[Federal Register Volume 88, Number 196 (Thursday, October 12, 2023)]
[Proposed Rules]
[Pages 70852-70884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-22324]

[[Page 70851]]

Vol. 88

Thursday,

No. 196

October 12, 2023

Part VI

Commodity Futures Trading Commission

———————————————————————–

17 CFR Part 4

Commodity Pool Operators, Commodity Trading Advisors, and Commodity 
Pools: Updating the `Qualified Eligible Person’ Definition; Adding 
Minimum Disclosure Requirements for Pools and Trading Programs; 
Permitting Monthly Account Statements for Funds of Funds; Technical 
Amendments; Proposed Rule

Federal Register / Vol. 88 , No. 196 / Thursday, October 12, 2023 / 
Proposed Rules

[[Page 70852]]

———————————————————————–

COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

RIN 3038-AF25

Commodity Pool Operators, Commodity Trading Advisors, and 
Commodity Pools: Updating the `Qualified Eligible Person’ Definition; 
Adding Minimum Disclosure Requirements for Pools and Trading Programs; 
Permitting Monthly Account Statements for Funds of Funds; Technical 
Amendments

AGENCY: Commodity Futures Trading Commission.

ACTION: Notice of proposed rulemaking.

———————————————————————–

SUMMARY: The Commodity Futures Trading Commission (Commission or CFTC) 
is proposing amendments to certain provisions of its regulations that 
would: update the Portfolio Requirement thresholds within the 
“Qualified Eligible Person” definition; require commodity pool 
operators (CPOs) and commodity trading advisors (CTAs) operating pools 
and trading programs under the applicable Commission regulations to 
provide certain minimum disclosures to their prospective pool 
participants and advisory clients; include revisions that are 
consistent with long-standing Commission exemptive letters addressing 
the timing of certain pools’ periodic financial reporting; and several 
technical amendments related to the structure of the regulations that 
are the subject of this proposal.

DATES: Comments must be received by December 11, 2023.

ADDRESSES: You may submit comments, which must be in writing and 
identified by RIN 3038-AF25, by any of the following methods:
     CFTC Comments Portal: https://comments.cftc.gov. Select 
the “Submit Comments” link for this rulemaking and follow the 
instructions on the Public Comment Form.
     Mail: Send to Christopher Kirkpatrick, Secretary of the 
Commission, Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW, Washington, DC 20581.
     Hand Delivery/Courier: Follow the same instruction as for 
Mail, above. Please submit your comments using only one of these 
methods. Submissions through the CFTC Comments Portal are encouraged.
    All comments must be submitted in English, or if not, accompanied 
by an English translation. Comments will be posted as received to 
https://comments.cftc.gov. You should only submit 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 (FOIA), a petition for confidential 
treatment of the exempt information may be submitted according to the 
procedures in Sec.  145.9 of the Commission’s regulations. The 
Commission reserves the right, but shall have no obligation, to review, 
prescreen, filter, redact, refuse, or remove any or all of your 
submission from https://comments.cftc.gov that it may deem to be 
inappropriate for publication, such as 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 (APA) and other applicable laws and may be accessible 
under the FOIA.

FOR FURTHER INFORMATION CONTACT: Amanda L. Olear, Director, 202-418-
5283 or [email protected]; Pamela M. Geraghty, Acting Deputy Director, 
202-418-5634 or [email protected]; Elizabeth Groover, Special Counsel, 
202-418-5985 or [email protected]; or Andrew Ruggiero, Special Counsel, 
202-418-5712 or [email protected]; each in the Market Participants 
Division at the Commodity Futures Trading Commission, Three Lafayette 
Centre, 1155 21st Street NW, Washington, DC 20581.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. The Proposal
    a. Updating Financial Thresholds in the Portfolio Requirement of 
the “Qualified Eligible Person” Definition
    b. Establishing Minimum Disclosure Requirements Under Regulation 
4.7
    c. Permitting Monthly Account Statements Consistent With 
Commission Exemptive Letters
    d. Other Technical Amendments
III. Related Matters
    a. Regulatory Flexibility Act
    b. Paperwork Reduction Act
    c. Cost-Benefit Considerations
    d. Antitrust Considerations

I. Background

    As amended by the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (Dodd-Frank Act),1 section 1a(11) of the Commodity 
Exchange Act (CEA or Act) defines the term “commodity pool operator” 
as any person engaged in a business that is of the nature of a 
commodity pool, investment trust, syndicate, or similar form of 
enterprise, and who, with respect to that commodity pool, solicits, 
accepts, or receives from others, funds, securities, or property, 
either directly or through capital contributions, the sale of stock or 
other forms of securities, or otherwise, for the purpose of trading in 
commodity interests.2 CEA section 1a(10) defines a “commodity pool” 
as any investment trust, syndicate, or similar form of enterprise 
operated for the purpose of trading in commodity interests.3 CEA 
section 1a(12) defines the term “commodity trading advisor” as any 
person who, for compensation or profit, engages in the business of 
advising others, either directly or through publications, writing, or 
electronic media, as to the value of or the advisability of trading in 
commodity interests.4
—————————————————————————

    1 Public Law 111-203, 124 Stat. 1376 (2010).
    2 7 U.S.C. 1a(11).
    3 7 U.S.C. 1a(10).
    4 7 U.S.C. 1a(12).
—————————————————————————

    Generally, CEA section 4m(1) requires each person whose 
intermediary activities satisfy either the CPO or CTA definition to 
register as such with the CFTC.5 With respect to both CPOs and CTAs, 
the CEA also authorizes the Commission to include persons within, or 
exclude them from, such definitions, by rule, regulation, or order, if 
the Commission determines that such action will effectuate the purposes 
of the CEA.6 In addition to the general registration authority set 
forth in CEA section 4m(1), CEA section 4n specifically empowers the 
Commission to impose compliance obligations related to the registration 
process, recordkeeping, disclosure, and reporting.7 Finally, the CEA 
also gives the Commission authority 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 purposes of 
the CEA.8
—————————————————————————

    5 7 U.S.C. 6m(1) (noting that it is unlawful for any CTA or 
CPO, unless registered under the provisions of that chapter, to make 
use of the mails or any means or instrumentality of interstate 
commerce with his business as such CTA or CPO). See also 17 CFR 
3.10.
    6 7 U.S.C. 1a(11)(B); 7 U.S.C. 1a(12)(B)-(C).
    7 7 U.S.C. 6n.
    8 7 U.S.C. 8a(5).
—————————————————————————

    Part 4 of the Commission’s regulations specifically governs the 
operations and activities of CPOs and CTAs.9 These regulations 
implement the statutory authority provided to the Commission by the CEA 
and also establish registration exemptions and definitional

[[Page 70853]]

exclusions for CPOs and CTAs.10 Part 4 also contains detailed 
regulations that establish the ongoing compliance requirements 
applicable to registered CPOs and CTAs. These compliance requirements 
pertain to the commodity pools and separate accounts that CPOs and CTAs 
operate and advise, and provide customer protection, disclosures, and 
regular reporting to a registrant’s pool participants or advisory 
clients.
—————————————————————————

    9 17 CFR part 4.
    10 See 7 U.S.C. 6n; 17 CFR 4.5, 4.6, 4.13, 4.14.
—————————————————————————

    Regulation 4.7 provides exemptions from certain part 4 compliance 
requirements regarding disclosure, periodic reporting, and 
recordkeeping for registered CPOs and CTAs, whose prospective and 
actual pool participants and/or advisory services are restricted to 
individuals and entities considered “Qualified Eligible Persons,” and 
who claim the desired exemptions, pursuant to paragraph (d) of that 
section.11 As of the end of FY 2022, 837 registered CPOs operated 
approximately 4,304 commodity pools pursuant to claimed Regulation 4.7 
exemptions (4.7 pools, and together with CTA programs operated under 
Regulation 4.7, the 4.7 pools and trading programs).12 Relatedly, 
approximately 865 CTAs claim an exemption under Regulation 4.7 for 
their trading programs, which the Commission estimates to number in the 
thousands. During discussions with CFTC staff, the National Futures 
Association (NFA), the registered futures association to whom the 
Commission has delegated many of its regulatory oversight functions 
with respect to CPOs and CTAs, has predicted that this population of 
CPOs, CTAs, commodity pools, and trading programs operating pursuant to 
Regulation 4.7 will only continue to grow in the future.13 Since its 
adoption over thirty years ago, the Commission has occasionally amended 
Regulation 4.7 to enhance its usability and ensure that it remains fit 
for purpose.14 For the reasons discussed below, however, it is the 
Commission’s preliminary view that certain aspects of Regulation 4.7 no 
longer align with the Commission’s intentions and thus require 
amendment.
—————————————————————————

    11 17 CFR 4.7.
    12 These numbers are drawn from data in National Futures 
Association Form PQR filings for Q4 2022.
    13 In fact, as of March 31, 2023, there were approximately 
1,128 CPOs registered with the Commission, and on average, 
approximately 5,257 pools were reported via CFTC Form CPO-PQR on a 
quarterly basis in FY 2022. Assuming there is no material difference 
in the number of registered CPOs and pools reported between the 
closings of Q4 2022 and of Q1 2023, NFA and CFTC data show that 
approximately 69% of registered CPOs operate 4.7 pools, and 
approximately 81% of all pools reported on CFTC Form CPO-PQR are 4.7 
pools. After amendments to Form CPO-PQR and Regulation 4.27 adopted 
in 2020, the Commission accepts NFA Form PQR as substituted 
compliance for the required completion of its own Form CPO-PQR. See 
17 CFR 4.27. Therefore, the data sources for both NFA and CFTC are 
fundamentally the same, if not identical.
    14 See, e.g., 84 FR 67355 (Dec. 10, 2019).
—————————————————————————

    After a careful review of the existing language and structure of 
Regulation 4.7, and considering the clear public and regulatory 
interest of maintaining and modernizing older, but still widely 
utilized provisions, the Commission is issuing this Notice of Proposed 
Rulemaking (NPRM or Proposal) comprised of targeted amendments to 
update the regulation in several ways. In particular, the Commission is 
proposing amendments that would: (1) increase the financial thresholds 
in the Portfolio Requirement of the “Qualified Eligible Person” (QEP) 
definition in Regulation 4.7(a) to reflect inflation; (2) require 
certain minimum disclosures for 4.7 pools and trading programs operated 
and offered by CPOs and CTAs; (3) add a process under Regulation 
4.7(b)(3) permitting CPOs to elect an alternative account statement 
schedule for certain 4.7 pools consistent with long-standing exemptive 
letters issued by the Commission; 15 and (4) improve the structure 
and utility of Regulation 4.7 through several technical adjustments 
(for example, reorganizing the QEP definition, updating cross-
references, etc.).
—————————————————————————

    15 Such exemptive letters are routinely drafted by Commission 
staff in the Market Participants Division (MPD) and constitute an 
exercise of the authority in Regulation 4.12(a), which is delegated 
by the Commission to MPD’s predecessor division, the Division of 
Swap Dealer and Intermediary Oversight, through Regulation 140.93. 
See 17 CFR 4.12(a) and 140.93.
—————————————————————————

II. The Proposal

a. Updating Financial Thresholds in the Portfolio Requirement of the 
“Qualified Eligible Person” Definition

    As discussed above, Regulation 4.7 provides exemptions to CPOs and 
CTAs for their 4.7 pools and trading programs from various compliance, 
disclosure, and recordkeeping requirements within part 4 of the 
Commission’s regulations, provided that their prospective and actual 
pool participants and advisory clients are restricted to QEPs. 
Regulation 4.7(a) bifurcates the definition of QEP into paragraphs 
(a)(2) and (a)(3) representing two different QEP categories: (1) those 
persons 16 who do not need to satisfy an additional “Portfolio 
Requirement,” as defined in Regulation 4.7(a)(1)(v), to be considered 
a QEP,17 and (2) those persons who do.18 Notably, natural persons 
are among those listed under Regulation 4.7(a)(3) and are thus required 
to satisfy the Portfolio Requirement to be considered QEPs. Pursuant to 
Regulation 4.7(a)(3), to be considered QEPs, such natural persons must 
meet the “accredited investor” definition adopted by the Securities 
and Exchange Commission (SEC) under Regulation D applicable to private 
securities offerings exempt from registration under the Securities Act, 
as well as the Portfolio Requirement adopted by the Commission.19
—————————————————————————

    16 17 CFR 1.3 (defining “person” as “includ[ing] 
individuals, associations, partnerships, corporations, and 
trusts”).
    17 17 CFR 4.7(a)(2). Generally, this list includes, but is not 
limited to: (1) registered futures commission merchants (FCMs), 
registered retail foreign exchange dealers (RFEDs), registered swap 
dealers, and principals thereof; (2) a registered broker or dealer, 
or principal thereof; (3) certain registered CPOs, and principals 
thereof; (4) certain registered CTAs, and principals thereof; (5) 
certain investment advisers registered under the Investment Advisers 
Act of 1940 (IAA), and principals thereof; (6) “qualified 
purchasers” as defined in section 2(a)(51)(A) of the Investment 
Company Act of 1940 (ICA); (7) “knowledgeable employees” as 
defined in 17 CFR 270.3c-5 pursuant to the ICA; (8) certain persons 
associated with an exempt pool or account, outlined in Regulation 
4.7(a)(2)(viii)(A) and (B), respectively; (9) certain trusts; (10) 
organizations described in section 501(c)(3) of the Internal Revenue 
Code (IRC), subject to some conditions; (11) non-United States 
persons; and (12) exempt pools. Id.
    18 17 CFR 4.7(a)(3). Generally, this list includes, but is not 
limited to: (1) certain investment companies registered under the 
ICA or a business development company as defined in section 2(a)(48) 
of the ICA; (2) banks as defined in section 3(a)(2) of the 
Securities Act of 1933 (Securities Act), or any savings and loan 
association or other institution as defined in section 3(a)(5)(A) of 
the Securities Act acting for its own account or for the account of 
a QEP; (3) certain insurance companies acting for their own account 
or that of a QEP; (4) certain state employee benefit plans; (5) 
certain employee benefit plans within the meaning of the Employee 
Retirement Income Security Act of 1974 (ERISA); (6) private business 
development companies; (7) certain corporations, Massachusetts or 
similar business trusts, or partnerships, limited liability 
companies or similar business ventures; (8) natural persons meeting 
the individual net worth or joint net worth tests within the 
“accredited investor” definition; (9) natural persons who would 
otherwise be considered accredited investors; (10) certain pools, 
trusts, insurance company separate accounts, or bank collective 
trusts; and (11) certain government entities.
    19 17 CFR 4.7(a)(3)(ix) and (x). For the SEC’s “accredited 
investor” definition, see 17 CFR 230.501.
—————————————————————————

    Currently, the Portfolio Requirement contains two thresholds; if 
either (or some combination of the two) is satisfied by a person listed 
under Regulation 4.7(a)(3), then a CPO or CTA may consider them a QEP 
eligible to invest in the offered 4.7 pool or trading program. More 
specifically, a person can satisfy the Portfolio Requirement by: (1) 
owning securities (including pool participations) of issuers not 
affiliated with such person and other investments

[[Page 70854]]

with an aggregate market value of at least $2,000,000 20 (Securities 
Portfolio Test); (2) having on deposit with a futures commission 
merchant, for its own account at any time during the six months 
preceding either the date of sale to that person of a pool 
participation in the exempt pool or the date the person opens an exempt 
account with the CTA, at least $200,000 in exchange-specified initial 
margin and option premiums, together with required minimum security 
deposit for retail forex transactions for commodity interest 
transactions 21 (Initial Margin and Premium Test); or (3) owning a 
portfolio comprised of a combination of the funds or property specified 
in the Securities Portfolio Test and the Initial Margin and Premium 
Test, which, when expressed as percentages of the required amounts, 
meet or exceed 100%.22
—————————————————————————

    20 17 CFR 4.7(a)(1)(v)(A).
    21 17 CFR 4.7(a)(1)(v)(B).
    22 17 CFR 4.7(a)(1)(v)(C).
—————————————————————————

    The Portfolio Requirement has remained unchanged since its original 
adoption by the Commission in 1992.23 When it developed the QEP 
definition and the associated Portfolio Requirement, the Commission 
sought to create “objective criteria” by which one could assess a 
person’s commodity interest experience, believing that appropriate 
experience would involve an investment portfolio of a size sufficient 
to indicate that the participant has substantial investment experience 
and thus a high degree of sophistication with regard to investments as 
well as financial resources to withstand the risk of their 
investments.24 The Commission sought in the 1992 Final Rule to 
harmonize Regulation 4.7 with existing securities laws and regulations 
for sophisticated investors by incorporating the SEC’s “accredited 
investor” definition into the QEP definition, which was intended to 
capture similarly experienced and sophisticated persons participating 
in the commodity interest markets.25 However, the Commission 
determined that an additional, higher standard of experience was 
necessary for certain natural and other persons, citing the differences 
between futures and securities investments.26
—————————————————————————

    23 57 FR 34853 (Aug. 7, 1992) (1992 Final Rule).
    24 57 FR 3148, 3152 (Jan. 28, 1992) (1992 Proposed Rule).
    25 See the persons listed within 17 CFR 4.7(a)(2) and (3); cf. 
17 CFR 230.501.
    26 1992 Proposed Rule, 57 FR at 3151.
—————————————————————————

    The 1992 Proposed and Final Rules provide insight into the level of 
sophistication the Commission then considered necessary for natural 
persons (and other persons listed within Regulation 4.7(a)(3)) to 
qualify as QEPs. For example, in response to comments suggesting that 
the Commission not adopt any Portfolio Requirement, and instead rely 
solely on the parameters of the SEC’s “accredited investor” 
definition, the Commission explicitly declined to do so.27 The 
Commission continues to believe that a Portfolio Requirement provides a 
reasonable proxy for the experience, acumen, and resources necessary 
for certain persons, including natural persons, to be considered QEPs 
eligible to invest in complex commodity interest products without 
receiving the full panoply of information otherwise required under part 
4.28 These dollar thresholds have not been modified since their 
adoption over 30 years ago, and the Commission preliminarily believes 
it is long overdue to update these measures.
—————————————————————————

    27 Id.
    28 Although in the 1992 Final Rule the Commission cited the 
lack of disclosure requirements as one of the reasons for adopting a 
Portfolio Requirement, it was not the only policy justification; the 
inherent differences between futures and securities investments, as 
discussed above, were also cited. See 1992 Final Rule, 57 FR at 
34855. Despite the Commission’s original rationale in adopting the 
QEP definition including the policy decision of not requiring 
disclosures, the Commission has preliminarily concluded that 
retaining and increasing the Portfolio Requirement, while also 
proposing new disclosure requirements, is necessary given the 
increased variety and general evolution of the commodity interest 
markets since 1992. See infra Proposal, pt. II.b.
—————————————————————————

    In determining an appropriate increase for each threshold, the 
Commission preliminarily believes two inflation indexes published by 
the United States Bureau of Labor Statistics (BLS) are appropriate to 
consider. Specifically, the Commission consulted the Consumer Price 
Index for All Urban Consumers (CPI-U) and the Consumer Price Index for 
Urban Wage Earners and Clerical Workers (CPI-W).29 The CPI-U and CPI-
W indexes indicate that inflation has had a considerable impact on the 
monetary thresholds established in the 1992 Final Rule. The CPI-U and 
CPI-W data reveal that the current monetary thresholds in Regulation 
4.7(a)(1)(v) may no longer reasonably indicate the high level of 
investor sophistication, acumen, and resources that the Commission 
intended when the Portfolio Requirement was adopted. For example, based 
on analysis using CPI-U data, as of February 2023, the $2,000,000 
threshold in the Securities Portfolio Test has the same buying power as 
approximately $4,270,000, and the $200,000 threshold in the Initial 
Margin and Premiums Test has the same buying power as approximately 
$427,000.30
—————————————————————————

    29 See the U.S. BLS Handbook of Methods, for more information 
on the CPI, CPI-U, and CPI-W, available at https://www.bls.gov/opub/hom/cpi/presentation.htm. As described by the BLS Handbook of 
Methods, “CPI-U represents the buying habits of the residents of 
urban and metropolitan areas in the United States and covers over 90 
percent of the U.S. population.” Id. Comparatively, “the CPI-W is 
computed using the same prices as the CPI-U, but the weights of the 
CPI-W are based on a subset of the CPI-U population, covering 
approximately 30 percent of the U.S. population.” Id. The CPI-W 
also includes “households where more than one-half of the 
household’s earners must have been employed for at least 37 weeks 
during the previous 12 months.” Id. Given the relevance of these 
indexes to the population of natural persons that may qualify as 
QEPs via the Portfolio Requirement, the Commission believes these 
indexes are the most appropriate to use in determining today’s 
buying power of the Portfolio Requirement’s monetary thresholds 
established in 1992.
    30 The actual calculator for CPI-U can be found at https://www.bls.gov/data/inflation_calculator.htm. The Commission is 
preliminarily choosing to include the February 2023 CPI-U data above 
because it provides a clear example of today’s buying power of the 
Portfolio Requirement, as it was established in 1992, and because 
the data can be easily accessed and verified via the BLS inflation 
calculator link provided herein. In comparing the results of each 
index, as applied to the Portfolio Requirement thresholds, the 
Commission found no material difference between the CPI-W and CPI-U. 
Analysis using the CPI-W provided similar buying power figures to 
those produced by the CPI-U analysis. Given that the Commission is 
proposing updated thresholds rounded down to the nearest million and 
hundred thousand, the Commission believes that providing the CPI-U 
analysis is sufficient for purposes of this Proposal.
—————————————————————————

    Given these results, the Commission is proposing to update the 
Portfolio Requirement’s thresholds by doubling the Securities Portfolio 
Test in Regulation 4.7(a)(1)(v)(A) to $4,000,000, and the Initial 
Margin and Premium Test in Regulation 4.7(a)(1)(v)(B) to $400,000. 
Although these figures do not match the results provided by the CPI-U 
and CPI-W indexes exactly, being slightly lower than the February 2023 
buying power stated above, the Commission preliminarily believes that 
Portfolio Requirement thresholds rounded down to the nearest million 
and hundred thousand would be simpler for CPOs and CTAs relying on 
Regulation 4.7 to apply in determining if a prospective pool 
participant or advisory client is a QEP. Additionally, the Commission 
would continue to permit persons to meet the Portfolio Requirement 
through a combination of the two Portfolio Requirement thresholds as 
currently allowed under Regulation 4.7(a)(1)(v)(C), which would largely 
remain unchanged by this NPRM, except to update the example provided 
therein of how the two tests could be combined to reflect the higher 
proposed thresholds.
    The Commission recognizes that these increases to the Portfolio 
Requirement will likely result in a certain portion of currently-
qualifying QEPs no longer

[[Page 70855]]

meeting the thresholds. Regulation 4.7(a)(3) provides that CPOs must 
assess a person’s QEP status, including satisfaction of the Portfolio 
Requirement, at the time of sale of any pool participation units, and 
that CTAs must make a similar assessment at the time that a person 
opens an exempt account.31 The Commission believes that continuing 
this requirement, as opposed to requiring mandatory redemptions or 
terminations of advisory relationships for those current QEPs who may 
not meet the proposed heightened thresholds, minimizes the potential 
for disruption to the 4.7 pool or trading program, as well as possible 
negative consequences for the current QEPs. Therefore, the Commission 
is proposing to retain the requirements of current Regulation 4.7(a)(3) 
in Proposed Regulation 4.7(a)(6)(ii), and requests comment on this 
aspect of the proposal.
—————————————————————————

    31 17 CFR 4.7(a)(3).
—————————————————————————

    The Commission solicits comment on these proposed increases to the 
Portfolio Requirement in the QEP definition. In addition, the 
Commission also seeks comment on the following:
    1. Are the CPI-U and the CPI-W indexes the most appropriate for 
considering the impact of inflation on the thresholds within the 
Portfolio Requirement, and if they are not, what other suggested 
indexes or methods should the Commission consider using to assess 
inflationary effects?
    2. The Commission is also seeking any data or information, from 
CPOs and CTAs that utilize Regulation 4.7, on the estimated number of 
advisory clients and pool participants that currently qualify as QEPs 
via the existing Portfolio Requirement, but would not so qualify if the 
increased monetary thresholds in the Portfolio Requirement described 
above are adopted.
    3. How much time would CPOs and CTAs need to determine that their 
existing QEP pool participants and clients would continue to satisfy 
the increased Securities Portfolio or Initial Margin and Premium Tests, 
if adopted as proposed?

b. Establishing Minimum Disclosure Requirements Under Regulation 4.7

    As stated above, Regulation 4.7 provides exemptions from the 
broader part 4 compliance requirements, including those regulations 
requiring disclosures of general and performance information about a 
pool or trading program, for CPOs with respect to pools offered solely 
to QEPs, and for CTAs advising or managing the accounts of QEPs. More 
specifically, Regulation 4.7(b)(2) provides an exemption for CPOs with 
respect to their pools offered solely to QEPs regarding: (1) the 
requirement to deliver a disclosure document in Regulation 4.21; (2) 
the general disclosures required by Regulation 4.24; (3) the 
performance disclosures required by Regulation 4.25; and (4) the use 
and amendment requirements in Regulation 4.26; so long as the CPO 
provides a form statement on the cover page of any offering memorandum 
it chooses to distribute to its prospective pool participants (or near 
the signature line of the pool’s subscription agreement, if its CPO 
chooses not to distribute an offering memorandum).32 Similarly, 
Regulation 4.7(c)(1) provides an exemption for CTAs with respect to 
their trading programs offered to QEPs regarding: (1) the requirement 
to deliver a disclosure document in Regulation 4.31; (2) the general 
disclosures required by Regulation 4.34; (3) the performance 
disclosures required by Regulation 4.35; and (4) the use and amendment 
requirements in Regulation 4.36; provided that the CTA includes a form 
statement on the cover page of any brochure or disclosure statement it 
chooses to distribute to its prospective advisory clients (or near the 
signature line of the advisory agreement, if the CTA chooses not to 
distribute a brochure or disclosure statement).33 Currently, because 
of Regulations 4.7(b)(2) and (c)(1), CPOs and CTAs claiming these 
exemptions 34 are not required to deliver or disseminate any offering 
memoranda, brochures, or disclosure statements to their prospective QEP 
pool participants or advisory clients (QEP Disclosures). Rather, these 
CPOs and CTAs are only required to ensure that any QEP Disclosures they 
elect to provide, “include all disclosures necessary to make the 
information contained therein, in the context in which it is furnished, 
not misleading.” 35
—————————————————————————

    32 17 CFR 4.7(b)(2) (providing an exemption from the specific 
requirements of Sec. Sec.  4.21, 4.24, 4.25, and 4.26 with respect 
to each exempt pool). The prescribed “form statement” indicates 
that the CPO’s offering memorandum has not been, nor is it required 
to be, filed with the Commission, and that the CFTC has not reviewed 
or approved such offerings or any related offering memoranda for the 
4.7 pool. Id.
    33 17 CFR 4.7(c)(1) (providing an exemption “from the 
specific requirements of Sec. Sec.  4.31, 4.34, 4.35, and 4.36”). 
The prescribed “form statement” indicates that the CTA’s brochure 
has not been, nor is it required to be, filed with the Commission, 
and that the CFTC has not reviewed or approved such trading program 
or brochure. Id.
    34 See 17 CFR 4.7(d).
    35 17 CFR 4.7(b)(2); 17 CFR 4.7(c)(1).
—————————————————————————

