Federal Register, Volume 77 Issue 172 (Wednesday, September 5, 2012)[Federal Register Volume 77, Number 172 (Wednesday, September 5, 2012)]
[Rules and Regulations]
[Pages 54355-54360]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21606]
[[Page 54355]]
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COMMODITY FUTURES TRADING COMMISSION
17 CFR Part 4
RIN 3038-AD49
Amendments to Commodity Pool Operator and Commodity Trading
Advisor Regulations Resulting From the Dodd-Frank Act
AGENCY: Commodity Futures Trading Commission.
ACTION: Final rules.
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SUMMARY: The Commodity Futures Trading Commission (Commission) is
amending its regulations governing the operations and activities of
commodity pool operators (CPOs) and commodity trading advisors (CTAs)
in order to have those regulations reflect changes made to the
Commodity Exchange Act (CEA) by the Dodd-Frank Wall Street Reform and
Consumer Protection Act (Dodd-Frank Act).
DATES: Effective Date: November 5, 2012.
FOR FURTHER INFORMATION CONTACT: Barbara S. Gold, Associate Director,
or Christopher W. Cummings, Special Counsel, Division of Swap Dealer
and Intermediary Oversight, 1155 21st Street NW., Washington, DC 20581.
Telephone number: 202-418-6700 and electronic mail: bgold@cftc.gov or
ccummings@cftc.gov.
SUPPLEMENTARY INFORMATION:
I. Background
A. The Dodd-Frank Act
On July 21, 2010, President Obama signed the Dodd-Frank Act.\1\
Title VII of the Dodd-Frank Act \2\ amended the CEA \3\ to establish a
comprehensive new regulatory framework for swaps and security-based
swaps. The goal of this legislation was to reduce risk, increase
transparency, and promote market integrity within the financial system
by, among other things: (1) Providing for the registration and
comprehensive regulation of swap dealers (SDs) and major swap
participants (MSPs); (2) imposing clearing and trade execution
requirements on standardized derivative products; (3) creating robust
recordkeeping and real-time reporting regimes; and (4) enhancing the
Commission's rulemaking and enforcement authorities with respect to,
among others, all registered entities and intermediaries subject to the
oversight of the Commission. Among the changes made by the Dodd-Frank
Act to the CEA were to include within the CPO definition the operator
of a collective investment vehicle that trades swaps, and to include
within the CTA definition a person who provides advice concerning
swaps.\4\
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\1\ See 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 through the Commission's Web site,
www.cftc.gov.
\2\ Pursuant to Section 701 of the Dodd-Frank Act, Title VII may
be cited as the ``Wall Street Transparency and Accountability Act of
2010.''
\3\ 7 U.S.C. 1 et seq. (2006). The Commission's regulations are
found at 17 CFR part 1 et seq. (2012). Both the CEA and the
Commission's regulations also may be accessed through the
Commission's Web site.
\4\ See Section 721(a) of the Dodd-Frank Act, which re-organized
(and in some cases amended) existing definitions in, and added new
definitions to, Section 1a of the CEA. The CPO and CTA definitions,
as amended, are codified at CEA sections 1a(11) and 1a(12),
respectively.
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B. The Proposed Amendments to Part 4
Part 4 of the Commission's regulations sets forth a comprehensive
regulatory framework for the operations and activities of CPOs and
CTAs. It includes disclosure, reporting and recordkeeping requirements
for registered CPOs and CTAs, registration and compliance exemptions
for CPOs and CTAs, and other provisions, including anti-fraud
provisions, applicable to CPOs and CTAs, regardless of registration
status. To ensure that the Part 4 regulations applied to CPOs and CTAs
in the context of these intermediaries' involvement with swap
transactions, on March 3, 2011, the Commission proposed certain
amendments to Part 4 (Proposal).\5\
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\5\ 76 FR 11701.
