UNITED STATES OF AMERICA

 COMMODITY FUTURES TRADING COMMISSION

 OPEN MEETING ON THE ELEVENTH SERIES OF

 PROPOSED RULEMAKINGS UNDER THE DODD-FRANK ACT

 Washington, D.C.

 Thursday, January 26, 2011
 2

 1 PARTICIPANTS:

 2 Commission Members:

 3 GARY GENSLER, Chairman

 4 BART CHILTON, Commissioner

 5 MICHAEL V. DUNN, Commissioner

 6 SCOTT D. O'MALIA, Commissioner

 7 Presenters:

 8 KEVIN P. WALEK

 Division of Clearing and Intermediary

 9 Oversight

 10 AMANDA L. OLEAR

 Division of Clearing and Intermediary

 11 Oversight

 12 DANIEL S. KONAR II

 Division of Clearing and Intermediary

 13 Oversight

 14 ANANDA RADHAKRISHNAN

 Division of Clearing and Intermediary

 15 Oversight

 16

 17 * * * * *

 18

 19

 20

 21

 22
 3

 1 P R O C E E D I N G S

 2 (9:37 a.m.)

 3 CHAIRMAN GENSLER: This is a public

 4 meeting of the Commodity Futures Trading

 5 Commission to consider issuance of proposed

 6 rulemakings under the Dodd-Frank Reform and

 7 Consumer Protection Act. I want to make sure

 8 before I go on, is Commissioner Chilton on the

 9 line?

 10 COMMISSIONER CHILTON: I'm here, Mr.

 11 Chairman, yes.

 12 CHAIRMAN GENSLER: That's a yes.

 13 Terrific. Today we're going to be hearing from

 14 the team on two related rules. One is a joint

 15 rule with the Securities and Exchange Commission

 16 which I understand they voted out yesterday, and

 17 that's reporting on investment advisers to private

 18 funds and certain commodity pool operators. For

 19 the public, sometimes you think of these as hedge

 20 funds but it's private funds and what we here over

 21 here at the CFTC call commodity pool operators and

 22 commodity training advisers, on a new form and
 4

 1 that form is PF. Also a related rule, one here

 2 and not joint with the SEC is on commodity pool

 3 operators and commodity trading advisers and this

 4 is to be consistent with the joint rule and some

 5 other important matters for us.

 6 Before we hear from staff, I'd like to

 7 thank Commissioners Mike Dunn, Jill Sommers, Bart

 8 Chilton and Scott O'Malia for all their thoughtful

 9 work in implementing this Act, and welcome members

 10 from the public and market participants not only

 11 for their listening but also for their comments on

 12 these rules if we were to move forward. I want to

 13 remind the public that we do have additional

 14 meetings scheduled for February 11 and February 24

 15 I believe as we normally do starting at 9:30.

 16 We'll post one week before those meetings the

 17 subjects of this meetings. I believe today is our

 18 eleventh meeting on the Dodd-Frank Act.

 19 With that, staff led by Kevin Walek will

 20 comment on this after we get other Commissioners'

 21 thoughts on this. I think I'm going to turn to

 22 Commissioner Dunn.
 5

 1 COMMISSIONER DUNN: Thank you, Mr.

 2 Chairman. I want to thank everyone for joining us

 3 today in what looks to be inclement weather here

 4 and I'm certainly hopeful that our colleague

 5 Commissioner Chilton can get back from New York.

 6 This is an important meeting regarding the

 7 implementation of the Dodd-Frank Act and today's

 8 meeting will address proposed rules regarding

 9 reporting by investment advisers to private funds,

 10 commodity pool operators and commodity trading

 11 advisers in amendments to the compliance

 12 obligations of commodity pool operators and

 13 commodity trading advisers. The proposed rule

 14 regarding reporting by investment advisers is a

 15 result of collaborative efforts on the part of the

 16 Commission Securities and Exchange Commission.

 17 Today's proposed rule requires investment advisers

 18 to provide certain information to the SEC and the

 19 CFTC enabling better monitoring of emerging risk

 20 to the financial stability of the United States on

 21 a system-wide perspective. Information collected

 22 would be shared with the Financial Stabilization
 6

 1 Oversight Council for use in monitoring such risk.

 2 I look forward to public comments on this propose

 3 rule.

 4 The proposed rule regarding the

 5 compliance obligations of commodity pool operators

 6 and commodity trading advisers provides for new

 7 data collection for CPOs and CTAs consistent with

 8 that required under the Dodd-Frank Act. I also

 9 look forward to the public's comments on the

 10 proposed rule particularly in regard to whether

 11 there are additional risk metrics or market

 12 factors that the Commission should require CPOs to

 13 employ.

 14 As I've mentioned in previous open

 15 meetings, the CFTC today faces a severe budget

 16 crisis. At our current funding level, the

 17 Commission is under serious strain. The lack of

 18 staff and resources necessary to both implement

 19 Dodd-Frank and continuing to fulfill our

 20 pre-Dodd-Frank duties under the Commodity Exchange

 21 Act, without additional funding the strain will

 22 only become worse in July when much of Dodd-Frank
 7

 1 goes into effect. The lack of staff and resources

 2 leaves the Commission with a very hard choice as

 3 to how to use our limited resources to enforce

 4 both Dodd- Frank and the Commodity Exchange Act.