    At the time of Regulation 4.7’s adoption in 1992, the Commission’s 
rationale for providing these broad disclosure exemptions was, in part, 
based on the belief that QEPs are able to identify and obtain the 
information they deem necessary to evaluate the investment offered and 
thus that prescriptive rules imposing specific disclosure requirements 
are not essential.36 The 1992 Final Rule further stated that the QEP 
definition is designed to assure that 4.7 offerings are made only to 
investors with sufficient sophistication and expertise to assess the 
appropriateness of the investment for their purposes and to obtain all 
the information they need to evaluate and monitor the contemplated 
investment, and placed the responsibility for obtaining such 
information about 4.7 pools and trading programs squarely on the 
prospective QEP pool participant or advisory client.37 The Commission 
also noted that requirements under other regulatory structures may 
apply to investor pools or their principals and require the CPO of an 
investor pool to make disclosure[s] to such participants.38 The 
Commission explained then that, despite the relief provided by 
Regulation 4.7, CPOs and CTAs relying on those exemptions with respect 
to the disclosure requirements in part 4 remain subject to the 
generally applicable statutory provisions in the CEA that prohibit 
defrauding or misleading investors, as well as those that specifically 
prohibit CPOs, CTAs, and their associated persons from defrauding or 
deceiving their participants and clients.39 In sum, the Commission 
sought in 1992 to create a simplified regulatory and compliance 
framework for CPO and CTA offerings to QEPs, leveraging the 
applicability of other Federal regulations to require disclosures to 
investors, and relying upon its broader enforcement powers to safeguard 
against fraud at inception, and throughout the lifecycle of the 4.7 
offering, as well as the ability of QEPs to demand and receive such 
disclosures on their own.
—————————————————————————

    36 1992 Final Rule, 57 FR at 34857.
    37 Id. at 34858.
    38 Id. (citing pension plan regulations as an example).
    39 Id.
—————————————————————————

    In proposing Regulation 4.7, the Commission explained that, with 
respect to its oversight of CPOs and CTAs, it had endeavored to 
construct a regulatory framework that avoids unnecessary burdens 
without reducing investor protection and refined that framework as 
appropriate to respond to changing market conditions and to simplify 
and streamline the regulatory structure without creating regulatory

[[Page 70856]]

gaps.40 Although the Commission expects QEPs meeting a properly 
calibrated Portfolio Requirement to generally possess the level of 
financial sophistication, as described by the Commission in 1992, the 
Commission preliminarily concludes in this proposalthat current market 
conditions and industry practices support proposing an evolved 
disclosure regime in Regulation 4.7. The Commission is concerned that 
the absence of minimal disclosure obligations and an ongoing 
requirement to keep them accurate fails to ensure that all QEPs have 
the leverage and resources to demand the information necessary for QEPs 
to make informed investment decisions, or to engage in ongoing close 
monitoring to confirm that the information provided remains accurate 
and complete to facilitate their continued understanding of their 
investments. The definition of QEP in Regulation 4.7 encompasses a 
broad spectrum of market participants from large fund complexes and 
other institutional investors with significant assets under management 
to individuals with varying backgrounds and experience, each of which 
has vastly different resources available to insist upon the disclosure 
of information regarding the offered 4.7 pool or trading program and 
then to analyze whatever information is provided.
—————————————————————————

    40 1992 Proposed Rule, 57 FR at 3149.
—————————————————————————

    In 2014, staff in the Commission’s Division of Swap Dealer and 
Intermediary Oversight (DSIO) convened a roundtable on the risk 
management practices of CPOs.41 As part of that discussion, 
participants addressed the manner in which CPOs of pools that are 
“Funds of Funds,” 42 or that allocate some or all of their assets 
under management to unaffiliated asset managers, engage with their 
underlying funds and asset managers. Specifically, several large CPOs 
discussed the ongoing oversight that they engage in regarding their 
investee funds, from analyzing past performance and understanding 
liquidity limitations, both of which require a deep understanding of 
the investment activities of the underlying funds, to addressing issues 
of governance, organization, and staffing; these CPOs explained that 
all of these efforts are undertaken to ensure that underlying 
investments remain the right fit for their investor fund’s strategy and 
their participants.43 Such large asset managers have the market power 
necessary to demand detailed investment information across all aspects 
of their underlying funds and managers, due to their role as 
gatekeepers for enormous pools of investor capital.44 Moreover, they 
also possess the resources necessary to develop sophisticated internal 
systems and technology to digest that information and engage in real-
time monitoring of whether the underlying fund or manager’s actual 
trading and conduct is consistent with the information being 
provided.45 Conversely, individual natural persons, who meet the QEP 
definition through the Portfolio Requirement, but nonetheless do not 
command the assets of large financial institutions, likely lack the 
ability to demand the same level of transparency afforded through the 
prospect of additional significant asset allocations, and thus are more 
likely to be reliant upon whatever information the CPO or CTA is 
providing as its baseline disclosure with limited ability to demand 
more, or analyze its accuracy and completeness.46 This perceived 
disparity may increase the likelihood of CPOs and CTAs with less 
rigorous risk management and controls to seek capital from such 
individuals who are generally less able to engage in the same rigorous 
monitoring.47
—————————————————————————

    41 Public Roundtable to Discuss Risk Management Practices by 
Commodity Pool Operators (Mar. 18, 2014), available at www.cftc.gov/idc/groups/public/@newsroom/documents/file/transcript031814.pdf 
(Roundtable Transcript).
    42 “Funds of funds” as used in this document means pools 
that invest in unrelated funds, pools, or other collective 
investment vehicles.
    43 See, e.g., id. at 31-35 (comments from representative of 
UBS Alternative and Quantitative Investments); id. at 39-41 
(comments from representative of Mesirow Advanced Strategies, Inc.).
    44 See, e.g., Blackstone Alternative Asset Management, a 
registered CPO, manages approximately $81bn in client assets and 
uses the services of other asset managers, available at https://www.blackstone.com/our-businesses/hedge-fund-solutions-baam/ 
(noting, “Our size also gives us the ability to negotiate 
customized mandates and improved terms with managers,” and touting 
their “rigorous process for evaluating managers and 
opportunities”); Lighthouse Investment Partners, LLC, another 
registered CPO that similarly allocates assets to other managers, 
manages approximately $15bn, available at https://www.linkedin.com/company/lighthouse-investment-partners-llc and http://lighthousepar.wpengine.com/our-funds/ (noting that their portfolio 
of hedge funds uses a “proprietary managed account framework” that 
enables them to “negotiate better terms” and ensures that 
Lighthouse retains the “ability to revoke manager trading authority 
at any time”).
    45 Roundtable Transcript, at 40-41 (comments from 
representative of Mesirow Advanced Strategies, Inc., describing how 
the firm had their “tracking index running next to their 
performance at all times and if at any time their performance 
deviates from that basic tracking index, [they] are on the phone 
with that manager trying to understand why that happens”).
    46 See, e.g., Herbert Moskowitz and Ari Moskowitz v. 
Accredited Investment Management Corp., Peter G. Catranis, and 
Russell E. Tanner, CFTC Docket Nos. 13-R15 and 13-R20, Default 
Judgment, Apr. 20, 2018, available at https://www.cftc.gov/idc/groups/public%40lrdispositions/documents/legalpleading/idmoskowitz05122016.pdf (finding in favor of the plaintiffs 
regarding a 4.7 CTA’s failure to provide “fair and balanced” 
disclosures regarding the risks and rewards of the offered trading 
program); Susan Taylor Martin, How Tampa’s James Cordier went from 
high roller to YouTube apology after losing $150 million, Tampa Bay 
Times, Feb. 11, 2019, available at https://www.tampabay.com/business/how-tampas-james-cordier-went-from-high-roller-to-youtube-apology-after-losing-150-million-20190206/ (describing how Mr. 
Cordier, according to deposition testimony from a former client, 
failed to provide an accurate statement regarding the treatment of 
customer funds held at a futures commission merchant and 
characterized the only risk to the client’s funds as “market 
risk”); Leanna Orr, Remember Wall Street’s Viral Laughingstock, 
OptionSeller.com?, Institutional Investor, May 13, 2020, available 
at https://www.institutionalinvestor.com/article/b1lm2xg8g69vbc/Remember-Wall-Street-s-Viral-Laughingstock-OptionSeller-com (quoting 
counsel to the failed 4.7 CTA’s clients, many of whom were retirees, 
“These people work their whole lives to make a nice middle class 
life, and then the bottom drops out and they drop out of the middle 
class. They don’t even understand why it happened . . . They rely on 
these [expletives] who said they knew what they were doing.”).
    47 Susan Taylor Martin, How Tampa’s James Cordier went from 
high roller to YouTube apology after losing $150 million, Tampa Bay 
Times, Feb. 11, 2019, available at https://www.tampabay.com/business/how-tampas-james-cordier-went-from-high-roller-to-youtube-apology-after-losing-150-million-20190206/ (reciting allegations 
from a complaint against a 4.7 CTA stating that the CTA promised 
“fastidious” risk management, but failed to hedge its naked 
options appropriately for the risk profile of its clients).
—————————————————————————

    Moreover, particularly once their relationship with a CPO or CTA is 
established, QEPs of all types may have diminished power over time to 
demand the same level of information about their investments as they 
had received at the outset, due to the presence of lock-up periods or 
infrequently permitted redemptions that may require extended notice 
periods following initial investment.48 The Commission understands 
that, with respect to CPOs and CTAs who claim and operate under 
Regulation 4.7 exemptions, NFA staff has observed situations where the 
quality and provision of the information presented to the customer may 
be inconsistent.49 The Commission preliminarily believes that these 
factors warrant reconsideration of the disclosure exemptions. 
Furthermore,

[[Page 70857]]

these circumstances, acting together, could foster an environment in 
which QEPs seeking to participate in a pool or advisory program must 
choose between a very limited number of offerings subject to the full 
panoply of compliance requirements under part 4 that provide them with 
more complete and regular information about their holdings, or a more 
varied and growing collection of QEP offerings, with substantially 
lower compliance obligations and no formal regulatory requirements with 
respect to disclosure that would ensure QEPs receive consistent, 
accurate, and current information about these products.
—————————————————————————

    48 See, e.g., In the Matter of: Highland Quantitative Driven 
Investments LLC and Michael Todd Zatorski, NFA Case No. 20-BCC-004 
(alleging that the named CPO and its principal failed to update 
their private placement memoranda, and thereby inform their current 
and prospective 4.7 pool participants, with respect to significantly 
increased fees, while simultaneously imposing a one- to two-year 
lock up period, which foreclosed the possibility of threatening to 
withdraw their capital contributions absent updated disclosures).
    49 See id.; see also U.S. CFTC v. Mankad, 2022 WL 17752224 
(D.C. Ariz. Oct. 19, 2022) (finding that the defendant and his CPO 
failed to update the private placement memorandum for its 4.7 pool 
following changes to their trading strategy).
—————————————————————————

    In addition to the aforementioned concerns about the unequal 
bargaining power of QEPs, in the 30 years since that provision was 
adopted, the Commission has, as described above, witnessed a 
significant expansion and growth in the complexity and diversity of 
commodity interest products offered to QEPs via 4.7 pools and trading 
programs, as well as an expansion in the asset classes subject to the 
Commission’s jurisdiction and oversight. Broadly speaking, since the 
CFTC’s authority over swaps and the swap markets was expanded under the 
Dodd-Frank Act, there has been a considerable change in the way that 
swaps trade. For example, when Regulation 4.7 was adopted in 1992, 
swaps trading occurred over-the-counter and the total estimated size of 
the market was approximately $9T in today’s dollars; 50 whereas, 
after the Dodd-Frank Act’s implementation, many swaps products are 
exchange-traded and the total size of the swaps market has increased 
exponentially,51 and many CPOs and CTAs today incorporate swaps into 
the portfolios of their pools and trading programs. Regarding the 
products themselves, there has also been considerable development of 
new and complex commodity interest products.52
—————————————————————————

    50 See Adam R. Waldman, OTC Derivatives and Systemic Risk: 
Innovative Finance or the Dance into the Abyss?, 43 a.m. U. L. Rev. 
1023, 1025 n.5 (1994) (citing Andrew Barry, BARRON’S, Sept. 13, 
1993, at 49, reporting a swaps market size of $3.8T, as compiled by 
the International Swaps and Derivatives Association, Inc. (ISDA), 
which equates to roughly $8.8T based on CPI-U).
    51 See the ISDA SwapsInfo First Quarter 2023 Review, May 2023, 
available at https://www.isda.org/2023/05/02/swapsinfo-first-quarter-of-2023-review-summary/ (stating that the interest rate 
derivatives market alone was valued at $106.1T notional in the first 
quarter of 2023); Bank for International Settlements, “OTC 
derivatives statistics at end-June 2022,” available at https://www.bis.org/publ/otc_hy2211.pdf (stating that “the notional value 
of outstanding over-the-counter (OTC) derivatives rose to $632 
trillion at end-June 2022, up from $598 trillion at end-2021”).
    52 Most notable, and as widely covered in the press, is the 
recent development and availability of commodity interest products 
linked to digital assets, such as bitcoin, discussed infra.
—————————————————————————

    Although the Commission in 1992 considered the commodity interest 
products then available in developing existing customer protections for 
QEPs in Regulation 4.7, product innovation in the commodity interest 
markets has continued at a rapid and unrelenting pace 53 raising 
concern that certain QEP participants and clients may not have the 
level of information necessary to fully appreciate the nature of the 
risk associated with their trading. For example, futures are now 
available on digital assets, which, although subject to the same 
regulatory regime as other futures products, often experience higher 
levels of volatility than more traditional commodity reference 
assets.54 Moreover, the technology underlying these assets is highly 
complex, subject to rapid innovation, and can pose substantially 
different principal risks as compared to traditional commodities, 
including unique cybersecurity risks and the potential for hacks and 
vulnerabilities in the storage and transmission of these assets. Given 
the relatively recent development of digital assets, it remains unclear 
as to whether the underlying markets, to which the futures and other 
derivatives are tied, are subject to market fundamentals similar to 
those of the traditional commodities markets. The Commission 
preliminarily believes that this can result in unpredictable movements 
in both the spot and commodity interest markets. As the financial 
system continues to experience a period of rapid evolution in the era 
of artificial intelligence and other technological advancements, the 
Commission expects to see continued development of novel investment 
products that, although structured like the traditional asset classes 
enumerated under the CEA, may in fact deviate from the typical 
operations of markets now subject to the Commission’s oversight. In 
view of these developments, the Commission believes that minimum 
disclosure requirements are essential to ensure that pool participants 
and advisory clients fully understand the risks associated with their 
investments.
—————————————————————————

    53 See Katherine Ross, CME Group to add ether/bitcoin ratio 
futures in July pending regulatory approval, Blockworks, June 29, 
2023, available at https://blockworks.co/news/cme-adds-ether-bitcoin-ratio-futures.
    54 The risks of these products to investors are of such 
concern that the CFTC and SEC have both acknowledged their 
volatility in various publications. In fact, and most relevant to 
this discussion, the SEC and CFTC released a joint investor alert to 
investors thinking about investing in a fund with exposure to 
bitcoin futures. The alert emphasized that investors should 
understand the unique characteristics and heightened risks compared 
to other funds. See CFTC/SEC Investor Alert: Funds Trading in 
Bitcoin Futures, available at https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/fraudadv_funds_trading_in_bitcoin_futures.html. Although these are 
not the only new products that have launched over the last 30 years, 
the Commission believes they are examples that highlight a need for 
updating the customer protections provided under Regulation 4.7. See 
Hannah Smith, Bitcoin crash: what was behind the crypto collapse?, 
The Times (May 22, 2023), available at https://www.thetimes.co.uk/money-mentor/article/is-bitcoin-crash-coming/#Why-is-bitcoin-so-volatile? (noting that bitcoin “has no underlying asset” and that 
“means that the movements in its price are solely based on 
speculation among investors about whether it will rise or fall in 
the future”); Nicole Lapin, Explaining Crypto’s Volatility, Forbes 
(Dec. 23, 2021), available at https://www.forbes.com/sites/nicolelapin/2021/12/23/explaining-cryptos-volatility/?sh=1640938f7b54 (noting that “it isn’t intrinsically valuable,” 
which “means the investment’s value isn’t very grounded, which 
makes its price incredibly sensitive to even slight changes in 
investors’ expectations or perceptions”).
—————————————————————————

    In addition to developments regarding products, market structure 
has also evolved in the years following the initial adoption of 
Regulation 4.7. Commodity pools and CTA advisory clients can access the 
futures markets either directly 55 or through an FCM, which present 
different risks and benefits to pool participants and advisory clients. 
Where FCMs are not part of the market structure, there may be fewer 
independent sources of information available to pool participants and 
advisory clients, making it even more important that QEPs receive full 
and accurate information regarding the risks related to their 
investments.
—————————————————————————

    55 See, e.g., In the Matter of the Application of LedgerX, LLC 
For Registration as a Derivatives Clearing Organization, Amended 
Order of Registration, available at https://www.cftc.gov/media/4556/ledgerxllcamededdcoorder9-2-2020/download.
—————————————————————————

    Thus, given these developments in the commodity interest markets, 
among others, and similar to the circumstances underlying the 1992 
Final Rule, with respect to Regulation 4.7, the Commission continues 
seeking to construct a regulatory framework that avoids unnecessary 
burdens without reducing investor protection and to respond to changing 
market conditions without creating regulatory gaps.56 The Commission 
preliminarily believes that requiring the provision of specific minimum 
disclosures for CPOs and CTAs operating 4.7 pools and trading programs 
will assist in mitigating the customer protection gaps that have 
developed since 1992 by ensuring that QEPs receive the information 
necessary to make informed investment decisions,

[[Page 70858]]

and that such disclosures are subject to Commission and NFA oversight.
—————————————————————————

    56 1992 Proposed Rule, 57 FR at 3149.
—————————————————————————

    Importantly, the Commission does not intend this NPRM to dissuade 
registered CPOs and CTAs from structuring their pools and trading 
programs to qualify for and utilize the exemptions in Regulation 4.7. 
Rather, the Commission preliminarily believes that, as a result of the 
changing market conditions described above, an evolved approach to QEP 
Disclosures under Regulation 4.7 is necessary to ensure that QEPs 
consistently receive specific, baseline information with respect to 
their investments in the commodity interest markets, and further, that 
such proposed regulatory adjustments would not greatly reduce the 
benefits intermediaries currently derive from relying upon the relief 
in Regulation 4.7.
    With this Proposal, the Commission is not proposing to rescind the 
disclosure exemptions in Regulations 4.7(b)(2) and (c)(1) in their 
entirety. Rather, the Commission aims to make targeted updates to these 
provisions that are designed to enhance customer protection, 
transparency, and fairness within the market of 4.7 pools and trading 
programs. The proposed amendments are intended to: (1) recognize the 
increasingly complex and diverse commodity interest investment products 
offered to QEPs today, and reflect the resulting evolution in view by 
the Commission that requiring basic disclosures to encourage informed 
investment decisions is the necessary and preferred approach for 4.7 
pools and trading programs; (2) create a formalized Commission 
regulatory regime for promotional, advertising, and disclosure 
practices for CPOs and CTAs relying on Regulation 4.7 with respect to 
their QEP offerings, allowing for prospective and current participants 
and clients to better compare strategies, fees, and other 
characteristics of 4.7 pools and trading programs through consistent 
QEP Disclosures; and (3) strengthen intermediary oversight by 
incorporating the review of QEP Disclosures into existing examination 
processes used by the Commission and NFA, which, in turn, would 
increase their accuracy and quality over time.
    By creating a formalized regulatory regime in part 4 for the 
promotional, advertising, and disclosure practices of CPOs and CTAs 
with respect to their 4.7 pools and trading programs, the Commission 
preliminarily believes that this would strengthen its oversight of CPOs 
and CTAs relying on Regulation 4.7 and that QEPs and the commodity 
interest markets overall would benefit as a result. The promotional, 
advertising, and disclosure practices of CPOs and CTAs utilizing 
Regulation 4.7 have changed a great deal since the original adoption of 
these exemptions. The Commission has observed that, despite there being 
no such requirements in Regulation 4.7, many CPOs and CTAs currently 
provide and distribute some disclosures and information regarding their 
4.7 pools and trading programs to prospective QEP pool participants and 
advisory clients. These QEP Disclosures are commonly delivered in the 
form of private placement memoranda or trading program brochures, and 
typically include much of the information the Commission is proposing 
to require in this rule proposal. This practice results both from 
investor demand seeking to understand the 4.7 pools and trading 
programs offered in the current marketplace, as described above, as 
well as the requirements of other applicable regulatory regimes, like 
the Federal securities laws.57 The Commission notes, however, that 
some CTAs, which are not also regulated as registered investment 
advisers by the SEC, may not be otherwise required to provide any 
disclosures and may, in fact, only provide cursory promotional 
material.
—————————————————————————

    57 See, e.g., Rule 502(b)(2) of Regulation D, 17 CFR 
230.502(b)(2) (requiring certain disclosures for offerings under 
Rule 506(b) of Regulation D, 17 CFR 230.506(b)). Additionally, many 
CPOs and CTAs operating under Regulation 4.7 are also registered 
with the SEC as investment advisers. All investment advisers 
registered with the SEC under the IAA, 15 U.S.C. 80b-1, et seq., are 
required to comply with the applicable disclosure requirements under 
the IAA and the SEC’s regulations promulgated thereunder, regardless 
of the financial sophistication of any or all of their clients. 
Conversely, “Exempt Reporting Advisers” have limited reporting 
requirements with the SEC under the IAA, but otherwise are not 
required to register, and therefore, are not required to comply with 
the disclosure requirements imposed on registered investment 
advisers. See 15 U.S.C. 80b-3(l) and (m) (providing registration 
exemptions for advisers to venture capital funds and certain 
advisers to private funds).
—————————————————————————

    The Commission preliminarily believes that establishing minimum 
content requirements would ensure that existing QEP Disclosures are 
consistent in structure, accurate, kept up-to-date, and contain 
materially complete information regarding 4.7 pools and trading 
programs. As a result, current and prospective QEP participants and 
clients would be able to better compare investment programs, trading 
strategies, fees, and other characteristics of 4.7 pools and trading 
programs. Additionally, even if the QEP Disclosures provided by CPOs 
and CTAs relying upon Regulation 4.7 differ in form and detail, the 
minimum required disclosures proposed in this NPRM would result in all 
QEPs receiving the same level of basic information prior to making an 
investment decision. The Commission preliminarily concludes that 
replacing the existing broad exemptions with a targeted minimum 
disclosure regime under Regulation 4.7 will ultimately bring discipline 
to the current ad hoc QEP Disclosure process, resulting in more uniform 
and consistent disclosures for prospective and current QEP advisory 
clients and pool participants.
    Finally, the Commission believes that amending Regulation 4.7 to 
require CPOs and CTAs to disclose certain information about their 4.7 
pools and trading programs, as well as to keep such QEP Disclosures as 
business records, would facilitate more effective oversight of 
registered CPOs and CTAs and their offerings by the Commission and NFA. 
The Commission expects that creating a formalized, affirmative 
regulatory requirement that materially accurate QEP Disclosures be 
delivered and kept current, would likely enhance investor confidence in 
commodity interest products generally by providing an increased level 
of transparency for the Commission and NFA into these registrants’ 
activities for examination and enforcement purposes, thereby improving 
oversight.58 Moreover, by facilitating Commission and NFA access to 
QEP Disclosures kept amongst CPO and CTA business records, the 
Commission believes that the proposed affirmative recordkeeping 
requirements in Regulations 4.7(b)(5) and (c)(2) would serve as an 
additional deterrent to CPOs or CTAs engaging in fraud or providing 
misleading representations in QEP Disclosures.
—————————————————————————

    58 The Commission notes here its belief and understanding that 
the current applicable requirement that any information in QEP 
Disclosures a CPO or CTA decides to provide is, “in the context in 
which it is furnished, not misleading” is fundamentally different 
and a much lower standard than the proposed requirement that QEP 
Disclosures be generally required and regularly updated so that they 
remain “materially accurate and complete.”
—————————————————————————

    The amendments proposed in this NPRM strike an appropriate balance, 
in the Commission’s opinion, by establishing minimum content 
requirements for QEP Disclosures regarding 4.7 pools and trading 
programs, and mandating that they be kept as business records of the 
intermediary, while still retaining exemptions from the provisions of 
part 4 that require filing and pre-approval of non-4.7 Disclosure 
Documents by the Commission and NFA.59 These proposed amendments 
would elevate the disclosure provided for 4.7 pools and trading 
programs to a higher

[[Page 70859]]

standard than that imposed on non-required promotional material under 
Regulation 4.41.60 In particular, the Commission believes that, if 
adopted, these amendments would permit it and NFA to monitor and assess 
the accuracy of distributed QEP Disclosures, as compared to a CPO’s or 
CTA’s actual trading activities, via existing examination processes, as 
well as through comparison to information these intermediaries 
regularly provide in other filings, like Forms CPO-PQR and/or CTA-PR. 
Having the ability to review QEP Disclosures during routine 
examinations, combined with an affirmative requirement that CPOs and 
CTAs provide information that is materially complete, accurate and up-
to-date, would, in the Commission’s preliminary opinion, provide the 
CFTC and NFA with an additional level of oversight that simply does not 
exist under the current regulatory framework. Moreover, the Commission 
further preliminarily believes that QEP Disclosures would likely 
qualitatively improve over time, should these proposed amendments be 
adopted, by virtue of the QEP Disclosures being regularly examined and/
or reviewed by Commission and NFA staff possessing the unique, deep 
subject matter expertise with respect to commodity interests that other 
Federal agencies simply do not and are not reasonably expected to 
possess.
—————————————————————————

    59 See, e.g., 17 CFR 4.26(d).
    60 17 CFR 4.41.
—————————————————————————

    Among the existing disclosures outlined in part 4 for registered 
CPOs and CTAs not claiming Regulation 4.7, the Commission believes that 
both the general disclosures, as described in Regulations 4.24 and 
4.34, and performance disclosures, as described in Regulations 4.25 and 
4.35, form the foundational level of information about a pool’s or 
advisory program’s trading strategies, material risks, fees, and 
conflicts associated therewith; furthermore, the Commission 
preliminarily believes that disclosure by a CPO or CTA is the primary 
source of information a prospective or actual participant or client 
would rely upon to make an appropriately informed investment decision, 
even for those financially sophisticated persons who are QEPs. 
Specifically, the subset of general disclosures listed in Regulations 
4.24 and 4.34 that the Commission is proposing to now be required for 
4.7 pools and trading programs would provide prospective QEP pool 
participants and clients with important information on principal risk 
factors, investment programs, use of proceeds, custodians, fees and 
expenses, and conflicts of interest. The subset of performance 
disclosures from Regulations 4.25 and 4.35 that the Commission is 
proposing to require would further involve the presentation of vital 
current and past performance metrics in a format consistent with that 
already developed for non-QEP pool participants and advisory clients. 
Combined, the Commission intends the proposed addition of these 
disclosures to Regulation 4.7 to both provide appropriate customer 
protection safeguards and to support its intermediary oversight through 
methods that have been assessed and further developed since their 
adoption, nearly thirty years ago.61
—————————————————————————

    61 The Commission notes that it developed these part 4 
required disclosures originally in response to changing market 
conditions and to implement its statutory mandates in regulating and 
overseeing CPO and CTA activities. In fact, in the final rule 
establishing the initial requirements under Regulations 4.24, 4.25, 
4.34, and 4.35, the Commission explicitly highlighted that, since 
the adoption of the part 4 framework, the number of registered CPOs 
had more than doubled and the number of CTAs had increased 
threefold; assets under the management of CPOs had grown 
dramatically; and the range of available futures and option 
contracts had increased substantially. 60 FR 38147 (July 25, 1995) 
(1995 Final Rule). This justification, cited in 1995, is arguably 
even more relevant to today’s CPO and CTA population using 
Regulation 4.7 because the growth of that specific category of 
intermediaries and that sector of the commodity interest markets has 
continued significantly since the 1995 Final Rule.
—————————————————————————

