of the 

Commission hereby certifies pursuant to 

5 U.S.C. 605(b) that the proposed rules, 

will not have a significant impact on a 

substantial number of small entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act 

(‘‘PRA’’) imposes certain requirements 

on Federal agencies in connection with 

their conducting or sponsoring any 

collection of information as defined by 

the PRA.77 An agency may not conduct 

or sponsor, and a person is not required 

to respond to, a collection of 

information unless it displays a 

currently valid control number from the 

Office of Management and Budget 

(‘‘OMB’’). The Commission is proposing 

to amend Collection 3038–0023 to allow 

for an increase in response hours for the 

proposed rulemaking resulting from the 

rescission of §§ 4.13(a)(3) and (a)(4) and 

the modification of § 4.5. The 

Commission is also proposing to amend 

Collection 3038–0005 to allow for an 

increase in response house for the 

proposed rulemaking associated with 

new and modified compliance 

obligations under part 4 of the 

Commission’s regulations resulting from 

this proposal. The Commission, 

therefore, is submitting this proposal to 

the OMB for its review in accordance 

with 44 U.S.C. 3507(d) and 5 CFR 

1320.11. The titles for these collections 

are ‘‘Part 3—Registration’’ (OMB Control 

number 3038–0023) and ‘‘Part 4— 

Commodity Pool Operators and 

Commodity Trading Advisors’’ (OMB 

Control number 3038–0005). Responses 

to this collection of information would 

be mandatory. 

The Commission will protect 

proprietary information according to the 

Freedom of Information Act (‘‘FOIA’’) 

and 17 CFR part 145, ‘‘Commission 

Records and Information.’’ In addition, 

section 8(a)(1) of the CEA strictly 

prohibits the Commission, unless 

specifically authorized by the CEA, from 

making public ‘‘data and information 

that would separately disclose the 

business transactions or market position 

of any person and trade secrets or names 

of customers.’’ 78 The Commission is 

also required to protect certain 

information contained in a government 

system of records according to the 

Privacy Act of 1974.79

1. Additional Information Provided by 

CPOs and CTAs 

a. OMB Control Number 3038–0023 

Part 3 of the Commission’s regulations 

concern registration requirements. 

Existing Collection 3038–0023 has been 

amended to reflect the obligations 

associated with the registration of new 

entrants, i.e., CPOs that were previously 

exempt from registration under §§ 4.5, 

4.13(a)(3) and 4.13(a)(4), that had not 

previously been required to register. 

Because the registration requirements 

are in all respects the same as for 

current registrants, the collection has 

been amended only insofar as it 

concerns the increased estimated 

number of respondents and the 

corresponding estimated annual burden. 

Estimated number of respondents: 

77,857. 

Annual responses by each 

respondent: 78,109. 

Annual reporting burden: 7,029.8. 

b. OMB Control Number 3038–0005 

Part 4 of the Commission’s regulations 

concerns the operations of CTAs and 

CPOs, and the circumstances under 

which they may be exempted from 

registration. Under existing Collection 

3038–0005 the estimated average time 

spent per response has not been altered; 

however, adjustments have been made 

to the collection to account for current 

information available from NFA 

concerning CPOs and CTAs registered 

or claiming exemptive relief under the 

part 4 regulations, and the new burden 

expected under proposed § 4.27. The 

total burden associated with Collection 

3038–005 is expected to be: 

Estimated number of respondents: 

31,322. 

Annual responses by each 

respondent: 69,082. 

Estimated average hours per response: 

8.77. 

Annual reporting burden: 272,419.6. 

Proposed § 4.27 is expected to be the 

main reason for the increased burden 

under Collection 3038–005. 

Specifically, the Commission expects 

the following burden with respect to the 

various schedules of proposed forms 

CPO–PQR and CTA–PR: 

Form CPO–PQR: Schedule A: 

Estimated number of respondents: 

4,060. 

Annual responses by each 

respondent: 4. 

Estimated average hours per response: 

8. 


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7988 Federal Register / Vol. 76, No. 29 / Friday, February 11, 2011 / Proposed Rules 

80See 7 U.S.C. 19(a); see also 5 U.S.C. 

801(a)(1)(B)(i). 

Annual reporting burden: 129,920. 

Form CPO–PQR: Schedule B: 

Estimated number of respondents: 920. 

Annual responses by each respondent: 

4. 

Estimated average hours per response: 

4. 