 5 From the offset of this rulemaking process I have

 6 expressed my concern that our budget crisis would

 7 move us from a principle-based regulatory regime

 8 to a restrictive regime. Without additional

 9 funding we cannot acquire the human and technical

 10 resources for optimal regulatory oversight. I

 11 fear the results will be a restrictive regulatory

 12 regime that will have a negative impact on both

 13 the futures and swap industries in the United

 14 States.

 15 Mr. Chairman, I would like to once again

 16 thank staff of the CFTC for all of their hard work

 17 in regard to these very important rules. Their

 18 dedication to their important work during this

 19 difficult time is what government service is all

 20 about and I salute them.

 21 CHAIRMAN GENSLER: Thank you,

 22 Commissioner Dunn. I appreciate the salute to
 8

 1 staff because they are really putting in long

 2 hours in their thoughtful and excellent work.

 3 Usually I turn to Commissioner Sommers who is

 4 representing this Commission ably at international

 5 meetings I think in Brazil, so that I'm going to

 6 turn to Commissioner Chilton.

 7 COMMISSIONER CHILTON: Thanks, Mr.

 8 Chairman. Given the weather both in D.C. and here

 9 in New York, it makes me thing that these Part 4

 10 rules have been so helpful in disclosure over the

 11 years that they protected people from being

 12 victims of a blinding snow job. Today's rule is

 13 more about transparency, both the rules are about

 14 transparency, and that's critical. When I talk

 15 with people and I say what the Dodd-Frank law is

 16 all about, the thing I put paramount among all of

 17 that is transparency. Kevin has done a great job,

 18 the SEC has done a great job on this and I commend

 19 them all.

 20 The last little point I wanted to make

 21 is this discussion that all of us continue to have

 22 amongst ourselves my colleagues and the public
 9

 1 about the funding. A lot of the things that we're

 2 hearing now are really symptoms of a larger

 3 problem. I think that the Chairman has done a

 4 great job with this challenging budget situation

 5 that we're involved in. If you think that

 6 Congress would give us the authority to regulate a

 7 large portion of the $600 trillion OTC market,

 8 nobody would imagine that they wouldn't give us

 9 the resources to actually do that. So given where

 10 we are, we're I think we're doing exactly the

 11 right things. There are little idiosyncratic

 12 things that will pop up here and there, but they

 13 are all symptoms of a larger concern which is we

 14 can put these rules in place, we can have them on

 15 the books, but without the additional resources we

 16 won't be able to enforce them or oversee the

 17 markets like Congress instructed us. So I think

 18 we need to be creative and think out of the box

 19 about how we deal with this dilemma. I'll be

 20 talking a little bit later about that today, but I

 21 think all of us know that there are things that

 22 need to be done. Otherwise, without the
 10

 1 enforcement and the oversight we could be back

 2 where we were 2 years ago when we saw this

 3 economic calamity take hold. Thank you, Mr.

 4 Chairman, and I appreciate all the work of

 5 everybody. Thanks.

 6 CHAIRMAN GENSLER: Thanks. Good to see

 7 you on the video. Commissioner O'Malia?

 8 COMMISSIONER O'MALIA: Thank you very

 9 much. We have before us today two related

 10 proposed rulemakings that address reporting

 11 requirements for commodity pool operators and

 12 commodity trading advisers. I want to thank the

 13 team, Kevin, Amanda, Daniel and Eileen, for their

 14 very hard work and thoughtful efforts on this

 15 proposal.

 16 It is my understanding that the

 17 substance of these two proposals reflects a great

 18 deal of coordination with both domestic and

 19 international regulators, consultation with the

 20 Financial Stability Oversight Council and

 21 discussions with the NFA, so that I'm grateful for

 22 the efforts to coordinate those efforts.
 11

 1 I'm pleased to be able to support the

 2 proposed rulemaking that in part rescinds certain

 3 exemptions from the registration and reporting

 4 requirements for CPOs and CTAs. In September of

 5 last I wrote in support of similar changes

 6 proposed by the NFA to Commission Rules 4.5. At

 7 that time I noted certain registered investment

 8 companies were offering a series of de facto

 9 commodity pool interests yet claiming exclusion

 10 under the regulations of 4.5. This resulted in

 11 some registered investment companies offering

 12 futures-only investment products like futures

 13 mutual funds without become subject to CFTC

 14 oversight. I continue to support the repeal of

 15 certain exclusions to the registration

 16 requirements for CPOs and CTAs so that we can

 17 close the regulatory gap that allows some

 18 registered companies to offer futures-only

 19 products outside of the Commission's jurisdiction

 20 especially its antifraud authorities.

 21 I noted that the team has taken the

 22 opportunity with this proposal to ask several
 12

 1 questions of the industry. I counted no fewer

 2 than 45 specific requests for comment in this

 3 proposal and I appreciate the team's efforts to

 4 listen to industry as they craft this rulemaking.

 5 I'm also pleased to support the proposed

 6 join rulemaking with the SEC. The rulemaking will

 7 adopt certain reporting requirements required of

 8 Title IV of the Dodd- Frank Act and I think the

 9 team has done a great job to make commonsense

 10 proposals especially related to the treatment of

 11 entities registered by both Commissions. I'm

 12 eager for the industry to provide feedback on the

 13 proposal and I look forward to the discussion

 14 today. Thank you very much.