    The Commission requests comment on all aspects of the proposed 
amendments outlined below that would require certain information be 
disclosed to prospective QEP pool participants and advisory clients 
under Regulation 4.7, that QEP Disclosures are regularly updated and 
materially complete, and that they be included in the business records 
of CPOs and CTAs claiming Regulation 4.7 exemptions. In addition, the 
Commission seeks comment on the following questions:
    1. Should the Commission increase or decrease the types of 
information included in Proposed Regulations 4.7(b)(2) and (c)(1)? In 
particular, should additional disclosure requirements listed in 
Regulations 4.24 and 4.34 be included for CPOs and CTAs, respectively? 
If so, what disclosures?
    2. The Commission is seeking specific data or information 
regarding: (i) the current number of CPOs and CTAs utilizing Regulation 
4.7 that provide the proposed minimum disclosures to their QEP 
participants and clients; (ii) the level of disclosure currently 
provided by CPOs and CTAs to their QEP participants and clients; (iii) 
if disclosures are provided, the general format, tenor, and manner used 
in both structuring and delivering the disclosures; and (iv) the 
context and timing of when any such disclosures are provided (e.g., 
whether during solicitation or otherwise during the course of the 
investment relationship).
    3. What specific challenges would CPOs and CTAs face in complying 
with the disclosure requirements in Proposed Regulations 4.7(b)(2) and 
(c)(1)? Should the Commission consider an implementation period for the 
proposed amendments, and if so, how much time should the Commission 
allow for CPOs and CTAs to develop and prepare QEP Disclosures that 
would comply with the proposed amendments?
    The following sections explain the proposed amendments in more 
detail.
i. Proposed Amendments to Regulations 4.7(b)(2) and (b)(5)
    The Commission is proposing to amend the disclosure relief outlined 
in Regulations 4.7(b)(2)(i) and (ii) to require CPOs to deliver to 
their 4.7 pools’ prospective participants QEP Disclosures that 
enumerate certain specific disclosures, including descriptions of the 
4.7 pool’s principal risk factors, its investment program, use of 
proceeds, custodians, fees and expenses, conflicts of interest, and 
certain performance disclosures, including basic past performance 
information. As a consequence of requiring these minimum disclosures 
for 4.7 pools, the Commission is also proposing a corresponding 
amendment to remove the exemption from disclosing the past performance 
of 4.7 pools in the Disclosure Documents of non-4.7 pools. That 
provision had been proposed and adopted “in connection with” the 
previous policy position that 4.7 pools had no minimum or mandatory 
disclosure requirements,62 which the Commission, as just discussed, 
now seeks to change through the amendments in this NPRM; the Commission 
further preliminarily believes such information would be valuable to 
commodity pool participants of all types. Finally, the Commission 
proposes to amend Regulation 4.7(b)(5) to additionally require that 
CPOs maintain such QEP Disclosures among the other books and records of 
their 4.7 pools, and made available upon request to the Commission, 
NFA, and the U.S. Department of Justice, in accordance with Regulation 
1.31.63
—————————————————————————

    62 1992 Proposed Rule, 57 FR at 3151; 1992 Final Rule, 57 FR 
at 34858.
    63 17 CFR 1.31.
—————————————————————————

    As proposed, Regulation 4.7(b)(2)(i) would no longer provide an 
exemption from Regulation 4.21, and instead of requiring compliance 
with Regulations

[[Page 70860]]

4.24 and 4.25 in their entirety, the proposed amendments include new 
Regulations 4.7(b)(2)(i)(A) through (E) that enumerate the specific 
disclosures the Commission preliminarily believes prospective QEP pool 
participants should receive, and that incorporate certain subparagraphs 
of those part 4 disclosure regulations by reference. As mentioned 
above, the specific disclosures proposed to be required for 4.7 pools 
include: descriptions of the 4.7 pool’s principal risk factors, its 
investment program, use of proceeds, custodians, fees and expenses, 
conflicts of interest, and certain performance disclosures, including 
past performance. Importantly, the Commission is not proposing to 
require that CPOs provide QEP Disclosures identical to the Disclosure 
Documents subject to the full panoply of requirements under Regulations 
4.24 and 4.25. Rather, the Commission has specifically chosen what it 
believes to be the most meaningful and important information for 
prospective QEP pool participants, and is proposing to require that 
CPOs provide this information in QEP Disclosures, subject to the 
substance and formatting requirements of Regulations 4.24 and 4.25. The 
Commission is also proposing to retain, but reformat, the existing 
language in Regulation 4.7(b)(2)(i) into Proposed Regulations 
4.7(b)(2)(i)(F) and (G). Proposed Regulation 4.7(b)(2)(i)(F) would 
include the requirement that QEP Disclosures provide all disclosures 
necessary to make the information contained therein, in the context in 
which it is furnished, not misleading, and Proposed Regulation 
4.7(b)(2)(i)(G) would continue to require a form disclaimer like that 
currently required by Regulation 4.7(b)(2)(i).
    Furthermore, it is crucial that QEP Disclosures used and 
distributed by CPOs be kept current and that they be maintained as 
business records to ensure compliance with the proposed general and 
performance disclosure requirements and to facilitate Commission and 
NFA oversight of these intermediaries. The Commission is therefore 
proposing to amend Regulation 4.7(b)(5) to require that QEP Disclosures 
be maintained among a CPO’s other books and records for a 4.7 pool and 
made available to any representative of the Commission, NFA, or the 
U.S. Department of Justice in accordance with Regulation 1.31. This 
amendment would allow the Commission and NFA to review QEP Disclosures 
as part of routine examinations and civil enforcement actions. Finally, 
Proposed Regulation 4.7(b)(2)(i) no longer provides an exemption from 
Regulation 4.26 in its entirety; the Commission is proposing to 
restrict this exemption to Regulation 4.26(d) only, such that 
compliance with Regulations 4.26(a) through (c), provisions that 
generally govern the use and amendment of this information, would 
otherwise be required. Because the Commission is not proposing to 
require that QEP Disclosures for 4.7 pools be filed and approved by NFA 
prior to their first use, Proposed Regulation 4.7(b)(2)(i) retains an 
exemption from Regulation 4.26(d).
A. Principal Risk Factors
    The Commission is proposing to add Proposed Regulation 
4.7(b)(2)(i)(A) that would require QEP Disclosures distributed in 
connection with soliciting prospective participants in a 4.7 pool to 
include a description of the principal risk factors as required by 
Regulation 4.24(g). Specifically, Regulation 4.24(g) requires CPOs to 
describe, in their Disclosure Documents, the principal risk factors of 
a pool investment including, 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.64 Proposed Regulation 4.7(b)(2)(i)(A) would incorporate 
Regulation 4.24(g) by reference and would similarly require CPOs to 
provide a description of their 4.7 pool’s principal risk factors in 
their QEP Disclosures.
—————————————————————————

    64 17 CFR 4.24(g).
—————————————————————————

B. Investment Program and Use of Proceeds
    The Commission is also proposing to require that QEP Disclosures 
include the information mandated by Regulation 4.24(h), i.e., a 4.7 
pool’s investment program, custodians, and use of proceeds. 
Specifically, Regulation 4.24(h) requires CPOs to disclose: (1) the 
types of commodity interests and other interests which the pool will 
trade; (2) a description of the trading and investment programs and 
policies that will be followed by the offered pool; (3) a summary 
description of the pool’s major CTAs, including their respective 
percentage allocations of the pool assets and a description of the 
nature and operation of the trading programs such CTAs will follow; (4) 
a summary description of the pool’s major investee pools or funds, 
including their respective percentage allocations of pool assets and a 
description of the nature and operation of such investee pools and 
funds; and (5) certain use of proceeds information, including the 
manner in which the pool will fulfill its margin requirements, the 
percentage of the pool’s assets held in segregation pursuant to the 
CEA, and information regarding to whom income from margin or security 
deposits will be paid.65 Additionally, Regulation 4.24(h)(1)(iii) 
requires CPOs to disclose both the types of commodity interests and 
other interests the pool will be trading, including the custodian or 
other entity (e.g., bank or broker-dealer) that will hold such 
interests, and if such interests will be held in jurisdictions outside 
of the United States, the jurisdiction in which such interests or 
assets will be held.66 Proposed Regulation 4.7(b)(2)(i)(B) would 
require QEP Disclosures to include the information described above by 
incorporating Regulation 4.24(h) by reference.
—————————————————————————

    65 17 CFR 4.24(h).
    66 17 CFR 4.24(h)(1)(iii).
—————————————————————————

C. Fees and Expenses
    The Commission is also proposing to require that CPOs disclose 
information regarding their fees and expenses for their 4.7 pools in a 
manner consistent with Regulation 4.24(i). Regulation 4.24(i) requires 
CPOs to provide a complete description of each fee, commission, and 
other expense, which the CPO knows or should know has been incurred by 
the pool for its preceding fiscal year and is expected to be incurred 
by the pool in its current fiscal year, including fees and other 
expenses incurred in connection with the pool’s participation in 
investee pools and funds.67 Proposed Regulation 4.7(b)(2)(i)(C) would 
incorporate Regulation 4.24(i) by reference and require, without 
limitation, the disclosure of all the fees specifically enumerated in 
Regulation 4.24(i), subject to the other provisions therein, including 
the requirement to provide, in a tabular format, an analysis setting 
forth how the break-even point for a 4.7 pool was calculated, including 
all fees, commissions, and other expenses of the 4.7 pool.
—————————————————————————

    67 17 CFR 4.24(i)(1).
—————————————————————————

D. Conflicts of Interest
    The Commission is proposing to amend Regulation 4.7(b)(2)(i) to 
require the disclosure of conflicts of interest in QEP Disclosures for 
4.7 pools, as required by Regulation 4.24(j). Regulation 4.24(j) 
requires CPOs to provide a full description of any actual or potential 
conflicts of interest

[[Page 70861]]

regarding any aspect of the pool on the part of: (1) the CPO; (2) the 
pool’s trading manager, if any; (3) any major CTA; (4) the CPO of any 
major investee pool; (5) any principal of the foregoing; and (6) 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.68 Additionally, Regulation 4.24(j) requires the disclosure of 
any other material conflict involving the offered pool, as well as a 
description of any arrangements described in Regulation 4.24(j)(3).69 
Proposed Regulation 4.7(b)(2)(i)(D) would incorporate Regulation 
4.24(j) by reference, requiring comparable disclosure of these 
conflicts of interest by CPOs with respect to their 4.7 pools.
—————————————————————————

    68 17 CFR 4.24(j).
    69 17 CFR 4.24(j)(2) and (3). Regulation 4.24(j)(3) requires a 
description of the conflicts of interest of any arrangements whereby 
someone may benefit, directly or indirectly, from the pool’s account 
maintenance with an FCM or RFED; from maintenance of the pool’s swap 
positions with a swap dealer; from the introduction of the pool’s 
account by an introducing broker to an FCM, RFED, or swap dealer; or 
from the investment of the pool’s assets in other investee pools or 
funds or other investments. 17 CFR 4.24(j)(3).
—————————————————————————

E. Past Performance of 4.7 Pools
    The Commission is further proposing to require CPOs to disclose 
certain performance information as required by Regulation 4.25 in the 
QEP Disclosures for their 4.7 pools. Specifically, the Commission is 
proposing to partially remove the existing complete exemption from 
Regulation 4.25 by requiring CPOs to disclose all performance 
information listed under Regulation 4.25 with respect to their 4.7 
pools, with the exception of performance information for pools other 
than the 4.7 pool. Regulation 4.25 requires CPOs to include capsule 
performance information for both pools and accounts, subject to certain 
presentation and content requirements outlined in paragraph (a) of that 
section.70 Regulation 4.25(a) also provides requirements for the time 
period for required performance, trading programs, the calculation of 
and recordkeeping concerning performance information, proprietary 
trading results, as well as a legend for all performance disclosures, 
whether mandatory or voluntary, that is prominently displayed and 
states, “PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.” 71 
Among the additional requirements within Regulation 4.25, paragraph 
(a)(3) requires CPOs to disclose certain past performance information 
for pools other than the offered pool. Finally, Regulations 4.25(b) and 
(c) clarify and establish the required performance disclosures for 
offered pools that have at least a three-year operating history, and 
for those with less than a three-year operating history, 
respectively.72 For the purposes of targeting this NPRM to requiring 
performance disclosures the Commission preliminarily believes are most 
important and valuable to prospective QEP participants, and to lessen 
the potential burden on CPOs resulting from incorporating minimum QEP 
Disclosures in Regulation 4.7, the Commission is not proposing to 
require that CPOs of 4.7 pools provide the disclosures referenced in 
paragraphs (a)(3) or (c)(2) of Regulation 4.25 regarding past 
performance information for pools other than the 4.7 pool in their QEP 
Disclosures, which the Commission preliminarily believes strikes the 
appropriate balance of these potentially competing interests. 
Therefore, Proposed Regulation 4.7(b)(2)(i) would no longer provide the 
specific exemption from Regulation 4.25, and the Commission is 
proposing to add Regulation 4.7(b)(2)(i)(E), which would require QEP 
Disclosures to include performance disclosures that comply with 
Regulation 4.25, except paragraphs (a)(3) and (c)(2) of that section.
—————————————————————————

    70 17 CFR 4.25.
    71 17 CFR 4.25(a).
    72 17 CFR 4.25(b) and (c).
—————————————————————————

ii. Proposed Amendments to Regulations 4.7(c)(1) and (c)(2)
    Consistent with the proposed amendments regarding additional 
disclosures for 4.7 pools discussed above, the Commission is also 
proposing to specifically enumerate additional disclosure requirements 
for 4.7 trading programs in Regulation 4.7(c)(1). Specifically, 
Proposed Regulation 4.7(c)(1)(i) would no longer provide an exemption 
from Regulation 4.31, and, in lieu of requiring compliance with 
Regulations 4.34 and 4.35 in their entirety, the Commission is 
proposing to enumerate specific disclosure requirements it wishes to 
prioritize for 4.7 trading programs. Proposed Regulation 4.7(c)(1)(i) 
would also include new paragraphs (c)(1)(i)(A) through (F) that list 
the specific disclosures the Commission is proposing to require for 
CTAs and their 4.7 trading programs, including descriptions of certain 
persons to be identified, the principal risk factors of the investment, 
the CTA’s trading program, fees, conflicts of interest, and performance 
disclosures. The Commission also proposes to relocate the existing 
disclosure requirements in current Regulation 4.7(c)(2)(i) into 
Proposed Regulations 4.7(c)(2)(i)(G) and 4.7(c)(2)(i)(H). Proposed 
Regulation 4.7(c)(2)(i)(G) continues to require that QEP Disclosures 
provide all additional disclosures necessary to make the information 
contained therein, in the context in which it is furnished, not 
misleading, and Proposed Regulation 4.7(c)(2)(i)(H) continues to 
require a form statement like that currently required by Regulation 
4.7(c)(1)(i).
    Additionally, the Commission is proposing to remove the exemption 
from disclosing past performance of 4.7 trading programs in the 
Disclosure Documents of non-4.7 trading programs. That provision had 
been proposed and adopted in connection with the previous policy 
position that 4.7 trading programs offered by CTAs had no minimum or 
mandatory disclosure requirements for their prospective QEP advisory 
clients, which the Commission is proposing to change through this NPRM. 
Moreover, the Commission preliminarily believes such information would 
be valuable to all prospective CTA clients, regardless of their 
sophistication or experience, and therefore, proposes to require more 
complete disclosure of a CTA’s programs, whether 4.7 or not, in 
Disclosure Documents provided to non-QEP advisory clients.
    Further, as discussed in relation to 4.7 pools above, the 
Commission preliminarily believes that it is crucial that QEP 
Disclosures used by CTAs be maintained as business records of the CTA 
to ensure compliance with the general and performance disclosure 
requirements proposed in this NPRM and to facilitate Commission and NFA 
oversight of these intermediaries. Therefore, the Commission is also 
proposing to amend Regulation 4.7(c)(2), such that CTAs would be 
required to maintain the QEP Disclosures among the other books and 
records for their 4.7 trading programs, making them available to the 
Commission, NFA, and the U.S. Department of Justice, in accordance with 
Regulation 1.31. Finally, Proposed Regulation 4.7(c)(1)(i) would also 
no longer provide an exemption from Regulation 4.36 in its entirety; 
the Commission is proposing to restrict this exemption to Regulation 
4.36(d) only, such that compliance with Regulations 4.36(a) through 
(c), provisions that generally govern the use and amendment of this 
information, would be required. Because the Commission is not proposing 
to require that QEP

[[Page 70862]]

Disclosures used by CTAs for their 4.7 trading programs be filed and 
approved by the Commission or NFA prior to their first use, Proposed 
Regulation 4.7(c)(1)(i) purposefully retains an exemption from 
Regulation 4.36(d).
A. “Persons To Be Identified”
    The Commission is proposing to require that CTAs provide their 
prospective QEP clients with information on certain persons to be 
identified, as mandated by Regulation 4.34(e). Specifically, Regulation 
4.34(e) requires CTAs to identify by name each principal of the CTA, 
the FCM and/or RFED with which the CTA will require its client to 
maintain an account, and the introducing broker through which the CTA 
will require the client to introduce its account (or, if the client is 
free to choose which FCM, RFED, or introducing broker it uses, then a 
statement to that effect).73 Proposed Regulation 4.7(c)(1)(A) would 
incorporate Regulation 4.34(e) by reference and require CTAs offering 
4.7 trading programs to identify the persons listed therein in their 
QEP Disclosures in the same manner as required for non-4.7 trading 
programs under part 4.
—————————————————————————

    73 17 CFR 4.34(e).
—————————————————————————

B. Principal Risk Factors
    The Commission is proposing to require that QEP Disclosures contain 
a discussion of the 4.7 trading program’s principal risk factors, 
identical to that required by Regulation 4.34(g). Regulation 4.34(g) 
requires CTAs to discuss in their Disclosure Documents the principal 
risk factors of their trading programs, including, without limitation, 
risks due to volatility, leverage, liquidity, and counterparty 
creditworthiness, as applicable to the offered 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).74 Proposed Regulation 4.7(c)(1)(i)(B) would incorporate 
Regulation 4.34(g) by reference, and thus require CTAs to similarly 
discuss in QEP Disclosures their 4.7 trading programs’ principal risk 
factors.
—————————————————————————

    74 17 CFR 4.34(g).
—————————————————————————

C. Description of the 4.7 Trading Program
    The Commission is also proposing to require CTAs to provide in 
their QEP Disclosures a description of the 4.7 trading program as 
required by Regulation 4.34(h). Regulation 4.34(h) requires CTAs to 
include a description of their trading programs in their Disclosure 
Documents; such description must include: (1) the method chosen by the 
CTA concerning how FCMs and/or RFEDs carrying accounts it manages treat 
offsetting positions pursuant to Regulation 1.46, if the method is 
other than to close out all offsetting positions or to close out 
offsetting positions on other than a first-in, first-out basis; and (2) 
the types of commodity interests and other interests the CTA intends to 
trade, with a description of any restrictions or limitations on such 
trading established by the CTA or otherwise.75 Proposed Regulation 
4.7(c)(1)(i)(C) would incorporate Regulation 4.34(h) by reference, and 
thus require CTAs to provide the same description of their 4.7 trading 
programs in QEP Disclosures.
—————————————————————————

    75 17 CFR 4.34(h).
—————————————————————————

D. Fees
    The Commission is further proposing to require CTAs to provide in 
the QEP Disclosures a description of each fee they will charge QEP 
advisory clients, as required by Regulation 4.34(i). Regulation 4.34(i) 
requires CTAs to include within their Disclosure Documents a complete 
description of fees they will charge their clients. Pursuant to this 
requirement, the description must specify the dollar amount of each 
fee, wherever possible, and must provide additional detail and 
explanation of certain fees, where the fees are dependent on 
specifically listed base amounts, or on any increase in a client’s 
commodity interest account.76 Proposed Regulation 4.7(c)(1)(i)(D) 
would incorporate Regulation 4.34(i) by reference, and thus require 
CTAs offering 4.7 trading programs to provide the same description of 
their fees in QEP Disclosures.
—————————————————————————

    76 17 CFR 4.34(i).
—————————————————————————

E. Conflicts of Interest
    With respect to conflicts of interest, the Commission is proposing 
to require CTAs offering 4.7 trading programs to disclose their 
conflicts of interest as required by Regulation 4.34(j) in their QEP 
Disclosures. Regulation 4.34(j) requires CTAs to include a full 
description of any actual or potential conflicts of interest regarding 
any aspect of their trading programs on the part of: (1) the CTA; (2) 
any FCM and/or RFED with which the client will be required to maintain 
its commodity interest account; (3) any introducing broker through 
which the client will be required to introduce its account to an FCM 
and/or RFED; and (4) any principal of the foregoing, within their 
Disclosure Documents.77 Under Regulation 4.34(j), such description of 
the conflicts of interest must also include any other material 
conflicts involving any aspect of the offered trading programs and any 
certain specified direct or indirect arrangements where the CTA or any 
principal thereof may benefit.78 Proposed Regulation 4.7(c)(1)(i)(E) 
would incorporate Regulation 4.34(j) by reference, and thus require 
CTAs to list and fully describe any conflicts of interest in QEP 
Disclosures for their 4.7 trading programs.
—————————————————————————

    77 17 CFR 4.34(j).
    78 Regulation 4.34(j)(3) requires a description of the 
conflicts of interest of any arrangements whereby the CTA or any of 
its principals may benefit, directly or indirectly, from the 
client’s account maintenance with an FCM or RFED, and/or from the 
maintenance of the client’s swap positions with a swap dealer or 
from the introduction of such an account through an introducing 
broker (such as payment for order flow or soft dollar arrangements). 
17 CFR 4.34(j)(3).
—————————————————————————

F. Past Performance of 4.7 Trading Programs
    Finally, the Commission is also proposing to require CTAs offering 
4.7 trading programs to include past performance information in their 
QEP Disclosures as required by Regulation 4.35. Currently, CTAs are 
exempt from disclosing performance information for their 4.7 trading 
programs. Because the Commission preliminarily believes such 
performance information regarding 4.7 trading programs would be 
valuable and provide necessary detail to prospective QEP advisory 
clients, the Commission is proposing to require CTAs include all 
performance information required under Regulation 4.35 with respect to 
the offered 4.7 trading program in their QEP Disclosures.
    Regulation 4.35 requires CTAs to include in their Disclosure 
Documents capsule performance information for past performance of an 
account or trading program, subject to certain presentation and content 
requirements as outlined paragraph (a) of that section.79 Regulation 
4.35(a) also provides detailed requirements for composite presentation, 
how current the disclosed information must be, the time period that 
must be covered in the performance disclosures, the calculation of and 
recordkeeping concerning the disclosed performance information, 
disclosing the performance of partially-funded accounts, the 
presentation of proprietary trading results, and a mandatory legend for 
all performance disclosures, stating, “PAST PERFORMANCE IS NOT 
NECESSARILY INDICATIVE OF FUTURE RESULTS.” 80 Additionally, 
Regulation 4.35(b) provides that a CTA

[[Page 70863]]

must disclose the actual performance of all accounts directed by the 
CTA and by each of its trading principals, unless the CTA or its 
trading principals previously have not directed any accounts; in that 
case, the CTA must disclose this using one of three form disclosures 
listed thereunder.81 Proposed Regulation 4.7(c)(1)(i) would remove 
the existing exemption from Regulation 4.35, and Proposed Regulation 
4.7(c)(2)(i)(F) would require QEP Disclosures to include performance 
information as required by Regulation 4.35 with respect to 4.7 trading 
programs.
—————————————————————————

    79 17 CFR 4.35.
    80 17 CFR 4.35(a)(3) through (9).
    81 17 CFR 4.35(b).
—————————————————————————

c. Permitting Monthly Account Statements for Certain 4.7 Pools 
Consistent With Commission Exemptive Letters

    Regulation 4.7(b)(3) currently provides an exemption from the 
requirement in Regulations 4.22(a) and (b) that CPOs provide monthly 
account statements containing specific information to participants in 
their commodity pools.82 For 4.7 pools, CPOs are permitted to 
distribute account statements “no less frequently than quarterly 
within 30 days after the end of the reporting period.” 83 CPOs of 
4.7 pools that are Funds of Funds 84 have reported to Commission 
staff that they often have difficulty complying with this quarterly 
account statement schedule in Regulation 4.7(b)(3). Such CPOs regularly 
request exemptive letters from the Commission to permit them to follow 
an alternate account statement schedule, explaining that they cannot 
control the timing of when they receive financial information from the 
underlying investee collective investment vehicles, which often results 
in the investor Fund of Funds CPO not receiving the requisite 
information for its own 4.7 pool reporting until the 30-day period for 
distribution is nearly expired. The Commission has routinely granted 
these exemptive letter requests, thereby permitting the requesting CPOs 
to distribute monthly, rather than quarterly, account statements for 
their 4.7 Fund of Funds pools within 45 days of the month-end.85 This 
approach of providing exemptive letter relief from Regulation 4.7(b)(3) 
has allowed these CPOs additional time to receive and gather the 
information required for their account statements required by 
Regulation 4.7, while also ensuring that their QEP participants receive 
both more accurate and more frequent reporting.
—————————————————————————

    82 17 CFR 4.7(b)(3), 4.22(a) and (b).
    83 17 CFR 4.7(b)(3)(i); cf. 17 CFR 4.22(a) and (b).
    84 See supra n. 42 (defining “Funds of Funds”).
    85 See, e.g., CFTC Letters 18-29, 19-01, 19-03, 20-11, 21-16, 
23-04.
—————————————————————————

    Consistent with past Commission efforts to memorialize routinely 
granted Commission letter relief via regulatory amendments that 
streamline availability, provide consistency, and eliminate the need to 
process and respond to requests individually, the Commission proposes 
to amend Regulation 4.7 in a manner that would allow the CPOs of 4.7 
pools that are Funds of Funds to distribute monthly account statements 
within 45 days of the month-end, provided that a CPO notifies its QEP 
pool participants, so they are aware of the schedule for the 
distribution of account statements. The Commission solicits comment 
generally on Proposed Regulation 4.7(b)(3)(iv); in particular, the 
Commission requests comment on whether the proposed amendment 
effectively creates a mechanism in Regulation 4.7(b)(3) that is 
equivalent to the exemptive letters currently issued by the Commission, 
and whether the alternate account statement distribution schedule and 
notice requirements are clear.

d. Other Technical Amendments

    Finally, the Proposal also includes a number of technical 
amendments to Regulation 4.7 that are designed to improve its 
efficiency and usefulness for intermediaries and their prospective and 
actual QEP pool participants and advisory clients, as well as the 
general public. For example, the Commission is proposing to delete the 
introductory paragraph to Regulation 4.7 and to generally restructure 
the definitions section in Regulation 4.7(a), eliminating what it 
preliminarily views as unnecessary subparagraph levels in the QEP 
definition and alphabetizing the definitions. The Commission has also 
proposed amendments to ensure that cross-references within Regulation 
4.7 and other part 4 regulations are accurate. The Commission is 
seeking comment on these and any other technical amendments that it 
should consider for ease of use, as well as whether there are any other 
cross-references within Regulation 4.7 not addressed by the Proposal 
that should also be corrected. The Commission intends to include 
additional conforming amendments correcting cross-references to 
Regulation 4.7 provisions found in other parts of the Commission’s 
regulations as technical amendments in a future final rule. The 
Commission requests comment and public input on this approach as well.