Annual reporting burden: 14,720. 

Form CPO–PQR: Schedule C: 

Estimated number of respondents: 260. 

Annual responses by each respondent: 

4. 

Estimated average hours per response: 

18. 

Annual reporting burden: 18,720. 

Form CTA–PR: Schedule A: 

Estimated number of respondents: 450. 

Annual responses by each respondent: 

4. 

Estimated average hours per response: 

0.5. 

Annual reporting burden: 900. 

Form CTA–PR: Schedule B: 

Estimated number of respondents: 150. 

Annual responses by each respondent: 

4. 

Estimated average hours per response: 

7. 

Annual reporting burden: 4,200. 

2. Information Collection Comments 

The Commission invites the public 

and other Federal agencies to comment 

on any aspect of the reporting and 

recordkeeping burdens discussed above. 

Pursuant to 44 U.S.C. 3506(c)(2)(B), the 

Commission solicits comments in order 

to: (i) Evaluate whether the proposed 

collection of information is necessary 

for the proper performance of the 

functions of the Commission, including 

whether the information will have 

practical utility; (ii) evaluate the 

accuracy of the Commission’s estimate 

of the burden of the proposed collection 

of information; (ii) determine whether 

there are ways to enhance the quality, 

utility, and clarity of the information 

collected; and (iv) minimize the burden 

of the collection of information on those 

who are to respond, including through 

the use of automated collection 

techniques or other forms of information 

technology. 

Comments may be submitted directly 

to the Office of Information and 

Regulatory Affairs, by fax at (202) 395– 

6566 or by e-mail at 

OIRAsubmissions@omb.eop.gov. Please 

provide the Commission with a copy of 

submitted comments so that they can be 

summarized and addressed in the final 

rule. Refer to the ADDRESSES section of 

this notice of proposed rulemaking for 

comment submission instructions to the 

Commission. A copy of the supporting 

statements for the collections of 

information discussed above may be 

obtained by visiting RegInfo.gov. OMB 

is required to make a decision 

concerning the collection of information 

between 30 and 60 days after 

publication of this release. 

Consequently, a comment to OMB is 

most assured of being fully effective if 

received by OMB (and the Commission) 

within 30 days after publication of this 

notice of proposed rulemaking. 

C. Cost-Benefit Analysis 

Section 15(a) of the CEA 80 requires 

the Commission to consider the costs 

and benefits of its actions before issuing 

rules, regulations, or orders under the 

CEA. By its terms, section 15(a) does not 

require the Commission to quantify the 

costs and benefits of its rules, 

regulations or orders or to determine 

whether the benefits outweigh the costs. 

Rather, section 15(a) requires that the 

Commission ‘‘consider’’ the costs and 

benefits of its actions. Section 15(a) 

further specifies that the costs and 

benefits shall be evaluated in light of the 

following five broad areas of concern: 

(1) Protection of market participants and 

the public; (2) efficiency, 

competitiveness and financial integrity 

of futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. The Commission may in 

its discretion give greater weight to any 

one of the five enumerated areas and 

could in its discretion determine that, 

notwithstanding the costs, a particular 

rule, regulation, or order is necessary or 

appropriate to protect the public interest 

or to effectuate any of the provisions or 

accomplish any of the purposes of the 

CEA. 

The proposed amendments to the 

Commission’s regulations require CPOs 

and CTAs registered with the CFTC to 

file in an electronic format the proposed 

forms CPO–PQR and CTA–PR, 

respectively. Under the proposed rule, 

most CPOs and CTAs would be required 

to provide quarterly a limited amount of 

basic information on forms CPO–PQR 

and CTA–PR about the operations of 

their commodity pools. Only large CPOs 

and CTAs would have to submit on a 

quarterly basis the full complement of 

systemic risk related information 

required by forms CPO–PQR and 

CTA–PR. 

With respect to costs, the Commission 

has determined that: (1) Although they 

are necessary to U.S. financial stability, 

the proposed reporting requirements 

will create additional compliance costs 

for these registrants; (2) without the 

proposed reporting requirements 

imposed on CPOs and CTAs, the 

Commission may not have sufficient 

information to provide effective 

oversight of participants in the futures 

and derivatives markets; and (3) the 

proposed reporting requirements, once 

finalized, will provide the Commission 

with better information regarding the 

business operations, creditworthiness, 

use of leverage, and other material 

information of certain registered CPOs 

and CTAs. 