 15 CHAIRMAN GENSLER: Thank you,

 16 Commissioner O'Malia. Before we get going I want

 17 do two administrative things. One is out of an

 18 abundance of caution we noticed this meeting 7

 19 days in advance and I'm told that's in compliance

 20 with the government's Sunshine Act, but apparently

 21 the Federal Register didn't put it in the Federal

 22 Register. We did comply with the Sunshine Act,
 13

 1 but just in an abundance of caution, I'd entertain

 2 a motion that we determine the Commission business

 3 and importance of the issues we're addressing

 4 necessitates holding this meeting today just in

 5 case because it wasn't in the Federal Register.

 6 COMMISSIONER DUNN: So moved.

 7 COMMISSIONER O'MALIA: Second.

 8 CHAIRMAN GENSLER: All in favor?

 9 GROUP: Aye.

 10 CHAIRMAN GENSLER: Are there any

 11 opposed?

 12 COMMISSIONER CHILTON: That's fine with

 13 me on the motion. I did want to make a quick

 14 comment on this because this issue has come up and

 15 I don't know if you want to expand on it too. I

 16 don't want to slow us down too much. But there

 17 has been an issue in that we've been getting

 18 emails lately about a delay in our proposal on

 19 position limits saying that the 60-day comment

 20 period is being delayed by the agency and I know

 21 that's not the case, that we did some technical

 22 corrections as we do on all of these rules. The
 14

 1 Federal Register is actually a separate agency

 2 that doesn't have anything to do with the CFTC

 3 other than we are one of their clients and when we

 4 give these rules to the Federal Register there is

 5 a backlog and sometimes they don't get printed on

 6 time. Lots of people have been emailing lately,

 7 and just like this example where it wasn't noticed

 8 perhaps when we would like it, we don't make that

 9 call all the time and I want to alert people that

 10 there is nothing nefarious going on, that the CFTC

 11 isn't delaying the comment period, we are merely

 12 in queue to get published.

 13 CHAIRMAN GENSLER: That's absolutely

 14 correct. In fact, in this circumstance we did

 15 notice this meeting, it's just that the Federal

 16 Register then published it a day or two later. On

 17 our rules, I think on average, and people can

 18 correct me, the Federal Register has been

 19 publishing them somewhere 7 to 10 days after our

 20 meetings. We would like them earlier, but the

 21 Federal Register is doing a professional job and

 22 I'm sure they're dealing with not only our
 15

 1 publishing, but things that are to be published

 2 throughout the government. I think that on the

 3 position limit one we put it on our website

 4 because of the interest just as we do with

 5 everything even though it might be in the Federal

 6 Register several days later. David Stawick, our

 7 secretary, is shaking his head yes.

 8 MR. STAWICK: Our standard procedure,

 9 Mr. Chairman, is that when a rule is sent to the

 10 Federal Register, my office forwards that to the

 11 Office of Public Affairs and it's put on the

 12 website.

 13 CHAIRMAN GENSLER: Great. One other

 14 administrative matter is that Commissioner Sommers

 15 who is representing us down in Brazil as I said is

 16 unable to join us today. She has requested that

 17 she be permitted to vote by limited proxy for all

 18 votes taken at this meeting, a procedure that we

 19 have utilized in previous meetings, and to that

 20 end I request unanimous consent to permit limited

 21 proxy voting for the votes subsequently taken in

 22 this meeting. Without objection so ordered.
 16

 1 With that, Kevin, Amanda, Daniel, Ananda

 2 or anybody else who gets pulled to the mike, the

 3 floor is yours.

 4 MR. RADHAKRISHNAN: Thank you, Mr.

 5 Chairman. I'm going to hand it over to the

 6 excellent team that did the work on this proposal.

 7 Kevin?

 8 MR. WALEK: Thank you, Ananda. Thank

 9 you, Mr. Chairman and Commissioners.

 10 I would be remiss if I didn't add a few

 11 people's names to the list. The team was a little

 12 bit larger than the four that Commissioner O'Malia

 13 mentioned. We also had on the team Adrianne Joves

 14 before she went to Commissioner O'Malia's staff on

 15 our team. We also had Carl Kennedy from the

 16 General Counsel's Office. And last but not least

 17 of the people who weren't mentioned, I'm sorry, I

 18 have two more, we had Barry McCarty from the

 19 Division of Enforcement and we had Jake

 20 Preiserowicz from the Division of Clearing and

 21 Intermediary Oversight so that we had a very good

 22 team in this operation. I would also be remiss if
 17

 1 I were not to thank our colleagues over at the

 2 SEC. In my 34 years of government experience,

 3 this has been the most collegial interagency

 4 effort that I have ever been involved with. In

 5 fact, we even have one of the members of the SEC

 6 team in the audience today who worked with Dan on

 7 preparing the data-collection instruments go give

 8 us moral support or to cheer us on and I think

 9 that's indicative of the type of work effort we

 10 had as a joint SEC-CFTC team.