III. Related Matters

a. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires that Federal 
agencies, in promulgating regulations, consider whether the regulations 
they propose will have a significant economic impact on a substantial 
number of small entities, and if so, to provide a regulatory 
flexibility analysis regarding the economic impact on those 
entities.86 The regulatory amendments proposed by the Commission 
hereinwould affect only persons registered or required to be registered 
as CPOs and CTAs and those commodity pools and trading programs 
operated under Regulation 4.7 and offered solely to QEPs.
—————————————————————————

    86 5 U.S.C. 601, et seq.
—————————————————————————

i. CPOs
    The Commission has previously established certain definitions of 
“small entities” to be used by the Commission in evaluating the 
impact of its rules on such entities in accordance with the 
requirements of the RFA.87 With respect to CPOs, the Commission 
previously has determined that a CPO is a small entity for purposes of 
the RFA, only if it meets the criteria for an exemption from 
registration under Regulation 4.13(a)(2).88 The regulations proposed 
herein apply to persons registered or required to be registered as CPOs 
with the Commission (specifically, those registered CPOs whose 
prospective and actual pool participants are restricted to QEPs) and/or 
provide relief to qualifying registrants from certain periodic 
reporting burdens. Accordingly, the Chairman, on behalf of the 
Commission, certifies pursuant to 5 U.S.C. 605(b) that this NPRM will 
not have a significant economic impact on a substantial number of small 
entities, with respect to CPOs.
—————————————————————————

    87 See, e.g., Policy Statement and Establishment of 
Definitions of “Small Entities” for Purposes of the Regulatory 
Flexibility Act, 47 FR 18618, 18620 (Apr. 30, 1982).
    88 Id. at 18619-20. Regulation 4.13(a)(2) exempts a person 
from registration as a CPO when: (1) none of the pools operated by 
that person has more than 15 participants at any time, and (2) when 
excluding certain sources of funding, the total gross capital 
contributions the person receives for units of participation in all 
of the pools it operates or intends to operate do not, in the 
aggregate, exceed $400,000. See 17 CFR 4.13(a)(2).
—————————————————————————

ii. CTAs
    Regarding CTAs, the Commission has previously considered whether 
such registrants would be deemed small entities for purposes of the RFA 
on a case-by-case basis, in the context of the particular Commission 
regulation at

[[Page 70864]]

issue.89 Because certain of these registered CTAs may besmall 
entities for the purposes of the RFA, the Commission is considering 
whether this Proposal would have a significant economic impact on such 
registrants.
—————————————————————————

    89 Id. at 18620.
—————————————————————————

    The portions of this NPRM directly impacting CTAs would affect only 
CTAs registered or required to register with the Commission that offer 
and operate trading programs designed for QEPs. These proposed 
amendments would, in particular: (1) require CTAs claiming the 
Regulation 4.7 exemption to provide certain general and performance 
disclosures enumerated in other part 4 regulations regarding their 4.7 
trading programs to their prospective and current QEP advisory clients; 
(2) require such CTAs to include past performance information for their 
4.7 trading programs in any Disclosure Documents they use and 
distribute for their non-4.7 trading programs’ advisory clients; and 
(3) require such registered CTAs to retain the proposed limited QEP 
Disclosures regarding their 4.7 trading programs as business records of 
the intermediary. As stated above, these proposed requirements 
primarily impact registered CTAs offering 4.7 trading programs to QEP 
advisory clients and claiming the compliance exemptions currently 
offered by Regulation 4.7. Although data on the specific size of 
registered CTAs offering 4.7 trading programs is limited, it is the 
Commission’s anecdotal experience that such CTAs claiming compliance 
exemptions in Regulation 4.7 for the purposes of soliciting and serving 
QEP advisory clients are frequently large financial institutions with 
substantial financial assets and advisory experience, or affiliates 
thereof. Given that registered CTAs do not have a capital requirement 
applicable to them, it is not possible for the Commission to readily 
determine the typical or average size of registered CTAs, or even of 
registered CTAs who solely offer 4.7 trading programs; moreover, 
registered CTAs frequently offer a mix of 4.7 trading programs and 
trading programs or strategies subject to the full application of the 
Commission’s part 4 regulations. Therefore, although the Commission has 
previously determined whether CTAs are small entities for RFA purposes 
on a case-by-case basis, the Commission is not currently in a position 
to determine whether registered CTAs affected by this NPRM would 
include a substantial number of small entities, on which the NPRM would 
have a significant economic impact. Therefore, pursuant to 5 U.S.C. 
603, the Commission offers for public comment this initial regulatory 
flexibility analysis addressing the impact of the Proposal on small 
entities:
    A. A description of the reasons why action by the agency is being 
considered.
    As discussed in detail above in this Preamble, since the 1992 Final 
Rule adopting Regulation 4.7, the Commission has witnessed substantial 
increases in the intermediary population utilizing those exemptions for 
4.7 pools and trading programs offered and available to QEPs. This 
development also coincides with current commodity interest market 
conditions, in which the Commission has also seen significant expansion 
and growth in the complexity and diversity of commodity interest 
products offered via 4.7 pools and trading programs, which may be more 
challenging to fully understand. Given further that QEPs, for a variety 
of reasons, may have varying levels of resources and leverage to demand 
and monitor the information necessary for them to make informed 
investment decisions, the Commission believes it is no longer 
appropriate to rely solely on QEPs’ individual ability to obtain such 
information, absent formal regulatory requirements that such 
information be provided.
    B. A succinct statement of the objectives of, and legal basis for, 
the Proposal.
    The objective of these proposed amendments is to establish minimum 
disclosure requirements applicable to all CTAs offering 4.7 trading 
programs, replacing the current ad hoc methods of informing QEPs that 
have developed over time, and leveling the playing field amongst QEP 
advisory clients who may currently receive varying levels of investment 
information dependent upon their size and available resources. The 
proposed amendments are also intended to raise the quality and 
consistency of QEP Disclosures provided by registered CTAs by requiring 
them to be materially complete, accurate, and subject to regular 
updates by the CTA, and to enable the consistent review of such QEP 
Disclosures by the Commission or NFA through regular examinations of 
registered CTAs’ business records. As stated above, the CEA grants the 
Commission the authority to regulate and register CTAs, as well as to 
require the maintenance of books and records and filing of reports that 
the Commission believes is necessary to accomplish its regulatory 
mission and the goals of the CEA.90
—————————————————————————

    90 7 U.S.C. 6m, 6n.
—————————————————————————

    C. A description of and, where feasible, an estimate of the number 
of small entities to which the Proposal would apply.
    As mentioned above, CTAs are generally not subject to any minimum 
capital requirements, nor does the Commission collect data on the 
“size” of registered CTAs via Commission registration applications or 
other required Commission filings or reports. Therefore, the Commission 
has no data to analyze that would enable it to estimate how many 
registered CTAs 91 may be considered small entities for RFA purposes. 
It is the Commission’s experience that registered CTAs claiming 
Regulation 4.7 exemptions and offering 4.7 trading programs to QEP 
advisory clients are frequently large financial institutions offering a 
variety of trading programs and strategies. Nonetheless, the Commission 
acknowledges that a certain percentage or portion of the population of 
CTAs affected by this Proposal, i.e., those registered or required to 
register with the Commission and utilizing the exemptions in Regulation 
4.7, may, in fact, be considered small entities as defined by the RFA, 
though the Commission lacks the information or data necessary to 
determine or estimate how many.
—————————————————————————

    91 As of June 2023, there were approximately 1,280 CTAs 
registered with the Commission.
—————————————————————————

    D. A description of the projected reporting, recordkeeping, and 
other compliance requirements of the Proposal, including an estimate of 
the classes of small entities which will be subject to the requirement 
and the type of professional skills necessary for preparation of the 
report or record.
    The proposed amendments would require CTAs registered and claiming 
the exemption in Regulation 4.7(c)(1) to provide certain general and 
performance disclosures regarding their 4.7 trading programs to 
prospective and current QEP advisory clients, to ensure that the 
information provided is materially complete and accurate, and to 
periodically update such information as needed. As noted above, the 
proposed amendments would, in particular: (1) require CTAs relying on 
the Regulation 4.7 exemption to provide certain general and performance 
disclosures enumerated in other part 4 regulations regarding their 4.7 
trading programs to their prospective and current QEP advisory clients; 
(2) require such CTAs to include past performance information for their 
4.7 trading programs in the Disclosure Documents they use and 
distribute for their non-4.7 trading programs; and (3) require such

[[Page 70865]]

registered CTAs to retain the proposed QEP Disclosures regarding their 
4.7 trading programs as business records of the intermediary. The 
Commission expects that some CTAs may already be disclosing some of 
this information, via the existing ad hoc industry practices that have 
developed for QEP Disclosures like private placement memoranda and 
trading program brochures, as discussed above. Additionally, the 
proposed amendments would require registered CTAs to provide past 
performance information regarding their 4.7 trading programs in the 
Disclosure Documents of other trading programs they operate that are 
subject to broader part 4 compliance. Finally, CTAs offering 4.7 
trading programs would be required to keep their QEP Disclosures 
containing the information the Commission proposes to require as 
business records, subject to routine examination and inspection by the 
Commission and/or NFA.
    The Commission anticipates that the proposed amendments would 
affect registered CTAs claiming Regulation 4.7 and offering 4.7 trading 
programs, which, as stated above, may include some small entities for 
RFA purposes. Nonetheless, regardless of whether a CTA is considered a 
small entity, the Commission believes that all registered CTAs offering 
and managing 4.7 trading programs generally possess the professional 
skills necessary to generate and distribute the subset of disclosures 
proposed to be required and to appropriately retain such QEP 
Disclosures as business records of their registered intermediary, i.e., 
the CTA, as such skills are not significantly different from those 
already necessary to establish, register, and operate a CTA subject to 
the broader part 4 compliance requirements beyond Regulation 4.7.
    E. An identification, to the extent practicable, of all relevant 
Federal rules which may duplicate, overlap or conflict with the 
Proposal.
    The Commission is generally unaware of any Federal rules or 
regulations which may conflict with the proposed amendments. Federal 
securities laws and regulations do govern investment disclosures by 
registered investment advisers, which may result in those entities that 
are dually registered with the SEC and CFTC being subject to more than 
one regulatory regime. The Commission does not expect the proposed 
amendments to conflict with those laws and regulations, based on its 
understanding of those disclosure requirements. Moreover, some 4.7 CTAs 
are registered only with the Commission and thus, are not currently 
subject to any other regulations mandating disclosures to their QEP 
advisory clients.
    F. A description of any significant alternatives to the Proposal 
which accomplish the stated objectives of applicable statutes and which 
minimize significant economic impact of the Proposal on small entities.
    Potential alternatives to the proposed amendments would be: (1) to 
not amend Regulation 4.7 to add disclosure requirements for 4.7 trading 
programs; or (2) to amend Regulation 4.7(c)(1) to require compliance 
with the entirety of the disclosure regulations generally applicable to 
registered CTAs offering trading programs to non-QEP advisory clients. 
Additionally, the Commission could also consider limiting the 
application of the proposed amendments to registered CTAs claiming 
Regulation 4.7 and offering 4.7 trading programs to those CTAs who are 
not small entities for RFA purposes.
    The Commission believes that there have been significant 
developments in the commodity interest markets since Regulation 4.7 was 
adopted in 1992. Based on current market conditions and the increasing 
complexity of commodity interest products, among other factors, the 
Commission preliminarily believes it necessary to establish minimum 
disclosures for CTAs offering 4.7 trading programs at this time. 
Although declining to require any disclosures would certainly minimize 
the economic impact on registered CTAs that are also small entities, 
the Commission believes that, due to the circumstances explained above, 
including the varying resources available to QEPs to independently 
demand and assess the accuracy of such disclosures, certain information 
should be required to be disclosed to all QEP advisory clients, in 
furtherance of the Commission’s regulatory goals and the purposes of 
the CEA. Additionally, the Commission believes it would be overly 
burdensome if registered CTAs offering 4.7 trading programs were 
required to comply with the entirety of Regulations 4.34 and 4.35, and 
to comply with the review and filing requirements in Regulation 4.36, 
given the characteristics of their advisory clients. Through these 
proposed amendments, the Commission is seeking to balance its customer 
protection and regulatory concerns for QEP advisory clients and 4.7 
trading programs with the existing compliance burdens of registered 
CTAs. Thus, the proposed amendments prioritize and require certain 
disclosures, while providing relief from others, and permit CTAs to use 
and distribute QEP Disclosures containing that information without 
filing or advance review by the Commission or NFA, provided that they 
are complete, accurate, and kept as business records of the CTA. In the 
Commission’s opinion, the proposed amendments offer a more tailored 
approach to QEP Disclosure requirements applicable to CTAs’ 4.7 trading 
programs and would have less of an economic impact on CTAs claiming 
Regulation 4.7 than requiring compliance with the entirety of the part 
4 disclosure requirements.
    Finally, as stated above, CTAs are generally not subject to capital 
requirements under the Commission’s regulatory regime, and CTAs manage 
the assets of their advisory clients, whether QEPs or not, without 
receiving or taking custody of those assets, due to the statutory and 
regulatory provisions defining the permitted activities of CTAs. The 
Commission also does not collect data on the size of CTAs registered or 
required to register with it, beyond their assets under management, and 
it would be difficult to determine or estimate the number of registered 
CTAs that may be considered small entities for RFA purposes. Therefore, 
the Commission is unable to limit the application of the proposed 
amendments to CTAs offering 4.7 trading programs who are not small 
entities for RFA purposes, though anecdotally the Commission believes 
that the majority of CTAs utilizing Regulation 4.7 would not be 
considered small entities. As noted earlier, regardless of whether a 
CTA is considered a small entity, the Commission believes that all 
registered CTAs offering and managing 4.7 trading programs generally 
possess the resources and know-how necessary to generate and distribute 
the subset of disclosures proposed to be required and to appropriately 
retain such QEP Disclosures as business records of their registered 
intermediary.
    To the extent the proposed amendments may apply to an unknown 
number of small entities who are registered CTAs offering 4.7 trading 
programs, the Commission believes that its customer protection and 
oversight concerns under the CEA in ensuring that QEP advisory clients 
are adequately and consistently informed regarding 4.7 trading 
programs, and that the Commission can effectively oversee the 
activities of all CTAs claiming exemptions under Regulation 4.7, 
nevertheless outweigh that concern. The Commission understands that the 
direct effect of these proposed amendments would be an increase in the 
operating costs of CTAs utilizing Regulation 4.7, due to the addition 
of minimum content, dissemination, and recordkeeping requirements for 
QEP

[[Page 70866]]

Disclosures. The Commission also understands, however, that some of the 
information proposed to be required is similar in content to 
information many CTAs are already providing based on the demands of 
their QEP advisory clients, or because they are required to provide 
them by other applicable regulatory regimes. Notwithstanding these 
additional operating costs, the Commission preliminarily believes that 
mandating the provision of certain foundational information to all 
QEPs, which the proposed amendments would require to be kept up-to-date 
and accurate, is expected to result in more consistent disclosures to 
all persons gaining exposure to the commodity interest markets through 
registered CTAs, which may include small entities for RFA purposes. The 
Commission preliminarily concludes that the proposed amendments would 
result in better informed QEP advisory clients, who may, as a result of 
consistent, detailed disclosures, possess enhanced confidence in their 
intermediaries and the commodity interest markets overall, by virtue of 
their increased understanding of the nature of the advisory services 
they are procuring. The Commission therefore believes that the QEP 
Disclosures proposed in this NPRM would benefit both the CTAs and their 
QEP advisory clients by requiring certain general and performance 
disclosures, thereby promoting transparency and consistency, as well as 
increasing confidence in the CTAs and the commodity interest markets 
overall.
    Therefore, in comparing the aforementioned alternatives of (1) not 
amending Regulation 4.7 to impose disclosure requirements for 4.7 
trading programs, and (2) amending Regulation 4.7(c)(1) to require 
compliance with the entirety of the disclosure regulations generally 
applicable to registered CTAs offering trading programs to non-QEP 
advisory clients, the Commission believes that the proposed minimum 
disclosure requirements strike an appropriate balance that achieves the 
Commission’s regulatory objectives without burdening the small entity 
population of CTAs offering 4.7 trading programs with the compliance 
costs and burdens that would be associated with the full disclosure 
regime required under part 4.

b. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) 92 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. Under the PRA, an agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a valid control number 
from the Office of Management and Budget (OMB).93 The PRA is 
intended, in part, to minimize the paperwork burden created for 
individuals, businesses, and other persons as a result of the 
collection of information by Federal agencies, and to ensure the 
greatest possible benefit and utility of information created, 
collected, maintained, used, shared, and disseminated by or for the 
Federal Government.94 The PRA applies to all information, regardless 
of form or format, whenever the Federal Government is obtaining, 
causing to be obtained, or soliciting information, and includes 
required disclosure to third parties or the public, of facts or 
opinions, when the information collection calls for answers to 
identical questions posed to, or identical reporting or recordkeeping 
requirements imposed on, ten or more persons.95
—————————————————————————

    92 5 U.S.C. 601, et seq.
    93 See 44 U.S.C. 3507(a)(3); 5 CFR 1320.5(a)(3).
    94 See 44 U.S.C. 3501.
    95 See 44 U.S.C. 3502(3).
—————————————————————————

    This NPRM, if adopted, would result in a collection of information 
within the meaning of the PRA, as discussed below. The Proposal affects 
a collection of information for which the Commission has previously 
received a control number from OMB. The title for this collection is, 
“Rules Relating to the Operations and Activities of Commodity Pool 
Operators and Commodity Trading Advisors and to Monthly Reporting by 
Futures Commission Merchants” (Collection 3038-0005).96 Collection 
3038-0005 primarily accounts for the burden associated with the 
Commission’s part 4 regulations that concern compliance generally 
applicable to CPOs and CTAs, as well as certain exemptions from 
registration as such and exclusions from those definitions, and 
available relief from compliance with certain regulatory requirements, 
e.g., Regulation 4.7.
—————————————————————————

    96 See Notice of Office of Management and Budget Action, OMB 
Control No. 3038-0005, available at https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202011-3038-006 (last visited Sept. 27, 2023).
—————————————————————————

    The Commission is therefore submitting this NPRM to OMB for 
review.97 Responses to this collection of information would be 
mandatory. The Commission will protect any proprietary information 
according to FOIA and part 145 of the Commission’s regulations.98 In 
addition, CEA section 8(a)(1) strictly prohibits the Commission, unless 
specifically authorized by the CEA, from making public any “data and 
information that would separately disclose the business transactions or 
market positions of any person and trade secrets or names of 
customers.” 99 Finally, the Commission is also required to protect 
certain information contained in a government system of records 
according to the Privacy Act of 1974.100
—————————————————————————

    97 See 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    98 See 5 U.S.C. 552; see also 17 CFR part 145 (Commission 
Records and Information).
    99 7 U.S.C. 12(a)(1).
    100 5 U.S.C. 552a.
—————————————————————————

i. Collection 3038-0005: Revisions to the Collection of Information
    Collection 3038-0005 governs responses made pursuant to part 4 of 
the Commission’s regulations, pertaining to the operations of CPOs and 
CTAs, including the itemization of compliance burdens remaining after 
CPOs and CTAs elect certain exemptions from broader compliance 
obligations in the part 4 regulations. The Commission is proposing to 
amend Collection 3038-0005 to account for the amendments proposed in 
this NPRM, as follows: (a) adding reporting burdens for the proposed 
required general and performance disclosures to prospective or actual 
QEP pool participants and advisory clients by CPOs and CTAs, pursuant 
to the proposed amendments to Regulations 4.7(b)(2) and (c)(1); (b) 
increasing the existing recordkeeping requirements of Regulations 
4.7(b)(5) and (c)(2) to include the proposed maintenance of QEP 
Disclosures as business records by CPOs and CTAs utilizing Regulation 
4.7; and (c) adding monthly account statements as a permissible 
reporting schedule by CPOs of 4.7 pools that are Funds of Funds through 
Proposed Regulation 4.7(b)(3)(iv). In addition, and more generally, the 
Commission is proposing to update its estimates of the number of 
respondents subject to the information collection requirements under 
Regulation 4.7, such that they are better aligned with more recent NFA 
data provided to the Commission on the number of CPOs (and pools) and 
CTAs subject to those requirements. Accordingly, the Commission 
proposes to revise Collection 3038-0005 to address the reporting and 
recordkeeping burdens associated with these proposed amendments as 
described in further detail below.

[[Page 70867]]

A. Proposed Amendments Affecting CPOs
    As stated above, Regulation 4.7 currently provides exemptions from 
the broader part 4 compliance requirements, and Regulation 4.7(b)(2), 
in particular, provides exemptions for CPOs with respect to 4.7 pools 
offered solely to QEPs from the requirements of Regulations 4.21, 4.24, 
4.25, and 4.26, under certain additional conditions further specified 
in the regulation.101 As a result, Collection 3038-0005 does not 
currently include any reporting burden with respect to Regulation 
4.7(b)(2). Proposed Regulation 4.7(b)(2), if adopted, however, would 
result in additional reporting burdens for CPOs offering and operating 
4.7 pools because certain general and performance disclosures would 
become required for their prospective and actual QEP pool participants. 
Therefore, the Commission is proposing to amend Collection 3038-0005 in 
a manner that accounts for the additional reporting burden associated 
with Proposed Regulation 4.7(b)(2). To that end, the Commission has 
endeavored to add reporting burden for this proposed amendment that is 
based upon the burden already itemized in Collection 3038-0005 for 
compliance with Regulations 4.21/4.26, but that is proportionate to the 
more limited scope of disclosures the Commission is proposing to 
require from CPOs with respect to their 4.7 pools. Accordingly, the 
aggregate annual estimate for the reporting burden associated with 
Proposed Regulation 4.7(b)(2) would be as follows:
—————————————————————————

    101 See supra Section II.b for additional discussion of these 
regulations.
—————————————————————————

    Estimated number of respondents: 1,000.
    Estimated frequency/timing of responses: At least annually, or as-
needed.
    Estimated number of annual responses per respondent: 5.
    Estimated number of annual responses for all respondents: 5,000.
    Estimated annual burden hours per response: 1.5.
    Estimated total annual burden hours per respondent: 7.5.
    Estimated total annual burden hours for all respondents: 7,500.
    Additionally, this NPRM proposes to amend Regulation 4.7(b)(5) to 
require that CPOs retain the QEP Disclosures they use and distribute to 
their prospective and actual QEP pool participants as business records 
of the CPO. Collection 3038-0005 currently contains a recordkeeping 
burden associated with Regulation 4.7(b)(5) which estimates that each 
CPO expends approximately 2 hours maintaining business records related 
to its 4.7 pool(s), as that provision requires. The Commission 
recommends an increase of 0.5 hours to this existing burden, to account 
for the additional burden of retaining the QEP Disclosures as CPO 
business records, and estimates that the respondents include 1,000 CPOs 
each operating up to five 4.7 pools. Accordingly, the aggregate annual 
estimate for the recordkeeping burden associated with Proposed 
Regulation 4.7(b)(5) would be as follows:
    Estimated number of respondents: 1,000.
    Estimated frequency/timing of responses: Annual.
    Estimated number of annual responses per respondent: 5.
    Estimated number of annual responses for all respondents: 5,000.
    Estimated annual burden hours per response: 2.5.
    Estimated total annual burden hours per respondent: 12.5.
    Estimated total annual burden hours for all respondents: 12,500.
    Finally, the Commission is also proposing amendments to Regulation 
4.7(b)(3) that would, consistent with routinely issued Commission 
exemptive letters, permit CPOs of 4.7 pools that are Funds of Funds to 
distribute monthly account statements within 45 days of the month-
end.102 Collection 3038-0005 currently lists a reporting burden 
associated with Regulation 4.7(b)(3) that accounts for the quarterly 
account statements currently required to be distributed by such CPOs to 
their 4.7 pools’ QEP participants. The Commission is proposing to add 
an additional reporting burden associated with Proposed Regulation 
4.7(b)(3)(iv), the provision that, if adopted, would add this monthly 
reporting as an option for 4.7 pools that are Funds of Funds. The 
Commission believes that a smaller subset of CPOs and 4.7 pools would 
rely on this reporting schedule, and therefore, burden estimates below 
are based on 100 CPOs utilizing this alternative monthly account 
statement schedule for up to three 4.7 pools each. Accordingly, the 
aggregate annual estimate for the reporting burden associated with 
Proposed Regulation 4.7(b)(3)(iv) would be as follows:
—————————————————————————

    102 See supra Section II.c for additional discussion of this 
proposed amendment.
—————————————————————————

    Estimated number of respondents: 100.
    Estimated frequency/timing of responses: Monthly.
    Estimated number of annual responses per respondent: 36.
    Estimated number of annual responses for all respondents: 3,600.
    Estimated annual burden hours per response: 1.
    Estimated total annual burden hours per respondent: 36.
    Estimated total annual burden hours for all respondents: 3,600.
B. Proposed Amendments Affecting CTAs
    Similar to Regulation 4.7(b)(2), Regulation 4.7(c)(1) provides 
exemptions for CTAs with respect to their 4.7 trading programs offered 
to QEPs from Regulations 4.31, 4.34, 4.35, and 4.36, subject to 
additional conditions specified in that regulation.103 Consequently, 
Collection 3038-0005 does not currently include any reporting burden 
associated with Regulation 4.7(c)(1). Proposed Regulation 4.7(c)(1), if 
adopted, would result in CTAs incurring additional burden because 
certain general and performance disclosures with respect to their 4.7 
trading programs would be required to be distributed to their 
prospective and actual QEP advisory clients. Therefore, the Commission 
is proposing to amend Collection 3038-0005 in a manner that would 
account for the additional reporting burden associated with Proposed 
Regulation 4.7(c)(1). To that end, the Commission has endeavored to add 
reporting burden for this proposed amendment that is based upon the 
burden already itemized in this information collection for compliance 
with Regulations 4.31/4.36, but that is proportionate to the more 
limited scope of disclosures the Commission is proposing to require 
from CTAs with respect to their 4.7 trading programs. Accordingly, the 
aggregate annual estimate for the reporting burden associated with 
Proposed Regulation 4.7(c)(1) would be as follows:
—————————————————————————

    103 See supra Section II.b for additional discussion of these 
regulations.
—————————————————————————

    Estimated number of respondents: 1,000.
    Estimated frequency/timing of responses: At least annually, or as-
needed.
    Estimated number of annual responses per respondent: 12.
    Estimated number of annual responses for all respondents: 12,000.
    Estimated annual burden hours per response: 1.5.
    Estimated total annual burden hours per respondent: 18.
    Estimated total annual burden hours for all respondents: 18,000.
    Additionally, this NPRM proposes to amend Regulation 4.7(c)(2) to 
require that CTAs retain the QEP Disclosures they use and distribute to 
their