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As the Commission explained in the Proposal, because many of the
existing Part 4 regulations generally applied to CPOs and CTAs, they
would continue to be applicable to CPOs and CTAs with respect to their
swap activities without the need for amendment thereto. The Commission
noted that in other instances, however, the text of certain existing
Part 4 regulations was specific to activities involving futures
contracts, commodity options, and off-exchange retail foreign currency
(``commodity interests''), and it did not include, refer to or
otherwise take account of swap activities. As the Commission stated:
``The Proposal [was] intended to clarify and ensure that the
requirements governing the operations and activities of CPOs and CTAs
continue to apply for these intermediaries in the context of their
involvement with swap transactions.'' \6\ Accordingly, the Commission
proposed to amend Regulations 4.7, 4.10, 4.22, 4.23, 4.24 4.30, 4.33
and 4.34 to include in each of these regulations a reference to swaps
or swap activities.
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\6\ 76 FR 11701. Part 4 applies to CPOs with respect to their
activities affecting pool participants and to CTAs with respect to
their activities affecting clients. Depending on the nature of its
activities, a CPO or CTA may also come within the definition of the
term ``swap dealer'' or ``major swap participant'' in new CEA
Section 1a(49) or 1a(33), respectively. As directed by the Dodd-
Frank Act, the Commission has adopted new regulations that establish
business conduct standards for SDs and MSPs. See 77 FR 9734 (Feb.
17, 2012). These new regulations apply to SDs and MSPs with respect
to the counterparties with whom they transact swap business, and
govern different activity than that to which the Part 4 regulations
apply.
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II. Comments on the Proposal
The Commission received two comment letters on the Proposal,\7\
each of which supported the Proposal. One of these letters stated that
the Proposal ``should act to reduce risk and increase its transparency,
and promote market integrity by ensuring that all entities are
consistently regulated to the extent that their trading and other
activities pertain to swaps.'' \8\ The other letter urged the
Commission ``to work quickly and diligently on writing these rules and
putting them in place as soon as possible.'' \9\
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\7\ These comment letters currently are available on the
Commission's Web site.
\8\ Comment letter from Chris Barnard (Mar. 29, 2011).
\9\ Comment letter from Kyle Vandergrift (Apr. 20, 2011).
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III. The Final Regulations
In light of the supportive comments it received, with one exception
the Commission is adopting the amendments to the Part 4 regulations it
proposed. That exception concerns the proposed amendment to Regulation
4.10(a) that, for the purposes of Part 4, would have expanded the
definition of the term ``commodity interest'' to include ``swaps.''
This proposal was superseded by a proposed amendment to Regulation
1.3(yy) that, for the purposes of all of the Commission's regulations,
would define the term ``commodity interest'' to include ``swaps.'' \10\
Accordingly, the Commission is considering the proposed definition of
the term ``commodity interest'' in connection with its consideration of
the comment letters it received on its proposed amendment to Regulation
1.3(yy).
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\10\ See 76 FR 33066, 33069-70 (June 7, 2011).
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A. Adding ``Swap'' Terms to Part 4
As proposed, the Commission is inserting ``swap,'' ``swap
transaction'' or a similar term at various regulations throughout Part
4. See the amendments to Regulations 4.23(a)(1), 4.24(g), (h)(1), and
(i)(2) for CPOs and Regulations 4.34(g) and 4.34(i)(2) for CTAs. For
[[Page 54356]]
example, Regulation 4.23(a)(1) is being amended to include ``swap type
and counterparty'' in the itemized daily record that a CPO must make
and keep with respect to a pool's commodity interest transactions.
At other Part 4 regulations, the Commission has included as
proposed the term ``swap dealer'' among the persons for whom a CPO or
CTA must provide information in its Disclosure Document and for whom a
CPO must provide information in a pool's periodic Account Statement.
See the amendments to Regulations 4.22(a)(3), 4.24(j)(1), (j)(3),
(l)(1), and (l)(2) for CPOs and Regulations 4.34(j)(1), (j)(3), (k)(1)
and (k)(2) for CTAs. For example, Regulations 4.24(j) and 4.34(j) are
being amended to include SDs in the group of persons as to which
conflicts of interest must be disclosed by CPOs and CTAs.