 11 With respect to the specific

 12 presentation today, we are presenting to you for

 13 your consideration two Notices of Proposed

 14 Rulemaking. As you all have noted, the first

 15 Notice of Proposed Rulemaking is the joint

 16 rulemaking and this is the joint SEC-CFTC

 17 rulemaking to collect data for dual registrants of

 18 greater than $150 million. Some day they probably

 19 they will be greater than $150 billion too, but in

 20 this case $150 million. There is a tiered

 21 approach and we'll talk about that more later, but

 22 there is a tiered approach between those entities
 18

 1 that are smaller pools at the $150 million level

 2 and those that are greater than $1 billion.

 3 Then the second Notice of Proposed

 4 Rulemaking as was noted in several of other

 5 presentations earlier by the Commissioners is to

 6 deal with certain CFTC compliance issues to make a

 7 more level playing field, to put light on to what

 8 were previously dark markets and to in fact ask

 9 parallel questions and provide parallel

 10 information between similarly situated types of

 11 investment vehicles. Specifically, the Notice of

 12 Proposed Rulemaking is probably of most concern to

 13 those here at the CFTC, we have a provision to

 14 reinstate trading criteria for registered

 15 investment companies claiming exclusion from CPO

 16 definition under Regulation 4.5. This was what

 17 Commissioner O'Malia mentioned was NFA's proposal

 18 earlier that we are carrying forward. In the

 19 proposal we have a recession of the exemption from

 20 CPO registration under Regulations 413(a)(3) and

 21 (a)(4). These two sections are commonly referred

 22 to as the de minimis and the sophisticated
 19

 1 investor equivalents on our side.

 2 The third item that we have contained

 3 here is a revision to Regulation 4.7 so that CPOs

 4 may no longer claim the exemption from the

 5 requirement that an exempt pool's annual report

 6 contain certified financial signatures.

 7 Interestingly enough, in this context with the 4.7

 8 entities it's been our information from looking at

 9 the actual filings that over 80 percent of the

 10 4.7s were getting certified annual reports anyway

 11 which was due to their investors wanting the

 12 certified annual report so that we're really only

 13 providing that portion to a very small group of

 14 even the 4.7 entities.

 15 We also have included in that second

 16 notice a provision to modify the participant

 17 qualification criteria of Regulation 4.7 to

 18 incorporate the SEC's Accredited Investment

 19 Standard by reference rather than by direct

 20 inclusion of its terms. What was happening was

 21 that if the SEC were to change the terms, we would

 22 have to change our regulation and would have to
 20

 1 reregulate, but by doing a cross-reference, if

 2 they change theirs, the cross-reference applies

 3 and carries through that change that the SEC may

 4 have made so that it doesn't require us to

 5 constantly modify our regulation.

 6 We also have included a requirement that

 7 all persons claiming exemptive or exclusionary

 8 relief under Regulations 4.5, those remaining

 9 sections of 413 and 414 to confirm their notice of

 10 claim of exemption or exclusion on an annual

 11 basis. One of the issues that may come up if you

 12 ask questions about specific numbers, I may have

 13 to give you an answer that my best guess is

 14 because of the way our notice process has worked

 15 in the past. Our notice processes indicated when

 16 someone is eligible for the exemption but it never

 17 tells us when they leave so that as a consequence

 18 we're not sure of all the entities that have left

 19 or what the total size of that population is.

 20 Last but not least in the second notice,

 21 we have a provision to amend the risk disclosure

 22 statement that must be included in the CPO and CTA
 21

 1 disclosure documents to describe certain risks

 2 related to swaps transactions. This is to bring

 3 that risk disclosure statement for CPOs and CTAs

 4 in line with the rest of the Title VII actions

 5 that have been happening as we've been proceeding

 6 through this series of Dodd-Frank rulemakings.

 7 With that, the team and I will be happy to

 8 entertain any questions you may have.

 9 CHAIRMAN GENSLER: Thank you, Kevin and

 10 team. I support both of the rules and I'll have a

 11 statement for the record, but I think what this

 12 importantly does is bring more transparency to the

 13 regulators, to the Securities and Exchange

 14 Commission primarily on their responsibilities but

 15 also the CFTC and the members of the Financial

 16 Stability Oversight Council. I think the intent

 17 of Congress as I understand it was to get this

 18 information for systemic risk monitoring and

 19 systemic risk reporting. I believe the SEC even

 20 calls it systemic risk reporting. Somebody from

 21 the SEC was here but I don't want to put them on

 22 the spot. So I think that that's very good and
 22

 1 there will be important information.

 2 I think it's also good that we bring

 3 ours in line because I under the joint rule,

 4 Kevin, a question, the joint rule is for those

 5 investment funds or private funds that are either

 6 solely regulated by the SEC and in addition that

 7 are jointly regulated with us. Is that correct?

 8 MR. WALEK: That and greater than $150

 9 million.

 10 CHAIRMAN GENSLER: Thank you for that.

 11 So that anybody over $150 million that's either

 12 solely regulated by them or jointly with us?

 13 MR. WALEK: That is correct.

 14 CHAIRMAN GENSLER: But our companion one

 15 is on what we call pool operators or commodity

 16 pool operators and advisers who might only be

 17 regulated by us who are 150.

 18 MR. WALEK: That is correct.

 19 CHAIRMAN GENSLER: And that is why we

 20 have these companions.