In addition to the costs associated 

with the proposed data collection 

instruments, the Commission has 

determined the following with respect 

to the costs of the other proposed 

changes to part 4 of the Commission’s 

regulations impacting entitlement to 

exemptive relief from registration: 

(1) Unless the Commission rescinds the 

exemptive relief delineated in 

§§ 4.13(a)(3) and 4.13(a)(4), the 

information collected under proposed 

forms CPO–PQR and CTA–PR will not 

provide a complete understanding of the 

risks arising from the activities of CPOs 

and CTAs in the commodity derivatives 

markets; (2) failing to adopt revisions to 

§ 4.5 that are substantively similar to 

those proposed in NFA’s petition for 

rulemaking would result in disparate 

treatment of similarly situated collective 

investment schemes; (3) requiring the 

filing of an annual notice to claim 

exemptive relief under §§ 4.5, 4.13, and 

4.14 enables the Commission to better 

understand the universe of entities 

claiming relief from the Commission’s 

regulatory scheme; and (4) although the 

Commission believes that the 

abovementioned amendments are 

necessary, the proposed changes will 

result in additional costs to certain 

market participants due to registration 

and compliance obligations. 

The Commission has determined that 

the proposed changes will provide a 

benefit to all investors and market 

participants by providing the 

Commission and other policy makers 

with more complete information about 

these registrants. In turn, this 

information would enhance the 

Commission’s ability to form and frame 

appropriately tailored regulatory 

policies to the commodity pool industry 

and its operators and advisors. As 

mentioned above, the Commission does 

not have access to this information 

today and has instead made use of 

information from other, less reliable 

sources. 

The Commission invites public 

comment on its cost-benefit 

considerations. Commenters are also 

invited to submit any data and other 

information that they may have 


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quantifying or qualifying the costs and 

benefits of this proposed rule with their 

comment letters. 

List of Subjects 

17 CFR Part 4 

Advertising, Brokers, Commodity 

futures, Commodity pool operators, 

Commodity trading advisors, Consumer 

protection, Reporting and recordkeeping 

requirements. 

17 CFR Part 145 

Commission records and information, 

Confidential business information. 

17 CFR Part 147 

Open commission meetings, Sunshine 

Act. 

Accordingly, 17 CFR chapter I is 

proposed to be amended as follows: 

PART 4—COMMODITY POOL 

OPERATORS AND COMMODITY 

TRADING ADVISORS 

1. The authority citation for part 4 

continues to read as follows: 

Authority: 7 U.S.C. 1a, 2, 4, 6(c), 6b, 6c, 6l, 

6m, 6n, 6o, 12a, and 23. 

2. In § 4.5, add paragraphs (c)(2)(iii) 

and (c)(5) to read as follows: 

§ 4.5 Exclusion from the definition of the 

term ‘‘commodity pool operator.’’ 

* * * * * 

(c) * * * 

(2) * * * 

(iii) Furthermore, if the person 

claiming the exclusion is an investment 

company registered as such under the 

Investment Company Act of 1940, then 

the notice of eligibility must also 

contain representations that such person 

will operate the qualifying entity as 

described in Rule 4.5(b)(1) in a manner 

such that the qualifying entity: 

(A) Will use commodity futures or 

commodity options contracts, or swaps 

solely for bona fide hedging purposes 

within the meaning and intent of [Rule] 

1.3(z)(1); Provided however, That in 

addition, with respect to positions in 

commodity futures or commodity 

option contracts, or swaps that may be 

held by a qualifying entity only which 

do not come within the meaning and 

intent of Rule 1.3(z)(1), a qualifying 

entity may represent that the aggregate 

initial margin and premiums required to 

establish such positions will not exceed 

five percent of the liquidation value of 

the qualifying entity’s portfolio, after 

taking into account unrealized profits 

and unrealized losses on any such 

contracts it has entered into; and, 

Provided further, That in the case of an 

option that is in-the-money at the time 

of purchase, the in-the-money amount 

as defined in Rule 190.01(x) may be 

excluded in computing such five 

percent; 

(B) Will not be, and has not been, 

marketing participations to the public as 

or in a commodity pool or otherwise as 

or in a vehicle for trading in (or 

otherwise seeking investment exposure 

to) the commodity futures, commodity 

options, or swaps markets. 