Similarly, the Commission has included as proposed ``a registered
swap dealer'' among the persons listed in Regulation 4.7(a)(2) that do
not have to satisfy a portfolio requirement in order to be a qualified
eligible person (QEP), such that a CPO or CTA that has claimed relief
under Regulation 4.7 may accept the SD as a pool participant or
advisory client without regard to the size of its investment portfolio.
As the Commission explained, ``this would be consistent with the
current treatment of other financial intermediaries registered with the
Commission (such as futures commission merchants [FCMs] and retail
foreign exchange dealers [RFEDs]) as QEPs under Regulation 4.7(a)(2).''
\11\
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\11\ 76 FR at 11702.
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B. Including Books and Records Relating to Swap Transactions within
Part 4
The Commission has adopted as proposed amendments to Part 4 that
require a CPO or CTA to make and keep certain books and records
generated by the swap transactions in which it engages on behalf of not
only its pool participants and clients, but also itself. See the
amendments to Regulations 4.23(a)(7) and (b)(1) for CPOs and
Regulations 4.33(a)(6) and (b)(1) for CTAs. The amendments to
Regulations 4.23(a)(7) and 4.33(a)(6) require CPOs and CTAs to retain
each acknowledgment of a swap transaction received from an SD. The
amendments to Regulations 4.23(b)(1) and 4.33(b)(1) make clear that if
a CPO or CTA was a counterparty to a swap transaction, then it would be
subject to the swap data recordkeeping and reporting requirements of
Part 45 of the Commission's regulations, as applicable.\12\
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\12\ See Regulation 45.2, which requires SDs and MSPs to keep
full, complete and systematic records, together with all pertinent
data and memoranda, of all activities relating to their business
with respect to swaps, as prescribed by the Commission. (Non-SD and
non-MSP counterparties subject to the Commission's jurisdiction have
a similar requirement, but only with respect to each swap to which
they are a counterparty.)
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C. Regulation 4.30
Subject to certain exceptions, Regulation 4.30 provides that no CTA
may solicit, accept or receive from an existing or prospective client
funds, securities or other property in the trading advisor's name (or
extend credit in lieu thereof) to purchase, margin, guarantee or secure
any commodity interest of the client.
The Commission proposed to amend Regulation 4.30 by adding to the
list of intermediaries then excepted from the foregoing prohibition--
i.e., registered FCMs, leverage transaction merchants and RFEDs--a
registered SD in connection with a swap that was not cleared through a
derivatives clearing organization. The Commission explained that this
amendment to Regulation 4.30 was necessary ``[b]ecause swap dealers
will generally fall within the statutory definition of CTA, and because
a swap dealer engaging in uncleared swap transactions may be accepting
funds or other property from its counterparties as variation and
initial margin payments.'' \13\
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\13\ 76 FR at 11702. In this regard, the Commission has proposed
regulations addressing the circumstances in which non-bank SDs may
be required or permitted to accept margin payments in uncleared swap
transactions. See 76 FR 23732 (Apr. 28, 2011). Accordingly, this
amendment to Regulation 4.30 should not be interpreted to impose or
authorize any such margin requirements.
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Subsequently, the Commission amended Regulation 4.6 to provide
therein for an exclusion from the definition of the term ``commodity
trading advisor'' for an SD, provided the commodity interest and swap
advisory activities of the SD are solely incidental to the conduct of
its business as an SD.\14\ Because not all SDs may always meet the
``solely incidental'' proviso, the Commission has determined to amend
Regulation 4.30 as proposed, such that any registered SD who is a CTA
is not subject to the regulation's operational prohibition.
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\14\ See 77 FR 9734, 9739-40 (Feb. 17, 2012).
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D. Deleting Regulation 4.32
The Commission has deleted as proposed Regulation 4.32, which
concerned trading by a registered CTA on or subject to the rules of a
derivatives transaction execution facility (DTEF) for non-institutional
customers. As the Commission explained:
Section 734(a) of the Dodd-Frank Act repeals Section 5a of the
CEA, which is the section establishing and providing for the
regulation of DTEFs. Accordingly, because subsequent to the
effective date of the Dodd-Frank Act Regulation 4.32 will no longer
have a statutory basis or purpose, the Proposal would remove and
reserve Regulation 4.32.\15\
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\15\ 76 FR at 11702.