 21 MR. WALEK: That is correct.

 22 CHAIRMAN GENSLER: I think that's very
 23

 1 good that it's consistent. My question is

 2 somewhat on the numbers. I don't expect you to

 3 have the exact number at your fingertips or maybe

 4 you do, but how many private funds would call

 5 under the category where they would have to comply

 6 with this? I know there are two levels, over a

 7 billion dollars and over $15 million, if you have

 8 that type of information.

 9 MR. WALEK: Our rough estimates in that

 10 area where somewhere slightly around 200 of our

 11 entities were likely to be filing the Form PF, the

 12 joint form. That does not however include what

 13 our guesstimate might be of those 413(a)(3)s which

 14 is the de minimis exemption that might come back

 15 into both registration with the SEC and us and as

 16 a consequence be captured. That number again

 17 going back to the fact that we don't have the

 18 filing of who still is or isn't exempt under

 19 413(a)(3), I've made rough guesses anywhere from

 20 1,000 to 5,000.

 21 CHAIRMAN GENSLER: The 200, is that the

 22 over a billion or is that over the $150 million?
 24

 1 MR. WALEK: That's the over a billion.

 2 CHAIRMAN GENSLER: Amanda?

 3 MS. OLEAR: I think it was 150.

 4 MR. WALEK: I'm sorry, it is above 15.

 5 Amanda is correct.

 6 CHAIRMAN GENSLER: Commissioner Dunn?

 7 COMMISSIONER DUNN: Thank you, Mr.

 8 Chairman. I want to commend our staff on working

 9 very closely with the SEC and with IOSCO. I know

 10 that Commissioner Kathleen Casey at the SEC has

 11 worked very hard on harmonizing this type of

 12 information through the IOSCO survey and getting

 13 that information and to me gives a great deal of

 14 hope that we can have harmonization of our

 15 regulations internationally.

 16 I'd like to pursue a little bit, Kevin,

 17 on what you just talked about, that the proposed

 18 rule requests comments on whether any entities

 19 that have previously claimed exclusion under

 20 Section 413(a)(3) and (a)(4) should be exempt from

 21 compliance with the proposed revision. Should the

 22 Commission consider other de minimis exemptions?
 25

 1 If so, what should that criteria be for such de

 2 minimis exemptions?

 3 MR. WALEK: That is something that the

 4 team has not talked at length about. It has come

 5 up in a couple of conversations with other

 6 Commissioners as well. I think that it may be

 7 appropriate to consider another de minimis level,

 8 but clearly the way things are structured right

 9 now we felt it was better rescind 413(a)(3) and

 10 then through the collection of answers to the

 11 question get a better sense of what would be. In

 12 fact, I think at one point this morning I was

 13 talking with someone about the possibility of

 14 making another additional change to that question

 15 in the document to ask specifically would be that,

 16 to take your language and insert it into what we

 17 already have asked and make it part of the

 18 release. I think you'd have to have unanimous

 19 consent to do so, but we would be happy to

 20 entertain such an amendment to the document.

 21 COMMISSIONER DUNN: I'll let me

 22 colleagues think about that a little bit. I don't
 26

 1 want to force anything on them.

 2 CHAIRMAN GENSLER: Thank you for

 3 Robert's Rules of Order. I'd like to ask for

 4 unanimous consent. I think that we already have a

 5 question on this de minimis, but that we add some

 6 language that staff works with legal assistance

 7 that asks the public if we were still to have some

 8 de minimis, what criteria would be most

 9 appropriate. I think that's the spirit of

 10 Commissioner Dunn's question.

 11 MR. WALEK: Consider it done.

 12 COMMISSIONER DUNN: Thank you. Now as

 13 is my want to do, I turn to the Division Director

 14 and ask do we have staff to consider these

 15 requests?

 16 MR. RADHAKRISHNAN: Staff that will be

 17 looking at the information flow are these

 18 excellent people right here so that if you're

 19 asking do we need more, the answer is yes.

 20 COMMISSIONER DUNN: If there are going

 21 to be 200 to 250 or so requests, I'd like to know

 22 what's it going to cost us and what is it we're
 27

 1 not going to be doing when we're doing this?

 2 MR. RADHAKRISHNAN: I'm not sure how

 3 people. I think I may have asked for an

 4 additional 10 people, I need to check on that, to

 5 do this and other information. This is the

 6 Managed Funds Unit and I think that what I'd asked

 7 for is an augmenting so that the Managed Funds

 8 Unit gets to 10 people so that we could discharge

 9 the responsibilities that the Commission may

 10 decide that we need to do. If they're going to be

 11 concentrating on the new responsibilities, then

 12 unfortunately something will have to give and it

 13 may be with current responsibilities that we may

 14 not be able to discharge with alacrity. We take

 15 pride on discharging all of our responsibilities

 16 and sometimes the issue is which do we get to

 17 first.

 18 COMMISSIONER DUNN: I would forewarn you

 19 that when it comes time to a final rule, I'll want

 20 some concrete information.

 21 MR. RADHAKRISHNAN: Sure.

 22 COMMISSIONER DUNN: Mr. Chairman, were
 28

 1 you going to interject something?

 2 CHAIRMAN GENSLER: Go ahead.

 3 COMMISSIONER DUNN: We are asking for

 4 additional information and it's pertinent to know

 5 what are we doing with that information. A good

 6 part of this is going to be FSOC and I would ask

 7 you what's the intention of the FSOC with this

 8 additional information?