[[Page 70868]]

prospective and actual QEP advisory clients as business records of the 
CTA. Collection 3038-0005 currently contains a recordkeeping burden 
associated with Regulation 4.7(c)(2) which estimates that each CTA 
expends approximately 2 hours maintaining business records related to 
its 4.7 trading program(s), as that provision requires. The Commission 
recommends an increase of 0.5 hours to account for the additional 
burden of retaining QEP Disclosures as business records of the CTA, and 
estimates that the respondents include 1,000 CTAs offering and 
operating up to 12 4.7 trading programs each. Accordingly, the 
aggregate annual estimate for the recordkeeping burden associated with 
Proposed Regulation 4.7(c)(2) would be as follows:
    Estimated number of respondents: 1,000.
    Estimated frequency/timing of responses: Annual.
    Estimated number of annual responses per respondent: 12.
    Estimated number of annual responses for all respondents: 12,000.
    Estimated annual burden hours per response: 2.5.
    Estimated total annual burden hours per respondent: 30.
    Estimated total annual burden hours for all respondents: 30,000.
e. Request for Comment
    The Commission invites the public and other Federal agencies to 
comment on any aspect of the proposed information collection 
requirements discussed above. Pursuant to 44 U.S.C. 3506(c)(2)(B), the 
Commission solicits comment in order to (1) evaluate whether the 
proposed collections of information are necessary for the proper 
performance of the functions of the Commission, including whether the 
information will have practical utility; (2) evaluate the accuracy of 
the estimated burden of the proposed information collection 
requirements, including the degree to which the methodology and 
assumptions the Commission employed were valid; (3) determine whether 
there are ways to enhance the quality, utility, and clarity of the 
information proposed to be collected; and (4) minimize the burden of 
the proposed collections of information on those who are required to 
respond, i.e., CPOs and CTAs, including through the use of appropriate 
automated, electronic, mechanical, or other technological information 
collection techniques.
    The public and other Federal agencies may submit comments directly 
to the Office of Information and Regulatory Affairs, Office of 
Management and Budget, Room 10235, New Executive Office Building, 
Washington, DC 20503, Attn: Desk Officer of the Commodity Futures 
Trading Commission, by fax at (202) 395-6566, or by email at 
[email protected]. Please provide the Commission with a copy 
of submitted documents, so that all comments can be summarized and 
addressed in the final rule preamble. Refer to the ADDRESSES section of 
this NPRM 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 https://www.RegInfo.gov. 
OMB is required to make a decision concerning the collections of 
information between 30 and 60 days after publication of this document 
in the Federal Register. Therefore, a comment to OMB is best assured of 
receiving full consideration if OMB (and the Commission) receives it 
within 30 days of the publication of this document. Nothing in the 
foregoing affects the deadline enumerated above for public comment to 
the Commission on the proposed regulations.

c. Cost-Benefit Considerations

i. Statutory and Regulatory Background
    Section 15(a) 104 of the CEA requires the Commission to consider 
the costs and benefits of its actions before promulgating a regulation 
under the CEA or issuing certain orders. CEA section 15(a) further 
specifies that the costs and benefits shall be evaluated in light of 
five broad areas of market and public concern: (1) protection of market 
participants and the public; (2) efficiency, competitiveness, and 
financial integrity of markets; (3) price discovery; (4) sound risk 
management practices; and (5) other public interest considerations. The 
Commission considers the costs and benefits resulting from its 
discretionary determinations with respect to the section 15(a) factors.
—————————————————————————

    104 7 U.S.C. 19(a).
—————————————————————————

    The Commission recognizes that the proposed amendments to 
Regulation 4.7 in this NPRM will result in additional costs for CPOs 
and CTAs operating 4.7 pools and trading programs. However, the 
Commission lacks the data necessary to reasonably quantify all of the 
costs and benefits considered below. Additionally, any initial and 
recurring compliance costs for any particular CPO or CTA will depend on 
its size, existing infrastructure, practices, and cost structures. The 
Commission welcomes comments on such costs, particularly from existing 
CPOs and CTAs utilizing Regulation 4.7 exemptions, who may be better 
able to provide quantitative cost data or estimates, based on their 
respective experiences. Commenters may also suggest other 
alternative(s) to the proposed approach that would be expected to 
further the Commission’s stated policy and regulatory goals as 
described in this NPRM.
    The Commission is also including a number of questions herein for 
the purpose of eliciting direct cost estimates from public commenters 
wherever possible. Quantifying other costs and benefits, such as the 
effects of potential induced changes in the behavior of CPOs, CTAs, and 
their QEPs resulting from the proposed amendments are inherently harder 
to measure ex ante. Thus, the Commission is similarly requesting 
comment through questions to help it better quantify these impacts. Due 
to these quantification difficulties, for this NPRM, the Commission 
offers the following qualitative discussion of its costs and benefits.
ii. Increasing Financial Thresholds in the Portfolio Requirement of the 
“Qualified Eligible Person” Definition
A. Baseline
    As described in more detail above, the QEP definition in Regulation 
4.7 outlines two categories, those that do not have to satisfy the 
Portfolio Requirement, listed in Regulation 4.7(a)(2), and those that 
do, listed in Regulation 4.7(a)(3). Persons listed in Regulation 
4.7(a)(3), including natural persons who must also be considered 
“accredited investors,” must meet the Portfolio Requirement by 
either: (1) owning securities and other assets worth at least 
$2,000,000; (2) having on deposit with an FCM for their own account at 
least $200,000 in initial margin, option premiums, or minimum security 
deposits; or (3) owning a portfolio of funds and assets that, when 
expressed as percentages of the first two thresholds, have a combined 
value of at least 100%.
B. The Proposal
    The Commission is proposing in this NPRM to increase the Portfolio 
Requirement in Regulation 4.7 such that persons listed in Regulation 
4.7(a)(3) could satisfy the QEP definition by either: (1) owning 
securities and other assets worth at least $4,000,000; (2) having on 
deposit with an FCM for their own account at least $400,000 in initial 
margin, option premiums, or minimum security deposits; or (3) owning a 
portfolio of funds and assets that, when expressed as percentages of 
the prior two thresholds, have a combined value

[[Page 70869]]

of at least 100%. As stated previously in this release, the Commission 
preliminarily believes that increasing such thresholds appropriately 
accounts for the impacts of inflation on the Portfolio Requirement’s 
ability to adequately address the Commission’s concerns regarding the 
financial sophistication of QEPs required to meet its terms.
C. Benefits
    The Portfolio Requirement was adopted to identify those prospective 
participants in the commodity interest markets that are of a size 
sufficient to indicate that the participant has substantial investment 
experience and thus a high degree of sophistication with regard to 
investments as well as financial resources to withstand the risk of 
their investments.105 As discussed in detail above in this NPRM, 
these Portfolio Requirement thresholds have not been changed since 
their adoption in 1992. The Commission preliminarily believes that 
updating these thresholds would have the benefit of bringing the 
Portfolio Requirement back in line with the Commission’s original 
intent when adopting the QEP definition.
—————————————————————————

    105 1992 Proposed Rule, 57 FR at 3152.
—————————————————————————

    The Commission understands that raising the Portfolio Requirement 
thresholds may cause some QEPs to no longer be so qualified, turning 
them into non-QEP participants in the commodity interest markets. The 
Commission nonetheless believes preliminarily that this proposed 
amendment would benefit the commodity interest markets and the general 
public by realigning financial thresholds in its most commonly used 
regulations to account for the impacts of inflation since its original 
adoption and to more accurately reflect the current economic reality, 
such that the scope of Regulation 4.7 would be more closely aligned 
with the Commission’s original intent in the 1992 Final Rule. 
Additionally, to the extent that former QEPs choose to continue 
investing in commodity pools or allocate their funds to be managed by 
CTAs, such persons may then purchase participations in pools or utilize 
the services of CTAs not operating pursuant to Regulation 4.7. This, in 
turn, could result in the creation and offering of additional pools and 
trading programs by registered CPOs and CTAs outside of the Regulation 
4.7 regime, given the potential additional demand by non-QEPs. Because 
more capital may, as a result, likely be deployed to such pools and 
trading programs subject to the full panoply of the Commission’s part 4 
compliance requirements, this could indirectly lead to greater 
transparency in the offerings of registered CPOs and CTAs, as well as 
improved customer protection for persons engaging with CPOs and CTAs. 
Moreover, if additional pools and trading programs are created for the 
non-QEP investing public, this would be expected to enhance the variety 
and vibrancy of the non-QEP pool and trading program marketplace. As a 
result, more options for non-QEP individuals and entities to gain 
access to the commodity interest markets in a manner consistent with 
their individual risk appetites and exposure needs would become 
available.
D. Costs
    If the proposed amendments are adopted, CPOs that currently offer 
pools operated under Regulation 4.7 may no longer accept additional 
investment from pool participants that fall in the gap between the old 
and new Portfolio Requirement thresholds. Such registered CPOs and CTAs 
may decide to offer pools and trading programs not exempt under 
Regulation 4.7 that would necessarily have higher operating and 
compliance costs, due to the unavailability of Regulation 4.7 
compliance exemptions for those investment products.
E. Questions
    The Commission poses the following questions to better assess the 
costs and benefits of the proposed increases to the QEP definition’s 
Portfolio Requirement in Regulation 4.7(a)(1)(v). The Commission 
requests further that, to the extent possible, commenters please 
provide quantitative bases for your responses.
    1. How many QEPs would intermediaries expect to no longer be 
considered QEPs, if the Portfolio Requirement threshold increases are 
adopted?
    2. How many CPOs and CTAs that currently offer pools and trading 
programs exclusively to QEPs have participants and clients that would 
no longer be QEPs under the new thresholds?
    3. If the increased thresholds are adopted, will registered CPOs 
and CTAs form and begin offering new pools and trading programs 
designed for non-QEPs?
F. Section 15(a) Factors
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of the proposed amendments to Regulation 4.7 with 
respect to the following factors: protection of market participants and 
the public; efficiency, competitiveness, and financial integrity of 
markets; price discovery; sound risk management practices; and other 
public interest considerations. As discussed above, the proposed 
revision of Regulation 4.7(a)(1)(v) would increase the financial 
thresholds for the Portfolio Requirement in the definition of QEPs. 
These proposed updates to the thresholds would, in the Commission’s 
preliminary opinion, more closely align the QEP definition with the 
intent of the regulation, which is to assure that offerings operated 
pursuant to Regulation 4.7 compliance exemptions are only made to 
persons with sufficient expertise and assets.
a. Protection of Market Participants and the Public
    As stated above, the Commission believes preliminarily that this 
proposed amendment would benefit the commodity interest markets and the 
general public by realigning financial thresholds in its most commonly 
used regulations in a manner that accounts for the impacts of inflation 
since their original adoption and more accurately reflects current 
economic circumstances; the Commission expects that this would result 
in persons investing in commodity interest products offered by 
registered CPOs and CTAs being more accurately categorized as QEPs, and 
thus, more appropriately limited in their investment choices. Moreover, 
raising the Portfolio Requirement thresholds, as a practical matter, 
would likely limit the prospective investor population for 4.7 pools 
and trading programs to a smaller number of persons. To the extent 
persons who meet the higher Portfolio Requirement thresholds are (on 
average) more financially sophisticated or resilient than those who no 
longer qualify, this proposed amendment should result in individuals 
and entities, both QEPs and non-QEPs, being offered pools and trading 
programs that are regulated in a manner commensurate with their 
respective needs for customer protection. If the increased thresholds 
further lead to the creation of more commodity pools and trading 
programs subject to the full part 4 compliance requirements by 
registered CPOs and CTAs, this too would potentially lead to greater 
transparency in their activities, which also protects persons investing 
in commodity interest investment products. Additionally, greater 
variety in the commodity pools and trading programs available to non-
QEPs would provide more options for this population to consider, which 
may further enable them to make more appropriate investment decisions 
by choosing the offerings best suited to

[[Page 70870]]

their individual risk appetite or other portfolio needs.
b. Efficiency, Competitiveness, and Financial Integrity of Markets
    The proposed amendments to the Portfolio Requirement may also 
affect the size, composition, or number of commodity pools and trading 
programs in the commodity interest markets, especially those offered 
solely to QEPs. This may, in turn, affect the flow of investing in 
commodity interests. Financial economics literature suggests that, to 
the extent changing the QEP definition reduces the flow of non-
commercial funds into commodity interest markets, the cost to 
commercial traders using futures markets to hedge their risks may 
increase.106 Via this mechanism, this proposed amendment may have an 
indirect effect on efficiency of the futures markets with respect to 
the hedging costs of operating companies, commodity producers, or other 
commercial traders.
—————————————————————————

    106 Goldstein and Yang, “Commodity Financialization and 
Information Transmission,” 2022, Journal of Finance, 77, 2613-2668.
—————————————————————————

c. Price Discovery
    The increased Portfolio Requirement thresholds are likely to result 
in fewer persons being considered QEPs, which may further result in 
fewer participants and clients in offered pools and trading programs 
operated under Regulation 4.7. An additional indirect effect of the 
proposed rule change could be a change in the flow of investment in 
commodity interests by non-commercial traders. The financial economics 
literature has found ambiguous results regarding the relationship 
between increased investment by non-commercial traders in commodity 
interest markets and price discovery.107 As such, it is difficult to 
ex ante predict how changes in the Portfolio Requirement thresholds 
would impact price discovery.
—————————————————————————

    107 Id.
—————————————————————————

d. Sound Risk Management Practices
    Increasing the Portfolio Requirement thresholds may result in 
registered CPOs and CTAs that previously only offered pools and trading 
programs to QEPs creating and offering pools and trading programs 
designed for persons that are not QEPs. Consequently, these non-QEP 
pools and trading programs operated by registered CPOs and CTAs would 
then be subject to the full complement of part 4 compliance 
requirements, which could result in more diligent risk management 
practices by the CPOs and CTAs.
e. Other Public Interest Considerations
    The original Portfolio Requirement thresholds in the QEP definition 
were intended to ensure that only persons possessing an appropriate and 
high level of trading experience, acumen, and financial resources would 
be eligible to invest in complex commodity interest investments offered 
and operated under Regulation 4.7. The Commission determined it 
appropriate to lessen the compliance burdens for registered CPOs and 
CTAs limiting their prospective participants and clients to financially 
sophisticated QEPs through the exemptions provided by Regulation 4.7 
for their 4.7 pools and trading programs. The 1992 Portfolio 
Requirement thresholds were adopted to provide a metric by which CPOs 
and CTAs could approximately assess the experience and financial 
wherewithal of potential pool participants or advisory clients, 
ensuring that they truly possessed the sophistication and resilience of 
other QEPs not subject to such thresholds. Updating these thresholds to 
account for inflation would realign the Portfolio Requirement with the 
original intent of the QEP definition and modernize its provisions 
consistent with today’s economic circumstances.
iii. Requiring Minimum Disclosures for 4.7 Pools and Trading Programs
A. Baseline
    In general, registered CPOs and CTAs are required by several part 4 
regulations (i.e., Regulations 4.24-4.26 for CPOs and 4.34-4.36 for 
CTAs) to provide Disclosure Documents containing specific types of 
information about their commodity pools and trading programs to 
prospective pool participants and advisory clients; such Disclosure 
Documents must be filed with and reviewed and approved by NFA prior to 
being used and distributed. Currently, Regulation 4.7 makes available 
exemptions from these regulatory requirements for the 4.7 pools and 
trading programs of registered CPOs and CTAs. While registered CPOs and 
CTAs are not required to disclose any information to prospective QEP 
pool participants or advisory clients about their 4.7 pools or trading 
programs, if they do choose to provide any disclosures, Regulation 4.7 
requires the CPO or CTA to include a form disclaimer and to ensure that 
they provide all disclosures necessary to make the information, in the 
context in which it is being provided, not misleading.108
—————————————————————————

    108 17 CFR 4.7(b)(2); 17 CFR 4.7(c)(1).
—————————————————————————

B. The Proposal
    The Proposal would narrow the existing exemptions in Regulation 4.7 
by proposing to require compliance with portions of the broader 
disclosure requirements in part 4, thereby establishing minimum 
content, use, and recordkeeping requirements applicable to QEP 
Disclosures, and bringing the disclosure requirements for 4.7 pools and 
trading programs closer to those applicable to pools and trading 
programs offered to non-QEPs by registered CPOs and CTAs. Specifically, 
CPOs and CTAs utilizing Regulation 4.7 would be required by the 
proposed amendments to provide QEP Disclosures containing, at a 
minimum, the information outlined above through offering memoranda or 
trading program brochures delivered to their prospective QEP pool 
participants or advisory clients. Although the extent of information 
proposed to be required under Regulation 4.7 is less than that required 
by the part 4 regulations for non-QEP pools and trading programs, these 
proposed amendments represent a significant policy change from the 
current status quo, where Regulation 4.7 currently provides broad 
exemptions from the entirety of the CPO and CTA disclosure regulations. 
Under the Proposal, CPOs and CTAs offering and operating 4.7 pools and 
trading programs would be required to provide information to their 
prospective QEP participants and clients regarding principal risk 
factors, investment programs, use of proceeds, custodians, fees and 
expenses, conflicts of interest, and certain performance information. 
Importantly, the Proposal also includes amendments to Regulation 4.7 
that would require that the QEP Disclosures be materially complete and 
accurate, be kept up-to-date through routine reviews and updated as 
needed to reflect any changes to a 4.7 pool or trading program, and be 
maintained among an intermediary’s other books and records for the pool 
or trading program and made available to any representative of the 
Commission, NFA, or the U.S. Department of Justice, in accordance with 
Regulation 1.31.
C. Benefits
    The direct effects of these proposed amendments would include 
greater availability and increased accuracy and reliability of the 
information QEPs receive prior to making their investment decisions. 
Mandating the provision of certain foundational information to all 
QEPs, which the proposed amendments would require to be kept up-to-date 
and accurate, is expected to result in more

[[Page 70871]]

consistent disclosures to all persons gaining exposure to the commodity 
interest markets through CPOs and CTAs; better informed pool 
participants and advisory clients are likely to enhance market 
participant confidence in intermediaries and the commodity interest 
markets as a whole, as they better understand the nature of the 
services they are procuring. Moreover, the Commission preliminarily 
believes that this potential benefit is likely to be further bolstered 
by the proposed change in the material accuracy required of the QEP 
Disclosures. Rather than any disclosures being acceptable provided that 
they are, in totality, not materially misleading–meaning that material 
information could be permissibly omitted provided that it does not 
render the information that is disclosed false–the Proposal would 
further require that the QEP Disclosures be materially complete and 
accurate, which would mandate that all material information be included 
and be correct. This change is expected to result in more complete 
disclosures by CPOs and CTAs operating under Regulation 4.7, which is 
likely to result in a better-informed universe of market participants 
served by such intermediaries. Additionally, by requiring that specific 
topics be addressed by all CPOs and CTAs offering 4.7 pools and trading 
programs, QEPs could more readily compare and understand the 
differences between offered pools and trading programs, and as such, 
the Proposal could lead to better quality investment decisions by 
QEPs.109
—————————————————————————

    109 Sirra and Tufano (“Costly Search and Mutual Fund Flows,” 
Journal of Finance, 1998, 53, 1589-1622) show that investments in 
mutual funds are highly influenced by both past returns and fees. 
Although there is some disagreement in the literature regarding the 
reason for this relationship, Berk and van Binsbergen (“Measuring 
Skill in the Mutual Fund Industry” Journal of Financial Economics, 
2015, 118, 1-20) provide evidence that this reflects investor money 
flowing to more skillful managers. Although the Commission is not 
aware of any analogous studies for investments in commodity pools, 
it seems plausible that the same factors matter in commodity 
interest markets.
—————————————————————————

    Several aspects of the Proposal may also indirectly enhance 
Commission and NFA oversight of CPOs and CTAs utilizing Regulation 4.7. 
First, the improved ability of QEPs to more easily compare and 
understand critical information about 4.7 pools and trading programs 
offered to them may provide incentives for better governance of those 
commodity interest investment products by CPOs and CTAs.110 Second, 
as discussed above, QEP Disclosures would be required by the Proposal 
to be materially complete and accurate, kept current by CPOs and CTAs, 
and maintained by them as business records available to the CFTC and 
NFA during routine examinations; these proposed amendments would likely 
also ensure that QEPs receive accurate information in QEP Disclosures, 
while also incentivizing good management and operational practices by 
CPOs and CTAs.
—————————————————————————

    110 For example, Del Guercio and Reuter (“Mutual Fund 
Performance and the Incentive to Generate Alpha,” Journal of 
Finance, 2014, 1673-1704) show that investors who buy directly from 
mutual funds managers are highly responsive to funds’ risk-adjusted 
returns.
—————————————————————————

    Disclosure of information about an offered 4.7 pool or trading 
program may also result in additional benefits inuring to QEP pool 
participants and advisory clients. One such benefit would be the 
expectation that CPOs and CTAs may seek to compete with one another to 
offer lower or more cost-efficient fees and expenses, or to minimize 
potential conflicts of interest, for the purposes of presenting more 
attractive and competitive investment products to prospective QEP 
participants and clients. This may result in CPOs and CTAs attempting 
to eliminate any fees and expenses extraneous to their 4.7 pools and 
trading programs, and/or to mitigate or resolve their conflicts of 
interest, each of which would benefit QEPs investing in these 
offerings. Additionally, by requiring the provision of standard 
disclosures to QEP pool participants and advisory clients, and the 
maintenance of such disclosures by the CPO or CTA in its books and 
records (which are subject to routine review by the Commission and NFA 
as part of their examination functions), the Commission preliminarily 
believes that these proposed amendments would result in higher quality 
disclosures on an on-going basis, even after a QEP participant or 
client receives information initially, due to the consistent and 
regular review of such QEP Disclosures by subject matter expert 
regulators, i.e., the Commission and NFA, that this NPRM would 
facilitate. As previously acknowledged in this Proposal, many, if not 
most, CPOs and CTAs offering 4.7 pools and trading programs currently 
provide some level of disclosure, due to other applicable Federal 
statutory and regulatory requirements and/or investor demand. Given the 
complexity and unique nature of the commodity interest markets, 
especially in light of market and product developments in the past 30 
years, the Commission preliminarily believes, however, that 
participants therein would benefit overall from the application of deep 
market and product expertise regarding the appropriate disclosure of 
risks, costs, and investing strategies for such products by the 
Commission and NFA to QEP Disclosures they may already regularly 
receive. By enabling this review of QEP Disclosures and requiring 
updates by CPOs and CTAs when necessary, the Commission preliminarily 
believes that these proposed amendments would thereby improve the 
quality and accuracy of QEP Disclosures, and as a result, enhance the 
understanding of market participants accessing the commodity interest 
markets through 4.7 pools and trading programs.
D. Costs
    The direct effect of these proposed amendments would be an increase 
in the operating costs of CPOs and CTAs utilizing Regulation 4.7, due 
to the addition of minimum content requirements for QEP Disclosures and 
requirements that such information be produced, disseminated to 
prospective pool participants and advisory clients, updated regularly, 
and kept as business records of the CPO or CTA. Regarding information 
production, CPOs and CTAs claiming Regulation 4.7 would be required to 
disclose information on several important features of their 4.7 pools 
and trading programs relevant to expected future performance and 
activities of the CPO or CTA, including past performance, fees and 
expenses, principal risk factors, and potential conflicts of interest.
    The Commission understands that some of the information proposed to 
be required is similar in content to information that many CPOs and 
CTAs are already providing based on the demands of such QEPs, or 
because they are otherwise required to produce such information for 
compliance requirements in other regulatory regimes, like that of the 
SEC. Additionally, though, the QEP Disclosures would also require the 
provision of information that CPOs and CTAs already produce to comply 
with other CFTC regulations. For example, CPOs are already required by 
Regulations 4.7(b)(3) and 4.22(a) and (b) to calculate the net asset 
value of 4.7 pool(s), accounting for fees, expenses, commissions, and 
other financial information, no less frequently than on a quarterly 
basis, for the purposes of producing account statements for QEP pool 
participants. The Proposal would also require CPOs and CTAs to provide 
past performance information prospectively to QEP pool participants. 
The Commission expects that the information required to produce a 4.7 
pool’s or trading program’s performance

[[Page 70872]]

history is already calculated by CPOs and CTAs for the purposes of 
providing periodic account statements, as required by other part 4 
regulations.
    In addition to this direct effect, the proposed disclosure 
requirements may affect how CPOs and CTAs operate more generally. For 
example, providing descriptions of 4.7 pools’ and trading programs’ 
investment program information, principal risk factors and past returns 
routinely may likely make such information more publicly 
available,111 in turn potentially making it easier for new pools and 
trading programs to replicate or copy such investment plans and 
activities of previously formed successful ones. Although this could 
theoretically discourage CPOs and CTAs from developing more innovative 
or novel investment offerings, the Commission believes that this 
potential risk, however, is mitigated by the fact that the complexity, 
variety, and novelty of commodity interest products appear to be 
increasing constantly and are expected to continue to generate and 
propel innovation by asset managers in the future.
—————————————————————————

    111 For example, the JOBS Act of 2012 required the SEC to 
adopt regulations that would permit the use of “general 
solicitation” and/or general advertising in private placements 
under its existing Regulation D. Public Law 112-106, 126 Stat. 306 
(Apr. 5, 2012). As a result, the SEC adopted Regulation 506(c), 
which permits the use of general solicitation in Regulation D 
securities offerings, subject to certain conditions, including that 
all purchasers in the offering are accredited investors and that the 
issuer takes reasonable steps to verify their accredited investor 
status. See also Registration and Compliance Requirements for 
Commodity Pool Operators and Commodity Trading Advisors, 83 FR 
52902, 52909-11 (Oct. 18, 2018); “Eliminating the Prohibition 
Against General Solicitation and General Advertising in Rule 506 and 
Rule 144A Offerings,” A Small Entity Compliance Guide, SEC, 
available at https://www.sec.gov/info/smallbus/secg/general-solicitation-small-entity-compliance-guide. When relying on the 
exemption in Regulation 506(c), offerors today may comfortably use 
general solicitation and advertising in their Regulation D 
offerings, which has led to the use of advertisements, press 
releases, and other broadly available publications discussing the 
details of this type of investment.
—————————————————————————

E. Questions
    The Commission poses the following questions to better assess the 
costs and benefits of the proposed disclosure requirements that would 
be added to Regulations 4.7(b) and (c). The Commission requests further 
that, to the extent possible, commenters please provide quantitative 
bases for your responses.
    1. To what extent is the information necessary to provide past 
performance and fees already gathered in order to provide account 
information under Regulations 4.7 and 4.22? What additional steps would 
be required to process and disseminate that information in QEP 
Disclosures, as required under the Proposal?
    2. What are the costs of gathering and disseminating the other 
types of information required to be included in QEP Disclosures?
    3. How will the fees and expenses charged by CPOs and CTAs for 
pools and trading programs operated under Regulation 4.7 be affected by 
the proposed disclosure requirements?
    4. To what extent would CPOs’ and CTAs’ trading strategies be 
revealed in QEP Disclosures? How would such proposed disclosure 
requirements impact the development of such trading strategies and/or 
directly affect the behaviors of CPOs and CTAs utilizing Regulation 
4.7?
F. Section 15(a) Factors
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of the proposed amendments to Regulations 4.7(b)(2), 
(b)(5), (c)(1), and (c)(2), with respect to the following factors: 
protection of market participants and the public; efficiency, 
competitiveness, and financial integrity of markets; price discovery; 
sound risk management practices; and other public interest 
considerations.
    As discussed above, for CPOs and CTAs operating pools and trading 
programs under Regulations 4.7, the NPRM would narrow the existing 
exemptions from the part 4 disclosure regulations available under 
Regulations 4.7(b)(2) and (c)(1). Under the Proposal, such CPOs and 
CTAs would be required to provide QEP Disclosures containing 
information regarding past performance, fees and expenses, principal 
risk factors, potential conflicts of interest, and other aspects of 
their investments to prospective QEP pool participants and advisory 
clients.
a. Protection of Market Participants and the Public
    These proposed amendments to Regulation 4.7 would mandate a minimum 
amount of transparency into pools and trading programs trading 
commodity interests and restricting their offerings to QEPs. This could 
help such QEPs protect themselves against excessive fees and self-
dealing, and generally help insure that the products offered by such 
CPOs and CTAs are performing and being operated, as anticipated. In 
addition, mandating QEP Disclosures and requiring that they be 
materially accurate and complete, rather than just optional and not 
materially misleading, will benefit market participants and the public 
by ensuring that prospective investors would receive QEP Disclosures 
containing, at a minimum, certain important general and performance 
information that they can reliably assume is kept current and 
materially complete with respect to the items proposed to be required. 
Finally, requiring that such QEP Disclosures be maintained among CPOs’ 
and CTAs’ other books and records, and thus made available to the 
Commission and NFA, would allow for improved oversight of the regulated 
activities of CPOs and CTAs.
b. Efficiency, Competitiveness, and Financial Integrity of Markets
    The proposed amendments regarding QEP Disclosures may also 
indirectly affect the functioning of commodity interest markets. To the 
extent that the proposed changes would increase transparency and affect 
the number or composition of pools and trading programs operated under 
Regulation 4.7, the NPRM might also affect the flow of investing in 
commodity interests. Financial economics literature suggests that, to 
the extent greater transparency into pools and trading programs 
increases the flow of non-commercial funds into commodity interest 
markets, that may also tend to reduce the costs to commercial traders 
using the futures market to hedge.112 In that sense, the NPRM may 
have an indirect effect on the efficiency of the futures market in 
regard to the hedging costs of operating companies, commodity 
producers, and other commercial traders.
—————————————————————————