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IV. Related Matters
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (``RFA'') \16\ requires federal
agencies to consider the impact of those rules on small businesses.\17\
A regulatory flexibility analysis or certification typically is
required for ``any rule for which the agency publishes a general notice
of proposed rulemaking pursuant to'' the notice-and-comment provisions
of the Administrative Procedure Act, 5 U.S.C. 553(b).\18\ The
amendments to the Part 4 regulations contained herein will affect CPOs
and CTAs. The Commission stated in the Proposal that:
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\16\ 5 U.S.C. 601 et seq.
\17\ By its terms, the RFA does not apply to ``individuals.''
See 48 FR 14933, n. 115 (Apr. 6, 1983).
\18\ 5 U.S.C. 601(2), 603, 604 and 605.
With respect to CPOs, the Commission previously has determined
that a CPO is a small entity for the purpose of the RFA if it meets
the criteria for an exemption from registration under Regulation
4.13(a)(2). Thus, because the Proposal applies to registered CPOs,
the RFA is not applicable to it. As for CTAs, the Commission
previously has stated that it would evaluate within the context of a
particular rule proposal whether all or some affected CTAs would be
considered to be small entities and, if so, the economic impact on
them of the particular rule. In this regard, the Commission notes
that the Proposal applies to registered CTAs. Moreover, the Proposal
would not have a significant economic impact on any CPO or CTA who
would be affected thereby, because it would merely bring within the
current Part 4 regulatory structure of disclosure, reporting and
recordkeeping information with respect to swap activities. It would
not impose any additional operative requirements or otherwise direct
or confine the activities of CPOs and CTAs.\19\
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\19\ 76 FR at 11703.
The Commission did not receive any comments regarding its RFA
analysis in the Proposal. Accordingly, pursuant to 5 U.S.C. 605(b), the
Chairman, on behalf of the Commission, certifies that the amendments to
the Part 4 regulations being published today by this Federal Register
release will not have a significant economic impact on a substantial
number of small entities.
[[Page 54357]]
B. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) \20\ imposes certain
requirements on Federal agencies (including the Commission) in
connection with their conducting or sponsoring any collection of
information as defined by the PRA. The amendments to the Part 4
regulations will not require any new collection of information from any
entity that is subject to them. Additionally, the Commission did not
receive any comments regarding its PRA analysis in the Proposal.
Accordingly, for purposes of the PRA, the Chairman, on behalf of the
Commission, certifies that the amendments to the Part 4 regulations
being published today by this Federal Register release will not impose
any new reporting or recordkeeping requirements.
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\20\ 44 U.S.C. 3501 et seq.
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C. Cost-Benefit Analysis
Prior to the passage of the Dodd-Frank Act, the Part 4 regulations
did not apply to swap-related activities. This pre-Dodd-Frank Act
construct provides a useful reference point from which to compare the
costs and benefits of the proposed regulations to the alternative where
the Commission would not be taking any action to incorporate swap-
related information into Part 4.
As a result of the Dodd-Frank Act including swap-related activities
among the activities on which the CPO and CTA definitions are based,
CPOs and CTAs who engage in swap-related activities are now subject to
Part 4. In various places, however, the wording of particular
provisions of Part 4 was incomplete or inconsistent in the context of
CPOs and CTAs involved with swap transactions; there is no regulatory
need for the prohibition in Regulation 4.30 against directly accepting
margin payments to apply to an SD; and the subject matter of Regulation
4.32 (trading on DTEFs) was rendered moot by the Dodd-Frank Act. Under
such a scenario, the costs to the public of inaction would be, in
qualitative terms, failure to receive Part 4 disclosure, reporting and
recordkeeping protections from their CPOs and CTAs with regard to their
swap activities, an unnecessary burden on SDs, and regulatory text that
is obsolete. The costs of these amendments, if any, will be minimal--
limited to the costs associated with including information related to
swaps in the Disclosure Documents, Account Statements and books and
records already required of CPOs and CTAs under existing Part 4
regulations. Moreover, this information should be readily available to
CPOs and CTAs. The costs cannot be feasibly quantified or estimated,
because they will vary according to each registrant's internal
processes and registration category. In contrast, the amendments will
yield significant if unquantifiable benefit to the public, relative to
inaction, by clarifying the application of Part 4 and the obligations
of CPOs and CTAs to their participants and clients, respectively.