* * * * * 

(5) Annual notice: Each person who 

has filed a notice of exclusion under 

this section must affirm the notice of 

exemption from registration, withdraw 

such exemption due to the cessation of 

activities requiring registration or 

exemption therefrom, or withdraw such 

exemption and apply for registration 

within 30 days of the anniversary of the 

initial filing date through National 

Futures Association’s electronic 

exemption filing system. 

* * * * * 

3. In § 4.7, revise paragraphs (a)(3)(ix) 

and (x) and (b)(3) to read as follows: 

§ 4.7 Exemption from certain part 4 

requirements for commodity pool operators 

with respect to offerings to qualified eligible 

persons and for commodity trading 

advisors with respect to advising qualified 

eligible persons. 

* * * * * 

(a) * * * 

(3) * * * 

(ix) A natural person whose 

individual net worth, or joint net worth 

with that person’s spouse at the time of 

either his purchase in the exempt pool 

or his opening of an exempt account 

would qualify him as an accredited 

investor as defined in Sec. 230.501(a)(5) 

of this title; 

(x) A natural person who would 

qualify as an accredited investor as 

defined in Sec. 203.501(a)(6) of this 

title; 

* * * * * 

(b) * * * 

(3) Annual report relief. (i) Exemption 

from the specific requirements of 

§ 4.22(c) of this part; Provided, that 

within 90 calendar days after the end of 

the exempt pool’s fiscal year or the 

permanent cessation of trading, 

whichever is earlier, the commodity 

pool operator electronically files with 

the National Futures Association and 

distributes to each participant in lieu of 

the financial information and statements 

specified by that section, an annual 

report for the exempt pool, affirmed in 

accordance with § 4.22(h) which 

contains, at a minimum: 

(A) A Statement of Financial 

Condition as of the close of the exempt 

pool’s fiscal year (elected in accordance 

with § 4.22(g)); 

(B) A Statement of Operations for that 

year; 

(C) Appropriate footnote disclosure 

and such further material information as 

may be necessary to make the required 

statements not misleading. For a pool 

that invests in other funds, this 

information must include, but is not 

limited to, separately disclosing the 

amounts of income, management and 

incentive fees associated with each 

investment in an investee fund that 

exceeds five percent of the pool’s net 

assets. The income, management and 

incentive fees associated with an 

investment in an investee fund that is 

less than five percent of the pool’s net 

assets may be combined and reported in 

the aggregate with the income, 

management and incentive fees of other 

investee funds that, individually, 

represent an investment of less than five 

percent of the pool’s net assets. If the 

commodity pool operator is not able to 

obtain the specific amounts of 

management and incentive fees charged 

by an investee fund, the commodity 

pool operator must disclose the 

percentage amounts and computational 

basis for each such fee and include a 

statement that the CPO is not able to 

obtain the specific fee amounts for this 

fund; 

(D) Where the pool is comprised of 

more than one ownership class or series, 

information for the series or class on 

which the financial statements are 

reporting should be presented in 

addition to the information presented 

for the pool as a whole; except that, for 

a pool that is a series fund structured 

with a limitation on liability among the 

different series, the financial statements 

are not required to include consolidated 

information for all series. 

(ii) Legend. If a claim for exemption 

has been made pursuant to this section, 

the commodity pool operator must make 

a statement to that effect on the cover 

page of each annual report. 

* * * * * 

4. In § 4.13: 

a. Remove and reserve paragraphs 

(a)(3), (4), and (e) 

b. Revise paragraph (b)(1)(ii) 

c. Redesignate paragraph (b)(4) as 

paragraph (b)(5), and add new 

paragraph (b)(4). 

The revision and addition read as 

follows: 

§ 4.13 Exemption from registration as a 

commodity pool operator. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) Contain the section number 

pursuant to which the operator is filing 

the notice (i.e., § 4.13(a)(1) or (2)) and 


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represent that the pool will be operated 

in accordance with the criteria of that 

paragraph; and 

* * * * * 

(4) Annual notice: Each person who 

has filed a notice of exemption from 

registration under this section must 

affirm the notice of exemption from 

registration, withdraw such exemption 

due to the cessation of activities 

requiring registration or exemption 

therefrom, or withdraw such exemption 

and apply for registration within 30 

days of the anniversary of the initial 

filing date through National Futures 

Association’s electronic exemption 

filing system. 