    112 Goldstein and Yang, “Commodity Financialization and 
Information Transmission,” 2022, Journal of Finance, 77, 2613-2668.
—————————————————————————

    This increase in transparency resulting from the Proposal may also 
lead to QEPs having better information about fees and expenses, 
performance, and potential returns on their investments in 4.7 pools 
and trading programs, which may lead further to enhanced competition 
amongst CPOs and CTAs relying on Regulation 4.7. There is considerable 
evidence that eliminating prohibitions on price advertising, or 
mandating transparency of prices can lead to more “competitive 
markets,” in the sense that service providers and vendors compete to 
offer lower prices to consumers of their products.113 This general 
trend suggests

[[Page 70873]]

that by increasing transparency of information about 4.7 pools and 
trading programs through requiring minimum QEP Disclosures, CPOs and 
CTAs may, as a result, compete to offer lower fees and expenses and 
more efficiently and honestly implement their investment programs, 
resulting in better returns for QEPs.
—————————————————————————

    113 Milyo and Waldfogel (“The Effect of Price Advertising on 
Prices: Evidence in the Wake of 44 Liquormart,” 1999, American 
Economic Review, 89, 1081-1096) show that the removal of a ban on 
liquor price advertising led to decreases in the prices of 
advertised products, and an associated increase in quantity of sales 
by retailers who chose to advertise. More recently, Itern and Rigbi 
(“Price Transparency, Media, and Informative Advertising,” 2023, 
American Economic Journal: Microeconomics, 15, 1-29) show that a law 
requiring price transparency on grocery prices led to 4-5% lower 
prices, as well as less price dispersion. Similarly, Brown 
(“Equilibrium Effects of Health Care Price Information,” 2019, The 
Review of Economics and Statistics, 101, 699-712) finds that 
providing online information on health care procedure pricing led to 
lower prices and less price dispersion. In a paper on hedge fund 
returns, Aragon, Liang and Park (“Onshore and Offshore Hedge Funds: 
Are They Twins?” 2014, Management Science, 60, 74-91) show that 
advertising restrictions on hedge funds reduce the impact of past 
returns on new investment.
—————————————————————————

c. Price Discovery
    As noted above, an indirect effect of the Proposal could be a 
change in the flow of investment into commodity interests by non-
commercial traders. Financial economics literature has found ambiguous 
results regarding the relationship between increased investment by non-
commercial traders in commodity interest markets and price 
discovery.114 As such, it is difficult for the Commission to ex ante 
predict how increasing transparency in the returns, fees, etc. of pools 
and trading programs operating under Regulation 4.7 would impact price 
discovery.
—————————————————————————

    114 Goldstein and Yang, “Commodity Financialization and 
Information Transmission,” 2022, Journal of Finance, 77, 2613-2668.
—————————————————————————

d. Sound Risk Management Practices
    The NPRM may also help some QEPs better manage their business 
risks. For example, some QEPs are insurance companies and pensions 
funds that have specific operational risks that may be mitigated 
through appropriate financial investment. The availability and 
provision of more accurate and complete information about 4.7 pools and 
trading programs, including their fees and principal risk factors, may 
assist such QEPs in making more appropriate and targeted investment 
decisions that support their operations.
    As discussed above, the Proposal may also promote sound risk 
management by CPOs and CTAs. Specifically, requiring QEP Disclosures be 
maintained among CPOs’ and CTAs’ other books and records would allow 
for greater regulatory oversight of such intermediaries by the 
Commission and NFA. This requirement would help identify those 
intermediaries that lack suitable risk management practices, or that 
are engaging in practices that do not match their QEP Disclosures and 
other regulatory filings, potentially encouraging the adoption of 
better risk management practices. Finally, the anticipation of greater 
regulatory oversight and transparency in their operations might also 
provide an incentive for CPOs and CTAs to adopt and follow sound risk 
management practices.
e. Other Public Interest Considerations
    The proposed requirement for CPOs and CTAs to include past 
performance information in their QEP Disclosures may enable regulators 
and the general public to gain a better understanding of the trading 
behavior of CPOs and CTAs utilizing Regulation 4.7, and consequently, 
the impact they have on commodity interest markets through their 4.7 
pools and trading programs.
iv. Permitting Monthly Account Statements Consistent With Commission 
Exemptive Letters for Certain 4.7 Pools
A. Baseline
    CPOs operating pools under Regulation 4.7 are required to provide 
account statements to investors “no less frequently than quarterly 
within 30 days after the end of the reporting period.” 115 Some of 
these 4.7 pools invest some or all of their assets in other pools or 
other types of collective investment vehicles, and are colloquially 
referred to, as discussed above, as “Funds of Funds.” It is the 
Commission’s understanding that the requirement that a 4.7 Fund of 
Funds pool provide account statements within 30 days of the end of each 
quarter may become difficult to meet when its CPO may not receive an 
account statement regarding underlying investment returns until nearly 
the end of the required 30-day period. For example, if a 4.7 Fund of 
Funds pool regularly receives account statements from its investee 
pool’s CPO 29 days after the end of the quarter, the CPO of the 4.7 
Fund of Funds pool will likely find it difficult to provide accurate 
and complete account statements to its 4.7 Fund of Funds pool 
participants within 30 days of quarter end, as Regulation 4.7(b)(3) 
requires. In recognition of this potential difficulty, the Commission 
has routinely issued exemptive letters providing relief from this 
requirement, upon individual request, that permit the requesting CPO to 
distribute account statements for its 4.7 Fund of Funds pool(s) on a 
monthly basis within 45 days of the month-end. Nevertheless, the 
regulatory baseline remains the reporting requirements of Regulation 
4.7(b)(3).
—————————————————————————

    115 17 CFR 4.7(b)(3).
—————————————————————————

B. Proposal
    Consistent with longstanding exemptive letter relief described 
herein, the Proposal would add a provision to Regulation 4.7(b)(3) 
allowing CPOs of 4.7 pools that are Funds of Funds to distribute 
account statements on a monthly basis, within 45 days of the end of the 
month-end, provided that such CPOs notify their pool participants, so 
they know when to expect to receive their account statements.
C. Benefits
    Relative to the baseline, the primary benefit of this proposed 
amendment is to make it more feasible for 4.7 pools to invest in other 
pools or collective investment vehicles without potentially violating 
the periodic reporting requirements in Regulation 4.7. This proposed 
amendment may also allow CPOs of 4.7 pools to seek higher returns and/
or better diversification for their participants by investing in other 
pools or other collective investment vehicles, without having to seek 
an exemptive letter to ensure they can meet their periodic reporting 
requirements, or without risking chronic compliance violations. 
Consequently, this proposed amendment may encourage more CPOs to 
operate their 4.7 pools as Funds of Funds, and that may further result 
in higher returns and/or more effective diversification for their QEP 
pool participants. Additionally, offering this alternative account 
statement schedule would allow CPOs of 4.7 Fund of Funds pools to 
provide more accurate and complete account statements to their QEP 
participants more frequently, rather than generating quarterly account 
statements containing estimates of such information, if they have not 
yet received it. The Commission further predicts that an overall 
benefit of this proposed amendment would be more frequent, accurate, 
and complete periodic reporting to QEP participants in 4.7 Fund of 
Funds pools.
    Finally, as noted above, exemptive letters providing relief from 
this reporting requirement have been commonly issued by the Commission 
for many years. Hence, as a practical matter, a primary benefit from 
this proposed amendment is CPOs of 4.7 Fund of Funds pools being able 
to adopt an alternative account statement schedule at their convenience 
or immediately when necessary, rather than being required to seek an 
exemptive letter individually from the

[[Page 70874]]

Commission and potentially delaying operational decisions or changes 
until such letter is received. Moreover, the proposed amendment would 
also ensure that similarly situated registrants are treated in a 
consistent manner by making the alternative schedule available to all 
qualifying CPOs and 4.7 pools without the need for individual requests. 
Finally, if this proposed amendment were adopted, such CPOs would no 
longer have to expend legal and other compliance resources for the 
purpose of seeking such exemptive letters from the Commission for each 
of their 4.7 Fund of Funds pools needing this account statement 
schedule.
D. Costs
    Relative to the baseline, the primary cost of the proposed 
amendment would be the offering of a monthly account statement 
schedule, provided such monthly statements are provided within 45 days 
of the end of the month, as an alternative to the current at least 
quarterly statement schedule provided within 30 days of the end of the 
quarter. Although the addition of 15 days may slightly delay the 
arrival of account information to QEP pool participants each month, 
such participants would also be receiving account statements containing 
more complete and accurate information more often, as a monthly 
schedule is more frequent than that required by Regulation 4.7(b)(3) 
currently, and the 15 days is designed to allow CPOs to compile more 
information about the 4.7 pool’s underlying investments in such 
statements. CPOs of 4.7 Fund of Funds pools may also incur costs to 
effectively notify QEP participants of their adoption of this 
alternative account statement schedule. To the extent this alternative 
account statement schedule encourages CPOs to operate more of their 4.7 
pools as Funds of Funds, QEP participants therein may experience 
slightly higher costs, as the fees and expenses from underlying pools 
or other collective investment vehicles could possibly be passed along 
to them by their 4.7 Fund of Funds pool’s CPO.
E. Questions
    The Commission poses the following questions to better assess the 
costs and benefits of the proposed amendment permitting an alternative 
monthly account statement schedule for Fund of Funds pools operated by 
CPOs utilizing Regulation 4.7. The Commission requests further that, to 
the extent possible, commenters please provide quantitative bases for 
your responses.
    1. How many CPOs operate their 4.7 pools as Funds of Funds, meaning 
such pools invest in other 4.7 pools, other commodity pools, or other 
collective investment vehicles?
    2. How many CPOs operating 4.7 pools provide sufficiently timely 
account statements to their participants that are other 4.7 commodity 
pools, so as to allow their CPOs to also produce their own account 
statements within 30 days of the quarter-end?
    3. How many 4.7 Fund of Funds pools are currently able to provide 
quarterly account statements within 30 days of the end of the quarter, 
without the alternative monthly schedule currently provided exemptive 
relief?
F. Section 15(a) Factors
    Section 15(a) of the CEA requires the Commission to consider the 
costs and benefits of the proposed amendments to Regulation 4.7(b)(3) 
with respect to the following factors: protection of market 
participants and the public; efficiency, competitiveness, and financial 
integrity of markets; price discovery; sound risk management practices; 
and other public interest considerations. As discussed above, the 
addition to Regulation 4.7(b)(3) of a permissible monthly account 
statement schedule would facilitate compliance with periodic reporting 
deadlines for CPOs of 4.7 Fund of Funds pools. Absent this change (and 
assuming such 4.7 pool has received no exemptive letter from the 
Commission), it may otherwise be impractical for such 4.7 pools to 
operate as Funds of Funds.
a. Protection of Market Participants and the Public
    The baseline requirement in Regulation 4.7(b)(3) for at least 
quarterly account statements distributed within 30 days of the quarter-
end helps ensure that QEP pool participants have access to timely 
information about the 4.7 pool’s performance, and serves to protect 
such participants from malfeasance and other sources of poor pool 
performance. As discussed above, relative to the baseline, the proposed 
amendment would permit CPOs of 4.7 Fund of Funds pools to adopt an 
alternative monthly account statement schedule, provided such 
statements are provided within 45 days of the end of each month, and 
provided that they notify their QEP pool participants of such reporting 
schedule. To the extent the proposed amendment may encourage QEPs to 
participate in 4.7 Fund of Funds pools, rather than other 4.7 pools, it 
may require them to adjust to a different account statement schedule, 
but would likely ultimately provide them with more complete and 
accurate account statements on a more frequent basis. Additionally, the 
proposed amendment may facilitate the formation of 4.7 Fund of Funds 
pools by making it easier for their CPOs to comply with the applicable 
periodic reporting requirements under Regulation 4.7; this trend may 
also serve to benefit QEP participants, in that the CPOs of 4.7 Fund of 
Funds pools may be able to operate them in a manner that achieves 
exposure to a wider variety of underlying investment strategies through 
their investee pools, while continuing to remain compliant with their 
regulatory obligations. Finally, such CPOs would also have greater 
incentive and may possess more resources to monitor the behavior of 
their 4.7 Fund of Funds pools’ underlying investments in other pools or 
funds, than QEPs directly investing therein.
b. Efficiency, Competitiveness, and Financial Integrity of Markets
    The proposed amendment to Regulation 4.7(b)(3) may indirectly 
affect the functioning of commodity interest markets. To the extent 
that the proposed amendment affects the behavior of CPOs or the size 
and composition of their 4.7 Fund of Funds pools, it might also affect 
the flow of investing in commodity interests. The financial economics 
literature suggests that increased investment by non-commercial traders 
in commodity interest markets will generally reduce the difference 
between futures prices and expected future spot prices.116 This 
effect means that, to the extent that offering an alternative schedule 
for periodic reporting in 4.7 Fund of Funds pools increases the flow of 
non-commercial funds into commodity interest markets, it will tend to 
also reduce the cost to commercial traders of using the futures market 
to hedge their risks. In that sense, this proposed amendment may have 
an indirect effect on efficiency of the futures markets in regard to 
the hedging costs of operating companies, commodity producers, or other 
commercial market participants.
—————————————————————————

    116 Goldstein and Yang, “Commodity Financialization and 
Information Transmission,” 2022, Journal of Finance, 77, 2613-2668.
—————————————————————————

c. Price Discovery
    To the extent that the proposed amendment to Regulation 4.7(b)(3) 
affects the size or composition of 4.7 pools, it might also affect the 
flow of investing in commodity interests. The financial economics 
literature has found ambiguous results regarding the relationship 
between increased investment by non-commercial traders

[[Page 70875]]

in commodity interest markets and commodity price discovery.117 As 
such, it is difficult for the Commission to ex ante predict how the 
addition of an alternative account statement schedule for 4.7 Fund of 
Funds pools would impact price discovery.
—————————————————————————

    117 Id.
—————————————————————————

d. Sound Risk Management Practices
    Periodic reporting requirements in the form of regular account 
statements provided to pool participants serve as an effective means 
for participants as well as CPOs to monitor pools’ risk management. 
Because the amount of funds a CPO manages through its operated pools is 
likely responsive to its past performance,118 requiring the provision 
of complete financial information on pool performance through regular 
account statements can serve to provide an incentive for sound risk 
management by such CPOs. As discussed above, relative to the baseline, 
the proposed amendment to Regulation 4.7(b)(3) may encourage the 
formation of 4.7 Fund of Funds pools, whose CPOs may be better able to 
monitor the performance of underlying commodity pools or funds in which 
they invest, as compared to QEP participants investing directly 
therein. This also may positively influence CPOs’ risk management 
practices in their pools, to the extent their participants are other 
4.7 pools.
—————————————————————————

    118 Sirra and Tufano, “Costly Search and Mutual Fund Flows,” 
Journal of Finance, 1998, 53, 1589-1622; Del Guercio and Reuter, 
“Mutual Fund Performance and the Incentive to Generate Alpha,” 
Journal of Finance, 2014, 1673-1704.
—————————————————————————

e. Other Public Interest Considerations
    A key practical consideration is that, absent exemptive letters 
issued by the Commission, the existing Regulation 4.7(b)(3) appears to 
make it very difficult for CPOs to operate their 4.7 pools as Funds of 
Funds, while complying with applicable periodic reporting requirements. 
To the extent that facilitating the operation of such 4.7 pools as 
Funds of Funds is a legitimate policy goal of the Commission (as 
suggested by its routine granting of exemptive letters on this topic), 
changing the regulations to explicitly permit this alternative account 
statement schedule would be a more effective and direct means of 
accomplishing that objective that further ensures more consistent 
treatment of similarly situated registrants.

d. Antitrust Considerations

    Section 15(b) of the CEA requires the Commission to take into 
consideration the public interest to be protected by the antitrust laws 
and endeavor to take the least anticompetitive means of achieving the 
purposes of the CEA in issuing any order or adopting any Commission 
rule or regulation.119 The Commission believes that the public 
interest to be protected by the antitrust laws is generally to protect 
competition. The Commission requests comment on whether the Proposal 
implicates any other specific public interest to be protected by the 
antitrust laws.
—————————————————————————

    119 7 U.S.C. 19(b).
—————————————————————————

    The Commission has considered the proposed amendments in this NPRM 
to determine whether they are anticompetitive and has preliminarily 
identified no anticompetitive effects. The Commission requests comment 
on whether the NPRM is anticompetitive and, if it is, what the 
anticompetitive effects are.
    Because the Commission has preliminarily determined that the 
Proposal is not anticompetitive and has no anticompetitive effects, the 
Commission has not identified any less anticompetitive means of 
achieving the purposes of the CEA. The Commission requests comment on 
whether there are less anticompetitive means of achieving the relevant 
purposes of the CEA that would otherwise be served by adopting the 
amendments proposed in this NPRM.

List of Subjects in 17 CFR Part 4

    Advertising, Brokers, Commodity futures, Commodity pool operators, 
Commodity trading advisors, Consumer protection, Reporting and 
recordkeeping requirements.

    For the reasons stated in the preamble, the Commodity Futures 
Trading Commission proposes to amend 17 CFR part 4 as follows:

PART 4–COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

0
1. The authority citation for part 4 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 6(c), 6b, 6c, 6l, 6m, 6n, 6o, 12a, 
and 23.

0
2. In Sec.  4.7:
0
a. Remove the introductory text;
0
b. Revise paragraphs (a) and (b)(2)(i);
0
c. Add paragraphs (b)(2)(i)(A) through (G);
0
d. Remove and reserve paragraph (b)(2)(ii);
0
e. Add paragraph (b)(3)(iv);
0
f. Revise paragraphs (b)(5) and (c)(1)(i);
0
g. Add paragraphs (c)(1)(i)(A) through (H);
0
h. Remove and reserve paragraph (c)(1)(ii); and
0
i. Revise paragraphs (c)(2) and (d)(4)(i) and (ii).
    The revisions and additions 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) Definitions. (1) Affiliate of, or a person affiliated with, a 
specified person means a person that directly or indirectly through one 
or more persons, controls, is controlled by, or is under common control 
with the specified person.
    (2) Exempt account means the account of a qualified eligible person 
that is directed or guided by a commodity trading advisor pursuant to 
an effective claim for exemption under this section.
    (3) Exempt pool means a pool that is operated pursuant to an 
effective claim for exemption under this section.
    (4) Non-United States person means:
    (i) A natural person who is not a resident of the United States;
    (ii) A partnership, corporation or other entity, other than an 
entity organized principally for passive investment, organized under 
the laws of a foreign jurisdiction and which has its principal place of 
business in a foreign jurisdiction;
    (iii) An estate or trust, the income of which is not subject to 
United States income tax regardless of source;
    (iv) An entity organized principally for passive investment such as 
a pool, investment company or other similar entity; Provided, that 
units of participation in the entity held by persons who do not qualify 
as Non-United States persons or otherwise as qualified eligible persons 
represent in the aggregate less than 10% of the beneficial interest in 
the entity, and that such entity was not formed principally for the 
purpose of facilitating investment by persons who do not qualify as 
Non-United States persons in a pool with respect to which the operator 
is exempt from certain requirements of this part by virtue of its 
participants being Non-United States persons; and
    (v) A pension plan for the employees, officers or principals of an 
entity organized and with its principal place of business outside the 
United States.
    (5) Portfolio Requirement means that a person:
    (i) Owns securities (including pool participations) of issuers not 
affiliated

[[Page 70876]]

with such person and other investments with an aggregate market value 
of at least $4,000,000;
    (ii) Has had on deposit with a futures commission merchant, for its 
own account at any time during the six-month period preceding either 
the date of sale to that person of a pool participation in the exempt 
pool or the date that the person opens an exempt account with the 
commodity trading advisor, at least $400,000 in exchange-specified 
initial margin and option premiums, together with any required minimum 
security deposits for retail forex transactions (defined in Sec.  
5.1(m) of this chapter), for commodity interest transactions; or
    (iii) Owns a portfolio comprised of a combination of the funds or 
property specified in paragraphs (a)(5)(i) and (ii) of this section, in 
which the sum of the funds or property includable under paragraph 
(a)(5)(i) of this section, expressed as a percentage of the minimum 
amount required thereunder, and the amount of initial margin, option 
premiums, and minimum security deposits includable under paragraph 
(a)(5)(ii) of this section, expressed as a percentage of the minimum 
amount required thereunder, equals at least one hundred percent. An 
example of a composite portfolio acceptable under this paragraph 
(a)(5)(iii) would consist of $2,000,000 in securities and other 
property (50% of paragraph (a)(5)(i) of this section) and $200,000 in 
initial margin, option premiums, and minimum security deposits (50% of 
paragraph (a)(5)(ii) of this section).
    (6) Qualified eligible person means any person, acting for its own 
account or for the account of a qualified eligible person, who the 
commodity pool operator reasonably believes, at the time of the sale to 
that person of a pool participation in the exempt pool, or who the 
commodity trading advisor reasonably believes, at the time that person 
opens an exempt account, is eligible to invest in the exempt pool or 
open the exempt account and is included in the following list of 
persons that is divided into two categories: Persons who are not 
required to satisfy the Portfolio Requirement defined in paragraph 
(a)(5) of this section to be qualified eligible persons, and those 
persons who must satisfy the Portfolio Requirement in paragraph (a)(5) 
of this section to be qualified eligible persons.
    (i) Persons who need not satisfy the Portfolio Requirement to be 
qualified eligible persons. (A) A futures commission merchant 
registered pursuant to section 4d of the Act, or a principal thereof;
    (B) A retail foreign exchange dealer registered pursuant to section 
2(c)(2)(B)(i)(II)(gg) of the Act, or a principal thereof;
    (C) A swap dealer registered pursuant to section 4s(a)(1) of the 
Act, or a principal thereof;
    (D) A broker or dealer registered pursuant to section 15 of the 
Securities Exchange Act of 1934, or a principal thereof;
    (E) A commodity pool operator registered pursuant to section 4m of 
the Act, or a principal thereof; Provided, that the pool operator:
    (1) Has been registered and active as such for two years; or
    (2) Operates pools which, in the aggregate, have total assets in 
excess of $5,000,000;
    (F) A commodity trading advisor registered pursuant to section 4m 
of the Act, or a principal thereof; Provided, that the trading advisor:
    (1) Has been registered and active as such for two years; or
    (2) Provides commodity interest trading advice to commodity 
accounts which, in the aggregate, have total assets in excess of 
$5,000,000 deposited at one or more futures commission merchants;
    (G) An investment adviser registered pursuant to section 203 of the 
Investment Advisers Act of 1940 (“Investment Advisers Act”) or 
pursuant to the laws of any state, or a principal thereof; Provided, 
that the investment adviser:
    (1) Has been registered and active as such for two years; or
    (2) Provides securities investment advice to securities accounts 
which, in the aggregate, have total assets in excess of $5,000,000 
deposited at one or more registered securities brokers;
    (H) A “qualified purchaser” as defined in section 2(a)(51)(A) of 
the Investment Company Act of 1940 (“Investment Company Act”);
    (I) A “knowledgeable employee” as defined in Sec.  270.3c-5 of 
this title;
    (J) With respect to an exempt pool:
    (1) The commodity pool operator, commodity trading advisor or 
investment adviser of the exempt pool offered or sold, or an affiliate 
of any of the foregoing;
    (2) A principal of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
an affiliate of any of the foregoing;
    (3) An employee of the exempt pool or the commodity pool operator, 
commodity trading advisor or investment adviser of the exempt pool, or 
of an affiliate of any of the foregoing (other than an employee 
performing solely clerical, secretarial or administrative functions 
with regard to such person or its investments) who, in connection with 
his or her regular functions or duties, participates in the investment 
activities of the exempt pool, other commodity pools operated by the 
pool operator of the exempt pool or other accounts advised by the 
trading advisor or the investment adviser of the exempt pool, or by the 
affiliate; Provided, that such employee has been performing such 
functions and duties for or on behalf of the exempt pool, pool 
operator, trading advisor, investment adviser or affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the exempt pool 
or the commodity pool operator, commodity trading advisor or investment 
adviser of the exempt pool, or any other employee of, or agent so 
engaged by, an affiliate of any of the foregoing (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its 
investments); Provided, that such employee or agent:
    (i) Is an accredited investor as defined in Sec.  230.501(a)(5) or 
(a)(6) of this title; and
    (ii) Has been employed or engaged by the exempt pool, commodity 
pool operator, commodity trading advisor, investment adviser or 
affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months;
    (5) The spouse, child, sibling or parent of a person who satisfies 
the criteria of paragraph (a)(6)(i)(J)(1), (2), (3) or (4) of this 
section; Provided, that:
    (i) An investment in the exempt pool by any such family member is 
made with the knowledge and at the direction of the person; and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(6)(ii)(K) of this section;
    (6) Any person who acquires a participation in the exempt pool by 
gift, bequest or pursuant to an agreement relating to a legal 
separation or divorce from a person listed in paragraph 
(a)(6)(i)(J)(1), (2), (3), (4) or (5) of this section;
    (7) The estate of any person listed in paragraph (a)(6)(i)(J)(1), 
(2), (3), (4) or (5) of this section; or
    (8) A company established by any person listed in paragraph 
(a)(6)(i)(J)(1),

[[Page 70877]]