In the CEA,\21\ Congress provided the Commission with the authority
to promulgate regulations that, among other things, are reasonably
necessary to effectuate any of the provisions or to accomplish any of
the purposes of the CEA. In accordance with Section 15(a) of the CEA,
it is in this post-Dodd-Frank Act environment that the Commission
considers the costs and benefits of its actions before promulgating a
regulation under the CEA or issuing an order.
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\21\ See 7 U.S.C. 12(a)(5).
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Section 15(a) specifies that the costs and benefits shall be
evaluated in light of the following five broad areas of market and
public concern: (1) Protection of market participants and the public;
(2) efficiency, competitiveness, and financial integrity of futures
markets; (3) price discovery; (4) sound risk management practices; and
(5) other public interest considerations.
In light of the provisions of the Dodd-Frank Act that expand the
``commodity pool operator'' and ``commodity trading advisor''
definitions to include swap-related activities, these amendments
incorporate into the existing Part 4 framework regulations to take
account of the swap-related activities of CPOs and CTAs. Specifically,
the amendments subject CPOs and CTAs when involved with swap
transactions to the same Part 4 requirements that apply when they are
involved with commodity interest transactions, to the extent
regulations in place at the time of the enactment of the Dodd-Frank Act
did not clearly do so.\22\ The revision to Regulation 4.30 excepts SDs
from the prohibition on accepting margin to treat them equivalently
with FCMs and RFEDs. In addition, these amendments delete Regulation
4.32, pertaining to trading by registered CTAs on DTEFs, given the
repeal by the Dodd-Frank Act of CEA Section 5a, which authorized such
trading facilities.
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\22\ As is explained above, when the Dodd-Frank Act extended the
statutory definitions of the terms ``commodity pool operator'' and
``commodity trading advisor,'' those existing Part 4 regulations
that applied generally to CPOs and CTAs became applicable to CPOs
and CTAs captured by the expanded statutory definitions, without
further amendment. Certain other existing Part 4 regulations,
however, spoke specifically to activities involving commodity
interests, but not to swap activities. Accordingly, this rulemaking
amends this latter subset of Part 4 regulations by making them
applicable to swap activities, thus closing the regulatory gap that
would otherwise exist.
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In the Proposal the Commission sought public comment on the costs
and benefits of its contemplated amendments to Part 4.\23\ The
Commission did not receive any comments in response to this request.
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\23\ 76 FR 11701, 11703.
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Section 15(a) Factors
(1) Protection of market participants and the public.
The Commission believes the amendments to the Part 4 regulations
will provide protection to market participants and the public by
requiring CPOs and CTAs to include information on swap intermediaries
and activities in the disclosure, reporting and recordkeeping framework
under Part 4. For example, Regulation 4.24(j) has provided protections
to commodity pool participants by requiring their CPO to disclose any
actual or potential conflict of interest with any FCM with whom their
pool was required to maintain its account. The amendment to Regulation
4.24(j) the Commission has adopted will provide similar protections, by
requiring the CPO to disclose any actual or potential conflict of
interest with any SD with whom their pool maintains its swap positions.
(2) Efficiency, competitiveness, and financial integrity of the
futures markets.
The Commission does not expect the amendments to Part 4 to have an
impact on the efficiency, competitiveness and financial integrity of
the commodity interest markets.
(3) Price Discovery.
The Commission does not expect the amendments to Part 4 to have an
impact on the market's price discovery functions.
(4) Sound risk management practices.