* * * * * 

5. In § 4.14: 

a. Remove paragraph (a)(8)(i)(D) 

b. Redesignate paragraph (a)(8)(iii)(D) 

as (a)(8)(iii)(E) and add new paragraph 

(a)(8)(iii)(D) to read as follows: 

§ 4.14 Exemption from registration as a 

commodity trading adviser. 

* * * * * 

(a) * * * 

(8) * * * 

(iii) * * * 

(D) Annual notice: Each person who 

has filed a notice of exemption from 

registration under this section must 

affirm the notice of exemption from 

registration, withdraw such exemption 

due to the cessation of activities 

requiring registration or exemption 

therefrom, or withdraw such exemption 

and apply for registration within 30 

days of the anniversary of the initial 

filing date through National Futures 

Association’s electronic exemption 

filing system. 

* * * * * 

6. In § 4.24, add paragraph (b)(5) to 

read as follows: 

§ 4.24 General disclosures required. 

* * * * * 

(b) * * * 

(5) If the pool may engage in swaps, 

the Risk Disclosure Statement must 

further state: 

SWAPS TRANSACTIONS, LIKE OTHER 

FINANCIAL TRANSACTIONS, INVOLVE A 

VARIETY OF SIGNIFICANT RISKS. THE 

SPECIFIC RISKS PRESENTED BY A 

PARTICULAR SWAP TRANSACTION 

NECESSARILY DEPEND UPON THE TERMS 

OF THE TRANSACTION AND YOUR 

CIRCUMSTANCES. IN GENERAL, 

HOWEVER, ALL SWAPS TRANSACTIONS 

INVOLVE SOME COMBINATION OF 

MARKET RISK, CREDIT RISK, 

COUNTERPARTY CREDIT RISK, FUNDING 

RISK, LIQUIDITY RISK, AND 

OPERATIONAL RISK. 

HIGHLY CUSTOMIZED SWAPS 

TRANSACTIONS IN PARTICULAR MAY 

INCREASE LIQUIDITY RISK, WHICH MAY 

RESULT IN A SUSPENSION OF 

REDEMPTIONS. HIGHLY LEVERAGED 

TRANSACTIONS MAY EXPERIENCE 

SUBSTANTIAL GAINS OR LOSSES IN 

VALUE AS A RESULT OF RELATIVELY 

SMALL CHANGES IN THE VALUE OR 

LEVEL OF AN UNDERLYING OR RELATED 

MARKET FACTOR. 

IN EVALUATING THE RISKS AND 

CONTRACTUAL OBLIGATIONS 

ASSOCIATED WITH A PARTICULAR SWAP 

TRANSACTION, IT IS IMPORTANT TO 

CONSIDER THAT A SWAP TRANSACTION 

MAY BE MODIFIED OR TERMINATED 

ONLY BY MUTUAL CONSENT OF THE 

ORIGINAL PARTIES AND SUBJECT TO 

AGREEMENT ON INDIVIDUALLY 

NEGOTIATED TERMS. THEREFORE, IT 

MAY NOT BE POSSIBLE FOR THE 

COMMODITY POOL OPERATOR TO 

MODIFY, TERMINATE, OR OFFSET THE 

POOL’S OBLIGATIONS OR THE POOL’S 

EXPOSURE TO THE RISKS ASSOCIATED 

WITH A TRANSACTION PRIOR TO ITS 

SCHEDULED TERMINATION DATE. 

* * * * * 

7. Add § 4.27 to read as follows: 

§ 4.27 Additional reporting by advisors of 

certain large commodity pools. 

(a) General definitions. For the 

purposes of this section: 

(1) Commodity pool operator or CPO 

has the same meaning as commodity 

pool operator defined in section 1a(11) 

of the Commodity Exchange Act; 

(2) Commodity trading advisor or CTA 

has the same meaning as commodity 

trading advisor defined in section 

1a(12); 

(3) Direct has the same meaning as 

direct defined in section 4.10(f); 

(4) Net asset value or NAV has the 

same meaning as net asset value as 

defined in section 4.10(b); 

(5) Pool has the same meaning as pool 

as defined in section 1(a)(10) of the 

Commodity Exchange Act; 

(6) Reporting period means each 

quarter ending March 31, June 30, 

September 30, or December 31; 

(b) Persons required to report. A 

reporting person is: 

(1) Any commodity pool operator that 

is registered or required to be registered 

under the Commodity Exchange Act and 

the Commission’s regulations 

thereunder; or 

(2) Any commodity trading advisor 

that is registered or required to be 

registered under the Commodity 

Exchange Act and the Commission’s 

regulations thereunder. 