(2), (3), (4) or (5) of this section exclusively for the benefit of (or 
owned exclusively by) that person and any person listed in paragraph 
(a)(6)(i)(J)(6) or (7) of this section;
    (K) With respect to an exempt account:
    (1) An affiliate of the commodity trading advisor of the exempt 
account;
    (2) A principal of the commodity trading advisor of the exempt 
account or of an affiliate of the commodity trading advisor;
    (3) An employee of the commodity trading advisor of the exempt 
account or of an affiliate of the trading advisor (other than an 
employee performing solely clerical, secretarial or administrative 
functions with regard to such person or its investments) who, in 
connection with his or her regular functions or duties, participates in 
the investment activities of the trading advisor or the affiliate; 
Provided, that such employee has been performing such functions and 
duties for or on behalf of the trading advisor or the affiliate, or 
substantially similar functions or duties for or on behalf of another 
person engaged in providing commodity interest, securities or other 
financial services, for at least 12 months;
    (4) Any other employee of, or an agent engaged to perform legal, 
accounting, auditing or other financial services for, the commodity 
trading advisor of the exempt account or any other employee of, or 
agent so engaged by, an affiliate of the trading advisor (other than an 
employee or agent performing solely clerical, secretarial or 
administrative functions with regard to such person or its 
investments); Provided, that such employee or agent:
    (i) Is an accredited investor as defined in Sec.  230.501(a)(5) or 
(a)(6) of this title; and
    (ii) Has been employed or engaged by the commodity trading advisor 
or the affiliate, or by another person engaged in providing commodity 
interest, securities or other financial services, for at least 24 
months; or
    (5) The spouse, child, sibling or parent of the commodity trading 
advisor of the exempt account or of a person who satisfies the criteria 
of paragraph (a)(6)(i)(K)(1), (2), (3) or (4) of this section; 
Provided, that:
    (i) The establishment of an exempt account by any such family 
member is made with the knowledge and at the direction of the person; 
and
    (ii) The family member is not a qualified eligible person for the 
purposes of paragraph (a)(6)(ii)(K) of this section;
    (6) Any person who acquires an interest in an exempt account by 
gift, bequest or pursuant to an agreement relating to a legal 
separation or divorce from a person listed in paragraph 
(a)(6)(i)(K)(1), (2), (3), (4) or (5) of this section;
    (7) The estate of any person listed in paragraph (a)(6)(i)(K)(1), 
(2), (3), (4) or (5) of this section;
    (8) A company established by any person listed in paragraph 
(a)(6)(i)(K)(1), (2), (3), (4) or (5) of this section exclusively for 
the benefit of (or owned exclusively by) that person and any person 
listed in paragraph (a)(6)(i)(K)(6) or (7) of this section;
    (L) A trust; Provided, that:
    (1) The trust was not formed for the specific purpose of either 
participating in the exempt pool or opening an exempt account; and
    (2) The trustee or other person authorized to make investment 
decisions with respect to the trust, and each settlor or other person 
who has contributed assets to the trust, is a qualified eligible 
person;
    (M) An organization described in section 501(c)(3) of the Internal 
Revenue Code (the “IRC”); Provided, that the trustee or other person 
authorized to make investment decisions with respect to the 
organization, and the person who has established the organization, is a 
qualified eligible person;
    (N) A Non-United States person;
    (O) An entity in which all of the unit owners or participants, 
other than the commodity trading advisor claiming relief under this 
section, are qualified eligible persons;
    (P) An exempt pool; or
    (Q) Notwithstanding paragraph (a)(6)(ii) of this section, an entity 
as to which a notice of eligibility has been filed pursuant to Sec.  
4.5 which is operated in accordance with such rule and in which all 
unit owners or participants, other than the commodity trading advisor 
claiming relief under this section, are qualified eligible persons.
    (ii) Persons who must satisfy the Portfolio Requirement to be 
qualified eligible persons. With respect to the persons listed in this 
paragraph (a)(6)(ii), the commodity pool operator must reasonably 
believe, at the time of the sale to such person of a participation in 
the exempt pool, or the commodity trading advisor must reasonably 
believe, at the time such person opens an exempt account, that such 
person satisfies the Portfolio Requirement in paragraph (a)(5) of this 
section.
    (A) An investment company registered under the Investment Company 
Act or a business development company as defined in section 2(a)(48) of 
such Act not formed for the specific purpose of either investing in the 
exempt pool or opening an exempt account;
    (B) A bank as defined in section 3(a)(2) of the Securities Act of 
1933 (the “Securities Act”) or any savings and loan association or 
other institution as defined in section 3(a)(5)(A) of the Securities 
Act acting for its own account or for the account of a qualified 
eligible person;
    (C) An insurance company as defined in section 2(13) of the 
Securities Act acting for its own account or for the account of a 
qualified eligible person;
    (D) A plan established and maintained by a state, its political 
subdivisions, or any agency or instrumentality of a state or its 
political subdivisions, for the benefit of its employees, if such plan 
has total assets in excess of $5,000,000;
    (E) An employee benefit plan within the meaning of the Employee 
Retirement Income Security Act of 1974; Provided, that the investment 
decision is made by a plan fiduciary, as defined in section 3(21) of 
such Act, which is a bank, savings and loan association, insurance 
company, or registered investment adviser; or that the employee benefit 
plan has total assets in excess of $5,000,000; or if the plan is self-
directed, that investment decisions are made solely by persons that are 
qualified eligible persons;
    (F) A private business development company as defined in section 
202(a)(22) of the Investment Advisers Act;
    (G) An organization described in section 501(c)(3) of the IRC, with 
total assets in excess of $5,000,000;
    (H) A corporation, Massachusetts or similar business trust, or 
partnership, limited liability company or similar business venture, 
other than a pool, which has total assets in excess of $5,000,000, and 
is not formed for the specific purpose of either participating in the 
exempt pool or opening an exempt account;
    (I) 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;
    (J) A natural person who would qualify as an accredited investor as 
defined in Sec.  230.501(a)(6) of this title;
    (K) A pool, trust, insurance company separate account or bank 
collective trust, with total assets in excess of $5,000,000, not formed 
for the specific purpose of either participating in the exempt pool or 
opening an exempt

[[Page 70878]]

account, and whose participation in the exempt pool or investment in 
the exempt account is directed by a qualified eligible person; or
    (L) Except as provided for the governmental entities referenced in 
paragraph (a)(6)(ii)(D) of this section, if otherwise authorized by law 
to engage in such transactions, a governmental entity (including the 
United States, a state, or a foreign government) or political 
subdivision thereof, or a multinational or supranational entity or an 
instrumentality, agency, or department of any of the foregoing.
    (7) United States means the United States, its states, territories 
or possessions, or an enclave of the United States government, its 
agencies or instrumentalities.
    (b) * * *
    (2) * * *
    (i) Exemption from the specific requirements in Sec. Sec.  4.24 and 
4.26(d) with respect to each pool; Provided, that any offering 
memorandum distributed in connection with soliciting prospective 
participants in the exempt pool be distributed consistent with the 
requirements of Sec.  4.21 and include:
    (A) A description of principal risk factors for the exempt pool, as 
required by Sec.  4.24(g);
    (B) A description of the exempt pool’s investment program and use 
of proceeds, as required by Sec.  4.24(h);
    (C) A description of fees and expenses, as required by Sec.  
4.24(i);
    (D) A description of conflicts of interest, as required by Sec.  
4.24(j);
    (E) Performance disclosures, as required by Sec.  4.25, with the 
exception of information required by paragraphs (a)(3) and (c)(2) of 
Sec.  4.25;
    (F) All other disclosures necessary to make the information 
contained therein, in the context in which it is furnished, not 
misleading; and
    (G) The following statement, prominently disclosed on the cover 
page of the offering memorandum:
    “PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH POOLS WHOSE PARTICIPANTS ARE LIMITED TO 
QUALIFIED ELIGIBLE PERSONS, AN OFFERING MEMORANDUM FOR THIS POOL IS NOT 
REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE 
COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF 
PARTICIPATING IN A POOL OR UPON THE ADEQUACY OR ACCURACY OF AN OFFERING 
MEMORANDUM. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS 
NOT REVIEWED OR APPROVED THIS OFFERING OR ANY OFFERING MEMORANDUM FOR 
THIS POOL PRIOR TO FIRST USE.”
    (3) * * *
    (iv) Where the exempt pool is invested in one or more other pools 
or funds operated by third parties, the commodity pool operator may 
choose instead to prepare and distribute to its pool participants 
statements signed and affirmed in accordance with Sec.  4.22(h) on a 
monthly basis within 45 days of the month-end; Provided, that the 
statements otherwise meet the conditions of paragraphs (b)(3)(i) 
through (ii) of this section, and that the commodity pool operator 
notifies its pool participants of this alternate distribution schedule 
in the exempt pool’s offering memorandum distributed prior to the 
initial investment, or upon its adoption of this reporting schedule, 
for then existing pool participants.
* * * * *
    (5) Recordkeeping relief. Exemption from the specific requirements 
of Sec.  4.23; Provided, that the commodity pool operator must maintain 
the offering memoranda and reports referred to in paragraphs (b)(2), 
(3), and (4) of this section, and all other books and records prepared 
in connection with its activities as the pool operator of the exempt 
pool (including, without limitation, records relating to the 
qualifications of qualified eligible persons and substantiating any 
performance representations). Books and records that are not maintained 
at the pool operator’s main business office shall be maintained by one 
or more of the following: the pool’s administrator, distributor, or 
custodian, or a bank or registered broker or dealer acting in a similar 
capacity with respect to the pool. Such books and records must be made 
available to any representative of the Commission, the National Futures 
Association and the United States Department of Justice in accordance 
with the provisions of Sec.  1.31 of this chapter.
* * * * *
    (c) * * *
    (1) * * *
    (i) Exemption from the specific requirements of Sec. Sec.  4.34 and 
4.36(d); Provided, that any brochure or other disclosure statement 
delivered by a commodity trading advisor to its prospective qualified 
eligible person clients be distributed consistent with the requirements 
of Sec.  4.31 and include:
    (A) A description of persons to be identified, as required by Sec.  
4.34(e);
    (B) A description of principal risk factors, as required by Sec.  
4.34(g);
    (C) A description of the exempt commodity trading advisor’s trading 
program, as required by Sec.  4.34(h);
    (D) A description of fees, as required by Sec.  4.34(i);
    (E) A description of conflicts of interest, as required by Sec.  
4.34(j);
    (F) Performance disclosures, as required by Sec.  4.35;
    (G) All additional disclosures necessary to make the information 
contained therein, in the context in which it is furnished, not 
misleading; and
    (H) The following statement, prominently displayed on the cover 
page of the brochure or other disclosure statement:
    “PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING 
COMMISSION IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE PERSONS, 
THIS BROCHURE OR ACCOUNT DOCUMENT IS NOT REQUIRED TO BE, AND HAS NOT 
BEEN, FILED WITH THE COMMISSION. THE COMMODITY FUTURES TRADING 
COMMISSION DOES NOT PASS UPON THE MERITS OF PARTICIPATING IN A TRADING 
PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY TRADING ADVISOR 
DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING COMMISSION HAS 
NOT REVIEWED OR APPROVED THIS TRADING PROGRAM OR THIS BROCHURE OR 
ACCOUNT DOCUMENT PRIOR TO FIRST USE.”
* * * * *
    (2) Recordkeeping relief. Exemption from the specific requirements 
of Sec.  4.33; Provided, that the commodity trading advisor must 
maintain, at its main business office, the trading brochure or 
disclosure statement referred to in paragraph (c)(1) of this section, 
and all other books and records prepared in connection with its 
activities as the commodity trading advisor of qualified eligible 
persons (including, without limitation, records relating to the 
qualifications of such qualified eligible persons and substantiating 
any performance representations). Such books and records must be made 
available to any representative of the Commission, the National Futures 
Association, and the United States Department of Justice in accordance 
with the provisions of Sec.  1.31 of this chapter.
    (d) * * *
    (4)(i) Any exemption from the requirements of Sec. Sec.  4.22, 
4.23, 4.24, 4.25, and 4.26 claimed hereunder with respect to a pool 
shall not affect the obligation of the commodity pool

[[Page 70879]]

operator to comply with all other applicable provisions of this part, 
the Act and the Commission’s rules and regulations, with respect to the 
pool and any other pool the pool operator operates or intends to 
operate.
    (ii) Any exemption from the requirements of Sec. Sec.  4.33, 4.34, 
and 4.36 claimed hereunder shall not affect the obligation of the 
commodity trading advisor to comply with all other applicable 
provisions of this part, the Act and the Commission’s rules and 
regulations, with respect to any qualified eligible person and any 
other client to which the commodity trading advisor provides or intends 
to provide commodity interest trading advice.
* * * * *
0
3. In Sec.  4.14, revise paragraph (a)(8)(i)(C)(2) to read as follows:

Sec.  4.14   Exemption from registration as a commodity trading 
advisor.

    (a) * * *
    (8) * * *
    (i) * * *
    (C) * * *
    (2) With the exception of the pool’s operator, advisor, and their 
principals, solely “Non-United States persons,” as that term is 
defined in Sec.  4.7(a)(7), will contribute funds or other capital to, 
and will own beneficial interests in, the pool; Provided, that units of 
participation in the pool held by persons who do not qualify as Non-
United States persons or otherwise qualified eligible persons represent 
in the aggregate less than 10 percent of the beneficial interest of the 
pool;
* * * * *
0
4. In Sec.  4.21, revise paragraph (a)(2) to read as follows:

Sec.  4.21   Required delivery of pool Disclosure Document.

    (a) * * *
    (2) For the purpose of the Disclosure Document delivery 
requirement, including any offering memorandum delivered pursuant to 
Sec.  4.7(b)(2)(i) or Sec.  4.12(b)(2)(i), the term “prospective pool 
participant” does not include a commodity pool operated by a pool 
operator that is the same as, or that controls, is controlled by, or is 
under common control with, the pool operator of the offered pool.
* * * * *
0
5. In Sec.  4.22:
0
a. Revise paragraphs (a)(4), (c)(7) introductory text, (c)(8), (d)(1) 
introductory text, (d)(2)(i) introductory text, (f)(2) introductory 
text, and (f)(2)(iv)(B) and (C); and
0
b. Remove paragraph (f)(2)(iv)(D).
    The revisions read as follows:

Sec.  4.22   Reporting to pool participants.

    (a) * * *
    (4) For the purpose of the Account Statement delivery requirement, 
including any Account Statement distributed pursuant to Sec.  4.7(b)(3) 
or Sec.  4.12(b)(2)(ii), the term “participant” does not include a 
commodity pool operated by a pool operator that is the same as, or that 
controls, is controlled by, or is under common control with, the pool 
operator of a pool in which the commodity pool has invested.
* * * * *
    (c) * * *
    (7) For a pool that has ceased operation prior to, or as of, the 
end of the fiscal year, the commodity pool operator may provide the 
following, within 90 days of the permanent cessation of trading, in 
lieu of the annual report that would otherwise be required by Sec.  
4.22(c) or Sec.  4.7(b)(4):
* * * * *
    (8) For the purpose of the Annual Report distribution requirement, 
including any annual report distributed pursuant to Sec.  4.7(b)(4) or 
Sec.  4.12(b)(2)(iii), the term “participant” does not include a 
commodity pool operated by a pool operator that is the same as, or that 
controls, is controlled by, or is under common control with, the pool 
operator of a pool in which the commodity pool has invested; Provided, 
that the Annual Report of such investing pool contain financial 
statements that include such information as the Commission may specify 
concerning the operations of the pool in which the commodity pool has 
invested.
    (d)(1) Subject to the provisions of paragraphs (d)(2) and (g)(2) of 
this section, the financial statements in the Annual Report required by 
this section or by Sec.  4.7(b)(4) must be presented and computed in 
accordance with United States generally accepted accounting principles 
consistently applied and must be audited by an independent public 
accountant; Provided, however, and subject to the exception in 
paragraph (c)(7)(iii)(B) of this section, that the requirement that the 
Annual Report be audited by an independent public accountant does not 
apply for any fiscal year during which the only participants in the 
pool are one or more of the pool operator, the pool’s commodity trading 
advisor, any person controlling, controlled by, or under common control 
with the pool operator or trading advisor, and any principal of the 
foregoing; and Provided further, that the commodity pool operator 
obtains a written waiver from each such pool participant of their right 
to receive an audited Annual Report for such fiscal year, maintains 
such waivers in accordance with Sec.  4.23, and makes such waivers 
available to the Commission or National Futures Association upon 
request. The requirements of Sec.  1.16(g) of this chapter shall apply 
with respect to the engagement of such independent public accountants, 
except that any related notifications to be made may be made solely to 
the National Futures Association, and the certification must be in 
accordance with Sec.  1.16 of this chapter, except that the following 
requirements of that section shall not apply:
* * * * *
    (2)(i) Where a pool is organized in a jurisdiction other than the 
United States, the financial statements in the Annual Report required 
by this section or by Sec.  4.7(b)(4) may be presented and computed in 
accordance with the generally accepted accounting principles, standards 
or practices followed in such other jurisdiction; Provided, that:
* * * * *
    (f) * * *
    (2) In the event a commodity pool operator finds that it cannot 
obtain information necessary to prepare annual financial statements for 
a pool that it operates within the time specified in paragraph (c) of 
this section or Sec.  4.7(b)(4)(i), as a result of the pool investing 
in another collective investment vehicle, it may claim an extension of 
time under the following conditions:
* * * * *
    (iv) * * *
    (B) For all reports prepared under paragraph (c) of this section 
and for reports prepared under Sec.  4.7(b)(4)(i) that are audited by 
an independent public accountant, the commodity pool operator has been 
informed by the independent public accountant engaged to audit the 
commodity pool’s financial statements that specified information 
required to complete the pool’s Annual Report is necessary in order for 
the accountant to render an opinion on the commodity pool’s financial 
statements. The notice must include the name, main business address, 
main telephone number, and contact person of the accountant; and
    (C) The information specified by the accountant cannot be obtained 
in sufficient time for the Annual Report to be prepared, audited, and 
distributed before the Extended Date.
* * * * *

[[Page 70880]]

    Issued in Washington, DC, on October 3, 2023, by the Commission.
Christopher Kirkpatrick,
Secretary of the Commission.

    Note:  The following appendices will not appear in the Code of 
Federal Regulations.

Appendices to Commodity Pool Operators, Commodity Trading Advisors, and 
Commodity Pools: Updating the `Qualified Eligible Person’ Definition; 
Adding Minimum Disclosure Requirements for Pools and Trading Programs; 
Permitting Monthly Account Statements for Funds of Funds; Technical 
Amendments–Commission Voting Summary and Commissioners’ Statements

Appendix 1–Commission Voting Summary

    On this matter, Chairman Behnam and Commissioners Johnson and 
Goldsmith Romero voted in the affirmative. Commissioner Pham 
concurred. Commissioner Mersinger voted in the negative.

Appendix 2–Statement of Commissioner Kristin N. Johnson History of 
Disclosure-Centered Regulation

    Federal regulation expressly establishes that customer 
protection is a core principle of and central to the oversight 
mission of the Commodity Futures Trading Commission (CFTC or 
Commission). For almost a century, mandatory disclosure has played a 
critical role in market regulation, directly shaping the development 
of the U.S. capital and derivatives markets.1 Requiring disclosure 
of material information mitigates inherent asymmetries of 
information.
—————————————————————————

    1 Mandatory disclosure serves as a theoretical and practical 
linchpin in capital markets regulation. Unless an offering is 
otherwise exempt from registration, Section 5 of the Securities Act 
requires issuers who seek to raise capital to register the offering 
with the Securities and Exchange Commission (SEC) prior to offering 
the securities to investors for sale. See 15 U.S.C. 77a-77mm. To 
complete the registration process, issuers must compile and 
distribute extensive disclosures describing, among other matters, 
the nature of the issuer’s business; the educational and 
professional profiles of executives appointed to senior management 
positions and individuals selected to serve on the board of 
directors; tangible and intangible property; risk factors; and the 
financial health–current and forecasted earnings and revenues–of 
the firm.
—————————————————————————

    The Commission allocates resources among registration and 
supervision responsibilities and enforcement actions to foster 
effective oversight of market participants and transactions. This 
approach not only enhances the integrity of markets, but effectively 
protects customers from material misrepresentations and fraud.
    Congress has judiciously introduced Federal markets legislation, 
often in response to nationwide or global market-wide crises, and 
has carefully balanced Federal regulation with the role and 
significance of state regulatory oversight.
    One hundred years ago, Congress passed the Grain Futures Act–
the statute that was superseded by the Commodity Exchange Act (CEA) 
and that established the Grain Futures Administration (GFA, the 
predecessor of the CFTC)–authorizing the GFA to regulate certain 
commodity futures. A decade later, in the wake of the stock market 
crash of 1929 and the conclusion of the roaring ’20s–a period 
characterized by a surging economy and intense market speculation 
accompanied by pervasive fraud in retail securities markets 2–
Congress adopted the Securities Act of 1933 (the Securities Act). 
The stock market crash of 1929 triggered staggering losses by retail 
investors and initiated a long period of industrial decline and 
widespread unemployment, ultimately leading to deeply depressed 
macroeconomic conditions.
—————————————————————————

    2 Investigative Congressional hearings revealed that more than 
half of the $25 billion in securities distributed between the end of 
World War I and the stock market crash of 1929 were worthless. H.R. 
REP. NO. 73-85, at 2 (1933); see also U.S. Senate Hist. Off., 
Subcommittee on Senate Resolutions 84 and 239, https://www.senate.gov/about/powers-procedures/investigations/pecora.htm. 
Detailed accounts of issuers’ intentional dissemination of false and 
misleading information punctuated evidence of fraud and stunning 
acts of avarice. During this period, securities listed on the New 
York Stock Exchange declined from a pre-crash high of $89 billion to 
$15 billion in 1932. One critical investigative report suggested 
that “had there been full disclosure,” issuers’ schemes “could 
not long have survived the fierce light of publicity and 
criticism.” Ferdinand Pecora, Wall Street Under Oath: The Story of 
Our Modern Money Changers (1939).
—————————————————————————

    Consistent with an adage made popular by U.S. Supreme Court 
Justice Louis Brandeis–“[s]unlight is said to be the best of 
disinfectants; electric light the most efficient policeman” 3–
Congress adopted a disclosure-centric approach.
—————————————————————————

    3 Louis D. Brandeis, Other People’s Money And How The Bankers 
Use It, 92 (1914).
—————————————————————————

    Disclosure increases transparency, reduces asymmetries of 
information, and mitigates fraud and manipulation as well as other 
misconduct in our financial markets. In the absence of mandatory 
disclosures, investors may have limited access to the material 
information needed to make a reasonable investment decision. 
Mandatory disclosure neutralizes incentives to misrepresent material 
information.
    It is incumbent upon the Commission to continue to carry out 
this mandate reflected in the principles of Federal markets 
regulation and firmly established in the CEA.

Novel Financial Products and Evolving Derivatives Markets

    Novel financial products, such as digital assets and innovative 
technologies like distributed digital ledger or blockchain 
technology and generative artificial intelligence, increasingly 
dominate regulatory discourse and popular discussions. The 
derivatives markets offer futures on digital assets, which are 
priced on a volatile spot market, employ technology that is highly 
complex and rapidly changing, and offer novel market structures 
including market structures designed to permit retail customers 
direct access to trading and clearing platforms. In some contexts, 
trading structures eliminate intermediaries such as a futures 
commission merchants (FCM), raising important questions regarding 
the best approach for preserving important customer protections such 
as segregation of customer assets.
    As our markets are evolving, more and more vulnerable customers 
increasingly engage in complex derivatives activities. It is 
important that these customers have an opportunity to consider 
critical, material information when making an investment decision. 
Disclosure serves a valuable role in protecting customers.
    Consequently, regulators must continuously revisit regulation to 
ensure that it remains fit for purpose. Our regulations must keep 
pace with innovation in our evolving markets. In particular, we must 
refresh our understanding of which customers may benefit from 
disclosure when investing, directly or indirectly, in derivatives 
markets.
* * * * *
    I support the notice of proposed rulemaking (NPRM) regarding 
commodity pool operators (CPOs), commodity trading advisors (CTAs), 
and commodity pools operated under CFTC Regulation 4.7. The NPRM 
addresses regulatory gaps that have arisen due to, at least in part, 
the changing dynamics in the derivatives markets. The proposed 
amendments adapt the CFTC’s existing regulations to reinforce, 
preserve, and promote customer protection safeguards. CFTC 
Regulation 4.7 dictates the disclosure obligations of CPOs and CTAs 
by establishing the test for classifying a natural person as a 
retail investor to whom extensive disclosures and financial reports 
must be delivered or a financially sophisticated investor with 
respect to whom a more streamlined process may be warranted.

Updating Our Understanding of the Legal Standard for “Financial 
Sophistication”

    Adopted in 1979, part 4 of the CFTC’s regulations requires CPOs 
and CTAs to deliver disclosures and regular financial reports to 
pool participants or advisory clients.4 This framework acts as an 
important layer of protection for customers, by providing customers 
with material information about the commodity pool or trading 
platform, which may include investment objectives, past performance 
record, conflicts of interest, risk disclosures, or other prescribed 
information.
—————————————————————————

    4 17 CFR 4.7. On January 2, 1979, the CFTC adopted rules for 
the regulation of CPOs and CTAs. See Commodity Pool Operators and 
Commodity Trading Advisors; Final Rules, 44 FR 1918 (Jan. 8, 1979). 
These rules became effective April 1, 1979.
—————————————————————————

    CFTC Regulation 4.7, adopted in 1992, creates an exemption from 
certain part 4 requirements for CPOs and CTAs that privately offer 
or sell pool participations solely to qualified eligible persons 
(QEPs) pursuant to an exemption under the Securities Act or direct 
or guide the commodity trading accounts of QEPs. As a result, QEPs 
or wealthy individuals do not

[[Page 70881]]

receive any of the specific disclosures otherwise provided to non-
QEPs or retail investors (e.g., offering memoranda, brochures, or 
disclosure statements) and receive streamlined financial reporting.
    A natural person, investing capital in a commodity pool or whose 
trading account invests in derivatives, would be a QEP if the 
individual is an “accredited investor,” as defined by the SEC in 
Regulation D under the Securities Act, and also meets the CFTC’s 
portfolio requirement.5 The portfolio requirement is designed to 
ensure that a person’s investments reach a specified threshold 
related to the person’s securities portfolio and derivatives 
account. This functions as a proxy for identifying individuals who, 
based on the size of their investments, have “substantial 
investment experience and thus a high degree of sophistication with 
regard to investments as well as financial resources to withstand 
the risk of their investments.” 6
—————————————————————————

    5 17 CFR 4.7(a)(3)(ix) and (x). The portfolio test applies to 
certain legal entities and natural persons. Generally, the portfolio 
test is satisfied if the natural person owns securities of 
unaffiliated issuers and other investments with a market value of at 
least $2,000,000 (Securities Portfolio Test); has on deposit with an 
FCM for such person’s account at least $200,000 in initial margin, 
option premiums, or minimum security deposits (Initial Margin and 
Premium Test); or owns a portfolio of funds and assets that, when 
expressed as percentages of the first two thresholds, meet or exceed 
100%. 17 CFR 4.7(a)(1)(v).
    6 Exemption for Commodity Pool Operators With Respect to 
Offerings to Qualified Eligible Participants; Exemption for 
Commodity Trading Advisors With Respect to Qualified Eligible 
Clients, 57 FR 34853, 34854 (Aug. 7, 1992). To clarify, in respect 
of natural persons, the portfolio requirement does not facilitate 
the concurrent use of an exemption from registration under the 
Securities Act and the CFTC Regulation 4.7 exemption because the QEP 
status is not completely harmonized with the accredited investor 
status of the SEC.
—————————————————————————

    Recognizing that classifying individuals as QEPs may result in 
reduced regulatory protections, it is therefore critical that the 
Commission is careful in setting out the standard for determining 
that an individual is a QEP.
    An individual customer may experience substantial losses if the 
market moves against the customer’s positions. This concern is 
heightened by the fact that the participation interests acquired in 
an exempt pool offering are not registered offerings subject to the 
SEC’s robust public offering disclosure regime outlined in public 
offering registration obligation.
    Commodity pools are commonly hedge funds that may use leverage 
to magnify returns, engage in speculation, and take directional 
positions. These types of structured investment strategies may 
result in amplified losses for customers.
    While our markets are undergoing unprecedented changes, robust 
customer protections must remain consistent and effective. Natural 
persons who currently meet the outdated thresholds in the portfolio 
requirement test introduced in 1992 are not necessarily 
sophisticated investors in today’s markets. What’s worse, under the 
existing regulation, individuals that meet the QEP test may not be 
receiving disclosures to be fully apprised of the risks associated 
with investing in novel derivatives instruments, whether directly or 
through a commodity pool, and our evolving markets.