The Commission does not expect the amendments to Part 4 to have an
impact on risk management practices by CPOs, CTAs and other Commission
registrants. However, the requirement that CPOs and CTAs account for
SD, MSP and swap activities when complying with their disclosure,
reporting and recordkeeping requirements under Part 4 will benefit
prospective and actual pool participants and clients by ensuring that
these participants and clients are afforded the same customer
protections as participants and clients
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in all other commodity pools and managed account programs.
(5) Other public interest considerations.
The Commission has not identified any other public interest
considerations regarding the costs and benefits of the amendments to
Part 4.
List of Subjects in 17 CFR Part 4
Advertising, Brokers, Commodity futures, Commodity pool operators,
Commodity trading advisors, Customer protection, Reporting and
recordkeeping requirements, Swaps.
For the reasons presented above, the Commission hereby amends
Chapter I of Title 17 of the Code of Federal Regulations as follows:
PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS
0
1. The authority citation for Part 4 is revised to read as follows:
Authority: 7 U.S.C. 1a, 2, 6b, 6c, 6l, 6m, 6n, 6o, 12a and 23,
as amended by Title VII of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, Pub. L. 111-203, 124 Stat. 1376 (July 21,
2010).
0
2. Section 4.7 is amended by adding paragraph (a)(2)(i)(C) to read as
follows:
Sec. 4.7 Exemption from certain part 4 requirements for commodity
pool operators with respect to offerings to qualified eligible persons
and for commodity trading advisors with respect to advising qualified
eligible persons.
* * * * *
(a) * * *
(2) * * *
(i) * * *
(C) A swap dealer registered pursuant to section 4s(a)(1) of the
Act, or a principal thereof;
* * * * *
0
3. Section 4.22 is amended by revising paragraph (a)(3) to read as
follows:
Sec. 4.22 Reporting to pool participants.
(a) * * *
(3) The Account Statement must also disclose any material business
dealings between the pool, the pool's operator, commodity trading
advisor, futures commission merchant, retail foreign exchange dealer,
swap dealer, or the principals thereof that previously have not been
disclosed in the pool's Disclosure Document or any amendment thereto,
other Account Statements or Annual Reports.
* * * * *
0
4. Section 4.23 is amended by:
0
a. Revising paragraphs (a)(1) and (a)(7); and
0
b. Revising paragraph (b)(1), to read as follows:
Sec. 4.23 Recordkeeping.
* * * * *
(a) * * *
(1) An itemized daily record of each commodity interest transaction
of the pool, showing the transaction date, quantity, commodity
interest, and, as applicable, price or premium, delivery month or
expiration date, whether a put or a call, strike price, underlying
contract for future delivery or underlying physical, swap type and
counterparty, the futures commission merchant and/or retail foreign
exchange dealer carrying the account and the introducing broker, if
any, whether the commodity interest was purchased, sold (including, in
the case of a retail forex transaction, offset), exercised, expired
(including, in the case of a retail forex transaction, whether it was
rolled forward), and the gain or loss realized.
* * * * *
(7) Copies of each confirmation or acknowledgment of a commodity
interest transaction of the pool, and each purchase and sale statement
and each monthly statement for the pool received from a futures
commission merchant, retail foreign exchange dealer or swap dealer.
* * * * *
(b) * * *
(1) An itemized daily record of each commodity interest transaction
of the commodity pool operator and each principal thereof, showing the
transaction date, quantity, commodity interest, and, as applicable,
price or premium, delivery month or expiration date, whether a put or a
call, strike price, underlying contract for future delivery or
underlying physical, swap type and counterparty, the futures commission
merchant or retail foreign exchange dealer carrying the account and the
introducing broker, if any, whether the commodity interest was
purchased, sold, exercised, or expired, and the gain or loss realized;
Provided, however, that if the pool operator is a counterparty to a
swap, it must comply with the swap data recordkeeping and reporting
requirements of Part 45 of this chapter, as applicable.