 9 CHAIRMAN GENSLER: As a member of the

 10 FSOC, I don't think I could speak on behalf of all

 11 of the members, but as I understand it, the

 12 information that comes to us is to assist in

 13 monitoring for systemic-risk issue and making

 14 recommendations on that and that the investment

 15 adviser and private fund area is one that Congress

 16 gave the SEC and CFTC this joint authority to

 17 address that systemic-risk reporting. So I think

 18 that's why in this case even though Congress said

 19 the over $150 million size to have reporting,

 20 they've tiered it to a greater than a billion

 21 dollars because it's about systemic risk largely.

 22 COMMISSIONER DUNN: Just for public
 29

 1 knowledge, where do we see the breakdown of these

 2 hedge fund advisers coming from? How much are in

 3 the U.S., how much under the FSA and then other

 4 entities that are regulated like Hong Kong?

 5 MR. WALEK: At our last meeting that we

 6 had in Rome with the TFUE, Task Force on

 7 Unregulated Entities, the estimate that the group

 8 was working with by throwing numbers around is

 9 probably 95 percent of these private funds that

 10 some people like to call hedge funds lie within

 11 the jurisdiction of the United States.

 12 COMMISSIONER DUNN: Thank you.

 13 CHAIRMAN GENSLER: Thank you,

 14 Commissioner Dunn. Commissioner Chilton?

 15 COMMISSIONER CHILTON: Thanks, Mr.

 16 Chairman. Kevin, I think the Chairman was asking

 17 this question about the numbers of folks, but I

 18 know that we're talking about NFA being the

 19 custodian here of some of these records but that

 20 still is going to have an impact on our budget

 21 too. Correct? Do you have any comments on that?

 22 MR. WALEK: As Ananda was alluding to,
 30

 1 and I don't know what the out years were, but we

 2 already had budgeted for this year three

 3 additional staff which we are unable to get at

 4 least at this time because of the budget

 5 situation. Those persons we were hoping would be

 6 the persons working in concert with the NFA once

 7 this rule became final to make sure that the data

 8 was being collected in the manner most conducive

 9 to our needs as well as integrated with the

 10 information being collected by the Securities and

 11 Exchange Commission so that they could be packaged

 12 in a logical fashion.

 13 The good news in that picture is that,

 14 yes, the NFA is part of it and we have worked with

 15 NFA staff over the years with the data collection

 16 already of most of the information for CPOs and

 17 CTAs and they have done an excellent job in that

 18 area, and this is an expansion in fact of a data

 19 collection which was already called PQR that NFA

 20 instituted and collected for the first time this

 21 last March so that we're expanding upon that

 22 collection. I think at the very least the data
 31

 1 can be used for purposes of honing in on and

 2 improving their selection of candidates for

 3 examination, but also by their experience they can

 4 work with us in coming up with quick and easier

 5 ways to package the information.

 6 Is it a perfect answer? No. I think

 7 Ananda's answer of the needing of staff is the

 8 perfect answer. But after 34 years in government

 9 and watching the budgets go up and down, this is

 10 my third instance where I've seen something like

 11 this happen in my career and amazingly staff gets

 12 us through it.

 13 COMMISSIONER CHILTON: Good folks. The

 14 other thing I had was a comment and it follows-up

 15 on what Commissioner Dunn was saying about the

 16 exemptions or asking about the exemption. I think

 17 the comments are going to be real important here.

 18 As we know, we saw a FOIA exemption repealed by

 19 Congress, the SEC's FOIA exemption repealed by

 20 Congress, so we need to make sure we get it right

 21 and I think you've done a great job here but we'll

 22 look forward to the comments. Thank you, Mr.
 32

 1 Chairman.

 2 CHAIRMAN GENSLER: Thank you,

 3 Commissioner Chilton. Before I go to Commissioner

 4 O'Malia, as to the numbers of my earlier question,

 5 if you can turn to page 77, and the pagination of

 6 the one I printed out might be different, of the

 7 Joint Rule. It's in the middle of the Paperwork

 8 Reduction Act stuff. Again because of the

 9 pagination when you print, it's the Joint Rule

 10 with the SEC. It has burden hours and how many

 11 hours it takes to fill out the forms and 10 hours

 12 to fill out this and 3 hours to fill out that.

 13 Then at the end, again I may have a different page

 14 pagination, it says, "Assuming that there are

 15 2,180 smaller private fund advisers, 200 large

 16 hedge fund advisers, 80 large liquidity fund

 17 advisers and 300 large private equity fund

 18 advisers," and then it goes on, my question again

 19 with this in front of me, is large private fund

 20 adviser meaning large over a billion or large over

 21 150? Amanda?

 22 MS. OLEAR: Over a billion.
 33

 1 CHAIRMAN GENSLER: Over a billion,

 2 because there was a little back and forth. It's

 3 the 200 to maybe 300 that are over a billion, and

 4 it's a greater number that's over the 150 maybe?

 5 MS. OLEAR: I think the numbers that

 6 Kevin mentioned earlier, the 200 that he was

 7 referring to were the joint registrants and those

 8 were $150 million. The 200 large hedge funds that

 9 are mentioned in the sentence that you just read

 10 would include SEC-only funds.

 11 CHAIRMAN GENSLER: I see. There's the

 12 joint and the SEC only.