(c) Reporting. (1) Except as provided 

in section (c)(2) of this section, each 

reporting person shall file with the 

National Futures Association, not later 

than 15 days after the end of the first 

reporting period during which such 

reporting person satisfies the 

requirements of paragraph (b) of this 

section, and not later than 15 days after 

the end of each quarter during the 

calendar year subsequent thereto, a 

report with respect to the directed assets 

of each pool under the advisement of 

the commodity pool operator consistent 

with appendix A to this part or 

commodity trading advisor consistent 

with appendix C to this part. 

(2) Mid-Sized CPOs, as that term is 

defined in appendix A to this part, shall 

file with the National Futures 

Association such reports consistent with 

the time period described in appendix 

A. 

(3) All financial information shall be 

reported in accordance with generally 

accepted accounting principles 

consistently applied. 

(d) [Reserved] 

(e) Filing requirements. Each report 

required to be filed with the National 

Futures Association under this section 

shall: 

(1)(i) Contain an oath and affirmation 

that, to the best of the knowledge and 

belief of the individual making the oath 

and affirmation, the information 

contained in the document is accurate 

and complete; Provided, however, That 

it shall be unlawful for the individual to 

make such oath or affirmation if the 

individual knows or should know that 

any of the information in the document 

is not accurate and complete and 

(ii) Each oath or affirmation must be 

made by a representative duly 

authorized to bind the CPO or CTA. 

(2) Be submitted consistent with the 

National Futures Association’s 

electronic filing procedures. 

(f) Termination of reporting 

requirement. All reporting persons shall 

continue to file such reports as are 

required under this section until the 

effective date of a Form 7W filed in 

accordance with the Commission’s 

regulations. 

(g) Public records. Reports filed 

pursuant to this section shall not be 

considered Public Records as defined in 

§ 145.0 of this chapter. 

8. In § 4.34, add paragraph (b)(4) to 

read as follows: 

§ 4.34 General disclosures required. 

* * * * * 

(b) * * * 

(4) If the commodity trading advisor 

may engage in swaps, the Risk 

Disclosure Statement must further state: 

SWAPS TRANSACTIONS, LIKE OTHER 

FINANCIAL TRANSACTIONS, INVOLVE A 

VARIETY OF SIGNIFICANT RISKS. THE 

SPECIFIC RISKS PRESENTED BY A 

PARTICULAR SWAP TRANSACTION 

NECESSARILY DEPEND UPON THE TERMS 

OF THE TRANSACTION AND YOUR 

CIRCUMSTANCES. IN GENERAL, 


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HOWEVER, ALL SWAPS TRANSACTIONS 

INVOLVE SOME COMBINATION OF 

MARKET RISK, CREDIT RISK, FUNDING 

RISK, AND OPERATIONAL RISK. 

HIGHLY CUSTOMIZED SWAPS 

TRANSACTIONS IN PARTICULAR MAY 

INCREASE LIQUIDITY RISK, WHICH MAY 

RESULT IN YOUR ABILITY TO WITHDRAW 

YOUR FUNDS BEING LIMITED. HIGHLY 

LEVERAGED TRANSACTIONS MAY 

EXPERIENCE SUBSTANTIAL GAINS OR 

LOSSES IN VALUE AS A RESULT OF 

RELATIVELY SMALL CHANGES IN THE 

VALUE OR LEVEL OF AN UNDERLYING OR 

RELATED MARKET FACTOR. 

IN EVALUATING THE RISKS AND 

CONTRACTUAL OBLIGATIONS 

ASSOCIATED WITH A PARTICULAR SWAP 

TRANSACTION, IT IS IMPORTANT TO 

CONSIDER THAT A SWAP TRANSACTION 

MAY BE MODIFIED OR TERMINATED 

ONLY BY MUTUAL CONSENT OF THE 

ORIGINAL PARTIES AND SUBJECT TO 

AGREEMENT ON INDIVIDUALLY 

NEGOTIATED TERMS. THEREFORE, IT 

MAY NOT BE POSSIBLE TO MODIFY, 

TERMINATE, OR OFFSET YOUR 

OBLIGATIONS OR YOUR EXPOSURE TO 

THE RISKS ASSOCIATED WITH A 

TRANSACTION PRIOR TO ITS SCHEDULED 

TERMINATION DATE. 