* * * * *
0
5. Section 4.24 is amended by:
0
a. Revising paragraph (g);
0
b. Revising paragraph (h)(1)(i);
0
c. Revising paragraph (i)(2)(xii);
0
d. Revising paragraphs (j)(1)(vi) and (j)(3); and
0
e. Revising paragraphs (l)(1)(iii), (l)(2) introductory text and
(l)(2)(i), to read as follows:
Sec. 4.24 General disclosures required.
* * * * *
(g) Principal risk factors. A discussion of the principal risk
factors of participation in the offered pool. This discussion must
include, without limitation, risks relating to volatility, leverage,
liquidity, counterparty creditworthiness, as applicable to the types of
trading programs to be followed, trading structures to be employed and
investment activity (including retail forex and swap transactions)
expected to be engaged in by the offered pool.
(h) * * *
(1) * * *
(i) The approximate percentage of the pool's assets that will be
used to trade commodity interests, securities and other types of
interests, categorized by type of commodity or market sector, type of
swap, type of security (debt, equity, preferred equity), whether traded
or listed on a regulated exchange market, maturity ranges and
investment rating, as applicable;
* * * * *
(i) * * *
(2) * * *
(xii) Any costs or fees included in the spread between bid and
asked prices for retail forex or, if known, swap transactions; and
* * * * *
(j) * * *
(1) * * *
(vi) Any other person providing services to the pool, soliciting
participants for the pool, acting as a counterparty to the pool's
retail forex or swap transactions, or acting as a swap dealer with
respect to the pool.
* * * * *
(3) Included in the description of such conflicts must be any
arrangement whereby a person may benefit, directly or indirectly, from
the maintenance of the pool's account with the futures commission
merchant and/or retail foreign exchange dealer and/or from the
maintenance of the pool's swap positions with a swap dealer, or from
the introduction of the pool's account to a futures commission merchant
and/or retail foreign exchange dealer and/or swap dealer by an
introducing broker (such as payment for order flow or soft dollar
arrangements) or from an investment of pool assets in investee pools or
funds or other investments.
* * * * *
(l) * * *
(1) * * *
(iii) The pool's futures commission merchants and/or retail foreign
exchange dealers and/or swap dealers and its introducing brokers, if
any.
(2) With respect to a futures commission merchant and/or retail
[[Page 54359]]
foreign exchange dealer and/or swap dealer or an introducing broker, an
action will be considered material if:
(i) The action would be required to be disclosed in the notes to
the futures commission merchant's, retail foreign exchange dealer's,
swap dealer's or introducing broker's financial statements prepared
pursuant to generally accepted accounting principles;
* * * * *
0
6. Section 4.30 is revised to read as follows:
Sec. 4.30 Prohibited activities.
(a) Except as provided in paragraph (b) of this section, no
commodity trading advisor may solicit, accept or receive from an
existing or prospective client funds, securities or other property in
the trading advisor's name (or extend credit in lieu thereof) to
purchase, margin, guarantee or secure any commodity interest of the
client.
(b) The prohibition in paragraph (a) of this section shall not
apply to:
(1) A futures commission merchant that is registered as such under
the Act;
(2) A leverage transaction merchant that is registered as a
commodity trading advisor under the Act;
(3) A retail foreign exchange dealer that is registered as such
under the Act; or
(4) A swap dealer that is registered as such under the Act, with
respect to funds, securities or other property accepted to purchase,
margin, guarantee or secure any swap that is not cleared through a
derivatives clearing organization.
Sec. 4.32 [Removed and Reserved]
0
7. Section 4.32 is removed and reserved.
0
8. Section 4.33 is amended by:
0
a. Revising paragraph (a)(6); and
0
b. Revising paragraph (b)(1), to read as follows:
Sec. 4.33 Recordkeeping.
* * * * *
(a) * * *
(6) Copies of each confirmation or acknowledgment of a commodity
interest transaction, and each purchase and sale statement and each
monthly statement received from a futures commission merchant, a retail
foreign exchange dealer or a swap dealer.