 13 MS. OLEAR: Right.

 14 CHAIRMAN GENSLER: There's a coincidence

 15 in the numbers.

 16 MS. OLEAR: Exactly.

 17 MR. WALEK: Because the numbers are

 18 coincidental, that was my reason for my making the

 19 error and thank goodness Amanda had that already

 20 parsed out.

 21 CHAIRMAN GENSLER: But in essence when

 22 you combine the SEC and us together, this page,
 34

 1 the numbers I just read, is a good estimate

 2 together, this 200 to 300 that are over a billion?

 3 MS. OLEAR: Right. Those are good

 4 numbers that you just read that would cover the

 5 joint registrants and the SEC-only registrants.

 6 CHAIRMAN GENSLER: That's right. Again

 7 it's an estimate.

 8 MS. OLEAR: Right.

 9 CHAIRMAN GENSLER: Sorry. Commissioner

 10 O'Malia?

 11 COMMISSIONER O'MALIA: No trouble. Will

 12 these forms be filed electronically?

 13 MR. WALEK: Yes.

 14 COMMISSIONER O'MALIA: Perfect.

 15 MR. WALEK: In fact, with Mr. Bartel

 16 here from the SEC and Dan, they can both tell you

 17 that when they tried to take the electronic form

 18 and turn that into hard copy, that's when it grew

 19 to so many pages, because when it's in electronic

 20 form online a lot of that is pull-down menus, but

 21 you can't show a pull-down menu on a hard copy.

 22 COMMISSIONER O'MALIA: That's off of the
 35

 1 NFA. Right? That's all FNA generated?

 2 MR. WALEK: The PQR will be collected

 3 through the NFA's electronic system that already

 4 exists, but for certain large entities there will

 5 be additional information from what they're

 6 currently doing. With the form that they go to,

 7 they are already familiar with how to get onto the

 8 system and how to fill out that first portion of

 9 it. One full schedule out of the three schedules

 10 is already in existence.

 11 COMMISSIONER O'MALIA: Bless the NFA.

 12 Let me ask you a couple questions on Rule 4.5.

 13 What type of risks do you believe are present when

 14 we don't fill the regulatory vacuum that's left

 15 without the modification in this proposal?

 16 MR. WALEK: I think that there is some

 17 argument, and Dan has worked very closely on the

 18 4.5 issue with the NFA as well and he may want to

 19 add to this, but I think to my in my mind the

 20 largest vacuum that is filled is that the SEC

 21 themselves up through the Chairman's level has

 22 indicated to us that we have a better knowledge of
 36

 1 the commodities done by the 4.5 entities, the

 2 mechanisms involved, the nature of the leverage

 3 involved, and as a consequence we have more of the

 4 knowledge to regulate them correctly. With it

 5 just being an SEC registrant only, that would be

 6 the vacuum.

 7 COMMISSIONER O'MALIA: My next question

 8 is what is the SEC's opinion of this, but you've

 9 solved that for me so that I'm fine. Thank you

 10 very much for the hard work.

 11 MR. WALEK: I probably have divulged

 12 something I shouldn't have.

 13 COMMISSIONER O'MALIA: I was going to

 14 ask you the question anyway.

 15 CHAIRMAN GENSLER: I also want to ask

 16 for unanimous consent to adopt a question proposed

 17 by Commissioner Sommers regarding 4.5 I think. I

 18 don't know if this has been pre-walked around, so

 19 I'm going to read the question, "Currently in our

 20 role, not the joint role, we have this issue of

 21 4.5 and there's a question that already exists

 22 that says, additionally, the Commission is
 37

 1 soliciting comment regarding implementation of the

 2 changes to 4.5. Then it would have an additional

 3 question that asked, what issues should the

 4 Commission consider with the respect to the

 5 ability of registered investment companies to

 6 comply with the disclosure document and reporting

 7 delivery requirements, recordkeeping and related

 8 fund performance disclosure requirements under

 9 Part 4?" I'm asking for unanimous consent, and

 10 not hearing objections we'll add this question

 11 from Commissioner Sommers from Brazil or here.

 12 Did I properly entertain a motion before we asked

 13 our questions? I've messed that up. I'll

 14 entertain a motion to accept the staff

 15 recommendations issued proposed rules and I'll do

 16 the joint one first on the joint rule.

 17 COMMISSIONER DUNN: So moved.

 18 COMMISSIONER O'MALIA: Second. That's

 19 the motion. These unanimous consents, do I have

 20 to do them again? No. Good. Mr. Stawick, call

 21 the roll.

 22 MR. STAWICK: Commissioner O'Malia?
 38

 1 COMMISSIONER O'MALIA: Aye.

 2 MR. STAWICK: Commissioner O'Malia, aye.

 3 Commissioner Chilton?

 4 COMMISSIONER CHILTON: Aye.

 5 MR. STAWICK: Commissioner Chilton, aye.

 6 Commissioner Sommers?

 7 CHAIRMAN GENSLER: For Commissioner

 8 Sommers, I have a proxy, is aye.

 9 MR. STAWICK: Commissioner Sommers, aye

 10 by proxy. Commissioner Dunn?