* * * * * 

9. Appendix A is revised to read as 

follows: 

Appendix A to Part 4—Form CPO–PQR 

BILLING CODE P 


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10. Appendix C is added to read as 

follows: 

Appendix C—Form CTA–PR 


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BILLING CODE C 

PART 145—COMMISSION RECORDS 

AND INFORMATION 

11. The authority citation for part 145 

continues to read as follows: 

Authority: Pub. L. 99–570, 100 Stat. 3207; 

Pub. L. 89–554, 80 Stat. 383; Pub. L. 90–23, 

81 Stat. 54; Pub. L. 98–502, 88 Stat. 1561– 

1564 (5 U.S.C. 552); Sec. 101(a), Pub. L. 93– 

463, 88 Stat. 1389 (5 U.S.C. 4a(j)). 

12. In § 145.5, revise paragraphs 

(d)(1)(viii) and (h) to read as follows: 

§ 145.5 Disclosure of nonpublic records. 

* * * * * 

(d) * * * 

(1) * * * 

(viii) The following reports and 

statements that are also set forth in 

paragraph (h) of this section, except as 

specified in 17 CFR 1.10(g)(2) or 17 CFR 

31.13(m): Forms 1–FR required to be 

filed pursuant to 17 CFR 1.10; FOCUS 

reports that are filed in lieu of Forms 1– 

FR pursuant to 17 CFR 1.10(h); Forms 

2–FR required to be filed pursuant to 17 

CFR 31.13; the accountant’s report on 

material inadequacies filed in 

accordance with 17 CFR 1.16(c)(5); all 

reports and statements required to be 

filed pursuant to 17 CFR 1.17(c)(6); and 

(A) The following portions of Form 

CPO–PQR required to be filed pursuant 

to 17 CFR 4.27: Schedule A: Question 2, 

subparts (b) and D; Question 3, subparts 

(g) and (h); Question 10, subparts (b), 

(c), (d), (e), and (g); Question 11; 

Question 12; and Question 13; and 

Schedules B and C; 

(B) The following portions of Form 

CTA–PR required to be filed pursuant to 

17 CFR 4.27: Schedule B: Question 4, 


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subparts (b), (c), (d), and (e); Question 

5; and Question 6; 

* * * * * 

(h) Contained in or related to 

examinations, operating, or condition 

reports prepared by, on behalf of, or for 

the use of the Commission or any other 

agency responsible for the regulation or 

supervision of financial institutions, 

including, but not limited to the 

following reports and statements that 

are also set forth in paragraph (d)(1)(viii) 

of this section, except as specified in 17 

CFR 1.10(g)(2) and 17 CFR 31.13(m): 

Forms 1–FR required to be filed 

pursuant to 17 CFR 1.10; FOCUS reports 

that are filed in lieu of Forms 1–FR 

pursuant to 17 CFR 1.10(h); Forms 2–FR 

required to be filed pursuant to 17 CFR 

31.13; the accountant’s report on 

material inadequacies filed in 

accordance with 17 CFR 1.16(c)(5); all 

reports and statements required to be 

filed pursuant to 17 CFR 1.17(c)(6); and 

(1) The following portions of Form 

CPO–PQR required to be filed pursuant 

to 17 CFR 4.27: Schedule A: Question 2, 

subparts (b) and D; Question 3, subparts 

(g) and (h); Question 10, subparts (b), 

(c), (d), (e), and (g); Question 11; 

Question 12; and Question 13; and 

Schedules B and C; 

(2) The following portions of Form 

CTA–PR required to be filed pursuant to 

17 CFR 4.27: Schedule B: Question 4, 

subparts (b), (c), (d), and (e); Question 

5; and Question 6; and 

* * * * * 

PART 147—OPEN COMMISSION 

MEETINGS 

13. The authority citation for part 147 

continues to read as follows: 

Authority: Sec. 3(a), Pub. L. 94–409, 90 

Stat. 1241 (5 U.S.C. 552b); sec. 101(a)(11), 

Pub. L. 93–463, 88 Stat. 1391 (7 U.S.C. 4a(j) 

(Supp. V, 1975)). 

14. In § 147.3, revise (b)(4)(i)(H) and 

(b)(8) to read as follows: 

§ 147.3 General requirement of open 

meetings; grounds upon which meetings 

may be closed. 

