```

[Federal Register: September 17, 2010 (Volume 75, Number 180)]
[Notices]               
[Page 56997-56998]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17se10-58]                         

-----------------------------------------------------------------------

COMMODITY FUTURES TRADING COMMISSION

 
Petition of the National Futures Association, Pursuant to Rule 
13.2, to the U.S. Commodity Futures Trading Commission To Amend of the 
Rule 4.5

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of Petition and Request for Comment.

-----------------------------------------------------------------------

SUMMARY: The National Futures Association (``NFA'') has petitioned the 
Commodity Futures Trading Commission (``Commission'' or ``CFTC'') to 
amend a rule that excludes certain otherwise regulated persons from the 
definition of the term ``commodity pool operator'' (``CPO'') with 
respect to certain qualifying entities. The rule presently requires any 
person desiring to claim the exclusion to file a notice of eligibility 
with NFA, which must identify the qualifying entity to be operated 
pursuant to the exclusion.
    NFA requests the Commission amend its rule to limit the scope of 
the exclusion for registered investment companies (``RICs''). 
Specifically, NFA has requested that any RIC include in its notice of 
eligibility a representation that the RIC's qualifying entity (1) Will 
use commodity futures or commodity options contracts solely for bona 
fide hedging purposes, (2) will not have the initial margin and 
premiums required to establish any commodity futures or commodity 
options not used for bona fide hedging purposes exceeding five percent 
(5%) of the liquidation value of the qualifying entity's portfolio, and 
(3) will not be marketed to the public as a commodity pool or as a 
vehicle for investment in commodity futures or commodity options.
    The Commission seeks comment on NFA's petition and any related 
questions. Copies of the petition are available for inspection at the 
Office of the Secretariat, by mail at the address listed below, by 
telephoning (202) 418-5100, or on the Commission's Web site (http://www.cftc.gov).

DATES: Comments must be received on or before October 18, 2010. 
Comments must be in English or, if not, accompanied by an English 
translation.

ADDRESSES: Comments should be sent to David A. Stawick, Secretary, 
Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st 
Street, NW., Washington, DC 20581. Comments may be sent by facsimile 
transmission to (202) 418-5521, or by e-mail to 
NFAamendrule4.5@cftc.gov. Reference should be made to ``National 
Futures Association Petition to Amend Commission Rule 4.5.'' Comments 
may also be submitted by connecting to the Federal eRulemaking Portal 
at http://www.regulations.gov and following the comment submission 
instructions. Comments will be published on the Commission's Web site.

FOR FURTHER INFORMATION CONTACT: Kevin P. Walek, Assistant Director, 
Telephone: (202) 418-5463, E-mail: kwalek@cftc.gov or Daniel S. Konar 
II, 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:

[[Page 56998]]

I. Background

    In 1985, the Commission adopted Rule 4.5, which provides an 
exclusion from the definition of ``CPO'' for certain otherwise 
regulated persons that operated certain qualifying entities.\1\ At the 
time of its adoption, any person seeking to claim the exclusion was 
required to file with the Commission a notice of eligibility that 
contained a representation that
---------------------------------------------------------------------------

    \1\ 50 FR 15868-01 (April 23, 1985).

    * * * such person will operate the qualifying entity specified 
therein in a manner such that the qualifying entity: (i) Will use 
commodity futures or commodity options contracts solely for bona 
fide hedging purposes within the meaning and intent of Sec.  
1.3(z)(1) [subject to certain provisions] * * * (ii) Will not enter 
into commodity futures and commodity options contracts for which the 
aggregate initial margin and premiums exceed 5 percent of the fair 
market value of the entity's assets, after taking into account 
unrealized profits and unrealized losses on any such contracts * * * 
and (iii) 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 the commodity futures or commodity options 
markets.\2\
---------------------------------------------------------------------------

    \2\ Id. at 15883.

    In 2003, the Commission amended Rule 4.5 by deleting the bona fide 
hedging requirement, the limitation on aggregate initial margin, and 
the prohibition on marketing.\3\ In proposing these amendments to Rule 
4.5, the Commission explained that its decision to delete the hedging 
requirement and the limitation on aggregate initial margin was driven 
by the fact that persons and qualifying entities that are otherwise 
regulated ``may not need to be subject to any commodity interest 
trading criteria to qualify for the exclusion afforded by Rule 4.5.'' 
\4\ The Commission further explained when adopting the final amendments 
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.'' \5\
---------------------------------------------------------------------------

    \3\ 68 FR 47221-01, 47223 (Aug. 8, 2003).
    \4\ 68 FR 12622-02, 12626 (March 17, 2003).
    \5\ 68 FR 47223.
---------------------------------------------------------------------------

    Rule 4.5 currently requires only that notices of eligibility 
include representations that

    * * * the qualifying entity: (i) Will disclose in writing to 
each participant, whether existing or prospective, that the 
qualifying entity is operated be 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.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 4.5(c)(2).
---------------------------------------------------------------------------

II. NFA's Petition

    By letter dated August 18, 2010 (``Petition''), NFA, a registered 
futures association, petitioned the Commission under Rule 13.2 \7\ to 
amend Rule 4.5. Specifically, NFA requested that, in addition to the 
two current representations required in a person's notice of 
eligibility, Rule 4.5 should require the following representation:
---------------------------------------------------------------------------

    \7\ 17 CFR 13.2 (enumerating the process by which the Commission 
may be petitioned for the issuance, amendment or repeal of a rule).

    (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); 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.

III. Request for Comments

    The Commission requests public comment on any aspect of the 
Petition that commenters believe may raise issues under the Commodity 
Exchange Act or Commission regulations.
* * * * *

    Issued in Washington, DC, on September 13, 2010 by the 
Commission.
David A. Stawick,
Secretary of the Commission.
[FR Doc. 2010-23310 Filed 9-16-10; 8:45 am]
BILLING CODE 6351-01-P
```