 11 COMMISSIONER DUNN: Aye.

 12 MR. STAWICK: Commissioner Dunn, aye.

 13 Mr. Chairman?

 14 CHAIRMAN GENSLER: Aye.

 15 MR. STAWICK: Mr. Chairman, aye. Mr.

 16 Chairman, on this question the yeas are five, the

 17 nays are zero.

 18 CHAIRMAN GENSLER: Thank you. We'll be

 19 sending that to the Federal Register. Do I hear a

 20 motion on the second staff presentation?

 21 COMMISSIONER DUNN: Motion to approve.

 22 COMMISSIONER O'MALIA: Second.
 39

 1 CHAIRMAN GENSLER: Do I need to do about

 2 the unanimous consents that I did early? No.

 3 MR. STAWICK: Commissioner O'Malia?

 4 COMMISSIONER O'MALIA: Aye.

 5 MR. STAWICK: Commissioner O'Malia, aye.

 6 Commissioner Chilton?

 7 COMMISSIONER CHILTON: Aye.

 8 MR. STAWICK: Commissioner Chilton, aye.

 9 Commissioner Sommers?

 10 CHAIRMAN GENSLER: Commissioner Sommers,

 11 aye by proxy.

 12 MR. STAWICK: Commissioner Sommers, aye

 13 by proxy. Commissioner Dunn?

 14 COMMISSIONER DUNN: Aye.

 15 MR. STAWICK: Commissioner Dunn, aye.

 16 Mr. Chairman?

 17 CHAIRMAN GENSLER: Aye.

 18 MR. STAWICK: Mr. Chairman, aye. Mr.

 19 Chairman, on this question the yeas are five, the

 20 nays are zero.

 21 CHAIRMAN GENSLER: Thank you. With

 22 that, too, we'll send it to the Federal Register.
 40

 1 I might need to do what I normally do which is

 2 something about technical amendments. I'd ask for

 3 unanimous consent that whatever that technical

 4 amendments particularly to get these questions

 5 that were raised by Commissioner Dunn and

 6 Commissioner Sommers be accepted. Without

 7 objection, that will be so moved.

 8 Before we seek to adjourn, I think

 9 Commissioner O'Malia wanted to say something about

 10 the TAC Advisory Committee.

 11 COMMISSIONER O'MALIA: Thank you, Mr.

 12 Chairman. Obviously due to the weather forecast

 13 here in Washington, it would probably be a bad

 14 idea if we bring everybody here and let them be

 15 stuck here for the rest of the week so we're going

 16 to postpone the TAC Advisory Committee tomorrow

 17 from 1 to 5 o'clock for a date in early February.

 18 We're still working on coordinating everyone's

 19 schedules, but we've let the participants and the

 20 members know so that they can accommodate their

 21 flight and train changes and hopefully not get

 22 stuck here if the weather is as bad as they're
 41

 1 predicting. So we'll reload this for as soon as

 2 possible. We'll be talking about the issues

 3 related to implementing Dodd-Frank, what do we

 4 need to think about, how are we going to

 5 physically hook this up, under what timeframes and

 6 at what cost.

 7 There will be a lot of interesting

 8 discussions in New York earlier this week and we

 9 have some really great people presenting on that

 10 to talk about giving us thinks to think about in

 11 implementing this thing. We're also going to have

 12 a report by Dr. Gorham on the Subcommittee on Pre-

 13 Trade Functionality and doing a survey of the best

 14 of the best to figure out what we're going to do

 15 going forward. We obviously want to reload that

 16 as soon as possible and tackle those issues in

 17 early February.

 18 CHAIRMAN GENSLER: I think I can speak

 19 for all of the Commissioners that we look forward

 20 to hearing from Dr. Gorham's report. I know that

 21 we'll probably have to put his report in our

 22 comment file because we have live proposed rules
 42

 1 for dedicated contract markets and for swap

 2 execution facilities that those comments might be

 3 very informative for and maybe for other areas as

 4 well. With that I'll entertain a motion to

 5 adjourn the meeting.

 6 COMMISSIONER DUNN: So moved.

 7 COMMISSIONER O'MALIA: Second.

 8 CHAIRMAN GENSLER: All in favor?

 9 GROUP: Aye.

 10 CHAIRMAN GENSLER: Are there any

 11 opposed? The meeting will be adjourned. I think

 12 our next public meeting will be February 11.

 13 (Whereupon, at 10:21 a.m., the

 14 PROCEEDINGS were adjourned.)

 15 * * * * *

 16

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 43

 1 CERTIFICATE OF NOTARY PUBLIC

 2 DISTRICT OF COLUMBIA

 3 I, Stephen K. Garland, notary public in

 4 and for the District of Columbia, do hereby certify

 5 that the forgoing PROCEEDING was duly recorded and

 6 thereafter reduced to print under my direction;

 7 that the witnesses were sworn to tell the truth

 8 under penalty of perjury; that said transcript is a

 9 true record of the testimony given by witnesses;

 10 that I am neither counsel for, related to, nor

 11 employed by any of the parties to the action in

 12 which this proceeding was called; and, furthermore,

 13 that I am not a relative or employee of any

 14 attorney or counsel employed by the parties hereto,

 15 nor financially or otherwise interested in the

 16 outcome of this action.

 17

 18

 19 -----------------------------------

 20 Notary Public, in and for the District of Columbia

 21 My Commission Expires: May 31, 2014

 22