* * * * * 

(b) * * * 

(4)(i) * * * 

(H) The following reports and 

statements that are also set forth in 

paragraph (b)(8) of this section, except 

as specified in 17 CFR 1.10(g)(2) or 17 

CFR 31.13(m): Forms 1–FR required to 

be filed pursuant to 17 CFR 1.10; 

FOCUS reports that are filed in lieu of 

Forms 1–FR pursuant to 17 CFR 1.10(h); 

Forms 2–FR required to be filed 

pursuant to 17 CFR 31.13; the 

accountant’s report on material 

inadequacies filed in accordance with 

17 CFR 1.16(c0(5); all reports and 

statements required to be filed pursuant 

to 17 CFR 1.17(c)(6); the following 

portions of Form CPO–PQR required to 

be filed pursuant to 17 CFR 4.27: 

Schedule A: Question 2, subparts (b) 

and D; Question 3, subparts (g) and (h); 

Question 10, subparts (b), (c), (d), (e), 

and (g); Question 11; Question 12; and 

Question 13; and Schedules B and C; 

and the following portions of Form 

CTA–PR required to be filed pursuant to 

17 CFR 4.27: Schedule B: Question 4, 

subparts (b), (c), (d), and (e); Question 

5; and Question 6; 

* * * * * 

(8) Disclose information contained in 

or related to examination, operating, or 

condition reports prepared by, on behalf 

of, or for the use of the Commission or 

any other agency responsible for the 

regulation or supervision of financial 

institutions, including, but not limited 

to the following reports and statements 

that are also set forth in paragraph 

(b)(4)(i)(H) of this section, except as 

specified in 17 CFR 1.10(g)(2) or 17 CFR 

31.13(m): Forms 1–FR required to be 

filed pursuant to 17 CFR 1.10; FOCUS 

reports that are filed in lieu of Forms 1– 

FR pursuant to 17 CFR 1.10(h); Forms 

2–FR pursuant to 17 CFR 31.13; the 

accountant’s report on material 

inadequacies filed in accordance with 

1.16(c)(5); and all reports and 

statements required to be filed pursuant 

to 17 CFR 1.17(c)(6); and 

(i) The following portions of Form 

CPO–PQR required to be filed pursuant 

to 17 CFR 4.27: Schedule A: Question 2, 

subparts (b) and D; Question 3, subparts 

(g) and (h); Question 10, subparts (b), 

(c), (d), (e), and (g); Question 11; 

Question 12; and Question 13; and 

Schedules B and C; and 

(ii) The following portions of Form 

CTA–PR required to be filed pursuant to 

17 CFR 4.27: Schedule B: Question 4, 

subparts (b), (c), (d), and (e); Question 

5; and Question 6; 

* * * * * 

Issued in Washington, DC on January 26, 

2011 by the Commission. 

David A. Stawick, 

Secretary of the Commission. 

Appendices to Commodity Pool 

Operators and Commodity Trading 

Advisors: Amendments to Compliance 

Obligations—Commission Voting 

Summary and Statements of 

Commissioners 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Gensler and 

Commissioners Dunn, Sommers (by proxy), 

Chilton and O’Malia voted in the affirmative; 

no Commissioner voted in the negative. 

Appendix 2—Statement of Chairman 

Gary Gensler 

I support the proposed joint rulemaking 

with the Securities and Exchange 

Commission (SEC) that requires reporting by 

investment advisers to private funds that are 

also registered as commodity pool operators 

(CPOs) or commodity trading advisors 

(CTAs) with the CFTC. I also support the 

CFTC’s proposed amendment to compliance 

obligations of CPOs and CTAs. The joint rule 

requires private fund investment advisers 

with assets under management totaling more 

than $150 million to provide the SEC with 

financial and other trading information. 

Private fund investment advisers with assets 

under management totaling more than $1 

billion would be subject to heightened 

reporting requirements. I support the CFTC 

rule that would bring similar reporting to 

CPOs and CTAs with assets under 

management greater than $150 million that 

are not otherwise jointly regulated. This is to 

ensure that similar entities in the asset 

management arena are regulated consistently. 

Lastly, the proposal repeals certain 

exemptions issued under Part 4 of the 

Commission’s regulations so the Commission 

will have a more complete picture of the 

activity of operators of and advisors to 

pooled investment vehicles in the 

commodities marketplace. 

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

BILLING CODE P 


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