Two-Part Recalibration of Customer Protection Measures

    This NPRM has two important objectives.7
—————————————————————————

    7 The NPRM also revises the timing of certain pools’ periodic 
financial reporting, based on long-standing no-action letters, to 
permit funds of funds to provide account statements within 45 days 
of the month-end rather than 30 days of the quarter-end and makes 
technical adjustments to reorganize CFTC Regulation 4.7 to improve 
its structure and utility (e.g., to fix cross-references).
—————————————————————————

    First, it doubles the financial thresholds of the portfolio 
requirement test to account for inflation since the exemption was 
adopted in 1992, thereby recalibrating the standard for determining 
which pool investors or advisory clients are QEPs.8 If this 
proposed amendment is adopted, certain pool participants and 
advisory clients that do not receive disclosures or receive 
streamlined financial reporting under the existing regulation will 
benefit from the full range of customer protection measures in part 
4 of the CFTC’s regulations. The proposed thresholds are not even as 
high as those that were originally proposed in 1992, and so I do not 
find the amended portfolio requirement to be too restrictive or 
limiting today, more than 30 years later.9 Perhaps the thresholds 
could be higher.
—————————————————————————

    8 The Commission is proposing to update the portfolio 
requirement’s thresholds by doubling the Securities Portfolio Test 
to $4,000,000 and the Initial Margin and Premium Test to $400,000.
    9 As originally proposed in 1992, the portfolio requirement 
had two components: (1) $5,000,000 in securities or (2) $1,000,000 
deposited as initial margin and options premiums with an FCM for 
commodity interest trading. 57 FR at 34855.
—————————————————————————

    Second, the NPRM sets a new minimum standard of disclosure 
regarding pools and trading programs that must be provided to all 
QEPs or wealthy investors, while retaining the more robust 
disclosure and reporting requirements applicable to non-QEPs or 
retail investors.10 The adoption of this amendment will result in 
heightened customer protections for QEPs that currently are entitled 
to none. I strongly believe that as a market regulator, we must, 
when warranted, carefully recalibrate how investors participate in 
our evolving markets to ensure that CPOs and CTAs provide a 
prospective or actual investor, whether such investor is a QEP or 
not, with information that is sufficient and adequate to enable the 
investor to assess the material risks and rewards of the commodity 
pool or trading program. Disclosure is key to remediating the 
dangers of information asymmetry.
—————————————————————————

    10 The new minimum standards will require the disclosure of 
principal risk factors, investment programs, use of proceeds, 
custodians, conflicts of interest, fees and expenses, and past 
performance, and the retention of disclosures as business records.
—————————————————————————

    I appreciate the staff’s efforts in heightening disclosure and 
enhancing customer protections and their cooperation in implementing 
my comments to refine the preamble and regulatory text concerning 
the specific disclosures that will be required under the proposed 
rule.
    I am looking forward to thoughtful comments and responses from 
market participants. In particular, I welcome perspectives on the 
potential impact of the proposed rule changes on natural persons who 
are investing in exempt pools operated by a CPO, or are advisory 
clients of a CTA, that is relying on the exemptions under CFTC 
Regulation 4.7 and navigating our complex and evolving derivatives 
markets.

Appendix 3–Dissenting Statement of Commissioner Summer K. Mersinger

    I regrettably dissent from the Commission’s 1 proposed 
rulemaking to amend Rule 4.7,2 which for the past 30 years has 
provided exemptions to registered commodity pool operators 
(“CPOs”) and commodity trading advisors (“CTAs”) that operate 
commodity pools or trading programs for Qualified Eligible Persons 
(“QEPs”). I say “regrettably” because there are two aspects of 
this proposal that are consistent with views I have expressed 
before, and which I support.
—————————————————————————

    1 This Statement will refer to the Commodity Futures Trading 
Commission as the “CFTC” or the “Commission.”
    2 CFTC Rule 4.7, 17 CFR 4.7.
—————————————————————————

    First, I agree that it is time for the Commission to consider 
increasing the monetary thresholds in the “Portfolio Requirement” 
in the definition of a QEP in Rule 4.7(a) to account for inflation. 
As I previously have stated, “I believe that it is incumbent upon 
the CFTC, like any regulatory agency, to continually review its rule 
set to evaluate whether rules . . . need to be updated because they 
have simply failed to keep up with the times.” 3
—————————————————————————

    3 Opening Statement of Commissioner Summer Mersinger Regarding 
CFTC Open Meeting on June 7, 2023, section regarding Amendments to 
part 17 Large Trader Reporting Requirements Proposed Rule (June 7, 
2023), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement060723.
—————————————————————————

    Second, I support proposing a process in our rules that would 
permit CPOs relying on Rule 4.7 to elect an alternate account 
statement schedule that is consistent with exemptive letters issued 
regularly by the Commission. This schedule would address the fact 
that our current rule is not workable in the context of funds-of-
funds, and also would generate more frequent reporting. As I 
previously have stated, “when one of our rules needs to be fixed 
because it is unworkable, ambiguous, or inefficient, corrective 
action by notice-and-comment rulemaking is the gold standard because 
it allows the Commission to hear from stakeholders and develop 
regulatory solutions that provide certainty.” 4
—————————————————————————

    4 Dissenting Statement of Commissioner Summer K. Mersinger 
Regarding CFTC’s Regulatory Agenda, section entitled “ `Kicking the 
Can Down the Road’ Rather than Working on Rulemaking Solutions” 
(January 9, 2023), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/mersingerstatement010923.
—————————————————————————

    However, I cannot support the proposal to narrow the scope of 
the historical exemptions in Rule 4.7 by imposing universal 
disclosure requirements to QEPs. It represents a “mandate first, 
evaluate later” approach based on assumptions, speculation, and 
poor

[[Page 70882]]

sourcing. It also fails to fulfill certain fundamental functions of 
sound notice-and-comment rulemaking.

Rule 4.7 in Brief

    Rule 4.7 provides exemptions for registered CPOs and CTAs 
operating commodity pools and trading programs restricted to QEPs 
(“4.7 CPOs and CTAs”) from, among other things, disclosure, 
recordkeeping, and use-and-filing requirements that otherwise would 
apply pursuant to the CFTC’s rules. The rationale for the exemptions 
is that QEPs are sufficiently financially sophisticated, and have 
sufficient leverage and resources, to protect their own interests 
when participating in such pools and trading programs.
    As explained in the Proposing Release, the definition of a QEP 
is bifurcated into two categories: (1) those pool participants or 
advisory clients that need to satisfy a “Portfolio Requirement” to 
be considered a QEP; and (2) those that do not. The Portfolio 
Requirement, in turn, can be met by satisfying either a Securities 
Portfolio Test of $2 million or an Initial Margin and Premium Test 
of $200,000, or a combination of the two.5
—————————————————————————

    5 See Proposing Release at 7-9.
—————————————————————————

    The Commission is proposing to double the monetary thresholds of 
the Portfolio Requirement in the QEP definition to $4 million for 
the Securities Portfolio Test and $400,000 for the Initial Margin 
and Premium Test. This proposal is intended to account for inflation 
since Rule 4.7 was adopted in 1992.

The “Mandate First, Evaluate Later” Approach to Disclosures to QEPs 
Is Not Good Government

    At the same time, the Commission also is proposing to narrow the 
scope of Rule 4.7 by eliminating a significant portion of the 
current disclosure exemptions available to 4.7 CPOs and CTAs, 
thereby imposing universal disclosure requirements to QEPs. This is 
a “mandate first, evaluate later” approach to regulation that I 
strongly oppose.

1. We May Already be Taking Care of the Stated Concern

    The Proposing Release begins by observing that the number of 4.7 
CPOs and CTAs, and the number of commodity pools and trading 
programs relying on Rule 4.7, have ballooned over the years.6 It 
then states its primary justification for significantly narrowing 
the scope of the 4.7 exemptions by imposing universal disclosure 
requirements to QEPs as follows:
—————————————————————————

    6 See id. at 5-6.
—————————————————————————

    The definition of QEP in Regulation 4.7 encompasses a broad 
spectrum of market participants from large fund complexes and other 
institutional investors with significant assets under management to 
individuals with varying backgrounds and experience, each of which 
has vastly different resources available to insist upon the 
disclosure of information regarding the offered 4.7 pool or trading 
program and then to analyze whatever information is provided.7
—————————————————————————

    7 Id. at 16.
—————————————————————————

    Yet, this justification fails to consider that the increasing 
numbers of pools and trading programs relying on Rule 4.7, and of 
QEPs that may not have the wherewithal to protect their interests, 
may result from the erosion in the Portfolio Requirement’s monetary 
thresholds due to inflation–which the Commission is now proposing 
to address. If the Commission appropriately adjusts the Portfolio 
Requirement thresholds for becoming a QEP to return them to levels 
comparable to when the Commission adopted the disclosure exemptions 
in Rule 4.7, then there is no logical reason why it should also 
eliminate those disclosure exemptions with respect to QEPs that 
still satisfy the new (higher) thresholds and are entirely capable 
of protecting their interests.8
—————————————————————————

    8 The analysis of costs and benefits in the Proposing Release 
suggests that there is reason to believe the proposal to increase 
the Portfolio Requirement’s monetary thresholds may take care of the 
stated concern based on differences in QEPs’ ability to protect 
their interests. It states: “To the extent persons who meet the 
higher Portfolio Requirement thresholds are (on average) more 
financially sophisticated or resilient than those who no longer 
qualify, this proposed amendment [to increase the Portfolio 
Requirement thresholds] should result in individuals and entities, 
both QEPs and non-QEPs, being offered pools and trading programs 
that are regulated in a manner commensurate with their respective 
needs for customer protection.” Proposing Release at 66-67.
—————————————————————————

    In short: Before imposing universal disclosure requirements that 
many QEPs do not need, the Commission should evaluate whether 
adjusting the Portfolio Requirement, as it is proposing to do, will 
address its stated concern about differences between QEPs. As 
regulators, we should always evaluate first, and then, if 
appropriate, adopt regulations based on the results of that 
evaluation. This proposal’s “mandate first, evaluate later” 
approach has it exactly backwards.

2. We Should Not Act Based on Speculation and Assumptions

    Another rationale the Proposing Release offers for imposing 
universal disclosure requirements to QEPs is that “the Commission 
has . . . witnessed a significant expansion and growth in the 
complexity and diversity of commodity interest products offered to 
QEPs via 4.7 pools and trading programs,” and “product innovation 
in the commodity interest markets has continued at a rapid and 
unrelenting pace.” 9 The primary examples cited are swaps and 
digital assets.
—————————————————————————

    9 Id. at 19, 20.
—————————————————————————

    Yet, the Proposing Release offers no evidence to support its 
paternalistic conjecture that QEPs may not appreciate the nature of 
the risk associated with trading swaps in commodity pools and 
trading programs that rely on the exemptions in Rule 4.7. And there 
is no logical reason why such swap trading should now require a 
significant narrowing of the exemptions in Rule 4.7 more than a 
decade after Congress enacted a full regulatory regime for swaps in 
the Dodd-Frank Act 10–which the Commission has fully implemented. 
The Proposing Release does not cite to any provision of the Dodd-
Frank Act or its legislative history suggesting Congress felt that 
the development of swap trading warranted a reconsideration of the 
scope of the exemptions provided by Rule 4.7 in general–or 
universal disclosure requirements to QEPs in particular.
—————————————————————————

    10 Dodd-Frank Wall Street Reform and Consumer Protection Act, 
Public Law 111-203, 124 Stat. 1376 (2010) (“Dodd-Frank Act”).
—————————————————————————

    As for digital assets and technological innovation, the 
Proposing Release recognizes that it is relying on mere speculation. 
It candidly acknowledges that: (1) “Given the relatively recent 
development of digital assets, it remains unclear as to whether the 
underlying markets . . . are subject to market fundamentals similar 
to those of the traditional commodities”; and (2) “As the 
financial system continues to experience a period of rapid evolution 
in the era of artificial intelligence and other technological 
advancements, the Commission expects to see continued development of 
novel investment products that . . . may in fact deviate from the 
typical operations of markets now subject to the Commission’s 
oversight.” 11
—————————————————————————

    11 Proposing Release at 21 (emphases added).
—————————————————————————

    Throughout the 30 years since Rule 4.7 was adopted, there has 
been a steady expansion of the number, complexity, and diversity of 
available derivatives products, and derivatives markets have 
undergone transformational changes resulting from technological 
innovation (none greater than the migration from open-outcry pit 
trading to all-electronic trading). Yet, through it all, there has 
never been any suggestion that the exemptions under Rule 4.7 needed 
to be significantly narrowed as a result.
    We should not act based on what we don’t know. More 
specifically, we should not impose universal disclosure requirements 
to QEPs based on speculation about hypothetical future developments. 
As markets continue to evolve and innovate as they always have done, 
we as regulators should evaluate first and then adopt regulations 
only as appropriate based on the results of that evaluation. Once 
again, this proposal has it exactly backwards.

3. The Justifications for Acting Now Are Poorly Sourced

    Certainly, regulators must often act quickly when confronted 
with urgent circumstances. But that is hardly the case here.
    The Proposing Release contains no indication that QEPs are 
clamoring for the Commission to require disclosures by 4.7 CPOs and 
CTAs. Indeed, one of the principal sources cited in support of the 
assertion that there is a problem that needs to be addressed is a 
roundtable–on CPO risk management practices–convened by CFTC staff 
way back in 2014.12
—————————————————————————

    12 See id. at 16-17.
—————————————————————————

    Other support for the claim that the Commission needs to act 
consists of footnote citations to individual cases of alleged 
wrongdoing by 4.7 CPOs and CTAs. These footnotes cite news clippings 
reporting on allegations in deposition testimony, statements of 
litigation counsel, and litigation documents–with no indication 
whether these allegations were proved to be true.13 And in some of 
the cases, it appears

[[Page 70883]]

that the 4.7 CPO or CTA was alleged to have committed fraud, or 
violated the Commission’s existing requirement “to provide all 
disclosures necessary to make information provided, in the context 
in which it is furnished, not misleading.” 14
—————————————————————————

    13 See id. at 17-18 n.46-47. Footnote no. 46 also cites to a 
CFTC reparations case from 2018 that resulted in a default judgment 
and thus was not litigated.
    14 CFTC Rules 4.7(b)(2) (CPOs) and 4.7(c)(1) (CTAs), 17 CFR 
4.7(b)(2), 4.7(c)(1).
—————————————————————————

    Overall, the sourcing in the Proposing Release is woefully 
insufficient to support a proposal to impose universal disclosure 
requirements to QEPs on 4.7 CPOs and CTAs. There is no reason the 
Commission cannot undertake a proper evaluation of whether there 
really is a problem that needs to be addressed and, if so, the 
appropriate means to address it.
    The Commission has a variety of tools at its disposal to 
undertake such an evaluation. For starters, our staff could convene 
a roundtable specifically devoted to this issue, so that the 
Commission would not have to look to comments at a roundtable in 
another context that occurred nine years ago. The Commission or 
staff also could issue a Request for Comment or an Advance Notice of 
Proposed Rulemaking–both tools that have been utilized recently 
15–in order to evaluate the necessity of taking action (and what 
action might be appropriate to take).
—————————————————————————

    15 See Request for Comment on the Impact of Affiliations on 
Certain CFTC-Regulated Entities (June 28, 2023), available at 
https://www.cftc.gov/PressRoom/PressReleases/8734-23, and Risk 
Management Programs for Swap Dealers, Major Swap Participants, and 
Futures Commission Merchants, 88 FR 45826 (July 18, 2023), 
respectively.
—————————————————————————

    In sum: Given its poor sourcing, the proposal to impose 
universal disclosure requirements to QEPs is a solution in search of 
a problem. The Proposing Release fails to justify its “mandate 
first, evaluate later” approach. The Commission should evaluate 
first, and act later based on that evaluation, if appropriate, 
consistent with established principles of good government.

The Proposal Fails To Fulfill Fundamental Functions of Sound Rulemaking

    A sound notice of proposed rulemaking is characterized by, among 
other things: (1) transparency as to the agency’s plans; and (2) 
requests for comment on key issues. This Proposing Release is 
deficient on both counts.

1. The Commission Should Be Fully Transparent About Its Plans

    The Proposing Release is not fully transparent about the 
Commission’s plans on two key issues.16 First, it says little 
about how the proposed amendments to Rule 4.7 would be implemented. 
This is especially critical with respect to the proposed increases 
to the Portfolio Requirement monetary thresholds, which would create 
a class of pool participants and advisory clients that qualify as 
QEPs under existing Rule 4.7, but would no longer qualify as QEPs 
under amended Rule 4.7.
—————————————————————————

    16 One of the Commission’s Core Values is “Clarity,” i.e., 
“Providing transparency to market participants about our rules and 
processes.” See The Commission, CFTC Core Values, Clarity, 
available at https://www.cftc.gov/About/AboutTheCommission.
—————————————————————————

    Would these “former QEPs” be permitted to make additional 
investments in commodity pools and trading programs that are exempt 
under Rule 4.7 and in which they currently are investing? The 
Proposing Release explains that it would continue the requirement of 
existing Rule 4.7(a)(3) 17 that a CPO must assess QEP status at 
the time of sale of a pool participation, and that a CTA must do so 
at the time the person opens an exempt account.18 But it does not 
explain that, as a result, “former QEPs” would not be able to make 
additional investments in exempt commodity pools they are currently 
participating in (although they could make additional investments to 
trading programs in these circumstances).
—————————————————————————

    17 CFTC Rule 4.7(a)(3), 17 CFR 4.7(a)(3).
    18 Proposing Release at 12.
—————————————————————————

    I appreciate the rationale of existing Rule 4.7(a)(3) with 
respect to a participant in an exempt commodity pool whose financial 
resources drop below QEP thresholds. But I am not sure that same 
rationale should apply where a participant drops below QEP 
thresholds because the Commission is “moving the goalposts” by 
increasing those thresholds. I imagine there may be QEPs that are 
comfortable with their 4.7 CPOs, pleased by the performance of the 
4.7 exempt pools in which they are participating, and satisfied with 
the information disclosures they have received–and that would like 
to be able to contribute additional funds to those investments.
    The Commission should be forthright that the proposal would deny 
them this opportunity if they fall on the wrong side of the 
increased thresholds being proposed, and seek comment from 
potentially affected QEPs specifically on that issue. To shroud the 
issue in mystery in the Proposing Release is inconsistent with sound 
notice-and-comment rulemaking.
    Second, the Proposing Release does transparently reveal that the 
CFTC would use universal disclosure requirements to QEPs imposed on 
4.7 CPOs and CTAs as “an additional level of oversight” by 
“incorporating the review of [the new mandatory disclosures] into 
existing examination processes used by the Commission . . .” 19 
What it does not reveal, however, is where the Commission plans to 
find the resources for “an additional level of oversight” by 
reviewing the disclosures that would be required of the 
approximately 1700 CPOs and CTAs that rely on Rule 4.7 with respect 
to thousands of commodity pools and trading programs.20
—————————————————————————

    19 Id. at 26 and 23, respectively.
    20 See id. at 5-6 (citing statistics).
—————————————————————————

    What Commission programs or functions will have to be cut or 
curtailed in order for it to perform this new task? The public is 
entitled to know whether the CFTC’s review of required disclosures 
to QEPs that are capable of protecting their own interests may come 
at the expense of, say, reductions in enforcement resources to 
prosecute those who defraud retail customers, or the Commission’s 
oversight of derivatives exchanges and clearinghouses for which we 
are responsible by statute. But once again, the Proposing Release is 
silent.21
—————————————————————————

    21 The Commission also should be more transparent about the 
estimates in its analysis required by the Paperwork Reduction Act 
(“PRA”). The Proposing Release estimates the annual burden hours 
per response of the disclosures proposed to be required of 4.7 CPOs 
and CTAs to be 1.5 hours. See Proposing Release at 56 (CPOs) and 59 
(CTAs). But the Proposing Release does not explain how it arrived at 
this estimate–which strikes me as very low.
—————————————————————————

2. Putting the “Comment” Back in “Notice-and-Comment” 
Rulemaking

    It is somewhat startling how few questions the Proposing Release 
asks regarding its proposed amendments to Rule 4.7. Most notably, it 
does not even request comment on the foundational question of 
whether universal disclosure requirements to QEPs are needed. As 
discussed above, the Commission’s justifications for the proposed 
requirements are poorly sourced and based largely on assumptions and 
allegations–but the Proposing Release does not ask the public if 
those assumptions and allegations are accurate.22 It appears that 
the Commission has already made up its mind that universal 
disclosure requirements to QEPs are necessary, and is not interested 
in whether QEPs, other market participants, or the public agree with 
that.
—————————————————————————

    22 After presenting its justifications for imposing universal 
disclosure requirements to QEPs, the Proposing Release “requests 
comment on all aspects of the proposed amendments outlined below 
that would require certain information be disclosed to prospective 
QEP pool participants and advisory clients under Regulation 4.7 . . 
.” Proposing Release at 27 (emphasis added). That is, the Proposing 
Release requests comment on the disclosures to QEPs “outlined 
below” that it is proposing to require of 4.7 CPOs and CTAs–but 
not on the preceding discussion of whether universal disclosure 
requirements to QEPs are needed in the first place.
—————————————————————————

    Nor does the Proposing Release ask: (1) whether current QEPs 
that fall below the increased Portfolio Requirement monetary 
thresholds for QEP status should be permitted to make additional 
investments in a commodity pool exempt under Rule 4.7; or (2) 
whether reviewing mandatory disclosures to QEPs that are able to 
protect their own interests is an appropriate use of the 
Commission’s limited resources.
    Accordingly, since the Commission declines to ask these 
questions, I will. I invite comment–especially, but not 
exclusively, from QEPs–on the following questions regarding the 
amendments that the Commission is proposing to Rule 4.7:
    1. Do QEPs agree that the Commission should impose universal 
disclosure requirements on 4.7 CPOs and CTAs? Why or why not?
    2. Is the Commission correct in its preliminary belief that 
universal disclosure requirements to QEPs are necessary to address 
unequal bargaining power of QEPs? Would they be necessary if the 
Commission’s proposed increases to the Portfolio Requirement 
monetary thresholds in the QEP definition are adopted?
    3. Is the Commission correct in its preliminary belief that 
universal disclosure requirements to QEPs are necessary in light

[[Page 70884]]

of significant expansion and growth in the complexity and diversity 
of commodity interest products offered to QEPs via 4.7 pools and 
trading programs, and in light of the rapid pace of innovation in 
the commodity interest markets?
    4. Is the Commission correct in its preliminary belief that the 
development of markets for swaps and digital assets necessitates 
universal disclosure requirements to QEPs?
    5. Are there alternative, more tailored, means by which the 
Commission could achieve its policy objectives than the universal 
disclosure requirements to QEPs that it is proposing? If so, please 
describe.
    6. Should QEPs under existing Rule 4.7 that would no longer 
qualify as QEPs under the proposed amendments to the Portfolio 
Requirement thresholds in Rule 4.7 be permitted to contribute 
additional funds to exempt commodity pools operated by 4.7 CPOs in 
which they currently are participating? Why or why not?
    7. Should the Commission impose universal disclosure 
requirements to QEPs that are capable of protecting their own 
interests in order to incorporate the review of such disclosures 
into its existing examination processes if such review comes at the 
expense of other Commission responsibilities? Why or why not?
    8. To what extent will the proposed universal disclosure 
requirements to QEPs impact the benefits that 4.7 CPOs and CTAs 
derive from relying on the exemptions in Rule 4.7? Is it likely that 
4.7 CPOs and CTAs will decide to no longer rely on the remaining 
exemptions afforded by Rule 4.7 if the proposed universal disclosure 
requirements to QEPs are adopted?
    9. If a 4.7 CPO or CTA is registered as an investment adviser 
with the SEC and not subject to an exemption regarding disclosures 
required by the SEC, should the CFTC accept compliance with 
disclosures required by the SEC as sufficient to satisfy the 
proposed universal disclosure requirements to QEPs under Rule 4.7, 
too?
    10. Is the Commission’s PRA estimate of 1.5 annual burden hours 
per response for the disclosures proposed to be required of 4.7 CPOs 
and CTAs appropriate? If not, what would be an appropriate estimate?

Conclusion

    Given my support for certain aspects of this proposal, and given 
my support for obtaining public input on initiatives to improve our 
rulebook generally, I wish that I could support the issuance of the 
Proposing Release. Unfortunately, because of its “mandate first, 
evaluate later” approach to the issue of disclosures to QEPs by 4.7 
CPOs and CTAs, and its serious omissions in transparency and 
requests for comment, I cannot do so. Accordingly, I respectfully 
dissent.

Appendix 4–Concurring Statement of Commissioner Caroline D. Pham

    I respectfully concur on the Notice of Proposed Rulemaking 
Regarding Commodity Pool Operators, Commodity Trading Advisors, and 
Commodity Pools Operated under Regulation 4.7: Updating the 
“Qualified Eligible Person” Definition; Adding Minimum Disclosure 
Requirements for Pools and Trading Programs; Permitting Monthly 
Account Statements for Funds of Funds; Technical Amendments (CPO/CTA 
NPRM), because I am concerned that the proposed changes for 
commodity pool operators (CPOs) and commodity trading advisors 
(CTAs) offering to or advising sophisticated clients, or “qualified 
eligible persons” (QEPs), are burdensome and unnecessary for 
entities that are already subject to extensive CFTC regulation or 
banking, securities, insurance, or other financial services 
regulation.1 I thank staff in the Market Participants Division for 
their engagement with my office on the CPO/CTA NPRM.
—————————————————————————

    1 See Exemption for Commodity Pool Operators with Respect to 
Offerings to Qualified Eligible Participants; Exemption for 
Commodity Trading Advisors with Respect to Qualified Eligible 
Clients, 57 FR 34853 (Aug. 7, 1992).
—————————————————————————

    I reiterate the concerns in my prior dissent on the CFTC’s 
proposed amendments to Form PF.2 This CPO/CTA NPRM, like the 
CFTC’s proposed amendments to Form PF, seem to impose overly broad 
obligations that would be burdensome and unnecessary for 
sophisticated clients, and would present operational challenges and 
costs without a persuasive cost-benefit analysis under the Commodity 
Exchange Act.
—————————————————————————

    2 See Dissenting Statement of Commissioner Caroline D. Pham 
Regarding the Proposed Amendments to Form PF, U.S. Commodity Futures 
Trading Commission (August 10, 2022), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement081022.
—————————————————————————

    In a time of economic challenges, including rising inflation, we 
must be careful when considering proposals that could inhibit 
positive economic activity that supports American businesses and 
jobs. I look forward to hearing from commenters as to the proposed 
amendments, including practical implementation issues and the 
relative costs and benefits of the proposal.
[FR Doc. 2023-22324 Filed 10-11-23; 8:45 am]
BILLING CODE 6351-01-P