* * * * *
(b) * * *
(1) An itemized daily record of each commodity interest transaction
of the commodity trading advisor, showing the transaction date,
quantity, commodity interest, and, as applicable, price or premium,
delivery month or expiration date, whether a put or a call, strike
price, underlying contract for future delivery or underlying physical,
swap type and counterparty, the futures commission merchant and/or
retail foreign exchange dealer carrying the account and the introducing
broker, if any, whether the commodity interest was purchased, sold
(including, in the case of a retail forex transaction, offset),
exercised, expired (including, in the case of a retail forex
transaction, whether it was rolled forward), and the gain or loss
realized; Provided, however, that if the trading advisor is a
counterparty to a swap, it must comply with the swap data recordkeeping
and reporting requirements of Part 45 of this chapter, as applicable.
* * * * *
0
9. Section 4.34 is amended by:
0
a. Revising paragraph (g);
0
b. Revising paragraph (i)(2);
0
c. Revising paragraph (j)(3); and
0
d. Revising paragraphs (k)(1)(iii), (k)(2) introductory text and
(k)(2)(i), to read as follows:
Sec. 4.34 General disclosures required.
* * * * *
(g) Principal risk factors. A discussion of the principal risk
factors of this trading program. This discussion must include, without
limitation, risks due to volatility, leverage, liquidity, and
counterparty creditworthiness, as applicable to the trading program and
the types of transactions and investment activity expected to be
engaged in pursuant to such program (including retail forex and swap
transactions, if any).
* * * * *
(i) * * *
(2) Where any fee is determined by reference to a base amount
including, but not limited to, ``net assets,'' ``gross profits,'' ``net
profits,'' ``net gains,'' ``pips'' or ``bid-asked spread,'' the trading
advisor must explain how such base amount will be calculated. Where any
fee is based on the difference between bid and asked prices on retail
forex or swap transactions, the trading advisor must explain how such
fee will be calculated;
* * * * *
(j) * * *
(3) Included in the description of any such conflict must be any
arrangement whereby the trading advisor or any principal thereof may
benefit, directly or indirectly, from the maintenance of the client's
commodity interest account with a futures commission merchant and/or
retail foreign exchange dealer, and/or from the maintenance of the
client's swap positions with a swap dealer or from the introduction of
such account through an introducing broker (such as payment for order
flow or soft dollar arrangements).
(k) * * *
(1) * * *
(iii) Any introducing broker through which the client will be
required to introduce its account to the futures commission merchant
and/or retail foreign exchange dealer and/or swap dealer.
(2) With respect to a futures commission merchant, retail foreign
exchange dealer, swap dealer or introducing broker, an action will be
considered material if:
(i) The action would be required to be disclosed in the notes to
the futures commission merchant's, retail foreign exchange dealer's,
swap dealer's or introducing broker's financial statements prepared
pursuant to generally accepted accounting principles;
* * * * *
Dated: Issued in Washington, DC, on August 23, 2012, by the
Commission.
Sauntia S. Warfield,
Assistant Secretary of the Commission.
Appendices to Amendments to Commodity Pool Operator and Commodity
Trading Advisor Regulations Resulting From the Dodd-Frank Act--
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 Sommers,
Chilton, O'Malia and Wetjen voted in the affirmative; no
Commissioner voted in the negative.
Appendix 2--Statement of Chairman Gary Gensler
I support the final rule to amend certain provisions of Part 4
of the Commission's regulations regarding the operations and
activities of commodity pool operators (CPOs) and commodity trading
advisors (CTAs). The amendments ensure that CFTC regulations with
regard to CPOs and CTAs reflect changes made to the Commodity
Exchange Act by the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank Act).
Consistent with Dodd-Frank's expansion of the CPO and CTA
definitions to include those involved in swaps and advising on
swaps, the final amendments require swaps information to be included
in the disclosure, reporting and recordkeeping obligations that
currently exist for CPOs and CTAs under Part 4. Such information
will enhance customer
[[Page 54360]]
protections by increasing the transparency of CPO and CTA swap
activities to their pool participants and clients.
[FR Doc. 2012-21606 Filed 9-4-12; 8:45 am]
BILLING CODE 6351-01-P
Last Updated: September 5, 2012